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Enhanced Due Diligence: Something new or just a buzzword? (2003)

In this conference paper, presented in Singapore on 31 July 2003, Nigel Morris-Cotterill looked at the then novel concept of Enhanced Due Diligence.

There is absolutely nothing new about so called Enhanced Due Diligence. It is just a TLA (three letter acronym) for that which properly advised and well managed businesses have been doing for years.

The problem is that most financial services businesses are neither well advised nor, when it comes to compliance, well managed.

I'll set out the argument from the perspective of the banks:

1) compliance is expensive

2) compliance is a diversion from our core activities

3) compliance gets in the way of doing business

4) compliance will cost us x per annum but if we don't do any, the fines will only be half x every three years or so. Therefore doing no compliance actively strengthens our balance sheet.

5) If we decide that doing no compliance is too risky, then we can comply to the least extent possible and get ticks in boxes. Then at least we had an argument that we tried but were not very good at it.

That is the sort of argument you get when you put accountants in charge of compliance. And right across the world, accounting firms have used experience in forensic examination as grounds for claiming expertise in relation to money laundering detection, prevention and compliance. They have seen the word "audit" and they like it.

The problem is that this cost-averse approach is counter-productive. In 1996, in the first edition of my book "How not to be a money launderer" I wrote that audit of compliance systems should be a legal function not an accounting function.

At that time, the concept of monitoring and auditing compliance systems was unheard of.

Compliance was a dirty little department hidden at the end of a corridor sandwiched between the toilets and the smoking room. When the door opened with a squeak, bats came out.

And all over the world the problem remained the same.


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