Prevention and ethical value system are the only solution. A good internal control system with strong and robust ethical culture will keep any damage down to a minimum, where there are cases of money laundering

Anti-money laundering (AML) guidelines must be implemented and followed religiously. A touch of religiosity (religious rituals are done with devotion and with discipline) in implementation may perhaps inspire commitment and then hopefully it will be laced with ethics. This is how it should be—but does that happen?
 

The failures of several recent cases demonstrate that it does not happen. Inadequate internal controls coupled with lack of commitment and disrespect to ethical values from senior management has led to significant losses for banks.
 

Prevention and ethical value system are the only solution. Prevention means blocking an event that may pervert the established internal controls. Clearly, if the cancerous growth of money laundering is to be arrested/ checked, strong doses of chemo-radiation in the form of stringent internal checks and controls and high ethical business standards with all the unflinching commitment of the top management will need to be administered.
 

Know your customer (KYC), an essential prescribed precaution, must be coupled with know your employees (KYE). There are a host of instances that highlight the involvement of employees in fraudulent transactions and in most cases in league with customers as the Cobrapost sting operation indicated. The sting operation captured employees advising the customers how they could convert their black money by opening multiple accounts, engaging mules, and many other such methods. Though there was no evidence to show that they did it for any financial gains, yet it did prove that for attracting customer and mobilizing business to meet their targets they won’t hesitate to resort to any tactics. It seems the pressure to achieve the target was the motive behind their action. It couldn’t be established though whether they had the blessings of the senior management. However, the banks named in the sting operation are headed by eminent bankers who will certainly not approve of such dubious actions from their employees. This therefore brings in sharp focus the need for a thorough check on employee’s credentials and proper screening of candidates to prevent the hiring of undesirable characters. Criminals can deploy only one of two ways to launder money, they can either fool the bank employees into participating or they can get them to be complicit.  When banks take money laundering regulations seriously and follow them religiously the job gets a whole lot harder for the people involved in criminal activities.
 

Cobrapost’s sting operations brought to light officials of a few banks, who lacked integrity, had no discipline and transparency, and did no due diligence This should ring a warning bell and send a strong and clear message to all, to ensure that adequate systems are put in place so as to reduce the possibility of circumventing the policy guidelines and prescribed procedures. These imply that the controls should be such as to facilitate efficient conduct of business on ethical lines and at the same time obviate any chance of fraud. The need therefore is to revaluate AML compliance controls and systems.
 

Internal check forms a valuable part of the Internal AML Control System. Violations take place primarily because of target achievement pressure and veiled motivation from top management who to a group of officials said, “compliance people tell how not to do the business; you have to take your own call on your business growth.” It is so ironic that the person who made this statement spoke after a session on Business Ethics.
 

It has been observed that an organization implementing and maintaining a robust internal control system backed by a moral and ethical culture would, in most cases, prevent any perversion of rules and regulations. If banking organizations/financial institutions do not go down that road, it is inevitable that they will be more prone to violations and resultant reputational risk. A good internal control system with strong and robust ethical culture will keep any damage down to a minimum. However, despite the soundest internal checks and control system being in place subversion will take place because of staff collusion, abuse by person who has authority and overriding the control management.    
 

Each bank/financial institution must establish the appropriate internal systems necessary for the sound application of the anti-money laundering regulations and must  review such systems periodically to find out any weaknesses therein or in the extent to which such systems are applied and must  take the appropriate measures to correct such situations supported by the firm commitment from senior management.
 

Lack of spirituality and materialism seem to be the root cause for all these problems. Greed has taken over contentment and replaced ethical values. Everyone wants to get rich. It is the get-rich-quick syndrome that is driving people and organizations to indulge in activities inconsistent with organizational value systems. Organizations should try to develop a culture that has ethical and spiritual tone that echoes constantly and the more it is developed, less will be the incidence of fraud and violations.
 

(Saiyid (SSA) Zaidi is a training and development consultant as well as external subject matter expert at the Educom Group Banker's Academy in New York.)