ComplianceAid Caribbean Basin AML Conference 2016 “How to End a Relationship Under AML” Randy Graham, CEO March 10, 2016

AML Standard for Business Relationships The Financial Action Task Force (FATF): chartered in 1989 and known globally as the policy setting body on AML/CFT matters issued 40 recommendations in 2003 issued updates which now form the 40+ recommendations has produced the thought leadership on this topic Most of our international core principles on AML and our domestic legislation and regulations related to AML are a function of the FATF standards.

AML Standard for Business Relationships Businesses are required by AML regulations to have appropriate risk-sensitive policies and procedures in order to prevent activities related to money laundering and terrorist financing. These policies include: Customer Due Diligence (CDD) scrutiny of complex transactions identification of unusual transactions prevention of products favouring anonymity identification of PEP clients appropriate internal controls for ongoing monitoring

Business Relationship (BR) Working definition … a business, professional or commercial relationship between a relevant person or company and a customer. At the time when contact is established, the company and the customer expect that the ensuing relationship will have an element of duration. AML policies, therefore, are premised on the following facts: companies will have BR during the normal course of business companies need CDD/KYC information from the client to transact business and to satisfy AML regulations there can be information asymmetry in the BR most often CDD is completed before the BR can be established the customer’s circumstances may change after the initial establishment of the BR so ongoing monitoring is required

Suspicious Transactions We begin the review from the position that companies have performed CDD at the beginning of a BR and have an internal system in place for ongoing monitoring. What happens when we find or suspect a suspicious transaction? internal controls flag a transaction/various transactions the suspicious transaction is verified the transaction is then reported using the channel approved by the competent authority in the jurisdiction company management then needs to determine how to treat to the customer/customers on an ongoing basis or whether to end the business relationship

Ending the Relationship The greatest challenge is always balancing regulations for protection and innovation for business growth The aim of suspicious transaction monitoring and the corresponding action is not to create financial exclusion and fuel de-risking, but it is to combat misuse Companies must, therefore, determine on a risk based level when a BR needs to be ended in the best interest of all parties

Ending the Relationship Where a financial institution does not believe it may effectively manage the money laundering risk of the BR, it should not enter into or maintain the relationship The decision is ultimately one for the financial institution to make based on the internal AML policies and risk appetite The exception being, where the minimum standard CDD cannot be obtained at the beginning of the transaction

Ending the Relationship When making a decision to end an existing BR, the following should be considered: 1.The initial contract between the entity and customer should contain disclosures that allude to the possibility and terms under which the BR may be terminated. (These terms can be broad) 2.The internal record keeping and controls should be well documented as the basis for the decision to end the BR 3.If the basis for the termination is a suspicious transaction that is part of an ongoing investigation, companies should consider whether their actions will tip off the customer and should consult with the domestic AML authorities before concluding

Ending the Relationship 4.The impact of the decision (to end the BR) on the financial institution’s reputation and its general financial exclusion in the market should be considered; these decisions should, therefore, be taken at a senior level in the institution 5.The customer should be written regarding the decision and provided with some form of rationale 6.The customer should also be given a reasonable amount of time to make alternative arrangements for the business, unless circumstances dictate otherwise

Conclusion AML policies are typically applied on a risk based level The decision to end a relationship ultimately rests with the financial institution and not the AML regulations If a decision is taken to end the BR, consideration should be given to the rationale for this decision, the record keeping to support the decision, the impact on both institution and customer, and the process followed to end the relationship

Q & A

THANK YOU #34 Warrens Industrial Park, Warrens, St. Michael, Barbados BB22026 (Telephone: (246) Ext:2188 Facsimile: (246) Randy Graham Chief Executive Officer March 10, 2016