According to the European Commission, small and medium-sized enterprises (“SMEs”) represent 99% of all businesses in the European Union. SMEs play a vital role in economies, both at national and European level, as they drive innovation, promote growth and create opportunities, thus contributing to more competitive markets. SMEs exist across a number of industries, including legal, audit and accounting firms, and other corporate service providers.
Despite their smaller size, SMEs are not exempt from their Anti-Money Laundering (AML) obligations; they must ensure that their operations comply with all national and European regulations. It can be the case that AML obligations are overlooked, or seen as an extra burden. This article seeks to examine some of the challenges faced by SMEs in adhering to their obligations regarding AML Compliance.
Definition of SMEs in Cyprus
In Cyprus, the Registrar of Companies makes a distinction between small and medium enterprises, as follows:
Small-sized enterprises are defined as companies which, at the closing date of their balance sheet, do not exceed the limits of at least two of the following three criteria:
- total balance sheet (total value of assets without deducting liabilities): four million euros (€4m);
- net turnover: eight million euros (€8m); and
- average number of employees during the period of use: fifty (50)
Medium-sized enterprises are defined as companies other than small-sized companies, which, at the closing date of their balance sheet, do not exceed the limits of at least two of the following three criteria:
- total balance sheet (total value of assets without deducting liabilities): twenty million euros (€20m.);
- net turnover: forty million euros (€40m.); and
- average number of employees during the period of use: two hundred fifty (250)
Challenges faced by SMEs in relation to AML Compliance
SMEs often face significant financial limitations, including high operating costs, and restricted access to capital. Such challenges can make it more difficult for SMEs to balance the costs of their day-to-day operations and growth strategies, with the need to invest in appropriate AML controls for the business.
Many companies have an in-house AML Compliance Officer (an “AMLCO”), who is responsible for creating internal AML policies, assessing the adequacy of risk controls, and providing on-going training for staff members. An AMLCO can work with the senior management to determine the risk appetite of the business, and assist in allocating resources in areas with the most significant risk.it may not be financially feasible to employ a full-time, in-house AMLCO, depending on the scale of the SME’s operations. Obtaining outsourced assistance may be more suitable in this case.
Similarly, an SME may consider investing in specialized AML software and monitoring systems, although often such technologies are expensive to implement. It would need to be determined whether such systems are compatible with existing systems and processes of the business.
SMEs may also encounter challenges due to the ever-changing nature of AML laws and regulations. National and European legislators are constantly amending the legal framework, with the aim of strengthening it, and ensuring that it evolves in line with new practices of financial crime that emerge. It is important for any business to keep up-to-date with announcements from national authorities, to avoid the imposition of any financial penalties for non-compliance with newly implemented provisions.
In particular, it is important for SMEs to stay informed on any directives, regulations or circulars published by their regulator, as these can often impose obligations, for example, reporting obligations, with a specific deadline set by the regulator. It can be particularly burdensome for SMEs to keep up with frequent updates, and take the necessary actions each time, making it easy for such updates to be overlooked, or sidelined.
In all, it is noted that SMEs, just as every other larger-scale company, are subject to the AML legal and regulatory framework implemented under national, and EU regulations, and they are obligated to apply appropriate controls, consistent with the risk they face, to mitigate the risk of participating in financial crimes. By implementing strong internal AML controls, SMEs will protect their business interests, including their reputation, and their assets and investments.
MK Compliance Limited can take into consideration each business’s complexities and provide tailored services for the development of AML compliance programs, according to their own risk appetite, and exposure. We, among others, develop tailored AML programs featuring policies, procedures, business-wide AML and sanction risk assessments aimed at minimizing risks and identifying vulnerabilities based on your business.
Our team can also provide AML consultation in a wide spectrum of matters, including AML due diligence of your clients and ad hoc AML checks of your business.
For more information, you may contact our team at info@compliancemk.com or me personally at stella.hadjiloucas@compliancemk.com.
