Newcomer's Guide to the AML Galaxy

The Newcomer’s Guide to The Consequences of Non-Compliance

The consequences of non-compliance

I’ve been writing this Newcomer’s Guide to the AML Galaxy for a while now and I’ve written a line over and over again, “Failure to comply with AML regulations has serious consequences.” But I’ve never gotten into any specifics. Yes, AML compliance is important but it’d be foolish to dismiss companies’ apprehension around investing in their compliance policies. It’s expensive. But non-compliance is more expensive. Here are some of real-life consequences of Non-Compliance.

Monetary Fines

If the cost of compliance is high, it’s nothing compared to the fines that result from non-compliance. Last year, the ING group, a Dutch bank, was fined $900 million for failing to comply with AML legislation. The investment bank, Morgan Stanley, also received a fine of $10 million for compliance failures. They failed to monitor low-priced securities worth around $2.7 billion and that became an easy way for criminals to launder money.

In 2017, FinCEN fined Lone Star National bank, an independent community bank $2 million for “willfully violating” AML requirements. Also in 2017 FinCEN issued an $8 million fine to The California Card Club for similar reasons.Even in the case of small institutions, the cost of non-compliance is astronomical but it doesn’t end with fining institutions.

In April 2019, Eric Powers, a currency exchange operator was personally assessed a civil penalty for violating BSA reporting requirements. He was issued a $35,000 fine and was barred from any activity that would make him a “money service business” per FinCEN regulatory definition.

Whether you are a major bank, casino, or an individual operator, willful non-compliance, negligence, or even inadequate compliance, can be very costly.  And claiming ignorance or incompetence is no excuse.

Acting as a Conduit to Criminal Activities

Non-compliance with AML regulations can make you part of criminal activities such as financing terrorism. Non-compliance may also adversely impact international relationships. For instance, Standard Chartered was fined $1.1 billion for failing to observe US sanctions against Iran. According to the charges drawn, they also had inadequate controls against financial crimes. Lack of AML compliance also has a destabilizing effect on financial markets. It influences the flow of funds and investments and that can disrupt the inner workings of the market. Finally, it also influences economic policies which can have a country-wide impact.

Loss of Trust

The financial repercussions aside, failing to comply with AML regulations also ruins the public image of an organization. It automatically places a question mark on the integrity of the business and forces clients to consider other options. This loss of trust can be difficult to recover from, especially for companies still establishing their brand.

Businesses may also lose their investment partners, who no longer want to be associated with an organization that is being scrutinized for non-compliance.

Increasingly Stringent Auditing Processes

Once a company makes the news for failing to comply with rules and regulations, it is likely to be subjected to increased scrutiny during audits. Not only is this time-consuming, but you also have to be prepared to answer obscure questions or risk facing a fine. Most businesses cannot afford to take a second hit to their reputation or the additional fine. The only way to ensure your company doesn’t end up in this difficult situation is to never be caught non-compliant.

To Sum It Up

There are several financial, reputational, and personal repercussions for non-compliance with AML regulations. Small and medium-sized enterprises (SMEs) that are unable to cope with the cost of manual compliance can consider using technological tools instead. These tools improve the efficiency of AML compliance processes while remaining cost-effective for your business.

Need some help?

Contact the team at KYC2020. They can offer you the best solutions for AML compliance and introduce you to some top-notch next-generation technology tools to automate and reduce friction in your sanction screening workflows.


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