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“Pandora Papers” highlight anti-money laundering program risks for compliance officers


Compliance professionals ought to give attention to the anti-money laundering (AML) program risks highlighted by the rising Pandora Papers scandal reasonably than on particular person revelations, specialists stated.

Their feedback got here in response to ongoing investigative news experiences based mostly the Pandora Papers, an enormous information leak that publicly uncovered confidential details about the hidden wealth of lots of of present and former authorities officers and high-profile wealthy folks. The data was uncovered by The International Consortium of Investigative Journalists (ICIJ), a Washington, D.C.-based community of reporters and media organizations.

Instead of fixating on any salacious particulars, monetary establishments ought to pay heed to the data, and the revelations “need to be taken in stride,” stated Lauren Kohr, a veteran compliance officer who now serves as senior director of AML for the Americas with the Association of Certified Anti-Money Laundering Specialists (ACAMS).

“There is a lot to consider, and we do not want to send our AML officers on an ineffective and inefficient wild goose chase for every data point leaked and how that may impact their AFC [anti-financial crime] compliance program,” Kohr acknowledged. “Given that it is so early in the leaks and assuming this will go on for days, weeks, and months, AML officers should not have a knee-jerk reaction.”

Instead, Kohr really helpful AML professionals “methodically step back and evaluate the effectiveness of their overall risk-based AFC program.” Specifically, she instructed compliance professionals consider the effectiveness of their companies’ buyer due diligence (CDD), enhanced due diligence (EDD), and helpful possession regimes. Institutions must also monitor their high-risk prospects, merchandise, providers, geographies, and transactions, Kohr stated.

“Ask yourself, ‘Would your program identify the risks exposed in the Pandora Papers leaks?’ If not, adjust your program to be more effective in detecting the threats posed,” she defined. “Then determine what specific steps you should take to address particular customer risks that may be posed by the individual data points leaked.”

Domestic authorized entity risks

The ICIJ report on the Pandora Papers leaks, based mostly on information from 14 “offshore services” companies world wide, contain about 35 present and former nationwide leaders, and greater than 330 politicians and public officers in 91 nations and territories. Among the findings is that in the course of the previous decade, South Dakota, Nevada, and greater than a dozen different U.S. states “have transformed themselves into leaders in the business of peddling financial secrecy.”

The report added that this growing “secrecy-haven” position performed by U.S. states got here because the United States and different highly effective nations have been centered on elevating the veil of secrecy provided by “‘traditional’ offshore havens such as the Bahamas, the Caymans, and other island paradises.”

Yet, yr after yr in South Dakota, state lawmakers authorized laws drafted by belief business insiders, offering an increasing number of protections and different advantages for belief prospects within the U.S. and overseas. Customer belongings in South Dakota trusts have greater than quadrupled over the previous decade to $360 billion, the ICIJ report acknowledged.

The Pandora Papers experiences from the ICIJ “highlight for those of us in the industry that gatekeepers — lawyers, accountants, etc. — are really missing the same scrutiny and oversight as traditional financial institutions,” stated Sarah Beth Felix, who runs Palmera Consulting LLC, an AML consulting agency.

In phrases of what steps financial institution AML items needs to be taking in response to the Pandora Papers, “some of the information is applicable to a financial institution’s CDD/EDD department, and some information is not,” Felix famous. “Before financial institutions start to screen all of the names — individuals, businesses, and trust companies — through their system, they need to know what they are looking for. Screening those names without any additional context will add false positives and inefficiencies.”

Felix provided some issues to bear in mind, similar to that offshore firms and avoiding the fee of taxes utilizing authorized means is not unlawful. “Unethical? Most likely. Duplicitous? Yes. But illegal in some instances? No,” Felix added.

ACAMS’ Kohr agreed, noting that “there is nothing wrong with offshore PICs [property investment companies] and trusts themselves; however, they are vulnerable and expose threats to money laundering and other illicit activity. The focus should be the misuse of legal persons.”

Pandora Papers not ‘anything new’

Rob Rowe, a lawyer with the American Bankers Association, a commerce group, acknowledged that the problems highlighted by the Pandora Papers usually are not “anything new,” and replicate longstanding considerations. He famous that in 2016 the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) issued a CDD rule that got here into drive two years later and requires banks to gather details about the true, or “beneficial” homeowners of authorized entities.

Further, FinCEN is currently working to create a registry of authorized entity helpful homeowners, implementing the Corporate Transparency Act enacted together with the Anti-Money Laundering Act of 2020.

“Fundamentally, it’s a question of beneficial ownership, and so banks are already doing what they need to be doing, such as collecting and verifying the information from their customers under the CDD rule,” Rowe stated. “Right now, the next step lies with FinCEN as they continue working on the creation of the beneficial ownership registry.”

Still, the worldwide AML standard-setting Financial Action Task Force (FATF) has lengthy criticized the United States for failing to concern guidelines requiring gatekeepers similar to firm formation brokers and accountants to take steps to detect and report potential illicit exercise. To date, the U.S. authorities has taken no steps to enact guidelines for such professionals.

“Until our regulatory partners establish effective frameworks around beneficial ownership and (gatekeepers) and truly address the unintended consequences of the exclusions or loopholes within the existing framework or legislation, leaks such as this will continue to transpire and the conduits to exploit the financial system by illicit actors will remain,” Kohr stated.

Opinions expressed are these of the creator. They don’t replicate the views of Reuters News, which, below the Trust Principles, is dedicated to integrity, independence, and freedom from bias. Thomson Reuters Institute is owned by Thomson Reuters and operates independently of Reuters News.

Brett Wolf

Brett Wolf is Senior Financial Crime Correspondent based mostly in St. Louis. He joined Thomson Reuters in 2006, with a background protecting cash laundering for a Miami-based e-newsletter and web site. Brett additionally contributes to the Reuters news file; an investigative article he co-authored in 2012 helped Reuters win the General Excellence award from the Society of American Business Editors and Writers.

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