Ashish Bhandari Discusses Anti-Money Laundering Rules: Challenges & Requirements

Ashish Bhandari Dubai

October 8, 2021

Ashish Bhandari Discusses Anti-Money Laundering Rules: Challenges & Requirements

Over the last few years, the resources for anti-money laundering supervision have been increased. With the 2019 political agreement and an increase in resources from the 2017 political agreement, the Danish FSA (DFSA) has been able to improve the anti-money laundering supervisory efforts remarkably. While examining the anti-money laundering rules, the DFSA discovered that there are several recurring themes across the sector in which compliance with the anti-money laundering rules could generally be improved. Even though a majority of companies are aware that they must stay alert and not be used as a vehicle for money laundering, they often lack sufficient managerial focus when it comes to the prevention of terrorist financing.

Overall, the DFSA supervises 1500 companies and inspected 55 of these companies in 2017, when the Anti-Money Laundering (AML) Act came into force. The DFSA found these most common types of breaches while inspecting:

1. Risk-based Approach –

To prevent money laundering, companies should incorporate a risk-based approach, where they keep their focus on business areas where there is a higher risk of money laundering and terrorist financing. Also, the DFSA noticed that there is a standardized template to perform duties, which does not fit the character of the company’s business model.

2. Insufficient Risk Assessment –

Based upon the type of customers, products, and the geographical locations in which the companies operate, the management should assess and identify the risks. In the case of not having a complete understanding of all types of risks, the company holds the possibility of not having clarity on how to take action and prevent money laundering.

3. Ambiguous Policies –

In most cases, the DFSA noticed that the policies were too vague and are not sufficiently operational. This makes it difficult for the companies to implement policies and make wrong decisions about the organization of policies – e.g. which procedures to adopt.

4. Undetailed Procedures –

Many companies are using general procedures which do not align with the workflow of the company. Without a sufficient foundation and inadequate procedures, the employees are more likely to make mistakes and internal controls become difficult to implement.

5. Insufficient KYC Procedures –

A lack of updating of documents, data, and information about the customers and failure to obtain information about the intended nature of business relationships, are a sign of inadequate KYC procedures.

Taking these common breaches and areas of improvement under consideration, the DFSA has integrated more resources for anti-money laundering supervision. In March 2019, a third political agreement was entered (between the government and The Social Democratic Party, Danish People’s Party, Danish Social Liberal Party, and The Socialist People’s Party) to strengthen the efforts to combat money laundering.

Moreover, the DFSA regulates risk-based supervision which means that supervision should be focused where the risk of companies being used for money laundering or

terrorist financing is the highest. The requirements are also that companies know their customers and their transactions, as mentioned in the most common breaches. In case

of suspicious transactions, companies must notify the Anti Money Laundering Secretariat (the FIU) at the State Prosecutor for International and Serious Economic and International Crime (SØIK).

The DFSA recognized that the management must play a greater role and thoroughly assess how the company might risk being used for money laundering and terrorist financing. This could be achieved by structuring the companies in terms of organization, staffing, systems, and procedures. The role of the DFSA is to assure that the companies are following their legal obligations to prevent money laundering and terrorist financing, the actual investigation is then the matter of the police.

In case a company does not comply with the anti-money laundering legislation, the DFSA will ask the company to remedy the situation. In very severe cases, the DFSA may report companies to the police, and in extremely severe cases, the DFSA may revoke a company’s authorization to conduct business. An initiative is included in the political agreement of 2019 to create a legal basis for the DFSA to issue administrative fines, pause on

boarding of customers, and to insert a representative into a company in case of serious non-compliance with the AML Act.