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AML: You can offshore processes, but you can’t offshore responsibility if things go wrong

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By Richard Grint, PA financial services regulation expert in partnership with FirstAugust

Every year, up to $1.5 trillion is laundered globally by organised crime. At the same time, annual losses for fraud across the globe have been estimated at £3.5 trillion while bribery and corruption is estimated to add 10% to the cost of doing business globally. As a result, financial services organisations are expected to spend some $6 billion on anti-money-laundering (AML) and other financial crime prevention activities in 2013.

The burden of these costs has prompted many organisations in Europe and the US to offshore their AML and associated financial crime prevention processes – including transaction monitoring screening, alerts management and customer due diligence – to emerging markets such as India and China. However, while offshoring may be attractive from a cost and capability perspective, it is often suboptimal when it comes to actually achieving the objective of preventing financial crime, partly due to the additional risks of corruption.

You can benefit financially from offshoring your AML activity, without seeing any drop in effectiveness, if you get the right controls and evaluation mechanisms in place to prevent corruption and mitigate risk.

Our work with financial services firms to combat financial crime – including recent projects with a tier-one global bank to optimise and improve its AML controls and remediation processes across multiple divisions – has given us a clear view of the steps you need to take.

Overcoming local corruption

India and China are the two most desirable centres for offshore AML activity but corruption remains rife in both countries. With increased anti-bribery legislation being signed into law across the globe, this is an increasingly important consideration.
You should act immediately to put in place advanced anti-bribery and corruption controls in these areas appropriate to the local environment, and work to enhance local staff awareness. You also need to be aware that the working environments of emerging markets are significantly different to those in Europe and North America. The well-documented hierarchical nature of India and China, in which junior staff almost always comply with the directions of senior staff, means any issues that could paint managers in a bad light are rarely communicated.

Working with more innovative metrics

Operational performance metrics and KPIs focus on traditional contact centre evaluation tools and not on financial crime prevention or resolution. By introducing innovative, more relevant metrics, you can better track the success of your AML operations offshore.
You should revise your metrics and KPIs to reflect those most relevant to the task at hand – such as number of suspicious transactions identified or the percentage of alerts generated – which successfully identify criminal activity.

Having a mitigation strategy in place

From the earliest evaluation stage, the risks identified with establishing an offshore capability need to be mitigated and ongoing reviews of operational activity must be robust.
You also need a clear exit strategy, defined at the initial business case, regardless of whether you are using in-house staff or third-party provider. Most projects and programmes have a ‘stop plan’ developed to ensure a successful cessation of activity if they start to see the expected ROI diminish, and offshoring AML should be no different.

To find out more about effective AML contact us now.

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