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Commentary: Re-risking can only occur through KYCC
Published on May 12, 2017Email To Friend    Print Version

By Kenneth Rijock

The so-called "de-risking" crisis, where an estimated 25 percent of the correspondent relationships between foreign financial institutions and US banks have been terminated, due to increased attention to anti-money laundering and combating the financing of terrorism (AML/CFT) risk by those American banks, has spawned a number of what are being described as solutions.

kenneth_rijock.jpg
Kenneth Rijock is a banking lawyer, turned career money launderer for ten years, turned compliance officer specialising in enhanced due diligence, and a financial crime consultant. His autobiography “The Laundry Man” was published in the UK on 5 July 2012
The problem is, save one, all these attempts for a quick fix allowing the retention of correspondent banking relationships will fail.

All the proposals, including reducing suspicious activity (SAR) reporting policies, delegating due diligence to some international body, and pooling compliance resources, ignore the obvious, and only effective, solution: create an effective Know Your Customer's Customer, or KYCC, program, and implement it, without exception. Anything else misses the mark, and here's why.

If a financial institution is located in a region where money laundering has historically existed, at a high level, where corruption interferes with the rule of law or where banking best practices do not measure up to North American standards, then the only way it can be now deemed acceptable for correspondent purposes is to have a KYCC program that gives the US bank a window into the foreign bank's customers, has automatic reporting on change of circumstances, and on suspicious transactions, and is assessing the risk levels of that bank's clients, on an ongoing basis.

Anything less is simply not KYCC – the only risk reduction solution that works.

The challenges facing foreign banks today, who must be able to access the American financial structure or lose their clients, can be resolved favorably, but only if they allow the respondent banks in New York to have a clear view of their clients and their business, on a real-time basis. Today, a bank can re-risk its client base to survive, but only through KYCC.
 
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