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This article touches on the very foundations on where banks have to draw the line when it comes to accepting a business on the grounds of acceptable standards; as far as the firms AML policy and risk appetite principles are concerned.

HSBC is understandably ever so careful after its $1.92 Billion dollar fine and a few post fine negative publicity issues (Swiss private banking & tax evasion accusations, being the latest). The infamous case of INTERPAL (Natwest Vs Weiss) where an innocent UK based charity involved with “alleged honest charity” work in Palestine showed banks just how so careful and risk averse they might need to be.

On the flip side, HSBC’s decision (subject off course to its policy, risk tolerance, risk appetite and risk based approach) should have (and may indeed have) weighed the consequential risks inherent with accepting the charitable organisations account. The size, nature and complexity of the charity along with the jurisdiction it was involved in would have understandably swayed their decision in rejecting the account.

The consequence of not doing this right from the client enquiring on the possibility of opening the account, could potentially create a reputational and PR issue as HSBC would not like to be seen to deny “fundamental rights issues” to needy helpless children in an impoverished society to which this charity allegedly claims to provide.

It can be argued however that the charity’s eventual success in a bank co owned by HSBC would have thrown their policy of not accepting the account in the first instance a laughable instance but to HSBC’s defence this may be due to how much influence HSBC has over the joint ownership and how influential its policies & procedures are adopted in the local bank it co owns. The recent Barclays bank case involving MSB (Money Service Business) offering to Somali clients is one such case on how you balance offering a service and risking money laundering or terrorist financing risks.

So what then is the solution? – The solution lies in effective, efficient and common sense approach in conducting due diligence and balancing the right timing of reviewing accounts that pose not just an “immediate risk” but in this charitable case, what I would refer to as a “consequential or transferable risk” where the wrong is not coming from the charity but where the monies involved end up in bad hands which spell disaster in terms of sanction, terrorist financing and invariably operational, regulatory and reputational risks to which the institution “involved in the arrangement” may potentially be exposed to.

Hence why the saying: “ is better to be safe than sorry…” may very well be HSBC’s rationale.


Signed by Tom Brown ACAMS

Who or What Exactly is a PEP?

Banks, financial and non-financial institutions have for decades been plagued with understanding risk and playing a balancing act with knowing and understanding risk exposure and how to mitigate such risks.

One such area which is a constant “bone of contention” is simply addressing the key questions of who is your client and do you know the risk associated with that client? This principle leads to yet another dilemma when it comes to compliance management and that is understanding “who or what exactly is a PEP”?

With the added pressure of not necessarily having a universally accepted definition, PEP risk exposure is best managed by adopting a risk based policy definition in line with best practices that tackles key issues such as “who is a PEP, how do we identify a PEP, when do we check, how do we check, how do we address source of wealth issues etc.?

Understanding and balancing these concepts; where PEP’s are concerned, is an on-going problem for most institutions when it comes to fulfilling their AML regulatory requirements of undertaking effective due diligence processes.

Why do you think this is a problem for the banks and other financial and non-financial institutions? Do you have a different view?

Kaizen Event

Kaizen Event

Kaizen Compliance Solutions through its directors Tom Brown, Neil Marshall & Jorge Montana were invited to conduct a training on two crucial topics to over 35 bankers within UK on Politically Exposed Persons (PEP) and Trade Based Money Laundering (TBML).

On the issue of PEP’s we highlighted the problems of not having a universally accepted definition and the risks inherent in not understanding your client, knowing the balancing act needed when adopting a risk based approach and assessing how you address the issue of who to check, when to check, how to check and what is acceptable when it comes to determining source of wealth as far as a PEP is concerned.

The second part of the training was primarily focused on TBML. The facilitator explained the principle behind TBML, its characteristics and methods adopted. Understanding how you curb the risk from a due diligence perspective was well elucidated using practical and case study based assessment of the risks.