As we approach mid-year of 2011, it is a common practice to assess where we are. Whether we are discussing a political term of office, a sports team's mid-season report, or in this case, where we are in the AML environment, a mid-year or mid-season assessment is more than an exercise. It is a time to stop, take a breath, and figure out if we need to correct our strategy or continue in the same direction.
 
So, where are we?
 
Some old challenges remain
Of course, David Bowie did not contemplate AML compliance with his 70's call to action, "Changes." The lyrics do contemplate an approach to a challenge ("facing the strain") and the AML community on the first half of 2011 certainly has several.
 
For example, recent programs I have attended do emphasize what financial institutions are not doing well. Some of these issues are hard to imagine as 2011 problems, but they are nonetheless a call for back to basics.
 
Are we in a time warp?
 
Without pointing out what specific regulators have said, it is incredible to me that basic issues such as maintaining an effective program of compliance are deficient. We are told that bank management needs to determine if compliance reporting to the lines of business (lobs) is a good idea-it is not, not before and not now. And these other perennials still come up:
 
• Outsourcing the "function" is not outsourcing the responsibility.
• Affiliate work should reflect U.S. laws, not local standards.
• Audit oversight needs experience with U.S. law and OFAC requirements.
• The more thorough the audit, the better your examiners can rely on the report.
 
For exam problems, federal agencies are telling the industry that in 2011 we are still deficient in the following ways:
 
• Customer risk-rating methodology is inconsistently applied across the customer base
• Officer and directors are not being properly identified nor screened for PEPS (politically exposed persons) and negative news
• BSA training is clearly inadequate and there is no escalation to notify senior management of past-due employees who have not completed the required annual BSA training.
• Cost-cutting is resulting in a lack of AML oversight.
 
What have we forgotten? Time to face the strain.
There have been a number of recent AML enforcement actions-not as a dramatic increase as some have indicated but, as one respected agency official has said, "something of an uptick."
 
What is interesting (or frustrating, depending on your point of view) is that some of the root causes have been stated many times before:
 
• Elevation of the business line over the compliance function
• Offering products without adequate controls in place
• New technologies such as prepaid access
• Compliance programs that are not commensurate with the risks
 
The message? Time for change
The themes of these enforcement actions include: lack of targeted training modules; foreign official corruption not addressed as a specific part of policy procedures; and no restrictions on U.S. financial institutions operating or maintaining correspondent accounts or payable through accounts.
 
These are not remotely new. So, it is time for ch-ch changes. Banks, however, do not hold the monopoly on AML and related deficiencies.
 
What and who else needs to change?
 
Recent AML programs have made clear that other financial sector groups need to change, too.
 
• I have heard that the securities industry today is what the banking industry was in the 1990's from an AML context. (Note: Self-serving, but ACAMS is moving on with a Securities Task Force to deal with this issue.)
 
• The Director of OFAC has called out the insurance industry, as well, for poor compliance with sanctions obligations. I have heard from representatives from that industry that, until there are enforcement actions, the industry will not take AML as seriously as bankers do.
 
Whether we are talking about bankers, insurance officials, or securities representatives, all have to recognize where we have gaps and what we apparently have yet to learn. We can quibble around the edges but the problems identified in enforcement and some exam results are inexcusable in 2011.
 
Time to face the strain.
 
Other issues for consideration
I have been fortunate to hear government officials in private moments express their support for working with the private sector-but I've also hear their frustrations about criminal trends.
 
Law enforcement, correctly in my view, have bemoaned the frequency of old scams, such as the so-called "419" schemes that are resurfacing in 2011.
 
Known as the "Nigerian" fax scams, these attempts to get people to provide account information in the hopes of collecting large amounts of money are becoming successful yet again. It's because of the inherent greed of some individuals.
 
Government officials feel that resources devoted to what amounts to as less-than-pure victims, are a waste of taxpayer money.
 
I agree—Time to face the strain-ch-ch changes are needed and warranted.

• About John Byrne, CAMS Byrne is Executive Vice-President of the Association of Certified Anti-Money Laundering Specialists (ACAMS). He has written extensively on AML issues for 25 years and has appeared on television and testified before many congressional committees on AML-related policy issues. Prior to joining ACAMS, John was the Global Regulatory Relations Executive at Bank of America. Previous to that, he worked for the American Bankers Association for 22 years and was responsible for ABA's lobbying, regulatory, and educational efforts on money laundering, and other compliance issues. He received the ABA's Distinguished Services Award and was also the first private sector recipient of the “Director's Medal for Exceptional Service” from the Treasury Department's Financial Crimes Enforcement Network (FinCEN). Byrne can be e-mailed at This e-mail address is being protected from spam bots, you need JavaScript enabled to view it .

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