Compliance From the Start(up)

Compliance From the Start(up)

At least two or three times a year you are hooked on a featured profile piece from a business magazine or Sunday newspaper about a hot new startup and its radical leadership team, right? You know the piece. No one saw Startup X coming and now X is about to set our tired institutions ablaze and build on the ashes something that forever changes the way we live. And, they’re just getting started. Whoa! That’s a story every major media outlet indulges in, but why? Why do we read these profile pieces when the narrative is all too familiar to us? Contributing to the creation of an innovative product is a part of it for sure, but learning about the team behind the scenes is equally if not more compelling. We want to live the excitement and satisfaction captured in those Sunday features. We want in on that culture.

But let’s not get carried away. The culture synthesized in the overly romanced motto of a once small, buzzy social media startup bears a strong resemblance to the modus operandi of a capricious toddler. That early rallying cry pretty accurately describes how our toddlers execute whatever mission they’re pursuing between naps.  The emotions captured in that now famous article are exciting urges to act on, but breaking things creates a mess and someone has to clean it up. Unlike toddlers, companies don’t have parents with wet wipes on hand at all times. But Boards of Directors and leadership teams with fiduciary responsibilities can use their resources to ensure innovation doesn’t lead to injury. It is the responsibility of leadership, if not their stark legal obligation, to make diligent and expeditious use of those resources to protect us when they decide to create shards from established institutions and norms. For startups operating in Fintech, this means a thoughtful, risk-specific AML / CFT program should work itself seamlessly into a company’s operations during incubation. This goes beyond drafting policies and procedures, subscribing to training seminars, and appropriating funds for the salaries of a BSA officer and department. The true importance of an AML / CFT program to leadership is revealed to the public, regulators, and employees through the lens of company culture.

The Fintech startups that make it into the Sunday paper are not actually interested in breaking things, but the notion of “disruptiveness” is undeniably prevalent. And that’s fine. Exploring novel solutions to complex problems provides purpose and motivation to overcome early, tedious operational challenges. Honest naiveté powers startups past naysayers and skeptics. However, the most disruptive and transformative of these companies happen to follow a similar formula. These startups put people unfamiliar with each other, each other’s fields, and each other’s ideas in the same room. It’s the friction between those elements that sparks innovation, and it’s from that flame that these companies forge better tools to participate in global financial markets. That is the promise of these Fintech startups, but we don’t want their execution to sabotage the mechanics of regulatory protections. Leadership at these companies are invested with the responsibility to mitigate against the risk of injury from their products and services.

FinCEN Director, Kenneth Blanco’s message at a recent conference on Blockchain technology focused on the importance of establishing a company culture of compliance at the outset of any disruptive operation:

Compliance does not begin because you may get caught, or because you are about to be discovered.  That is not a culture that protects our national security, our country, and our families.  It is not a culture we will tolerate.

 A strong culture of compliance should be part of building your operations from the ground up, and you can expect that we will identify where this is not taking place and take appropriate action.

Company culture must house a culture of compliance, which goes beyond simply building out an AML / CFT program. Leadership must demonstrate enterprise-wide risk awareness through the stewardship of the AML / CFT program and maintenance of relationships between AML / CFT and other facets of the operation.

Allowing compliance to thrive within company culture is a shrewd business move. There is an opportunity new Fintech companies can seize upon if they understand and appreciate the importance of a risk-based AML / CFT compliance program. Grafting compliance onto your corporate culture allows you to limit legal exposure, prevent financial injury and foster goodwill by combatting criminal money laundering and terrorist financing. The continued success of pioneering innovators who embrace compliance suggests AML doesn’t stifle startup culture; rather, it allows company culture to thrive when the ripples of innovation turn into waves of disruption.

 

At AML RightSource, our Financial Crimes Advisory professionals can help cryptocurrency startups navigate rapidly evolving AML / CTF risks and foster a culture of compliance.  Please visit our page for more information.

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Tim Murphy

Tim Murphy

Mr. Murphy is a Senior Analyst in the AML RightSource Phoenix office. He has experience performing transaction monitoring, case investigation, Enhanced Due Diligence (EDD) reviews, Suspicious Activity Reports (SAR), and other AML/BSA projects. Mr. Murphy also has developed AML/BSA transaction monitoring procedures, enterprise-wide BSA/AML risk assessments, and tuning/optimization exercises for BSA/AML software. Mr. Murphy holds a Bachelor of Arts in Political Science from the University of San Diego and obtained his Juris Doctor from the University of New Mexico School of Law. Prior to entering the AML field, Mr. Murphy represented financial institutions in a broad range of litigation, including matters relating fraud, breach of contract, commercial negligence, Ponzi schemes, and corporate bankruptcy. Mr. Murphy is a licensed attorney in the State of New Mexico and is a Certified Anti-Money Laundering Specialist (CAMS).

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