Substance that sits in a shallow place
Like a wind chime in a hurricane, the repetitive noise can be heard whenever a financial institution responds to the fines imposed upon it for money laundering offences. However, are the conciliatory words regarding compliance only a temporary illusion? Has it become simply a game of cat and mouse where they know what the outcome will be if they are caught because it is always the same?
I have listed below some examples of phrases used by the offending institutions as a result of media coverage involving regultory fines.
The bank has successfully remediated and addressed the deficiencies that were the subject of the investigation.
The bank acknowledges that it failed to maintain an effective program against money laundering.
We accept responsibility for our past mistakes, we are profoundly sorry for them.
We have reviewed our processes since then and improved our compliance procedures.
We accept full responsibility for the violations and control deficiencies. Such behaviour is wholly unacceptable to the group.
We have taken appropriate action to remedy these issues.
We continue to apply significant resources and training to ensure compliance with all legal and regulatory requirements.
We have fully co-operated and have already made remedial adjustments.
Nothing substantial changes and we are left with the “halo effect” where the fines are an attempt to influence our perception that the we are in control of the situation and if we adhere to the money laundering regulations, it is sufficient to shrink the magnitude of illicit funds that flow through financial services.
If the goal of regulatory enforcement is to improve compliance with rules then how is perfection, or the illusion of perfection, attainable?
There are better people than me who can answer that and talk about the outdated money laundering regulations or the use of legacy systems and typologies used to monitor transactions. The fact that criminals use 21st century methods to launder money while the financial services industry uses 20th century regulations, suggests that we need to change our attitude towards our failures and mistakes.
“If you always do what you’ve always done, you always get what you’ve always gotten.”
There will be many more financial institutions that will be caught up in money laundering prosecutions or shown to have demonstrated poor anti money laundering controls, but until we refuse to accept the vacuous responses to the large fines imposed, nothing is going to change.
Four years ago i was introduced to a book by Atul Gawande entitled The Checklist Manifesto (bear with me-don’t roll your eyes just yet). Gawande makes a distinction between errors of ignorance (mistakes we make because we don’t know enough), and errors of ineptitude (mistakes we made because we don’t make proper use of what we know). The best-known use of checklists is by airplane pilots and the book covers the story of its growth and reliance on checklists as well as the authors application in surgery wards and hospitals. There is also a section in the book where venture capitalists adopted the philosophy and, even though there is no substitute for experience, those who added checklists to their experience proved more successful.
There are many reports of the role of global banks in industrial scale money laundering around at the moment, maybe if we applied the checklist approach to a transaction monitoring system (if applied in the right context and done well) we could improve our investigation skills. After all, chemical plant control rooms are full of checklists as are nuclear plants. Most large equipment rooms (e.g. turbines, generators etc.) also come with checklists made by the manufacturer for troubleshooting a large set of problems.
Or maybe not…. but something has to change.
