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Have you ever wondered why, if you want to open an account or do some other types of transactions at your bank or credit union, you have to show ID, bring a utility bill, and have a job letter? That’s because having that type of information about you – knowing their customer – is a key component of local and international AML/CFT requirements. And failing to comply with those requirements could have serious consequences not only for the institution, but Barbados as a whole.
AML/CFT stands for anti-money-laundering and combatting the financing of terrorism, two priorities for financial systems globally. Jennifer Clarke-Murrell, Deputy Director of Bank Supervision at the Central Bank of Barbados, which regulates local commercial banks, offers more detail.
“Money laundering is where persons try to conceal the nature of funds created from ill-gotten gains. So, where persons might be involved in activities such as theft, or maybe they’re involved in fraud… and they try to get those funds into the financial system and conceal the nature of the source of those funds. With respect to terrorism financing, this is where persons are used, either knowingly or unknowingly, to support or finance terrorist acts.”
The international standard setter for AML/CFT matters is the Financial Action Task Force (FATF). At the local level, the Central Bank and its fellow regulator, the Financial Services Commission, are responsible for making sure financial institutions meet those standards.
The information financial institutions collect from their clients is part of the due diligence they have to perform to ensure that they are not unwittingly helping to launder money or funnel it into the hands of those who finance terrorism. Having photo ID confirms that you are indeed the person you are claiming to be. A utility bill with your name on it is considered proof of address – Clarke-Murrell points out that there can be more than one person in Barbados with the same name, but they won’t live at the same address. And the job letter can help to explain the source of the funds involved in your transaction.
While having this information about clients is necessary, Clarke-Murrell acknowledges that it can create a frustrating experience for customers, so she offers two suggestions as to how financial institutions can make it less taxing: first, they should let customers know in advance exactly what information they need to walk with, and second, they should ensure they keep a record of the information so that they are not repeatedly asking their clients to provide the same information. “Over time, obviously persons might need to update the information, but it shouldn’t happen on a weekly, monthly, or even annual basis.”
It is also important to note that the amount and type of information financial institutions ask for will vary from customer to customer because due diligence is risk-based. “Each customer comes with a different set of risks. A person that works at a job where you are seeing the salary coming into the account might be a different type of risk than a person that says that they are self-employed; it might be different than a person that has a small business… but there is baseline documentation that you have to provide a financial institution.
The process involved in meeting AML/CFT standards can be a complex one, but the ramifications of not doing so can be severe, not only for the financial institution, which could be sanctioned, including heavily fined, but also at a national level.
“At a national level, where we are deemed not to be complying or ensuring that there is compliance, Barbados might be put on a list of entities or jurisdictions that are non-compliant with the international standard. Being there tends to send a signal about the country and its financial system, which can have negative repercussions.”
Two such lists are the grey list, which is for countries that the FATF deems to have some deficiencies but that are working to address them. Even more serious is the black list, on which countries that are considered non-compliant and not taking any action to comply are placed.
Blacklisted countries face sanctions. “Sanctions could mean that you’re cut off from the financial system. Sanctions can mean that you’re not allowed to do transactions with certain jurisdictions as well.”
While Barbados has not been placed on the black list, it has on occasion been grey-listed, and as such works hard to comply with international AML/CFT standards. Failure to do so could result in some correspondent banks – foreign banks through which local banks make international payments – considering Barbados to be a risky jurisdiction and not being willing to do business with the island.
And here’s why that matters to you. Without correspondent banking relationships, you can’t send money abroad to pay your child’s tuition at university, or even to purchase something you want to order from overseas. You also won’t be able to receive money that relatives overseas might be sending you. Taken nationally, it means it would become extremely difficult to purchase the goods and services we use every day. And that’s something no Barbadian wants.