14.1 THE IMPORTANCE OF STAFF AWARENESS AND TRAINING

Having staff that are fully trained and possess the required level of knowledge of the key financial crime regulatory requirements that exist within their jurisdiction, together with what constitutes money laundering and terrorist financing is absolutely critical. Accordingly, maintaining adequate staff awareness and appropriate relevant financial crime and terrorist-financing deterrence training is important to any financial institution in achieving its overall objective of combating money laundering and terrorist financing.

For any firm, just having a series of rules, regulations, checks and balances would have limited effect if the employees who must implement the measures were inadequately trained and therefore unaware of these obligations. One of the most important controls over the prevention and detection of money laundering is to have staff that are alert to the risks of money laundering and terrorist financing, and that are well trained in the identification of unusual or suspicious activities.

It is essential that firms implement a complete and structured policy of training that encompasses all relevant employees, so that, in particular, they are aware of their personal obligations with regard to money-laundering deterrence and terrorist financing. They also need to understand the role that they play in the overall achievement of the firm's objectives regarding money-laundering deterrence and preventing the firm being used for terrorist financing. This will be of particular importance to staff that are customer facing and/or who handle customer transactions and instructions, although all staff will require training. Generally, it is also sensible for such training to be extended to include temporary and contract staff carrying out similar customer-facing functions, since they will also be conducting the policies and procedures of the firm, and any failure by such contract staff would impact the reputation of the firm itself.

Clearly, if training is appropriate for a full-time employee, then a contractor that undertakes the same role should be trained to a similar standard.

14.2 THE CORE OBLIGATIONS OF TRAINING

The core obligations of training staff with regard to money-laundering deterrence and terrorist financing are that relevant employees are:

• Made aware of the risks posed by money laundering and terrorist financing, the relevant legislation and their obligations under that legislation.
• Made aware of the identity and responsibilities of the firm's nominated officer and Money Laundering Reporting Officer (MLRO).
• Trained in the firm's procedures and in how to deal with potential money-laundering or terrorist-financing transactions or activity.
• Made aware of how money-laundering crimes operate and how they might take place through the firm.
• Made aware of what actually might represent terrorist financing and how this would appear within their records.
• Understand the legal position of the firm and of individual members of staff and of how these legal positions might change based upon the actions actually taken.
• Understand how to operate a risk-based approach to combating money laundering and terrorist financing.

14.3 LEGAL AND REGULATORY OBLIGATIONS

In many jurisdictions, including the United Kingdom, individual members of staff may face criminal penalties if they become involved in money laundering or terrorist financing, or if they fail to report their knowledge or suspicions when they had reasonable grounds for knowing or suspecting money-laundering or terrorist-financing activity. It is important that staff are made aware of these obligations, and that they are provided with sufficient training in how to discharge these obligations.

Regulators in most countries will detail what they require in respect of money-laundering awareness and training. In the United Kingdom, the main obligation placed by the current regulator, the Financial Conduct Authority (FCA), rules on senior management is that they must take measures to ensure that employees are made aware of laws which relate to money laundering and terrorist financing, and given training on how to deal with transactions related to money laundering.

The FCA suggests that firms, when considering training and competence, ensure that:

• Their employees achieve the right level of competence;
• Their employees remain competent for the work they do;
• Their employees are appropriately supervised;
• Their employees' competence is regularly reviewed;
• The level of competence is appropriate to the nature of the business;
• An MLRO has been appointed with responsibility for oversight of the firm's anti-money-laundering systems and controls, including appropriate training for employees (see Chapter 12).

Whilst these are the UK requirements, they would appear to be appropriate for all institutions globally.

The FCA published Financial Crime, A Guide for Firms in April 2013, which replaces the previous guide issued by the FSA. It does include some helpful materials to enable a firm to consider whether it is meeting the training objectives of the firm's financial crime and terrorist-financing deterrence policies. It sets out a series of self-assessment questions together with providing what the FCA considers to be best and poor practice. Firms should have regard to this in the development of their own training programmes.

Self-assessment Questions:

1. What is your approach to vetting staff? Do vetting and management of different staff reflect the financial crime risks to which they are exposed?
2. How does your firm ensure that its employees are aware of financial crime risks and of their obligations in relation to those risks?
3. Do staff have access to training on an appropriate range of financial crime risks?
4. How does the firm ensure that training is of consistent quality and is kept up to date?
5. Is training tailored to particular roles?
6. How do you assess the effectiveness of your training on topics related to financial crime?
7. Is training material relevant and up to date? When was it last reviewed?

Examples of Good Practice:

1. Staff in higher-risk roles are subject to more thorough vetting.
2. Tailored training is in place to ensure staff knowledge is adequate and up to date.
3. New staff in customer-facing positions receive financial crime training tailored to their role before being able to interact with customers.
4. Training has a strong practical dimension (e.g. case studies) and includes some form of testing.
5. The firm satisfies itself that staff understand their responsibilities (e.g. computerised training contains a test).
6. Whistleblowing procedures are clear and accessible, and respect staff confidentiality.

Examples of Poor Practice:

1. Staff are not competent to carry out preventative functions effectively, exposing the firm to financial crime risk.
2. Staff vetting is a one-off exercise.
3. Training dwells unduly on legislation and regulations rather than practical examples.
4. Training material is not kept up to date.
5. The firm fails to identify training needs.
6. There are no training logs or tracking of employees' training history.
7. Training content lacks management sign-off.
8. Training does not cover whistleblowing or escalation procedures.

Source: http://media.fshandbook.info/Handbook/FC2_20130401.pdf

There is much that is helpful in this analysis. In terms of the training programme, remember that it does need to be conducted regularly. The challenge to firms is to keep it both fresh and relevant. The approach we recommend is to design tailored programmes that meet the needs of specific groups. While this may be considered time-consuming, the benefits are clear. They will enable the staff to appreciate what the issues are within their actual roles rather than enduring generic training which focusses on principles and fails to achieve traction with the specific employee.

Notice that the FCA does have concerns over online training. The problem with much online training is that it is of limited benefit. The distractions of the day impact the ability of the employee to focus on the training, the benefit of which is subsequently reduced. The provision of a test at the end of the programme will enable the firm to assess whether key learning messages have been assimilated by the employee. But why restrict this to online training? We would recommend that such an approach should be extended to all training conducted, again with the objective of achieving an audit trail which demonstrates that key learning messages have been achieved.

In most countries, failure by a firm to provide adequate training can result in severe consequences. Typically, in the event that an employee fails to make a disclosure to its relevant agency when there were reasonable grounds for knowing or suspecting money laundering or terrorist financing, then there will be a liability on both the employee and the firm. The penalties can be significant and include fines, restriction of activity, retraining or, at worst, prison.

Timely investigations and proper documentation of the analysis need to be conducted by trained staff who have their key goal of complying with the required regulations of both their host and home jurisdiction. Failure to invest in such areas can prove costly.

If the employee that failed to make the report had not been provided with relevant and appropriate training suitable for their role, this will act as a defence for the employee involved, and an additional liability will then be imposed on the firm. A successful defence by the employee will leave the firm open to prosecution or regulatory sanction for failing to have adequate training. Consequently, the burden is on firms not only to obtain acknowledgement of training from individual employees, but also to take steps to ensure its effectiveness.

14.4 STAFF RESPONSIBILITIES

In order to comply with the overall obligations under the various money-laundering legislation and regulations, responsibilities are distributed amongst the various employment levels within the firm.

14.5 INTERNAL TRAINING PROCEDURES

The rules therefore require that specialised training must be provided to all of a firm's employees. This training should explain to employees how the products and services offered by the firm may be used as a vehicle for money laundering or terrorist financing. This is because unless the training appears to be applicable to the nature of the business being conducted, there will be little obvious relevance to the day-to-day work of the employees.

The training should also explain the firm's procedures and the methods it uses to manage these risks. The legal liabilities, both to the firm and to its employees, will need to be explained to highlight how important this training actually is. Employees should be informed how the firm itself may be at risk of prosecution if suspicious transactions are proceeded with in the absence of consent from the relevant authorities. As a starting point, employees should be informed of what they need to know in terms of their particular role and what they should do if they become suspicious regarding either a case of money laundering or terrorist financing. Depending on the level of interaction that employees have with customers and customer data, the different roles will require different training tailored to their particular function. Customers may need to be informed of Know Your Customer requirements as well as the importance of customer identification procedures and how to monitor customer activity.

Relevant employees should also be made aware of particular circumstances or customers who present a higher risk of money laundering or terrorist financing, or who are financially excluded. Training should, therefore, include information on the additional work to confirm identity that should be undertaken in such cases, and any additional local steps or reporting that should be made.

Staff must also be made aware of the changing behaviour and practices amongst money launderers and those financing terrorism. The FATF's Guidance for Financial Institutions in Detecting Terrorist Financing contains an in-depth analysis of the methods used in the financing of terrorism and the types of financial activities constituting potential indicators of such activities. These documents, which are continuously updated, are available at www.fatf-gafi.org. In the UK, information concerning risk profiles and threat assessments is published by the National Crime Agency (previously the Serious Organised Crime Agency), which can be found at www.nationalcrimeagency.gov.uk. Furthermore, in the UK, illustrations of real case studies of how individuals and organisations might raise funds and how financial products may be used by money launderers are published by the Joint Money Laundering Steering Group and can be found at www.jmlsg.org.uk. All of this material is suitable for inclusion in training materials.

14.6 TRAINING METHODS AND ASSESSMENT

There are various ways in which firms may decide to carry out staff training, and the approach adopted will, of course, depend on the method that best suits the firm while still achieving the objectives of local regulations. The approach adopted by a firm that has all of its employees at one site will be different to the approach adopted by a firm which has staff distributed over a range of sites.

Employees who work with high-risk customers or more specialist areas of finance may require more direct and tailored classroom-based learning than would be suitable for the generality of staff. Distributing training videos within a firm may stimulate interest, but continually showing the same video may produce diminishing returns. Furthermore, it becomes extremely difficult to know the level of attention that has been given by a specific employee to such training without some form of assessment procedures being conducted in addition to viewing the video.

As an alternative to such generic materials, specific training highlighting issues inherent within a firm's procedure manuals is useful in raising staff awareness and supplementing other forms of training. The main benefits of such a form of training are that it is tailored to the specific needs of a group of employees and will appear immediately relevant to the work being conducted on a day-to-day basis.

It is recommended that all training be ongoing and given at appropriate intervals to all relevant employees. Particularly in larger firms, this may take the form of a rolling programme. Once a method of training has been chosen, it is vital to establish comprehensive records in order to monitor who has been trained, when the training was received and the nature and effectiveness of training provided. As previously mentioned, this is also carried out by a firm to provide evidence of its compliance with AML legislation, as well as in the event that a firm is held liable when an employee's actions are called into question. Accordingly, the assessment process and its recording are also of paramount importance.

Providing an email update to staff, or allowing them to view a film at their own time, is unlikely to be adequate without some formal process of assessment. Typically, a short examination based on multiple choice questions being asked will be suitable – with ten questions being a typical length of an assessment. If a delegate fails twice on a multiple choice question, then you would expect that delegate to view the training materials again and then re-sit the examination.