– the implications of SOCU’s actions on financial institutions
Today’s piece of literature is one that should have been authored much earlier – amidst the highly controversial and sensitive matter involving one of the country’s largest private financial institutions and the Special Organized Crime Unit (SOCU). The issue to which reference is made is concerned with the US$500 million PetroCaribe Rice deal with the Guyana Rice Development Board (GRDB) — a matter that is being investigated for fraud by SOCU, through which that entity needed to access information of the bank account (s) from the respective commercial banks with which the GRDB would have maintained its accounts.
This column is of the strongly held view that the manner in which this entire situation was handled on the part of both institutions was very poor – in a way that could potentially be harmful and destructive to the financial sector. Moreover, what is appalling to this effect is that there was an article in the Kaieteur News dated November 15, 2017 with the headline, “Financial Institutions unwillingness to cooperate with SOCU tells a worrying story”. In that article, a Special Prosecutor and attorney–at-law posited rather strongly that “such behaviour opens the floodgates to speculation.”
Readers would recall that a series of articles on the financial sector and banking in particular were recently featured under this column. It would have been pointed out that the financial sector is the heart of an economy. It is in this context that financial institutions, particularly the commercial banks in Guyana, ought to ensure that their fundamental features and characteristics are protected.
How the situation was handled, and how it should have been handled
According to information in the public domain, SOCU would have written to the institution, sometime earlier this year, requesting information on the account of GRDB. It was ascertained, based on those releases — if one would have read carefully — that when SOCU approached the institution in the first instance, they did not arm themselves with a court order. First of all, the laws of Guyana governing the operations of the banking institutions stipulate that, in the interest of confidentiality, financial institutions cannot provide any such information, unless it is by way of a legal process involving a court of law. So this means that SOCU did not adhere to the correct procedure in the first instance.
Then the banking institution erred grossly by not handling the matter in a strict professional way. Meaning, they should have never informed SOCU that documents were destroyed per se; knowing the risks involved and how SOCU handles matters, that is a huge risk wherein it could be easily misconstrued; and that in fact did happen, consequently severely damaging that institution’s reputation and image – which is highly embarrassing, as the whole world witnessed this fiasco.
The bank should have instead informed SOCU that the logistics involved in obtaining the requested information is difficult to gather within the time frame requested. By and large, it is not an easy task to go into the archives of the bank to gather documents from seven years ago. Clearly, the officials of SOCU do not understand and appreciate banking operations and their logistics.
The other point to note is: instead of the bank using the word ‘destroyed’, which obviously would have created chaos and expose the bank to severe reputational risk – again, which did in fact occur — the bank should have written to SOCU in very careful language; for example – “in keeping with the Anti-Money Laundering legislation and other regulatory requirements, the bank keeps certain records and/or documents for up to a certain number of years”, noting that this period may have elapsed, unfortunately. There are some documents, however, that are required to be kept permanently.
So it was not a case in which the bank was unwilling to comply; the bank did comply by producing some 9,000 pieces of documents. Therefore it is grossly incorrect, unprofessional, and unethical of SOCU to mislead the public and thus cause unembellished reputational damage to that institution.
Further, the bank should have engaged the Guyana Bankers’ Association (GAB) to take a policy position on the matter, and ultimately ensure damage control or to contain those risks which are harmful and systemic to the industry by virtue of SOCU’s unprofessional handling of the matter in its entirety. In other words, they (SOCU) created a storm in a tea cup — which was bad.
The biggest consequence and risk to the banking industry is such that it could adversely affect international relationships with the industry, and that institution in particular – its network of correspondent banking relationships. Not too long ago, we have witnessed a situation where the local banks were affected negatively by a number of international banks severing their relationships with them simply because, in their view, countries like Guyana were considered high-risk jurisdictions for several perceived risks in relation to money laundering and the compliance nature of the banks in this respect.
It must be noted also that SOCU’s action can no doubt exacerbate such risks. Such an outcome would be harmful to the financial sector. It could cripple the industry, in addition to having other negative consequences for international trade and, by extension, the economy at large.
And last but not least, SOCU should have engaged the Financial Intelligence Unit (FIU) and work with that body on the said matter, because the FIU is in fact the designated body set up under the Anti-Money Laundering Laws of Guyana as an agency responsible for requesting, receiving, analyzing, and disseminating suspicious transactions’ reports and other information relating to money laundering, terrorist financing, or proceeds of crime.
All the banks report to that agency, so would it not have been appropriate and wise to collaborate with the FIU on this matter? And would it not have made the work of SOCU easier, apart from containing and protecting the reputation and fundamentals of the financial institutions?
It is sad that this was not thoroughly thought out by all the parties involved.
*The author is the holder of a MSc. Degree in Business Management, with concentration in Global Finance, Financial Markets, Institutions & Banking from a UK University of international standing
