HOW TO PREPARE FOR BANKS' MONEY-LAUNDERING QUESTIONS

Money-laundering questions are an unavoidable part of corporates’ relationships with their banks. Let's take a look at how to minimise the pain of answering them.

For corporate treasurers, dealing with banks is an essential daily task. In turn, the bank’s legal obligations include complying with strict regulations on money laundering, terrorism and sanctions. The bank has no discretion to waive these rules in our favour as an existing customer. This means the bank has to ask difficult, and perhaps insulting seeming, questions of all its customers, both new and old.

COMPLIANCE BURDEN

Money obtained by criminal means is said to be ‘laundered’ when it is channelled through the legitimate financial system in such a way as to prevent it being traced back to criminal activity.

Legislation obliges banks and a wide range of other financial intermediaries, including casinos and estate agents, to have procedures in place to identify where money has come from and who benefits from it. This compliance burden is one that both banks and their customers have to shoulder.

For this reason, money-laundering regulations are very important for all corporate treasurers, even if we don’t work in a bank. In particular, corporate treasuries need excellent information systems and to be adequately prepared to answer the banks’ due diligence questions.

BANKS' PREDICTABLE QUESTIONS

In simple terms, the bank’s key questions will be:

1. Who are you and your associates?
2. You say that, but who are you really, and can you prove it?
3. Where did you get that money from?
4. Where are you going with that money?

The first of these two questions are know your customer (KYC) questions. Depending on our shareholder base, KYC questions can be particularly burdensome to answer. If we are unable to answer the bank’s predictable questions, we may be denied essential banking services.

Corporate needs bank → Bank has to comply with money-laundering rules → Bank needs to ask questions → Well-prepared corporates are ready to answer

GOOD RELATIONSHIPS

Banks and their employees have legal obligations to provide information to the central authorities. If they don’t, they can suffer reputational losses, be prosecuted, fined or even jailed.

Understanding this can help to maintain our essential good relationships with our colleagues at the bank, even when they are asking us lots of awkward questions. If we have strong information systems in place, it will assist our banking colleagues to do their work speedily and efficiently.

On the other hand, unwitting or indirect non-compliance with the regulations can result in severe penalties. Even if we can answer all of the bank’s questions, it will be a painful process unless we are well-prepared.

PRIOR KNOWLEDGE SAVES TIME AND MONEY

We can save time and money by preparing and budgeting for our unavoidable compliance workloads. It is always easier to answer questions when we know why we are being asked. Answering the bank’s compliance questions will be much easier when we understand why the bank has to ask them.

FIVE KEY ASPECTS OF UK MONEY LAUNDERING REGULATIONS 2007

The key aspects of the 2007 Regulations include requiring banks and other financial intermediaries to:

• Have a risk assessment in place in respect of money laundering.
• Conduct their client due diligence on the basis of that assessment.
• Identify the beneficial owner of their client.
• Monitor, on an ongoing basis, their relationship with the client and have evidence of identity in place for all clients, even those who have been clients for many years.
• Monitor compliance with the money-laundering regulations.