The Wolfsberg Principles ‐ an analysis
| Published date | 01 July 2004 |
| Pages | 207-217 |
| DOI | https://doi.org/10.1108/13685200410809922 |
| Date | 01 July 2004 |
| Author | Andrew Haynes |
| Subject Matter | Accounting & finance |
The Wolfsberg Principles Ð An Analysis
Andrew Haynes
INTRODUCTION
In late 2000 a number of leading banks, acting in co-
ordination with Transparency International, agreed
to take on board a set of general principles to facilitate
improving the standards applied in combating money
laundering in private banking relationships. They also
accepted as a formal principle that the responsibility
for this rested with the management of the banks con-
cerned. The Wolfsberg Principles (named after the
castle in Switzerland where the working sessions
took place) have been issued in the hope that other
®nancial institutions will follow them. Since then
the original Principles were amended in 2002 and a
second set of Principles issued to deal with the poten-
tial abuse of correspondent banking relationships.
Finally, early in 2003 a further set of Principles was
issued with the view to suppressing terrorist ®nances.
One reason for the creation of the Principles was to
create a common standard to reduce the uncertainties
and complexities resulting from running multi-
national banks across disparate anti-laundering
regimes. A set of requirements, even though more
onerous than those imposed in any of the states in
which the banks concerned operate, makes the run-
ning of the banks much simpler and thus reduces risk
management costs. In part the Principles were also
driven by the belief that the standards required in the
USA were insucient, particularly after the Congress
threw out President Clinton's attempt to tighten up
the law.
1
The banks involved had become increasingly con-
cerned that the enormous quantities of money laun-
dering currently taking place could pose a threat to
them. This could come about as a result of it becoming
apparent that a bank has laundered money. If the bank
concerned has maintained good standards there is still
likely to be damage to reputation, even where the
regulator concerned does not believe that disciplinary
steps are warranted. In many cases, however, they
will. There are clear signs that the regulators had
been becoming both more assertive and proactive in
this ®eld,
2
as the Basel Committee pointed out:
3
`Reputationalrisk poses a major threatto banks, since
the nature of their business requiresmaintaining the
con®dence of depositors, creditors and the general
marketplace. Reputational risk is de®ned as the
potential that adverse publicity regarding a bank's
business . . . will cause a loss of con®dence in the
integrity of the institution . . . They need to protect
themselves by means of continualvigilance through
an eective know your client programme.'
However, paradoxically the Basel Committee has
excluded reputational risk from the Capital Adequacy
Directive (CAD) III, the argument being that there is
no accurate way of quantifying it. That said, a number
of attempts have been made to do so. It can be
countered, however,
4
that there is no real evidence
of banks suering measurable ®nancial loss as a result
of damage to reputation being caused by a money
laundering scandal, recent well-publicised examples
being Citibank and the Bank of New York. In the
longer run, though, there could be the danger of a sys-
temic consequence where the general damage to the
image of banks starts to re¯ect such crises.
In the UK the Financial Services Authority (FSA)
has adopted a similar approach to that seen in the
Wolfsberg Principles. In Consultation Paper 142 it
stated:
`a ®rm must take reasonable care to establish
and maintain eective systems and controls for
compliance with the applicable requirements and
standards under the regulatory system and for
countering the risk that the ®rm might be used to
perpetrate ®nancial crime.'
While this wording has not found its way into the FSA
Handbook it nonetheless determines some of the key
regulations that were passed.
Rather worryingly in this context, in an FSA
investigation into banks,
5
four of the main de®ciencies
that were found related to this. They were:
inadequate supervision by senior management
of account opening procedures by higher risk
customers;
insucient checks on the identity of the bene®cial
owners of companies;
too much reliance on introductions by existing
customers; and
Page 207
Journal of Money Laundering Control Ð Vol. 7 No. 3
Journalof Money Laundering Control
Vol.7, No. 3, 2004, pp. 207± 217
#HenryStewart Publications
ISSN1368-5201
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