Protecting the financial system from abuse. Challenges to banks in implementing AML/CFT standards
| DOI | https://doi.org/10.1108/13685200610645210 |
| Date | 01 January 2006 |
| Published date | 01 January 2006 |
| Pages | 48-61 |
| Author | R. Barry Johnston,Ian Carrington |
| Subject Matter | Accounting & finance |
Protecting the financial system
from abuse
Challenges to banks in implementing
AML/CFT standards
R. Barry Johnston and Ian Carrington
International Monetary Fund, Washington, District of Columbia, USA
Abstract
Purpose – To examine the implications of the changing compliance environment confronting banks
as the international anti-money laundering/combating the financing of terrorism (AML/CFT)
standards have become more rigorous and more attention is paid to integrity related concerns by
supervisors and market participants.
Design/methodology/approach – The paper describes recent regulatory and financial sector
developments and draws analytical lessons.
Findings – Banks are facing increasing pressure from a number of sources to improve their
compliance with AML/CFT and integrity related standards, and a number of institutions are
responding positively to the challenge to establish robust AML/CFT regimes. However, there is a risk
of disruption of legitimate business lines.
Practical implications – Striking the right balance in protecting systems from abuse while
avoiding disruption to legitimate business lines will require further research on how best to implement
the standards.
Originality/value – The paper initiates a d iscussion on the cost/ benefit analysis of the
implementation of the AML/CFT standard and outlines some of the challenges involved in going
forward.
Keywords Money laundering,Banks, Financial institutions
Paper type Viewpoint
1. Introduction
A number of events in the recent history of international financial markets have
focused increased attention on integrity issues related to the general conduct of
business entities including financial institutions (FIs). In the corporate world, the well
publicized events with Enron, WorldCom, and Parmalat, to name a few, have produced
swift reaction from authorities, regulators and the industry itself. The year 2004
witnessed financial regulators imposing harsh sanctions on commercial banks in
response to integrity related failures within these institutions. The events of September
11 focused international attention on the vulnerabilities of FIs to abuse in the financing
of terrorism. These recent events, among others, have led to the emergence of an
environment in which FIs have to meet stricter regulatory requirements for financial
integrity, and increasingly find themselves in a market that penalizes integrity-related
shortcomings.
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1368-5201.htm
This paper is based on a presentation by R. Barry Johnston at the International Arab Banking
Summit IABS 2005, Euro-Arab Dialogue, Frankfurt, Germany, June 23-24, 2005.
JMLC
9,1
48
Journal of Money Laundering Control
Vol. 9 No. 1, 2006
pp. 48-61
qEmerald Group Publishing Limited
1368-5201
DOI 10.1108/13685200610645210
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