Financial Services Compliance and Anti-Money Laundering

Acknowledgement

I would take this opportunity to thank my research supervisor, family and friends for their support and guidance without which this research would not have been possible.

DECLARATION

I, [type your full first names and surname here], declare that the contents of this dissertation/thesis represent my own unaided work, and that the dissertation/thesis has not previously been submitted for academic examination towards any qualification. Furthermore, it represents my own opinions and not necessarily those of the University.

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Abstract

This paper aims to take a closer look at the market providing “compliance-services”. It is based on a survey of compliance officers and interviews that were conducted with both compliance officers and corporations representing the compliance industry, carried out in the course of an ongoing research. This paper, therefore, represents an empirical contribution to this research. This paper will further answer the questions. The first question we will try to answer is how to explain the existence of this rather broad industry, or in other words: What are its raisons d'être? Second, we aim to map this industry, looking at the corporations that make part of the compliance industry, which services they are offering and what type of sources they use. And finally, we want to explore how this industry fits in the battle against money laundering; which role are they playing?

Table of Contents

ABSTRACTIV

CHAPTER 1: INTRODUCTION1

Background1

Aims of the Study3

CHAPTER 2: LITERATURE REVIEW5

Triggers for the development of a compliance industry5

The creation of a compliance function7

First- and second-line detection9

Lack of official information sources11

Reputation Protection13

Regulatory sanctioning15

Benchmark17

CHAPTER 3: METHODOLOGY19

Research Design19

Data Collection Method19

Keywords20

Reliability20

Validity20

Ethical Concerns21

CHAPTER 4: DISCUSSION AND ANALYSIS24

Services provided by the compliance industry24

A general view on the compliance industry25

Software packages27

Advice and expertise35

Training and education37

Perceptions of compliance and AML implementation39

The compliance industry and the AML benchmark44

CHAPTER 5: CONCLUSION48

Dramatisation of risks48

Levelling the playing field50

AML prevails over privacy?51

Fragmentation of AML approach52

REFERENCES55

Chapter 1: Introduction

Background

Ever since the late 1980s, public and private actors have been active in trying to battle money laundering. In this regard, the anti-money laundering (AML) legislation that was implemented in most European countries in the early 1990s focuses on the prevention and detection of suspicious flows of money. By following these suspicious flows, the authorities aspire to be able to identify the laundering of money that derives from criminal activities. In these processes of prevention, detection and repression of money laundering, public - police, judicial authorities, financial intelligence unit (FIU) - and private - financial and non-financial institutions - are involved. While public actors focus mainly on the detection and repression of money laundering, private actors - as gatekeepers of the international financial systems - devote their time and efforts to preventing and detecting suspicious transactions. In earlier contributions, we have called this combination of public and private energy the “AML complex” (Verhage, 2008)(Mainelli, 2004a).

Private institutions take up a particular place in this complex, as, resulting from the AML legislation, they are burdened with the legal obligation to report suspicious transactions by customers to the authorities, while not having an in se crime-fighting ...