aml webinar: the role of compliance in reinforcing correspondent banking relationships

THE ROLE OF COMPLIANCE IN REINFORCING CORRESPONDENT BANKING RELATIONSHIPS

WEBINAR

PRESENTER

Dave Garcia, LLB (UWI), LLM (Osgoode), CAMSGeneral Manager – Group Legal & Compliance,National Commercial Bank Jamaica Limited (NCB)

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

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

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

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

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

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

SCENARIO #1: STRUCTURING

• Structuring transactions to avoid the cash reporting limit

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

SCENARIO #2: JURISDICTIONS

• You must recognize laundering activities specific to the jurisdiction of respondent bankers

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

SCENARIO #3: SANCTIONS SCREENING

• Transaction screening against sanctions lists – A necessity for correspondent banking relationships

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

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

ISSUE #1: REMITTANCE LINE

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

ISSUE #2: FOREIGN CURRENCY

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

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

MSBS & CAMBIOS

• Acknowledge heightened concern about Money Services Businesses (MSBs), Currency Exchange Converters (CAMBIOs)

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

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

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