This is an article from the June 2006 issue of DM Review's Extended Edition. Click on this link for more information on DMR Extended Edition or to download this issue in a PDF format.

Global corporations continue to accelerate their compliance and governance initiatives in order to meet the latest regulatory mandates and better protect the reputation of their firms. In addition to the most visible of compliance projects (such as Sarbanes-Oxley and Basel II), international financial organizations - which offer banking, securities and insurance products - continue to struggle in implementing timely crusades against money laundering. For companies based in or doing business in the United States, the Patriot Act adds yet another dimension to existing enterprise anti-money laundering (AML) strategies - requiring additional resources and mechanisms that support competent Patriot Act compliance.

The U.S. Patriot Act was signed into law October 2001. It contains many strong provisions to prevent and detect international money laundering - especially with respect to terrorist activities. Title III of the Patriot Act contains the broad and far-reaching International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001; this directly and immediately impacted many institutions (financial and nonfinancial) in the United States. It is important to note that the origin of funds used in the financing of terrorism do not necessarily come as a direct result of crime, which is a common thread in money laundering.

Approximately a decade before the Patriot Act, G-7 Nations established the Financial Action Task Force (FATF) to study the problem of money laundering and to implement measures designed to block criminal access to the international financial system. The Task Force's guidelines are the standard against which national AML laws are measured.1 Of particular interest is the evolving list published by the FATF that catalogs countries and government entities that are regarded as uncooperative in combating international money laundering.

For many organizations, the existing systems and strategies currently in place to police money laundering matters will, with a little work, be able to support the affairs of Patriot Act compliance. Assuming that robust AML software and procedures are resident, expedient actualization of new models of risk identification and forensic data mining (which include fresh structures of trending, pattern identification and alerts) will be tenable. Existing operational and IT solutions that investigate mountains of customer activity data (in order to detect fraud or suspicious behaviors) can most often be leveraged and expanded to meet both Patriot Act and AML requirements simultaneously.

No matter how solid a company's procedures, systems or training to detect and deter money laundering, today's criminals have become increasingly sophisticated. Vulnerability for even the most technically and operationally astute of enterprises has increased over the past few years. Institutions that are able to cultivate a deep familiarity with those entities with which they transact business will enjoy a virtual layer of protection against money laundering. "Know your customer" (KYC) initiatives, when done correctly and ethically (privacy and confidentiality concerns of clients must be totally respected), can offer a solid front line means of protection against money laundering activities. Ethical customer intelligence and due diligence must occupy a primary place on the corporate governance agenda. The fight against money laundering has become an evolving mission that requires the constant KYC vigilance of financial institutions: the impact and risks of money laundering are still being fleshed out, as are the best practices needed to mitigate and alleviate these hazards.

Aside from immense damage and taint to an organization's stature and trustworthiness, money laundering undermines confidence in the worldwide financial system. Still worse, it hurts the greater public, especially when it is used to fuel and fund acts of terror and further criminal activity. Ensuring an institution's requisite compliance with the Patriot Act as well as AML regulations (applicable to all jurisdictions where business is conducted) entails a level of unprecedented cooperation - within the financial community, with regulators and auditors, with government and law enforcement agencies - to identify and report questionable financial activity. The greater a financial entity's global breadth, the more they are finding themselves under new and wide-reaching regulatory microscopes, accountable for illegal financial activities that are serviced with assets under their aegis. Both the Patriot Act and current AML legislation are still considered to be in their infancy and will unquestionably be subject to future changes. For the near future, existing corporate governance policies that address these dynamic precepts will need periodic updating and amending.


  1. Go to for more information on the FATF guidelines.

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