Financial crime risks

Global banks continue to experience AML failures in Latin America.

Global banks continue to experience AML failures in Latin America, mostly due to a lack of market-specific compliance programmes for each country and, sometimes regions within countries, disregarding local peculiarities and best practices.

The risks have also been heightened by the pandemic as a head of financial crime risk at a global bank in Mexico reported, “As a result of the pandemic, there have been changes in criminal behaviour. There has been an increase in fraud, identity theft, phishing and cyber crimes due to the greater use of technology and mobile banking and remote banking. This is only just beginning to be understood and mitigated.”

“As a result of the pandemic, there have been changes in criminal behaviour. There has been an increase in fraud, identity theft, phishing and cyber crimes.”

Head of Financial Crime Risk, global bank, Mexico

The Financial Action Task Force for Latin America (GAFILAT) mainly blames state regulators for these failures. GAFILAT argues that although regulators have significantly increased their supervisory responsibilities throughout the region, most of them have failed to put in place and enforce AML regulations. This creates low incentives for global banks to design country-specific policies.

Furthermore, record sanctions like recent ones imposed by Brazilian and Paraguayan regulators have not led to substantive changes in AML policies of global banking institutions which have wilfully ignored AML controls while profiting from illicit flows in the region, reports Insight Crime.

One of the main challenges for global banks in the region is the increasing demand for internet banking services which is mostly carried out through mobile phones. Global banks will have to implement stronger KYC policies and specific customer due diligences.

A former President of a financial intelligence unit in Latin America commented, “Many banks [in Latin America] have outdated risk methods. There is no intelligence-led approach to risk identification, it’s not enough to just know-your-client, you need to look at the whole network to look for patterns, trends etc. HSBC does this but it requires a significant investment and a different culture, they have invested USD 1.2 billion in transaction monitoring! Processes also need to be made faster, for example, an alert and report of suspicious behaviour in Argentina can take 6 months!”

“Many banks [in Latin America] have outdated risk methods. There is no intelligence-led approach to risk identification.”

Former President, financial intelligence unit, Latin America

Technological innovation is also a huge opportunity to reduce financial crime, as the former President of a financial intelligence unit commented, “The most difficult thing to control is not what is in the system but is the cash that is moving through the shadows that cannot be traced. Many people in Latin America do not have bank accounts but they do have smartphones so, little by little, technological innovation is bringing them into the financial system. Financial inclusion is essential and it is better to have these people using financial platforms rather than operating in the shadows. This is why governments across Latin America should have a non-combative attitude towards fintech from a regulatory point of view – they need to understand the opportunities and the risks and establish the necessary dialogue and regulate intelligently.

 

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