To strengthen AML protections, strengthen sales practices
26 Apr 2019

Earlier this month, Standard Chartered Bank signed a new deferred prosecution agreement and agreed to pay more than $1 billion in fines and forfeitures. This latest scandal evolved because, while the bank negotiated its earlier admission of guilt for intentionally violating sanctions against Iran and other nations, two of its officers on the sales side of banking in Dubai decided to help Iranian clients further frustrate sanctions by establishing a new and separate scheme that involved opening accounts in the names of Dubai companies that were fronts for business in Iran. The scandal would have likely gone unknown if it hadn’t been uncovered through a similar investigation of another bank.

Standard Chartered admits its account relationship personnel did this with full criminal intent to conduct $240 million in bank business. Unfortunately for the bank, this investigation uncovered that this criminal conduct was, in part, missed by the fact that it failed to provide adequate compliance staff and resources.

I wish this story was something new, but it’s not. It is a classic example of dual-brain syndrome — a disease that is deeply rooted in the institutional fiber of banking.

Senior management has a history of failing to properly evaluate mixed signals in my experience. You often have those that operate the “compliance brain” who conduct research hunting down red flags — they are paid a set salary regardless of how much business is generated for the institution. Nearby, within the skull of the institution, you have the account relationship or “sales brain” that is paid a base salary, plus handsome commissions based on the amount of business they develop. In contested circumstances where the compliance brain wants the sales brain to ask hard questions, a debate with senior management often ensues.

As an example, I’ll recap a conversation between compliance and sales personnel concerning a potentially lucrative correspondent banking relationship that sales convinced management to establish with a casa de cambio (house of exchange) in Mexico:

Compliance brain: The volume of cash deposits this customer anticipates receiving from their clients is excessive. Hard questions need to be asked about their due diligence, KYC procedures and adherence to Bank Secrecy Act filing requirements.

Sales brain: I know these people. They follow the law. I’ve worked in this industry for decades and dealt with other similar accounts. Compliance simply doesn’t have the practical experience that we have in sales. There’s nothing unusual about this. I’ve met the businessmen that run this operation, compliance hasn’t. Don’t you realize that this and similar houses of exchange in Mexico and other countries play a vital role for the poorest of the poor who can’t afford to bank directly with an institution? Hordes of hardworking immigrants working in the U.S. rely heavily on houses of exchange to accept and transfer funds they send to their underprivileged loved ones in Mexico and other Latin American countries. Beyond that, numerous businesses in Mexico, including those involved in the seafood, import/export, construction and other industries are often paid in U.S. currency. It’s perfectly normal.

Read the full article, originally published by American Banker, here.

Robert Mazur is president of KYC Solutions, Inc. and The New York Times bestselling author of ‘The Infiltrator,” a memoir of his life undercover as a money launderer.

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