Payments Painkiller - Tackling Compliance Headaches
By Eleanor Hill, Editor
Now more than ever, treasurers need to take action to reduce the risks around payments – especially when it comes to sanctions compliance. Here, Joerg Wiemer, CEO, Treasury Intelligence Solutions (TIS) GmbH explains how centralising sanctions screening, and integrating it into the payment process, can help to keep corporates safe from compliance breaches.
Eleanor Hill, TMI (EH): Why are treasurers losing sleep over payments? What pain points do they typically face?
Joerg Wiemer, TIS (JW): As I learnt in my former life as a corporate treasurer, orchestrating a payments process is surprisingly painful. Generally speaking, the costs are relatively high, as are the risks, and transparency is low. Although initiatives such as SWIFT gpi are addressing some of these issues, the risk element is still causing headaches for many treasurers.
Before treasury pays a supplier, it has to make sure the beneficiary has been thoroughly screened. This is not a one-off process; it’s continual – government-imposed embargoes and sanctions on who companies can trade with and how, are changing almost daily. What’s more, regulations in this area are increasing, with the EU and US, among others, issuing tough legislation to control money laundering and terrorist financing. The treasurer, together with the CFO, is therefore becoming personally responsible for any compliance breaches relating to payments.
EH: Could you outline some of the consequences of non-compliance? What are the risks?
JW: Along with the personal risks, which could see individuals incarcerated, the financial penalties for non-compliance are a major cause of sleepless nights, especially since regulators have imposed heavy fines in recent years (see Fig. 1).
In addition to fines and prison sentences, a breach could lead to significant reputational damage, which could in turn impact future profitability. Bank funding arrangements are also potentially at stake. Breaches can result in banks terminating business relationships, cancelling loans, or leaving funds frozen in escrow accounts for many years. Suppliers and buyers may also choose to take their business elsewhere if they feel the company is not doing enough to ensure its payment processes are compliant.
Worryingly for treasurers, regulators consider that not having adequate systems in place to run sanction and Anti Money Laundering (AML) compliance programmes is in fact comparable to non-compliance and misconduct. So, even without a breach, the implications of not being on top of payments compliance are extremely serious.
Fig 1 - Recent fines handed out by regulators
EH: What are the major sources of compliance risks around payments? What challenges do treasurers face when trying to keep on top of these risks?
JW: Any growing company is at risk, since the number of business partners, especially suppliers, that the business interacts with will be increasing rapidly. To keep on top of the new legislation, supplier data needs to be checked regularly against sanction lists such as that produced by the Office of Foreign Assets Control (OFAC). However, these sanctions lists change on a daily basis, which makes it hard to stay compliant without a tool to help shoulder the workload and make sure that the latest data is being used to perform checks.
Another hurdle is ensuring that subsidiaries are screening their suppliers correctly and that they are adhering to standardised processes for invoices that cannot be paid due to sanctions issues. Think about a group of companies with 50 subsidiaries worldwide – having visibility and control over the screening process used by all of those subsidiaries is extremely tough, especially if each subsidiary is using a different ERP system. Companies that have gone through acquisitions also often face significant visibility and consistency issues. What’s called for is a standardised sanctions workflow which is embedded right across the company’s systems and allows the Compliance Officer to gain a better insight into the overall company’s risk exposure to sanction violations.