Project Finance Compliance:

Project Finance Compliance Is A New Regulatory Requirement In Project Finance:

Compliance can be superficially defined as applying a set of best practices defined by regulations.

Please Note: Banking Compliance is a very complex regulatory ecosystem that simply cannot be fully explained in a short outline. The following information has a focus on the major conceptual considerations only. Further details and explanations can be provided upon request, and all questions can be answered in follow up discussions.

Why And How?

It has always been the exclusive prerogative of the State to identify and sanction criminal behavior. Criminal Behavior and sanctions are customarily defined by Laws which are voted upon by the Congress and Parliaments around the World. Enforcement is delegated to the Police and the Courts while preserving the Citizen Constitutional rights through detailed procedures and defense Lawyers.

In 1970 the US Congress passed the Bank Secrecy Act (BSA) dealing with money laundering. This Law was made applicable world-wide by the judicial reach of US Courts because no Bank or Global Company can afford to ignore the US Financial, Industrial or Consumer market.

Then over the years a succession of Laws followed (Note: this is not a complete list):

  1. (1970) The Bank Secrecy Act (BSA) dealing with money laundering.
  2. (1977) The Foreign Corrupt Practices Act (FCPA) dealing with corruption.
  3. (1986) The Money Laundering Control Act.
  4. (1994) The Money Laundering Suppression.
  5. (2002) Sarbanes Oxley Act dealing with Corporate standards.
  6. (2004) Intelligence Reform & Terrorism Prevention Act.
  7. (2010) Foreign Account Tax Compliance Act (FATCA).
  8. (2010) Dodd-Frank Act dealing with Bank risk taking.
  9. (2017) General Data Protection Regulation (GDPR – EU).

The US Laws are the Laws with the greater impact but many states / nations have similar if not identical Laws. The Laws’ standards are very vague, which means the adjudication of the Law will vary greatly from forum to forum and over time.

Please Note:

  • It is important to understand that the Banks are not responsible for the existence of the Laws.
  • The elected representatives of each Government are responsible for creating these laws.
  • In turn, the Government Police Force is responsible for identifying the criminals and the Courts are responsible for the sanctions.
  • The Government first focused on sanctioning the Big Companies because their fines were the highest and would be paid.
  • Today the fines for Big Companies and Banks run in the 10 Billion dollars range and go right into the Government Budget.

The logical next step was for the Government to make the Banks responsible and fine the Banks for not acting in place of both the Police and the Courts. If they do not act to stop the criminal acts, then the Banks are considered as accomplices. The customary sanction used by the Banks is to freeze the accounts of their clients.

Without discussing the Constitutional aspects of this exceptional process, it suffices to say that:

The client of the Bank can be penalized (frozen accounts) following a secret quasi-criminal investigation by a private party without the right to be represented by a Lawyer.

The only way for the Clients of the Banks to avoid costly errors by the Banks is for the Client to provide all the data required by the Bank in a structured manner and in real time.

  • GPE Solution: Global Project Engineering provides this real-time structured data service at standards which exceed those which are required by the Banks under the Law.

The Client and the Bank should be on the same side. But this will only happen if both the Client and the Bank share a complete and accurate set of Data.

  • GPE Solution: By working together with the Client and the Bank, Global Project Engineering provides the Bank with an accurate, structured set of Data, which exceeds the legal requirements.

What Kind Of Information Is Required?

The steps described below are mandated by the USA Securities Exchange Commission and the BIS (Bank for International Settlements) Guidelines published in June 2017.

STEP 1: THE BANK MUST DOCUMENT WHO ARE THE PARTIES?

  • This includes not just the Client of the Bank but also the party on the other side of the transaction.

This must be done by official documents – Passports, Commerce Registry, addresses locations, phones, and so on. All of the data must be checked and verified.

  • GPE Solution: Global Project Engineering provides verified and traceable data.
STEP 2: THE BANK MUST DOCUMENT THE ORIGIN OF FUNDS.

  • There is really no time limit on how far the traceability must go.

What is required at this stage is to document the fact that there are no hidden funds and that the Client’s or Payor’s financial capacity comes from bona fide non-criminal sources.

This is only a matter of proper documentation to prove in a traceable manner that all the liquidities used were generated in a logical sequence and a non-criminal manner.

This step is very difficult for the Bank Compliance Officer who is not in direct contact with the Client. The Client himself does not always know or understand what is expected of him and often is very upset about the questions, because we are talking about his hard-earned money.

  • GPE Solution: Global Project Engineering documents in a traceable and open source manner how the liquidities required were accumulated.
STEP 3: THE BANK MUST INVESTIGATE ALL INSTANCES OF BENEFICIAL OWNERSHIP.

  • Beneficial Ownership means that a third party ostensibly acts the owner and principal, however their actions are in fact controlled by the true owner and principal. This first party is not visible to the Bank Compliance Officer, who himself is not in direct contact with the client.

This is by far the most difficult and sensitive aspect, since it requires an extensive and in-depth Police-style investigation. The inference is that the Client is hiding criminal activities which is not necessarily the case.

  • GPE Solution: Global Project Engineering fully documents in a traceable manner all instances of Beneficial Ownership, or the lack thereof, in order to negate any risk of raising suspicion.
INVESTIGATING THE TRANSACTION:

This is one of the more recent requirements of Banking Compliance so the critical issues are not well documented yet.

Investigating the Transaction is a logical step from a legal point of view. Criminal Law seeks to identify and sanction criminal acts.

  • Without a criminal act there is no criminal.
  • In the Banking realm the act is the transaction itself.

This is by far the most difficult investigation, because here:

  • The Bank Compliance Officer must utilize his own judgement to determine if the transaction follows normal and customary business logic.

It is the Bank Compliance Officer, and not the Corporate Board or the Principal, who will make the final determination if the transaction will be funded or if the Bank’s Client’s funds will be frozen. However, often the Bank Compliance Officer has no relevant business experience to determine if the transaction is logical and proper in the business sense.

Yet lack of business logic will raise an immediate suspicion of criminal activity.

All complex projects consist of a string of transactions over time which must all be investigated individually and in real time. This means that the Bank will be second-guessing the client during the duration of the project.

All the transactional data must be correlated with the financial flux data (the trail of money) and evidence of actual delivery in terms of quantity, quality and in real-time. This correlation must be done throughout the duration of the project, for each and all movements of funds.

The only way for the Bank’s Clients to avoid costly errors by the Banks is to provide all the transaction background data required by the Bank themselves in a structured manner and in real time, throughout the duration of the project.

  • GPE Solution: Global Project Engineering provides this real-time structured data service at standards which exceed those which are required by the Banks under the Law.
The Impact Of Data Protection Laws:
For more information please contact Global Project Engineering.


Global Project Engineering
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1207 Geneva – Switzerland
Tel : + 41 22 735 7900
Email: nesterenko@globalprojectengineering.com