May 22, 2024 • 26 mins
Welcome to episode 13 of Sending Money, EFTs and the Development of Compliance, Part 1 where I will discuss how compliance was developed in the Money Transfer Industry, how it changed client relationships, and how compliance in the payments industry as a whole came about.
Risk management, a term used only after 9-11, implied facing the fact that money laundering had become an increasing problem. It was disconcerting for most team members in paying countries and employees of MTOs to learn to distrust some clients, hear their stories skeptically, and gauge their intentions. On the payment side of remittances, "Know Your Client" (KYC) was already part of remittance management from the beginning, not for compliance reasons, but to clearly identify the remittance beneficiary and ensure correct payment. Over time, the regulatory landscape evolved, requiring more comprehensive compliance measures. In this episode, we also delve into the early years of compliance challenges, including anecdotes from Hugo's experiences that illustrate the gradual process of developing robust compliance systems in the face of evolving market pressures and regulatory demands.
Join us in episode 14 as we continue exploring the development of compliance in cross-border payments and share more insights and anecdotes.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
Music.
(00:06):
Welcome to Crosstalks, Conversations that Drive Innovation.
In this podcast, we featured well-known payments expert Hugo Cuevas-Mohr
This series is based on his 2023 book, Sending Money, Forex,
Remittances, Immigration, and the Fintech Revolution.
Crosstalks is published by Crosstech, a conference and consultancy service company
(00:26):
based in Miami, Florida.
Thank you for listening. Hi, welcome to episode 13 of Sending Money,
titled EFTs and the Development of Compliance.
In episodes 11 and 12, I discussed the work in building the trust of remittance
(00:48):
senders and beneficiaries when EFTs were implemented and the road to financial inclusion began.
In this episode and the next, we will see how compliance was developed and how
it changed our client relationships and how compliance in the payments industry as a whole came about.
(01:10):
Risk management, a term used only after 9-11, implied facing the fact that money
laundering had become an increasing problem we had to deal with in more ways
than providing the best service we could for our clients.
It was disconcerting for most of our team members in the paying countries,
(01:30):
and by extension, a large number of employees of MTOs, money transfers operators everywhere,
to learn to distrust some of our clients, hear their stories skeptically,
and wage their intentions.
Now, your client, KYC, a fundamental stepping stone in any compliance program,
(01:54):
was inserted in the management of remittances.
Now, on the payment side, KYC was already part of the remittance management
since the beginning, and not for compliance reasons,
but to clearly identify the remittance beneficiary and ensure the payment was
made correctly to the person it was intended for.
(02:18):
We had to fully identify the individual and avoid mistakes or complaints in
the case of an error which was time-consuming and costly.
There was no additional components in the sense of compliance in the first few
years of providing the service.
In contrast to countries where remittances originated.
(02:42):
The need to identify the beneficiary made remittance payments the most secure
part of the transaction.
But identifying the sender of the remittance in the originated country has taken decades to achieve.
In a seminar in New York in 1990,
invited to attend by an NTO and in the presence of regulators and law enforcement
(03:06):
agents, I mentioned that in cross-border payments,
proper compliance could only be achieved by a collaboration between all the
links in the payment chain, and that the payment side of remittances was the
most secure and compliant side of the transaction.
When the seminar was over, the CEO of the US MTO that had invited me told me
(03:33):
to come to his office and, very displeased,
explained that he would not let me denigrate the know-your-customer work that they were doing,
especially in front of US authorities.
It was not my intention, of course, but my explanations to him were worthless.
I apologized respectfully in the interest of good business relations,
(03:56):
even though what I said was true.
In many countries, in the early years, identifying the customer had several
stages, starting with a call to notify the customer that a remittance had arrived.
In almost every country, the beneficiary was called to inform him or her that
(04:19):
a remittance had arrived.
Thus, we designed rules to ensure that our telephone information staff will
talk only with the beneficiary and simply inform them that we were calling from,
in our case, Universal de Cambios at the beginning meaning after 1992,
Titan, to tell them that they had received a remittance.
(04:43):
If the beneficiary was unavailable, the operator had to note who took the message
and the family relationship.
The sister, the brother, the mother, etc. When the beneficiary arrived at the
office to claim the remittance, the cashier asked for their ID to check their name and surname.
(05:07):
The next question was, how much money are you expecting?
And then, who is sending it to you? If, for some reasons, the answers were not
straightforward, the cashier was instructed to ask, where are you receiving this remittance from?
So, the cashier had to use their own trained judgment to ensure payment to the
(05:32):
correct person was being made.
Now, if the situation got complicated, the cashier supervisor would step in.
Now, all the beneficiaries had to sign receipts and these receipts were archived.
As customers began to trust the system, EFTs, the sister flowed faster and more efficiently.
(05:56):
Now the close relationship between the cashier and the beneficiary and the frequent
visits every two weeks or every month generated trust and knowledge that strengthened
the quality of the service provided.
When affordable photocopying machines became available, we began attaching copies
(06:18):
of the customer's ID to the signed receipts.
When the distrust of regulators and law enforcement agents was at its highest,
vast amounts of archived signed receipts in boxes were sent to MTOs originating
the remittances as new compliant rules needed physical proof of the signed receipts.
(06:43):
Now, sending this documentation overseas was extremely expensive.
When received, MTOs in the US or Europe will store the unopened boxes in rented storage areas.
Now, copies were sent by fax afterwards until scanning became a norm.
It took several years for regulators in the US and Europe to stop requesting
(07:06):
this physical proofs and allow the payment company to keep the receipts outside
the country and provide copies if necessary.
The regulators' distrust of NBFIs and MSBs was indeed challenging and overwhelming.
In the early years, in the event of an error in the payment information of a
(07:28):
remittance, requesting a correction from the correspondent was practically impossible. possible.
The fax had to be manually generated, which was rewritten by the correspondent
and sent to the agent, who then called the sender with little chance of locating them.
(07:50):
Migrants, when sending the order, might have provided a phone difficult to find.
Remember that no one had cell phones, so communication with sending migrants was very difficult.
Also, fearing deportation, they usually made the information up,
and not because they were involved in criminal activities, as I explained law
(08:11):
enforcement agents hundreds of times.
Only occasionally were these problems solved by telephone, making the recipient
call the sender, as international calling costs were also unaffordable.
However, we kept encouraging beneficiaries to contact senders and provide them
with the necessary instructions to avoid problems with future payments.
(08:36):
We did as much as possible to work the issues on the paying end.
When we got our first voice over IP or internet call service in place,
we even gave the beneficiaries a three-minute call to contact the sender,
informing them that the remittance had been paid or not paid,
(08:57):
and also providing providing instructions if needed, so problems wouldn't happen again.
In turn, also, we began collecting the information of the senders to add them to our database.
Thanks to the efforts of the first MTOs, just as those I described,
remittance companies achieved a very special connection with their beneficiaries
(09:17):
and the senders, reaching high levels of loyalty and KYC information.
Money Laundering Alert,
Around 1990, I visited Miami on my first ever business visit to MTOs in the United States.
I was lucky to learn that a seminar on money laundering was promoted by Money
(09:42):
Laundering Alert, a publication I knew.
When I arrived, I realized that I should have worn a suit and tie when I entered
the seminar room at the Datron Center in Dateland, South Miami.
There were about 20 people in the seminar, executives, women and men,
and mostly all of them bank employees.
(10:04):
I was undoubtedly one of the youngest. When the seminar instructor,
Charles Intriago, came in, I was positively surprised to see this Spanish-looking
guy, Latino, with excellent English.
He was short, dynamic, impeccably dressed, and wearing a tie that displayed a subtle Miami vibe.
(10:28):
He introduced himself and talked about his life. He was a lawyer born in Ecuador
and founded Money Laundering Alert.
Charles made the participants feel comfortable and welcome with humorous comments
that made the audience laugh.
Everyone introduced themselves and told their names, positions,
the type of company or institution they worked for, and why they were there.
(10:53):
When I said that I was from Universal de Cambios in Cali, Colombia,
working in a casa de cambio doing foreign exchange and paying remittances,
Charles immediately approached me laughing.
He said sarcastically in a loud voice, Oh, my God, what are you doing here?
(11:14):
Do you really work in an exchange house in Colombia?
Did they let you enter the U.S.? Are you sure that they will let you out?
I really don't remember what I answered, but everybody was laughing.
And so did I, mostly from being nervous and surprised.
Because I was naive and did not fully understand Charles' comments,
(11:37):
nor the smiles, both mischievous and ironic, of the other participants in the seminar.
I was unaware of past iterations between Colombian Casas de Cambio and the U.S.
Authorities, including one of those that was very close to home that I probably
should have been made aware of.
I'll tell you more about that in a later episode of this podcast.
(12:01):
Charles was kind to me from the beginning. He always made people feel at ease in seminars.
He was all-spoken and a fierce critic of hypocritical regulations,
regulations always offering ideas
and solutions that he felt should be implemented at each step of the way.
At the seminar he asked me about remittances and how the service was performed
(12:24):
and I remember replying very openly to his questions in that seminar.
Later on a visit to his office in Brickell, Charles continued asking me questions.
He listened to me and advised me on how to avoid the dangers we were facing.
He felt that the payment of remittances at the time in Colombia,
(12:47):
Mexico, and other countries was a lost cause as U.S.
Authorities believed that the overwhelming majority of the money being sent was drug-related.
And he told me that law enforcement agents were determined to prove this and
confiscate as much funds as they could. in the process.
(13:10):
Looking back, I acknowledge my great appreciation to Charles Intriago's work
in getting us as an industry to understand the growing problem of money laundering
and the regulatory and compliance change that was brewing.
He also warned me about the disconnection between law enforcement agents and
(13:30):
regulators, but I didn't know enough about the U.S.
Then to understand what he truly meant. Without any legal background,
regulations and compliance rules were never subjects I had spent too much time learning.
But I did understand the importance of the issues that Charles was raising.
(13:51):
The fight against money laundering made sense to me.
But I didn't grasp that we, the MBFIs, MSBs, MTOs, were participating in a war
where we were seen as enemies.
I thought at first that we were all fighting against money laundering together
as financial institutions and as a society.
(14:14):
And I'm not exaggerating.
It was not easy for me to understand why in this war we were also the enemy,
part of the bad guys, as it became evident later on.
It took many years for MBFIs, MSBs, fintechs, crypto exchanges to realize that
we had to build our own army as independent sectors to gain respect in the face
(14:39):
of an ecosystem that distrusted us.
Only in the second decade of this millennium, I feel that we are finally becoming
accepted as allies, thanks to the global recognition of the importance of remittances,
the importance of fintech innovation.
The greater understanding of migration by public entities, and the regulatory
(15:02):
changes and policies that ensued.
Still, any change in a financial system will always be regarded as dangerous.
Regulatory changes by innovators in the financial sector are contentious, to say the least.
Next, Money Laundering Alert, Charles Intriago's newsletter about preventing
(15:22):
money laundering, was launched in 1989 when the U.S.
Was enforcing the Bank Secrecy Act of 1970,
and they were reforming it, expanding civil and criminal penalties and requiring
more institutions and companies to report certain transactions,
(15:42):
including suspicious transactions.
Know your customer rules became a growing requirement with few tools to implement
it, especially vis-a-vis of undocumented migrants.
Money Laundering Alert was an eight-page monthly newsletter with tips,
statistics, and reports on what criminals were doing to hide the source of the
(16:04):
money laundered, the companies and individuals that were accused,
the nature of the crimes, and what the government was doing to uncover the launderer's strategies.
Numerous tips were given to be taken into account in internal procedures.
In this newsletter, I began to understand sting operations, SOPs,
(16:27):
and how tricky they could be.
Charles Intriago's anti-money laundering ventures included moneylaundering.com,
lavadodedinero.com, and the first conferences about compliance.
I attended some of the early events in Miami and a couple in Latin America,
(16:48):
I think Mexico and Buenos Aires, where I went with TITAN's compliance officer Beatriz Navia.
As I developed the IMTC conferences in 2010, now cross-tech conferences,
I remembered what I learned from him.
Panel moderation, engaging all participants, walking around the audience,
(17:10):
and relating to them every step of the way.
Most of the participants to his events coming from the non-banking sector realized
that although we were listening to interesting topics in all those events,
Hence, almost all sessions and discussions were directed really to banks and
money movements that had nothing to do with the realities we face daily in the payments world.
(17:34):
However, it was essential to be there, especially to show banks and regulators
that we were taking the compliance issue seriously.
I mentioned to Charles a couple of times during those years why he didn't make payments more central.
But for him, the sector was tiny in the large context of things and very stigmatized,
(17:55):
especially remittances, and they didn't have the needed glamour.
Our sector's big cases or fines were usually linked to Western Union or MoneyGram,
which managed to survive the penalties and other actions.
Any other non-bank financial entity with any prosecution, fines,
etc. mostly disappeared.
(18:17):
In 2001, Charles Intriago created
the Association of Certified Anti-Money Laundering Specialists, ACAMS,
the world's first certification board for individuals with compliance functions within institutions.
Compliance officers from the industry took the ACAMS exams, but always complained
(18:38):
that they aimed more at banks, that they're more transactional companies from the non-bank world.
This is why the NMTA in 2006, with David Lansman as its director,
and later at IMTC in 2010,
compliance seminars were developed, and they were more specific to the compliance
(19:01):
function in the remittance, foreign exchange sector, cross-border payments, etc.
With the support of the experts that ACOMS developed and trained.
After my first compliance seminar in 1990 that I mentioned before,
I traveled to New York to visit MTOs and very few knew at the time of money laundering alert.
(19:25):
Upon returning to Colombia, I explained to my team what I had learned in the seminar,
especially the concept of smurfing and structuring in terms of the clientele
we were serving and the small remittance payments we were dealing with.
The intuition of some of our team members began to detect unusual transactions,
(19:47):
and we initiated our path into risk management. Now, the word smurfing comes
from the Belgian comic strip, The Smurfs.
Probably you know, they are those small, blue, humanoid creatures that live
in mushroom-shaped houses in the forest.
These smurfs' colonies work collaboratively and in tandem.
(20:09):
And smurfing is used in many contexts, where small things are done and several
minor actions are taken until the magnitude is substantial.
Regarding money laundering, smurfing refers to many people, smurfs,
making transactions using their names but disguising the fact that the funds
belong to another person or group.
(20:31):
Smurfs in Spanish are pitufos, and smurfing is also used as pitufiar, the Spanish word.
Now, structuring means making transactions in smaller amounts to pass under
thresholds established by regulation or by the institution policies so those
transactions are not detected and reported if that's the case.
(20:56):
Many books and documents have been written about smurfing and structuring,
but in payments, especially small remittances, small transactions,
detection is challenging.
Every NBFI in the remittance and foreign exchange business has developed ways
to detect those plots and subterfuges that criminals have used locally and as
(21:19):
part of international networks.
Although it is easy to assume that MTOs and NBFIs were naive at the beginning,
I disagree with the view that the first companies that developed international
money transfer looked the other way or took too long to react to control the
(21:40):
problems that a service for migrants and transient individuals,
mostly involving small amounts of money, faces.
Compliance challenges. I want to relate a few anecdotes of our compliance issues early on.
One ordinary workday, a cashier in one of our branches called her supervisor
(22:03):
to find out what to do with a customer waiting at the counter.
A tall man with a big protruding belly was waiting impatiently.
He held about 30 cedulas, national IDs, in his hand to claim the remittances
corresponding to the names on the IDs.
(22:24):
And each ID matched a beneficiary who, according to him, was on a bus parked
on the street near the office.
He explained to the cashier that he preferred not to send everyone up,
one by one, to claim their payment, and that it was best for us to give the
money to him instead. debt.
He would give us the information on each recipient as needed.
(22:46):
He had a list on a fax print out that he provided to the cashier.
When the cashier told him that we could not do that, that we needed to see each
beneficiary individually and get that beneficiary to sign the receipt,
he reluctantly accepted but asked to prepare the envelopes with the money to
(23:06):
be paid inserted in each one of those envelopes so when they came up to claim
them, the process would be simple and quick.
And as they were his employees, he explained, they would accept the sealed envelopes
and avoid counting the bills. No need for that, he added.
The worried teller left the men waiting with the fax list in her hand and gave
(23:32):
it to the cashier coordinator.
The coordinator blocked all the sender and receiver names in our system and
instructed the correspondent overseas who has sent the orders that the orders had been canceled.
Now, the issue here was to find ways to deal with these situations.
(23:52):
How could the cashier tell this man that the company will not make those payments to him and why?
At that time, it was easier to say that we did not have the remittances in our
systems and they probably were at another company.
So the person would leave without any arguments.
It was impossible at that time and a risk to explain to men like these the reasons
(24:16):
for blocking the orders when there were no clear regulations in the industry
or in the country to deal with these situations and a form of giving customers
a lesson on what could be done or not.
Nowadays, you can easily tell a client, our compliance department has canceled
the order or annulled the order.
And even if you have complaints and rude behavior, that would be the extent of that situation.
(24:41):
But it was not like that in the 1990s. The external pressures that involved
smurfing and structuring prompted us to develop processes to prevent remittances
from being received by people whose motives for getting them needed to be clarified.
Verified besides we needed to find ways to
get more information from the clients to ensure
(25:04):
we were not taken advantage of this process happened gradually as we became
aware of the money laundering situation that Colombia was going through as conference
and seminars were organized we related our experiences with MTOs in other Latin
American countries and we also work with the U.S.
And European MTOs to learn from anecdotes like that and develop solutions as an industry.
(25:32):
We will continue in episode 14 with the development of compliance in cross-border
payments and I will relate to you some of these anecdotes.
See you later. Thank you for listening to this episode of Crosstox.
Conversations that drive innovation. The book Sending Money is available on
Amazon. For comments, questions, and feedback, use our social media channels,
(25:55):
LinkedIn, Facebook, and YouTube. See you soon.
Music.
Music.
(00:06):
Welcome to Crosstalks, Conversations that Drive Innovation.
In this podcast, we featured well-known payments expert Hugo Cuevas-Mohr
This series is based on his 2023 book, Sending Money, Forex,
Remittances, Immigration, and the Fintech Revolution.
Crosstalks is published by Crosstech, a conference and consultancy service company
(00:26):
based in Miami, Florida.
Thank you for listening. Hi, welcome to episode 13 of Sending Money,
titled EFTs and the Development of Compliance.
In episodes 11 and 12, I discussed the work in building the trust of remittance
(00:48):
senders and beneficiaries when EFTs were implemented and the road to financial inclusion began.
In this episode and the next, we will see how compliance was developed and how
it changed our client relationships and how compliance in the payments industry as a whole came about.
(01:10):
Risk management, a term used only after 9-11, implied facing the fact that money
laundering had become an increasing problem we had to deal with in more ways
than providing the best service we could for our clients.
It was disconcerting for most of our team members in the paying countries,
(01:30):
and by extension, a large number of employees of MTOs, money transfers operators everywhere,
to learn to distrust some of our clients, hear their stories skeptically,
and wage their intentions.
Now, your client, KYC, a fundamental stepping stone in any compliance program,
(01:54):
was inserted in the management of remittances.
Now, on the payment side, KYC was already part of the remittance management
since the beginning, and not for compliance reasons,
but to clearly identify the remittance beneficiary and ensure the payment was
made correctly to the person it was intended for.
(02:18):
We had to fully identify the individual and avoid mistakes or complaints in
the case of an error which was time-consuming and costly.
There was no additional components in the sense of compliance in the first few
years of providing the service.
In contrast to countries where remittances originated.
(02:42):
The need to identify the beneficiary made remittance payments the most secure
part of the transaction.
But identifying the sender of the remittance in the originated country has taken decades to achieve.
In a seminar in New York in 1990,
invited to attend by an NTO and in the presence of regulators and law enforcement
(03:06):
agents, I mentioned that in cross-border payments,
proper compliance could only be achieved by a collaboration between all the
links in the payment chain, and that the payment side of remittances was the
most secure and compliant side of the transaction.
When the seminar was over, the CEO of the US MTO that had invited me told me
(03:33):
to come to his office and, very displeased,
explained that he would not let me denigrate the know-your-customer work that they were doing,
especially in front of US authorities.
It was not my intention, of course, but my explanations to him were worthless.
I apologized respectfully in the interest of good business relations,
(03:56):
even though what I said was true.
In many countries, in the early years, identifying the customer had several
stages, starting with a call to notify the customer that a remittance had arrived.
In almost every country, the beneficiary was called to inform him or her that
(04:19):
a remittance had arrived.
Thus, we designed rules to ensure that our telephone information staff will
talk only with the beneficiary and simply inform them that we were calling from,
in our case, Universal de Cambios at the beginning meaning after 1992,
Titan, to tell them that they had received a remittance.
(04:43):
If the beneficiary was unavailable, the operator had to note who took the message
and the family relationship.
The sister, the brother, the mother, etc. When the beneficiary arrived at the
office to claim the remittance, the cashier asked for their ID to check their name and surname.
(05:07):
The next question was, how much money are you expecting?
And then, who is sending it to you? If, for some reasons, the answers were not
straightforward, the cashier was instructed to ask, where are you receiving this remittance from?
So, the cashier had to use their own trained judgment to ensure payment to the
(05:32):
correct person was being made.
Now, if the situation got complicated, the cashier supervisor would step in.
Now, all the beneficiaries had to sign receipts and these receipts were archived.
As customers began to trust the system, EFTs, the sister flowed faster and more efficiently.
(05:56):
Now the close relationship between the cashier and the beneficiary and the frequent
visits every two weeks or every month generated trust and knowledge that strengthened
the quality of the service provided.
When affordable photocopying machines became available, we began attaching copies
(06:18):
of the customer's ID to the signed receipts.
When the distrust of regulators and law enforcement agents was at its highest,
vast amounts of archived signed receipts in boxes were sent to MTOs originating
the remittances as new compliant rules needed physical proof of the signed receipts.
(06:43):
Now, sending this documentation overseas was extremely expensive.
When received, MTOs in the US or Europe will store the unopened boxes in rented storage areas.
Now, copies were sent by fax afterwards until scanning became a norm.
It took several years for regulators in the US and Europe to stop requesting
(07:06):
this physical proofs and allow the payment company to keep the receipts outside
the country and provide copies if necessary.
The regulators' distrust of NBFIs and MSBs was indeed challenging and overwhelming.
In the early years, in the event of an error in the payment information of a
(07:28):
remittance, requesting a correction from the correspondent was practically impossible. possible.
The fax had to be manually generated, which was rewritten by the correspondent
and sent to the agent, who then called the sender with little chance of locating them.
(07:50):
Migrants, when sending the order, might have provided a phone difficult to find.
Remember that no one had cell phones, so communication with sending migrants was very difficult.
Also, fearing deportation, they usually made the information up,
and not because they were involved in criminal activities, as I explained law
(08:11):
enforcement agents hundreds of times.
Only occasionally were these problems solved by telephone, making the recipient
call the sender, as international calling costs were also unaffordable.
However, we kept encouraging beneficiaries to contact senders and provide them
with the necessary instructions to avoid problems with future payments.
(08:36):
We did as much as possible to work the issues on the paying end.
When we got our first voice over IP or internet call service in place,
we even gave the beneficiaries a three-minute call to contact the sender,
informing them that the remittance had been paid or not paid,
(08:57):
and also providing providing instructions if needed, so problems wouldn't happen again.
In turn, also, we began collecting the information of the senders to add them to our database.
Thanks to the efforts of the first MTOs, just as those I described,
remittance companies achieved a very special connection with their beneficiaries
(09:17):
and the senders, reaching high levels of loyalty and KYC information.
Money Laundering Alert,
Around 1990, I visited Miami on my first ever business visit to MTOs in the United States.
I was lucky to learn that a seminar on money laundering was promoted by Money
(09:42):
Laundering Alert, a publication I knew.
When I arrived, I realized that I should have worn a suit and tie when I entered
the seminar room at the Datron Center in Dateland, South Miami.
There were about 20 people in the seminar, executives, women and men,
and mostly all of them bank employees.
(10:04):
I was undoubtedly one of the youngest. When the seminar instructor,
Charles Intriago, came in, I was positively surprised to see this Spanish-looking
guy, Latino, with excellent English.
He was short, dynamic, impeccably dressed, and wearing a tie that displayed a subtle Miami vibe.
(10:28):
He introduced himself and talked about his life. He was a lawyer born in Ecuador
and founded Money Laundering Alert.
Charles made the participants feel comfortable and welcome with humorous comments
that made the audience laugh.
Everyone introduced themselves and told their names, positions,
the type of company or institution they worked for, and why they were there.
(10:53):
When I said that I was from Universal de Cambios in Cali, Colombia,
working in a casa de cambio doing foreign exchange and paying remittances,
Charles immediately approached me laughing.
He said sarcastically in a loud voice, Oh, my God, what are you doing here?
(11:14):
Do you really work in an exchange house in Colombia?
Did they let you enter the U.S.? Are you sure that they will let you out?
I really don't remember what I answered, but everybody was laughing.
And so did I, mostly from being nervous and surprised.
Because I was naive and did not fully understand Charles' comments,
(11:37):
nor the smiles, both mischievous and ironic, of the other participants in the seminar.
I was unaware of past iterations between Colombian Casas de Cambio and the U.S.
Authorities, including one of those that was very close to home that I probably
should have been made aware of.
I'll tell you more about that in a later episode of this podcast.
(12:01):
Charles was kind to me from the beginning. He always made people feel at ease in seminars.
He was all-spoken and a fierce critic of hypocritical regulations,
regulations always offering ideas
and solutions that he felt should be implemented at each step of the way.
At the seminar he asked me about remittances and how the service was performed
(12:24):
and I remember replying very openly to his questions in that seminar.
Later on a visit to his office in Brickell, Charles continued asking me questions.
He listened to me and advised me on how to avoid the dangers we were facing.
He felt that the payment of remittances at the time in Colombia,
(12:47):
Mexico, and other countries was a lost cause as U.S.
Authorities believed that the overwhelming majority of the money being sent was drug-related.
And he told me that law enforcement agents were determined to prove this and
confiscate as much funds as they could. in the process.
(13:10):
Looking back, I acknowledge my great appreciation to Charles Intriago's work
in getting us as an industry to understand the growing problem of money laundering
and the regulatory and compliance change that was brewing.
He also warned me about the disconnection between law enforcement agents and
(13:30):
regulators, but I didn't know enough about the U.S.
Then to understand what he truly meant. Without any legal background,
regulations and compliance rules were never subjects I had spent too much time learning.
But I did understand the importance of the issues that Charles was raising.
(13:51):
The fight against money laundering made sense to me.
But I didn't grasp that we, the MBFIs, MSBs, MTOs, were participating in a war
where we were seen as enemies.
I thought at first that we were all fighting against money laundering together
as financial institutions and as a society.
(14:14):
And I'm not exaggerating.
It was not easy for me to understand why in this war we were also the enemy,
part of the bad guys, as it became evident later on.
It took many years for MBFIs, MSBs, fintechs, crypto exchanges to realize that
we had to build our own army as independent sectors to gain respect in the face
(14:39):
of an ecosystem that distrusted us.
Only in the second decade of this millennium, I feel that we are finally becoming
accepted as allies, thanks to the global recognition of the importance of remittances,
the importance of fintech innovation.
The greater understanding of migration by public entities, and the regulatory
(15:02):
changes and policies that ensued.
Still, any change in a financial system will always be regarded as dangerous.
Regulatory changes by innovators in the financial sector are contentious, to say the least.
Next, Money Laundering Alert, Charles Intriago's newsletter about preventing
(15:22):
money laundering, was launched in 1989 when the U.S.
Was enforcing the Bank Secrecy Act of 1970,
and they were reforming it, expanding civil and criminal penalties and requiring
more institutions and companies to report certain transactions,
(15:42):
including suspicious transactions.
Know your customer rules became a growing requirement with few tools to implement
it, especially vis-a-vis of undocumented migrants.
Money Laundering Alert was an eight-page monthly newsletter with tips,
statistics, and reports on what criminals were doing to hide the source of the
(16:04):
money laundered, the companies and individuals that were accused,
the nature of the crimes, and what the government was doing to uncover the launderer's strategies.
Numerous tips were given to be taken into account in internal procedures.
In this newsletter, I began to understand sting operations, SOPs,
(16:27):
and how tricky they could be.
Charles Intriago's anti-money laundering ventures included moneylaundering.com,
lavadodedinero.com, and the first conferences about compliance.
I attended some of the early events in Miami and a couple in Latin America,
(16:48):
I think Mexico and Buenos Aires, where I went with TITAN's compliance officer Beatriz Navia.
As I developed the IMTC conferences in 2010, now cross-tech conferences,
I remembered what I learned from him.
Panel moderation, engaging all participants, walking around the audience,
(17:10):
and relating to them every step of the way.
Most of the participants to his events coming from the non-banking sector realized
that although we were listening to interesting topics in all those events,
Hence, almost all sessions and discussions were directed really to banks and
money movements that had nothing to do with the realities we face daily in the payments world.
(17:34):
However, it was essential to be there, especially to show banks and regulators
that we were taking the compliance issue seriously.
I mentioned to Charles a couple of times during those years why he didn't make payments more central.
But for him, the sector was tiny in the large context of things and very stigmatized,
(17:55):
especially remittances, and they didn't have the needed glamour.
Our sector's big cases or fines were usually linked to Western Union or MoneyGram,
which managed to survive the penalties and other actions.
Any other non-bank financial entity with any prosecution, fines,
etc. mostly disappeared.
(18:17):
In 2001, Charles Intriago created
the Association of Certified Anti-Money Laundering Specialists, ACAMS,
the world's first certification board for individuals with compliance functions within institutions.
Compliance officers from the industry took the ACAMS exams, but always complained
(18:38):
that they aimed more at banks, that they're more transactional companies from the non-bank world.
This is why the NMTA in 2006, with David Lansman as its director,
and later at IMTC in 2010,
compliance seminars were developed, and they were more specific to the compliance
(19:01):
function in the remittance, foreign exchange sector, cross-border payments, etc.
With the support of the experts that ACOMS developed and trained.
After my first compliance seminar in 1990 that I mentioned before,
I traveled to New York to visit MTOs and very few knew at the time of money laundering alert.
(19:25):
Upon returning to Colombia, I explained to my team what I had learned in the seminar,
especially the concept of smurfing and structuring in terms of the clientele
we were serving and the small remittance payments we were dealing with.
The intuition of some of our team members began to detect unusual transactions,
(19:47):
and we initiated our path into risk management. Now, the word smurfing comes
from the Belgian comic strip, The Smurfs.
Probably you know, they are those small, blue, humanoid creatures that live
in mushroom-shaped houses in the forest.
These smurfs' colonies work collaboratively and in tandem.
(20:09):
And smurfing is used in many contexts, where small things are done and several
minor actions are taken until the magnitude is substantial.
Regarding money laundering, smurfing refers to many people, smurfs,
making transactions using their names but disguising the fact that the funds
belong to another person or group.
(20:31):
Smurfs in Spanish are pitufos, and smurfing is also used as pitufiar, the Spanish word.
Now, structuring means making transactions in smaller amounts to pass under
thresholds established by regulation or by the institution policies so those
transactions are not detected and reported if that's the case.
(20:56):
Many books and documents have been written about smurfing and structuring,
but in payments, especially small remittances, small transactions,
detection is challenging.
Every NBFI in the remittance and foreign exchange business has developed ways
to detect those plots and subterfuges that criminals have used locally and as
(21:19):
part of international networks.
Although it is easy to assume that MTOs and NBFIs were naive at the beginning,
I disagree with the view that the first companies that developed international
money transfer looked the other way or took too long to react to control the
(21:40):
problems that a service for migrants and transient individuals,
mostly involving small amounts of money, faces.
Compliance challenges. I want to relate a few anecdotes of our compliance issues early on.
One ordinary workday, a cashier in one of our branches called her supervisor
(22:03):
to find out what to do with a customer waiting at the counter.
A tall man with a big protruding belly was waiting impatiently.
He held about 30 cedulas, national IDs, in his hand to claim the remittances
corresponding to the names on the IDs.
(22:24):
And each ID matched a beneficiary who, according to him, was on a bus parked
on the street near the office.
He explained to the cashier that he preferred not to send everyone up,
one by one, to claim their payment, and that it was best for us to give the
money to him instead. debt.
He would give us the information on each recipient as needed.
(22:46):
He had a list on a fax print out that he provided to the cashier.
When the cashier told him that we could not do that, that we needed to see each
beneficiary individually and get that beneficiary to sign the receipt,
he reluctantly accepted but asked to prepare the envelopes with the money to
(23:06):
be paid inserted in each one of those envelopes so when they came up to claim
them, the process would be simple and quick.
And as they were his employees, he explained, they would accept the sealed envelopes
and avoid counting the bills. No need for that, he added.
The worried teller left the men waiting with the fax list in her hand and gave
(23:32):
it to the cashier coordinator.
The coordinator blocked all the sender and receiver names in our system and
instructed the correspondent overseas who has sent the orders that the orders had been canceled.
Now, the issue here was to find ways to deal with these situations.
(23:52):
How could the cashier tell this man that the company will not make those payments to him and why?
At that time, it was easier to say that we did not have the remittances in our
systems and they probably were at another company.
So the person would leave without any arguments.
It was impossible at that time and a risk to explain to men like these the reasons
(24:16):
for blocking the orders when there were no clear regulations in the industry
or in the country to deal with these situations and a form of giving customers
a lesson on what could be done or not.
Nowadays, you can easily tell a client, our compliance department has canceled
the order or annulled the order.
And even if you have complaints and rude behavior, that would be the extent of that situation.
(24:41):
But it was not like that in the 1990s. The external pressures that involved
smurfing and structuring prompted us to develop processes to prevent remittances
from being received by people whose motives for getting them needed to be clarified.
Verified besides we needed to find ways to
get more information from the clients to ensure
(25:04):
we were not taken advantage of this process happened gradually as we became
aware of the money laundering situation that Colombia was going through as conference
and seminars were organized we related our experiences with MTOs in other Latin
American countries and we also work with the U.S.
And European MTOs to learn from anecdotes like that and develop solutions as an industry.
(25:32):
We will continue in episode 14 with the development of compliance in cross-border
payments and I will relate to you some of these anecdotes.
See you later. Thank you for listening to this episode of Crosstox.
Conversations that drive innovation. The book Sending Money is available on
Amazon. For comments, questions, and feedback, use our social media channels,
(25:55):
LinkedIn, Facebook, and YouTube. See you soon.
Music.
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