Over the past few years, we in AML have grown used to new terms. We’ve learnt to leave behind KYC, and concentrate instead on CDD, to replace STRs with SARs. While taking on board the risk-based approach (another new term), we have categorised our clients in order to apply the right level of due diligence, including perhaps simplified or enhanced (most especially for PEPs – another new-ish term). All of these now trip off the AML tongue quite easily. But I am not sure I will ever become used to a new term that I have just learnt: de-risking.
I read it for the first time in a speech on 12 August 2014 by Jennifer Shasky Calvery, the head of FinCEN, in which she discussed the challenges of implementing a risk-based approach: “Recently, we have been hearing about instances of ‘de-risking’, where money services businesses (MSBs) are losing access to banking services because of perceived risks with this category of customer and concerns about regulatory scrutiny. Some financial institutions also state that the costs associated with maintaining these accounts outweigh the benefits.” Indeed, we have had our own home-grown example of this, when Barclays in the UK started closing accounts belonging to Somali MSBs over fears that they were being used for money laundering.
The big question, of course, is whether these particular Somali MSB accounts were suspected of money laundering, or whether this type of account had been pinpointed as potentially popular with money launderers. MLROs often – quite rightly – complain that they are caught in a very tricky position. They cannot “profile” accounts and decide, for example (and as used to happen back in the dark ages when I was first AML-ing), never to take on clients whose surnames both begin and end with a vowel as that would suggest either Italian or Nigerian origin and therefore trouble. And yet they are required to use the results of profiling exercises carried out by governments and bodies such as the FATF – i.e. the lists of dodgy jurisdictions.
The difficulty of matching these two requirements is explained clearly – but sadly not resolved – further on in Ms Shasky Calvery’s speech: “Just because a particular customer may be considered high risk does not mean that it is ‘unbankable’ and it certainly does not make an entire category of customer unbankable. Banks and other financial institutions have the ability to manage high risk customer relationships. It is not the intention of the AML regulations to shut legitimate business out of the financial system. I think we can all agree that it is not possible for financial institutions to eliminate all risk. Rather, the goal is to provide banking services to legitimate businesses by understanding the applicable risks and managing them appropriately.” So we must aim for de-risking without creating unbankables. The first casualty seems to be the English language.