Q&A: FIBA talks AML compliance, risk in LatAm

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Costs related to money laundering make up roughly 2.7% of the annual global GDP and preventing it has become an increasingly necessary expense for banking institutions and law enforcement.

The Florida International Bankers Association (FIBA) CEO and president David Schwartz said the problem compounds even further when international regulatory mandates and cultural differences are thrown in the mix.

In a recent interview with LatinFinance, Schwartz addressed the challenges, both fiscal and circumstantial of doing business in Latin America, and spoke at length of FIBA’s role in facilitating trade and anti-money laundering (AML) compliance for those looking to expand operations in the US.

LatinFinance: What would you say has been the cost – in terms of size and scope – of money laundering for FIBA and its members?

David Schwartz: Globally, we’re looking at a close to $4trn being laundered on an annual basis. If you put that in terms of world economies, the US being number one, that would make money laundering the fifth largest economy in the world.

It is also estimated that banks are spending between 10% to 20% of their bottom line numbers on AML compliance. If you consider that among our members are Bank of America, Wells Fargo, JP. Morgan Chase and foreign banks of equal scale - and I can’t calculate what their bottom line is – it is a significant number.

And that $4trn figure is what we know and estimate. The size and scope in informal economies [such as those found in Latin America] could be much larger.

LF: When talking on a global scale, FIBA is obviously heavily invested in Florida, but where else has the association been able to build a network?

DS: We have a longstanding relationship with banks [in Panama], the bankers association and the regulators. Colombia, Peru, most of the Central American countries and Argentina, [too]. I have been on the road for a month in pretty much all of Central America.

The two things I always advise on is raising awareness and training. The first line of defense is business lines because they are the ones with the interactions with the customers and they are the ones that really need to understand what money laundering is and how it can happen.

That spans the business lines in the banks, but in the private sector itself as well.

LF: Knowing this is an important issue in terms of capital, what are some of the strategies you are trying to implement now to reduce operational costs for both your members and the Association?

DS: We have been trying to work with regulators and policy makers on streamlining processes because there has been a lot of focus on what the processes are for detecting suspicious activity as opposed to being focused on results.

The question has always been around building efficiency.

What we’ve tried to do is have some regulatory reform to try make it a little more of a collaborative environment so that it’s not just law enforcement chasing banks that have made mistakes in their programs.

We’re seeing some more cooperation, particularly from the side of FinCEN (Financial Crimes Enforcement Network). We’ve seen a lot more movement on their side to try to collaborate with banks and develop some best practices and to find some better ways to doing what we’re doing.

LF: Have you seen any new technologies, such as blockchain, begin to be explored by members to address money laundering and AML compliance?

DS: Blockchain is a buzz word these days and it is an emerging technology still to this day largely connected with online currencies because it is the underlying technology of how they work.

There are banks that are exploring the uses of blockchain, but really more on the areas of trade and trade finance.

In compliance, what you are seeing is trying to improve the monitoring and detection of suspicious activity. For artificial intelligence and machine learning, there has been a lot of buzz. We’re seeing more and more banks starting to analyze it and explore it because the goal of this is to try to be efficient in the analysis of activity and the elimination of ‘false positives.’

Especially in the region, we have a lot of similar-sounding names.

There has been this exploration into machine learning and AI because now the machine will gather information from all different sources and it will be able to analyze it much faster than a human. It will also be able to build profiles so the next time something like that happens, it will then be able to compare customer activity, customer volume, the types of products and what is normal compared to a whole history that has been built.

LF: How does AML compliance investment compare for banks in Latin America? Is AI something you are seeing catch on in the region as well?

DS: They have less capital than [US banks], so when looking at investment in technology, it is much more expensive for them. They are willing to spend on compliance officers and analysts and training because that is, of course, an important part of what they and we do.

They have taken [AML compliance] very seriously because it does jeopardize their bank-to-bank relationships and jeopardizes their standing in the market.

And at the end of the day, I think they are all making their best efforts because if not, they won’t be able to do dollar business and 80% of world trade is still done in US dollars. It is extremely important for them to have US banking relationships.

FIBA is comprised of 60 different US-based and Latin America-based banks. The association is also comprised of over 60 consultants and finance-related organizations. David Schwartz is also a board member at QuantaVerse, a fintech and AML compliance supplier.

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