Tighten money laundering screws

Not fingering any bank specifically, he said this is so, in part, because rigorous implementation is seen to be placing an “onerous” administrative burden and increased costs on the financial institutions.

Furthermore, some banks also seem to think that in a small country like ours, strict implementation of anti-money laundering (AML) guidelines could also raise personal security concerns for their staff, Williams added.

Williams was a speaker at the Caribbean Financial Action Task Force AML Compliance Conference which recently took place at the University of the West Indies, St Augustine Campus.

He quoted the recent global AML survey done by renowned international accounting firm KPMG, which said that while many banks now have on paper tighter systems and controls, the effectiveness of these systems remains an open question.

“These are clearly difficult questions which need to be addressed since tightening anti-money laundering controls is important for all of us.”

“It is indeed likely that the ambivalence on the part of some financial institutions derives from an inadequate recognition of the potential cost that the absence of robust anti-money laundering systems, could impose on an institution and on the country,” he said.

Williams highlighted the well-known case of US based Riggs Bank which was convicted of money laundering and which was levied some US$50 million in fines, penalties and settlements.

But that was only the beginning of its demise, he said.

Senior executives, he said, were indicted for turning a blind eye to money laundering and the board of directors was found to have betrayed their responsibilities. Eventually, the bank’s share price plummeted and a once prestigious and respected banking institution was forced out of business.

“I cite this extreme case to emphasise that the potential costs of not dealing with money laundering are serious and real,” Williams stressed.

Not mincing words he insisted that for most developing countries, there is the risk of impairment to a bank’s correspondent relationships because of inadequate AML safeguards.

In fact, he lamented that correspondent banks in many jurisdictions may be required to sever relations with institutions or countries that do not apply adequate AML safeguards.

Still zeroing in on TT, Williams said that based on our peer reviews under the umbrella Caribbean Financial Action Task Force (CFATF), “we are not doing as well as we ought to.”

His heightened concern remains, he said, especially given TT’s pivotal role in the regional financial system and our proximity to the South American homeland - a location that makes us an attractive trans-shipment point for drugs destined for North American and European markets and our determination to be the Pan-Caribbean Financial Centre.

“We have taken some important initiatives to set in place a robust AML framework. For example Parliament has passed the Proceeds of Crime Act 2000 and the Anti-Terrorism Act 2005,” he said.

In addition, the Central Bank has issued guidelines for regulated financial institutions which currently cover banks and insurance companies.

“However, as our peer review underscores, we need to broaden our strategy and intensify our surveillance,” he said, noting that these three immediate imperatives are fast-tracking the Parliamentary approval of the draft regulations which would give effect and teeth to the AML legislation and rolling out an appropriate regime for the supervision of designated non-financial businesses and professionals. He also honed in on broadening the definition of money- laundering to cover all illicit activity, in addition to drug trafficking, the Governor said.

He noted that when a financial institution is used wittingly or unwittingly by criminal elements or terrorists, it risks damage to its reputation and when a financial centre is widely perceived to be vulnerable to money laundering, it runs the risk of losing clean money and reputable investors.

“Once the integrity of an institution or a financial centre is brought into question, its long term viability is at risk with potentially serious economic consequences,” Williams warned.

It could also carry a number of adverse macro-economic consequences, particularly for small economies like Trinidad and Tobago.

These normally include inexplicable increases in the demand for real estate, leading to spiraling real estate prices and greater prudential risks to bank soundness, since bank flows, he said, are governed by non-economic considerations, greater volatility of international capital flows and unusual pressures on foreign exchange markets and exchange rates, due to unanticipated cross- border asset transfers.