The role of corporate culture in the fight against money laundering
Driven by high regulatory requirements and expectations, scandals that have become public, expensive investigations as well as the underlying reputational risks, financial institutions have been investing heavily into their anti-money laundering setups. But are the most common measures, such as investments in technology, human capital and internal control systems sufficient? Not really.
People are at the center of it all
Nearly all cases of money laundering scandals and misconduct have one thing in common: it is usually individuals or a group of individuals who failed in their function, or at least did not act as resolutely as they should have. In most cases, the likely motivation is the sales culture of the institute on which targets and ultimately monetary compensation are based. No one is denying that a financial institution must make money in order to remain in the market. What is more difficult is the decision whether or not to offer banking services to existing or potential clients with a high risk profile. The conflict of interests between economical and regulatory aspects is obvious: let’s call it risk appetite.
Everything holds up on paper
These days, many companies like to point to their internal code of conduct, the moral and ethical compass of a company. In many cases, it can even be accessed on a financial institution’s website. But let’s be honest: this document alone will hardly be sufficient to achieve the aspired attitude, corporate culture and behavior of employees and management. Certain measures, such as an increase in staff in the second line, better qualifications or improved infrastructure (systems, technologies, processes and controls) are necessary to effectively combat money-laundering, but in the very end, success in this endeavor depends on the attitude and behavior of each individual.
“Tone at the top” as an important component for strong compliance
The Board of Directors and Management must be role models when it comes to corporate culture and integrity, ideally they should live this in reflection of the company’s business strategy.
How can a sound compliance culture and an appropriate management style be incorporated into the daily business?
Ideally, the following points are complied with:
- The Board of Directors must clearly and transparently communicate corporate culture and expected behavior and document it accordingly. It need to deal with this important topic on a regular basis and significant cases of non-compliance should be brought to its attention. The framework needs to be assessed regularly including adjustments where necessary.
- Management, on the other hand, is asked to implement these rules in daily business and to make sure that the rules are adhered to.