Thursday 19 January 2017

De-risking: another cost of AML

Steve Liddle points to an underappreciated cost of New Zealand's Anti-Money Laundering regime: difficulties in international remittances.
For the past nine months I’ve been working with a group supporting Somali-New Zealanders as they attempt to re-establish a low-cost channel for remittances into the Horn of Africa and South Sudan.

Despite hiring an anti-money laundering advisor, satisfying all security requirements for registering a financial service company and meeting all government and Companies Office regulations, no New Zealand bank is willing to send refugees’ money offshore.

The security requirements the banks impose on us include “getting to know your customer” vetting systems, maximum money limits, regular transaction checking and oversight. Despite this, all six banks approached refused to handle remittances, simply citing a US-instigated sanctions list or so-called “de-risking” policies.
Get your AML compliance wrong, and you could be up for fines or losing your banking license. The stakes are high, and that means the small earnings they'd get by facilitating international remittances isn't worth it.
Despite the New Zealand Reserve Bank’s declaration two years ago that trading banks here “were not justified in blanket de-risking”, they continue to do so. Acknowledging “varying degrees of risk for banks” and the call in our legislation for “measured risk management”, the Reserve Bank made it clear that money remitters should be judged on their merits. It urged banks to do due diligence on remitters to enable money transfers to continue.

Yet it seems that New Zealand banks are unwilling to risk the steep fines imposed by anti-money laundering and terrorist financing legislation and fall back on a blanket policy of refusing to handle any remittances to countries deemed high risk.

While in the past Pacific Island remittances were subject to the highest number of blocks, the situation is now eased and for the last three years New Zealand refugees from the Sub-Sahara, Horn of Africa and the Middle East are most affected.
Case by case checking is expensive relative to either what banks can earn on these small transactions, or relative to the penalties for getting things wrong.
Neither governments nor banks seem prepared to acknowledge the unintended consequences. Of course no responsible country wants to aid the financing of terrorism. But measures designed to prevent money laundering and starve terrorists of funding have also encouraged illegal money trafficking now beyond any accounting – of either amounts or the identities of recipients.
It looks like Liddle's group jumped through a pile of hoops trying to prove that their remittances were neither money laundering nor terrorism, but it wasn't enough. That shouldn't be surprising to anybody who followed the saga leading to AML regs killing iPredict.

As I understand things, banks stopped providing platforms for companies doing international remittance work as the AML regs came in. Kiwibank was about the last to move, as it took them longer to come into AML compliance than the other banks. For a while the remittance companies banked through them, but that lifeline ended when Kiwibank got its regulatory affairs in order.

There's be a reasonable business for someone using Bitcoin to facilitate all this stuff, but I'd be surprised if anyone getting big enough in it didn't quickly find themselves subject to AML for the "turning dollars into bitcoin" part of the transaction.

1 comment:

  1. I didn't read fully, but the banks cite US sanctions as being the cause. That's nothing to do with NZ AML regs.