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The Wolfsberg Principles are widely regarded as authoritative guidance for how financial institutions should respond to the rising risks of bribery and corruption. New guidance has recently been released for the first time in six years.
We unpack its main recommendations of risk factors which should prompt banks to carry out enhanced financial due diligence reports and explain how technology can help to improve and upgrade their compliance approach.
The Wolfsberg Group is an association of 13 global banks which oversees highly influential standards on Anti-Bribery and Corruption (ABC) compliance. The Group has now replaced its guidance from 2017 with a new set of standards. It says the aim of the updated guidance is to advise the financial services industry on how to “develop, implement and maintain an effective ABC program”, and to “promote a culture of ethical business practices and compliance with ABC legal and regulatory requirements”.
The standards were drafted by representatives of some of the biggest banks in Europe, North America, and Asia, including Santander, Goldman Sachs, Deutsche Bank, Credit Suisse, Barclays, MUFG Bank and Société Générale, in association with experts and civil society organizations. While the standards are not binding, they are credited with setting the agenda for financial institutions’ approach to ABC, Counter-Terrorist Financing, and compliance in general.
MORE: Third-party risk checklist for compliance officers
The 18-page document makes clear that firms should adopt a risk-based approach in their ABC compliance programs by assessing the following factors:
Once companies have identified the level of risk posed by an entity or client, they should apply due diligence and ABC controls which are proportionate to that level. Importantly, the guidance says firms should “periodically assess” these elements to ensure they are capturing new and emerging risks. The Principles outline the types of changes which could raise the level of risk to which an institution is exposed, including:
MORE: Six questions to ask your due diligence tool
The new guidance advises the C-Suite of a company that its ABC policies, standards, and procedures should be effectively communicated to staff with a “commitment statement from senior managers”. Compliance can no longer be confined to one area of the business, but it should be a standing item at Board level. This is because a compliance failure can inflict severe legal, financial, reputational, and strategic damage on a company–whereas an ethical approach to business can create new opportunities.
The Wolfsberg Principles also call for a culture of “lessons learned and continuous improvement” to be implemented throughout a financial institution. This includes reviewing an ABC program regularly and enhancing it where necessary; reporting and tracking adverse events; and sharing lessons learned across the company. The guidance also says that specific ABC training should be provided to senior managers, Board members, and any employees with “heightened exposure to bribery and corruption risks as part of their roles”.
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The report concludes by pointing to “red flags” for potential bribery and corruption which could warrant a firm carrying out enhanced due diligence. This includes:
The list of risk indicators is long, and it requires a compliance officer to look at numerous data sources to capture the different issues raised. Detecting the use of a shell company necessitates understanding corporate structures from company information filings, while assessing a “flawed” reputation needs a more subjective judgement based on public opinion and media sources. Compliance officers looking at the list may wonder how they can keep track of these different areas on an ongoing basis.
A good solution is to implement a due diligence program that uses technology to sift through high volumes of data to find risk indicators. A wide range of relevant and authoritative data sources will help, including:
MORE: How to use big data analytics in finance
A financial institution needs an effective due diligence program to fully understand its exposure to risk. Nexis® Solutions helps firms to surface risks across a high volume of authoritative data from the most relevant sources, including:
We support firms to deploy technology across these sources to improve their approach to due diligence and risk management. For example:
The Wolsfberg Transparency Principles, also known as the Wolfsberg Principles, are a set of guidelines developed by the Wolfsberg Group, an association of global banks, to promote transparency and enhanced due diligence in financial transactions. These principles aim to combat money laundering, terrorist financing, and other financial crimes by establishing standards for customer due diligence, risk assessment, and information sharing among financial institutions.
Compliance in finance refers to the adherence to laws, regulations, standards, and internal policies that govern the financial services industry. It involves implementing controls, procedures, and monitoring mechanisms to ensure that a financial institution operates within the legal and ethical boundaries set by regulatory bodies, such as central banks, securities commissions, and anti-money laundering authorities. Compliance is crucial for maintaining integrity, mitigating risks, and avoiding penalties or reputational damage.