Internal Compliance Audit (Bank)

A compliance audit is a comprehensive review of an organization's adherence to regulatory guidelines. Auditors review security polices, user access controls and risk management procedures over the course of a compliance audit. The aspect of compliance audit explained below relates to cross border payments / international remittances. Most international transfers are executed through SWIFT, a co-operative society founded in 1974 by seven international banks, which operate a global network to facilitate the transfer of financial messages. The fund transfer involve the major currencies i.e. USD, EURO, JPY, POUND etc. Each bank has a nostro correspondent bank in the currencies home country. For example if ICICI Bank wishes to transfer USD20000.00 from a clients account in Singapore to an account in Dubai. The transfer will be routed through ICICI Banks nostro account in a US bank, say Bank of New York. (US post 9/11 has laid very stringent regulations for funds remitted through its banks) The parties usually involved in such transfers effected through a SWIFT message are, 1. The ordering customer 2. The ordering customers bank 3. The nostro correspondent bank of ordering customers bank 4. Intermediary Bank 5. The recipient customer 6. The recipient customers bank 7. The nostro correspondent bank of recipient customers bank

The banks before effecting such transfers screen the names of all the above entities and the countries involved with the with the AML(Anti Money Laundering name screening) software. Name screening refers to the process of determining whether any of the bank's existing or potential customers are part of any blacklists or regulatory lists. As per existing RBI guidelines, banks are required to ensure that before opening any new accounts, proposed customers do not appear in the United Nations' List under Security Council Resolutions (mainly 1267 and such others as may be specified by RBI from time to time) and the terrorist lists circulated by RBI. Other lists issued by enforcement agencies may also be included in the negative lists suite, such as: Interpol Most wanted, Central Bureau of Investigation, Lists issued under other Resolutions by United Nations, etc. The purpose of the above is to keep a check on activities like Money Laundering, Terrorist Financing and other Financial Crimes. Every employee has an obligation to report transactions suspicious of a money laundering or terrorist financing activity. It is required to report suspicious transactions even if the employee does not know precisely what the underlying criminal activity is or whether illegal activities have occurred. Senior management should provide sufficient guidance to staff to ensure that the customers are not informed (i.e. tipped off) that his/her accounts are under monitoring for suspicious activities. The compliance department does regular audit of the operations units to ascertain that the staff does the assigned activity of names screening before proceeding with each of the remittances transactions. The names to be screened are those of the parties involved in the transactions along with the respective countries. It provides necessary trainings from time to time and keeps a back end track of the name screening software as audit trail.

The activity of name screening is being done to avoid any penalties on the bank for violation of money laundering laws by transferring moneys to black listed countries and clients. Following are some examples of banks having to pay huge penalties for failure to adhere to anti money laundering norms. 1. Former ABN AMRO bank is paying 500 million dollars to the United States for carrying out a huge money-laundering scheme for banks and clients in blacklisted countries. 2. Pamrapo Savings Bank, a subsidiary of Bayonne-based Pamrapo Bancorp Inc., agreed to forfeit $5 million to the government as it failed to comply with federal rules that require reporting of suspicious financial transactions 3. Wells Fargo & Co.s Wachovia Bank had to pay $160 million to resolve a criminal investigation of how drug cartels used the bank to launder money through Mexican exchange houses.