Caribbean Indigenous Banks Anti-Money Laundering Survey An analysis of the local challenges Patricia Hamilton CEO Caribbean Association of Indigenous Banks Inc.

An Integrated Approach Compliance Requirements International, Regulatory, Industry, Third Party, Internal Anti-Money Laundering Strategy Business and organisation Processes & Initiatives . Investment suitability Security & technology usage Risk assessment Tax etc. Investent suitability Know your customer (KYC) - Account Opening Management Commitment Training and Awareness Program Anti - money laundering standards and procedures Administrative and end - user policies and procedures KYC - Data Transaction Monitoring/ Tactical short term AML Reporting Access/Mining Tracking Processes solutions Cost of Compliance

Challenges Management Oversight and Guidance Managing Cross-Functional Expectations (Business vs. Compliance) IT Systems Training Accountability for Non-Compliance Adequately Skilled and Sufficient Officers and Staff that understand local requirements Operational Improvements Enterprise-wide standards

Challenges: Management Support Management Oversight and Guidance Managing Cross-Functional Expectations (Business vs. Compliance) IT Systems Training Accountability for Non-Compliance Adequately Skilled and Sufficient Officers and Staff that understand local requirements Operational Improvements Enterprise-wide standards

Management Support AML is a key value; a function of the integrity of the company and as such must be promoted by directors and management. Key values are supported by management behavior: - Visible attention and appreciation - Agenda item in board meetings - Element of staff assessments - Available budgets for IT, training etc. - Status & powers of the AML officer

Most consider management to be supportive. The “tone on top” Most consider management to be supportive.

Challenges: Business vs. Compliance Management Oversight and Guidance Managing Cross-Functional Expectations (Business vs. Compliance) IT Systems Training Accountability for Non-Compliance Adequately Skilled and Sufficient Officers and Staff that understand local requirements Operational Improvements Enterprise-wide standards

Centralized vs. Decentralized Compliance Function Advantages Limits differing interpretations Limits data entry error Quality Control is easier Disadvantages Skills required of staff Backlog Decentralized Advantages Skill set applied to entry Disadvantages Quality Control Enforcement

Management of AML efforts should come from throughout the organization Establish a “culture of compliance” Set tone at the top Top management is ultimately responsible for compliance Business is responsible for day-to-day compliance Compliance management plays a key role in corporate governance, monitoring and advisory functions

Centralized vs. Decentralized

Challenges: Technology Management Oversight and Guidance Managing Cross-Functional Expectations (Business vs. Compliance) IT Systems Training Accountability for Non-Compliance Adequately Skilled and Sufficient Officers and Staff that understand local requirements Operational Improvements Enterprise-wide standards

Technology as a compliance enabler Rules Refinement Customer Profiling Manual Workflow Where most Caribbean banks are Enterprise Profiling Integrated Organization The above maturity model depicts how Compliance systems can evolve Advanced Monitoring

Just above half report adequate manual & technological support. Support systems Just above half report adequate manual & technological support.

Use of Technology for AML 77% have either invested or have plans to invest in the future.

Capabilities of Transaction Monitoring Software A= Client Profiling B= Transaction Profiling C= Historic Client Behaviour D= Pattern Recognition of Transactions E= Peer Grouping F= All of the Above Most respondents report that their transaction monitoring system has all 5 features.

Reviewing Transaction Monitoring software for gaps

Impact of Software

Challenges: Training Management Oversight and Guidance Managing Cross-Functional Expectations (Business vs. Compliance) IT Systems Training Accountability for Non-Compliance Adequately Skilled and Sufficient Officers and Staff that understand local requirements Operational Improvements Enterprise-wide standards

Training: Critical components Policies and values of the company Laws and Regulations Laundering Strategies Communication skills (KYC) Management discussion

Caribbean Financial Action Task Force

Challenges: Accountability Management Oversight and Guidance Managing Cross-Functional Expectations (Business vs. Compliance) IT Systems Training Accountability for Non-Compliance Adequately Skilled and Sufficient Officers and Staff that understand local requirements Operational Improvements Enterprise-wide standards

Accountability- A necessity The key challenge for many financial institutions is to sustain the effectiveness of their AML programs on an ongoing basis. An AML Accountability Review addresses issues related to corporate risk management and the legal liability of corporate directors, officers, supervisors and staff in managing the reporting cycle for suspicious transactions.

Regulatory Bodies Governing Countries Regulatory Bodies Barbados Financial Intelligence Unit Cayman Islands Cayman Islands Monetary Authority Financial Crimes Unit Portfolio of Legal Affairs Cayman Islands Stock Exchange Jamaica Financial Investigations Division (Ministry of Finance & Planning) Trinidad & Tobago Financial Investigation Unit Eastern Caribbean states Eastern Caribbean Central Bank National Anti-Money Laundering Committee Office of National Drug & Money Laundering Control Policy Guyana Finance Intelligence Unit Suriname Meldpunt ongebruikelijke Laws governing include Barbados: Money Laundering and Financing of Terrorism (Prevention & Control) Act Cap. 129, Proceeds of Crime Act Cap. 143, Mutual Assistance in Criminal Matters Act, Cap. 140A, Anti-Terrorism Act 2002-06, Anti-money Laundering/Combating Terrorist Financing Guidelines; Cayman Is.: Misuse of Drugs Law (2000 rev), Proceeds of Criminal Conduct Law (2005 rev), the Money Laundering (Amendment) Regulations 2007, The Guidance Notes on the Prevention and Detection of Money Laundering in the Cayman Islands (2007 rev), The Terrorism Law 2003; ECCB: AG-International business Corporations Act, Money Laundering (Prevention) Act; Prevention of Terrirism Act, Tax Information Exchange Act, Money Laundering (Prevention) Regulations, Money Laundering Prevention Guidelines, Mutual Legal Assistance Treaties, Gaming Regulations, SLU-Drugs Prevention & Misuse Act 22 of 1993, Proceeds of Crimes Act 10 of 1993, Money Laundering (Prevention) (Amendment) Act 15 of 2004 SVG-The Proceeds of Crime and Money Laundering (Prevention) Act of 2001 S-N-A-Proceeds of Crime Act 16 of 2000, Anti Terrorism Act, No 21 of 2002, Anti-Money Laundering (Amendment) Regularions, 200s, Anti-Money Laundering Regulations, 2001, Financial Intelligence Unit Act, 2000, Financial Services (Exchange of Information) Regularions, 200s, Financial Services Commission Act, 2000, Guidance Notes on the Prevention of Money Laundering, Organised Crime (Prevention 7 Control) Act, 2002; Guyana: Money Laundering (Prevention) Act 2000 (to be superceded by Anti-Money Laundering & Countering the Financing of Terrorism Act 2006 - pending); Jamaica: The Proceeds of Crime Act 2007, Terrorism Prevention Act; Trinidad&Tobago: The Proceeds of Crime Act, 2000, The Anti-Terrorism Act, 2005; Suriname: Crime Act

Familiarity with consequences for breaches Most staff are considered to be familiar with consequences for breaches.

Challenges: Human Resources Management Oversight and Guidance Managing Cross-Functional Expectations (Business vs. Compliance) IT Systems Training Accountability for Non-Compliance Adequately Skilled and Sufficient Officers and Staff that understand local requirements Operational Improvements Enterprise-wide standards

How do we rank? Experience in other jurisdictions shows that a common problem is a lack of skilled and experienced staff with anti-money laundering expertise. How do we rank?

Numbers of staff dedicated to AML Most banks employ 1-5 staff whose primary duty is AML. The majority of these are responsible for Transaction Monitoring.

The skill-set of staff Although in small numbers, staff are considered to be adequately skilled in AML & CFT.

Challenges: Operations Management Oversight and Guidance Managing Cross-Functional Expectations (Business vs. Compliance) IT Systems Training Accountability for Non-Compliance Adequately Skilled and Sufficient Officers and Staff that understand local requirements Operational Improvements Enterprise-wide standards

The ideal operational infrastructure Governance Maintenance Account / Transaction Monitoring Policy & Procedures Risk Assessment Organization & Controls Threads Risk Profile People Process Record Keeping / Retention AML Regulatory Requirements Technology Reporting Structure Testing Training / Testing

Budgetary Expenditure 33% have spent over US $100,000 on Transaction Monitoring.

Specific Use of Budgetary Funds A= Increase in staff B= Enhancements to existing transaction monitoring system C= Implementation of automated transaction monitoring system D= Training E= Conferences F= Other Most respondents reported a combination of methods B, D & E.

Methods for indentifying suspicious activity Least Used A= Reliance on employees’ vigilance B= Review of exception reports C= Internally developed transaction systems/exception reports D= Vendor supported automated transaction monitoring system Most respondents (28%) reported a combination of methods A, B & C while 17% reported using all four methods.

However, 50% of these apply only to the Compliance department. Policies & Procedures However, 50% of these apply only to the Compliance department.

To conclude…

Essential Elements of Effective AML Management support, commitment, accountability, “tone at the top” 2. Effective governance structure to oversight line of business functions 3. Comprehensive and actionable policies and procedures to reflect global and country specific requirements 4. Appropriate compliance communication, awareness, reporting, and education plan 5. Process to identify and implement regulatory requirements timely and effectively

Essential Elements of Effective AML, cont’d. Monitoring/self-assessment programs to effectively detect violations and weak control systems Reporting and communication processes to ensure the status of significant compliance issues are communicated Tracking process for corrective actions required due to results from monitoring programs, complaints, Internal Audit, and regulatory reports Effective training programs 10. Involvement of compliance function in the development of new products and services

Questions?

Caribbean Indigenous Banks Anti-Money Laundering Survey An analysis of the local challenges Patricia Hamilton CEO Caribbean Association of Indigenous Banks Inc.