The risk of financial crime has been a primary worry for banks and other financial services firms for over the past 20 years. Not surprisingly, regulators have also kept an eye on how banks are protecting themselves and their customers against such crime, resulting in enforcement actions that have netted billions of dollars in penalties every year.
Now, however, regulatory attention has begun shifting to non-financial companies in addition to the traditional financial sector organizations.
Chronicling this development, the annual 2019 Corruption Report: Financial crime compliance for non-financial companies: The expanding regulatory perimeter, produced by Thomson Reuters Regulatory Intelligence and Compliance teams, examines the regulatory environment around the prevention of financial crime.
The report offers several key insights, for example, it notes that international corporations are already paying big penalties for financial crime misconduct, particularly in the areas of sanctions, bribery, and corruption violations. Further, the report notes that U.S. regulators, such as the U.S. Department of the Treasury’s Office of Foreign Assets Control, are spearheading this push into non-financial company oversight. Indeed, in the first eight months of 2019, that office fined 16 entities for sanctions violations, levying $1.28 billion in penalties. Three-quarters of those entities fined were non-financial corporations.
The report also notes that penalties for money laundering violations are also becoming more common against non-financial companies as well, with casinos, accounting firms, high-value goods dealers, lawyers, and real estate agents all coming under regulatory scrutiny.
The report highlights three areas of concern for regulators and for the companies that may be facing them. These hot-button topics include:
- Money Laundering — The report notes the risks posed by money laundering and money launderers are increasing, ramping up pressure on financial and non-financial companies alike to improve their customer due diligence and transaction monitoring to better protect themselves and their customers from these bad actors.
- Compliance Programs —As the U.S. Treasury Department and other major regulators increase their scrutiny of (and the sanctions levied on) non-financial companies, it become even more important that these organizations enact and execute robust compliance programs.
- Suspect Transactions — As the reporting of suspect transactions surges, the risk of enforcement against financial institutions’ corporate clients increases also as regulators continue to hold banks accountable for monitoring their customers’ transactions.
Amid this increased focus by regulatory authorities, not surprisingly, some non-financial companies have been held accountable for what regulators see as inadequate compliance programs. As the report notes, many non-financial companies have not invested the needed resources in the technology systems necessary for locating and monitoring sanctions and bribery activity. Many of these systems are clunky, outdated and difficult and expensive to update.
In fact, the report shows that some non-financial organizations have only taken preliminary steps of creating and implementing these needed systems and controls. Further, only a few big corporations have established dedicated anti-money laundering systems and controls or IT systems, and only a small percentage of them are even thinking about how they monitor customer transaction.
Clearly, in today’s environment, companies with global or cross-border business interests need to understand that regulators are watching. Those organizations that do not live up to their obligations for identifying and tracking suspect transactions or bad actors — or, worse yet, if they demonstrate a disregard for monitoring and compliance regulations — they will find themselves in regulators’ cross-hairs.
This pressure is unlikely to let up, and instead it is likely to intensify as dark clouds continue to amass over the geopolitical climate. That means the United States and other large countries will continue to wield further diplomatic pressure on other nations to take a hard line on those companies that violate AML monitoring and other sanctions.
You can download the annual 2019 Corruption Report: Financial crime compliance for non-financial companies: The expanding regulatory perimeter, produced by Thomson Reuters Regulatory Intelligence and Compliance teams, here.