PRESENTATION TO
KAW’S 8TH ANNUAL AML/CFT ANTI-FRAUD AND FINANCIAL CRIMES CONFERENCE
11 July 2016
Sandals Grande Antigua Resort & Spa
By Lt. Col. Edward Croft
Director of the Office of National Drug and Money Laundering Control Policy
Opening Remarks
Let me first offer congratulations to Mr. Kem Warner & KAW management on the continuous training opportunities being offered in the AML/CFT areas and for the hosting of this 8th Annual Conference addressing issues of AML/CFT, Anti-Fraud and Financial Crimes. It is important that the private sector also provides training opportunities for raising the awareness of the requirements of the AML/CFT framework to mitigate risks associated with conducting business and trade.
Blaming the ONDCP
Antigua and Barbuda implements the international AML/CFT standards set by the Financial Action Task Force (FATF). The coordination for regional evaluators for compliance with the FATF 40 Recommendations is the CFATF secretariat based in Trinidad. The CFATF has expressed a significant degree of satisfaction with Antigua and Barbuda’s efforts to develop and implement its AML/CFT regime. The regime puts significant demands on financial institutions to develop AML/CFT systems through documented controls and procedures, and to ensure they are effectively implemented.
In this country, the authority with responsibility for overseeing that financial institutions do indeed comply with the law, is the Office of National Drug and Money Laundering Control Policy, of which I am the Director.
The law which obligates financial institutions to take appropriate measures to counter money laundering and the financing of terrorism is indeed onerous but necessary. And yet, it is interesting that at the CFATF Plenary in Trinidad last year, the President of the FATF, Roger Wilkins, was a guest speaker. He spoke on the importance of the 40 Recommendations, and as his remarks drew to a close, the FATF President made a remarkable and noteworthy comment. He said, “the implementation of the FATF 40 Recommendations should not be to deter trade.” In other words, the implementation of the AML/CFT law should not hinder business. The fact is, these laws are designed to hinder illegal transactions and thereby facilitate and promote lawful commercial activity and form the basis for international confidence in the country’s financial system.
It is a fact, however, that as Director of the ONDCP, I receive or am aware of many complaints about how customers are dealt with by some financial institutions in most customer-unfriendly ways. The complaints run from using processes that are somewhat irritating to downright abusive. On top of this, when customers complain about what they are being made to go through in order to conduct transactions, too often it seems, the answer is: “ONDCP!” “Sorry, but it’s what the ONDCP have us doing.” “If we don’t do it, we get in trouble with the ONDCP.”
But what exactly is this about? — Example: a customer with a valid passport is refused financial services until he comes back with an additional piece of ID, when the law requires only 1 piece. Example: a person, who has been a customer for 10 years, is prohibited from engaging in new financial activity until he provides proof of who he is, from scratch, when the law is “know your customer”. Example: a customer who deposits the same amount of money every week or month is told he has to fill out a source of funds declaration every time he makes a deposit, when the law says know the business and purpose of the customer and the expected throughput. And it goes on.
Kindly show me in the Act, the Regulations or the Guidelines where this is written? Do not BLAME THE ONDCP. If you choose to do this, you have no right to hide behind the ONDCP for such poor quality of customer service.
The Role of the Compliance Officer
Financial institutions cannot possibly fulfill the requirements of the law without employing a competent Money Laundering Compliance Officer. But a competent Compliance Officer without access to adequate resources and the proper support of management will not be able to carry out his or her functions as required by the law and expected by the Supervisory Authority. Management needs to understand that a Compliance Officer is there to advise them on a very sensitive area, and there is need for the officer to exercise independence of thought, because businesses, when they see the potential for making large amounts of money, often tend to precipitously lose their ability to assess the risk. They suddenly tend towards doing business with persons whose due diligence seem to be setting off alarm bells and red flags, or exhibiting reason for concern in a particularly vulnerable area. It is at that moment more than ever, that management needs to hear the objective opinion of its Compliance Officer.
Management must listen to a Compliance Officer who advises in accordance with the Money Laundering Guidelines, that due diligence has not been completed, and that the law prohibits the completion of the transaction or even requires that the account be closed and a SAR filed.
A Compliance Officer should be reviewing applications for the opening of accounts. Management should be giving careful consideration to recommendations that accounts not be opened or that they be closed. A Compliance Officer who has a sound basis for making such recommendations but fails to do so, is criminally liable. Likewise, an all knowing board of directors or management who belittles a Compliance Officer’s competent recommendation may be corporately and each member personally liable for ML or FT that flows from ignoring such advise.
The CIP
The Citizens by Investment Program attracts significant amounts of investment capital to the country. Nonetheless, there remains the obligation on all of us, the Regulators and the Regulated, to ensure that the investors and the funds that come into the country in respect of the Program are, as expected, legitimate. All stakeholders in the Program, Agents who make recommendations, and banks who receive investment payments must carry out their obligations. This includes carrying out proper assessment of prospective investors before recommending the investor as suitable for the Program, and the obligations on banks to not simply rely on hearsay, but to conduct their own adequate due diligence on the funds being deposited into their institutions, as required by law. Do not allow an attitude to develop, that you let the money role in and you don’t want to be responsible for stopping it when you should. Ultimately, this can cause the Program to be brought into disrepute, followed by refusal of countries to admit holders of the passports issued as a result. That would bring the flow of funds to an end, at which point, it would be too late to say, “If only we had done proper CDD and weeded out that person, the Program would still be running strong.” So do not hedge on doing your duty.
The NRA
In 2012 the FATF published a revised set of 40 Recommendations. Recommendation 1 is titled, “Assessing risk and applying a risk-based approach”. Generally, it states: Countries should identify, assess, and understand the money laundering and terrorist financing risks for the country… and should take action aimed at ensuring the risks are mitigated or lessened effectively. This should be an essential foundation to efficient allocation of resources to counter ML and FT. Where the country identifies higher risks, it should ensure the AML/CFT regime adequately addresses such risks. Where the country identifies lower risks, it may decide to allow simplified measures for some of the Recommendations under certain conditions. Countries should require financial institutions to identify, assess and effectively mitigate such risks.
You cannot say that something is high risk or low risk until you have established a standard of risk of that particular thing. For every thing that makes us vulnerable to money laundering or terrorist financing a risk rating has to be made: Everything we engage in as a country: Citizenship by Investment, having a construction sector, or an offshore sector, or a tourism sector has to be assed for its vulnerability. Everything businesses do: engaging in cash deposits, wire transfers, transacting business in certain parts of the world, has to be assessed for its vulnerability. How risky those activities are has to be rated. Only when those risks are assessed and a rating given, can we then as a country or as individual businesses determine whether any particular thing that we do is high risk, medium risk or low risk. Only then can we apply an effective risk-based approach; there is no ability to assess a particular risk without something to compare it to.
The government of Antigua and Barbuda has recognized this requirement, and has formally undertaken to engage in a national risk assessment (NRA) to determine the baselines against which the risk to ML or FT vulnerabilities can be measured. This is not an exercise that the Government can do on its own. Though Government departments have to be assessed, the vulnerabilities and risks to private enterprises have also to be assessed. The assessment includes the critical task of completing an assessment instrument by which risk is measured, which is a detailed questionnaire that has been or will be distributed to businesses by the NRA Secretariat.
I cannot overestimate to you how important it is that you take the time to complete the questionnaire when you receive it. The true risk of ML and FT cannot be assessed without your responses. I cannot encourage you too much to participate in this vital exercise. Yes, it is time consuming, and can be boring, but contributes to national security and the effective management of the legitimate financial system.
De-Risking v. mitigation
While on the subject of risk, I would like to briefly comment on de-risking, which is the new buzzword. Too often, that word tends to be a euphemism for abandoning all risk so that you have no responsibility for doing anything. But that is not how the system is intended to work. Speaking directly to financial institutions, your obligation is to assess all aspects of risk in your business: your products, your customers, the geographical area with which you do business, etc. Once the level of risk is to be assessed; the next step is mitigation. De-risking is not mitigation. Just like how foreign correspondent banks seem now to want to solve their respondent bank issues in the Caribbean by proposing not to offer any services at all and cut ties, businesses cannot and are not expected to just trod a narrow and convenient road. The country needs business products and services. It also needs businesses that know what they are doing. I encourage financial institutions to gather the expertise to handle risk by appropriate mitigation, and not too readily entertain de –risking.
The Up-coming CFATF Evaluation
Early next year, Antigua and Barbuda’s national system for combating ML and FT will come under searing scrutiny. This is the 4th Round Mutual Evaluation. We will be visited by mutual evaluators of the CFATF who will be going over every aspect of our legal framework, method of implementation and effectiveness of that implementation. The Government departments have been working since last year at getting everything in place, upgrading their statutory and other legal provisions, establishing necessary statistical databases, which are the chief measuring stick as to what they have done to implement the AML/CFT framework. Likewise, financial institutions will be called upon to be ready and do their part. The CFATF can and will select institutions to be interviewed. They will want to know how familiar you are with the legal requirements and your implementation requirements. They will likely be much querying about processes and procedures that relate to the financing of terrorism, terrorist financiers and the readiness to freeze terrorist assets. Ultimately, financial institutions want to be known to be located in a well regulated jurisdiction. Any questions about the process can be directed to the point of contact, which is the ONDCP. Address your questions to me, the Supervisory Authority.
Conclusion
In closing, let us be reminded of what Paul C Meyer stated, he said, “Productivity is never an accident. It is always the result of a commitment to excellence, intelligent planning, and focused effort.” In our upcoming Mutual Evaluation, it is important that we collectively commit to excellence through effective planning and focused AML/CFT efforts.
Ladies and gentlemen, thank you for listening, God bless and have an excellent conference.
