Currency Controls

Mechanisms and processes by which banks, international organizations like FATF and MONEYVAL, and national authorities regulate, control, and scrutinize currency transfers.


1. Regulatory Compliance by Banks

Know Your Customer (KYC)
KYC procedures are foundational to regulatory compliance. These involve:

  • Customer Identification Program (CIP): Collecting and verifying information such as legal name, date of birth, address, and identification number.
  • Customer Due Diligence (CDD):Assessing and understanding the nature and purpose of customer relationships to develop risk profiles.
  • Enhanced Due Diligence (EDD): Applied to high-risk customers, including detailed background checks and continuous monitoring of transactions.


Anti-Money Laundering (AML) Policies
AML frameworks consist of several key elements:

  • Suspicious Activity Reporting (SAR): Financial institutions are required to file SARs with authorities when transactions appear unusual or suspicious.
  • Currency Transaction Reports (CTR): Mandatory reporting of transactions above a certain threshold (e.g., $10,000 in the US) to track large movements of cash.
  • Record-Keeping Requirements: Maintaining detailed records of transactions for a specified period (usually 5-7 years), which can be reviewed by regulators.


Sanctions Screening
Banks must screen all transactions against various sanctions lists, including those maintained by the United Nations, the US Office of Foreign Assets Control (OFAC), the European Union, and other regulatory bodies. This involves:

  • Automated Screening Systems: Using software to check names of parties involved in transactions against sanctions lists.
  • Manual Review: Further scrutiny by compliance officers for any potential matches flagged by automated systems.


2. Risk Management Systems

Transaction Monitoring Systems
Banks deploy sophisticated systems to monitor transactions in real-time:

  • Pattern Recognition: Algorithms identify unusual transaction patterns that deviate from the customer’s normal behavior.
  • Anomaly Detection: Systems flag anomalies such as large transactions, rapid movement of funds, or transfers to high-risk jurisdictions.
  • Alert Generation: Alerts are generated for transactions that require further investigation by compliance teams.


Risk-Based Approach
A dynamic approach to risk management involves:

  • Customer Risk Assessment: Classifying customers into different risk categories based on factors such as geography, industry, transaction types, and relationship length.
  • Ongoing Monitoring: Continuously updating risk profiles and monitoring transactions against these profiles.
  • Enhanced Measures for High-Risk Transactions: Additional scrutiny and approval processes for transactions involving high-risk customers or jurisdictions.


3. Technological Infrastructure

Blockchain Technology

  • Transparency and Traceability: Blockchain provides an immutable ledger of all transactions, allowing for transparent and traceable currency transfers.
  • Smart Contracts: Automated execution of contracts when predefined conditions are met, reducing the risk of fraud and enhancing compliance.


Artificial Intelligence (AI) and Machine Learning (ML)

  • Predictive Analytics: AI models predict and identify potentially fraudulent activities before they occur.
  • Adaptive Learning: ML algorithms learn from historical data to improve detection accuracy over time.


Encryption and Cybersecurity Measures

  • Data Encryption: Securing transaction data to prevent unauthorized access.
  • Cybersecurity Protocols: Implementing multi-layered defenses against cyber threats, including firewalls, intrusion detection systems, and regular security audits.


4. Role of International Organizations: FATF and MONEYVAL

Financial Action Task Force (FATF)

  • Recommendations and Standards: FATF has established 40 Recommendations that provide a comprehensive framework for AML and CFT measures.
  • Mutual Evaluations: Periodic assessments of member countries to evaluate their compliance with FATF standards. These evaluations result in detailed reports highlighting strengths, weaknesses, and areas for improvement.
  • Grey and Black Lists: Countries that fail to comply with FATF standards are placed on the grey list (increased monitoring) or black list (non-cooperative jurisdictions), leading to economic and financial consequences.


 MONEYVAL

  • Detailed Assessments: MONEYVAL conducts in-depth assessments of its member states’ AML and CFT frameworks, focusing on effectiveness and compliance with international standards.
  • Follow-Up Reports: Regular follow-up assessments to ensure that countries address identified deficiencies.
  • Technical Assistance and Training: Providing support and training to member states to enhance their AML and CFT capabilities.


5. Country-Specific Restrictions and Scrutiny

Regulatory Frameworks
National regulations vary but often include:

  • Prohibitions and Restrictions: Certain types of transactions or dealings with specific countries or entities are prohibited.
  • Licensing Requirements: Financial institutions must obtain licenses to operate and are subject to regular audits and inspections.
  • AML/CFT Legislation: Comprehensive laws mandating AML/CFT measures, with stringent penalties for non-compliance.


6. Centralized Databases

  • Financial Intelligence Units (FIUs): National agencies that collect and analyze financial transaction data to combat money laundering and terrorist financing.
  • Transaction Reporting Systems: Platforms where financial institutions report large or suspicious transactions, facilitating real-time monitoring by authorities.


7. Exchange Controls

  • Capital Controls: Restrictions on the amount of currency that can be moved across borders, aimed at preventing capital flight and maintaining economic stability.
  • Reporting Requirements: Mandatory reporting of international transactions above a certain threshold to central banks or regulatory bodies.


8. Cooperation with International Bodies

  • Information Sharing Agreements: Bilateral and multilateral agreements for the exchange of information between countries.
  • Joint Task Forces: Collaborative efforts between countries and international organizations to tackle cross-border financial crimes.



Conclusion

The control of currency transfers by banks is a sophisticated and multifaceted process involving stringent regulatory compliance, advanced risk management systems, and cutting-edge technology. International organizations like FATF and MONEYVAL play a crucial role in setting standards, conducting evaluations, and fostering global cooperation. Countries further enhance these efforts through specific regulatory measures, centralized monitoring systems, and exchange controls. This comprehensive approach ensures the integrity and stability of the global financial system, effectively mitigating the risks associated with illicit financial activities.

Anti Money Laundering


FATF & MONEYVAL


Outbound Controls

Wholesale Operations