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Uploaded byAlejandro Garcia-Monterde MA MBA CAMS CFE
Alejandro Garcia Monterde
The document discusses the challenges and trends in money laundering compliance faced by financial institutions in the CIS and CEE regions, particularly following the 2008 credit crisis and the implementation of Basel III regulations. Key issues include the increasing normalization of AML violations, the pressure to improve compliance frameworks, and the transformation of traditional banking practices as exemplified by Switzerland's shift away from banking secrecy. Additionally, it outlines the competitive landscape for corporations in emerging markets, highlighting the risks associated with reduced lending standards and the potential for increased bribery and improper payments.
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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