The hidden costs of noncompliance: Why investing in AML/CFT is critical  | Baker Tilly

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The hidden costs of noncompliance: Why investing in AML/CFT is critical  | Baker Tilly

Significant fines

Fines can be imposed by regulatory bodies such as the Financial Crimes Enforcement Network (FinCEN), the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), the Consumer Financial Protection Bureau (CFPB), the Office of Foreign Assets Control (OFAC), and other federal and state regulators. Large financial institutions, including banks, credit unions, financial technology companies (fintechs) and virtual asset service providers, have been fined billions of dollars in the past, while investment advisers have received fines in the millions of dollars. These penalties can be substantial enough to affect profitability or even the ability to stay in business.  

Enforcement actions

Regulatory bodies may take formal enforcement actions against a noncompliant organization, which can range from fines (as noted above) to more severe sanctions such as suspension of operations, restrictions on business activities, significant remediation efforts or even the closure of the institution in extreme cases. 

Reputational damages

The loss of client trust and brand value can be severe when an institution is caught in noncompliance with AML/CFT regulations. Reputational damage can impact client confidence, client relationships and public perception. Clients may choose to take their business elsewhere, or prospective clients might be hesitant to work with firms linked to illicit financial activities. 

Asset endangerment

Noncompliance with AML/CFT regulations can jeopardize the assets of both clients and financial institutions. Failure to comply may expose client funds to potential loss due to money laundering or fraud. Similarly, for financial institutions, inadequate controls can lead to frozen or seized assets, legal claims, or losses from regulatory penalties. 

Personal liability

Senior executives, compliance officers and sometimes even employees of financial institutions may be held personally liable for their roles in failing to comply with AML/CFT regulations. This can include criminal prosecution, civil penalties, or both. In some cases, individuals are prosecuted for failing to detect or report suspicious activities with consequences that may include personal financial penalties or jail time. 

Regulatory scrutiny

Noncompliance can lead to an increased level of regulatory scrutiny, which can extend beyond the specific institution involved. This may involve closer inspection of the firm’s business practices, and heightened reporting requirements or increased examinations from regulatory bodies. Moreover, increased scrutiny is rarely a short-term consequence; in fact, regulators have long memories and tend to continuously scrutinize noncompliant organizations.  

Outsourcing: An attractive option 

Given all the potential consequences, it is imperative that financial institutions hire AML/CFT experts who possess both the highest level of experience and the time to dedicate most or all of their attention to AML/CFT compliance. These professionals also need to understand the seriousness of their position, the importance of their role and the severity of the potential consequences. 

In short, before they even begin their AML/CFT journey, companies need to fully comprehend the cost of compliance and the cost of noncompliance.  

There simply is too much risk in cutting corners with your AML/CFT hires and technology decisions. Of course, the immense challenge of sourcing qualified people, training them, paying their salaries, and purchasing the required software is precisely why so many companies outsource their AML/CFT responsibilities to a firm that specializes in this type of work.  

As the regulatory environment changes, Baker Tilly continues to offer financial institutions a steady hand with their AML/CFT compliance program. Our onshore Certified Anti-Money Laundering Specialist (CAMS) professionals understand the roadblocks to AML/CFT compliance and the risks of noncompliance and are ready to serve organizations in any industry and at any maturity level.  

With this in mind, many financial institutions opt for assistance with individual components of their AML/CFT program, such as third-line independent testing and regulatory exam preparedness or one-time projects such as implementing a new transaction monitoring system, responding to a regulatory enforcement action, or validating remediation activities while other companies outsource their entire AML/CFT responsibilities to Baker Tilly. Along the way, we absorb the costs of hiring full-time AML/CFT specialists and offset the expense of purchasing technology to detect and prevent financial crimes, all while allowing you to focus on what you do best.  

To discuss how Baker Tilly can ease your AML compliance journey, contact us today.