how well do you really “know your customers”? two day course module i may 26 th – 27 th, 2011...
TRANSCRIPT
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HOW WELL DO YOU REALLY “KNOW YOUR CUSTOMERS”?
Two Day Course
MODULE I
May 26th – 27th, 2011
Presented by: Caribbean Association of Indigenous Banks & Compliance Aid
© Compliance Aid 2011
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Introduction• The purpose of this training course is to make all participants aware of their responsibility and the role that they play in the Anti-Money Laundering, Know your Customers regulations that govern your respective financial institutions.
• Financial Institution are the front-line gatekeepers who are required to take reasonable actions to identify, detect and manage any risks that illegal financial activity may pose to an institution.
© Compliance Aid 2011
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InstructorMichelle N. Martin, CAMS, ACA
• Ms. Michelle Martin is the President of Compliance Aid and a Partner at Compliance Solutions Consultants with over seventeen years of experience in banking, insurance, regulatory compliance, public and private accounting. She is a Certified Anti-Money Laundering Specialists (CAMS) and founding co-chair of the ACAMS South Florida Chapter.
• Born and raised in Antigua, she attended the Christ the King High School and Antigua State College. Ms. Martin started her financial career in Antigua with Canadian Imperial Bank of Commerce (CIBC). In 1996, Ms. Martin moved to Miami to pursue a higher education. She obtained a Bachelor in Accounting and a Master in Accounting Information Systems at Florida International University (FIU) in 2002.
• Ms. Martin professional experience in the United States (US) began in public accounting as an Auditor with KPMG, LLP for two years then moved on to Ernst & Young LLP. In 2004, she transitioned to the private sector as a Franchise Auditor within the Internal Audit department at Burger King Corporation then moved into the insurance industry by joining Assurant, Inc as an Internal Audit Manager in mid 2005. In 2007, Ms. Martin worked as an Assistant Vice President & AML/BSA Project Manager at Ocean Bank headquarter, and in 2008 worked as a Compliance/OFAC Officer with Banco Do Brasil where she was responsible for implementing a Compliance Program for their New York, Orlando and Miami Offices in addition to coordinating other regulatory efforts for the Bank.
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Course OverviewDay one
During today’s course we will cover:
Role of Financial Institutions (FI’s) in Combating Money Laundering
History of Anti-Money Laundering (AML) Overview of Anti-Money Laundering & Essentials of an effective
AML Program Know your Customer (KYC) Applying a Risk Based Approach to Due Diligence High-Risk Customers and Enhanced Due Diligence (EDD) AML Challenge
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Course OverviewDay two
During tomorrow’s course we will cover:
AML Suspicious Activity AML Red Flags Keys to Writing effective SAR Narrative Questions & Course Wrap-up
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Role of Financial Institutions (FI’s) in Anti - Money Laundering
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Role of Financial Institutions (FI’s) in Anti - Money Laundering
Financial Institutions have the information and the expertise to detect money laundering and terrorist financing.
Law Enforcement agencies rely on Suspicious Activity Reports (SARs) filed by Financial Institutions to aid in terrorist and other criminal investigations.
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Why should you care?
Reputation Risk – Negative Publicity
Individual, Corporate Civil and Criminal liability.
Fines and Imprisonment
Suspension of License
“It take twenty years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently”.
Warren Buffett
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History of Anti-Money Laundering (AML)
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Anti - Money Laundering Legislation
Bank Secrecy Act (1970) Implemented reporting system for large financial transactions (over $10,000) - Created a “paper trail”
Money Laundering Control Act (1986):• Criminalized money laundering and structuring.• Introduce civil and criminal forfeitures for AML violations.
Annunzio -Wylie Anti-Money Laundering Act 1992 Death Penalty for Financial institutions
USA PATRIOT Act - Post September 11th
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THE USA PATRIOT ACT Uniting & Strengthening America by Providing Appropriate Tools
to Restrict, Intercept & Obstruct Terrorism Act
The USA PATRIOT Act was enacted by the Congress after the 9/11 terrorist attack and requires:
• Verification of Customer Identification • Enhanced Due Diligence Program; and• Establishment of AML Programs across the Financial service industry,
which must be in writing and must include at a minimum the following:
- Development of internal policies, procedures, & controls; - The designation of a compliance officer; - An ongoing employee training program; and - An independent audit function to test programs.
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THE USA PATRIOT ACT
Title III - International Money Laundering Abatement & Anti-Terrorist Financing Act of 2001
• Enhanced Due Diligence on Correspondent Banks, Private Banking, Non-Cooperative Countries and Territories (NCCTs), Politically Exposed Persons (PEPs).
• Shell Bank Prohibition.
• Maintenance of Certain Information for Correspondent Banks.
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International Anti-Money Laundering Efforts
Financial Action Task Force
FATFFATA is an intergovernmental organization founded in 1989 on the initiative of the G7. The purpose of the FATF is to develop policies to combat money laundering and terrorist financing.
Issued 40 recommendation to combat money laundering
Issued 9 Special Recommendations (SR) on Terrorist Financing
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Financial Action Task ForceFATF)
The Financial Action Task Force (FATF) can be seen as the international standard-setter in the fight against terrorist financing and money laundering. It was established in 1989, by a Group of Seven (G-7) Summit held in Paris.
The summit recognised the growing threat posed by money laundering to the banking system and financial institutions and set up the FATF to develop and promote national and international policies, globally, to help eliminate this threat.
In 2001, the FATF took over responsibility for the development of standards in the fight against terrorist financing
http://www.anti-moneylaundering.org/FATF.aspx
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Caribbean Financial Action Task Force
The Caribbean Financial Action Task Force (CFATF) was designed to encourage the co-ordination of and the participation in anti-money laundering and terrorist financing training programmes. It is aimed at assessing the degree to which its members have implemented the recommendations of the FATF and CFATF.
http://www.anti-moneylaundering.org/FATF.aspx
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Caribbean AML/CTF Principles
1.PREAMBLE
The Caribbean Association of Indigenous Banks (CAIB) has agreed that these Principles constitute global guidance on the establishment and maintenance of internationally accepted banking standards to prevent money laundering and the financing of terrorism, and the application of these Principles will serve to enhance the integrity of Correspondent Banking relationships.
www.caribbean-principles.com
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Caribbean AML/CTF Principles
4. RISK-BASED DUE DILIGENCE
By this Declaration, CAIB member banks will ensure that they cooperate fully with the risk-based approach and the requirements arising from their Correspondent Banking relationships. Caribbean institutions recognize the necessity to meet all international banking standards as defined by their Correspondent Banks and understand that under a risk-based review they may be subjected to a higher level of due diligence.
www.caribbean-principles.com
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Caribbean AML/CTF Principles5. DUE DILIGENCE STANDARDS
CAIB member banks will operate in accordance with local and international AML/CTF standards and subject their account holders to appropriate due diligence that will seek to assure that the institution is comfortable conducting business with all its clients and be able to assess each client’s risk profile. It is appropriate for a Caribbean institution to consider the fact that a Correspondent Banking relationship will wish to assess that its Caribbean client operates in a regulator y environment that is internationally recognized as adequate in the fight against money laundering.
www.caribbean-principles.com
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Overview of Anti-Money Laundering &
Essentials of an effective AML Program
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ANTI-MONEY LAUNDERING (AML)
Money Laundering is the process criminals use to exchange their dirty money (funds they made through
illegal activity) for clean money (funds that can’t be traced back to the crime or the criminals).
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Stages of Money Laundering?
It usually involves three stages:
Placement is the initial stage of the process, when the money launderer introduces the illegal proceeds into the financial system;
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Stages of Money Laundering?
Layering is the stage that involves converting the proceeds into another form and creating complex financial transactions to disguise the audit trail and the source and ownership of funds. The layering can involve such transactions as wire transfer of deposited cash from one account to another, the conversion of deposited cash into monetary instruments (e.g. travelers checks);
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Stages of Money Laundering?
Integration: This involves placing the laundered proceeds back into the economy to create the perception of legitimacy.
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Money Laundering Stages
How Money Laundering is Done.
Cash is generated by Illicit Activity i.e. drug trafficking
1 - Placement Cash is converted to monetary instruments or deposited into financial institution accounts
2 – Layering Funds are moved to other financial institutions to obscure origins
3 - Integration – Funds are used to acquire legitimate assets or to fund further illicit activities
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How is money laundered?
Structuring
Smurfing
Interbank wire transfers
Misinvoicing
Smuggling
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Your AML Program must:
Be in writing and must include:
• The development of internal policies, procedures, and controls;
• The designation of a compliance officer;
• An ongoing employee training program; and
• An independent audit function to test AML program.
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Internal Controls Risk-focused approach
Board and management oversight
Written policies and procedures
Monitoring and due diligence
Management succession (common mistake not including the AML Officer)
Strong management information system
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AML Officer
Has policy/decision making authority
Has sufficient resources
Qualifications, knowledge, and training
Communication line to Board of Directors
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Training For directors, senior management, and all staff
Conducted at least annually by qualified source
New employees should be trained ASAP
Should include regulatory requirements and policies/procedures
Example of teller selling monetary instrument to non-customer – job specific
Document attendance (track those that have not attended and perform make up training)* important
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Independent Testing
Performed by individuals independent from the compliance function
Auditor should have sufficient knowledge of AML laws and regulations
Risk-based audit program
Transaction testing
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AML Penalties for Non-Compliance
C I V I L :
Any financial institution, Officer, or employee who willfully violates the AML provisions, is liable for fines. For example, the penalty could be imposed if the institutions consistently fail to file reports and/or file incorrect reports.
Failure to comply with the AML Act can have serious consequences for you and your institution.
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CRIMINAL:
Any person who willfully violates the AML Act through illegal activity is liable to fines; imprisonment; or both.
Willful Blindness:
You cannot ignore when you suspect about the legitimacy of the funds. Ignoring RED FLAGS can constitute “Willful Blindness”, and as such may be grounds for prosecution.
AML Penalties for Non-Compliance
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BREAK
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Know your Customer (KYC)
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Know your Customer (KYC) In an effort to prevent money laundering financial
institutions are required to establish Know your customer Program that meet certain requirements.
Before opening an account for any entity (individual or business), you must:
• Record identifying information;• Verify that information is valid by using documentary or
non/documentary methods;• Check all new customers against sanction list.
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KYC GUIDELINES
Identifying the customer and verifying that customer’s identity (Individual / Commercial)
Determine the source of funds and purpose of account
Commercial entities: Identifying the beneficial owner, and taking reasonable measures to verify the identity of the beneficial owner
Conduct on-going review to determine that activity is consistent with profile
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The financial institutions must make a strong effort to accept only those clients whose Source of Wealth and Funds that can be reasonably established to be legitimate.
The primary responsibility for this function lies with the front-line staff who has the contact with the customer and introduces the client for acceptance.
Simply fulfilling the internal procedures or providing basic information, does not relieve the front-line staff his/her responsibilities.
Client Acceptance
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Financial institutions must identify whether the client is acting on his/her own behalf.
Beneficial ownership must be established for all accounts.
Identify and inform your Compliance Department of customers that may pose a higher risk to the bank. (e.g. Politically Exposed Persons “PEP”).
Client Acceptance
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What is a Politically Exposed Persons – PEP’s
A person identified as a senior foreign political figure, any member of their immediate family and any close associate.
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Due diligence is designed to detect and report any known or suspect money laundering or suspicious activity.
It is the financial institution staff responsibility to provide accurate information as well as to maintain the Profile up to date.
Due Diligence
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Customer due diligence is essential when establishing any customer relationship and it is critical for high profile customers. For example, private banking clients.
In order to identify an unusual or suspicious activity, it is essential to Know Your Customer (KYC).
Due Diligence
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Essential information to collect and record:
Customer Background
Purpose of the account
Expected activity
Source of Funds
Source of Wealth
Know Your Customer
KYC
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Relevant information includes:
Employer,
Occupation,
Type/Nature of Business,
Position/Title,
Years in the Area of Business,
Salary
Customer Background
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Others Source of Income,
Referred by,
Nationality,
Achievements,
Products or Services of Interest and
Any other Appropriate Information
Customer Background
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Identify/mention if the customer is related to any other account in the financial institution.
Identify/mention very clearly if the customer is a Politically Exposed Person (PEP).
Remember to assign a HIGH RISK for customers classified as (PEP).
Customer Background
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Purpose of the Account
Is the intention/objective for opening the account including (but not limited to):
Salary account,
Investment account or
Checking account
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Expected Activity
Information about the expected activity in the account is an important and essential tool to monitor the customer’s account activity in order to identify any unusual activity.
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For funds that are coming from US, mention the amount in USD, the exchange rate at the time the profile is being written, and the approximate amount in E.C Dollars.
Expected initial deposit amount must be mentioned.
Source of Funds
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Source of funds include (but are not limited to):Business / Employment (specify)Rental Income (specify) Investments (specify)Foreign Investments (specify)Sale of property (specify)Other (specify)
Source of Funds
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Documentation supporting the customer’s Source of Wealth, serves to prove that the wealth is compatible with the alleged deposits or investments that the customer plans to have with the financial institution.
Source of Wealth
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Cases must be analyzed on a case-by-case basis, though some cases may have some similarities but each case is by nature different and must be treated separately.
“Common sense” is the answer to most of the questions as to whether the document provided supports or not the customer’s wealth.
Source of Wealth
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Although several documents can be presented to support the source of wealth and confirm other information; the income tax is the most comprehensive document and is therefore mostly recommended (note: it is recommended, not mandatory).
Source of Wealth
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Advantages of the Income Tax:
Proof of employment,
Proof of residence,
Overall list of assets,
Occupation,
Tax Identification number,
Possible Sources of Funds,
Earnings.
Source of Wealth
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Know your Customer• Collect minimum information (All Accounts):
NameAddressDate of Birth-if individualIdentification Number
• Verify customer information timelyDocumentaryNon-DocumentaryAdditional Verification
• Maintain appropriate records
• Records Retention (x years after account closed)
• Consult government sanction terrorist lists
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Know your Customer Customer Due Diligence (CDD)
CDD begins with verifying the customer’s identity and assessing the risks associated with that customer;
Obtain information at account opening sufficient to develop an understanding of normal and expected activity for the customer’s occupation or business operations;
Common exceptions include incomplete forms (transaction activity)
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KYC INDIVIDUALS Name
Date of Birth
Street Address
Tax ID Number
Identification type and Identification Form (unexpired government issued photo-identification)
Place of employment & occupation are helpful for knowing new customers.
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KYC Commercial Entities Name of Business
Street Address
Tax ID Number
Must obtain documentation to verify Information Provided by Commercial Customer
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KYC Sole ProprietorshipsA type of business entity that legally has no separate existence from its owner.
Most proprietorships will register a trade name or operate as “Doing Business As”.
Obtain information about the business in the same manner in which you would obtain information from individual.
Also need specific information regarding source of funding, line of business and expected activity.
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KYC PartnershipsPartnership refers to an association of persons or an
unincorporated company with the following major main features:
Formed by two or more persons
The owners are all liable for legal actions and debts the company may face personally
Created by agreement as proof of existence
Obtain information about the partnership in the same manner in which you would obtain information from individuals. Obtain partnership agreement. Identify all partners. Also need specific information regarding source of funding, line of business and expected activity.
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KYC CorporationsA corporation is a legal entity which has a separate legal personality from its members.
The defining legal rights and obligations of the corporation are:
The ability to sue and be sued;
The ability to hold assets in its own name;
The ability to hire agents;
The ability to sign contracts; and
The ability to make by-laws, which govern its internal affairs
Obtain information to verify the existence of company; Governing Documents, Beneficial Owners, Government Issued Identification Number, Identify of Directors/Signors; Source of Funds and Nature of Activity.
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KYC
=
AML COMPLIANCE
KNOW YOUR CUSTOMERS
IDENTIFY SUSPICIOUS ACTIVITY
REPORT TO COMPLIANCE DEPARTMENT
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KYC Tips
Search Public Web-site for Filings
Obtain Financial Statements is available on line
Conduct Media Searches
Obtain Parent Information if company not firmly established
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LUNCH
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Applying a Risk Based Approach to Due Diligence
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Applying a Risk Based Approach to Due Diligence
Two step process Identification Analysis
Products/Services
Customers/Entities
Geographic location
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Monitoring of transactions
Client contacts (meetings, discussions, in-country visits etc.)
Third party information (e.g. newspaper, internet etc…)
Financial institution internal knowledge of the client’s environment (e.g. political situation in his/her country).
Risk Mitigation
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If you are in doubt about a specific transaction/case, contact your immediate supervisor or Compliance Department.
Compliance is not only a responsibility of the Compliance Department, it evolves all the Departments in the Financial institution, and it is a shared responsibility.
Risk Mitigation
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Risk Approach Common problems
Incomplete list of products and services
Failure to update annually or when things change
No explanation for the risk ratings
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High-Risk Customers and Enhanced Due Diligence (EDD)
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High-Risk Customers and Enhanced Due Diligence (EDD)
Policies, procedures, and processes should be developed for EDD
Understand anticipated transactions
Implement monitoring system
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High-Risk Customers and Enhanced Due Diligence (EDD)
File SARs if applicable
Common exceptions include:
• Infrequent/inconsistent monitoring
• Lack of documentation of monitoring
• Not obtaining complete and accurate information at account opening (transaction activity)
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HIGH RISK CATEGORIES
High Risk Products / Services Private Banking, Correspondent Banking, Cash Services.
High Risk Geographies FATF Countries, International Narcotics Control Strategy Report
(INSCR) “Countries of primary concern”, OFAC SDN Countries, Designated by Secretary of State, EU Blacklist.
High Risk Customers Non-Bank Financial Institutions (MSB’s), Non-governmental
obligations, cash-intensive businesses, Politically Exposed Persons, Foreign Correspondent Banks, Private Investment Legal Vehicles (PILVs) such as Int’l business Companies, Private Investment companies –PICs ( Bearer Shares, Power of Attorney), Trusts and Foundations.
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Products & Services to Monitor
Products:
• Non-interest Bearing Checking Account (DDA)
• Time Deposits, Fix Deposits (CDs)
• Loans• Mutual Funds• Securities• Debit/Credit Card
Services:
• Funds Transfers (Wires)• Pouch Services• Negotiable Instruments:
Official Checks• Internet Banking • Investment Banking• Bill Payment
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High-Risk Products/Services
Electronic funds payment services:
Stored value cards,
Wires,
Third-party payment processors,
Automated clearing house transactions,
Automated teller machines
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High-Risk Products/Services Electronic banking
Private banking (domestic and international)
Trust and asset management services
• Monetary instruments
• Foreign correspondent accounts
• Trade finance (letters of credit)
• Loans secured by cash collateral
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Enhanced Due Diligence Information
Purpose of the account
Source of funds and wealth
Beneficial owners of the accounts
Customer’s (or beneficial owner’s) occupation or type of business
Financial statements/banking references
Domicile (where the business is organized)
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Enhanced Due Diligence Information
Proximity of customer’s residence, place of employment, or place of business to the bank
Description of the customer’s primary trade area and whether international transactions are expected to be routine
Description of the business operations, the anticipated volume of currency and total sales, and a list of major customers and suppliers
Explanations for changes in account activity (Implies ongoing monitoring)
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High Risk CorporationsOFFSHORE CORPORATIONS
Incorporated in Offshore / Haven Jurisdictions. Not legally able to operate in the haven, and normally have secrecy provisions to protect identity. Very easy to create corporation in offshore havens, with very little documentation.
BEARER SHARE CORPORATIONS
Bearer shares are corporation stock certificates which are owned simply by the person who holds them, the "Bearer".
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High Risk Corporations
U.S. HAVEN JURISDICTIONS
States such as Delaware, Florida and Nevada are known tax havens, which operate similar to Offshore Jurisdictions.
SHELL CORPORATIONS
A shell corporation is as "a company that is incorporated, but has no significant assets or operations." Shell corporations are not in themselves illegal and they may have legitimate business purposes. However, they are a main component of underground economy specially those based in tax havens. They may also be known as International Business Corporations (IBCs), Personal Investment Companies (PICs), Front Companies, or "mailbox" companies.
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AML Challenge
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DESIGN AND DEVELOP A MONEY LAUNDERING SCHEME.
ENSURE THAT IT CONTAINS EACH ELEMENT OF MONEY LAUNDERING
AML Challenge
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Questions ????
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DAY TWO
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Course OverviewDay two
During today’s course we will cover:
AML Suspicious Activity AML Red Flags Keys to Writing effective SAR Narrative Ethics AML/Ethics Challenge Questions & Course Wrap-up
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AML Suspicious Activity
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Introduction• In today’s constant changing Financial environment, it is
important to be aware of latest guidelines on money laundering and suspicious activities.
• We will illustrate common red flags based on product types.
• It is important to note that one cannot replace constant vigilance in protecting the interests of the institution. In doing so, it is just as important to rely on your instinct when conducting your daily tasks.
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What is a Suspicious Activity? Any transaction involving funds derived from illegal activities
and/or any attempt to hide or disguise funds from illegal activities, as part of a plan to violate or evade any law.
Any attempt to evade requirements under the Anti-Money Laundering Act.
Transaction has no business or apparent lawful purpose, or is inconsistent and unexplained for the “normal” activity of a customer.
Any attempt to access financial institution's computer system to customer funds, information or to damage information.
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Customer has an unusual or excessively nervous demeanor.
Customer is reluctant to proceed with a transaction after being told it must be reported.
Customer threatens an employee attempting to deter a record keeping or reporting duty.
Customer makes large cash deposit without counting the cash.
Suspicious Activity
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Customer deposits checks and/or money orders that are not consistent with the intent of the account or nature of business.
Customer attempts to take back a portion of a cash deposits that exceeds the reporting threshold after learning that the currency transaction report will be filed on the transaction.
Customer makes frequent purchases of monetary instruments for cash in amounts less than the reporting threshold.
Suspicious Activity
Suspicious Activity Detected?Contact Your AML Officer Immediately!
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AML Red Flags
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What are Red Flags?
Indicators as to which customers may warrant additional attention based on entity type , geography, product usage, activity or other factors.
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AML Red FlagsThere is a list of money laundering red flags (warning signs) all financial institutions employees should watch for.
If you were to encounter any of the following behaviors or activities, you should notify your designated supervisor immediately and provide as much detail as possible.
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AML Red Flags Structuring at multiple branches or at the same branch with
multiple individuals
Corporate Layering between bank accounts and charitable organizations
Wire transfers by charitable organizations
Lack of apparent funds raising activity
Cash debiting schemes / attempts (ATMs)
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• Structuring at multiple branches or at the same branch with multiple individuals.
• Corporate Layering between bank accounts and charitable organizations.
• Wire transfers by charitable organizations.
• Illegitimate fund raising activity.
• Cash debiting schemes / attempts (ATMs).
• Movement of funds through FATF designated NCCTs.
AML RED FLAGS
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• Inconsistent activity for client profile.
• Activity not commensurate with occupation.
• Use of multiple account for no legitimate purpose.
• Structuring of deposits to avoid AML requirements.
• Refusal to provide identification.
• Use of personal accounts for business purposes.
• Abrupt change in account activity.
• Deposit maintained for short period, and wired out.
AML RED FLAGS
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AML Red Flags Refusal or reluctance to proceed with a transaction, or abruptly withdrawing a transaction.
Customer reluctance to provide information or identification.
Structured or recurring, non-reportable transactions.
Multiple third parties conducting separate, but related, non-reportable transactions.
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AML Red Flags Multiple even dollar amount transactions.
Transactions structured to lose the paper trail.
Significant increases in the number or amount of transactions.
Transactions which are not consistent with the customer’s business or income level.
Transactions by non-account holders.
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Deposit Accounts Red Flags Lack of references or identification and/or minimal, vague or
fictitious information provided.
Customer with multiple accounts.
Frequent deposits or withdrawals with no apparent business source.
Multiple accounts with numerous deposits under $10,000.00
Numerous deposits under $10,000.00 in a short period of time.
Accounts with high volume of activity and low balances.
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Deposit Accounts Red Flags Large deposits and balances.
Deposits and immediate requests for wire transfers.
Numerous deposits of small incoming wires or monetary instruments, followed by a large wire
debits Accounts used as a temporary repository for funds.
Funds deposited into several accounts, transferred to another account, and transferred outside of your territories.
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Deposit Accounts Red Flags
Disbursement of certificates of deposit by multiple bank checks.
Early redemption of certificates of deposits.
Sudden, unexplained increase in activity or balance.
Inconsistent deposit and withdrawal activity.
Strapped currency -frequent deposits of large amounts of currency, wrapped in currency straps that have been stamped by other banks.
Client, Trust, and Escrow accounts - large cash deposits in these types of account.
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Wire Transfers Red Flags
Frequent wire transfers with no apparent business reason.
High volume of wire transfers with low account balances.
Incoming and outgoing wires in similar dollar amounts.
Large wire by customers operating cash business.
Cash or bearer instruments used to fund wire transfers.
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Wire Transfers Red Flags•.
Outgoing wire transfers requested by non-account holders.
International funds transfer which are not consistent with customer’s business.
International transfers funded by multiple monetary instruments.
Other unusual domestic or international transfers.
No change in form of currency - proceeds of cash deposit may be wired to another country without changing the form of currency.
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Monetary Instruments Red Flags Structured purchases of monetary instruments -
purchases of monetary instruments with currency in amounts below the $3,000.00 reporting threshold.
Replacement of monetary instruments - the use of one or more monetary instruments to purchase another monetary instruments.
Frequent purchase of monetary instruments without apparent legitimate reason – repeatedly buying a number of official checks or traveler’s checks with no apparent legitimate reason.
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Monetary Instruments Red Flags
Deposit or use of multiple monetary instruments.
Incomplete or fictitious information -- customer may conduct transactions involving monetary instruments that are incomplete or contain fictitious payees, remitter, etc.
Large cash amounts - the customer may purchase cashier’s checks, money orders, etc. with large amounts of cash.
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Lending Red Flags Certificates of deposits used as collateral - customer purchases
certificate of deposit and then uses them as loan collateral.
Sudden/unexpected payment on loans.
Reluctance to provide purpose of loan, or the stated purpose is ambiguous.
Inconsistent or inappropriate use of loan proceeds.
Overnight loans.
Loan payments by third parties.
Loan proceeds used to purchase property in the name of a third party, or collateral pledge by a third party.
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Lending Red Flags
Permanent mortgage financing with an unusually short maturity.
Attempt to sever paper trail.
Wire transfer of loan proceeds.
Disbursement of loan proceeds by multiple bank checks.
Financial statement inconsistent with those of similar business.
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Credit/Debit Cards Red Flags
High balances paid off within short time.
Over payment of balances.
Credit received from third parties, not related to account.
Multiple requests for credit refunds.
Multiple cash withdrawals from different ATMs.
Identify theft indications: such as multiple pay phone calls, multiple daily purchases not exceeding $2000, various internet transactions etc.
Activities not consistent with customer general profile.
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Internet Banking Red Flags Large volume of activity with equal amount of debits and
credits.
Suspicious movement of funds. Movement of funds from one institution, into another institution, and back into the first institution can be indicative of money laundering.
Unusual transfer of funds among related accounts, or accounts that involve the same or related principals.
Payments or receipts with no apparent links to legitimate contracts, goods or services.
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Internet Banking Red Flags Large volume of wire transfers deposited into, or
purchased through, an account when the nature of the account holder’s business would not appear to justify such activity.
Large incoming wire transfers on behalf of a foreign client with little or no explicit reason.
Activity that is unexplained, repetitive, or shows unusual patterns.
Transfers that are unexplained, repetitive or shows unusual patterns.
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Customer and/or Bank Employee Red Flags
Questions or discussions on how to avoid reporting/record-keeping.
Customer attempt to influence a institution employee not to file a report.
Lavish lifestyles of customers or bank employees.
Short-term or no vacations.
Circumvention of internal control procedures.
Multiple incorrect or incomplete Currency Transactions Reports.
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BREAK
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Keys to Writing effective SAR Narrative
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SUSPICIOUS ACTIVITY REPORT (SAR)
Each employee at a financial institution should be on the lookout for suspicious activity.
If you get a feeling something’s “just not right about a customer’s behavior, a transaction, or a pattern of transactions, tell your designated supervisor, and Compliance Department immediately
(Do not tell anyone else besides your designated supervisor and Compliance Department).
SUSPICIOUS ACTIVITY REPORT (SAR)Confidentiality
In order not to breech your institution’s safe harbor protection, it is essential that suspicions and Suspicious Activity Reports (SARs) be kept confidential.
Discuss these matters with no one but your designated supervisor and Compliance Department.
Neither the banks or its employees are permitted to notify any person involved in the transaction that an SAR has been filed, except where such request has been made by your FIU/ONDCP.
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The Importance of Filing a SAR
Identifies potential & actual illegal activity:
Money Laundering Terrorist Financing Other Financial Fraud & Abuse
Detects & prevents flow of illicit funds.
Establishes emerging threats through analysis of patterns & trends.
It’s Required By LAW!
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Do not assume the reader is familiar with your institution’s internal terminology, acronyms, operational processes, or has other knowledge related to the reported violation.
Writing effective Suspicious Activity Report (SAR)
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The Narrative should:
Be concise & clear
Provide a detailed description of the known or suspected criminal violation or suspicious activity
Identify the essential elements of information (the 5 W’s)
Be chronological & complete
Writing effective Suspicious Activity Report (SAR)
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Essential SAR Elements
SARs narratives should contain the “5 Ws and the How" of the transaction being reported in a SAR:
Who? What?
When? Where?
Why? How?
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Who is conducting the criminal or suspicious activity?
Describe additional details about the suspect(s) :
Employer & occupation information
Relationship between the suspect & the filing institution
Length of the financial relationship
Writing effective Suspicious Activity Report (SAR)
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What instruments or mechanisms facilitate the suspect activity/transactions?
Identify & describe the transactions raising the suspicions of the financial institution. Examples include:
Cash deposits and/or withdrawals
Checks & other monetary instruments (money orders; traveler’s checks; cashiers or bank checks)
Writing effective Suspicious Activity Report (SAR)
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Additional types of transactions raising the suspicions of the financial institution:
Wire or other electronic transfers (ATM, ACH)
Foreign currency
Writing effective Suspicious Activity Report (SAR)
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When did the criminal or suspicious activity occur?
If a one-time occurrence, identify the date
If a pattern of activity occurred over a span of time, state when the activity first initiated and then describe the activity during the duration
Identify when the activity was detected
Writing effective Suspicious Activity Report (SAR)
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Where did the suspicious activity take place?
Identify the branch/department location or locations within the institution where the activity occurred (name of branch, office or department and the street address for each)
Identify all account numbers & types of accounts affected by the transactions/activity
Indicate if suspect transactions involve other domestic or international banks & identify the banks, their locations, account numbers, etc.
Writing effective Suspicious Activity Report (SAR)
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Why does the institution think the activity is suspicious?
First, describe the filer’s type of institution
Writing effective Suspicious Activity Report (SAR)
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Why does the institution think the activity or transaction is suspicious (cont.)?
Next, describe concisely but fully, why the institution considers the activity as suspicious
Be sure to include any relevant information about suspicious customer activity that the institution has in its files at the time the SAR is filed
Writing effective Suspicious Activity Report (SAR)
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How did the suspicious activity occur?
In a concise, accurate and logical manner, describe how the suspect transaction or pattern of transactions were completed
For account activity, provide as completely as possible an explanation of the cycle of funds including the source of the funds in the account & application of those funds
Writing effective Suspicious Activity Report (SAR)
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Suggested structure of the narrative
Introduction Body Conclusion
Writing effective Suspicious Activity Report (SAR)
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The Introduction
Provide a brief statement of the SAR’s purpose
Generally describe the known or suspected violation
Identify the date of any SARs previously filed on the subject & the purpose of that SAR
Indicate any internal investigative numbers used by the filing institution to maintain records of the SAR
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The Body Provide the relevant facts about
all parties facilitating the suspect activity or transactions
Answers Who?
The Body Provide the relevant facts about
all parties facilitating the suspect activity or transactions
Answers Who?
Writing effective Suspicious Activity Report (SAR)
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The Body (cont.)
Identify all involved accounts and transactions in chronological order by date and amount – do not use or insert tabular objects, tables, or pre-formatted spread sheets
Answers What? Where? When?
The Body (cont.)
Identify all involved accounts and transactions in chronological order by date and amount – do not use or insert tabular objects, tables, or pre-formatted spread sheets
Answers What? Where? When?
Writing effective Suspicious Activity Report (SAR)
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The Body (cont.)
Explain in detail the filer’s position that the activity or transaction is illegal or suspicious
Answers Why?
The Body (cont.)
Explain in detail the filer’s position that the activity or transaction is illegal or suspicious
Answers Why?
Writing effective Suspicious Activity Report (SAR)
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The Body (cont.)
Describe the method of operation of the subject:
Manner in which the activity and/or transactions were completed;
Any relationship to other transactions, accounts, conductors, etc.; and
Subsequent results of the activity
Answers How?
The Body (cont.)
Describe the method of operation of the subject:
Manner in which the activity and/or transactions were completed;
Any relationship to other transactions, accounts, conductors, etc.; and
Subsequent results of the activity
Answers How?
Writing effective Suspicious Activity Report (SAR)
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The Conclusion
Summarize the report & include:
Any planned or completed follow-up actions by the institution
Names & telephone numbers of persons with additional information about the reported activity
Location within the institution where all SAR-related records are maintained
The Conclusion
Summarize the report & include:
Any planned or completed follow-up actions by the institution
Names & telephone numbers of persons with additional information about the reported activity
Location within the institution where all SAR-related records are maintained
Writing effective Suspicious Activity Report (SAR)
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SAR - Penalties
Failure to file a report.
Filing report containing material omission or misstatement.
Failure to maintain required records.
Failure to secure identifying information.
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Your Responsibility
Be familiar with your institution AML program
Comply with KYC procedures
Conduct enhanced Due Diligence
When in doubt . . . Ask and look it up
Identify and report any suspicious activity or transactions to your Compliance Officer
Review new customers against the sanction List
“KNOW YOUR CLIENT”
What is Ethics
Ethics describes a system of moral principles, rules or standards that govern the conduct of members of a group.
Ethics deals with right and wrong – and the moral consequences of what we do.
Ethics also is indelibly linked with trust – and, in our industry, trust is everything.
WHY HAVE AN ETHICS POLICY
Reason # 1: People are diverse. An Ethics policy establishes a common understanding – among all employees – as to what is ethical behavior.
WHY HAVE AN ETHICS POLICY
Reason # 2: An Ethics Policy Sets Clear Expectations.
An official code of Ethics tells you exactly what is expected in terms of ethical behavior and the consequences should you fail to live up to those expectations.
WHY HAVE AN ETHICS POLICY
Reason # 3: An Ethics Policy Can Provide Legal Protection.
An Ethics policy may protect an institution in potential action against a rogue employee.
WHY HAVE AN ETHICS POLICY
Reason # 4: Ethics & Compliance go Hand-In-Hand.
Your Compliance with your ethics policy will support your institution’s compliance with consumer protection laws.
WHY HAVE AN ETHICS POLICY
Reason # 5: Good Ethics are Good Business
In an ethical organization, the best interests of employees and customers always win out. This result in increased loyalty from both.
What Should An Ethics Policy Say
It should be a workable guide for all employees.
It should be unique to the institution’s organization and business practices.
It should spell out rare situations in which the policy may be waived.
It should contain a special “whistleblower” clause to protect from fear of reprisal employees who report those engaged in suspected illegal or unethical conduct.
What Should An Ethics Policy Say
Every Ethics Policy should address:
Conflicts of interest
Gifts and gratuities, including dollar limits, if applicable and
Privacy of records and information
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AML/Ethics Challenge
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Questions ????
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Michelle N Martin, CAMS, ACAPresidentE-mail [email protected]
Telephone:Miami, Florida, U.S.A. +1 (305) 772-9712St. John's Antigua, W.I. +1 (268) 784-9423
Compliance Aid
Compliance Solutions
Consultants
Michelle N Martin, CAMS, ACAPartner
Website http://compliancesolutionsconsultants.comE-mail [email protected]
Telephone:Miami, Florida, U.S.A. +1 (305) 772-9712St. John's Antigua, W.I. +1 (268) 784-9423
© Compliance Aid 2011 149
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