Many Banks Cut Clients Over Money Laundering Fears

http://robertkaplinsky.com/work/drug-money/
(credit: Robert Kaplinsky)

Many banks have cut clients over money laundering fears. With fewer clients, low interest rates and low volatility, there are less ways for financial institutions with multiple lines of businesses can earn money. Bank of America, Citigroup and JPMorgan Chase combined cut 50,000 jobs in 2014. Industry wide, some have reported 80,000 cuts. Profits are up at banks because of the job cuts, not because of improving economy.

One area that hasn’t seen a decline in headcount is Compliance. All compliance-related areas of the bank (Compliance, Legal, Risk, Controls, Audit) have all seen headcount increases. For many of the areas, skills from other areas of the bank is quite transferable. Knowledge as well.

But knowledge of AML is particularly lax. And, sadly, many of the top decision makers are not versed enough in AML issues to figure out a way to restructure the organization to keep clients. So, the only thing they can do is to cut clients.

While this might be good for the domestic banking industry, on the long run, this will be bad when these firms are trying to compete with their large Chinese competitors. The five largest Chinese banks have an edge on AML programs, should they choose to implement it: government support.

Because Chinese banks are essentially government owned, AML programs in these institutions can implement government level standards even with bank secrecy laws. This integrated approach is at the risk of bank secrecy laws, but it also means that even without knowledge of AML, top decision makers can decide to keep all clients and adjust AML programs as the government sees fit.

This issue has been playing out the last few years because the US has been seeking ways to punish Chinese bank clients through their correspondent accounts for revenue from counterfeit products they sell. The measure should really be tied to counterfeit products that are made, not those that are sold, but that’s especially difficult since the US government has no jurisdiction in production abroad. But US laws allow extra-jurisdictional reach on banking when correspondent bank accounts are in the US. But, of course, Chinese banks are against this. So is the Chinese government. On the other hand, the Chinese government doesn’t want their economy to be so heavily depended on counterfeit products. So, the conundrum is for the Chinese government. The US is enforcing the type of laws they would like to implement, but the punishment will be doled out in the US. If the Chinese government also pursues this, the punishment will be on both sides. And the Chinese government also has to look out for the short term economy, which is heavily depended on counterfeits.

So, at least US and European banks can breath one sigh a relief: the clients they are dropping must find banks within the western government jurisdictions because shifting the economics of counterfeit financing and transactions would provide more leverage to implement more stringent AML programs on the institutions that currently do not have such programs.


About the Author: Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses.


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Alibaba is being kicked out of Taiwan

http://www.arageek.com/2015/02/18/jack-ma-the-richest-chinees-person.html
Jack Ma, Founder & CEO, Alibaba Group

Alibaba, the Chinese AmazoneBayPaypalDHL all-in-one, has been ordered to leave the Taiwanese market by Taiwanese regulators. It ran afoul of a law that required all mainland Chinese companies to go through a special registration in Taiwan to do business there. The Taiwanese subsidiary was registered as a fully controlled entity of Alibaba’s Singaporean subsidiary. The Singaporean subsidiary is a wholly controlled by the Mainland company, making the Taiwanese subsidiary a Singaporean company in name only.

Regulators discovered that Alibaba had not passed the registration process required of Mainland companies when reviewing Alibaba’s filings with the SEC in the United States. Alibaba filed papers with the SEC to publicly trade its equity shares in the US markets.

The purpose of the law is to prevent the Communist Party from taking a hold on the island.

Founder and CEO of Alibaba is the every so charismatic Jack Ma.

Taiwan’s official name is Republic of China, not to be confused with Mainland’s official name, People’s Republic of China. The Taiwanese government was formed when the Communist Party kicked out the party from the Mainland. In the early days after the communist revolution, most western powers recognized the Taiwanese government to be the legitimate government of China. Unofficially, US President Richard Nixon recognized the Communist Party as the ruling party. And officially, US President Jimmy Carter recognized the Communist Party as the ruling party. Since the turn of the century, Republic of China has been on a campaign to consider itself an independent nation, seeking a seat of its own in the United Nations and developing diplomatic relationships across the globe. Also, it has supported a grassroots campaign in the United States to have US citizens and permanent residents of Taiwanese decent to identify themselves as “Taiwanese,” rather than Chinese, in public and on the census.


About the Author: Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses.


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FATF Means Financial Action Task Force

The Financial Action Task Force (FATF) is an inter-governmental body established in 1989 by the Ministers of its Member jurisdictions. The objectives of the FATF are to set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system. The FATF is therefore a “policy-making body” which works to generate the necessary political will to bring about national legislative and regulatory reforms in these areas. – FATF

FATF is housed at the Organization Economic Co-operation and Development (OECD) in Paris, France. It works with the G-7 world leaders, G-20 finance ministers to make policy and enforcement recommendations regarding anti-money laundering, anti-bribery, anti-corruption, anti-terrorist financing and anti-piracy. It is part thinktank and part NGO.

FATF has a membership status for each country. There are thirty five member nations and the rest are either observing the guidelines and recommendations or not actively doing so. FATF also has a Blacklist, a list of banned nations. The usual suspects are listed: Iran, North Korea, etc.

The Treasury represents the United States at the FATF. The Financial Crimes Enforcement Network (FinCEN) is the primary contact for guidance.


About the Author: Marcus Maltempo is a compliance professional with more than a decade of experience helping banks, law firms and clients manage investigations and regulatory responses.