Asian Financial Crime Risk Executive ForumPresentation Transcript
Asian Financial Crime Risk Executive Forum 26th March 2013 Presented by Sam Gibbins Director, International Compliance Association
The Challenge of Delivering Profits whilst Remaining Compliant
Morals and work ethic “How do we behave when we think nobody is looking?’’
Regulatory Objectives and theConcept of Regulation• To protect investors• Ensure that markets are fair, efficient and transparent• To reduce systemic risk• Protect financial markets from financial crime• Maintain consumer confidence in the financial system
Factors that Shape theRegulatory Framework• Regulatory failure• Influence from international communities• Domestic and international political pressure• The development of complex products• The evolution of new technologies, such as the Internet or mobile payments as a delivery channel for products
Advancement Theories• Products becoming more complex, harder for regulators to keep up• Increasing numbers of individuals buying increasingly more complex products• Ever expanding number of avenues for illicit and criminal activity in financial services• Higher level of global scrutiny of jurisdictions and their money laundering effectiveness; how effective are fines as deterrents?
The Guardian January 4th 2013 Otto Bruderer, a managing partner of the bank, told a New York court: "Wegelin was aware that this conduct was wrong… From about 2002 through to about 2010, Wegelin agreed withcertain US taxpayers to evade the US taxobligations of these US taxpayer clients,who filed false tax returns with the IRS.”
It’s a wide spectrum…
securitymanagement.com April 27th 2012•‘Morgan Stanley maintained significantinternal controls designed to preventsuch corruption’•The policies were updated regularlyand employees were trained in FCPAcompliance•Records showed that Morgan Stanleytrained Peterson on the FCPA seventimes during the time frame of the fraudand reminded him of FCPA rules 35times
Libor – the gift that keeps on giving! www.bbc.co.uk February 6th 2013 •Fines in the millions for a wide variety of financial services firms •Huge reputational damage •Individual prosecution cases?
The Economist February 9th 2013The double edged sword that is technology!!!
Left Foot Political Blog November 9th 2012
A study in human natureStatistics suggest, when it comes to criminal, oreven moral, choices:-10% of people will…………….10% of people will…………….80% of people will…………….
A study in human nature
A study in human natureStatistics suggest, when it comes to criminal, or evenmoral, choices:•10% of people (staff) will never knowingly choose the wrong path(always follow your compliance programme)•10% of people (staff) will actively look for the wrong path(because your programme makes life tougher for them)•80% of people (staff) will only take the wrong path if they thinkthey will “get away with it” (when you don’t take any notice of whatthey are doing)
A study in human nature“People only Respect what you Inspect”
The Guardian March 20th 2013How far can public outrage push the government?
The Telegraph March 21st 2013•“But Osborne’s attempts to tackleavoidance are little more than a sham.The public are outraged that, for bigcompanies like Starbucks., paying taxseems to be little more than a matter ofchoice•This government is keen to be seen tobe taking action. Yet in reality theirplans will give a green light to corporatetax dodgers, ensuring they can shirktheir responsibilities to society.”•Murray Worthy, War on Want
TheStar.com March 21st 2013•“Sergei discovered a huge Russiantax fraud,” said Browder in atelephone interview. “He found that$230 million was stolen from theRussian government. But we knewthere would be no accountability, sowe followed the money ourselves.”•Magnitsky said he had found a “webof corruption” spun by Russian taxofficials who allegedly mastermindedthe biggest Russian tax heist of thecentury.•With the help of international policeand journalists, he traced $135million in laundered funds, $31million of it washed through Cyprus.
The Changing Face of Regulations• Cross border• Increasing in number, increasing in complexity• Adapting faster than they ever have• Greater desire for ‘follow through’ with regards to illicit activity• This is not ‘even’ across all nations!• Easier to find breaches?• Customers more willing to look for alternatives• The game of Hide and Seek is much more difficult these days…
Importance of Complicity withInternational FrameworksNew FATF money laundering guidanceFebruary 16th 2012The international Financial Action Task Force has issued substantially revisedguidance on money laundering legislationwww.stepjournal.org October 12th 2012 Singapore cracks down further on tax evasion www.hubbis.com October 18th 2012 Singapore to criminalize tax evasion by July 1st 2013 www.mountainvision.com
All businesses face a multitude of risks – but the financial services industry has more than its fair share – and so risk management is crucial.
Impact and Probability Risk Map
Strategic options for dealing with risksRisk reduction ways of reducing likelihood/probability – improve prevention and control measuresRisk transfer to another partyRisk sharing link with another department/organisationRisk avoidance e.g. by ceasing activities in, or not entering, a particular areaRisk acceptance & an informed decision to acceptmanagement likelihood/probability
Strategic options for dealing with risks Risk deferment e.g. not entering a new market at this time, wait and see how it develops and reconsider Risk limitation limit scale or scope of commitment/activities/investment Risk mitigation put in place a plan that accepts risk but also deals with damage limitation
Key Compliance Framework Issues• Ultimate responsibility for compliance rests with senior management• The compliance function is developed and used by senior management as a critical tool, complementing other key risk management functions such as internal audit• The compliance function is independent but sufficiently close to business operations to be effective
Key Compliance Framework Issues• The compliance function is instrumental in embedding a strong compliance culture throughout the organisation• The compliance function ensures ongoing compliance with regulatory requirements or at least is capable of timely remedial action
Compliance Culture starts at…
… the top.Chatswood Consulting Ltdwww.chatswood.co.nz
The compliance culture,programme and your staff
Shaping your firm’s Complianceculture and its complianceprogrammeEvery firm has a (general) culture, which drives • The way power flows • The way people, especially management, communicate • The risk appetite • The way things are done • The energy (and resource) levels appliedCultures are pervasive, and exist across the firm
Typical contents of a ComplianceFunction Terms of Reference• To develop an appropriate compliance culture• To provide training• To provide consultancy to the Business Units• To implement, monitor and report on standards of compliance• To interface between the firm and its regulators
www.morecarrot.com July 19th 2012 It’s official: establishing a culture of compliance in theworkplace – and communicating it clearly – can help you earn a get out-of-jail card in the courtroom.
Conclusion• There is no ‘one size fits all’ solution• Firms need to assess what they need, and how best to achieve this• What is best for your competitor may not be best for you• There is no perfect answer!
- END -My thanks to you all for listening and, where applicable, staying awake