knowing your everything
TRANSCRIPT
Douglas Wolfson
Director, Financial Crime Compliance
ENTER DATE
Knowing Your Everything
WHAT IS KYX?
D O U G L AS W O L F S O N
Director, Financial Crime ComplianceLexisNexis® Risk Solutions
Our Speakers
Douglas Wolfson is Director, Financial Crime Compliance for
LexisNexis Risk Solutions in Asia. Headquartered out of Hong
Kong, Douglas drives the strategy and product development of the
leading risk tools used by the biggest banks in the world that help
to mitigate financial crime compliance issues.
Douglas has over 20 years of financial services, risk management
and international business experience. His deep experience
includes leading risk management departments at the world’s
most recognizable financial institutions.
He received a Bachelor of Arts degree in International relations
from Colgate University. He also is the co-founder and organizing
committee member of the Blue Tie Ball in Hong Kong, an event
created to raise awareness about and reduce the stigma around
mental illness.
This presentation is provided for informational
purposes; it is not to be considered as legal guidance
or as a recommendation of best practice.
The opinions expressed by the presenter may not
reflect those of LexisNexis Risk Solutions.
4
Retail Banking
Corporate Banking
Trade Finance
Human Resource
Suppliers/Partners
FIDepartment
• The KYC requirements in these area’s are very similar, with the all clients having to be screened against sanction & PEP lists
• All beneficial owners are required to be identified, with Corporate Banking senior management must be identified and screened
• In Private Banking banks typically conduct EDD screening, as many of these clients are typically High Net Worth Individuals and can pose a greater risk
• Trade finance are required to check all parties involved in the transaction, this extends to identifying the vessel, the route of the vessel, the banks, companies and all persons
• As part of the Due Diligence Process, the Head of FI is required to screen all correspondent banks against sanctions and PEP lists, this is extended to the senior management of this group
KYX (X = Everything!)
KYX – Considerations
• Onboarding and periodic checks (On going monitoring)
• PEP/SOE and adverse media• Ultimate beneficial ownership• Traceability – Comprehensive Audit trail
• Robust pre facto screening supports post facto monitoring efforts
• Domestic payments screening • Advance checks, stripping detection, etc• Traceability – why there was no match?
Know Your Business
Most Critical Requirement….
Seriousness and Focus shown by the Board & Senior Management is Critical for success of AML Programs
• Overseas implementation of a strong AML programBoard
Level
• Ensures the management prioritises requirements and provides the resources for implementation
AML Steering committee
• Ensure the program is executed – monitored and controlled
Business Level
Risk Based Approach to Planning
The First Step is to Assess Your Business
Geography• What countries do you operate in?
Customers• Who are your customers?
Products• How can your products be used to launder money?
Breaking down the silos is crucial to achieve unified approach
Aligned Objectives
Compliance
Risk Management
AMLCompliance
Commercial
Trade Operations
KYC
Policies &
procedures
Manage Risk
and evaluate
risk appetite
Driving the
business
“Frontline”
Intelligence
gathering unit
for trades
The
“gatekeeper”
of the value
chain
Intelligence
Gathering
Unit “Client”
Know Your Challenges
The Banks’ Disadvantage…..
FATF Standards
1990, latest rev.2012
FATF Typologies on Proliferation
Financing
Jun. 2008
The Wolfsberg Group Trade
Finance Principles
2009
FATF Targeted Financial Sanctions related to terrorism
and terrorist financing
Jun. 2013
2006 2011 2016
EAG WGInternationalTBML report
Dec.2009
EAG WG ML in
Foreign Trade Transactions
Dec. 2010
UK FCA Thematic Review: control of
financial crime risks in trade
finance
Jul. 2013
JMLSG
Guidance, Trade Finance
Nov. 2014
OCC AML
Exam Manual TBML Activities
Overview
Nov. 2014
US FINCEN SAR/TBML
Advisory
Feb. 2010
APG TBML
Typologies Report
Jul. 2012
MAS
AML CFTControls in Trade
Finance
Oct. 2015
HKAB
Guidancepaper on TBML
Feb. 2016
Dubai FSA
Trade Finance Report
Jan 2017
Wolfsberg, ICC, BAFT
Trade Finance Principles
Feb. 2017
OFAC
ExecutiveOrder 13810
Sept 2017
OFAC
DPRK
Advisory
Feb 2018
FATF
Proliferation Financing of
WMD
Feb 2018
OFAC
2019OFAC
DPRK
Advisory #2
Mar 2019
OFAC
Syria Advisory #2
Mar 2019
Syria Advisory
Nov 2018
2020
OFACAdvisory
May 2020
Sanctions Challenges
Targeted sanctions
A more sophisticated approach to sanctions, targeting specific
entities, groups, regions or
sectors.
Global Issues
Sanctions don’t always correspond to a state; some
target Al Qaeda, ISIS, or narcotics trafficking.
Exceptions
In general, sanctions regimes may include waivers or exceptions for humanitarian,
medical or sanitary issues
COVID-19 has raised concerns and calls for relaxing sanctions for the most-affected
countries: Iran, Venezuela.
Sanctions Evasion: Main typologies
Illicit Shipping practices
• Growing number of designated vessels
• Expectations from all supply chain
actors to screen the trade participants.
• Latest Regulatory Guidancesuggesting
ongoing monitoring of trade lifecycle
Stripping of “regular” wire
transfers
• Schemes involving large banks still
make the headlines (Standard
Chartered, Unicredit)
• These schemes typically involve willful
conduct to obfuscate sanctionable
conduct (Unicredit) or failures to
account for sanctions red flags(SCB).
Crypto currencies
• OFAC started to include crypto
addresses to sanctions lists
• Expectations that crypto assets and
transactions are frozen for designated
persons
• Technical limitations to implement
sanctions on crypto transactions
Trade Challenges
• Regulations can change or new
regulations may be added several
times during a trade finance life
cycle
• Managing export control license
requirements and identifying
goods for dual use or military
purposes
• Vessel ownership and voyage
from and to sanctioned ports
• Trade touches multiple international jurisdictions and regulations
• Trade involves multiple stake holders in the trade value chain
Dual Use Good Screening Challenges
Unable to screen the goods within one screening application, the typical process is to access “dual use good” (DUG) lists from the source.
This leads to:
• Poor data quality
• Generalised terminology
• Poor searching capability
• No audit trail
• Separate “review screens” and disconnected checks
Operational Efficiency
• Risks must be managed in a sustainable manner
• Need to avoid loss of focus on true risks
Compliance Risk
• Rising expectations of level of effectiveness
• Risk capacity must correspond to risk profile and obligations
$No Match
False Positive $$$
True Positive
False Positive Challenges
All Challenges
All Challenges
Trade
Screening
Challenges
Customer Screening / Onboarding Challenges
Transaction Screening
Challenges
Trade Challenges
• Sanctions
• Dual Use Goods
• RegulatoryEnvironments
Screening Challenges
• Changing Regulations
• False Positives
• Lost Time and EffortMonitoring Challenges
• Regulatory Requirements
• Fast Changing Sanctions
• False Positives
Know Your Process
Onboarding Process Overview
Data Entry
Classify Risk
Due Diligence
Screen Open or Block
Monitor
Manual Entry
File upload
Validation
Assign Risk Category
Highlight risk elements
Onsite Visit
KYX Documents
Related Parties / UBO
Assign level of DD
Third party experts
Sanctions
PEP
Private Lists
Audit trail of approvals
Block & report
Trigger Events
Regulatory Changes
Policy and Change Management
Onboarding Process Overview
✓ AML expertise
✓ Visibility of AML issues
✓ Management Oversight
✓ Training mechanism
✓ Independence of Function
✓ KYC diligence
✓ AML Screening
✓ Transaction Monitoring
✓ Risk prioritization
✓ Independent testing procedures
✓ Minimize Manual processes
✓ Centralized systems
✓ Harmonise & automate Reporting
Tech
Process
People………………
…….
…….
Account / Name Screening
SWIFT/ Remittance Screening
Trade Finance Screening
Dual Use Goods
PEP Lists
Sanction List
Private Lists
Vessels
Process challenges
Multiple Compliance data Lists
Multiple Screening Systems at multiple locations
Cost and time of maintaining different vendors!
Fragmented Process
Difficulty when changing source systems!
User training costs
Multiple reporting formats!
Know Your Technology
Technology!
Ongoing
Real-time
Digital
Monitoring
ID Card
& Passport
Verification
Full Identity
Verification
Sanctions,
Adverse
Media, Trade
& PEP
Checks
Continuing
Periodic
Checks
Digital KYC
at the time of
Account
Opening
Is Fintech’s Advantage
Review Management
KYC
On-boarding
Customer
AccountsPayment’s SWIFT
& RemittancesTrade Finance
Sanctions
PEPs / SOE
Adverse
Media
EDD/CTC
Anti-social
Forces
Private Lists
Dual-use
Goods
Vessels
Sea Ports
Scrubbing Engine (Rules + Algorithm)
Screening Architecture
Policy – Process - Frequency
Vessel Tracking
Should I do business with the client?
Can I do business with the client?
Who is my client?
Current Developments – False Positive Reduction
False Positive
Rules
Risk
Scoring
Precision control on
ScreeningPredictive
Decisioning
Let’s Connect
DOUGLAS WOLFSON
Director, Financial Crime Compliance
LexisNexis® Risk Solutions
https://www.linkedin.com/in/douglas-matthew-
wolfson/
About LexisNexis® Risk Solutions
LexisNexis Risk Solutions harnesses the power of data and advanced analytics to provide insights that help businesses and governmental entities reduce risk and improve decisions to benefit people
around the globe. We provide data and technology solutions for a wide range of industries including insurance, financial services, healthcare and government. Headquartered in metro Atlanta, Georgia, we
have offices throughout the world and are part of RELX (LSE: REL/NYSE: RELX), a global provider of information and analytics for professional and business customers across industries. RELX is a FTSE
100 company and is based in London. For more information, please visit www.risk.lexisnexis.com and www.relx.com.
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