Over 50 pc banks fail to assess money laundering risks properly

- RUPAK D SHARMA, Kathmandu

Jan 30, 2017-

More than half of commercial and development banks operating in the country do not review money laundering risks at every transaction, signalling an indifferent approach to curbing financial crimes that could tarnish the banking sector’s image abroad.

At present, only 41 percent banks are reviewing money laundering risks at every transaction, says a latest report titled ‘Anti-Money Laundering Process Maturity’ prepared jointly by Fintelect, an India-based research firm, and the National Banking Institute.

Another 45 percent of banks do not review money laundering risks at the transaction level unless some specific concerns are raised about the customer or the transaction, while 14 percent review the risk only when a customer initiates a new type of transaction.

This shows Nepali banks are not investing enough in risk identification and assessment, although risk review should be conducted regularly to curb financial crimes such as money laundering and terror financing, adds the report prepared on the basis of a survey conducted among 23 compliance officers of commercial and development banks.

“If efforts are not made to combat money laundering and terror financing, Nepal runs the risk of falling back into the watch list of the Financial Action Task Force [a global body that creates standards for fighting financial crime],” central bank Governor Chiranjibi Nepal told a conference last week.

The FATF had removed Nepal from the watch-list in June 2014, following introduction of five Acts related to anti-money laundering and combating the financing of terrorism. The Task Force will review Nepal’s case again in 2019.

“If we are not put on the watch-list again, we will continue to be recognised as a financially disciplined country, which will help us attract more foreign investment,” Nepal said.

Most of the banks have not shown serious commitment to identifying money laundering risks, as they lack the required human resource and technology.

At present, 70 percent banks are operating with a team of five or fewer anti-money laundering (AML) compliance professionals, while only two banks have 21 to 50 dedicated staffers for the purpose.

As a result, 35 percent banks have never carried out an AML risk assessment, and only 21 percent conduct AML audits on a quarterly basis.

However, 78 percent banks reported an increase in their AML compliance staff size over the previous year, suggesting a hike in costs to curb financial crimes, says the report.

Also, several banks are in the process of enhancing technology and software solutions to improve AML compliance, adds the report.

Currently, 55 percent banks are relying on manual processes to identify suspicious money laundering or terror financing activities, which include reporting by front-line staff, manual reviews or tip-offs from intelligence agencies.

“Only 39% banks have an automated system or software solution that allows automated monitoring of suspicious money laundering or terror financing activities,” says the report. It is therefore not surprising that 70 percent of the banks here do not have a system that generates a pop-up or alert for an unusual activity or transaction. 

Published: 30-01-2017 07:51

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