"The Heat is On"*

Bear with me here, readers:

“As set out in the Methodology, the scope of the evaluations will involve two inter-related components for technical compliance and effectiveness. The technical compliance component will assess whether the necessary laws, regulations or other required measures are in force and effect, and whether the supporting anti-money laundering (AML) / countering the financing of terrorism (CFT) institutional framework is in place. The effectiveness component will assess whether the AML/CFT systems are working, and the extent to which the country is achieving the defined set of outcomes.”

No, this isn’t a tutorial on the Financial Action Task Force procedures for evaluating member countries and their AML/CFT regimes.

Instead, by opening with that short quote from the procedures, I want to simply remind the AML community of something important. If your country is being evaluated any time soon (as the U.S. is right now), there is a good chance that this is the beginning of what may be several changes to how AML is administered in your jurisdiction, both technically and practically, in the coming years.

The clearest example of a direct correlation of a FATF review criticism and a jurisdiction response is here in the U.S. where the lack of coverage of beneficial ownership was called out by the evaluators.

As a result, now there will be new requirements on financial institutions in 2016. I would point out that this occurred before the evaluations looked at effectiveness of country laws so the potential for added requirements now, after a negative review, is very real.

A process that makes a difference

I was fortunate to be in Dublin, Ireland, last week for the launch of an ACAMS chapter. The keynote address was by Domhnall Cullinan, head of the AML Division for the Central Bank of Ireland (CBI).

Cullinan pointed out that Ireland will be evaluated later in 2016 and that the key during this round of FATF evaluations is a determination of “how well does the country (including supervisors and industry) understand the money laundering and terrorist financing risks faced and how effective are the steps being taken to prevent or mitigate those risks.”

The other practical result from an evaluation by FATF now, he added, is the increased focus on the evaluation outcome by other member states; international organizations such as the International Monetary Fund (IMF); ratings agencies; and international investors.

So, it is certainly in the entire AML community’s interest that a FATF evaluation has an overall positive rating.

The above statement does not mean (or even imply) that we game the evaluation. Instead, we must understand that FATF reviews today can lead to statutory and regulatory changes. From a positive standpoint, if the mutual evaluation determines that there needs to be more private-public sector partnerships, information sharing, and streamlining of certain reporting requirements, we all could benefit.

Impacted industry issues state of compliance report

Another example of the importance of the mutual evaluation process is the recent response by the U.S. gaming industry to the timing of the FATF review. The gaming industry has received some AML-related focus with a few enforcement actions and it is challenged when banks either “de-risk” or fail to onboard casino gaming companies.

The American Gaming Association (AGA) has been very astute in commissioning a brand-new report on the state of AML in the industry—Investing in America’s Financial Security: Casinos’ Commitment to Anti-Money Laundering Compliance—and made it clear that it is designed with the evaluation in mind.

The gaming industry understands the ramifications of a FATF review in terms of risk analysis by other countries, governments, and the AML community. The report discusses a number of improvements, including a major increase in AML resources.  All is designed to assist those that need to assess the culture of compliance in the gaming industry.

The heat is on

What should we take from all this?

The FATF evaluation process is very important to the domestic and global AML communities. Final reports will impact risk assessments, business decisions, and, potentially, government oversight.

I have met a number of evaluators over the years. I can tell you they are professional, and committed to a fair determination of how AML laws, regulations, and policies actually work.

If your bank, or your association, get an opportunity to provide insight during a mutual evaluation, treat it like voting: Do your homework and make a difference.

*On a sad note, Glenn Frey of the Eagles passed away last week, leaving a long legacy of music that stands the test of time. “The Heat is On” was a 1984 solo effort by Frey and used in one of my favorite movies, “Beverly Hills Cop.”