October 2018 JD Supra
jd supra logo

In or Out of the Bank? was published by JD Supra on 10/16/18.

With whom we do business can be critical to combating identity theft, financial fraud, money laundering and terrorism.  Vetting individuals and entities is necessary for preventing financial crimes. Criminals will continue trying to disguise their identity through false documentation and complex hard to understand corporate structures.    Preventing money laundering and terrorist financing is at the forefront of banking compliance.  Ultimately, the goal is to protect the Financial Institution, the U.S. money supply and serve the client properly.     

Financial Institutions often refuse “on –boarding”, or initiate “off – boarding” if a customer:

  • Does not provide appropriate requested documentation,
  • Conducts business, or is domiciled in jurisdictions that are risky with respect to terrorists, financial crimes (OFAC/SDN List),
  • Fails a background check, or an intelligence report,
  • Does not meet a Bank’s internal profitability standards.

While not all banking relationships are terminated for these reasons, the perception of “risky business, risky people and risky jurisdictions” can trigger a termination.  US Banks are avoiding individuals and companies considered suspicious, high-risk or difficult to monitor; whose profitability for the banks does not justify the costs of keeping the accounts and managing their risk.  This includes money-transfer firms, foreign banks and nonprofits working abroad.

The larger banks around the world have cut ties with many correspondent banks.  The involved correspondent banks are usually smaller in size with a primary purpose of assisting with transferring money around the world in part to facilitate international trade.  So, when a big bank begins discussions about terminating its relationship with a correspondent bank, the correspondent bank may be forced to close its relationship with individuals or companies in other countries for fear of losing access to the big bank which slows or eliminates international and local trade.   Although Bank de-risking may be understandable, de-risking makes the world riskier for “legitimate customers”.    

“On-boarding” or “Off-boarding” equals in or out of the banking system

  • Many Banks have de-leveraged.  They are focused on certain “core business” only as a result of higher capital requirements, higher liquidity hurdles and the compliance/regulatory environment.
  • Small and medium size businesses are more at risk of having their accounts closed.  Examples are: charities, fin tech companies, pawn brokers and money transmission services, particularly if they are domiciled and/or operate in a geographical area that is money laundering and terrorist financing risky.
  • Bank customers are considered and analyzed from a risk – reward perspective.
  • Customers are undergoing stress, inconveniences, and are not necessarily completely informed of a Bank’s decision.
  • Opening a new account for a corporation is a complex and time intensive process.  
  • Not all Banks are consistent with their “on-boarding” requirements and/or “off-boarding” decisions.    

Don’t be a victim of your own making

Preventing money laundering and terrorist financing is at the forefront of banking compliance.  On-boarding and Off-boarding clients effectively and efficiently is an on-going effort for the entire financial community. Ultimately, the goal is to protect the Financial Institution and serve the client properly.