This Week in AML

The Impacts of De-Risking on the Caribbean

The US House Financial Services Committee held a hearing this week on the availability of financial services in the Caribbean region. The hearing included testimony from Mia Amor Mottley, Prime Minister of Barbados, and from a panel of experts. John and Elliot discuss the challenges and possible solutions raised at the hearing, including the reduced availability of correspondent banking services, the potential impact of digital currencies, and several new legislative proposals.



The Impacts of De-Risking on the Caribbean


Elliot Berman: Hi, John, how are you today?


John Byrne: Hi, Elliot. I'm good. I just got back from the ACAMS chapter in the Carolinas, did their first all-day event since pre-pandemic so I got to see a lot of our AML community folks. They had a couple hundred people there and heard some discussions of the various challenges. They looked at the new AML laws and some of the issues with sanctions. So, it's really good to see, not just the networking, but the exchange of information and sometimes best practices, but always what the challenges are. That's always the value of our community when people get a chance to share thoughts, information, and try to improve together. So, it's always good to be part of that.


Elliot Berman: Yes, I think you and I have talked about this for many, many years that that is one of the towering strengths of the financial crime prevention community that meeting, sharing, and learning from each other and taking everything up a level together. 

I think it sounds like it was a good session. I am assuming that you saw that the House Committee on Financial Services is holding a hearing today, Wednesday, when we're recording. It's called When Banks Leave: The Impacts of De-risking on the Caribbean and Strategies for Ensuring Financial Access. I think you had a chance to watch some of the live feed of the hearing today.


John Byrne: Yeah, what’s interesting, it's September, Congress was out for most, if not all of 

August, and now it becomes a sprint, right? You’ve got September, October, and then Election Day. And we thrived under this in our previous lives, working for banks and bank associations. It's always interesting that they are trying to put a lot together, and I continued to be very impressed with Chairman Waters Committee and all the different issues that they cover.


I mean, it's really very much across the financial services spectrum, but very much in detail today was a great example of that. The de-risking that they talked about today, as you said, is about the Caribbean, not about the issues that we've talked about before with a lot of our colleagues and that's NGOs and humanitarian groups. In the staff memorandum, we are footnoted for one of the programs we did, but the hearing was looking at how to address this and there were a couple things that stuck out. I didn't watch the whole thing, I did watch a good portion of it, but the Prime Minister of Barbados testified, she was on her own panel separately from the second panel and gave very compelling testimony for a variety of reasons.


But one of the things that struck me was how candid she was about what's going on. So, a couple things that she said that struck me as both, obviously correct, but very interesting. She looked at the Treasury Department and the United States and said, the Treasury does speak a lot about risk-based and making sure that oversight uses that risk-based approach, and there's not one size that fits all. And so, she says that's an outcome that requires that countries that she's familiar with, like Senegal and South Sudan and obviously countries in her region, they have to spend money that they say is pretty scarce, which I certainly believe, getting off of the different listings, whether FATF listings or whatever; but they give a pass to Luxembourg and Switzerland.


So, she says, I think correctly, that's pretty untenable. And then she goes on to say that Treasury needs need to look more closely at that principle of what she's calling risk sensitivity, but you know, it’s risk-based approach. And that's part of why financial inclusion is harmed.

 She also made a comment that made me laugh, when she said Wyoming and Delaware, places in our country, which we well know, we’ve talked about this, it's so easy to incorporate. And then focusing instead on correspondent banking relationships in the Caribbean which many institutions have exited because of a whole host of reasons.


And that to me was one of the key takeaways, you get an elected official being very specific and basically pleading with the Committee. I don't know that you can legislate some of this stuff, but you certainly can continue to have dialogues and round tables and guidance. And I think that could be a pretty positive outcome if some of it's already happening, and if it will continue to happen,


Elliot Berman: Yes. I noticed in the staff memorandum, there were a number of things that the staff highlighted in setting the stage for today's hearing. One of which is, the whole issue that you just touched on, which is correspond banking. One of the many challenges in the correspondent banking space is that for the Caribbean, many of the countries are small.

And so their relative volume of services that get used for activity in those countries is modest, which generates limited fees and the question of whether those fees actually offset the cost of the anti-money laundering and other financial crime compliance that the correspondent banks have to go through. 

That's not, I think, the only reason why correspondent banks are exiting the space, but it is a piece of the puzzle.


John Byrne: Yeah. Sorry to interrupt. But before I forget one of the witnesses was a previous podcast interviewee of ours - 

Amit Sharma from FinClusive, who has various technology solutions to this area. His testimony is definitely worth taking a look at, but he does make the point that during the pandemic people that were excluded became more isolated and again offers a whole series of potential changes they’re including how to help nonprofits and charitable organizations.


Elliot Berman: Yes. The other thing I wanted to mention was the idea again, coming back to making correspondent banking adequately profitable for organizations to stay in it, is the idea of the Caribbean nations who do act as a single economic zone, even though they haven't fully formalized it; 

trying to harmonize their anti-money laundering, financial crime compliance regimes so you're not having to deal with the subtle variations among the countries. And as you and I talked before we started recording, we do have a model in the world for that, That is the EU.


They come up at the EU level with their compliance process or regime. And then each of the member states has a limited period of time to adopt it into their local laws. So, you end up with instead of 27 variations on a theme, you actually end up with 27 countries in the economic zone, all having the same process, which again, not a perfect system. 

I'm sure there's people in the EU who would raise their hand and go, you know, it doesn't work nearly as smoothly as you just described. Okay. That may be true. I don't know that, but the point is there are ways to try so all of the various stakeholders here get to some central place that works better.


It's easy to say we want to have a financial system that effectively excludes the bad guys and effectively offers inclusion to the people who aren't the bad guys. Getting there proves all the time to be more complicated and you and I have talked about risk-based systems, for I don't know, 25 years probably. But you know all the players have still not been able to really get to a place where they can articulate what that means and where the threshold is for too much risk, not enough risk, where to draw the line. And one of the challenges is in some economic areas, if you have a couple of weaker players, they tend to sort of set the risk threshold for everybody.


John Byrne: Right. Hey couple quick things before we close down they mentioned, the Committee in the staff memorandum, in some conversations between the witnesses and the members, a number of legislative proposals. One by the Chairwoman Waters that would make sure the INCSR (International Narcotics Control Strategy Report) include sort of updates when there are improvements in countries, in terms of laws, regs, and that sort of thing.


Another one deals with the training of examiners which is a key issue we've talked about. It is called the AML Examiners Academy Act, it would call for detailed training beyond what they have today. One member of Congress said there was a bill, it's not in the staff memorandum, on the minority side, that said they wanted banks and financial institutions that closed accounts to have to tell the customer why they did that. That's a non-starter for a variety of reasons and so I'll leave that there for now, but the last thing I wanted to mention, the thing that was disappointing from watching this from my perspective, is members of the minority side, the number of them continued to talk about Operation Choke Point, which literally ended five years ago, as something that  they considered to going after “Reputable” companies. But as we remember, it's a little more nuanced than that. And it's clear to me from the discussion today that some of those members were instrumental getting FinCEN to put that statement out earlier this year on independent ATM operators, which the members claimed are not engaged in criminal activity at all; which is a very interesting statement on a lot of levels.


Elliot Berman: Yes. Well you and I talked about that particular release and we observed at the time that sometimes you get these releases coming out of regulatory agencies and you scratch your head about why this one? And you end up coming - to okay somebody or some group made enough noise that the agency decided that the way to respond to the noise was to put something out. As you just mentioned, for this one, what we suspected has been confirmed by remarks by from one of the committee members.


John Byrne: Yeah. Let me just said another colleague of mine, Liat Shetret, who is somebody I've known for a number of years and done some really good work in this space. In her testimony she talks a lot about digital assets. but I think her broader statement at the end of her testimony was this, you know, moving into the digitized economy, gives banks the opportunity to innovate, manage, and mitigate risks effectively. Then she says, just generally tech innovations serve as an enabler for every stakeholder that are involved in the de-risking conundrum. A strong statement there, a lot of discussion about crypto and some of the testimony A lot of discussion about the regional issues you mentioned. I would urge everybody to look at the staff memorandum as well as the individual statements from the witnesses.


Elliot Berman: Yes. I agree with that. And so John anything coming up in the next couple weeks that you want to talk about?


John Byrne: Well, we've posted a number of interviews that are on our website. I would urge people to take a look at that. We've restarted our interviews of the women in AML series. One has actually got posted today. 

I'm interviewing somebody else later this afternoon which will go up in week or so,.We’re doing that. I would just say to our folks out there, if you have somebody in the industry, in the community, that you'd like us to potentially interview, we'd love to reach out if it's yourself or somebody you work with you could send a note to myself or Elliot and we'd love to follow up on that for you.


Elliot Berman: Yes, that'd be great. Okay, John, so you have a good rest of the week, and I will talk to you next week.


John Byrne: Take care. Elliot, stay safe.


Elliot Berman: Yes. You too. Bye.