Building a Modern Risk Management Department Seminar

Building a Modern Risk Management Department Seminar Financial Services Volunteer Corps (FSVC) January 19 – 22, 2009 Tripoli, Libya

Day Two Period 12:25 to 12:45 PM

Reputation Risk Management

“It takes 20 years to build a reputation and five minutes to ruin it.” And more recently “You only learn who has been swimming naked when the tide goes out…” Warren Buffett Investor (and the richest person in the U.S.)

Introduction: A Definition… … the risk to value arising from negative public or employee opinion. Examples: • Negative Press • Diminished Brand Image • Public scrutiny • Ineffectiveness in handling customer dissatisfaction • Government dissatisfaction • Lack of trust

Threat to Market Value Threat to Earnings Source: The Evolution of Risk Management in the Financial Services Industry – 2004 survey of executives from 134 institutions internationally by The Economist Intelligence Unity and PricewaterhouseCoopers.

Reputation Risk is Different When it’s a Matter of National Reputation

Anti-Money Laundering Know Your Customer Know Your Transaction

Legend Neutral & positive flows Negative flows Report Process File Government Holistic Self-Improving Process Know Your Customer Anti Money Laundering (including OFAC) Existing Customers* “Potential” (new) Customers Accept Decline (new) Customer Info File (CIF) (new) Due Diligence (existing) EDD External Data Repositories Know Your Transaction u SAR check OFAC Screening AML Systemic Screening Assessment and Reporting** KYC Data Store Positives Negatives Negatives Suspicious SAR Negative Finding (existing) False Positive Positives Abort Transaction Transaction History File Government *Periodic/Event driven: time period set by bank “rules” or by change in an element in reference databases (push vs. pull). **Assessment and Reporting for SARs and for other purposes need not be in one unit

Elements • Customer Information Profiles • Know Your Customer Screening • Enhanced Due Diligence • Sanctions screening/ monitoring • Anti-Money Laundering Transaction Screening/Monitoring • Suspicious Activity Identification • Reactions • Feedback loop - Screening/ Monitoring Improvements & Improved Target Marketing

Major Risk Sensitive Indicators • Geography • Client Type • Product/ Service Type

Positive (+) Negative (-) False Negative False Positive

Need for Benchmarks There is no generally accepted measure of the EFFECTIVENESS of Know Your Customer/Watch List Management/Anti-Money Laundering programs globally or even in major developed countries.

Transparency International: Corruption Perceptions Index 2008 Index 9.3 Finland Denmark New Zealand Tunisia # 62 Index 4.4 Algeria # 92 Index 3.2 Morocco # 80 Index 3.5 Libya # 126 Index 2.6 Egypt/Niger #115 Index 2.8 Sudan Chad Haiti Iraq Afghanistan Myanmar Somalia Population: 180 Index 1.6 to 1.0

Transparency International’s Recommendations • “The OECD countries must step up enforcement of the OECD Anti-Bribery Convention's prohibition on foreign bribery and commit the necessary resources to monitor one another's enforcement” • “China, India and Russia should voluntarily adopt the provisions of the OECD Anti-Bribery Convention” • “Multilateral development banks must debar companies found guilty of foreign bribery” • “Companies must conduct due diligence when engaging in partnerships or acquisitions, and adopt and enforce strict internal no-bribes policies that include their agents, subsidiaries and branches” • “Developing countries should vigorously prosecute foreign companies found to have bribed on their soil, and must be supported in these prosecutions by the legal and financial cooperation of the host countries”

Building a Modern Risk Management Department Seminar