Corruption can lead to ethical and reputational problems at a private and public level, heightening the need for recognition across the globe about how to both report and prevent it. At the end of 2021, the Biden Administration announced their plans for an anti-corruption strategy to tackle corruption’s ‘ability to corrode democracy’. This echoed other foreign governments around the world which have sought methods to mitigate risk and combat corruption. There have been developments across the globe to combat corruption in recent years, which helps draw conclusions for financial institutions on how to mitigate risk; we can offer solutions to help with these risks.
The global fight against corruption
The Biden Administration released its strategy on countering corruption after it was recognized as a threat to national security. The Financial Crimes Enforcement Network (FinCEN) recently released a corruption advisory for financial institutions to detect proceeds of foreign corruption and reporting suspicious activity. This included of a list of red flag indicators as well as the reporting requirements. Read our coverage.
On a global level, in June 2021, Leaders of the G7 highlighted the need for action on corruption by increasing transparency and collaboration in investigations. This included sharing information on any illicit financial activities, tackling the misuse of shell companies, and curtailing illicit actors and organized criminals to hide their wealth, in manners such as real estate.
Similarly, the United Nations Office on Drugs and Crime (UNODC) has put forward its recommendations for effective policies against corruption, which span from transparency within the public sector that is free from conflicts of interest, to developing an informed society with access to information and encouragement for public reporting.
The 2021 Corruption Perceptions Index (CPI) ranks 180 countries around the world by their perceived levels of public sector corruption on a scale of 0-100, with 100 being ‘very clean’ and 0 being ‘highly corrupt’. The global COVID-19 pandemic was partly to blame as an excuse for countries curtailing the necessary checks and accountability. Countries in Asia Pacific were found to have an average score 45 out of 100 on the CPI, highlighting further requirements to address corruption. Top performers included New Zealand (CPI score: 88) and Singapore (CPI score: 85), however some of the lowest scores in the world were Afghanistan and North Korea who both had a CPI score of 16. Threats to democracy, inadequate protection for whistleblowers, and a lack of transparency with fragile freedom of speech are all contributions to these low CPI levels.
Last year, China amended its Criminal Law to increase the penalties for private individuals convicted of corruption as well as authorities releasing anti-bribery guidelines. This could result in any entities paying bribes in China being blacklisted and banned from conducting business. These actions need to be more widespread across the APAC region to deter public officials by engaging in corruption or bribery, as well as developing a more transparent society.
Transparency International, a global organization fighting corruption, highlighted a method to combat corruption by closing the international loopholes. Corrupt public officials use these to launder and hide proceeds of looted state assets through offshore banks and financial centers. The European Union approved the 4th Anti-Money Laundering Directive, where all EU member-states must register the beneficial owners of companies established within their borders. The purpose being to remove any ambiguities surrounding the UBO and ensuring they align with the FATF’s AML and CTF standards.
What can FIs do to counter corruption?
There are several ways in which financial institutions can address the risk of corruption, to not only prevent it occurring, but also to avoid the risk of being penalized. First and foremost, a robust compliance program needs to be put in place, equipped with both well-trained individuals, paired with advanced technology. Some of the following actions that need to be undertaken include:
- Ongoing risk assessments to categorize the level of risk that each individual or entity is set at when they are onboarded, but continually monitored should their level of risk change due to unforeseen circumstances
- Third party due diligence should be implemented so companies can identify any red flags, prevent violations, and ensure they are kept abreast of any governmental authorities engaging with their business
- Increased communication within the business, as well as externally to enforcement agencies. There should be communication to employees surrounding ethics and legal obligations, as well as ensuring any corruption, or attempted corruption, is shared with authorities.
How can AML RightSource help?
For your company to avoid penalties and risks of corruption, AML RightSource can support through our managed services and technology solutions. With specially trained analysts and investigators, we can assist with risk assessment, enhanced due diligence and KYC protocol that are essential to elevating your compliance program, so it’s equipped to fight corruption.
Furthermore, we provide a plethora of technology solutions, powered with advanced AI to go beyond the traditional data capturing and instead enrich structured and unstructured data. This enables advanced and complex due diligence processes that are customized to your business and continue providing risk assessments after the onboarding process. Check out our QuantaVerse platform to see how this technology can help your business combat global corruption.
For further information and speak to one of our team, simply get in touch