Sweeping change in the "culture" of financial institutions

VenEconomy: The new regulations on the "Administration and Inspection of Risks Associated with Money Laundering and Financing of Terrorism Crimes Applicable to Institutions Regulated by the Superintendency of Banks and Other Financial Institutions" will go into effect on September 13. These regulations were issued by Sudeban on March 7, 2010, via Resolution No. 11910 and subsequently modified on August 24 to correct errors of substance and form.

It has to be said that the changes made in August clarified and improved the regulations issued in March, as a result of which the Venezuelan regulations are now in line with international standards in this matter.

In essence, these regulations aim to make financial institutions responsible for preventing and detecting activities involving money laundering and financing of terrorism by monitoring three aspects: the receipt of deposits or transfers, processing them, and sending them into the economy as legitimate funds.

It should be pointed out that the institutions subject to these regulations will not find things easy. The regulations are complex, difficult to implement, and costly, in particular for small financial institutions with little experience in international finance.

One of the requirements of these regulations is that banks and other financial institutions are under the obligation to set up a special internal structure, the "Comprehensive Risk Administration System (SIAR LC/FT after its initials in Spanish).

The new regulations require that all a bank's personnel, from the doorman to the president, "know" its customers and its customers' customers, which includes knowing what kind of business it is and where its managers, shareholders, suppliers and partners are from. It also means knowing where a transfer comes from and where it is going.

In order to comply with these regulations, it is essential that all personnel be trained in and committed to their application. Each employee, be he an executive or a teller, is a "risk factor," both for himself and for the bank. Failure to comply with these regulations could result in a prison sentence for those responsible or even the closure of the bank.

The regulations imply new, complicated procedures and controls that mean a sweeping change in the "culture" of financial institutions.

Recently, a Venezuelan financial institution was fined $10 million by the US authorities for what could be interpreted as an error committed in good faith when it accepted a deposit from a customer who turned out to be a drug trafficker. In this case, the fine was "only" US$10 million, but the example should serve as a warning for the owners and administrators of Venezuelan financial institutions on the importance of and the risks implicit in the new Sudeban regulations.