Kleptocracy – What Does it Mean to Community Financial Institutions?

2. Document your understanding of kleptocracy as it relates to your institution’s risk profile.

For those community financial institutions that do not believe this is a significant risk to their BSA/AML program, documented mitigation may be as simple as imposing the following guidelines in their BSA policy and procedures:

• Reference the institution’s compliance with the Foreign Corrupt Practices Act (FCPA) to include what mitigating factors were put in place. Examples could be:
  • AML monitoring software scenarios that detect the flow of funds from an international source, particularly involving areas of concern.
  • Know your customer and whom they do business with, especially if foreign governments are involved. Document extra due diligence procedures as necessary.
  • Beneficial owners must be known. Go below the required 25% ownership when something doesn’t feel right.
• Reference the FinCEN Advisories on political corruption to show your knowledge and importance of the global issue- and your level of residual risk associated with the issue.
  • Procedurally, add the SAR narrative keyword requests referenced by FinCEN.

3. Scrutinize real estate purchases and know your geographic targeting orders (GTOs) imposed by FinCEN.

Kleptocracy isn’t limited to just wires and ACH transactions. Financial criminals are using less conspicuous methods to hide their illicit gains, such as big-ticket purchases including real estate. The GTOs have been renewed and expanded over the last few years so ensure your institution is aware of the areas more susceptible to this.

The United States has long been a desired destination for kleptocrats to hide stolen assets from foreign governments due to the strength of the dollar and the financial system. FinCEN Director Kenneth A. Blanco stated that “…the United States will not be a safe haven for corrupt politicians seeking to hide and profit from their ill-gotten gains or money they have stolen from their people while the citizens of their countries suffer.” FinCEN has issued several specific advisories since 2008 concerning political corruption, the latest in 2018 advising that corrupt senior foreign political figures and human rights abuses are directly linked in many cases. The U.S. Department of the Treasury is committed to protecting both the U.S. and international financial systems for those who facilitate such activities.

Community financial Institutions cannot become complacent in the areas traditionally thought of as the “big bank” problems. Bad actors understand that the large institutions have very sophisticated tools in their BSA programs to catch illicit activity on a large scale. These same criminal transactions, some as serious as kleptocracy and human rights violations, terror financing, and human trafficking, are now being detected at the community financial institution level. Have written policies, procedures, and practices in place to continue to monitor for these serious offenses, even if there is a lower risk within your financial institution.