A PROACTIVE APPROACH TO RETAIN CORRESPONDENT RELATIONSHIPS WITH BANKS IN HIGH-RISK JURISDICTIONS

If you have read our recent article, CORRESPONDENT BANKING AT A CROSSROADS IN THE CARIBBEAN*, you know that correspondent banking for jurisdictions which have issues with ineffective AML/CFT has become a major problem for the American financial institutions that service banks in jurisdictions of elevated risk. The solution, De-Risking, meaning terminating those relationships with prejudice, endangers the fragile economies, as well as potentially the political stability, of those nations.

An alternative solution to simply shutting those countries out of access to the American financial structure must be found, and I believe, in my humble opinion, that one can be created by those US banks now facing increasing potential threats from regulators, or even law enforcement agencies, should they continue to service foreign banks with ineffective compliance, which are located in countries of elevated risk. Let's face it, compliance in those banks is not up to American Banking Best Practices standards, is subject to possible outside political influence and corruption, and is not doing the job assigned to it. What to do?

I suggest that American banks embed an experienced compliance officer, from its own staff, inside every foreign bank where they maintain a correspondent relationship. That individual will be tasked with (1) Training local compliance officers, (2) assisting with upgrading existing platforms to include necessary software, (3)Monitoring and reviewing potential high-risk transactions, as well as the daily actions of frontline compliance staff, and (4)Assisting with the unenviable task of gatekeeper, regarding unsuitable customers and clients.

Inasmuch as such an assignment is what we used to call in the military hazardous duty, it is suggested that only compliance officers with prior international posting experience, or who are military veterans that have served abroad, and can easily adjust to working in a different culture, be assigned to that job. Frankly, working in a tropical environment, for many compliance officers used to a cold climate, would be a change much appreciated, I am sure. There will most likely be real competition for such positions, given my experience with American bankers who often choose to move to Miami for the benefits of our weather.

Roll this concept around in your head, compliance directors, for the placement of one of your own inside your corresponding bank abroad would give you the confidence to continue a relationship through risk management. Think about it, when you consider the bleak alternatives your bank faces in 2024.

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* https://rijock.blogspot.com/2024/09/correspondent-banking-at-crossroads-in.html