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Anti-Money Laundering in the CEE and CIS Region
Anti-Money Laundering in the CEE and CIS Region
Anti-Money Laundering in the CEE and CIS Region
Anti-Money Laundering in the CEE and CIS Region
Anti-Money Laundering in the CEE and CIS Region
Anti-Money Laundering in the CEE and CIS Region
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Anti-Money Laundering in the CEE and CIS Region

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Alejandro Garcia-Monterde, Head of Risk Management CEE, BearingPoint, Switzerland

Alejandro Garcia-Monterde, Head of Risk Management CEE, BearingPoint, Switzerland

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  • 1. An#  Money  Laundering  Challenges  due  to  Banking  and  Economic  Behavioral  Trends  Alejandro  Garcia-­‐Monterde  Head  of  CEE  Risk  Management    CIS  Bankers  Conference  Kiev  June  6,  2013  CIS  &  CEE  Perspec#ves      
  • 2. 2  Current  situa9on  As  Financial  Ins#tu#ons  in  CIS  countries  and  abroad  are  facing  lower  margins  due  to  the  Credit  Crisis  of  2008  and  the  resul#ng  onerous  Basel  III  Capital  Adequacy  Requirements  the  world  banking    leadership  are  becoming  less  vigilant,  tolerant  and  even  complicit  of  AML  ac#vity  AML  Viola#ons  are  Growing    Worldwide   Issues  to  be  discussed  and  addressed  The  most  common  AML  drivers  are  i)  legi#miza#on  of  ill-­‐goWen    proceeds  from  crime  into  shell  corpora#ons  &  legi#mate  businesses  ii)  Terrorism    iii)  Tax  evasion    iv)  Hiding  bribery  payments  iii)  Lower  margins  incen9vizing  firms  to  “look  the    other  way”  1  Former  tax  Havens  (e.g.:  Switzerland)  are  now  accep#ng  interna#onal  trea#es  to  report  US,  Canadian  and  EU  ci#zens  with  assets  in  said  tax  havens  2  Financial  &  Non  Financial  Firms  in  the  West    who  are  experiencing  lower  growth    than  other  markets  (e.g.:  Asia)  are  seeing  emerging  markets    (e.g.:  BRIC  countries)  as  the  new  growth  impera#ve  resul#ng  in  more  incidents  of  bribery  3  Financial  Ins#tu#ons  are  compe#ng  with  the  Corporate  Bond  issues  within  Capital  Markets  in  growing  their  Corporate  por_olio  by  reducing  “covenant  discipline”  §         Record  breaking  fines  issued  by  regulators  worldwide,                notably  in  the  US  and  UK,  dominated  the  financial  services                landscape  in  2012.    §         This  looks  set  to  con#nue  in  2013  if  regulators  iden#fy                further  failings  in  financial  &  non-­‐financial    firms’                compliance  with  money    laundering,  sanc#ons  and  tax                      requirements.    §         Firms  opera#ng  on  a  global  basis  will  also  need  to                demonstrate  a  robust  compliance  framework  ensuring                that  each  territory  has  sufficient  oversight  and  that  An#                Money  Laundering  (‘AML’)  regulatory  requirements  are                being  adhered  to  at  both  a  local  and  global  level.  In  light  of  the  above,  we  have  developed  a  Know  Your  Customer  (‘KYC’)  quick  reference  guide  which  provides  quick  and  easy  access  to  global  AML  and  KYC  informa#on,  to  assist  firms  opera#ng  interna#onally  in  mi#ga#ng  their  risk.  §  ……….    Both  opportuni#es  and  challenges  exist  with  the  aforemen#oned  drivers  to  increase  and  enforce  AML  regula#ons  that  will    stem  the  #de  of  ill  goWen  gains  from  CIS  countries  and  aWract  legi#mate  businesses  thus  incen#vizing  local  CIS  businesses  to  be  more  wary    of    their  clients.  THIS  WILL  BE  A  LONG  TERM  EVENTUALITY.  
  • 3. 3  Demise  of  Swiss  Banking  Secrecy  heralds  new  era    For  the  post  “Credit  Crisis”  drive  by  Western  governments  to  shore  up  more  tax  revenues,  long  standing  tax  havens  are  feeling  diploma#c  &  economic  pressure  to  become  more  transparent  CASE  STUDY  FOR  SWITZERLAND  Over  the  last  5  years  Switzerland  has  resisted  its  80  year  tradi9on  of  protec9ng  the  secrecy  of  its  banking  clients    As  of  February  2013  it  has  now  broken  this  tradi9on  by  accep9ng  FACTA  the  US  extraterritorial  legisla9on  that  requires  foreign  banks    to  provide  informa9on  on  its  ci9zens    The  similar  EU  treaty  is  now  being  passed  in  the  Swiss  parliament  and  is  expected  to  be  force  shortly  for  all  EU  ci9zens  Since  bank  secrecy  has  been  the  USP  Unique  Selling  Point  for  Swiss  banks  other  value  added  services  will  have  to  be  pursued  to  maintain  profits  Some  Swiss  banks  have  put  up  the  fees  they  charge  for  managing  clients  with  advisory  accounts  where  banks    can  typically  charge  for  grater  range  of  services  to  those  with  discre9onary  accounts  Swiss  Bankers  will  now  be  able  to  go  out  again  and  focus  on  tapping  new  markets  without  foreign  government  scru#ny.  This  could  result  in  a  posi#ve  move  for  not  only  reducing  tax  evasion  but  also  rewarding    Swiss  banks  with  new  revenue  streams.  If  successful  other  tax  havens  will  follow  suit  
  • 4. 4  In  many  markets  its  “Pay  to  Play”    The  most  common  and  now  growing  prac#ce  of  money  laundering  is  the  hiding    of  ‘bribery  payments’  driven  by  the  Western  Corpora#ons    which  is  the  growth    impera#ve  in  emerging  ABRIC  markets  IMPROPER  PAYMENTS   INAPPROPRIATE  GIVING  OR  RECEIVING    OF  GIFTS   CONFLICTS  OF  INTEREST  0.9  %  Global  Average  0.9  %  Global  Average  6.5%  Global  Average    COUNTRY  AVERAGE      COUNTRY  AVERAGE    COUNTRY  AVERAGE  1.4%  BRAZIL  1.4%  BRAZIL  1.4%  BRAZIL  7.9%  CHINA  7.7%  CHINA  7.9%  CHINA  1.8%  INDIA  2.2%  INDIA  7.5%  INDIA  3.3%  CIS  (RU,  UA,  KZ  BY)  1.4%  CIS  (RU,  UA,  KZ,  BY)  10.9%  CIS  (RU,  UA,  KZ,BY)  In  a  CEB  (Corporate  Execu#ve  Board)  survey  more  than  700,000  employees  of  mul#na#onals  around  the  world  ,  rela#vely  few  reported  having    knowledge  of  colleagues  who  paid  bribes,  gave  or  accepted  improper  gijs  or    filed  to  report  conflict  of  interest.  BUT  THE  NUMBERS  JUMP  DRAMATICALLY  IN  EMERGING  MARKETS  
  • 5. 5  The  advent  of  another  Credit  Crisis  within  Corporate  porfolios?    Financial  Ins#tu#ons  in  the  West  and  CIS  countries  are  compe#ng  with  the  Corporate  bond  issues  within  Capital  Markets  in  growing  their  Corporate  por_olio  by  reducing  interest  rates  &“covenant  discipline”  CASE  STUDY  FOR  CORORATE  PORTFOLIO  GROWTH  2011-­‐2013    Between  2008  and  2011  Corpora9ons  have  been  ‘deleveraging”  their  balance  sheet  debt.  This  has  resulted  in  soj  borrowing  demand  pukng  undue  pressure  on  financial  ins9tu9ons  to  restructure  loans  without  a  viable  profitable  business  case  for  the  sake  of  retaining  corporate  clients    Despite  the  Credit  Crisis  many  Western  CIS  Corpora9ons  have  significantly  increased  their  cash  posi9on  and  have  even  registered  double  digit  growth  (Asia  is  the  leader  followed  by  CIS  and  the  West  remains  soj)  between  2010  and  2012  Despite  low  interest  rates  borrowing  demand  remains  soj  among  Corporate  and  SME’s  alike,  deposits  are  growing  and  investment  securi9es  are  yielding  very  limle  due  to  regulatory  restric9ons  There  are  indica9ons  of  stronger  confidence  among  CIS  and  SME  &  Corporate  for  growth  but  rather  than  borrowing  from  Financial  ins9tu9ons  they  have  been  taking  advantage  of  the  Bond  Market  which  with  ques9onable  collateral  have  favorable  yields  versus  Corporate  Loans  This  has  resulted  in  intense  compe99on  to  extend  more  Corporate  Loans    and  spur  CIS  banks  to  offer  them  at  dangerously  low  rates  and  less  stringent  covenants  While  leveraged  lending  declined  during  the  crisis  volumes  have  increased  and  prudent  underwri#ng  prac#ces  have  deteriorated  such  reduced  KYC  prac#ces,  “covenant  light  “  contracts  which  if  not  properly  monitored  incen#vize  CIS  Corpora#ons  to  not  u#lize  borrowed  funds  for  core  business  purposes  and  even  borrow  for  the  purposes  of  legi#mizing  ill  goWen  gains  

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