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AML due diligence for non-financial institutions: the next big thing in compliance?

Tom Fox | August 8, 2016

The scandal surrounding the Malaysian sovereign wealth fund, 1MDB, took an ominous turn last week when it was announced by the state of New York’s Department of Financial Services (DFS) that it wanted information from Goldman Sachs Group Inc. about the due diligence it may or may not have performed when it underwrote three bond sales for 1MDB in 2012 and 2013. This comes on the heels of a Wall Street Journal report that both the U.S. Department of Justice and Securities and Exchange Commission subpoenaed Goldman Sachs for documents related to the bank’s dealings with the Malaysian sovereign wealth fund.

This new request from the DFS also pointed to a specific PowerPoint presentation made by Goldman Sachs about the last of these three bonds deals. In a series of forfeiture lawsuits filed in July, Justice Department representatives alleged that of the nearly $2.7 billion raised by this bond transaction, some $1.26 billion of it was allegedly siphoned off from 1MDB.

These new series of questions raised by both federal and state regulators to Goldman Sachs clearly reinforces the need for robust due diligence on the sources of funding. This is also a blind spot for many U.S. non-financial corporations. If a customer comes presents a large amount of funding for a purchase, it may now call for due diligence on the sources of the funding.

The recent initiatives by the U.S. Department of the Treasury to review the sources of large real estate purchases—initially in New York and Miami and now expanded to Houston, Los Angeles, and elsewhere—has broadened the government’s use of anti-money inquiries. This means that companies will need to be ready to respond, when the government inevitably comes knocking.

As a chief compliance officer, when was the last time you reviewed your company’s anti-money laundering policy and procedures? If it was over 12 months ago, I would suggest that you consider looking at it again now.