AML & KYC in Corporate Treasury

Chair's Commentary

[The full report can be downloaded by subscribers at the foot of this article]

KYC (Know Your Customer) and AML (Anti Money Laundering) – two topics treasurers love to complain about. We had two very lively discussions: the report below is the longest we have ever had for CompleXCountries – and it is the abridged version! 

There was a lot of discussion about the frustrations and problems: 

• Lack of consistency in data requirements
• Frequent repetition of requests
• Conflict with data privacy laws
• Lack of flexibility: RMs (Relationship Managers) unable to relax requirements
• For AML: payments held up for no apparent reason, and not consistently

The report gives a lot of colour. There does not seem to be a ready solution. Participants who have the least bad experience have generally taken to maintaining a central database of the documents required, such as ownership trees, memorandum and articles of association, etc. Applying this to personal data, such as passport copies or residential addresses, raises data privacy issues.

There seems to be some – limited – benefit from using central data repositories, such as SWIFT or IHS Markit. But none of these seems to have gained universal traction at this point.

The consensus was that the Anglo-Saxon banks are the least user friendly in this respect, with Barclays being singled out for the most criticism. No bank earned praise, but BNPParibas was mentioned in a positive light by several participants.

Chair’s conclusion:

This situation is not going to improve, so treasurers should follow the lead of several participants and organise their own standard data package, and keep it centrally. The use of central document repositories, such as SWIFT, should help – especially as the acceptance of electronic documents seems to be improving, possibly due to COVID.

A little background, to understand why this situation will not improve, and things to watch out for:

KYC and AML both aim to prevent the use of the financial system to enable criminals to use their illicit gains

AML, and to a lesser extent, KYC, is also used to enforce economic sanctions against certain political regimes and individuals linked to them. This is primarily driven by the US – treasurers need to be aware that the US will take action over transactions which do not involve the United States, any US person, or the US dollar – and these may be perfectly legal in all the countries involved. Thus, a Spanish company doing business with Cuba in euros can be subject to US enforcement actions, even though the business is perfectly legal within the EU.

With some exceptions, the regulators have issued general principles, but have not provided detailed instructions as to what banks are required to do to comply. Banks have therefore had to develop their own processes and procedures – hence the lack of consistency.

If a transaction does get through, banks have to demonstrate that they had generally sufficient procedures in place, and that these were followed.

The penalties are substantial – several hundred million dollars is not unusual, with several banks having been fined billons. So banks tend to err on the side of caution in their processes, and are usually unwilling to take risks in this area, even for their most important customers.

Long term view: while most jurisdictions agree on KYC, the political aspect of AML does raise potential issues. Today, the US relies on the prevalence of the US dollar in the global financial system to ensure compliance: transactions which do not involve the US can still lead to a bank’s being excluded from dollar clearing or funding. Banks are usually unwilling to face this. However, in a world which is becoming increasingly polarised, there are signs that China, in particular, is going to great lengths to reduce its dependency on the US financial system and technologies. 

Treasurers would be well advised to start thinking about how to adapt to a bifurcated world, should these trends continue.