AML systems no substitute for ethics

When a bank implements a nice, shiny new AML system, Finextra dutifully reports it. The vendor tells us how wonderful the technology is and how it will stop naughty people behaving badly.

The problem, of course, is that if the bank doesn't want to look too carefully at what its customers are doing - and if the regulators don't make it - the technology, no matter how clever, is worthless.

And a new report suggests there are plenty of banks out there that aren't taking the whole due diligence process as seriously as they might.

The report, published a couple of days ago, is from anti-corruption campaigner Global Witness and it accuses a host of the world's biggest banks - including Barclays, Citi, HSBC and Santander - of dealing with corrupt regimes.

Undue Diligence focuses on the relationships between financial institutions and, mostly African, regimes that corruptly exploit the natural resources of their countries.

Its publication is designed to put pressure on G20 leaders meeting in London next month to tighten money laundering rules.

I've not read the whole thing yet but it looks pretty damning.

Here's one of the examples the NGO uses:

"Barclays kept open an account for the son of the dictator of oil-rich Equatorial Guinea long after clear evidence emerged that his family were heavily involved in substantial looting of state oil revenues."

The account holder, Teodorin Obiang was minister for agriculture and forests in his father’s government. He earned $4000 a month which miraculously funded the purchase of a $35 million dollar mansion in Malibu.

So, what kind of due diligence was Barclays carrying out?

Does the fact that Obiang's corruption might not have been technically illegal in a country where his father ruled with an iron fist absolve Barclays of responsibility?

Unsurprisingly, Global Witness doesn't think so:

"No bank should be, or should want to be, involved in business such as this, whose real costs are borne by the people of some of the world’s poorest countries."

There needs to be a change in the culture when it comes to due diligence:

"This isn’t about box ticking. Banks should only take the business if they have identified an ultimate beneficiary who does not pose a corruption risk. Other business should be turned away."

It's not just the banks that get a scolding. Governments need to get tougher and improve cooperation.

And: "The most important change is to ensure that every country produces full public online registers of the ultimate beneficial ownership of all companies and trusts under its jurisdiction".

So, technology can help prevent despots siphoning off money that should be used to help drag their 'people' out of abject poverty but only if it has the correct framework within which to work.

Ideally, banks shouldn't need regulators telling them not to help screw over the poor but it's become pretty clear over the last few months that when it comes to making a quick buck, ethics go out of the window.

Which means: "If resources like oil, gas and minerals are to truly help lift Africa and other poor regions out of poverty, then governments must take responsibility to stop banks doing business with corrupt dictators and their families."