Deloitte & Touche Survey on Money Laundering Finds “Operational Challenges for Financial Services Industry”

November 5, 2003

Deloitte & Touche, the International accounting firm, has released its findings concerning compliance with the “USA PATRIOT Act and other anti-money laundering requirements,” which concludes that financial services institutions, including the insurance industry, “face significant challenges with most projecting an increase in compliance costs over the next year.”

“The survey results demonstrate that financial institutions still have numerous issues to address, and will need to deploy significant resources in areas where they have anti-money laundering (AML) responsibilities,” said the bulletin. “These areas include restructuring business processes, increased staffing, employee training, purchasing or developing new technology, and enhanced monitoring of regulatory developments. And, with almost 40% of financial services executives reporting an increase in the number of suspicious activity reports filed within the last six months, financial services companies will need to accelerate their AML compliance efforts.”

Michael Zeldin, D&T’s anti-money laundering specialist noted: “Our experience indicates that the commitment of a firm’s leadership – both senior management and the board of directors – to its AML program is essential. Beyond legal requirements, boards and senior management need to make key decisions that cut across traditional functional boundaries.”

The company said it had “surveyed 167 senior executives at U.S. banking, securities, asset management and insurance institutions with AML responsibilities on the procedures they are pursuing to AML compliance. The survey asked executives about their most important issues in complying with the USA Patriot Act and probed into the institutions’ experience in four specific areas: suspicious activity reports, training, testing, and technology.

“Financial executives indicated that establishing appropriate business processes, monitoring U.S. AML regulations, and people-related issues were most important in complying with the USA Patriot Act. Although technology is viewed as a significant concern, it is not considered as a top-rated issue. While critical in enabling AML compliance, technology depends on an institution’s business processes and people to be effective, the survey showed.”

Among the survey’s key findings regarding suspicious activity reports, testing, training and technology were the following:
— Roughly half of executives reported that their firm filed two or fewer suspicious activity reports on average each month. However, 14% said that their institution filed an average of 25 or more reports each month.
— Testing the AML compliance program will be conducted only once, or twice in the coming year at their institutions, according to more than 85% of the respondents. Yet, almost one-fifth of banking executives said that their institutions would conduct testing five or more times in the coming year.
— More than 90% of executive indicated that their institutions provide AML compliance training (under section 352 of the Patriot Act), with personnel in sales and in business units the most likely to receive training.
— Roughly two-thirds of respondents reported their institution use a vendor application to automate Office of Foreign Assets Control screening, an additional 21% said it combines a vendor application with software developed internally, and 8% used software developed internally. Surprisingly, 10% of executives reported that their institutions do not use software for screening.

“With a dramatic increase in the volume of transactions that must be reviewed, institutions have to rely more on IT systems to automate routine reviews and identify items that require more detailed analysis and evaluation,” Zeldin stressed. “Each firm will have to create its own AML compliance system based on its resources and ability to pay for resources needed.”

To speak with Mr. Zeldin, or to obtain an electronic copy of the survey, please contact Duane Coda (dcodanyc@aol.com), or Mary Everette Glenn (maglenn@deloitte.com).

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