The public insight into the activities of banks is offered through their senior leadership – board chairmen, executive directors, whereas an important part of the team remains in the shade. As part of its special project, Banks.am will talk to the heads of important, yet behind-the-scenes, divisions of banks, whose daily efforts produce tangible results in the banking sector.

The next article of the special project features Grigor Veziryan, Head of Internal Monitoring Division of AraratBank. In this article, Veziryan delves into the bank's strategies for combating money laundering and terrorism financing. He also provides insights on how sanctions impact the financial landscape, discussing both the challenges they present and the opportunities they create. Additionally, Veziryan explores the prerequisites for transitioning towards a more cashless economy.

“Banking Crime Prevention” Division

The focus of the Internal Monitoring Division is on fighting money laundering and terrorism financing, ensuring compliance with the requirements of international sanctions and non-engagement of the bank in such transactions.

Recently, nearly each country has found itself faced with money laundering and terrorism financing. These processes mainly take place through financial institutions. Here banks play a highly important role. They should be equipped with appropriate divisions that will oversee all transactions and screen customers to verify their possible links with money laundering or terrorism financing processes. Thus, our division can be described as the “crime prevention” division of the bank.

There are clearly defined legal requirements regarding the actions a bank must undertake to prevent such issues. The most crucial among these is customer identification. For any customer entering the bank to conduct a transaction, it’s essential to understand who they are, what kind of transaction they’re performing, and what expectations they have from the bank.

How the bank combats money laundering

In our everyday life, we often hear the term “money laundering”. Many of us use it and don’t even understand its meaning. Simply put, money laundering is a process in which the money generated from the proceeds of crime is legalized. People owning such money and seeking to use it, will look for ways to enter it into the bank under the pretext of executing a transaction. Therefore, it’s vital for the bank to understand the legal origin of funds.

In such cases, the bank should focus on studying the origin and further movement of the funds. It’s necessary to gain insight into the source of generation of the funds, the legal grounds and the purpose of related transactions.

I am pleased to note that Armenia is not listed as a high-risk country in countering money laundering and terrorism financing. Numerous audits conducted by international institutions prove that our country effectively combats money laundering and terrorism financing.

Fusion of economic and legal expertise

It turns out that for more than a third of my life I’ve worked at AraratBank, which, by the way, is my first workplace. I’ve been working here for 12 years, I met my wife and started a family here. Naturally, there happen tense moments at work, but I assume it is the tension that makes our work even more interesting. My work also effects my life outside of working hours. I may sometimes get suspicious (laughs, ed.), when I overhear someone planning a deal, and I almost always look for a possible fraud or risks or something like that.

One of the important aspects of this work is constant self-education. Due to frequent changes in requirements and mechanisms, such as changes related to sanctions, you always need to be well informed and pursue constant self-development, which doesn’t leave you tired or bored with work.

The daily routine of employees of the Internal Monitoring Division differs from that of other employees of the bank. Its peculiarity lies in the fact that we don’t communicate with customers: we are responsible for overseeing and supervising. Another important task of the division is to provide training to the service staff that interact with customers to keep them informed of anti-money laundering and counter-terrorism financing processes and prepare them for the implementation of appropriate actions in the event of suspicious transactions, obtaining relevant information from the customer and reporting it to our division, helping the latter properly perform its work.

Regular communication and liaison with the Central Bank of Armenia (CBA) is an essential part of our functions since the CBA directly communicates with our division on any matter involving money laundering and financing of terrorism.

Sanctions: opportunity or impediment?

I think international sanctions create both opportunities and impediments in the banking system. There’s a fine line between them. Too often, banks see opportunities where, in fact, there are only barriers. You should gain clear understanding of the requirements of sanctions and the related risks. Where there are clear requirements and impediments to transactions, don’t attempt to see an opportunity and take advantage of it, because the impacts may be irreversible for both the financial institution and the Republic of Armenia reputation. As experience has shown, Armenian banks are quite good at combating sanctions evasion, new impediments and challenges.

And recently we have had a most vivid example of a sanction turning into an opportunity. It’s no secret that the sanctions of 2022 most adversely affected the people employed in the IT sector, living in Russia and working for international companies. At that time, a large number of non-resident Russian citizens moved to Armenia with their families. The opportunity here was in acquiring a new market of customers that earned high salaries and were ready to invest in banks by depositing funds or making transactions.

Cash: an obstacle to fighting crime

The law on cashless transactions plays a very important role in the fight against money laundering and terrorism financing since cash is a major obstacle to that fight. The modern world long ago moved to cashless transactions, whereas we were actually lagging behind. Cashless transactions allow to trace where the money comes from and where it goes. In other words, it makes it easier to control risks, thus facilitating the fight against money laundering and terrorism financing. The law on cashless transactions was alien to our country because of the well-known historic failure when many people lost their savings in banks as a result of the collapse of the USSR. The process of returning deposits left from the Soviet period continues to this day. Certainly, this should have produced a major impact on the subconscious mind of the people.

Almost everyone in our country used to make transactions in cash. Whether receiving salary or pension, people preferred to immediately cash out the money and keep it in cash to feel more secure. At the outset of the law on cashless transactions, the law set strict requirements, and I don’t think that our country was prepared to meet them in the initial phase of implementing the law. At the same time, we can’t disregard the fact that alongside the invocation of the law over the two preceding years, we’ve started to see a growing public awareness that cashless transactions, among other things, are a more convenient option for gaining control over costs and performing faster and safer transactions.

Impact of work and advice to readers

Along with the technological progress, frauds are also on the rise, and the challenge now is to raise public awareness in this regard at the national level.

Here is a simple example: many of you must have received e-mails stating that “you have won a large amount of money” or “a distant relative passed away and left money to you”. Those are the most common types of scams. I have personally dealt with a case when a customer intended to make a money transfer, because he received a notification that he had won money. These are clear and simple scams, yet the customer was ready to transfer several hundred dollars on the assumption that he had won a large sum of money.

In this regard, social education by means of ads and informative videos is vital. Similar cases should be described in detail on TV, social media and, most importantly, at the national level. And I’d like to remind our readers that “the only free cheese is in the mousetrap.” 

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Arpi Jilavyan

Photos: Emin Aristakesyan