Risk of money laundering in the US: HSBC case study

2016 ◽  
Vol 19 (3) ◽  
pp. 225-237 ◽  
Author(s):  
Mohammed Ahmad Naheem
Keyword(s):  
Risk Assessment ◽  
Money Laundering ◽  
Corporate Culture ◽  
Financial Services ◽  
Banking Sector ◽  
Internal Audit ◽  
Governance Structure ◽  
Content Type ◽  
Global Banking

Purpose This paper uses a case study approach using the Permanent Sub Committee on Investigations (PSI) report on HBUS to determine where gaps in anti-money laundering (AML) regulation and compliance are within the banking sector. Design/methodology/approach The PSI highlighted five areas of serious weakness and fundamental flaws in the HBUS AML risk assessment. This paper examines the governance response that led to these weaknesses and applies a rationale decision-making theoretical framework to explain it. Findings The report found that corporate culture and attitude at the governance level were key factors in the difficulties that HBUS faced. Research limitations/implications This paper focuses on one case, albeit one of the largest banks in the global banking sector. Although generalisations are limited, the report does highlight areas to consider with all banks. Practical implications The implications that are identified are aimed at banks and auditing firms that have to work alongside governance structure within banks. The role of internal audit is raised and has future implications for how risk assessment is undertaken and how AML compliance frameworks are devised and reported on. Social implications A stronger social corporate responsibility attitude is suggested that considers the wider social impacts of supporting criminal transactions, even inadvertently, by inappropriate and under-resourced AML risk-assessment frameworks. Originality/value The detailed analysis of one case that considers the governance response to AML regulation is new in this paper, and the detailed recommendations for improving and developing stronger AML risk-assessment frameworks apply to the banking, financial services and auditing professions.

FIFA – highlighting the links between global banking and international money laundering

2018 ◽  
Vol 21 (4) ◽  
pp. 498-512 ◽  
Author(s):  
Mohammed Ahmad Naheem
Keyword(s):  
Money Laundering ◽  
Financial Services ◽  
Banking Sector ◽  
Due Diligence ◽  
Content Type ◽  
Services Sector ◽  
Financial Services Sector ◽  
Global Banking ◽  
Beneficial Ownership ◽  
The Impact

PurposeThis paper uses the recent (August 2015) FIFA arrests to provide an example of how illicit financial flows are occurring through the formal banking and financial services sector. The purpose of this paper is to explore which elements of anti-money laundering (AML) compliance need to be addressed to strengthen the banking response and reduce the impact of IFFs within the banking sector.Design/methodology/approachThe paper is based on the indictment document currently prepared for the FIFA arrests and the District Court case of Chuck Blazer the FIFA Whistleblower. It uses the banking examples identified in the indictment as typologies of money laundering and wire fraud. Corresponding industry reports on AML compliance are included to determine where the major weaknesses and gaps are across the financial service.FindingsThe main findings from the analysis are that banks still have weak areas within AML compliance. Even recognised red flag areas such as off shore havens, large wire transfers and front companies are still being used. The largest gaps still appear to be due diligence and beneficial ownership information.Research limitations/implicationsThe research topic is very new and emerging topic; therefore, analysis papers and other academic writing on this topic are limited.Practical implicationsThe research paper has identified a number of implications for the banking sector, addressing AML deficiencies, especially the need to consider the source of funds and the need for further enhanced due diligence systems for politically exposed and influential people and the importance of beneficial ownership information.Social implicationsThis paper has implications for the international development and the global banking sector. It will also influence approaches to AML regulation, risk assessment and audit within the broader financial services sector.Originality/valueThe originality of this paper is the link between the emerging issues associated with allegations of bribery and corruption within FIFA and the illicit financial flow implications across the banking sector.

China’s dirty laundry – international organizations posing a risk to China’s AML systems

2018 ◽  
Vol 21 (2) ◽  
pp. 189-202 ◽  
Author(s):  
Mohammed Ahmad Naheem
Keyword(s):  
Risk Assessment ◽  
Money Laundering ◽  
International Organizations ◽  
Banking Sector ◽  
Due Diligence ◽  
International Banking ◽  
Content Type ◽  
International Money ◽  
Customer Due Diligence ◽  
Chinese Banking

PurposeThis paper aims to review some of the current challenges that international money laundering schemes are posing in the Chinese banking sector. Anti-money laundering (AML) systems in China are relatively new, and customer due diligence checks and other AML systems are underdeveloped in some areas.Design/methodology/approachThe paper considers a particular case example of a multi-company organization that has known links to China. This company has been the target of both European and US investigations for suspected embezzlement and money laundering, and yet is still in operation.FindingsThe paper considers the complexities of this organization and how a seemly innocent link to a used clothing charity can fund an international organization spanning several countries. The paper offers a list of basic indicators of risk that could be applied to a risk-based system used within the Chinese banking context by using this group as an example.Originality/valueThe paper uses empirical and academic studies from other authors working in this region and supports many of the findings of the need to develop stronger risk-based, as opposed to rules-based, systems for managing AML risk assessment. Previous work by the author and suggestions from other authors are both used to suggest a basic framework for AML risk assessment. The paper concludes by reiterating the fact that China, like all other countries, is now operating in an international banking context, in much the same way that international organized crime is also operating at a global level.

Beyond placement, layering and integration – the perception of trade-based money laundering risk in UK financial services

2019 ◽  
Vol 22 (4) ◽  
pp. 614-625 ◽  
Author(s):  
Mario Menz
Keyword(s):  
Money Laundering ◽  
Financial Services ◽  
Design Methodology ◽  
Banking Sector ◽  
Trade Finance ◽  
Content Type ◽  
Proceeds Of Crime ◽  
The Uk ◽  
Practical Implications ◽  
Insight Into

Purpose The purpose of this study was to investigate the perception of trade-based money laundering in Letters of Credit (“L/C”) transactions among trade finance practitioners in the UK banking sector and to compare it to the perception of the same risk by the Financial Conduct Authority (“FCA”), the regulator of the UK’s banking sector. Design/methodology A survey was used to carry out research among financial services professionals engaged in trade finance in the UK. Findings This paper contributes to the existing literature in a number of ways. First, it investigates the perception of trade-based money laundering risk from the perspective of financial services professionals, which has not previously been done. Second, it argues that the perception of trade-based money laundering in financial services is overly focussed on placement, layering and integration, and that the full extent of the offence under the Proceeds of Crime Act 2002 is less well known. It further found that financial services firms need to improve their understanding of the nature of trade-based money laundering under UK law. Practical implications This study argues that the financial services sector’s perception of trade-based money laundering risk in trade finance is underdeveloped and makes suggestions on how to improve it. Originality/value It provided unique insight into the perception of trade-based money laundering risk among financial services professionals.

Illicit financial flows: HSBC case study

2018 ◽  
Vol 21 (2) ◽  
pp. 231-246 ◽  
Author(s):  
Mohammed Ahmad Naheem
Keyword(s):  
Money Laundering ◽  
Financial Services ◽  
Banking Sector ◽  
Financial Flows ◽  
Content Type ◽  
Services Sector ◽  
Financial Services Sector ◽  
Beneficial Ownership ◽  
Illicit Financial Flows ◽  
The Impact

Purpose This paper provides examples of how illicit financial flows (IFFs) are occurring through the formal banking and financial services sector. The purpose of this paper is to explore which elements of anti-money laundering (AML) compliance need to be addressed to strengthen the banking response and reduce the impact of IFFs within the banking sector. Design/methodology/approach The paper uses a number of sources of secondary data including the Swiss leaks data for HSBC and also the Permanent Sub Committee Report on HBUS in the USA, the OECD report on money laundering compliance and Financial Action Task Force (FATF) guidelines on beneficial ownership. It links this information to the relevant IFF reports produced through Global Financial Integrity to highlight the connection between banking AML compliance and IFF transfers through the banking sector. Findings The main findings from the analysis are that banks have a greater legal responsibility towards detecting and reporting suspicious transactions than they would have previously considered. This includes identifying the source and purpose of fund transfers and establishing the beneficial ownership of recipients. Research limitations/implications The research topic is new; therefore, analysis papers and other academic writing on this topic are limited. Practical implications The research paper has identified a number of implications to the banking sector on addressing AML deficiencies, especially the need to improve standards of beneficial ownership verification and customer due diligence (CDD) checks for politically exposed persons. Social implications This paper has implications for the international development and the global banking sector. It will also influence approaches to AML regulation, risk assessment and audit within the broader financial services sector. Originality/value The originality of this paper is the link between the HSBC cases and IFFs and the implications this will have for future AML compliance processes across the banking sector.

Regulating virtual currencies – the challenges of applying fiat currency laws to digital technology services

2018 ◽  
Vol 25 (2) ◽  
pp. 562-575 ◽  
Author(s):  
Mohammed Ahmad Naheem
Keyword(s):  
Risk Assessment ◽  
New York ◽  
Financial Services ◽  
Banking Sector ◽  
Financial Regulation ◽  
New York State ◽  
Critical Discussion ◽  
Virtual Currency ◽  
Content Type ◽  
The Impact

Purpose The purpose of this paper is to consider the recent (Dec`15) introduction of the Bitlicensing rules in New York and consider from a banking perspective how this will impact on their own risk assessment processes. The paper also outlines the challenges of applying financial regulation to companies that have an area of expertise and business that is more aligned to software development, rather than financial service provision. Design/methodology/approach This paper is a viewpoint paper, which offers a critical discussion on the FATF guidelines on virtual currencies. The paper compares developments that are currently occurring within the virtual currency sector in particularly the new Bitlicensing process in New York State and discusses the implications to the banking sector on risk assessment processes for virtual currency transactions. Findings This paper will benefit the banking and regulation industries as well as economic and banking academics and anyone with an interest in virtual and digital currency technology. Originality/value This paper is unique in that it examines the issue of virtual currency regulation from a banking perspective. It explains the virtual currency technology as a means to be enhancing banking risk assessment, for clients seeking to incorporate virtual currency transactions into their business. This paper impacts on the banking and regulatory sectors because it critically examines the current practice of over regulation and the impact that this has on alternative financial systems, such as digital and virtual currencies. The paper offers a theoretical framework as well as citing current practical reports of how regulation has already started to affect the financial services landscape. The impact of getting this wrong can lead to increased criminal activity, and this paper highlights how susceptible the financial sector is to this.

Anti-money laundering/trade-based money laundering risk assessment strategies – action or re-action focused?

2019 ◽  
Vol 22 (4) ◽  
pp. 721-733 ◽  
Author(s):  
Mohammed Ahmad Naheem
Keyword(s):  
Risk Assessment ◽  
Money Laundering ◽  
Financial Services ◽  
Holistic Approach ◽  
Content Type ◽  
Research Survey ◽  
Academic Discussion ◽  
Assessment Strategies ◽  
Risk Processes ◽  
Practical Implications

Purpose This paper aims to discuss whether most anti-money laundering (AML) risk assessment strategies within the banking and financial services sector are reactionary focused and/or whether it should be possible to predict where increased costs and resources need to be targeted in future AML risk processes. Design/methodology/approach The paper reviewed research findings from the researchers own study on trade-based money laundering (TBML) and also survey results from the KPMG Global Anti-Money Laundering Survey (2014), along with academic discussion papers. Findings The paper concluded that risk assessment strategies were still largely responsive, and this left banks exposed to two factors – not recognising risk that they were not assessing for and, second, being challenged legally as new cases emerged in the court systems from victims of ML and terrorism crimes. Practical implications The practical implications affect the resources and costs assigned to risk assessment strategies and called for a more holistic approach that was forward thinking from the bank’s perspective rather than reactionary focused and working from the regulators’s agenda. Social implications Any improvements in detection of AML and counter-terrorism financing has broader social outcomes. Originality/value The originality is the subject matter of AML risk assessment strategies and the input from TBML/AML experts from across the globe that contributed to the author’s research survey and interviews. These results have been analysed along with other research and the current academic discussion on this topic.

Suspicious alerts in money laundering – the Crédit Agricole case

2017 ◽  
Vol 24 (4) ◽  
pp. 691-703 ◽  
Author(s):  
Mohammed Ahmad Naheem
Keyword(s):  
Money Laundering ◽  
Academic Writing ◽  
Financial Services ◽  
Banking Sector ◽  
Legal Responsibility ◽  
Content Type ◽  
Reporting Requirements ◽  
Compliance Requirements ◽  
Beneficial Ownership ◽  
Corporate Social

Purpose The purpose of this paper is to provide an analysis of the recent Crédit Agricole case outcome, whereby the bank was found to have undertaken insufficient investigation and failed to follow through on reporting suspicious account activity, in line with AML compliance requirements. Design/methodology/approach The paper uses the two main legal documents in the Michailidis v Crédit Agricole Corporate and Investment (CACI) bank case and analyses the judgement details to discuss the implications for the banking and financial services sector on money laundering and AML compliance reporting requirements. Findings The main findings from the analysis are that banks have a greater legal responsibility towards detecting and reporting suspicious transactions than they would have previously considered. This includes identifying the source and purpose of fund transfers and establishing the beneficial ownership of recipients. Research limitations/implications The research topic is new, and therefore, analysis papers and other academic writing on this topic are limited. Practical implications The research paper has identified a number of implications to the banking sector on addressing AML deficiencies, especially the detection and reporting requirements of suspicious transactions. Social implications This paper has implications for the corporate social responsibility of banks and other financial services towards monitoring the source and use of money that is in their organisation. The paper identifies areas of legal responsibility that banks now have to manage, as part of their commitment to support the prevention of money laundering. Originality/value The originality of this paper is the current example of the Crédit Agricole case and the future legal implications for banks and financial services on suspicious transaction reporting and money laundering risk assessment.

HSBC Swiss bank accounts-AML compliance and money laundering implications

2015 ◽  
Vol 23 (3) ◽  
pp. 285-297 ◽  
Author(s):  
Mohammed Ahmad Naheem
Keyword(s):  
Money Laundering ◽  
Academic Writing ◽  
Tax Evasion ◽  
Financial Services ◽  
Banking Sector ◽  
Future Research ◽  
Financial Crime ◽  
Content Type ◽  
The Future ◽  
Bank Accounts

Purpose – This paper aims to provide an analysis of the HSBC Swiss bank accounts scandal, from the perspective of anti-money laundering (AML) compliance, and considers the future AML implications for the banking sector and HSBC. It reviews the use of a whistleblower to highlight AML irregularities rather than official reporting through the current AML compliance system. Design/methodology/approach – The paper uses secondary data to offer a viewpoint on the HSBC issues from a money laundering and financial crime perspective. The paper extracts key statements from staff at HSBC and regulators and examines how AML risk assessment was undertaken at this time and what changes need to occur in the future. It considers the implications of the current theoretical context for AML from an agency theory perspective. Findings – The main findings are that AML compliance needs to be embedded into a proactive corporate social responsibility approach rather than relying solely on regulation to improve detection and reporting of money laundering activity. Research limitations/implications – The research topic is new, and therefore, analysis papers and other academic writing on this topic are limited. Future research could consider the outcomes of the Swiss bank’s attempts to prosecute the whistleblower and whether this would have implications for future internal reporting and whistleblowing approaches to support AML compliance. Practical implications – The implications from the research are the recommendations to the banking sector on addressing AML deficiencies especially within the context of an evolving level of criminal sophistication towards money laundering. Social implications – The paper supports the argument for integrating social corporate responsibility and AML compliance to produce a whole bank response to financial crime. This is in contrast to the current systems, which seem to be prevalent within the financial services, of profit and business being seen as separate rather than integral to regulation and control. Originality/value – The originality of this paper is the current example of the HSBC Swiss case and the focus specifically on AML compliance rather than tax evasion, which has been the media angle on the issue.

The agency dilemma in anti-money laundering regulation

2020 ◽  
Vol 23 (1) ◽  
pp. 26-37
Author(s):  
Mohammed Ahmad Naheem
Keyword(s):  
Risk Assessment ◽  
Law Enforcement ◽  
Money Laundering ◽  
Design Methodology ◽  
Banking Sector ◽  
Theoretical Framework ◽  
Content Type ◽  
Practical Implications

Purpose The purpose of this paper is to provide a comprehensive theoretical framework that can be applied to the application of anti-money laundering (AML) regulation within the banking sector. Design/methodology/approach The paper is linked to a PhD study to be published in Winter 2015/Spring 2016 that looks at trade-based money laundering and risk assessment using an agent–principal relationship to explain the underlying relationships affected by regulation in a ML context. Findings The paper finds that imposing regulation and assuming that the banking sector is simply an arm of law enforcement is not an effective approach and could actually contribute toward developing ML schemes that are too complex to be easily detected. Practical implications The paper has implications for the banking, regulatory and law enforcement areas involved in ML and its detection. Originality/value The paper offers originality in providing a comprehensive multi-agency framework that is cognisant of all factors affected by AML regulation. It extends beyond existing work that has offered agency insights into various sectors of AML and ML partners.

Internal audit function and AML compliance: the globalisation of the internal audit function

2016 ◽  
Vol 19 (4) ◽  
pp. 459-469 ◽  
Author(s):  
Mohammed Ahmad Naheem
Keyword(s):  
Money Laundering ◽  
Audit Committee ◽  
Internal Audit ◽  
Secondary Data ◽  
Audit Committees ◽  
Suggested Approach ◽  
Content Type ◽  
Internal Audit Function ◽  
Global Banking

Purpose This paper aims to consider the role of internal audit function (IAF) in relation to anti-money laundering (AML) compliance and oversight within global banking. The increasing globalisation of banking functions and the mirrored globalisation of financial crime require a renewed look at the role of internal audit. This paper critically examines the weaknesses in the current structure and proposes a new way of thinking about IAF. Design/methodology/approach The paper uses secondary data to analyse the current problems with IAF from both theoretical and empirical perspectives. The agency dilemma of answering to two masters in the audit committee and management and the problems associated with this in the context of recent AML cases against banks are discussed. Findings The main findings are that a new approach to internal audit is required that can operate effectively within a globalised banking and regulatory context, especially for AML compliance issues. A suggested approach is to develop regional audit committees and remove the internal stakeholder dilemma that is problematic to the IAF. Research limitations/implications The paper focused primarily on the AML context, and IAF may have other functions within the bank. However, the theoretical and practical problems are equally as applicable to other areas of work. Practical implications The implications from the paper are the recommendations on restructuring the function of internal audit, especially its role within management and governance, given the impartiality and objective role that it is supposed to perform. Originality/value The originality of this paper is the analysis of IAF within an AML context and the recommendation to reconsider the IAF role within a globalised banking service of the future. This has been suggested within a growing globalised criminal context, where money laundering is a reality and the complexity of this crime is increasing throughout the world.

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