To effectively steward your organisation’s cash as you do business, you must be aware of the threats posed by fraud and organised crime, and the risk of non-compliance with money laundering regulations and international trade sanctions. This article explores the risk landscape – and how today’s connected, online economy is making it more challenging than ever to stay ahead of the game.
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For treasurers looking to manage their cash, keeping on top of risk and compliance is important. The landscape of threats and regulation is always changing. At Nordea, our mission is to help you navigate these changes so you can manage their impact on your business.
We all — as individuals, societies, banks and companies — need to watch out for risks in three areas:
If you’ve ever suffered fraud on your bank account (personal or corporate) or card, or experienced the pain of identity theft, this will be very familiar to you. There are many types and techniques, from complex social engineering attacks to hacks of your online banking account or PC.
McAfee estimates that the total global cost of cybercrime amounts to over $400 billion(1).
With so much banking going on over the phone and online, and now over mobile devices, there are many more opportunities for criminals to find a vulnerability to exploit. And today, these criminals might be anywhere around the world: just as banking is global, so is financial crime.
The statistics are troubling:
- According to the UK Cards Association bank fraud in the country rose in 2012 to £475.3 million, up 11% from 2011(2).
- According to the European Central Bank, card fraud in the SEPA region totaled €1.33 billion, up 14.8% year-on-year(3).
However, there is good news to report. At Nordea, we have worked hard to drive down fraud volumes affecting our customers, by educating our staff and customers, improving our systems and processes, and collaborating with other banks and law enforcement. And we hope that the wider industry will also see its efforts pay off, as chip and PIN, and other protection technologies become more widely adopted. However, fraud volumes are still too high and we all must remain vigilant.
The European Central Bank reported that online fraud in 2013 totaled €800 million(4).
Find out more about our approach to online fraud and recommendations you can follow in our article.
Unless you’re a criminal, you won’t ever see money laundering directly – but it has a bigger effect on you than you might suspect. Money laundering enables criminals to profit from acts that harm society, such as government corruption, drug trafficking and tax evasion, and the resulting funds can sometimes finance terrorism and other criminal groups. And volumes are growing across the EU.
The number of money laundering reports filed across the Nordic region is rising steadily.
While governments and law enforcement lead the action to deter, detect and prevent money laundering, banks have a role to play too. We are obliged to investigate the legitimacy of our customers’ identities and the validity of their transactions so we can report anomalies to law enforcement, so that’s why we ask questions when you set up your account and when you make certain transactions.
Sanctions are prohibitive and restrictive measures directed at foreign governments and nations, individuals or groups, or non-state actors or groups. Sanctions have an impact on, among others, financial institutions and their customers through restrictions, and controls introduced on provision of goods and services and the movement of funds involving sanctioned countries, individuals and entities.
Sanction violations are punishable by law, and the consequences of breaching sanctions laws and regulations may result in significant fines and in severe violations, even imprisonment.
But maintaining compliance is easier said than done: sanctions cover not only nations but companies and individuals, and they are constantly changing — for example, during the 2014 crisis in Ukraine, sanctions were imposed by Japan, the EU, Canada, the US and other countries on dozens of Russian politicians, business people and companies; Russia in turn sanctioned US individuals and embargoed a range of agricultural imports from the US, EU and other countries, including Norway. The EU alone has a complex set of sanctions in force against 33 countries and groups(5).
Depending on where you trade and what kinds of goods you import or export, you may come up against sanctions completely unintentionally. Where a breach of sanctions occurs, both you and your bank may be held liable in law and subject to fines into the millions, as well as the cost of damage caused to your reputations.
The US Treasury issued 17 penalties to companies for sanction violations totalling more than $1.2 billion in January to July 2014 alone(6).
Your bank has an obligation to ask questions of you during your transactions to find out what goods are involved, who your counterparties are, and other details to make sure that you’re not in violation — it’s in everyone’s interest to co-operate so that payments can be processed without delay.
Fines levied in the US for breaching sanctions
Fraud, money laundering and sanction violations are all made easier by the rise of online banking services and globalisation. For instance with same-day payments now common, it’s easier for today’s tech-savvy and well organised criminals to launder money by rapidly moving it through a complex network of accounts, and have the money gone before law enforcement or banks can freeze or recall it. The financial world is increasingly complex and connected: it is a truly global economy. There are more devices and sites and user behaviours for criminals to exploit, and criminals can conduct their operations from a distance, at low cost and with little risk of being caught.
Regulators and the banking community have responded by tightening security and setting strict standards of conduct. The expansion of fraud operations, increased use of anti money laundering checks and evolving sanctions undoubtedly increase the burden of money and time for both customer and bank provider to maintain security and avoid the risk of non-compliance when performing transactions online. But these are obligations that neither companies like you nor banks like us can afford to ignore — we need to collaborate together to protect our businesses and the wider societies in which we live and work.
ABOUT THE AUTHOR
Henrik Koch, is Global Head of Authentication & Financial Anti-Crime at Nordea
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