A collection of policies and processes that financial institutions follow to prevent and identify money laundering and terrorist funding activities is recognized as an anti-money laundering program.
The United States Bank Secrecy Act (BSA) has been updated by a variety of later laws (including the USA Patriot Act), while the EU has released its Fourth Anti-Money Laundering Directive in 2017, and now it has issued its Fifth Anti-Money Laundering Directive in 2020.
In reality, an anti-money laundering compliance program should guarantee that an institution can detect and report suspicious money-laundering activities, such as tax evasion, fraud, and terrorist funding, to the proper authorities. An AML compliance program should focus not only on the efficiency of internal money laundering detection systems and controls but also on the risk presented by the actions of customers and clients with whom an institution conducts business.
The investigation revealed that these entities are the work of a small army of enablers—an offshore system comprised of multinational banks, law firms, and accounting firms based in the United States and Europe—who conjure up a Byzantine ownership network for the sole purpose of concealing who is the true owner.
In addition, it highlights the role the US states—most notably South Dakota, but also Delaware, Florida, Nevada, and Texas—play in allowing non-US citizens to set up shell companies and trusts that enable affluent owners to conceal their wealth in real estate and other possessions without exposing who is the beneficial owner.
Even before the publication of the Pandora Papers, Congress acted against the shadow banking system by including two legislations, the Anti-Money Laundering Act (AMLA) and the Corporate Transparency Act (CTA).
The law charged the U.S. Treasury's Financial Crimes Enforcement Network (FinCEN) with developing ultimate beneficial ownership (UBO) reporting rules for corporations and limited liability firms, as well as maintaining a UBO register.
Even parties who have not been named or who have not detected interactions with parties listed in the Pandora Papers should consider taking preventive measures to assist in the prevention of potential risks.
Given the renewed focus of regulators around the world on the practices of "offshore" service providers such as law firms, banks, and trust companies, companies that provide such services should consider whether it is necessary to conduct a review of their internal procedures and practices to ensure compliance with applicable law and to remediate any gaps identified. Those processes focusing on a company's Know-Your-Customer (KYC) process are among those that may necessitate a more thorough examination.
Regardless of present interactions with persons listed in the Pandora Papers, firms should adopt a plan to incorporate information from the Pandora Papers into third-party screening processes and constantly monitor the ICIJ's material. Furthermore, if a company's payment system supports such a setup, it may think about proactively importing information from the Pandora Papers so that the system flags any listed party prior to onboarding.
AML risk management has become more difficult as laws have become more severe. Where compliance programs have been poor, financial firms, in particular, have faced higher fines.
However, more detailed guidance has been developed by government and non-government bodies to assist in the development of a robust AML program. Technology has been developed to assist entities in becoming increasingly sophisticated in their ability to detect and monitor suspicious transactions, and partnerships have been formed to share information that enables a more comprehensive compliance effort.
Entities should be initiative-taking in analyzing their compliance efforts and build a strong AML compliance program, paying special attention to the CDD, UBO, and transaction-monitoring aspects, for example. As part of this effort, entities must: stay up to date on legislative and regulatory changes; consider new and evolving technologies and typologies in the overall AML and counterterrorism financing risk assessment; share information where possible in order to achieve a more comprehensive solution to identifying money laundering, and understand where efforts should be focused to achieve greater effectiveness in combating money laundering.