Asian Financial Crime Risk Executive Forum

Asian Financial Crime Risk Executive Forum

26th March 2013

Presented bySam Gibbins

Director, International Compliance Association

The Challenge of Delivering Profits whilst Remaining

Compliant

Morals and work ethic

“How do we behave when we think nobody is looking?’’

Regulatory Objectives and the Concept of Regulation

• To protect investors• Ensure that markets are fair, efficient and

transparent• To reduce systemic risk• Protect financial markets from financial crime• Maintain consumer confidence in the financial

system

Factors that Shape the Regulatory Framework

• Regulatory failure• Influence from international communities• Domestic and international political pressure• The development of complex products• The evolution of new technologies, such as the

Internet or mobile payments as a delivery channel for products

Advancement Theories

• Products becoming more complex, harder for regulators to keep up

• Increasing numbers of individuals buying increasingly more complex products

• Ever expanding number of avenues for illicit and criminal activity in financial services

• Higher level of global scrutiny of jurisdictions and their money laundering effectiveness; how effective are fines as deterrents?

The GuardianJanuary 4th 2013

Otto Bruderer, a managing partner of the bank, told a New York court:

"Wegelin was aware that this conduct was wrong… From about 2002 through

to about 2010, Wegelin agreed with certain US taxpayers to evade the US tax obligations of these US taxpayer clients, who filed false tax returns with the IRS.”

It’s a wide spectrum…

securitymanagement.com April 27th 2012

•‘Morgan Stanley maintained significant internal controls designed to prevent such corruption’

•The policies were updated regularly and employees were trained in FCPA compliance

•Records showed that Morgan Stanley trained Peterson on the FCPA seven times during the time frame of the fraud and reminded him of FCPA rules 35 times

Libor – the gift that keeps on giving!

www.bbc.co.ukFebruary 6th 2013

•Fines in the millions for a wide variety of financial services firms

•Huge reputational damage

•Individual prosecution cases?

The Economist February 9th 2013

The double edged sword that is technology!!!

Left Foot Political BlogNovember 9th 2012

A study in human nature

Statistics suggest, when it comes to criminal, or even moral, choices:-

10% of people will…………….10% of people will…………….80% of people will…………….

A study in human nature

Statistics suggest, when it comes to criminal, or even moral, choices:

•10% of people (staff) will never knowingly choose the wrong path (always follow your compliance programme)

•10% of people (staff) will actively look for the wrong path (because your programme makes life tougher for them)

•80% of people (staff) will only take the wrong path if they think they will “get away with it” (when you don’t take any notice of what they are doing)

A study in human nature

“People only Respect what you Inspect”

A study in human nature

The GuardianMarch 20th 2013

How far can public outrage push the government?

The TelegraphMarch 21st 2013

•“But Osborne’s attempts to tackle avoidance are little more than a sham. The public are outraged that, for big companies like Starbucks., paying tax seems to be little more than a matter of choice

•This government is keen to be seen to be taking action. Yet in reality their plans will give a green light to corporate tax dodgers, ensuring they can shirk their responsibilities to society.”

•Murray Worthy, War on Want

TheStar.comMarch 21st 2013

•“Sergei discovered a huge Russian tax fraud,” said Browder in a telephone interview. “He found that $230 million was stolen from the Russian government. But we knew there would be no accountability, so we followed the money ourselves.”

•Magnitsky said he had found a “web of corruption” spun by Russian tax officials who allegedly masterminded the biggest Russian tax heist of the century.

•With the help of international police and journalists, he traced $135 million in laundered funds, $31 million of it washed through Cyprus.

The Changing Face of Regulations

• Cross border• Increasing in number, increasing in complexity• Adapting faster than they ever have• Greater desire for ‘follow through’ with regards to

illicit activity• This is not ‘even’ across all nations!• Easier to find breaches?• Customers more willing to look for alternatives• The game of Hide and Seek is much more difficult

these days…

Importance of Complicity with International Frameworks

October 12th 2012Singapore cracks down further on tax evasion www.hubbis.com

October 18th 2012Singapore to criminalize tax evasion by July 1st 2013www.mountainvision.com

New FATF money laundering guidance

February 16th 2012The international Financial Action Task Force has issued substantially revised guidance on money laundering legislationwww.stepjournal.org

All businesses face a multitude of risks – but the financial services industry has more than its fair share – and so

risk management is crucial.

Impact and Probability Risk Map

Strategic options for dealing with risks

Risk reduction ways of reducing likelihood/probability – improve prevention and control measures

Risk transfer to another party

Risk sharing link with another department/organisation

Risk avoidance e.g. by ceasing activities in, or not entering, a particular area

Risk acceptance & management

an informed decision to accept likelihood/probability

Risk deferment e.g. not entering a new market at this time, wait and see how it develops and reconsider

Risk limitation limit scale or scope of commitment/activities/investment

Risk mitigation put in place a plan that accepts risk but also deals with damage limitation

Strategic options for dealing with risks

Key Compliance Framework Issues

• Ultimate responsibility for compliance rests with senior management

• The compliance function is developed and used by senior management as a critical tool, complementing other key risk management functions such as internal audit

• The compliance function is independent but sufficiently close to business operations to be effective

Key Compliance Framework Issues

• The compliance function is instrumental in embedding a strong compliance culture throughout the organisation

• The compliance function ensures ongoing compliance with regulatory requirements or at least is capable of timely remedial action

Compliance Culture starts at…

Chatswood Consulting Ltdwww.chatswood.co.nz

… the top.

The compliance culture, programme and your staff

Every firm has a (general) culture, which drives• The way power flows• The way people, especially management, communicate• The risk appetite• The way things are done• The energy (and resource) levels applied

Cultures are pervasive, and exist across the firm

Shaping your firm’s Compliance culture and its compliance programme

• To develop an appropriate compliance culture• To provide training• To provide consultancy to the Business Units• To implement, monitor and report on standards of

compliance• To interface between the firm and its regulators

Typical contents of a Compliance Function Terms of Reference

www.morecarrot.comJuly 19th 2012

It’s official: establishing a culture of compliance in the workplace – and communicating it clearly – can help you

earn a get out-of-jail card in the courtroom.

• There is no ‘one size fits all’ solution• Firms need to assess what they need, and how

best to achieve this• What is best for your competitor may not be

best for you• There is no perfect answer!

Conclusion

- END -My thanks to you all for listening

and, where applicable, staying awake

Sam GibbinsDirectorInternational Compliance Associationsgibbins@int-comp.org+65 6500 0012

Contact Information