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

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 financial 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 findings 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.

Citation

Naheem, M.A. (2016), "Internal audit function and AML compliance: the globalisation of the internal audit function", Journal of Money Laundering Control, Vol. 19 No. 4, pp. 459-469. https://doi.org/10.1108/JMLC-05-2015-0020