Exploring the personal qualities which help shape the most effective Money Laundering Reporting Officers
Financial Crime as a function has evolved and expanded greatly over the last three decades. I have written this article to look at the essential DNA of an effective MLRO (Money Laundering Reporting Officer) and following my earlier article looking at that of a Compliance Officer. I again wanted to explore this subject on a peer-to-peer basis and am grateful for the input and opinion from several of the many MLROs and Financial Crime experts I have got to know over the last 22 years.
So how does someone become good at confronting fraud, money laundering, bribery, terrorist financing, cybercrime, sanctions breaches and numerous other highly sophisticated and indeed often quite blunt, financial crimes which are being committed both against and within an organisation? There is certainly no ‘one size fits all’ solution. Today’s MLRO’s have tended to come from a wide range of former career backgrounds such as police/law enforcement, government agency, legal, compliance and business backgrounds. They are increasingly being joined by financial crime career specialists. Before we start to look at some of the traits and skills to be an effective MLRO, it is worth pausing to consider some historical perspective and fines imposed if an organisation’s financial crime controls are found to be inadequate. This will also provide context to those of you considering a career in combating financial crime.
Money laundering and financial crime is not new and certainly pre-dates the Al Capones and laundromats of the early 1900s. Bank of Credit and Commerce International (BCCI) and Wachovia Bank helped to put money laundering onto the newspaper front pages in the 1990s and 2000’s respectively. Numerous banks were being seen to have taken the dirty money from the likes of drugs cartels, dictators, corrupt politicians and terrorist organisations. Client onboarding checks back then were nowhere as robust as now. The game was certainly not up for the mouse, but a more sophisticated cat was appearing in the hot seat to confront the laundromats. Fines imposed by global regulators only reinforce how critical the role of an MLRO is to lead a large and expensive function to combat complex, clever and hi-tech financial crime. Here are some examples of settlements and fines imposed for anti-financial crime failings:
- 2012 saw HSBC settle for $1.9bn with the SEC for money-laundering failings.
- US authorities fined RBS $100m in 2013 for sanctions violations.
- BNP Paribas saw US authorities in 2014 level a whopping $8.9bn fine for sanctions violations.
- Deutsche Bank paid $630m in total to US and UK authorities in 2017 for money-laundering failings.
- ING paid Dutch authorities a $900m fine in 2018 for money-laundering failings.
- In 2019, French authorities fined UBS $5bn in a tax fraud case whilst US and UK authorities fined Standard Chartered a total of $1.1bn for money-laundering and sanctions breaches.
- Last month Commerzbank was fined £37.8m by the FCA for money-laundering failings.
Danske Bank and its flow of what is said to be some $200bn of suspicious transactions through its Estonia branch between 2007-2015, awaits news from US and European regulators.
Now let’s look at some of the traits and qualities the MLRO’s interviewed believe make a best of breed MLRO and an effective financial crime buster:
- Resilient, inquisitive, honest, patient, succinct, collaborative, assertive, critical thinker, detail-orientated, good communicator, charismatic, team player, good listener, possessing a thirst for knowledge and having the skin of a rhino.
- Being hardwired to manage pressure and stress.
- It can sometimes become quite an adversarial relationship requiring an MLRO to be decisive and forthright but also to be flexible when new information appears.
- Accept that as an MLRO you might not be the most popular person in the firm.
- Have the moral courage to confront scenarios when others might not.
- An ability to convert foresight into hindsight.
Communication skills and teamwork
- Effective senior management engagement is crucial and an MLRO must have the ability and finesse to both work with and challenge the Board and senior management when necessary.
- The MLRO should ensure that appropriate levels of communication are in place between them and the Board member who has overall responsibility for firm’s AML programme.
- Get to know and engage with the Non-Executive Directors.
- Pick your battles and know where the red lines are.
- The MLRO must be aware of audit points and fix and escalate accordingly.
- Be adept at networking and building good relationships across the entire firm.
- Keep the office door open – be visible, approachable and get out amongst the troops. Build respect rather than expect it.
- Do not create a fear culture. An MLRO is there as a business partner to help and guide a commercial (and indeed sometimes a not-for-profit) organisation to operate within the rules.
- The business are the internal clients and the MLRO must create a cohesive culture where they are guided and navigated through the risks which they in turn confront with their clients.
- Leverage the financial crime knowledge of others. Put your team first and learn from them.
- Get to know the business and the control partners. Build mutual trust.
- Be proactive and always be there to train and educate.
- Rehearse before an important meeting and avoid being blind-sided by the business, you have after all, trained so well.
- Invite senior management to attend the occasional Financial Crime team meeting.
Understand the business and regulatory environment
- Knowing all the products and services the firm offers. An MLRO must know the business strategy and commercial drivers.
- Knowledge and interest in the regulatory environment should go without saying. Understand the regulatory priorities within which the business operates and know its risk appetite.
- Be familiar with which revenue earners and teams are over-performing and which are under-performing. Know who the firm’s best clients are and is there anything concerning – have a look at the gifts and entertainment register.
- Familiarity with the firm’s myriad of risks is crucial to ensuring the effective implementation of Financial Crime controls within the firm’s 3 lines of defence risk management framework.
- Understand and respect risks and controls.
- The MLRO should challenge, guide and mentor the business as appropriate.
- Appreciate the Legal, Risk and Compliance environment and work with them not against them. Use Legal to help get through the weeds of legislation whilst having good knowledge of legal privilege.
- The MLRO must drive thematic reviews.
Help the business to know their enemy
- An MLRO should think like the potential ‘bad guy’ client and understand their strategies. Predict their next move and help others prepare for it across the firm.
- Regularly review and update risk assessments.
- Look for patterns in behaviours and ensure familiarity with global AML failings as soon as they become known.
- ‘Train Hard, Fight Easy’. An MLRO must ensure that training the business never stops.
- Regulators expectations to manage financial crime risk are ever increasing. With the business being the 1St LoD, the MLRO must help to ensure that they are fully prepared to react accordingly when dealing with risky clients.
- The MLRO should build a picture of risks and disseminate to the business.
- A firm’s culture should embrace ongoing training to defeat the sophisticated knowledge of the perpetrators of financial crime.
Working alongside the technology
- Technology is a core part of the Financial Crime team and plays a major role in data collection, collation and assessment. An MLRO should have the firm’s IT and tech experts test the technology (some suggest until it breaks). Only then will the vulnerabilities appear. Legacy systems and ‘old tech’ must be calibrated with the new Fintech being introduced.
- Know when technology has failed at another firm, review and adjust your own systems immediately to prevent similar incidents.
- Software and risk assessment tools will always need human input to ensure they makes sense. An MLRO must be tech-savvy and ensure that it is both fit for purpose and regularly tested.
- Ensure good use of technology for data collection, quality control and that all important look back. Make use of it to help with dip sampling.
- Ensure the team know where to find missing data and legacy data from existing and previous systems.
As a nominated officer, an MLRO is a key advisor to the CEO and Board. Get the advice wrong and the cost to the firm and the MLRO can be significant. The weight of personal liability shouldered by an MLRO is well known. Those interviewed for this article all highlighted how vital it is that senior management are giving the MLRO enough support. Their advice was to speak regularly with MLROs across other firms and compare the levels of support accordingly.
I hope some of this article has been informative, especially to those of you who are not yet your firm’s MLRO or indeed are considering a career tackling financial crime. Eiger Regulatory Partners would be delighted to discuss any career-related questions you may have and please contact Malcolm Hill or James Ritchie to discuss.