“If you think compliance is expensive, try non-compliance.”
— former U.S. Deputy Attorney General Paul McNulty
For the past two decades, financial crime risk has been a top priority for banks and other financial services firms. Regulators too have taken a keen interest in how banks are guarding against such crime, handing out billions of dollars in penalties every year as enforcement authorities ratchet up the pressure on banks to prevent criminals and terrorists from using the world’s legitimate financial system for their nefarious plans.
But now, regulatory attention has begun shifting to non-financial corporations as regulators expand their enforcement focus beyond the traditional financial sector players.
To illuminate this development, Thomson Reuters Regulatory Intelligence and Compliance teams have produced their annual 2019 Corruption Report: Financial crime compliance for non-financial companies: the expanding regulatory perimeter.
The report takes the pulse of the regulatory environment surrounding financial crime and its prevention, noting, for example, that international corporations, too, are already paying big penalties for financial crime misconduct, particularly in the areas of sanctions, bribery, and corruption violations.
Zeroing In on Non-Financial Corporations
The report notes that the U.S. regulators, especially the U.S. Department of the Treasury’s Office of Foreign Assets Control, are leading this global charge into non-financial company oversight. In the first eight months of 2019, that office levied $1.28 billion in penalties for sanctions violations to 16 entities, 12 of which were non-financial corporations.
Indeed, corporate penalties for money laundering violations are also becoming more common, and anti-money laundering agencies are broadening their focus to include casinos, accounting firms, high-value goods dealers, lawyers, and real estate agents, the report notes.
The report also covers three specific areas of concern in the current regulatory environment around non-financial companies, including:
- Money Laundering — As the risks posed by money laundering and money launderers increase, financial and non-financial companies alike need to ratchet up their customer due diligence and transaction monitoring in order to more ably find and stop bad actors.
- Compliance Programs — For multinational companies, robust compliance programs are critical, especially as the U.S. Treasury Department and other major regulators are increasing sanctions and their scrutiny of these programs.
- Suspect Transactions — There has been a surge in reporting of suspect transactions, and that could well increase the risk of enforcement for financial institutions’ corporate clients as regulators continue to hold banks accountable for monitoring their transactions.
Given this increasing attention by regulatory authorities, it’s no surprise that some organizations have been caught flat-footed as the enforcement landscape has shifted. As the report notes, many corporates have clunky, outdated technology systems for locating and monitoring sanctions and bribery activity. These systems are also difficult and expensive to update.
Worse yet, some non-financial organizations have only taken the first basic steps of establishing systems and controls; and few big corporations have dedicated anti-money laundering systems and controls or IT systems in place. Indeed, only a small percentage are even starting to think about transaction monitoring.
In this climate, the message to all companies with global or cross-border business interests is clear. If your organization does not live up to its obligations for monitoring and identifying suspect transactions or bad actors, regulators will be watching. And any organization that demonstrates a clear disregard for the law will find itself on the wrong side of regulators.
The report also says this pressure is unlike to let up and in fact will only intensify as storm clouds continue to amass over the geopolitical climate, and the United States and other large countries wield further diplomatic pressure on other nations to take an even harder line on sanctions violations and exert tougher oversight of the organizations under their purview.