“MANAGEMENT LETTERS” – THE PERFECT TOOLS FOR ANTI MONEY LAUNDERING AWARENESS AND ENFORCEMENT

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Since 2013 when the Anti Money Laundering Act was enacted and the Financial Intelligence Authority (FIA) formed the pace of adoption of the Anti-Money Laundering enforcement and adoption has been slow; due to the need to build awareness and consensus for the accountable persons, many of whom are not aware of their status let alone their responsibility under the law.Since 2013 when the Anti Money Laundering Act was enacted and the Financial Intelligence Authority (FIA) formed the pace of adoption of the Anti-Money Laundering enforcement and adoption has been slow; due to the need to build awareness and consensus for the accountable persons, many of whom are not aware of their status let alone their responsibility under the law.

As with most government funded departments, budget constraints affect all good plans for implementation with the inherent challenges of balancing between FATF downgrade risks, localization of FATF recommendations and the ever-changing sophistication of global money laundering threats.

Accountants as Gatekeepers

Accountants are the gatekeepers for the financial system, facilitating vital transactions within any economy. They play a vital role in ensuring that their services are not used to fuel criminal activities. As professionals, accountants must act with integrity and uphold the law, and they must not engage in criminal activity.

Accountants many a times are employees with limited influence over what Directors do or how the organization chooses to draft, update or adopt policies with Money Laundering being ignored even among obvious accountable persons according to the law. Even if they tried to bring the need for compliance to the attention of the directors, it’s more likely to be shot down as non-mission critical.

False Safety

We are yet to witness an enforcement of the magnitude seen in western countries that ran into millions of dollars, although the FIA under its mandate has capacity to issue a fine of 100 million shillings which would cripple any business let alone cause a shareholder revolt and management may have to be replaced.

As extreme as it sounds many Financial Intelligence Authorities argue that these fines are the only recourse for consistent and outright failures to establish, maintain and update anti money laundering policies and practices.

Risk Based Approach

Risk based approach has been identified as the most appropriate method for risk assessment, setup, implementation; the continued management and administration of an anti-money laundering regime within an organization. Businesses need to be made aware of the risks posed by Clients, Suppliers, Employees and the customers suppliers, employees and associates of clients.

Practice must be developed around key pointers namely:

Customer Due Diligence Record Keeping Internal Controls
Ongoing Monitoring Reporting Procedures Compliance Management
Communication Training and Awareness Employee Screening
Monitoring Policies and Procedures

Management Letters

The most feared tool for any management teams is the “Management Letter” not only is it a check on management activities, but as an external review its mandated by the board, for some regulated entities part of their annual reporting and compliance checklist.

Management Letters are notorious for pointing out the Good, the Bad and the Ugly in a simple RED | AMBER and GREEN codes which are self-explanatory making the veracity of management letters without an equivalent because it includes recommendations and demand for action against identified deficiencies. Management Letters are living documents and contain evidence of management excesses.

This in our opinion is the perfect instrument to enforce policy and most especially anti-money laundering regulation within businesses that have been designated “Accountable Persons” but also the wider business community since money laundering is as simple as a single act and as complicated as a scheme involving multiple parties.

Key questions still linger in the conversation on “Management Letters” Is it profitable? – that depends on your perception of cost vs benefit in an era of “De-risking” relationships” Is it necessary? –  that depends on the risk assessment of the impact of a fine of 100 million Vs $1,000 for Business AML compliance health check.

Often times businesses are not aware of the import of money laundering into their operations which may include – Concealment of criminal property, entering into an arrangement to assist others conceal criminal property.

Ignorance of the law is no defense

The most ignored aspect of the regulation is the need to report suspicious activities to the Financial Intelligence Authority (FIA) an obligation that cannot be avoided. The reporting obligation is irrespective of the need for the business or its clients to have been party to money laundering transaction.

The Double-edged sword

It should be noted that, if an individual discloses that a suspicious activity report has been made, or is being contemplated, in a way that is likely to alert the suspect this constitutes an offence called “tipping off”

Money Laundering Control officers

Perhaps the most secure job in any organization is the money laundering control officer akin to a government permanent and pensionable job. The Anti Money Laundering Act 2013 provides for this position, stipulates their job description and goes as far as describe their reporting lines. There appointment is vetted by the FIA and their dismissal must be approved by the FIA -dream job.The money laundering control officer plays a pivotal role in anti-money laundering control but serve more of a function than an advocate as theoretically they are “independent “but still work within an organization and must follow HR Policies and only access reports that have been brought to their attention for further action.

The assumed conflict between the auditor and money laundering control officer can best be summarized as non-existent as each has a specific mandate and role to play within the anti-Money laundering framework.

This makes the External and perhaps Internal Auditor the best advocate for the Anti Money Laundering campaign and its adoption across businesses.

In conclusion

The Anti Money Laundering regulations support the elimination and control of the negative effect and impact of money laundering to our local economies. The accountant is the key to adoption, implementation and administration of this very useful legislation. The adoption of the Management Letter as a tool in the AML awareness and enforcement campaign should be considered at the very list debated within the stakeholder groups in order to build a level business environment.

By: Oscar G Ofumbi ACSI – Managing Partner Compliance CLOUD a brand of Screen Technologies Limited – www.screen-aml.com. 

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