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In my role as an Anti Money Laundering specialist, I am often challenged as to the value of independent compliance reviews and their value to the organization's bottom line. Many Canadian organizations self diagnose themselves as low risk for money laundering because they do not handle cash or they are in a small community and know their clients well. The reality is organized crime exists everywhere and in my experience as a police officer I noted that it prefers to operate in smaller communities on the fringe of larger cities. Commonly these communities suffer from low police staffing and inexperienced or unsupervised investigators which the criminals love to expolit.
The Proceeds of Crime (Money Laundering) and Terrorist Financing Act ("PCMLTFA") outlines the required obligations for each industry that includes; Accountants, Lawyers, Casinos, Dealers in precious metals or stones, financial entities, life insurance, money services, real estate, provincial notaries and securities dealers. These global requirements for all entities that fall under the Act are:
It is this last requirement that clients question the value of. Does hiring an external auditor provide value? Well, I believe the answer is a resounding "Yes". A provincial gaming authority found out the hard way last week that their internal controls and procedures were ineffective when FINTRAC issued them a fine exceeding $500,000 for non-compliance in their casino operations. This will surely impact their reputation on the heels of the recent privacy breach to their new on-line gaming site. This gaming authority has teams of internal auditors and investigators responsible for all measures of compliance. Clearly even with all these internal resources their program was still ineffective. Can small to medium size companies with a single internal auditor be expected to have the experience and knowledge to perform an effective and independent review? Based on my observations I believe "No". Internal auditors struggle with independence and being able to tell management that the program is deficient. Compliance is often looked at as a money losing activity, I would say it is now a money keeping activity with measurable value.
When I attend client sites I am always told that their money laundering program is solid and effective. However I have yet to not find issues of non-compliance during any of these audits. We recently completed an audit that resulted in identification of a compliance issue that was missed by FINTRAC during their audit the previous year. Our client has been able to correct that deficiency and solidify their program. We find many compliance officers have developed strong policy and procedures only for my team to determine that it is not being implemented or followed by the operational staff. Had this gaming authority demanded its casino operators to perform independent external reviews of their operations it is possible that many of these issues could have been identified and corrected prior to FINTRACs audits. The costs to complete these reviews would be significantly less than the costs of the fine and the negative media press garnered from this event. Having an independent auditor provide you with detailed recommendations on program improvement allows you to demonstrate an organizational commitment to Anti Money Laundering and allows you to fill the gaps prior to FINTRAC's inevitable arrival that may result in fines and public notice of none compliance.
I do appreciate the financial implications on smaller companies and in response we have developed phase approaches that can include policy and procedure review, compliance review and control testing as well as training as individual components or packaged services. So to answer the question on independent audits, our client testimonials are proof to their effectiveness. Can you afford to do an independent review? Based on this recent decision how can you not?
MNP's Anti Money Laundering team is made up of a diverse number of individuals with over 80 years law enforcement experience that includes significant undercover experience in money laundering operations as well as investigative and forensic accountants and industry specialists. If you have questions about your compliance regime you can contact me, Iain Kenny, CFE, CISSP, CCE, at 1.877.500.0792
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