Why global anti-money laundering management is imperative

Horizons named as ‘Best Cross-Border Corporate Finance Advisors’ by Wealth & Finance, Ethical Finance Awards.

Accelerated digitalization has simultaneously benefited economies and triggered criminal behavior. In finance, the anonymity of finance technology is increasing criminal activities such as money laundry and terrorist financing. Hence, jurisdictions around the globe are stepping up efforts to regulate finance-related crime – anti-money laundering (‘AML’). Generally, regulations subject both companies and financial institutions to stricter compliance procedures. And failure to satisfy provisions can result in high penalties and criminal liabilities. 

Horizons named as Best-Cross-Border Corporate Finance Advisors by Wealth & Finance, Ethical Finance Awards is advancing a world-wide AML compliance program. By working with global CCG partners, Horizons are building a robust framework for companies to meet AML laws around the world. Tougher provisions require companies to strengthen company policies and ensure better discipline, control, and responsibility across the workforce. For companies, evaluating current AML practices in the company are essential in improving best practices, training staff, and updating company procedures. Failure to update current practices or establish a concrete framework for international companies can lead to white-collar investigations and reputation damages.  

Companies evaluating current financial compliance policies should ask the following questions

How robust are the current governance, risk, and compliance policies?

What are the contingency plans for forthcoming AML policies?

How internationally compliant is the current AML framework?

What are the current control mechanisms for external suppliers?

With an increasingly complex legal landscape across the world, companies are required to nimbly adjust to existing and upcoming AML regulations. Companies should be prepared to update their internal framework and train employees quickly to meet evolving requirements. Recently, we are increasingly involved in AML cases for Brazil and Mexico and highlight below the practical aspects for companies wishing to update AML policies in such jurisdictions.

Anti-Money Laundering in Brazil

Money laundering legislation dates from 1998 when the first law was drafted, Law 9,913/1998. Since then, an important modification was adopted in 2012. The main authority governing anti-money laundering is the Brazilian Financial Activities Control (COAF), which is an agency focused on financial intelligence. According to Article 9 of Law 9,913/1998, sectors considered sensitive and subject to stricter regulations include:

  • securities administrators;
  • Brazilian branches and subsidiaries of foreign companies;
  • legal entities and individuals dealing with real estate;
  • jewelry and precious stones dealers; and
  • high-value goods’ merchants.

Compliance

Compliance practices are essential to migrate risk and penalties and there are four important pillars.

  • Know your client:

Individuals and legal entities, especially in sensitive sectors, shall retain records, analyze clients’ profiles, and identify irregular transactions that are unrelated to clients ‘regular activities.

  • Know your employee:

A legal entity should assess the applicant’s behavior and character, and his/her susceptibility to collusion and fraud by verifying references, criminal records, psychological evaluation, past employment, and professional qualifications.

  • Due Diligence & Alert System

Establish due diligence and a proper alert system to regularly assess employees’ and clients’ activities and alert related management of irregular activities.

Penalties

Violators are subject to 3 to 10 years of imprisonment and fines are based on multiplying the Brazilian minimum wage.

Anti-Money Laundering in Mexico

Mexico’s money laundering risks mainly derive from drug trafficking, extortion, corruption, and tax evasion. To address such issues, the “Anti-money laundering Act of Mexico” (AML Act) was enacted in October 2012 and effective from 2013 to prevent illegal income and protect the national economy.

Under the AML Act, all the financial institutions and non-financial institutions conducting the following activities are subject to AML requirements:

  • international trade activities;
  • gambling and lottery activities;
  • issuance, marketing, and sale of credit cards, debit cards, prepaid cards, and any other type of money storage mechanisms not issued or sold by financial institutions;
  • issuance and sale of traveler cheques not issued by financial institutions;
  • loan activities;
  • real estate and construction activities;
  • sale of precious metals, jewelry, and watches;
  • auction or sale of art;
  • resource management services and rendering professional services on behalf and in the name of clients;
  • services rendered by attesting officials;
  • donations by authorised donors;
  • international trade activities;
  • real estate leasing activities; and
  • cryptocurrency activities

Companies conducting the above activities shall fulfill the following AML obligations:

  • know-your-customer (“KYC”) obligations;
  • client risk assessments;
  • general AML reports;
  • AML policies; and
  • retain records of AML activities.

Companies shall file a report for all transactions that exceed USD 7,500 to authorities electronically.

For companies, AML risks can often derive from invalid or lack of specific control mechanisms and policies. Therefore, engaging professionals is essential to mitigating AML risks or potential penalties and criminal liabilities. At Horizons, we are seasoned experts in the potential AML-related risks and damages caused by absent procedures. We have advised large to medium-sized companies in structuring and executing AML compliance programs.  

If you have questions or concerns related to AML or other related matters, please contact Horizons at +86 21 5356 3400 or talktous@horizons-advisory.com.