But before we delve into them, we first need to provide some background to the problems AML departments face.
The Privacy Versus Transparency Debate
In this guide, we can't go too much into the politics of the situation (nor is it necessary). However, it's essential to understand the context.
And in a nutshell, this is what's happening: Society has decided that regulations are required to prevent bad actors from laundering dirty money - essentially, profits from some of the most heinous crimes, such as human trafficking and illegal arms sales.
That's why anti-money laundering (AML) and combating the financing of terrorism (CFT) laws are increasing in jurisdictions worldwide, such as in the European Union (EU).
But on the other side, many societies globally have also decided that safeguarding data protection and individual privacy is a good thing too, especially in light of individual personal data abuses by governments and corporations.
And that's why data protection laws are also rising.
AML and Data Protection: What Are the Problems for Compliance Teams?
Every day, compliance teams worldwide deal with problems related to the regulatory requirements to collect personal information meeting friction with data protection and privacy obligations.
In fact, the idea for this blog post came from an AML officer and follower of sanctions.io on LinkedIn.
And the reality is this: Regulations and laws for AML on one side and data protection on the other collide. Confusion about when AML or data protection laws take precedence in a scenario further exacerbates the compliance challenge.
Now, it's important to remember that this is a highly complex topic.
Because the regulatory landscape that a compliance team must navigate changes depending on factors such as the jurisdictions a company operates and the sector (e.g. financial) their services belong to.
So, the first job (a continuous task to manage) for any AML compliance team is this: Understand what regulations and laws apply to your organization's unique operational conditions.
And let's make a real scenario to grasp how this issue manifests. For example, businesses in the EU must follow changing anti-money laundering laws (e.g. 6AMLD) that conflict with data privacy laws, such as the EU's General Data Protection Regulation (GDPR).
Now returning to the broader picture. Overall, compliance officers globally dealing with AML laws and data privacy regulations all face the following general problems:
- Ambiguity in which laws take priority
- Varying laws and regulations internationally
- Cross-border complexities in data sharing
- Consent and transparency
- Data accuracy and security
But enough about the problems. In the next part of the article, we will reveal tactics, techniques, and processes for managing the conflict - wherever you are in the world.
Adopt a Risk-Based Approach
Here is the reality: Like with almost everything in regulatory compliance, no one size fits all solution solves all your AML and data compliance headaches at the press of a button.
And that's why adopting a risk-based approach to the challenge - something compliance teams already do effectively - is the first tip.
As many readers know, the Financial Action Task Force (FATF), an intergovernmental organization that sets money laundering and terrorist financing standards, is a proponent of risk-based approaches to solving these issues.
Why? Because they recognize (as do most jurisdictions worldwide who follow their lead) that a risk-based approach allows for a more targeted and efficient allocation of resources in combating compliance challenges.
But what does all this mean? It means a core part of an AML team's remit for their organization is to create a risk-based strategy for managing AML compliance with data privacy conflicts - and allocate resources accordingly.
And here is something to make you think: Many financial penalties dished out by regulatory enforcement bodies are often not because of a compliance breach. But rather, they saw little evidence that the organization cared in the first place (such as not having an effective risk-based strategy).
Ensure Safe Information Sharing Practices
Over the last few years, enabled by the rapid advancements in regulation technology (RegTech) and the political will to beat financial crime, information sharing (data exchange) between governments, financial institutions, and other organizations is increasingly common.
For example, according to a Thomson Reuters report, more than 7600 financial institutions with operations in the US are now participating in the US Patriot Act 314(b) information sharing initiative. Also, in June 2023, Britain's National Crime Agency (NCA) announced that banks will increase data sharing.
And the worldwide trend is more of these types of programs will come into play - especially because the FATF, which many jurisdictions follow, are supporters (you can download the FATF recommendations for private sector information sharing here).
But here is the problem: Sharing sensitive personal data about your customers while adhering to data protection regulations can be challenging (especially when dealing with multiple jurisdictions).
To avoid compliance breaches and reputational damage, AML teams must prioritize safe information-sharing practices as part of the organization's risk-based approach to managing the issue.
For example, understanding the following processes and effectively operating them is paramount:
- Data Anonymization Processes
- Secure Data Transfer Protocols
- Data Sharing Agreements and Contracts
- Regular Audits of Data Sharing Processes
Final Tips and Closing Thoughts
In 2023 an AML officer's job is like being the rope in a tug-of-war competition. On one side, the demands of complying with anti-money laundering regulations take them in one direction. But, increasingly, data protection laws pull them towards another.
We hope this sanctions.io guide helped you gain essential insights into the issue. The final tips are more general but also crucial for achieving success in your AML and data protection processes:
- Establish and promote cross-functional collaboration in your organization
- Train, educate, and communicate to employees about AML obligations and data privacy
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