Internal audit function and AML compliance: the globalisation of the internal audit function

Author:Mohammed Ahmad Naheem
Position:Seven Foundation, Zurich, Switzerland
Pages:459-469
SUMMARY

Purpose This paper aims to consider the role of internal audit function (IAF) in relation to anti-money laundering (AML) compliance and oversight within global banking. The increasing globalisation of banking functions and the mirrored globalisation of financial crime require a renewed look at the role of internal audit. This paper critically examines the weaknesses in the current structure... (see full summary)

 
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Internal audit function and AML
compliance: the globalisation of
the internal audit function
Mohammed Ahmad Naheem
Seven Foundation, Zurich, Switzerland
Abstract
Purpose This paper aims to consider the role of internal audit function (IAF) in relation to
anti-money laundering (AML) compliance and oversight within global banking. The increasing
globalisation of banking functions and the mirrored globalisation of nancial crime require a renewed
look at the role of internal audit. This paper critically examines the weaknesses in the current structure
and proposes a new way of thinking about IAF.
Design/methodology/approach – The paper uses secondary data to analyse the current problems
with IAF from both theoretical and empirical perspectives. The agency dilemma of answering to two
masters in the audit committee and management and the problems associated with this in the context
of recent AML cases against banks are discussed.
Findings – The main ndings are that a new approach to internal audit is required that can operate
effectively within a globalised banking and regulatory context, especially for AML compliance issues.
A suggested approach is to develop regional audit committees and remove the internal stakeholder
dilemma that is problematic to the IAF.
Research limitations/implications – The paper focused primarily on the AML context, and IAF
may have other functions within the bank. However, the theoretical and practical problems are equally
as applicable to other areas of work.
Practical implications – The implications from the paper are the recommendations on restructuring
the function of internal audit, especially its role within management and governance, given the
impartiality and objective role that it is supposed to perform.
Originality/value – The originality of this paper is the analysis of IAF within an AML context and
the recommendation to reconsider the IAF role within a globalised banking service of the future. This
has been suggested within a growing globalised criminal context, where money laundering is a reality
and the complexity of this crime is increasing throughout the world.
Keywords Compliance, Banking, Internal audit, Anti money laundering
Paper type Research paper
Internal audit function (IAF) is not normally seen as the lead player in detecting money
laundering activity within banks, but with the global rise in money laundering activity,
could it be that a revised approach to anti-money laundering (AML) risk management is
needed, and within that, could a different function for internal audit be considered? This
paper explores the role of IAF, its relationship with the traditional corporate governance
structure and considers the future framework of challenges that banks are likely to face
as global money laundering continues to expand.
Money laundering could be one of the greatest threats to the nancial sector in the
future. The United Nations Ofce on Drugs and Crime (UNODC) estimates for money
laundering funds claim that they are considered to be worth approximately 2.7 per cent
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1368-5201.htm
Internal audit
function
459
Journalof Money Laundering
Control
Vol.19 No. 4, 2016
pp.459-469
©Emerald Group Publishing Limited
1368-5201
DOI 10.1108/JMLC-05-2015-0020

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