An expectation-performance gap between money laundering reporting officers and their directors – evidence from Germany
| DOI | https://doi.org/10.1108/JMLC-10-2021-0111 |
| Published date | 16 November 2021 |
| Date | 16 November 2021 |
| Pages | 567-593 |
| Author | Lars Haffke |
An expectation-performance gap
between money laundering
reporting officers and their
directors –evidence
from Germany
Lars Haffke
TUM School of Management, Technical University of Munich,
Munich, Germany
Abstract
Purpose –Money Laundering Reporting Officers (MLROs) carry out day-to-day anti-money laundering
(AML) tasks while directors ultimately remain responsible for AML compliance. Therefore, directors’
expectationsof what their MLROs do should ideally coincidewith what their actual tasks to minimise liability
risk. This paperaims to test for gaps between MLROs and their directors in termsof knowledge, expectations
and performance of AML tasks. Likewise, it is researchedwhether MLROs and directors communicate well
with regardtoMLROs’tasks.
Design/methodology/approach –This paper first develops a model for analysing the dyadic
relationship between MLROs and their directors, based on the audit expectation-performance gap.
Second, a paired electronic survey of MLROs and directors of German companies was conducted in
autumn 2020, testing for participants’knowledge, expectations and performance of possible AML tasks
(n= 136 pairs).
Findings –While there is no knowledge or performance gap among MLROs and directors, expectations
among them are partially unreasonable and their communication needs tobe improved. Additionally, this
study suggeststhat MLROs of German non-financial businesses are less knowledgeable,perform AML duties
more poorly,and communicate less effectively with theirdirectors.
Practical implications –Training of MLROs and communication with their directors need to be
improved.Especially in the non-financial sector, actionis urgently required.
Originality/value –This paper reportsthe results of the first paired survey of MLROs and their directors,
offeringunique insights into their relationship and the status of private AML efforts.
Keywords Germany,AML supervision, Communicationgap, Designated financial bu sinesses (DFB),
Designatednon-financial businessesand professions (DNFBP), Expectation-performancegap
Paper type Research paper
The author would like to thank all MLROs and directors who participated in the study and completed
the relevant questionnaires, as well as all pre-test interviewees. He is also grateful for the valuable
comments received by several colleagues at the TUM School of Management, in particular by
Benedikt Downar, Mathias Fromberger, Ronja Schregle, Timo van der Linde and Sascha Vogel.
Funding: The author received no financial support for the research, authorship and/or publication
of this article.
Data availability statement: The research instrument is available from the author upon reasonable
request.
Evidence from
Germany
567
Journalof Money Laundering
Control
Vol.25 No. 3, 2022
pp. 567-593
© Emerald Publishing Limited
1368-5201
DOI 10.1108/JMLC-10-2021-0111
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1368-5201.htm
1. Introduction
Anti-money laundering (AML) compliance is a dyadic task. Day-to-day operations of AML
policies are handled by so-called MoneyLaundering Reporting Officers (MLROs) [1].
Especially in larger companies, the role is distinct from board membership [2]. However,
directors and senior management(deputy directors, members of the board or equivalent) are
usually addressees of possible administrative or criminal sanctions under national AML
laws (FATF, 2020b;Meissner, 2018). For improved legibility, these individuals shall be
referred to as directors, irrespective of their formal position. In other words: whileMLROs
ensure that AML laws are complied with, directors remain personally responsible and rely
on their MLRO to carry out their duties.
Therefore, directors’expectations of MLROs’duties are of great importance. For
example, directors might believetheir MLRO to carry out tasks which they do not and may,
therefore, assume a level of assurance which is too high. Decisions made based on this
information might thus be to the detriment of the company. Therefore, directors’
expectations of what their MLROs do should ideally coincide with what their actual tasks.
Similarly, directors’expectations of what their MLROs are required to do should match
what they are currently required to do. Otherwise, companies and individuals might face
substantial fines andmoney laundering would not be tackled efficiently.
Surprisingly, little is known about MLROs and their relationship with their directors.
Here, their relationshipwill be explained through the concept of an expectation gap. It refers
to the difference in duties and expected performancebetween a group of experts producing
information or carrying out a task and another group relying on or using that outcome
(Liggio, 1974). Whilean expectation gap in the audit profession has been repeatedlyreported
to exist (Quick, 2020), there is (almost) no literature on an expectation gap for MLROs and
directors. Only Krambia-Kapardis et al. (2019) have sought to explore the phenomenon
through a study in Cyprus. Their findings indicate that an expectation gap with regard to
AML partially exists. However, no study of intra-company pairs of MLROs and their
directors has ever been conducted.
Addressing this researchgap, this paper seeks to explore whether there is a gap between
a director’s expectationof the duties and performance of their MLRO and the MLRO’s actual
performance, as well as if there is a gap in the communication between them. Results of a
web-based survey of 136 pairs of directorsand MLROs in German companies are reported.
The paper is structuredas follows. Section 2 develops a model for an “AML expectation-
performance gap”. Section 3 lays out the methodology of the survey. Results, reported in
Section 4, provide evidence for the existence of gaps between MLROs and directors in
German companies, with larger gaps among non-financial entities. Finally, Sections 5 and 6
propose actions for companies,regulators and lawmakers and conclude the paper.
2. Developing a model for an anti-money laundering expectation-performance
gap
2.1 Framework
2.1.1 Anti-money laundering expectation-performance gap. The expectation gap has most
often been applied to the audit profession. It referstothe difference in the levels of expected
performance “as envisioned by the independent accountant and by the user of financial
statements”(Liggio, 1974, p. 23). Among others, Porter (1993) studied this gap multiple
times. She coined the term “audit expectation-performance gap”. In essence, she postulated
that, in a relationship of information dependency (such as auditors/users of financial
statements), the perceived level of substandard performance of auditors can have the
following three differentcauses:
JMLC
25,3
568
Get this document and AI-powered insights with a free trial of vLex and Vincent AI
Get Started for FreeStart Your Free Trial of vLex and Vincent AI, Your Precision-Engineered Legal Assistant
-
Access comprehensive legal content with no limitations across vLex's unparalleled global legal database
-
Build stronger arguments with verified citations and CERT citator that tracks case history and precedential strength
-
Transform your legal research from hours to minutes with Vincent AI's intelligent search and analysis capabilities
-
Elevate your practice by focusing your expertise where it matters most while Vincent handles the heavy lifting
Start Your Free Trial of vLex and Vincent AI, Your Precision-Engineered Legal Assistant
-
Access comprehensive legal content with no limitations across vLex's unparalleled global legal database
-
Build stronger arguments with verified citations and CERT citator that tracks case history and precedential strength
-
Transform your legal research from hours to minutes with Vincent AI's intelligent search and analysis capabilities
-
Elevate your practice by focusing your expertise where it matters most while Vincent handles the heavy lifting
Start Your Free Trial of vLex and Vincent AI, Your Precision-Engineered Legal Assistant
-
Access comprehensive legal content with no limitations across vLex's unparalleled global legal database
-
Build stronger arguments with verified citations and CERT citator that tracks case history and precedential strength
-
Transform your legal research from hours to minutes with Vincent AI's intelligent search and analysis capabilities
-
Elevate your practice by focusing your expertise where it matters most while Vincent handles the heavy lifting
Start Your Free Trial of vLex and Vincent AI, Your Precision-Engineered Legal Assistant
-
Access comprehensive legal content with no limitations across vLex's unparalleled global legal database
-
Build stronger arguments with verified citations and CERT citator that tracks case history and precedential strength
-
Transform your legal research from hours to minutes with Vincent AI's intelligent search and analysis capabilities
-
Elevate your practice by focusing your expertise where it matters most while Vincent handles the heavy lifting
Start Your Free Trial of vLex and Vincent AI, Your Precision-Engineered Legal Assistant
-
Access comprehensive legal content with no limitations across vLex's unparalleled global legal database
-
Build stronger arguments with verified citations and CERT citator that tracks case history and precedential strength
-
Transform your legal research from hours to minutes with Vincent AI's intelligent search and analysis capabilities
-
Elevate your practice by focusing your expertise where it matters most while Vincent handles the heavy lifting