On Anti-Money Laundering, Know Your Customer, Bitcoin & More

Spotlight
14 August 2018
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Taxlinked (TL): How can we have sufficient AML rules to ensure the world is clean without stifling business transactions? 

Nenad Jovicic (NJ): The banking industry is currently undergoing the automatization of processes, which is reducing the complicated bureaucratic requirement and, as a consequence, increasing the speed of processing payments and reducing the time to send funds from one side of the world to the other. All those activities are bringing new risks and threats to financial institutions and, naturally, an increased risk of money laundering and terrorism financing. The right answer to that question is to have a perfect balance between the number of installed controls used for screening and detecting potential suspicious transactions and, at the same time, having the flexibility and the ability to satisfy all requirements placed by the customer.

TL: What are your thoughts on the EU’s 4th AML Directive and how will it improve the fight against money laundering?

NJ: With regards to the 4th AML Directive, my opinion is that we are heading in the right direction. The increased attention to the Politically Exposed Person is a good step forward. Also, the recommendations regarding the identification of the ultimate (beneficial) owners are good examples of development, especially relating to the recommendations to create a centralized register of ultimate (beneficial) owners in the country.

TL: What is KYC (“Know Your Customer”) and how should this policy best be implemented?

NJ: KYC in banking stands for “Know Your Customer.” The main objective of this policy is to prevent money laundering, identity theft, terrorist financing and financial fraud.
 
The best implementation of KYC is developed in several directions:
 
The first relates to the setting up of procedures and policies for entering into a business relationship with the client, their segmentation and the measures taken in accordance to the client’s AML risk segmentation.
 
The second direction relates to the development of the appropriate applications and IT solutions that are competent enough to scan potential suspicious transactions and the development of actions to block and deny such transactions. Those suspicious transactions that are discovered need to be reported and communicated to the local FIU (Financial Intelligence Unit).
 
The third relates to the sanctions implementation, i.e., the development of appropriate measures and procedures in order to successfully discover the violation of sanctions and ensure their respect in full.
 
Finally, the most important implementation is the adequate training of the staff that is in direct contact with the client.

TL: What are some of the major trends in AML and CFT these days? What do you foresee in this area during the next couple of years?

NJ: The major trend in AML and CFT in the future would be increased communication between financial institutions, banks and states in order to have a better overview of the world.
 
Also, the trend of centralization is evident. For example, the creation of several hubs for transaction processing throughout the world is becoming a necessity since those hubs monitor, scan and filter potential transactions that would need to be additionally checked.

TL: What have authorities done or are doing to prevent the use of Bitcoin to finance illicit activities or the purchase of illegal goods? What sorts of problems have emerged from the need to regulate a currency that in spirit was designed to avoid regulation?

NJ: In order for Bitcoin to become widely accepted by the financial institutions and their transaction payment systems, it needs to be transparent, stable and reliable. Considering that these standards are not met, Bitcoin would be perceived to be just an option to perform purchase transaction in smaller volume, however, not a primary currency throughout the world.