A modest initiative: strengthening anti-financial crime control

Not long ago, things weren’t going well for many of the financial institutions working under the EBRD’s Trade Facilitation Programme (TFP). They were experiencing what had been reflected in a 2015 member-survey undertaken by the Banking Commission of the International Chamber of Commerce (ICC): a growing reluctance by foreign commercial banks to offer trade finance facilities more freely, and an increasing willingness to terminate correspondent banking services over budgetary concerns.

For economies that are often resource-rich but which can still be largely cash-based, the lack of stable access to international trade and cross-border transactions can be debilitating, hindering the potential for domestic businesses to thrive and for ordinary citizens to prosper.

The culprit in this case was no villain. Rather, it had arrived with the best of intentions; to safeguard the banking sector under the banner of fighting financial crime. But as it turns out, the laudable goals of the Financial Action Task Force and major Western economies do not always find an ideal reception in every corner of the world.

For all the benefits that rising anti-financial crime (AFC) compliance standards have conferred to economies across the world, they have not come without significant downsides for nations that lack the capacity to meet these standards.

Perhaps the most significant of these hurdles has been the growing reluctance of Western banks to expose themselves to the potential regulatory risks they face in regions where AFC concerns take a back seat to the pressing issues of solvency and economic development.

Faced with increasing regulatory pressures back home, many foreign commercial banks operating in the EBRD regions have determined that the costs of regulatory peace-of-mind are simply too great to merit the effort.

As the ICC survey indicated, this experience is quite common among banks in Europe and Central Asia. Roughly 7 out of 10 respondents said they had declined trade finance transactions due to the know-your-customer (KYC) and anti-money laundering (AML) regulations, while nearly half reported terminations of correspondent banking relationships due to related compliance costs.

These problems are markedly worse for smaller banks when it comes to convincing foreign institutions that their AFC controls are adequate. Lacking the compliance resources of their larger peers, they depend on the correspondent banking services needed to offer payment and clearing services in foreign currencies for their clients.

The consequences of this “de-risking” haven’t fallen on businesses alone. The inability of banks to bolster trade and process cross-border transactions has hindered efforts to bring the so-called “un-banked” into the formal financial system. Rather than improving the banking sector’s inclusiveness, compliance standards all too often serve as justification for financial exclusion.

Although such problems can seem intractable, the most promising solution has the potential to foster global trade and improve the lives of people around the world: capacity building.

This was perhaps a lofty goal of the modest experiment that the EBRD and Association of Certified Anti-Money Laundering Specialists (ACAMS) conducted last year with TFP partner banks in Georgia, Moldova and Ukraine. The idea was simple: through scholarships funded by ACAMS, the EBRD and the EU, institutions would have free access to ACAMS compliance training, specifically the Certified Anti-Money Laundering Specialists (CAMS) certification, which has the unique advantage of being not only a globally recognised compliance standard but also one that requires participants to continuously update their knowledge.

Such a collaboration, we believed, would make it possible for EBRD partner banks and local regulators to train their staff on international AFC standards, minimise their compliance costs and bolster trade finance and cross-border payment services in the region.

Since June 2020, 70 compliance professionals have received fully funded scholarships for CAMS certification, with most completing the exam to show that they understand global standards for fighting money laundering, terrorist financing, sanctions evasion and other financial crimes.

But this was only the first step. Participants have since taken part in compliance webinars and virtual and in-person conferences and symposia.

The reaction to the initiative has been overwhelmingly positive. In our view, that is a reflection of something often overlooked when talking about AFC standards: compliance professionals in countries often deemed high risk are eager to do more to protect their institutions from illicit transactions. They just need a little help to get the chance. A unique feature of this project is that the EBRD and ACAMS train AML specialists (including regulators) which will, in turn, be able to teach ACAMS qualifications in the EBRD regions and maintain a regional community of practice.

That’s why we’ve recently decided to scale up our modest initiative by launching a new ACAMS Eurasia Chapter in Armenia, Azerbaijan, Georgia, Kazakhstan, Kyrgyz Republic, Moldova and Ukraine. Like its sister organisations, the Chapter provides a forum for compliance training and networking with other members, including those working at other institutions or in public sector roles. The latter can prove particularly important when it comes to spreading the word about emerging compliance threats and sharing best practices to tackle them.

Such steps won’t open up access to trade finance credit and correspondent accounts overnight, but there has been a shift in direction. The enthusiasm we’ve seen from participants has left us with the belief that the regional compliance standards of “high-risk” countries are not stuck, and that compliance regimes have the potential to improve on their own with the right kind of encouragement.

Imagine what collaborating to build AFC capacity could achieve on a less modest scale.