Fighting Money-Laundering is Not Incompatible with Financial Inclusion

While local financial institutions must fulfil international regulatory requirements, it does not have to be at the expense of financial inclusion. This is according to Central Bank of Barbados Governor Cleviston Haynes, who was at the time addressing members of the Barbados Association of Insurers and Financial Advisors (BARAIFA).

“Local financial institutions must comply with the international Anti-Money-Laundering and Combatting the Financing of Terrorism (AML/CFT) Standards which require financial institutions to conduct due diligence on their current and potential customers. Over time, the requirements have become more stringent and the costs of non-compliance more severe,” said Haynes.

The Central Bank Governor explained that when financial institutions do not comply with AML/CFT standards, they risk losing correspondent banking relationships. It is correspondent banking that allows local banks to conduct business overseas, for example wiring money on a local client’s behalf to a family member in another country. Rather than risk getting cut off, several institutions have instead chosen not to open accounts for new customers, or even to sever relationships with existing clients, if these potential and current clients cannot provide what they deem to be adequate background information – often two pieces of photo ID, proof of address in the form of a utility bill, and a job letter.

Haynes contended that these requirements potentially exclude people trying to conduct legitimate business with financial institutions:

“For the self-employed like taxi drivers, hair braiders, and dressmakers, there is often no job letter. Picture the recent school leaver who has just gotten his first job. He lives at home, so he has no bills in his name, he has never travelled and has no passport, and he has no driver’s licence.”

He then argued that such hard and fast rules are not necessary, saying “the irony of the situations cited is that maintaining many of these customers is not incompatible with the standards,” before advocating for a risk-based approach:

“The AML/CFT Guideline does require financial institutions to know their customers, but it also recognises that all customers do not present the same ML/FT (money-laundering/financing of terrorism) risk, and that all customers do not have access to some of the traditional KYC documentation. Financial institutions therefore have scope to determine what alternate identity documentation to accept and verification to employ.”

Haynes offered alternatives to what financial institutions currently require, such as:

“A letter or statement from an approved person (Senior Officer, Attorney, Notary Public) that the person is who he/she states; confirmation of identity from another regulated institution (with whom the prospective customer has a relationship) in a jurisdiction with equivalent AML/CFT standards; and confirmation(s) from the student’s workplace, school, college or university.”

He ended by reiterating the importance of finding a solution to AML/CFT concerns that does not exclude some Barbadians. “We can presently boast a level of financial inclusion that is higher than the global average and we must preserve this accomplishment.”