5 ms·

This is very much what the entity list does in practice. Any company listed on the entity list is an incredibly high risk client. Just like a NYT article accus

by FDSGSG 5y ago

This is very much what the entity list does in practice. Any company listed on the entity list is an incredibly high risk client. Just like a NYT article accusing you of being a terrorist does not carry any official repercussions, it will certainly ruin your banking relationships.

bberenberg 5y ago
I don't know enough about this topic, can you show any evidence of this? Maybe through a bank's policy docs or something along those lines?
- FDSGSG 5y ago
  I can't show evidence, but I don't have to because this is incredibly obvious to anyone with basic banking experience. FWIW It is practically illegal for banks to discuss their AML/KYC practices, nobody is going to go into detail about this.
- jcrawfordor 5y ago
  It's a very well-understood aspect of the financial industry that banks use a combination of in-house departments and outside providers to perform background research on their clients. The depth and breadth of this research depends on the size of the financial relationship. Things like searching for domestic and foreign news articles that mention the client, and particularly flagging any that indicate a suspect business history or suspect relationships, is basically a minimum requirement for a significant client under today's AML/KYC framework. It's almost explicitly required since there are regulatory requirements pertaining to politically exposed persons (PEPs), and the standards for identification of PEPs directly relate to public profile. i.e. if you are frequently mentioned in the newspaper, even purely positively, a bank is going to have to perform additional diligence. Since checking all manner of sanction, exclusion, risk, etc. lists published by the government is trivially automatable it is basically a minimum standard, and even the simplest KYC systems are going to flag customers that appear on any of these. For more significant clients additional databases and analyst resources will be used that are likely to uncover a relationship with such entities, especially a simple and easy to check one like prior employment. This is a world with few black and white rules, and banks are mostly not outright prohibited from providing services to high-risk customers. But higher and higher levels of approval will be required, and the bank will have to go into the situation knowing that they will incur extra costs in terms of analyst time, compliance work, and ultimately liability of potentially huge amounts of money. It will be difficult, although maybe not impossible, to convince a bank to work with you. Everything will end up costing you more. You will have to be very cautious because banks will sometimes change their risk evaluations and decide to terminate the relationship, and you will have to figure out how to start your banking relationship over somewhere else. While all of this is required under various laws (federally things like the BSA, PATRIOT act, etc), statutes are intentionally vague about the requirements both because banks are encouraged (and pretty much required) to perform internal research and development to improve their AML/KYC methods, and because the system operates in part on secrecy - bank clients need to not know how AML/KYC analysis works in much detail or they may find a way to structure around it. Banks also share information with each other and with governments, much of which is done under strict confidentiality agreements for several different reasons. Banks that get this wrong can lose hundreds of millions and occasionally even billions of dollars, so there's a lot of hesitance to take on risk. It's also generally perceived that enforcement is becoming more aggressive over time, not less.
- alwayseasy 5y ago
  McKinsey has a rather generalist and reader friendly take on it that won't break any laws: If you look at their Exhibit 1, "Sanctions" is clearly a contributor to high risk in AML/CFT models. As your link showed, the Entity List is one of the first sanctions list created with CFT in mind. Source: https://www.mckinsey.com/business-functions/risk-and-resilience/our-insights/flushing-out-the-money-launderers-with-better-customer-risk-rating-models https://www.mckinsey.com/business-functions/risk-and-resilie...
- tgsovlerkhgsel 5y ago
  https://media.ccc.de/v/34c3-9070-financial_surveillance https://media.ccc.de/v/34c3-9070-financial_surveillance has some more details on this.

by FDSGSG 5y ago

bberenberg 5y ago

I don't know enough about this topic, can you show any evidence of this? Maybe through a bank's policy docs or something along those lines?

FDSGSG 5y ago
I can't show evidence, but I don't have to because this is incredibly obvious to anyone with basic banking experience. FWIW It is practically illegal for banks to discuss their AML/KYC practices, nobody is going to go into detail about this.
jcrawfordor 5y ago
It's a very well-understood aspect of the financial industry that banks use a combination of in-house departments and outside providers to perform background research on their clients. The depth and breadth of this research depends on the size of the financial relationship. Things like searching for domestic and foreign news articles that mention the client, and particularly flagging any that indicate a suspect business history or suspect relationships, is basically a minimum requirement for a significant client under today's AML/KYC framework. It's almost explicitly required since there are regulatory requirements pertaining to politically exposed persons (PEPs), and the standards for identification of PEPs directly relate to public profile. i.e. if you are frequently mentioned in the newspaper, even purely positively, a bank is going to have to perform additional diligence. Since checking all manner of sanction, exclusion, risk, etc. lists published by the government is trivially automatable it is basically a minimum standard, and even the simplest KYC systems are going to flag customers that appear on any of these. For more significant clients additional databases and analyst resources will be used that are likely to uncover a relationship with such entities, especially a simple and easy to check one like prior employment. This is a world with few black and white rules, and banks are mostly not outright prohibited from providing services to high-risk customers. But higher and higher levels of approval will be required, and the bank will have to go into the situation knowing that they will incur extra costs in terms of analyst time, compliance work, and ultimately liability of potentially huge amounts of money. It will be difficult, although maybe not impossible, to convince a bank to work with you. Everything will end up costing you more. You will have to be very cautious because banks will sometimes change their risk evaluations and decide to terminate the relationship, and you will have to figure out how to start your banking relationship over somewhere else. While all of this is required under various laws (federally things like the BSA, PATRIOT act, etc), statutes are intentionally vague about the requirements both because banks are encouraged (and pretty much required) to perform internal research and development to improve their AML/KYC methods, and because the system operates in part on secrecy - bank clients need to not know how AML/KYC analysis works in much detail or they may find a way to structure around it. Banks also share information with each other and with governments, much of which is done under strict confidentiality agreements for several different reasons. Banks that get this wrong can lose hundreds of millions and occasionally even billions of dollars, so there's a lot of hesitance to take on risk. It's also generally perceived that enforcement is becoming more aggressive over time, not less.
alwayseasy 5y ago
McKinsey has a rather generalist and reader friendly take on it that won't break any laws: If you look at their Exhibit 1, "Sanctions" is clearly a contributor to high risk in AML/CFT models. As your link showed, the Entity List is one of the first sanctions list created with CFT in mind. Source: https://www.mckinsey.com/business-functions/risk-and-resilience/our-insights/flushing-out-the-money-launderers-with-better-customer-risk-rating-models https://www.mckinsey.com/business-functions/risk-and-resilie...
tgsovlerkhgsel 5y ago
https://media.ccc.de/v/34c3-9070-financial_surveillance https://media.ccc.de/v/34c3-9070-financial_surveillance has some more details on this.