"De-Risking" and Its Consequences for Global Commerce and the Financial System
On March 4, 2015, the Milken Institute Center for Financial Markets (CFM) hosted a day-long roundtable, Global Correspondent Banking: "De-Risking" and Its Consequences for Global Commerce and the Financial System, with AML/CFT policymakers, regulators, financial institutions, affected parties, and experts in order to explore the contours of the issue, to understand the incentive structures of the various parties and to brainstorm possible ways forward. This document summarizes the results of the day’s discussion and participant recommendations and ideas.
By Staci Warden - Executive Director, Center for Financial Markets
The United States has had anti-money laundering laws in place for more than four decades, dating to the Bank Secrecy Act in 1970. However, with the passage of the Patriot Act (2001) and the Intelligence Reform & Terrorism Prevention Act (2004), U.S. agencies wield a number of new legal authorities for dealing with money laundering, sanctions avoidance, terrorist financing, and other financial crimes. And these authorities put global correspondent banks2 front-and-center in the battle against illicit flows. In recent years, fines and criminal prosecutions for Anti-Money Laundering/Combating the Finance of Terrorism (AML/CFT) violations also have risen dramatically, prompting banks to reexamine the merits of engaging in correspondent banking and trade finance businesses at all. In a process that has come to be known as “de-risking,” large correspondent banks in the U.S. and elsewhere have begun to sever their correspondent banking relationships with client sectors perceived as high risk or not worth the cost of compliance, such as money-service businesses (MSBs), trade-finance clients, and respondent banks in emerging markets. As a result, these institutions—and their clients—risk loss of financial and banking services, as well as isolation from the global financial system.
View: "De-Risking" and Its Consequences for Global Commerce and the Financial System by Staci Warden, July 2015
Additional article worth reading:
1) Casualties of War Milken Institute Review Second Quarter 2015 by Staci Warden, April 30, 2015