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ComplianceAid Caribbean Basin AML
Conference 2016
“How to End a Relationship Under AML”
Randy Graham, CEO
March 10, 2016
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AML Standard for Business Relationships
• The Financial Action Task Force (FATF):
• chartered in 1989 and known globally as the policy setting body
on AML/CFT matters
• issued 40 recommendations in 2003
• issued updates which now form the 40+ recommendations
• has produced the thought leadership on this topic
• Most of our international core principles on AML and our
domestic legislation and regulations related to AML are a
function of the FATF standards.
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AML Standard for Business Relationships
• Businesses are required by AML regulations to have
appropriate risk-sensitive policies and procedures in order to
prevent activities related to money laundering and terrorist
financing.
• These policies include:
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Customer Due Diligence (CDD)
scrutiny of complex transactions
identification of unusual transactions
prevention of products favouring anonymity
identification of PEP clients
appropriate internal controls for ongoing monitoring
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Business Relationship (BR)
• Working definition … a business, professional or commercial
relationship between a relevant person or company and a customer.
At the time when contact is established, the company and the
customer expect that the ensuing relationship will have an element of
duration.
• AML policies, therefore, are premised on the following facts:
• companies will have BR during the normal course of business
• companies need CDD/KYC information from the client to transact
business and to satisfy AML regulations
• there can be information asymmetry in the BR
• most often CDD is completed before the BR can be established
• the customer’s circumstances may change after the initial
establishment of the BR so ongoing monitoring is required
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Suspicious Transactions
• We begin the review from the position that companies have
performed CDD at the beginning of a BR and have an internal
system in place for ongoing monitoring.
• What happens when we find or suspect a suspicious
transaction?
• internal controls flag a transaction/various transactions
• the suspicious transaction is verified
• the transaction is then reported using the channel approved by
the competent authority in the jurisdiction
• company management then needs to determine how to treat to
the customer/customers on an ongoing basis or whether to end
the business relationship
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Ending the Relationship
• The greatest challenge is always balancing regulations for
protection and innovation for business growth
• The aim of suspicious transaction monitoring and the
corresponding action is not to create financial exclusion and
fuel de-risking, but it is to combat misuse
• Companies must, therefore, determine on a risk based level
when a BR needs to be ended in the best interest of all parties
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Ending the Relationship
• Where a financial institution does not believe it may effectively
manage the money laundering risk of the BR, it should not
enter into or maintain the relationship
• The decision is ultimately one for the financial institution to
make based on the internal AML policies and risk appetite
• The exception being, where the minimum standard CDD
cannot be obtained at the beginning of the transaction
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Ending the Relationship
• When making a decision to end an existing BR, the following
should be considered:
1. The initial contract between the entity and customer should
contain disclosures that allude to the possibility and terms
under which the BR may be terminated. (These terms can be
broad)
2. The internal record keeping and controls should be well
documented as the basis for the decision to end the BR
3. If the basis for the termination is a suspicious transaction that
is part of an ongoing investigation, companies should consider
whether their actions will tip off the customer and should
consult with the domestic AML authorities before concluding
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Ending the Relationship
4. The impact of the decision (to end the BR) on the financial
institution’s reputation and its general financial exclusion in the
market should be considered; these decisions should,
therefore, be taken at a senior level in the institution
5. The customer should be written regarding the decision and
provided with some form of rationale
6. The customer should also be given a reasonable amount of
time to make alternative arrangements for the business, unless
circumstances dictate otherwise
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Conclusion
• AML policies are typically applied on a risk based level
• The decision to end a relationship ultimately rests with the
financial institution and not the AML regulations
• If a decision is taken to end the BR, consideration should be
given to the rationale for this decision, the record keeping to
support the decision, the impact on both institution and
customer, and the process followed to end the relationship
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Q&A
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Randy Graham• Chief Executive Officer
March 10, 2016
THANK YOU
#34 Warrens Industrial Park, Warrens, St. Michael, Barbados BB22026