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Contextual Factors of an effective enforcement and sanctioning Regime
A strong system of sanctions is critical to combating ML/tF. even the most well-designed AML/CFt laws and regulations will not be effective if they are not adequately enforced. specifically, sanctions support the broad goals of AML/CFt in the following ways:
● safeguarding the integrity and soundness of the financial system by deterring banks and other financial institutions from wittingly or unwittingly engaging in criminal activities;
● supporting the investigation and prosecution of ML/tF and related predicate crimes; and
● Promoting sound governance and ethical practices in the financial sector and broader economy.
every jurisdiction should have a sanctioning regime that is based on and takes account of the legislative system, jurisprudence, legal practices and traditions, and systems of government. In addition, all jurisdictions should implement a legal, regulatory, and institutional framework that enables enforcement actions to be taken for failure to comply with the AML/CFt requirements. Factors such as context and risks in the jurisdiction are important to consider when setting up a sanctioning regime:
● Jurisdiction context. the size, structure, and complexity of the jurisdiction as well as its financial and economic sectors may influence the nature and complexity of the legal framework and requirements for the enforcement and sanctioning regime. Jurisdictions with a common-law system will differ from those with a civil law regime. In addition, the constitutional structure of government will determine enforcement and sanctions, for instance, at the national or federal level vs. state or other government administrative level. With regard to the size and complexity of institutions, some jurisdictions with very large internationally active banks have applied multi-million-dollar sanctions. Jurisdictions with much smaller financial sectors and institutions may apply proportionately smaller penalties for noncompliance.
● Risk. national and sectoral ML/tF risk assessments can determine the level and nature of sanctions to be applied. For instance, jurisdictions with very high exposure to terrorism and terrorism financing may apply proportionately stiffer penalties for CFt noncompliance. similar approaches can be taken for AML noncompliance by jurisdictions faced with, for instance, serious drug, corruption, and human trafficking crimes. Penalties should adhere to the principle of dissuasiveness, with tougher penalties for serious threats. Jurisdictions can, as a matter of policy, take a risk-based approach to enforcement and sanctions, with more severe sanctions for noncompliance in cases of higher risk. sanctions should also be applied against boards of directors and management, controlling owners, and other employees of regulated entities, depending on their level of responsibility in committing the breach, especially if the breach is intentional or serious.
Additionally, establishing an effective enforcement and sanctioning regime requires jurisdictions to meet several basic and universal preconditions. each jurisdiction should clearly designate the authority or authorities with the power to apply sanctions for noncompliance with AML/CFt requirements. In some jurisdictions, both the financial or AML/CFt supervisor and the financial intelligence unit (FIU) are legally vested with the authority to impose sanctions. In other jurisdictions, the FIU, not the supervisor, has the power to enforce AML/CFt requirements. In yet other jurisdictions, the supervisor has AML/CFt sanctioning power over the institutions it supervises. Irrespective of national arrangements, the supervised entities should have a clear understanding of who is the sanctioning
