Tough banking regulation inevitable

Christopher Pryce, Contributor

The popular radio talk shows and the print media continue to reflect with increasing regularity either a lack of public understanding of anti-money laundering (AML) banking regulations, or a dissatisfaction with how AML regulations are implemented in Jamaica.

Anecdotal comparisons are made between how easy it was for one radio talk-show host to open an account with Bank of America in downtown Miami, and the hours of investigation that a returning resident had to endure just to open a local account with US$25,000 that they intended to use towards purchasing a house.

Such stories cannot be dismissed. They need to be taken into full account by the legislators, the government agencies that are responsible for spurring foreign and domestic investments, by the regulated financial institutions themselves, and, more important, the regulators who issue and enforce the AML directives.

If we are to believe these stories about how easy it is to open accounts in the United States (US), there are also many accounts of how difficult it is to open and maintain accounts there. What with the Bank Secrecy Act, the Patriot Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, and the dreadful Foreign Account Tax Compliance Act, all US legislation that have resulted in considerable bureaucracy that has jurisdictional reach outside the US with a direct impact here in Jamaica.

Even as we experience frustration and disgust as we tangle with AML banking regulation, we would do well to be reminded about the context for the regulations. Money laundering is recognised as a crime in most jurisdictions, and several international groupings have taken steps to address its prevention, detection, reporting and, ultimately, its prosecution. Organisations in the forefront of this effort include the Basel Group, the Wolfsberg Group, the Egmont Group, the World Bank and the International Monetary Fund.

The global umbrella entity that provides directives for AML regulation is the Financial Action Task Force (FATF), with the regional affiliate CFATF (Caribbean Financial Action Task Force) covering Jamaica. We should be aware that at the time of the last CFATF Mutual Evaluation exercise in 2005, Jamaica was found to be not compliant in at least 10 areas. With Jamaica due for another evaluation by 2014, any non-compliance ratings could have far-reaching adverse repercussions.

NIPPING MONEY CRIMES IN THE BUD

A key approach to AML regulation is to focus on financial institutions to ensure that they do not allow tainted funds to enter or pass through their operations. This intense focus is based on the logic that if the tainted funds can be choked off from getting into the financial system in the first instance, it will make it harder for the funds to be disguised and for the criminals to operate and launder money with impunity.

Hence, FATF has succeeded in having jurisdictions pass laws to criminalise money laundering. The principal Jamaican AML statute is the Proceeds of Crime Act (POCA), which allows for:

The Financial Investigation Division (FID) to be the designated authority and the Asset Recovery Agency;

The Bank of Jamaica (BOJ) and the Financial Services Commission (FSC) to be competent authorities;

Mandatory filing of reports for certain cash transactions and any transaction that appears to be unusual or suspicious. These reports must be filed confidentially and only to the FID, and not to the BOJ, FSC, the tax authority, police or anyone else.

The BOJ and FSC,1 as competent authorities under POCA, issue AML directives which must be complied with. These are public directives which are available on the websites of the regulators. The directives specify the information that must be requested from customers.

Much of the angst experienced by customers of financial institutions is a function of the required enhanced due diligence which is directly driven by the imposition of regulations.

Regulatory intrusion is expected to intensify, driven by both international and local imperatives. Notwithstanding our claims to sovereignty, Jamaica will continue to feel the impact of more intrusive financial regulation.

While we may be limited in our ability to stop the flood of incoming regulation, the distressing reports of the difficulty encountered at local financial institutions can be tempered by the institutions ensuring that they offer a high standard of customer service that will result in an acceptable customer experience.

The institutions may not be able to skirt the regulatory demands, but they can, and should, do more to effectively assist and engage their customers.

Email feedback to columns@gleanerjm.com and christopherjmpryce@yahoo.com.