Tuesday, July 23, 2019

Risk, Financial Crimes Take Center Stage at Compliance Conference

By on November 27, 2018

Editor’s note: The following originally appeared in the Nov. 22-28, 2018, issue of Caribbean Business.

The recent Puerto Rico Economic & Compliance Conference educated banks and financial institutions on the importance of following good financial practices, the risks faced by the industry and trends in financial crimes.

“Just as challenges and new methods to defraud regulations emerge, so do new information and developments to effectively tackle them,” explained Julio Herrera Velutini, president of Bancrédito International Bank & Trust, official sponsor of the event. “In that sense, it is of great importance that forums like these exist, so the international financial sector may explore the landscape of compliance programs, risk management, laws, policies and relevant regulations, and the implications of noncompliance,” he said.

Under the slogan “A culture of compliance leads to economic stability and success,” the conference sought to strengthen Puerto Rico’s strategy in the global marketplace. Lecturers and panelists from the private and public sectors, all authorities on different aspects of the conference’s theme, shared their expertise in areas such as the legal-criminal and regulatory-banking frameworks, financial intelligence and investigations, corruption and money laundering, and national security.

Puerto Rico’s governor, Ricardo Rosselló Nevares, pointed to his administration’s commitment to stimulate the island’s economic recovery and development with openness and transparency.

George R. Joyner, commissioner of the Puerto Rico Financial Institutions Commissioner’s Office, set the conference’s tone with his opening remarks while emphasizing the importance of a culture of compliance in the island’s context as a jurisdiction in the process of recovery and reconstruction.

The first of two keynote addresses were led by Robert W. Werner, former director of the Financial Crimes Enforcement Network (FinCEN) and the Office of Foreign Assets Control (OFAC), and former head of Financial Crimes Compliance for HSBC Bank. Werner’s central message focused on the role of an institutional culture of compliance to ensure safety and soundness, and that the organization or jurisdiction inspires confidence in the market to be successful.

Werner said the highly favorable tax breaks in Puerto Rico and the U.S. Virgin Islands make it easier for hostile governments to funnel money to the United States by making deposits in a foreign banking entity. He said banks have to be proactive and report suspicious activities.

As part of the presentation, Werner noted a large financial institution filed a suspicious activity report on multiple customers who were “debanked” for conducting high-risk transactions. They took their business to credit unions, which are not regulated by the Federal Deposit Insurance Corp. The FBI uncovered two credit unions, one of whose only physical presence was inside an individual’s studio apartment, and both had received massive cash deposits for which no Suspicious Activity Report was filed. An arrest was eventually made.

Another individual, who was overheard wanting to make threats to the United States, was discovered to be making deposits to an overseas charitable entity that was believed to be a front for a terrorist group, the FBI revealed.

Financial institutions should pay attention to companies that have no banking activity, and then have a sudden spike, and to financial transactions made to banking branches in Hong Kong or to Eastern Europe, he warned. Other threats in public corruption come from shell companies and electronic currency.

On the other hand, Sally Painter, co-founder & chief operating officer at Blue Star Strategies LLC, spoke about the challenges a jurisdiction such as Puerto Rico may face in obtaining a place in the international economy. Painter outlined practical steps or requirements to achieve global positioning as a financial hub, such as the presence of an international banking industry in the jurisdiction to join efforts as a sector with a common aim. Further, Painter stressed the need for a comprehensive external affairs strategy to engage all stakeholders, manage the jurisdiction’s reputation, and build awareness within the international financial sector, among others.

“Puerto Rico is a sophisticated financial center that forms a natural hub between Latin America and the United States,” said Art Middlemiss, a compliance practitioner & partner at Lewis Baach Kaufmann Middlemiss. “The conference showed the Puerto Rico international banking community’s commitment to international best compliance practices, and its recognition of its responsibilities as a member of the global financial system.”

Other relevant topics addressed included typologies of money laundering and the financing of terrorism; measures against bribery and corruption and their challenges to compliance; current issues in correspondent banking; regional money laundering and sanction risks (using Venezuela as a case study); and new opportunities and risks of virtual currencies. The conference took place at the Condado Vanderbilt Hotel and was hosted with the sponsorship of Bancrédito International Bank & Trust, BDO, Capitalia, DLA Piper, Lewis Baach Kaufmann Middlemiss PLC, McConnell Valdés and Value Advisory Group.

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