In today's economic climate, it may seem logical to cut costs, but now is not the time to skimp on your compliance budget. Let's compare the costs of compliance versus non-compliance so you can make an informed decision for your business.

The cost of compliance 

Here's a round-up of costs for setting up your AML compliance programme. 

Setting up a compliance team

Setting up a robust AML compliance structure often involves a significant expense in forming a specialised team responsible for developing, implementing, and sustaining the compliance program. Employing skilled professionals like compliance officers, compliance managers, and AML analysts bolsters an organisation's ability to identify and prevent money laundering activities.

Yet, the expenses linked to hiring, integrating, and educating these personnel can be notably steep. The overall cost of establishing an AML compliance team can fluctuate based on the size and intricacy of the organisation, encompassing expenses related to onboarding and training. However, an AML analyst's average salary in Australia is between $50,000 and $80,000, while a compliance officer typically earns around $110,000.

Using EIV (electronic identity verification) providers

Reporting entities often rely on EIV providers to verify customer identities and understand their customers (often called 'customer due diligence'). These services automate identity verification, often using photos or live video to confirm a driver's licence or passport's likeness and then matching an individual's identity documents against various government databases.

On average, organisations can expect to spend anywhere up to $15 per check via these providers, depending on the volume of transactions and the complexity of identity verification requirements.

Data storage and security

An integral part of an AML compliance programme involves storing and securing large amounts of personally identifiable information (PII) collected during customer due diligence. Companies need secure data storage solutions to comply with privacy regulations and safeguard sensitive customer data against unauthorised access or breaches. The storage solutions must also be well organised and easily accessible and integrate securely with your CRM (customer relationship management) platform to reduce double handling and admin.

The costs associated with data storage vary, but assuming the use of Sydney-based AWS S3 servers, a rough estimate is $1200 / month. In addition, achieving international security standards such as ISO27001 or SOC-2 is a significant and timely investment that can take up to 18 months to implement. 

Access to global and comprehensive screening and due diligence data sources

In Australia, ASIC charges $9 to search for a company name, not to mention the fees for company extracts or the documents needed for complex entities such as trusts and SMSFs.  

Once an international entity is involved, as is familiar with high-net-worth individuals, the registry costs skyrocket as you access other country registries.

For robust AML compliance, having access to extensive and current databases like Dow Jones Risk & Compliance and Comply Advantage is crucial. These sources offer vital details to authenticate individuals, check for politically exposed persons (PEPs), and spot suspicious transactions. Another aspect often disregarded in AML compliance costs is the opportunity cost of utilising fee earners' time for AML-related duties.

The opportunity cost of fee earners' time:

One often overlooked cost of AML compliance is the opportunity cost of using fee earners' time to carry out AML-related tasks.

Fee earners, such as lawyers or accountants, are valuable resources within an organisation. Diverting their time and expertise away from revenue-generating activities to handle AML compliance can significantly reduce their billable hours. Assessing this opportunity cost and considering strategies, such as technology, automation, and managed services, to minimise the impact on the organisation's bottom line is essential.

Think that's high? Let's consider the cost of failing to implement an AML programme properly. ‍

The cost of non-compliance  

While the advantages of AML regulations are undeniable, the administrative costs associated with compliance can become burdensome, notably if your compliance program needs proper structure. Nevertheless, the potentially severe penalties, damage to reputation, and even criminal liabilities arising from non-compliance emphasise the importance of investing in establishing a robust program.

Here are the three significant consequences that come with non-compliance.

Monetary impact 

External Consequences

Substantial fines: Regulatory bodies like AUSTRAC adopt a strict stance against non-compliance and have issued fines totalling $15bn since 2018.

Legal expenses: Engaging legal professionals, such as Senior Counsel or senior barristers, to defend against allegations can be financially demanding.

Internal Consequences:

Loss of business opportunities: A study conducted by Price Waterhouse Coopers revealed that 50% of respondents would leave a company after just two opposing experiences. A complex and lengthy onboarding process can result in customer loss.

Delayed revenue: The faster a customer is onboarded, the sooner revenue can be generated. Conversely, a lengthy onboarding process slows revenue realisation. In this case, time does equal money.

Reputational Damage

External Consequences:

Potential data breaches: Cyberattacks and malicious actors are constantly threatened, and a single ransomware incident or breach can have significant financial implications.

Media scrutiny: Public perception is critical, and the internet can be unforgiving. One misstep can haunt a brand indefinitely.

Internal Consequences:

Loss of new customers: Regulatory bodies like AUSTRAC actively employ naming and shaming tactics to deter non-compliance. A tarnished reputation within the industry can lead to the loss of new business.

Existing customer dissatisfaction: People want to avoid being associated with disreputable companies. Even if they continue doing business with you, customers will unlikely promote your brand to others.

Operational Disruption

External Consequences:

Compliance remediation: Supervisory authorities can enforce compliance changes, causing business interruptions. Any pause in operations can significantly impact revenue flow.

Internal Consequences:

Disillusionment, disengagement, and disruption: Frontline teams spend approximately 20% of their time on AML administrative tasks. Considering average salaries, this translates to a loss of $12,00 per person.

So, what can you do to reduce internal costs? 

Embracing technology to enhance efficiencies in AML compliance offers numerous benefits. Automating tasks can free up staff to concentrate on more impactful work. Advanced data analytics and AI-driven tools improve the precision for PEP, sanctions, and adverse media checks, reducing false positives and decreasing the need for manual reviews. Moreover, technology facilitates smooth integration with diverse data sources, speeding up and refining identity verification and screening procedures. Leveraging technology reduces compliance costs and improves overall effectiveness, enabling organisations to stay ahead in an ever-evolving regulatory landscape while maintaining their reputation and financial stability.