Money Laundering, Hindsight & A Missing Factory

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Money Laundering, Hindsight & A Missing Factory
Tue, 21 Aug 2018

Gone. Millions gone. A customer gone. The factory gone?


Wait, what? The factory?


This is a story of a true event caused by a failing in understanding risk, poor customer due diligence and cursory suspicious activity monitoring. I was too junior in my career to have skin in the game but the damage it caused at the time to the business, my colleagues and respected bosses shaped the way I look at risk.


When I get asked how I manage risk now my response is I start from the worst case scenario and ask myself ‘what action could I have taken to be in a different position?’


As New Zealand AML Act extends to Lawyers & Accountants this year I have one piece of advice for those unsure how much focus they should give to the new laws. Spend a little time in the kaleidoscope of hindsight. Review your business and run through scenarios that could leave a sweat on your brow and build processes, policies and controls to mitigate that risk.


With the lens of hindsight:

Complete a Risk Assessment: Understand the risk money laundering poses to your business. A Risk Assessment will highlight the potential for your business being exposed to money laundering; Complete an AML/CFT programme so you and your staff know what to do when a potential breach has been flagged; Have a well-trained AML Compliance Officer who knows what to do when a potential breach has been flagged; Test your on-boarding Customer Due Diligence (KYC) programme to make sure you are able to identify every person (warm body). Build in automated or electronic identification processes; Make sure your Ongoing Due Diligence is as seamless, automated and thorough as possible including your transaction monitoring; File Reports with the FIU as required and have auditors test your programme and assumptions; & File your annual report with your supervisor (FMA, DIA or RBNZ) and seek feedback from regulators and auditors to ensure you’re on the right track. With hindsight, my old colleagues would have done things differently. They would have been able to spot obvious signs like geographic risk, shell companies, and yes, a missing factory.


Lawyers and Accountants should spend time understanding the risk their customers pose and knowing your customer is who they say they are.


To understand the risk we need to focus on the Risk Assessment which challenges us to consider the money laundering (AML) risks you face in the normal course of business.

We need to understand:


The Nature, Size & Complexity of your business; The Products and Services you offer your clients (and potential launderers); The Method of Delivery of your products to your clients; The Types of Customers the business deals with; The Countries the business deals with; & The types of Institutions the business deals with. Now we know what we know, we need everyone in the organisation to know what to do should something occur.


This is where the AML programme earns its keep.



The AML Programme sets out the company’s internal policies (what the response to a risk is), the procedures (what actions we take and how we take them) and the controls (what we use to test assumptions & make sure we are doing what we said we would do).


Remember the point. New Zealand is trying to Keep Our Money Clean and each business is trying to protect against money laundering risk and to be able to stand strong in the face of adversity with the information needed to assist regulators and the Financial Intelligence Unit.

Put simplistically, you need to protect your business by being able to reconstruct the transaction and to identify a warm body that is associated with that transaction.

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