1 Building a Modern Risk Management Department Seminar Financial Services Volunteer Corps (FSVC) January 19 – 22, 2009 Tripoli, Libya

2 Day Two Period 12:25 to 12:45 PM

3 Reputation Risk Management

4 “It takes 20 years to build a reputation and five minutes to ruin it.” And more recently “You only learn who has been swimming naked when the tide goes out…” Warren Buffett Investor (and the richest person in the U.S.)

5 Introduction: A Definition… … the risk to value arising from negative public or employee opinion. Examples: Negative Press Diminished Brand Image Public scrutiny Ineffectiveness in handling customer dissatisfaction Government dissatisfaction Lack of trust

6 2. Market25%51%76% 3. Credit25%31%56% 4. Regulatory18%40%58% 5. Business16%54%70% 6. Operational14%57%71% 7. Technology13%40%53% 8. Bus. Continuity13%37%50% 9. Liquidity Planning10%40%50% 10. Governance7%40%47% 11. Political7%23%30% 6. Reputation22%40%62% 7. Liquidity Planning 19%46%65% 8. Governance13%41%54% 9. Bus. Continuity13%37%50% 10. Political8%31%39% 11. Technology8%55%63% GreatestMajorTotal Source: The Evolution of Risk Management in the Financial Services Industry – 2004 survey of executives from 134 institutions internationally by The Economist Intelligence Unity and PricewaterhouseCoopers. GreatestMajorTotal Threat to Market ValueThreat to Earnings 1. Reputation34%41%75% 1. Credit37%34%71% 2. Market31%54%85% 3. Regulatory25%40%65% 4. Business23%54%77% 5. Operational23%51%74%

7 Reputation Risk is Different When it’s a Matter of National Reputation

8 Anti-Money Laundering Know Your Customer Know Your Transaction

9 Holistic Self-Improving Process (new) Due Diligence (existing) Customer Info File (CIF) Assessment and Reporting** AML Systemic Screening Transaction History File Negatives Positives False Positive Suspicious Anti Money Laundering (including OFAC) SAR “Potential” (new) Customers Accept Negative Finding (existing) Decline (new) EDD Know Your Customer *Periodic/Event driven: time period set by bank “rules” or by change in an element in reference databases (push vs. pull). **Assessment and Reporting for SARs and for other purposes need not be in one unit Existing Customers* SAR check u OFAC Screening Negatives Positives Government Neutral & positive flows Negative flows Report Process File Government Legend Abort Transaction KYC Data Store External Data Repositories Know Your Transaction

10 Elements Customer Information Profiles Know Your Customer Screening Enhanced Due Diligence Sanctions screening/ monitoring Anti-Money Laundering Transaction Screening/Monitoring Suspicious Activity Identification Reactions Feedback loop - Screening/ Monitoring Improvements & Improved Target Marketing

11 Major Risk Sensitive Indicators Geography Client Type Product/ Service Type

12 Positive (+) Negative (-) False Positive False Negative

13 Need for Benchmarks There is no generally accepted measure of the EFFECTIVENESS of Know Your Customer/Watch List Management/Anti-Money Laundering programs globally or even in major developed countries.

14 Transparency International: Corruption Perceptions Index 2008 Finland Denmark New Zealand Index 9.3 Sudan Chad Haiti Iraq Afghanistan Myanmar Somalia Index 1.6 to 1.0 Population: 180 Tunisia # 62 Index 4.4 Morocco # 80 Index 3.5 Algeria # 92 Index 3.2 Egypt/Niger #115 Index 2.8 Libya # 126 Index 2.6

15 Transparency International’s Recommendations 1. “The OECD countries must step up enforcement of the OECD Anti-Bribery Convention's prohibition on foreign bribery and commit the necessary resources to monitor one another's enforcement” 2. “China, India and Russia should voluntarily adopt the provisions of the OECD Anti-Bribery Convention” 3. “Multilateral development banks must debar companies found guilty of foreign bribery” 4. “Companies must conduct due diligence when engaging in partnerships or acquisitions, and adopt and enforce strict internal no-bribes policies that include their agents, subsidiaries and branches” 5. “Developing countries should vigorously prosecute foreign companies found to have bribed on their soil, and must be supported in these prosecutions by the legal and financial cooperation of the host countries”