A widely reported upon news story regarding a $1 billion accounting scandal at a major India-based service provider, Satyam Computer Services, which offers outsourced compliance functions to Fortune 500 organizations noted that Federal regulators are likely to inspect banks that outsource their AML and compliance activities.

This news story has reignited discussion on this subject. As the scandal shows, what at first appears to be an intuitive move to lower these operational costs may in fact be a false economy — and a dangerous one at that.

Outsourcing AML does not opt you out of your firm’s statutory and regulatory responsibilities to detect and prevent money laundering and terrorist financing. You are still accountable if you let a “bad guy” conduct business through your company. In all instances of outsourcing, the delegating entity (meaning you) retains the ultimate responsibility for the compliance duties performed on its behalf. This includes the requirement to guarantee that the service provider to whom you’ve outsourced has adequate AML systems, controls and procedures in place to carry out the work competently.

Taking on such a guarantee and doing your due diligence up front in order to find a reputable company with a proven track record is, of course, an effort well-spent. By outsourcing your AML functions to a company, you are entrusting them to provide a service in an extremely demanding and unforgiving sector — one that is scrutinized to the proverbial “nth degree” by regulators throughout the world.

The expertise required from an outsourced AML service provider can be found within reputable accounting/auditing companies that focus on risk assessment. Another option is to look at companies that specialize in elements of the AML process such as sanction data providers or filtering software vendors. A requirement to look for in these firms is a strong professional services arm that has the know-how and capabilities to perform comprehensive and trusted AML processes.

Outsourcing compliance responsibilities can reduce expenses and increase efficiencies. But you must do your homework and find a service provider that has the required expertise and passes muster against your due diligence research. If you’re unfortunate enough to engage a shoddy service provider you can expect their negligence to cost you plenty in both massive fines and reputational damage.