The cost of fighting money laundering has risen dramatically for banks across the world as they have become increasingly engaged in the struggle against criminality, according to a global study by KPMG International.

KPMG says the task is becoming more difficult for banks due to the increasing complexity of the financial markets in which they operate, including greater exposure to sometimes unfamiliar emerging markets and the dramatic growth of alternative assets,

KPMG’s study among 224 banks from 55 countries found that banks’ spending on anti-money laundering (AML) systems and processes has risen by an average of 58% over the last three years.

In North America, spending has increased by 70% or more. These increases are far in excess of banks’ own predictions when KPMG Forensic carried out its last study in 2004, when respondents on average predicted an increase of 43%. The biggest spending continues to be on transaction monitoring and staff training costs.

However, just as three years ago banks under-estimated their level of spending in the future, so now they still seem in danger of being overly optimistic. On average, they are predicting an increase of only 34% in their spending over the next three years .

“The challenges in combating money laundering and terrorist financing are no different for Canadian banks. In this country, banks are pretty competitive, but when it comes to anti-money laundering and counter terrorist financing activities, there is a good level of cooperation and sharing of leading practices,” said James Hunter, a Toronto-based KPMG Advisory partner and head of the firm’s forensic practice in Canada, in a release.

“The need for more stringent anti-money laundering processes will only continue to grow for Canadian banks consistent with global expectations of the banking sector. For example, the Proceeds of Crime ( Money Laundering ) and Terrorist Financing Act ( Canada ) has recently been beefed up to require Canadian banks to enhance their due diligence enquiries surrounding correspondent banking relationships and politically exposed persons. All of this costs money, so we can expect rising costs of compliance globally to be matched by the banking sector in Canada as well,” Hunter added.

The study also noted that there is significant concern amongst banks that governmental and international regulation needs to be more effectively targeted. Half of respondents said they believe that while the overall regulatory burden is acceptable, the requirements need to be better focused, while nearly one in ten (8%) believe that regulation should actually be increased in order to combat both money laundering and terrorist financing more effectively.

In Canada, there is one statute which addresses both money laundering and terrorist financing. “In some ways these criminal activities are mirror-images of each other,” explained Hunter. “While money launderers try to integrate the proceeds of crime into the legitimate economy, terrorist financiers may often take funds raised legitimately, perhaps by a community group who believe they are funding a charitable cause back home, which in turn are then funnelled back into the underground economy to fund terrorist activities.