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.

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.


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