Alejandro Garcia Monterde Anti Money Laundering Challenges due to Banking and Economic Behavioral Trends

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