Know your employee: ‘An insider can pose the same threat to an organisation as an outsider’

Regulators, authorities and compliance professionals have wasted no effort in recent years to hark on the importance of effective Know Your Client (KYC) procedures. Indeed, legal requirements on compliance, due diligence and KYC frameworks have been strengthened across the board, due to a variety of reasons, with hefty fines issued for non-observance.

On the other side of the coin, however, is an area which has been given much less attention.  Know Your Employee (KYE) protocols are rarely discussed. Honing in on this, a local Compliance Officer, Petra Pace, highlighted the importance of this by pointing towards a recent case where a bank manager admitted to a modern-day bank heist.

Last month, local financial circles were shocked to learn that an HSBC Manager had admitted to fraud involving unauthorised withdrawals from client accounts and forged signatures to fund a pricey Siggiewi farmhouse, as well as his affinity for exotic birds.

HSBC, a Times of Malta report said, is seeking to recover €1 million in misappropriated funds and damages from former Mortgage Protection Manager Kenneth Gauci, who worked at the bank from 1989 until he was fired in August 2021.

Why are the details about the individual important? As a longstanding employee with the bank, who presumably enjoyed a level of trust commensurate with someone who has worked for the same organisation for over three decades, the breach of trust can be viewed as all the more shocking and highlights the need for organisations to maintain an effective KYE programme.

In the course of an investigation that was kicked off by HSBC after clients began complaining of unauthorised withdrawals, Mr Gauci reportedly told the bank that the funds he withdrew from customers were mainly used for the completion of a secluded farmhouse in Siggiewi.

Using the shocking case to illustrate the importance of KYE procedures, Ms Pace, a local Compliance Officer at R.E.L commented on social media that “background screenings of all prospective and current employees, requesting a recent police conduct and adverse media searches are crucial in this day and age.

“Specific positions within an organisation warrant enhanced ongoing monitoring of these individuals to prevent any fraudulent behaviour.”