AML three lines of defence: Time for something that works!
07 Sep 2018

By Richard Parlour

Topolcany Castle in the Slovak Republic is often acknowledged to be one of the best examples of mediaeval castle architecture anywhere in the world.

It was built on the classic three lines of defence model. There is an outer wall, an inner wall, and a keep.

Three barriers for an enemy to surmount.

The only builder of castles in latter day history, however, is Walt Disney.

So why has the three lines of defence model been so trumpeted as the best model of AML defence for financial markets?

Rorke’s Drift in 19th century South Africa. At least the military had stopped trying to build castles and defence was a bit more fluid. Three lines of defence again, however, a front line, middle line and rear line.

Although the battle resulted in a victory for those using the three lines of defence, it was without doubt a pyrrhic one, and no military uses it today.

Again, why has the three lines of defence model been so trumpeted as the best model of AML defence for financial markets? Was the issue with Topolcany Castle one of bricks and mortar? Was the issue with Rorke’s Drift a lack of machine guns?

The key issue is a psychological one. If you are in the keep, you don’t really pay much attention to those at the outer wall, or even at the inner one.

If you are in the third line, it doesn’t feel as exposed as being in the front line. The key issue, however, is multifaceted:

Three Lines of Defence is a static model, yet enemies probe and probe again until they get past the barriers or overcome them.

The Three Lines of Defence model focuses on defence of a particular area of ground or asset. The focus of defenders is very much an inward facing one.

The Three Lines of Defence model does not encourage best teamwork or use of assets.

The UK has recently seen the launch of the Queen Elizabeth II aircraft carrier.

Many seem to think that this ship has a lot of capability.

It does, but to set sail without a task force of ships, submarines and air cover would be suicidal. An aircraft carrier group is required, fully integrated and constantly communicating between the various elements.

It is not just at sea that such a concept of active integrated defence is used, but also on land, whether that is of an Army Group, or an Integrated Air Defence System.

The AML landscape has changed markedly since the Sommet de l’Arche in 1989.

The original objectives of preventing crime by taking the benefit of the proceeds of crime, of tracing the monies through criminal groups and seizing them, has transmogrified into an environment where drug deaths, terrorism, organised crime, cybercrime, etc., are all on the up and it is the financial institutions which are proceeded against.

Compliance has become little more than a process to follow regulation, with little thought, and even less impact on the underlying crimes for which the whole AML edifice was established.

Moving from an ineffective three lines of defence policy to an integrated anti financial crime system will assist achievement of the original aims, both at market and financial institution level.

About the writer: Richard Parlour runs specialist firm Financial Markets Law International, covering various aspects of regulatory and financial crime issues. He won the Strategic Regulatory Advisor of the Year Award in 2015 and also in 2016. In 2014 the firm received the UK Anti-Money Laundering Law Firm of the Year award (Corporate Livewire Awards)

 

https://www.riskscreen.com

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