By: Naomi Glass, BSA/AML/OFAC Compliance Manager
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Designing, implementing, and maintaining a strong AML Program is no easy feat. Just ask any AML compliance professional! There are a multitude of challenges credit unions face in ensuring ongoing AML/BSA compliance. Here is a look at some of the main challenges that may be impacting your credit union today.
Challenge #1: Enforcement actions and fines for AML violations
The biggest challenge credit unions face is the threat of having an enforcement action or fine levied against them for failure to adequately comply with AML/BSA regulations. Enforcement actions can take the form of civil money penalties, cease and desist orders, charter revocation, and even criminal penalties. Enforcement actions can be devastating, as credit unions may or may not be able to bounce back from the loss.
For instance, Bethex Federal Credit Union recently made headlines for receiving a $500,000 fine from the Financial Crimes Enforcement Network (FinCEN) for AML program inadequacies. What did they do wrong?
In 2011, Bethex FCU started serving wholesale and commercial money-service businesses (MSBs), which are a higher-risk member type. Many of the MSBs were located in high-risk jurisdictions outside of New York, which is where the credit union was based. The MSBs wired millions of dollars per month to countries with lax money laundering controls. Per FinCEN, Bethex FCU was “unable to adequately monitor, detect, and report suspicious activity or mitigate the associated risks, leaving the credit union particularly vulnerable to money laundering.”
The NCUA conserved Bethex FCU in 2015.
Challenge #2: Additional risks to the credit union
There are a few additional types of risks that can negatively impact a credit union found to be non-compliant with BSA/AML regulations: reputational risk, operational risk, and legal risk.
Reputational risk means the potential exists for adverse publicity regarding a credit union’s business practices and associations. Whether accurate or not, this potential risk will cause a loss of public confidence in the integrity of the organization, which may be the most detrimental loss of all to a credit union.
Operational risk means the potential exists for loss resulting from inadequate internal processes, personnel, or systems, or from external events.
Finally, legal risk means the potential exists for lawsuits, adverse judgements, unenforceable contracts, fines and penalties.
Challenge #3: Growing AML costs
Another challenge associated with AML/BSA compliance is the sky rocketing cost. The amount of money financial institutions are spending on their AML programs and compliance obligations has reached its pinnacle. Figures from Research and Markets estimate global spending on AML processes are set to grow to more than $8 billion this year.
This rise in spending has come largely as a result of the various fines and settlements being imposed on financial institutions. In other words, financial institutions are shelling out the big bucks for fear that if they don’t, they could end up becoming the next Bethex FCU.
Challenge #4: Constant change
If there is one constant in the AML/BSA industry, it is the prevalence of change. And change is hard! Not only are the regulations always changing, but the way criminals launder money and finance terrorism is always changing, too. This makes it tough for credit unions to keep up.
Successful BSA/AML compliance programs are those that stay abreast of regulatory changes and modify/enhance their AML programs accordingly. Successful programs also stay on top of emerging AML trends and typologies in order to keep one step ahead of the bad guys, instead of lagging one step behind.
Ultimately, credit unions face an uphill battle in ensuring their AML programs are both sufficient and sustainable as a consequence of the various compliance challenges that they face. It is for this reason that AML compliance professionals will always have their work cut out for them!