By Kunda Kalaba
KYC– Know Your Continent, Know Your Country, Know Your Compliance Know your Controls, Know your Customer and Know Your Central – Bank
There is no doubt that the challenges facing the Banks are considerable and growing. Externally, the regulatory environment is constantly changing and becoming ever more demanding whilst internally, as Commercial banks expand into more complex products and new markets, many banks are faced with a wide range of risks that must be managed and managed prudently and diligently. What with the Regulatory Fines and Penalties in the recent past and some lurking in the dark and not so distant future.
African local Banks and International Banks operating on the African Continent therefore should be committed to ensuring full compliance to all the local laws and regulations of the land if they are expected to survive longer. From Board of Directors, Audit Committees, Bank Directors, Chief Executives Officers, Managing Directors, Chief Financial Officers, Executive Directors, Senior management Committee members, Senior Staff, Managers and all employees alike must undertake serious commitments to compliance which should be pronounced as one of the zero tolerance items the banks must hold in extremely high priority.
The Board and senior management MUST (it is a non-negotiable issue) demonstrate great ability to identify, measure, monitor and control risk in the different functions of the bank. In that spirit, all Banks MUST have a semblance of a fully dedicated compliance department or function whose role is to ensure regulatory compliance, conduct compliance monitoring activities on a regular basis as well as provide compliance advisory to all the bank departments and staff. Bank’s should not therefore compromise Compliance issues in their greater pursuit for more customers and company revenue by growing the Balance books.
Among the RISKS these Compliance teams of fully sufficient, skilled, very knowledgeable and dedicated staff need to manage are the Anti-Money Laundering (AML), Financial Crime Risk (FCR) and Counter Terrorist Financing (CTF).
A Good compliance relationship with all Global and local regulators is fundamental to any Bank’s success. It is crucial that ALL banks in Africa are adequately AML/CTF/FCR prudently managed.
Since most African Banks carry out international transactions some of which are across African borders, all staff need to be trained and become aware of certain international trends, requirements and organizations such as the Financial Action Task Force (FATF). FATF is an independent inter-governmental body that develops and promotes policies to protect the global financial system against money laundering and terrorist financing. Recommendations issued by the FATF define criminal justice and regulatory measures that should be implemented to counter this problem. These Recommendations also include international co-operation and preventive measures to be taken by financial institutions and other organizations. Suffice to mention that the FATF Recommendations are recognised as the global anti-money laundering (AML) and counter-terrorist financing (CFT) standard. The Continent at large is aware of what those recommendations entail and Bankers need to familiarize themselves with them. The ESAAMLG and GIABA should intensify sensitization.
Banks in Africa should emulate the global advice of the Financial Action Task Force (FATF), along with numerous member countries such as the United Kingdom and United States, which urge risk-based controls. The theory is that no financial institution can hope to detect all wrongdoing by customers, including money laundering. But if an institution develops systems and procedures to detect, monitor and report the riskier customers and transactions, it will increase its chances of staying out of harm’s way from criminals and from government sanctions and penalties.
A risk-based approach requires institutions to have systems and controls that are commensurate with the specific risks of money laundering and terrorist financing. Assessing risk is one of the most important steps in creating a good anti-money laundering compliance program. Higher money laundering risks demand stronger controls than warranted by individuals or countries deemed to be of lower risk.
However, all categories of risk — whether low, medium or high — must be mitigated by the application of controls, such as verification of customer identification, Know Your Customer (KYC) policies, and so on. Governments around the world believe that the risk-based approach is preferable to a more prescriptive approach in the area of anti-money laundering and terrorist financing because:
- It is more flexible – Money laundering and terrorist financing risk varies across jurisdictions, customers, products and delivery channels, and over time.
- It is more effective – Companies are better equipped than legislators to effectively assess and mitigate the particular money laundering and terrorist financing risks they face.
- It is more proportionate – A risk-based approach promotes a common sense and intelligent approach to fighting money laundering and terrorist financing rather than a “check the box” approach.
- It also allows firms to minimize the adverse impact of anti-money laundering procedures on their legitimate customers.
Banks need to assure their Central Banks and other Regulatory Bodies in Africa responsible for Bank supervision and licensing their unflinching support and assurances that Banks are fully compliant in terms of on-boarding of both individual and corporate customers in as far as CDD, documentation requirement, identification, verification, record keeping, storage and retrieval are concerned.
Among other many duties, the Compliance Officer especially the one assigned to deal with AML, CTF, SARS, CDD, Sanction Advisory and FCR issues should
- Provide assurance to the Country Executive Management Committee that the Bank policies are adequately embedded and the local regulations are complied with.
- Assist the senior management in ensuring appropriate structure, systems and processes are in place to prevent and mitigate money laundering risk.
- Monitor the adequacy of, and compliance with, local AML policies by reviewing the relevant key risk indicators, trends and risk issues (both existing and emerging risks), as well as undertaking risk based assessment.
- Provide support to businesses in complying with the new and changing regulations, as well as the relevant Group policies and procedures.
- Lead and coordinate Country level initiatives to enhance AML awareness and training.
- Oversee the in-Country and International transaction monitoring effort meant to detect suspicious activities:
- Where a centralised Transaction Monitoring Unit (TMU) is in place, oversee the performance of TMU.
- Where transaction monitoring is undertaken by the respective business units, branches and Relationship Managers under Corporate Banking (dealing with corporate customers and Small and Medium Enterprise (SMEs) or Retail Banking Divisions (dealing with individual customers from high risk areas) and coordinate with various stakeholders to ensure adequacy of such activities.
- staff are adequately trained and made aware of the most up to date local legal and regulatory requirements
- The Continent requirements are adequately reflected in the procedures and system settings.
- appropriate methodologies, management information and approval processes are in place to monitor and manage the level, nature and timeliness of alerts and the resources required to action them
- Effective quality assurance processes are in place.
- Review quality of Suspicious Activity Reports (SARs) and ensure timely submission to the appropriate authorities such as Central Banks and or FIUs.
- Act as the Bank’s single point of contact for inquiries related to SARs or investigations.
- Maintain a good working relationship with the relevant authorities, regulatory bodies and enforcement agencies (e.g. Central Bank, Financial Intelligence Unit, Police, etc).
- Ensure close working relationships with the Business and clear delineation of duties and responsibilities among various parties.
- Provide leadership and direction for the in-Continent Anti-Money Laundering (AML) effort.
- Drive, coordinate and monitor initiatives and actions to ensure the Bank operates in accordance with the relevant laws and regulations, policies and standards, for the prevention of money laundering.
Where there are grounds to suspect money laundering activities, make prompt reports of suspicious transactions, or proposed transactions, through the appropriate internal channels.
Members of the public need to be made aware that all banks reserve the right to refuse any transaction where, based on explanations offered by the customer or other information, reasonable grounds exist to suspect that the funds may not be from a legitimate source or are to be used for an illegal activity such as terrorism.
Where a suspicious activity has been identified on the account, banks are required to raise their suspicion with the Law enforcement Officers. Most AML Laws within Africa stops members of staff within the banks to let customers know that they are suspicious and, under no circumstances, they are not allowed to mention their suspicions to the customer. Tipping-off is a criminal offence in most African Countries and one can be prosecuted.
Bank Staff will therefore conduct an interim investigation by establishing the purpose of the transaction from the customer. They are expected to use tact in their questioning to avoid customers knowing that they are suspicious. Having considered relevant information and if it is believed that the requirements for a disclosure have been met, the Banks will make a prompt report to the appropriate authorities
Members of the public and especially prospective customers have been agitated mostly by the line or sort of questions and the design of the application forms, and the amount of information, details and particulars Bankers do ask for from them. It is advisable to bear with the Bank Officials as they are just complying with the law. It is the necessary evil to ensure that the customers’ interests and assets are adequately protected. This is not a case of mistaken identities with the “bad boys”.
When entering an Enhanced Due Diligence (EDD) relationship the Retail Banker for instance would endeavour to know and accept only those clients whose source of wealth can be reasonably established to be legitimate.
Enhanced due diligence requires that further steps are taken to gain assurance that wealth has not been obtained from criminal activity. Banks would not like to take cash and deposit the same on a customer’s account when that particular cash is a proceed of a reported criminal act with a screaming newspaper headline such as heavily armed and dangerous criminals killed a driver and snatched “cash in transit” (CIT) or blew up the ATM with detonators or explosives.
For genuine customers, the source of wealth will be obvious for example (e.g. a monthly salary to be credited to the account) and no further corroboration is required. Where more detailed corroboration is required, client interviews, background checks, and documentary evidence are all valid approaches to corroborate the source of wealth.
There is a wide array of sound practices to corroborate a client’s source of wealth. Certainly not sufficient are generic descriptions such as: Savings; Investments; Inheritance; Business dealings; Sale of a business.
Additional information must be gathered to demonstrate adequate due diligence has been undertaken. This may include reference to publicly available information, in depth interviewing or collection of documentary information so that Banks are satisfied that they have sufficient information behind the generic description given.
Questions to consider (note that not all these questions need to be addressed to the customer):
- What is the origin of the savings?
- Are funds to be transferred from another reputable financial institution (e.g. a bank regulated in an equivalent jurisdiction)? If so, this may provide some assurance that wealth was legitimately accumulated.
- What exactly is the nature of the business?
- Is the business or individual well known in their area/Country or Continent?
The responses to such enquiries should be adequately documented to demonstrate the level of due diligence undertaken. Examples of documents that may be available to assist in corroborating source of wealth include:-
- Pay slip or contract letter from employer; - Financial returns, audited accounts, business plans; Trade agreements or other business documents; - Property deeds, will or executor’s letter; - Sale deeds, solicitor’s letter; Rental agreements
- Savings certificates, gratuity certificates, provident fund letters/certificates;
- Pension letter or certificate; Life insurance maturity certificates; Court judgment papers; Lottery results publications.
The above list is not exhaustive and the need to obtain specific documentary evidence will vary according to the individual circumstances of each client relationship. In many cases, where reliance is on an interview, a memorandum of the interview will be sufficient.
Kunda Kalaba is a private citizen, based in Zambia (B.A. CAMS, CFE).