U.S. Institutions Invest More in Anti-Money Laundering Programs as Majority See Rise in Suspicious Activity, Says KPMG Survey

NEW YORK, Sept. 21, 2011 /PRNewswire/ -- A majority of U.S. financial institutions have significantly increased investment in anti-money laundering (AML) programs – with some spending almost twice as much as they did in 2007, according to a survey by KPMG International.

The KPMG survey, which compared current activity with a similar survey conducted in 2007, also found  a vast majority of organizations reporting an increase in suspicious activity reports (SARs), though there are indications that the rate of such reports may be slowing. In addition, U.S. boards of directors are discussing their organizations' anti-money laundering programs more frequently – at least quarterly (57 percent), although some (30 percent) have it on their agenda monthly, according to survey.

"Despite the high costs of preventative programs, management and board interest in the risks associated with money laundering remained high, amid a growing sense that financial institutions must anticipate regulatory changes to quickly adapt compliance programs and internal controls," said Richard H. Girgenti, a principal and Forensic leader for KPMG LLP, the U.S. audit, tax and advisory firm.

In the United States, 60 percent of respondents said their institutions increased AML spending, compared with 2007, with some 17 percent of respondents saying they doubled spending over the period and 22 percent said it was up more than 50 percent. Some 77 percent of the respondents expect costs to rise, while the remainder of the respondents believes it will at least remain the same.

In addition, 80 percent of the U.S. financial institutions reported filing more suspicious activity reports (SARs), compared with 95 percent of banking executives reporting higher SARs in 2007. Globally, the rate of organizations reporting a "substantial" increase in SARs dropped to 28 percent from 63 percent in a similar 2007 survey, indicating potentially slower growth in the number of SARs.

"The higher investment by U.S. institutions apparently has been devoted to enhanced transaction monitoring systems, as 47 percent of the U.S. institutions doing business globally say they can monitor customers' transactions and accounts across multiple countries," said Teresa A. Pesce, a KPMG LLP principal and U.S. AML leader.  She noted that while costs continued to rise, 97 percent of the U.S. institutions said they have not contemplated outsourcing or "off-shoring" their compliance programs to save money.

"In this regulatory climate, institutions seeking to avoid sanctions and penalties are very reluctant to offshore controls and processes, even if it might cut costs," said Pesce.

Other findings of the KPMG survey include:

• Fifty-seven percent of U.S. respondents considered AML to be a high profile issue in which the board of directors took an active interest.
• Some 50 percent of respondents reported that they were satisfied with their transaction monitoring systems, 27 percent of respondents were not satisfied with their monitoring systems, and about 23 percent of respondents said they were neither satisfied nor dissatisfied.
• The survey showed 80 percent of U.S. financial institutions apply a risk-based approach to determining know your customer (KYC) requirements associated with the acceptance of new clients, compared with 91 percent for the global institutions responding.
• Ten percent of North American financial institutions in the KPMG survey said they do not have a formal program for testing and monitoring the effectiveness of their AML systems and controls, despite such testing being a requirement of the U.S.A. PATRIOT Act.

Pesce said the report on the KPMG survey findings also provides the Top 10 AML tips for risk committees and boards, with the first five focused on verifying the cost effectiveness of an AML program and the remainder a set of questions to help boards understand their organizations' programs:

1. Moving lower risk activities (e.g., sanctions list management, gathering KYC from public sources) to lower cost locations.
2. Maintaining a central repository of KYC information to prevent duplication of effort across business areas and jurisdictions.
3. Combining KYC collection processes with other client data requirements such as legal and credit documents.
4. For corporate and investment banking, conducting background checks at the lead stage to avoid long sales pursuits for clients that are subsequently rejected.
5. Assigning ownership of client data to ensure that it is kept up-to-date when opportunities arise, rather than requiring expensive remediation exercises.
6. What themes have risen out of the assurance and testing program, and how are they being addressed?
7. What does the annual report from the Chief AML Officer highlight as the main risks and how are they being managed?
8. What are the emerging issues that will require the AML program to adapt?
9. When was the AML program last tested by the Internal Audit function, and what were the results?
10. What activities sit outside of the core processes and systems, and how are they managed.

About KPMG International

KPMG is a global network of professional firms providing Audit, Tax and Advisory services.  We operate in 150 countries and have 138,000 people working in member firms around the world.  The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity.  Each KPMG firm is a legally distinct and separate entity and describes itself as such.

About KPMG LLP

KPMG LLP, the audit, tax and advisory firm (www.us.kpmg.com), is the U.S. member firm of KPMG International Cooperative ("KPMG International.")  KPMG International's member firms have 138,000 professionals, including more than 7,900 partners, in 150 countries.

Contact:  Bob Wade
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SOURCE KPMG