Managing risks in a global epidemic: the effects of Covid-19 on anti-money laundering controls

Although financial flows are expected to decrease during global crises, the rate of illicit finance continues to rise. Europol reports that the increase in online shopping, the necessity of certain medical goods, and the reliance on digital working solutions has provided new avenues for crime, and has revealed significant disruptions for anti-money laundering (‘AML’) indicators. This has pushed institutions to rework their risk management procedures, and has shed light on the coordination and coherence needed for AML measures in unprecedented market conditions.

The ECB, the EBA, ESMA, Interpol, and the FATF, amongst others, have all warned of the emerging criminal activity and risks in relation to AML. These new circumstances have brought many modalities into question, such as the legitimacy of transaction monitoring, data reliability, and the cyber resilience of institutions or the vulnerability of networks. The necessity of effective legal and compliance functions dedicated to the mitigation of financial crimes is now increasingly prevalent.

The risk-based approach, championed by the FATF, is especially relevant in this crisis, and encourages a prioritization of responsibilities based on their perceived levels of risk. To be able to adopt this approach effectively, institutions must remain aware of the emerging risks, and collaborate to find ways to manage and mitigate them. Adapting supervisory tools and monitoring capabilities to suspicious patterns in financial flows and behaviours is primordial in addressing new risks. A resounding solution throughout organizations has been better engagement between the private and public sector on the application of AML measures and emerging risks, as encouraged by the FATF, and the EBA.

Another increasingly relevant solution is to re-invest in technology and digital solutions, such as the use of FinTech for transaction monitoring and digital identification. Leveraging technology helps institutions better assess their internal systems and controls, and focus resources on risk-based enforcement. Using technology to recognize new money-laundering typologies also helps organizations update their risk assessments more efficiently and mitigate potential exploitation opportunities.

The crisis has revealed deficiencies and contingencies which remain to be addressed. This presents a renewed opportunity for institutions to ‘stress-test’ their measures and controls, and be proactive in foreseeing adverse market conditions and new methods of crime. The resilience of business lines, and especially the compliance and legal functions, are indispensable to minimize negative effects and ensure business continuity. With the European Union recently reaffirming their desire to strengthen their fight against ML, it is an opportune time for institutions to get ahead of the curve, and ensure they are adequately equipped to ‘weather the storm’.

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