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Tightening the screws on money launderers

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Banks limit their risk by knowing their clients.

Criminals constantly seek new ways to launder money.

The lightning speed at which money now moves around the globe has fostered economic growth and prosperity across the world. Unfortunately, it has also given criminals and terrorists a wide choice of jurisdictions and means through which they can launder money.

As screws have tightened in the more sophisticated banking centres in North America, and in the most advanced European countries, money launderers have been pushed into jurisdictions where banking technology and political and business will to counter them are weak. Many countries in the EBRD region of operations are struggling to adequately address the potential misuse of their financial industries by money launderers.

“It’s not unusual for people to walk into some banks in the EBRD region with suitcases full of cash that they want to deposit, and bankers on the ground ought to be asking questions about the money’s provenance,” says Enery Quinones, the EBRD’s Chief Compliance Officer. She, together with her colleagues in the EBRD’s Financial Institutions Group which lends and invests in banks in the region, are combating money laundering because it threatens the integrity of banking systems they are helping to build as a pillar of economic development in former command economies.

So with grant support from the Swiss government and the European Union, the EBRD has provided anti-money laundering (AML) training to local banks and state officials in Albania, Armenia, Azerbaijan, Belarus, Bulgaria, Georgia, Kosovo, Kyrgyz Republic, Moldova, Romania, Russia, Serbia, Tajikistan, Turkmenistan, Ukraine and Uzbekistan.

Know your client

“A main tenet of banking is ‘know your client’ and part of that is knowing where their money has come from,” says Kurt Geiger, Head of the Financial Institutions Group. “Providing banking services to people involved in criminal activities puts a bank at risk both from the actions of the criminals and to its reputation among its counterparts.

“At a minimum, if it is revealed that banks are involved in laundering money – whether they do so wittingly or not - the blow to their reputations can ruin them, in part because they become pariahs in national and international financial systems.”

A cascading approach was taken in designing the AML training programme for local bankers and government officials. In each country a core group of about two dozen key individuals was trained by EBRD; on returning to their workplaces they have the tools to train their colleagues. In total 338 bankers and officials from 254 institutions have been trained.

Localising content

While AML practices the world over are fairly standard, there are local peculiarities, particularly in legislation and the potential/reality in terms of money laundering. So the lead trainers went on fact-finding missions to each country to tailor their material to the national situation, including translation. Local lawyers provided input on national AML law and examples of money laundering for use in the course.

“In many parts of the former Soviet Union, often the training programme provided the first opportunity for local AML officers to hear this stuff in their own language,” says Liévin Tshikali. He is a Compliance Manager in the Chief Compliance Officer’s team which ensures international ‘best practice’ and promotes high standards in the Bank’s activities.

The training sessions covered key issues such as ‘know your customer’ procedures, identifying and reporting suspicious activity, the latest legal requirements, and practical examples of how different types of banking products can be used by money launderers and terrorists.

Catching unusual transactions

In the main, participants were taught to focus on out-of-the-ordinary transactions. “It could be people who normally have the equivalent of just a few hundred dollars in their accounts suddenly depositing tens of thousands, or someone making an usually high number of small deposits,” says EBRD banker Nick Kerigan. A former UK banking regulator, he helped organise the training programme.

In their feedback about the seminars, participants said the sessions provided opportunity for valuable dialogue between bankers and their counterparts in government, particularly in the financial reporting units set up as AML watchdogs. “We need more cooperation,” said one Kyrgyz participant. Others pleaded for the latest AML technology and ongoing training in AML practices for staff.

Tim Parkman, Managing Director with the consultancy Lessons Learned Ltd which produced and ran the training programme, said one concern raised by participants was that national AML reporting requirements were bureaucratic and burdensome.

No risk assessment

“Bankers in the training programme said that, unlike the approach favoured by western Banks, they are not trying to discern the degree of risk in transactions. They are too busy ensuring that they comply with extensive mandatory reporting requirements, under which all transactions above a certain amount or containing certain characteristics have to be reported.”

Mr Parkman said many AML officers in the training programme also complained that it is difficult to convince clients of the value of the AML procedures which require them to disclose a lot of possibly sensitive information. “The bankers want AML and counter-terrorism finance procedures explained through a public campaign so people understand it, rather than seeing it as government intrusiveness.”

Written by Kate Dunn, the EBRD’s Senior Writer.

Contact:

EBRD Chief Compliance Officer

15 May 2006