The term kleptocracy has been used in the financial crimes profession for years, but many AML professionals do not understand its meaning and therefore are not adequately monitoring for it within their BSA/AML program.
So, what is a kleptocrat?
A kleptocrat is a term associated with political corruption and is defined as a ruler who uses their power to steal their country’s resources. A kleptocracy is defined as a state of unrestrained political corruption. This global issue is peaking a renewed concern around the world, but is it important for United States financial institutions? What about our small to mid-sized community financial institutions?
Many community financial institutions believe that kleptocracy is not a risk for their institution’s profile as 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 your risk assessment and written BSA/AML Policy. Here are three things to consider surrounding kleptocracy and your BSA program.
1. Ask about whom your customers are doing business with as part of your onboarding and continuing customer due diligence.
Do you know your customer’s customers well enough to ensure corruption is not hiding within your financial institution? Bribery and illicit payoffs through government contracts have become common as indicated by FinCEN advisory FIN-2017-A006 concerning the widespread corruption in Venezuela, our near neighbor to the south.