Tackling Financial Crime throughout the Deal Lifecycle

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Ellen Campbell Financial Crime Senior Manager, PwC Middle East 13 March, 2019

In the Middle East, we are seeing a new wave of consolidation in the banking sector. Many banks are looking for a solution to stay ahead of the competition as well as having the scale and resources to invest in costly but necessary digital transformation.

We have already seen Abu Dhabi’s largest banks come together to create a $175 billion powerhouse, First Abu Dhabi Bank (FAB). Saudi British Bank (SABB) and Alawwal Bank have agreed a merger to create Saudi Arabia’s third biggest lender, marking the first major banking tie-up in KSA in the last two decades. More recently, NCB has announced plans to explore a merger with Riyadh Bank and Abu Dhabi Commercial Bank (ADCB) has agreed a merger with Union National Bank (UNB) and Bank Al Hilal.

The alignment of Anti Money Laundering (AML) / Countering Financing of Terrorism (CFT) policies and processes in a merger situation should not be ignored. The HSBC purchase of Bital Bank in Mexico in 2002 landed them a record fine of $1.9 billion in from US regulators over money laundering for drug cartels. A pre-purchase review disclosed that Bital had no functioning compliance programme1, allowing suspect funds to flow between HSBC Mexico and HSBC’s US entity through their correspondent relationship.

As we see increased merger activity in the Middle East Banking sector, we have set out some of the AML/CFT implications throughout the Deal lifecycle:

Ellen Campbell

Ellen Campbell

Pre-merger: The importance of due diligence

Due diligence tends to focus on the financial health of the target, but as previous cases have shown, the financial crime framework should always be reviewed in advance. An AML/CFT review should form part of the due diligence process and should include, amongst other activities, gauging the tone at the top, an understanding of the adequacy of training and an assessment of the strength of internal controls. In addition, the purchaser should consider the robustness of existing monitoring controls, such as transaction monitoring or sanctions screening systems.

Consideration should also be given to the customer book of the acquired bank. A thorough understanding of the risks posed by the customers, products, geographies and delivery channels will be required to assess the risk profile of the acquired customers. Thought should also be given to whether the risk appetite has changed. Setting the level of risk tolerance will be a task for the potentially newly formed Board.

Post merger: Establishing the revised AML/CFT framework

Finally, a plan and timeline will need to be put in place for integration of the target organization’s AML/CFT framework into that of the purchaser or newly formed entity. This may require development or enhancement of new policies and procedures, governance frameworks, controls and re-training of employees. In some cases, it may also involve remediation of historic issues to avoid facing the same situation as HSBC, or preventing a deal altogether. Establishing a robust AML/CFT framework at the outset will ensure a strong foundation going forward.

Contact us

Mahmoud Al-Salah

Mahmoud Al-Salah

Partner - Financial Crime Leader, PwC Middle East

Tel: +971 4 304 3318

Helen Brewster

Helen Brewster

Financial Crime Director, PwC Middle East

Tel: +971 4 304 3374

Ellen Campbell

Ellen Campbell

Financial Crime Senior Manager, PwC Middle East

Tel: +971 (0) 4 304 3069

Hafedh Ajmi

Hafedh Ajmi

Financial Crime Director, PwC Middle East

Tel: +971 (0)4 304 3260

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