Community financial institutions should assess corruption and kleptocracy as a risk for their institution’s profile even if they conduct few foreign transactions, such as wires and ACHs. While it could be safe to assume a lower risk for kleptocrats hiding stolen assets in some institutions, addressing the risk and the mitigating factors should be part of one’s risk assessment and written BSA/AML Policy. Below are factors to consider surrounding corruption as one of the Priorities within an AML program.
Ask about whom your customers/members are doing business with as part of your onboarding and continuing customer due diligence. Do you know your customers’ or members’ customers well enough to ensure corruption is not hiding within your financial institution? Bribery and illicit payoffs through government contracts are common as indicated by FinCEN advisory FIN-2017-A006 concerning the widespread corruption in Venezuela, our near neighbor to the south.
Document your understanding of corruption as it relates to your institution’s risk profile. For those community financial institutions that do not believe this is a significant risk to their AML program, documented mitigation may be as simple as imposing the following guidelines in their BSA policy and procedures:
- Reference the institution’s compliance with the Foreign Corrupt Practices Act and the FinCEN Priorities to include what mitigating factors were put in place. Examples could be:
- AML monitoring software scenarios that detect the flow of funds from an international source, particularly involving areas of concern.
- Know your customer and whom they do business with, especially if foreign governments are involved. Document extra due diligence procedures as necessary.
- Beneficial owners must be known. Go below the required 25% ownership when something doesn’t feel right.
- Reference the FinCEN Advisories, particularly the Interagency Statement on Due Diligence Requirements for Customers Who May Be Considered Politically Exposed Persons, on political corruption to show your knowledge and importance of the issue, and your level of residual risk associated with this threat.
- Procedurally, add the FinCEN SAR narrative keyword requests as indicated within each FinCEN advisory.
Scrutinize real estate purchases and know your geographic targeting orders (GTOs) imposed by FinCEN. Corruption isn’t limited to wires and ACH transactions. Financial criminals are using less conspicuous methods to hide their illicit gains, such as big-ticket purchases including real estate. The GTOs have been renewed and expanded over the last few years so ensure your institution is aware of the areas more susceptible to this.