AML-CFT: Cost of Compliance

The Cost of Compliance for AML-CFT regime may differ from one institution to another institution. There are nevertheless some common costs incurred by a country that are not directly "absorbed" by a reporting institution. Example of costs incurred to establish AML-CFT legislation include items such as administrative costs, fees paid to experts, exposure drafts and various parlimentary readings and discussions. For financial institutions, costs could further be classified as "Prompted responses" and "Unprompted responses". Costs under the category of prompted responses include Training/professional development; Staff recruitment; Staff salaries; Monitoring software establishment; Software recurrent and External consultancy. Meanwhile, unprompted responses include Record keeping; monitoring; reporting; purchase of equipment or hardware; admin costs and customer relations. It is worth noting that reporting institutions are institutions that have been identified by the "AML-CFT Competent Authority - in Malaysia, this is Bank Negara Malaysia or BNM" who are expected to facilitate BNM by submitting "suspicious transaction reports or STR". Beside financial institutions, other reporting institutions are legal firms; accounting & auditing firms; company secretaries; casino; gem or metal dealers; money changers.

AML-CFT Fraud Risk Indicators

The Financial Action Task Force (FATF) is an inter governmental body set up in 1989 by various countries' jurisdiction with the aim of setting up standards and to promote effective implementation of legal, regulatory and operational measures to combat money laundering, terrorism financing and other related threats to the integrity of international financial system. The FATF developed several recommendations that are recognized as the international standards to combat money laundering and terrorism financing.

For financial institutions for example, FATF put forward the following recommendations to isolate high risk customers and high risk transactions. They include: (1) Policy and/or procedures for customer due diligence (R.5); (2) Policy and/or procedures for enhanced due diligence for politically exposed persons (R.6); (3) Policy and/or procedures for non-face to face business relationships (R.8); (4) Policy and/or procedures for anti-money laundering & counter terrorist financing programs (R.15); (5) Policy and/or procedures for countries that do not apply or insufficiently apply the FATF Recommendations (R.21); (6) Identify unusual and report suspicious transactions (R. 11 & 13) and (7) Consider identifying and reporting large currency transactions (R.19). Failure to comply to these recommendations constitute AML-CFT fraud risk indicators. The FATF have issued various recoomendations that covers various sectors and industries. Future research could look at indicators for various sectors and assess their effectiveness.

AML/CFT Training & Competency Framework

Gupta (2011) proposes a “competency framework” for human resources and professionals. Indeed, this framework is deemed suitable to be adapted when training AML-CFT professions - investigators, compliance officers, lawyers, accountants, auditors and company secretaries. According to Gupta, an effective competency framework for professionals should encompass at least eight dimensions. First, the competency training should focus on the real life requirements of the profession. Second, the competency training should integrate skills, attitudes, knowledge and experience to enable auditors to perform their tasks effectively.

Therefore, their sense of responsibility to ensure reasonable assurance against material misstatements should outweigh “mere compliance” with the standard. Third, the proficiency level of the professionals' expected competency should be objectively defined. Fourth, the organizations where the professionals are attached should provide sufficient flexibility to allow them to build their own competency. Fifth, the contents of competency training should be continuously updated to reflect latest requirements. Sixth, competency should be repeatedly demonstrated to achieve the objectives of the stipulated standard related to AML-CFT. Seventh, competency should be assessed by performance in real life situations against well-defined criteria. Finally, competency should be developed using various strategies at organizational and individual levels. Future research could propose competency framework for specific AML-CFT professionals.

Research Topics Related to Money Laundering

Research interest in the area of Money Laundering is a fairly new phenomenon. Though money laundering activities have started many years ago, research in this kind of financial crime is very limited. Money laundering is the process or activity undertaken by money launderers (or fraudsters) to conceal the sources of "dirty money" that are obtained from illicit means. Just like the concept of a laundery machine that is used to clean dirty linens, the dirty money (which is illegal)is put through various mechanisms so as to the ligitimise its existence. Once ligitimized, the "clean money" can be used as normal instrument for business transactions. In Malaysia, money laundering crimes involved those classified as predicate offences under the Anti-Money Laundering and Counter Financing of Terrorism Act 2001 (AMLATFA 2001). Among the predicate offences include: illegal gambling, illegal deposit taking, sale of illegal drug, criminal breach of trust, fraud, drug trafficking, embezzlement, racketeering, tax evasion and human traficking. For research purposes, there remains a gap in the following areas: (1) Developing AML/CFT Training & Competency Framework for AML-CFT Investigators (2) AML-CFT Fraud Risk Indicators (3) Training & Competency Framework for AML-CFT Professionals (4) Cost of AML-CFT Compliance (5) Assessing Cost of AML-CFT Fraud (6) Cost Effectiveness Model for CFT Regime (7) AML-CFT in Non Profit Organizations (8) Tax Evasion (9) AML-CFT Awareness Among Designated Non Financial Business & Professionals (DNFBP) Upcoming entries will discuss each of the above proposed research topics

International Collaboration with University of Tasmania

My four-day visit to the University of Tasmania (UTAS)is on the invitation of Professor Roger Willet, a senior research professor at the the School of Accounting and Corporate Governance. In November 2011, a letter of intent was signed between UTAS and UiTM for possible collaboration in research, publication, supervision and staff exchange. This visit signifies a significant initiative to illustrate committment of both entities towards executing a successful strategic alliance. For 2012, the collaboration will start with a joint research publication project focussing on the Financial Capital Markets in the Asia Pacific Region. The project will involve authors from more than twenty countries in the Asia Pacific.

Congratulations

I wish to congratulate all eleven students who attended my applied research class last semester and have successfully completed their research projects. The students are namely Jamal Sharif, Hafiz Ramli, Nor Adira, Nor Adliana, Dalina, Norazlina, Norhafizah, Faizah, Mohd Amran, Suliza and Firdaus. To most of them, the completion of their applied research thesis implicates that they have completed their Master in Forensic Accounting and Financial Criminology program at Universiti Teknologi MARA and they will be awarded the Master degree next semester. Congratulations all for maintaining the 100% success rate and in completing your research projects on time......

MOU Signing Ceremony

The Accounting Research Institute (ARI) and Universiti Teknologi MARA will be signing a Memorandum of Understanding with the the Institute of Public Enterprise (IPE),India. IPE, like ARI is a national research centre of excellence, focussing specifically on the development public enterprises. The Institute is a research centre within the University of Osmania in Hydrabad. Prof Mishra, who is IPE Director visited ARI in 2011 and ARI researchers participated in an international conference in Hydrabad last December. For the MOU ceremony, the Vice Chancellor, Dato' Prof Ir Dr Sahol Hamid Abu Bakar himself will be signing on behalf of the university. ARI-IPE will be co-organizing a Board Training Program in New Delhi on 9-10 February 2012, during which the MOU will be signed.