Anti-money laundering laws will determine links between US, Caribbean banks

Caribbean indigenous banks seeking to establish relationships with counterparts in the United States will come under heavy scrutiny and a lot will ride on the country of origin’s anti-money laundering performance.

Delegates to the Caribbean Association of Indigenous Banks (CAIB) 34th Annual Meeting and Conference were told at a pre-conference training event yesterday that Section 311 of the Patriot Act measures against a jurisdiction and its banks and this would have serious implications for future relationships between US financial institutions serving as correspondent and their foreign bank respondents. Correspondent banking occurs when one banker provides services to another bank to move funds, exchange currencies, or carry out other financial transactions.

In a presentation titled ‘The Changing US Landscape – Its Impact on Caribbean Financial Services Sector’, President of the Florida-based Bascom Consulting Incorporated Dr Wilbert O Bascom explained: “An obvious implication is that once this relationship is closed, the probability of re-establishing a similar relationship down the road is negligible or zero.”

Another implication, he said, was that individual foreign banks might be unable or ineffective in correcting the problems that caused a jurisdiction to be classified as a primary money laundering concern jurisdiction.

He said that a minimum requirement would be for the foreign country’s government to take steps to improve anti-money laundering laws and prosecute the individuals or institutions for their money laundering activities.

In addition, Section 312 of the Patriot Act also introduced a substantive change in correspondent banking relationships between US banks and foreign financial institutions, including Caribbean commercial banks.

On August 9, Bascom said, the Financial Crimes Enforcement Network (FinCEN) published a final rule that requires each US financial institution that establishes, maintains, or manages a correspondent account or a private banking account in the US for a non-US person to subject such an account to certain due diligence measures. Under the rule, enhanced due diligence measures apply to correspondent accounts maintained for a foreign bank operating under: An offshore banking licence; a licence issued by a country that has been designated as being non-cooperative with international anti-money laundering principles or procedures; or a licence issued by a country designated by the Secretary of the Treasury as warranting special measures owing to money laundering concerns.

Bascom was once in charge of the Guyana’s first indigenous bank Guyana National Cooperative Bank (GNCB).

Federal Reserve Bank of Atlanta Directing Examiner Rudolph F. Zepeda, Jr, said law enforcement’s concern was stopping money laundering by increasing fines and sanctions, forfeiture of assets which revert to the state and the utilization of cash transaction reports (CTR’s) to follow the money.

He described the major changes affecting the Caribbean as the heightened scrutiny in correspondent banking accounts owing to the issuance of an updated Bank Secrecy Act/Anti-Money Laundering Examination Manual, in addition, to other changes like the outlawing of internet gambling – the shift by money launderers to trade-based money laundering and the need to look at Anti-Money Laundering (AML).

Zepeda said that almost six years after the US Patriot Act toughened banks’ anti-laundering requirements, large banking companies continue to face massive fines for failures in their programmes. Consideration is also being placed on the newest technological advances such as stored value cards as a vehicle to move funds.

He noted that since 2001, 11 banks operating in the US, have had anti-money laundering fines over US$5M levied against them. The Bank of China, US Trust, Banco Popular, Riggs Bank, AmSouth, Arab Bank, ABN/AMRO Bank, Bank Atlantic, Israel Discount Bank, American Express Bank and Union Bank of California had total fines of US$350M against them.

He said that ABN Amro’s New York Branch which on December 19, 2005 was fined US$80M, might face a second penalty of nearly US$500M, since “every time you think you have it covered, you constantly have to update what you do.”

According to Zepeda, the Treasury Department is considering sweeping structural changes in US financial services system, such as, consolidating regulatory agencies and combining charters of federal and savings institutions.

This could mean that the primary responsibility on blocking those transactions would lie with financial institutions and other payment processors that have banking relationships with internet gambling companies.

The concerns of the banks are that the costs to establish an efficient AML programme are increasing.

These include trained personnel, information technology and enterprise-wide programmes and direct competition from non-regulated entities. The 50 members and three honorary members of the CAIB have a combined asset base of US$17.5B.

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