Banks await market opening

CUBA | BANKS AWAIT MARKET OPENING
Global Finance talked money laundering, Cuba and banking regulation with
David Schwartz, president and CEO of the Florida International Bankers
Association, a nonprofit representing financial institutions in the US,
Latin America, the Caribbean and Europe.
MAY 04, 2015 Author: TIZIANA BARGHINI

Global Finance: Cuba is a very hot topic now as diplomatic relations
with the US continue to thaw. How do you see the situation evolving for
banks and businesses?

Schwartz: There's been a lot of enthusiasm, particularly in South
Florida, where many Cuban-Americans see an opportunity to reestablish
contact with their homeland. But it's still early to say. For instance,
if you want to establish a bank in Cuba, the Cuban government will own a
majority stake. A handful of foreign banks have been doing business
there but not on a large scale, because there isn't much business. FIBA
(Florida International Bankers Association) actually runs seminars on
what it all means. Right now, it doesn't mean a lot in terms of
opportunities for banks. Once business gets comfortable, yes, banks will
always follow their customers. And businesses have been preparing for
years, every time Fidel Castro caught a cold. But we still have an
embargo, which will remain in place until Congress says otherwise.

[Shortly after GF's discussion with Schwartz, the White House announced
that president Obama would remove Cuba from the list of states that
sponsor terrorism.]

GF: In March, FIBA held its annual Anti-Money-Laundering Compliance
Conference. Where do things stand on this topic?

Schwartz: This year de-risking and sanctions were at the top of the
list. Sanctions have become very important, not just because of what's
happening with relaxing them for Cuba, but also we've seen many big
cases on sanctions violations, whether with Iran or Cuba.

GF: How is it possible to prevent fraud in the technologically
interconnected world of online banking?

Schwartz: It is very challenging, especially for small banks. Never
forget that we are not talking about Mr. X selling cocaine out of his
apartment. We are talking about drug cartels and other sophisticated
crime syndicates with lots to spend on technology. The case this past
month in Andorra showed that. [The tiny nation was recently accused of
being a secret conduit for money laundering, including schemes linked to
Russian and Chinese organized crime and to Venezuela's state oil
company.] You have to cut off your entry points. So the issue of
educating foreign institutions on how to detect it [fraud] has become
very important. It's become very difficult to walk into a bank in the US
and open an account without a careful screening process. But when money
comes from a correspondent bank offshore, you don't know the origin of
those funds. Some Latin American banks have become very sophisticated,
like Banco de Bogotá or major Brazilian banks. But the issue there is
the same as here—it's very expensive for small banks.

GF: Your group often lobbies against overzealous bank regulation. But
you are also talking about a need for regulation. Is there an achievable
balance between the two?

Schwartz: No country has the perfect system. Regulation is absolutely
necessary. We do not want funds from illicit operations coming into our
system. But now the pendulum has moved strongly in the direction of
overregulation. We're almost like another arm of law enforcement, and
that's not what we [are supposed to] do. If you look at the heads of
global compliance at major banks, at their résumés, they're from the
Justice Department, the FBI, et cetera.

GF: Looking ahead, a few banks and financial markets are experimenting
with currency alternatives to the US dollar, including virtual. What
would this mean? A system where transactions are impossible to trace?

Schwartz: It's obviously a great experiment as virtual money can move
faster, more efficiently and at a lower cost. But, right now, there is
no transparency. There is no way to wrap money-laundering rules around
this new scenario. Banks are moving in that direction, because they are
not stupid. But moving away from the dollar is not going to happen this
year, or in five years, or in ten years.

Source: BANKS AWAIT CUBA OPENING | Global Finance Magazine -
http://www.gfmag.com/magazine/may-2015/banks-await-cuba-opening