aml webinar: the role of compliance in reinforcing correspondent banking relationships
TRANSCRIPT
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THE ROLE OF COMPLIANCE IN REINFORCING CORRESPONDENT BANKING RELATIONSHIPS
WEBINAR
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PRESENTER
Dave Garcia, LLB (UWI), LLM (Osgoode), CAMSGeneral Manager – Group Legal & Compliance,National Commercial Bank Jamaica Limited (NCB)
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AGENDA
1. De-risking: What is it and its impact on emerging markets
2. Build an effective transaction monitoring programme - Deployment and use of technology
3. Address emerging issues
4. Refine risk appetite
5. Assign appropriate resources to manage correspondent banking relationships
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DE-RISKING: THE GLOBAL TREND
• Global trend• Placing the financial systems of many small, developing
areas of the world in jeopardy• Dependence on correspondent banking relationships (CBRs)
for access to international financial system
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WHAT IS DE-RISKING?
• Exiting or closing accounts of clients considered ‘high risk’ to enhance safety• Impact:
• Further isolation of vulnerable communities from formal sector• Varied humanitarian, economic and security concerns• Ushers activity into less regulated channels thereby reducing
transparency and limiting monitoring capabilities
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THE RATIONALE FOR DE-RISKING
• Increased financial regulation, corporate and personal penalties for non-compliance• Compliance is costly and risky • Cost-benefit analysis: Often, the risk and cost of maintaining
the relationship outweighs the expected benefit
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THE DOWNSIDES OF DE-RISKING
• Respondent banks are denied access to foreign currency and the international financial system• Developing countries are significantly impacted• Belize example:
• Only a couple of financial institutions currently maintain CBRs with banks in the USA
• Impact: potential to significantly grow the less-easily monitored and informal methods of storing and transferring value
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TRANSACTION MONITORING
• Ensure an effective transaction monitoring programme:• Identify fraudulent activities• Proactively monitor large volume of transactions• Generate alerts on commonly recognised typologies
• The right technology is critical
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SCENARIO #1: STRUCTURING
• Structuring transactions to avoid the cash reporting limit
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SCENARIO #1: STRUCTURING
• Similar to those in the US, banks in Jamaica are required to make reports to the financial intelligence unit (FID in Jamaica) on large cash transactions (Jamaica requirement: US$15,000 or its equivalent in any currency)• Launderers may attempt to structure transactions under the
reporting limit• Applicable also to internal reporting limits• Systems should flag/alert on such activity
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SCENARIO #2: JURISDICTIONS
• You must recognize laundering activities specific to the jurisdiction of respondent bankers
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SCENARIO #2: JURISDICTIONS
• Laundering activities specific to the jurisdiction of respondent bankers – Jamaica has seen significant lottery scamming activity• For NCB, this required:
• Ensuring appropriate training• Ensuring correctly developed and configured transaction scenarios• Alignment of the business model to address the risk
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SCENARIO #3: SANCTIONS SCREENING
• Transaction screening against sanctions lists – A necessity for correspondent banking relationships
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SCENARIO #3: SANCTIONS SCREENING
• Transaction screening against sanctions lists is a key element to have in place for correspondent banking relationships, in addition to local regulatory requirements and global standards • NCB has moved from manual processes to automated
screening, going wider also than the minimum sanctions lists
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EMERGING ISSUES
• Compliance professionals must remain aware of emerging trends and methodologies• Organizations must anticipate/respond to new criminal
activity to be proactive • Any area of the business considered vulnerable deserves
careful examination • Vulnerability to money laundering, terrorist financing or other
criminal activity
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ISSUE #1: REMITTANCE LINE
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ISSUE #1: REMITTANCE LINE
• As scamming gained traction, NCB considered the vulnerability and risk-mitigating measures required to continue its remittance business • Following examination, NCB’s decision was ….
• We also communicated the decision and reasons to our correspondents
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ISSUE #2: FOREIGN CURRENCY
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ISSUE #2: FOREIGN CURRENCY
• Foreign currency activity, particularly cash, gets significant attention at the compliance level • Combination of business and policy strategies implemented
to: • Manage and monitor the flow of foreign currency cash• Encourage more transparent ways of conducting foreign currency
transactions
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ASSESS YOUR RISK APPETITE
• Need to fully understand the risks the organisation faces based on business model and strategy• Mis-alignment of risk appetite increases de-risking risk, so
…. seek alignment• Options to manage risk include:
• utilizing additional resources • implementing measures to reduce risk levels• modifying programmes
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MSBS & CAMBIOS
• Acknowledge heightened concern about Money Services Businesses (MSBs), Currency Exchange Converters (CAMBIOs)
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MSBS & CAMBIOS
• Heightened concern in North America around high risk of MSBs and CAMBIOs • NCB observed the growing concern and proactively
examined its portfolio of CAMBIO relationships • Decision: contain relationships based on available business
and compliance resources• Result: some account restrictions and account closures
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ASSIGNMENT OF RESOURCES
• Ensure team preparation to participate in effective communications with correspondent banks• Have well-qualified, knowledgeable personnel in
Compliance and Business Units• They must be knowledgeable of:
• Your organisation’s AML/CFT programme• Correspondent bank’s expectations• Regulatory requirements and emerging global and local trends
• Communicate frequently so correspondent banks feel confident about the organisation and its programme
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SUMMARY
What we covered today:• De-risking, its causes and consequences• Steps to reduce its likelihood• Understand what correspondent banks require in their relationship
• Recognize the key areas impacting correspondent banks
• Appreciate the value of transaction monitoring and its impact on banking relationships - configure appropriately
• Assess and align risk appetite• Ensure the AML/CFT expertise and programme knowledge of staff
required to interact in correspondent banking relationships
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WEBINAR
THE ROLE OF COMPLIANCE IN REINFORCING CORRESPONDENT BANKING RELATIONSHIPS