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Deloitte poll: Panama Papers will cause financial crime enforcement to spike

Jaclyn Jaeger | August 25, 2016

As the Panama Papers saga continues to unfold, global enforcement of financial crimes are expected to spike over the next year, according to a recent poll conducted by Deloitte Advisory.

According to the online poll of more than 2,050 professionals conducted by Deloitte Advisory, more than half of respondents (51.3 percent) said they expect enforcement of anti-corruption, anti-fraud, anti-money laundering (AML), and sanctions regulations to increase on a global scale.

“While we don’t recommend organizations limit their risk assessments of financial crime exposures to only Panama Papers data, the leaks certainly offer a new ‘wake-up call’ on the importance of stemming beneficial ownership and third-party risks,” said Michael Shepard, Deloitte global AML, economic sanctions and financial crimes leader. “Failure to mitigate financial crime risk can result in legal and regulatory violations, civil and criminal penalties, inability to grow through acquisition, reputational damage and court appointment of an outside risk monitor.”

The good news: Most respondents expressed some level of confidence in their organizations’ abilities to identify and mitigate financial crime. Nine percent, however, said they had no such confidence

“Leaks of the Panama Papers affect more than just financial institutions,” said Chris Georgiou, Deloitte Advisory partner in the forensic and investigations practice of Deloitte Financial Advisory Services. “All multinational organizations should understand what potential exposures third parties and customers pose to them. Now is not the time to place your company or yourself in a position to claim ignorance with government authorities and regulators.”

Compliance hurdles

Some of the challenges respondents said hinder their organizations’ efforts to identify and mitigate financial crimes include:

  • Lack of visibility into the ultimate beneficial ownership structure of organizations (20.8 percent);
  • Inadequate third-party or customer due diligence policies and procedures (15.8 percent); and
  • Limited use of advanced analytics to monitor payments to holding companies in certain riskier foreign locations (12.5 percent).

According to Deloitte Advisory, signs of an inadequate financial crime risk management program include:

  • Poor relationship due diligence practices. While some organizations may conduct sufficient third-party and customer diligence related to new relationships, they may not review due diligence performed—sometimes many years earlier and far less detailed than today’s efforts—on existing third parties and clients.
  • Lack of visibility into ultimate beneficial ownership structures. Potentially restricted entities and thinly capitalized foreign companies may conceal the identities of the individuals behind them for nefarious reasons. Business rationales for maintaining relationships with those resisting transparency may be outdated.
  • Limited use of advanced analytics to monitor payments. Whether payments are made to thinly capitalized holding companies in riskier jurisdictions or paid by potentially restricted entities and their third parties, robust use of payments analytics can help. The quality of analytics outcomes, however, is only as high as the quality of data analyzed.

Deloitte Advisory conducted the online poll during a July 22 webcast, “In the wake of the Panama Papers: Proactively assessing your risks.” Respondents work in an array of industries, including financial services (36.9 percent); consumer and industrial products (22.6 percent); and technology, media, and telecommunications (10.8 percent).