Determining the effectiveness of banks in preventing money laundering and funding of terrorism

Abstract

Purpose: The latest Moneyval report, published on 12th September 2019, has given Malta an overall effectiveness rate of 30%. This study aims to analyse the effectiveness of domestic banks through supervisory activities and through the quality and quantity of internal reports. Moreover, this study seeks to identify the main challenges faced by banks, and the cost of compliance specific to Anti-Money Laundering. The author further mentions briefly the repercussions of noncompliance. Design: The main objectives of this study were reached through two different data collection methodologies. The first method was a questionnaire, which included a total of 54 participants. In the second method, 4 semi-structured interviews were conducted; two with the Financial Intelligence Analysis Unit, one interview with an anti-money laundering software development company, and another one with a consultant company. Findings: The results demonstrate that local banks are faced with different challenges, such as, foreign exposure, emerging unsustainable sectors, technological challenges, and supervisory pressure as a result of the low rating issued by the latest Moneyval report. Additionally, the perception of the majority of the bank employees is that anti-money laundering requirements are affecting the relationships with their customers. Nevertheless, non-compliance with anti-money laundering regulations would result in breaches, fines, and in case of publication, reputational risk. In addition, this research has found that there is a lack of coordination between banks and the Financial Intelligence Analysis Unit on the outcome of internal reporting. Conclusion: Anti-money laundering and funding of terrorism measures are vital for the integrity and stability of the financial markets. Everyone has a role to play in this fight. It is thus the belief of compliance officers that every employee must be given anti-money laundering training as every employee can be exposed to such risks. The general consensus of FIAU is that banks are much more effective and robust in their counter measures. The majority of banks nowadays have systems in place, and more awareness and willingness to cooperate with authorities. Furthermore, banks represent the majority of licence holders submitting Suspicious Transaction Reports to FIAU. The number of these reports has skyrocketed in recent years, while there has also been an improvement in the quality of reporting. Value: This study provides some possible measures that banks can implement in order to be more proactive in their counter measures. Moreover, although this research focuses only on banks, some of the measures can be implemented by other financial sectors.