Saturday, March 18, 2017


Several Caribbean commentators have weighed in on a possible fix to the urgent Caribbean correspondent banking situation. We present their theories here, in an effort to compare and contrast them to the only effective solution we can recommend, which is total KYCC*.

These concepts have been advanced in the financial media:

(1) To consolidate or merge the local financial institutions, in each country, into a sole entity, which will then field one large, seemingly effective, well funded, compliance department, which will handle Customer Identification Procedures, AM/CFT, Suspicious Activity reporting, training and all other issues, for all the what are then branches. It is thought that such a strong compliance unit will instill confidence on the part of the US banks, and allow retention of existing correspondent relationships.

This approach, which appears sound, does not really afford a New York bank either a better glimpse into the bank's customers, nor does it offer anything more than that which the individual compliance officers gave, when the banks were not merged. If anything, a master national compliance unit will be remote from the actual branches, and dependent solely upon material sent in, by New Accounts staff. It could also result in additional processing delays, which is not helpful when new accounts are opened, while CIP is in process, because money laundering on a one-shot basis could occur, while waiting for the unified compliance office to return results. 

There may also be business considerations, which would interfere with universal implementation. Local bank shareholders might fear a loss of control, loss of their brand, an inability to attract new customers to their now-anonymous "branch," and diminished profits at the end of each year, due to increased expenses, both in compliance, as well as administration. Will unprofitable or low-profit banks be dissolved ? It could result in administrative issues not foreseen by the proponents of this potential solution.

(2) To create a truly regional central bank, including all the nations, overseas territories and possessions in the Caribbean, using the eight-member ECCB as a model. This new central bank would process all transactions first, and raise the level of AML/CFT compliance to an acceptable plateau. In essence, transactions, and parties, would be subject to further examination at the central bank's facility.

I fear that this is even more remote than choice (1), because the central bank has no role in initial Customer Identification Procedure, at the bank sending funds through it, and unless it has an exceptional large, and efficient, staff, which can quickly conduct the enhanced due diligence investigations that it is bound to encounter, it will only result in major delays, which the banks' customers will find objectionable and unsatisfactory. Also, assuming that such a central bank's inexperienced compliance division will not be operating at peak efficiency for an extended period of time, US banks may find that its initial compliance failures painful, damaging, and exposing them to sanctions and penalties by US regulatory agencies.

I return, therefore, to my original solution, which is Know Your Customer's Customer, or KYCC. Caribbean banks must give onshore correspondents a total and complete window into their own clients' profiles an backgrounds, if they are to be true to a risk-based compliance program, that meets best banking practices. Anything short of that will not give American bankers the confidence that they need to retain all their Caribbean correspondents. Readers are invited to use the two available search boxes on this blog,  to access my previous articles on KYCC.
 *If US banks add to that KYCC formula, an increase in the efficiency of their in-house KYC, with their own customers, and upgrade their AML/CFT abilities, they will reduce risk to an absolute minimum.

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