ACAMS Chapter 2: International AML/CFT Standards

Four key elements of KYC program (according to "CDD for Banks")

1. Customer identification 2. Risk management 3. Customer acceptance 4. Monitoring

FATF Objectives

1. Spreading the message of AML worldwide 2. Monitoring the implementation of FATF recommendations among members 3. Reviewing money laundering trends and and countermeasures.

Financial Action Task Force (FATF)

An international, intergovernmental organization composed of members from more than 30 countries, whose primary purpose is the development and promotion of policies, at both national and international levels, to combat money laundering and terrorist financing.

Wolfsberg Group

Created in 2000. Association of 13 global banks that aims to develop financial services industry standards and guidance related to KYC, AML and CFT policies. Published AML Principles for Private Banking in 2000.

Core Principles Methodology

Developed by Basel Committee in October 1999 to facilitate implementation and assessment.

CICAD-AMLU

Established in 1990, AML Unit of CICAD. Focuses on providing technical assistance and training to member states in judicial and financial measures and law enforcement.

FATF membership step 3

Mutual Evaluation and Granting of Membership -Within a max of 3 years after being invited to participate, the mutual evaluation process for the country should be launched. -Membership is granted if the evaluation is satisfactory.

"Enhancing Contributions to Combating Money Laundering"

Published by IMF and World Bank in 2000. Detailed steps that they would take to strengthen the global assault on ML.

FATF New Methodology

Released in 2013 Collectively, the technical compliance and effectiveness assessments provide an integrated analysis of the extent to which the country is compliant with the FATF Recommendations and how successful it is in maintaining a strong AML/CFT system. -Technical Compliance Assessment -Effectiveness Assessment:

International Cooperation

Several recommendations deal with strengthening international cooperation. Countries should rapidly, constructive and effectively provide the widest possible range of mutual legal assistance in ML/TF investigations, confiscation, extradition etc. Countries should ratify UN conventions

Knowledge and Criminal Liability

The Recommendations include the concept that knowledge required for the offense of ML may be inferred from objective factual circumstances. Similar to "willful blindness", or deliberate avoidance of knowledge of facts. The Recommendations also urge that criminal liability should apply to legal persons as well

Designated Categories of Offense

The Recommendations specify crimes, called "designated categories of offenses" that should serve as ML predicates. Countries should also put in place provisions to allow for the confiscation of the proceeds of crime or otherwise prevent criminals from having access to their illicit funds.

FATF 40 Group 5

Transparency and Beneficial Ownership of Legal Persons and Arrangements -Transparency and beneficial ownership of legal persons -Transparency and beneficial ownership of legal arrangements

2012 Major revisions to FATF 40

-Creation of a recommendation based on assessing risks and applying a risk based approach to all AML/CTF efforts -Creation of a recommendation for targeted financial sanctions related to the proliferation of weapons of mass destruction -More attention on domestic PEPs and those entrusted with a prominent function by an international organization. -New requirement for the identification and assessment of risks of a new product prior to its launch -New requirement for financial groups to implement group-wide AML/CTF programs and procedures for sharing information within the group -Inclusion of tax crimes within the scope of designated categories of offense for money laundering

Support provided by Egmont Group

-Expanding and systemizing cooperation in the reciprocal exchange of information. -Increasing the effectiveness of FIUs by offering training and promoting personnel exchanges to improve expertise and capabilities of FIU employees. -Fostering better and secure communication among FIUs through the application of technology such as Egmont Secure Web -Promoting the operational autonomy of FIUs -Promoting the establishment of FIUs in conjunction with jurisdictions with an AML/CFT program or in areas with early stages of a program.

FATF 40 Group 1

AML/CTF policies and coordination -Assessing risks and applying a risk based approach -National cooperation and coordination

First European Union Directive on Money Laundering

Adopted in June 1991. Required members to enact legislation to prevent their domestic financial systems from being used for ML. Applies only to EU member states. Confined predicate offenses to money laundering to drug trafficking as defined in the 1988 Vienna Convention. However, member states were encouraged to extend predicate offenses to other crimes

FATF Creation

Created in 1989, working under 5 year mandates until recently which have been 8 year extensions. Mandate has been extended until 12/31/2020

Section 314(a)

Enables US federal, state, local and EU law enforcement agencies, through FinCEN, to reach out to more than 43k points of contact at over 22k financial institutes to locate accounts and transactions of people who may be involved in TF or ML. To obtain the documents, the LE agency must meet the legal standards that apply to the investigative tool they are using to obtain docs (e.g. subpoena)

Task Force on Money Laundering in Central Africa (GABAC)

Established in 2000. In 2015 it was recognized as an FSRB and admitted as associated member into FATF. Members include: Cameroon, Central African Republic, Chad, Congo, Equatorial Guinea, and Gabon.

FATF Technical Compliance Assessment

Evaluates the specific requirements of the FATF Recommendations, including how a member relates them to its relevant legal and institutional framework, and the powers and procedures of its competent authorities.Focus is on fundamental building blocks of an AML/CTF system

Eurasian Group on Combating Money Laundering and Terrorist Financing (EAG)

Formed in 2004. Created for countries not included in existing FSRBs. Goals to ensure effective interactions and cooperation at regional level and integration of EAG member states into the international AML/CTF system in accordance with FATF 40. Members include: Belarus, China, India, Kazakhstan, Kyrgyzstan, Russian, Tajikistan, Turkmenistan, Uzbekistan.

Organization of American States (OAS)

Inter-American Drug Abuse Control Commission. Created in May 1992. The first permanent international body to reach an agreement on model legislation aimed at dealing with ML. 14 nations created 19 articles.

FATF 40 Group 2

Money Laundering and Confiscation -Money laundering offenses -Confiscation and provisional measures

Section 311 actions vs. OFAC actions

OFAC are more broadly applied and can trigger asset freezing obligations

FATF 40 Group 6

Powers and Responsibilities of Competent Authorities and Other Institutional Measures -Regulation and supervision -Operational and law enforcement -General requirements -Sanctions

Section 313: Prohibition on correspondent accounts for foreign shell banks

Prohibits US banks and securities brokers/dealers from maintaining correspondent accounts for foreign, unregulated shell banks that have no physical presence anywhere. Section also requires financial institutions to take steps to ensure that foreign banks with correspondent account do not permit access to such accounts by foreign shell banks. Requires that foreign banks certify at least once every 3 years.

FATF membership step 2

Technical and other criteria a) country should provide a written commitment at political level -endorsing and supporting FATF 2012 40 Recs and the 2013 FATF AML/CTF methodology -agreeing to undergo a mutual evaluation during the membership process to asses compliance with FATF criteria and agreeing to undergo subsequent periodic mutual evaluations following admission as a full member.

Patriot Act Section 311: Special Measures for Primary Money Laundering Concerns

Provides the US Treasury with authority to apply measures against a foreign jurisdiction, foreign financial institution, type of international transaction or type of account that it determines to be a "primary" ML concern. Treasury can require US financial institutions to follow any or all of the following five measures: 1. Keep records and/or file reports on certain transactions, including a description of those transactions, the identities and addresses of the participants and the identities of beneficial owners 2. Obtain information on the beneficial ownership of any account opened or maintained in the US by a foreign person or a foreign person's representative 3. Identify and obtain information about the customers who are permitted to use, or whose transactions are routed through, a foreign bank's P-T-A. 4. Identity and obtain info about customers permitted to use or whose transactions are routed through , a foreign bank's "correspondent" account. 5. Close certain payable-through or correspondent accounts.

"Reference Guide to Anti-Money Laundering and Combating the Financing of Terrorism"

Published by IMF and World Bank in 2002. Effort to provide steps for countries implementing AML/CTF regimes in compliance with intl standards. Second Edition and Supplement on Recommendation IX was published in 2006. Describes the global problem of ML and TF on the development agenda of individual countries and across regions. Explains basic elements require to build effective AML/CTF legal and institutional framework and summarizes roles of IMF and World Bank in the effort.

"The Suppression of the Financing of Terrorism"

Published by Wolfsberg Group in 2002. Outlines roles of financial institutions in efforts to counter ML/TF. Recommendations include: -Providing official lists of suspected terrorists on a globally coordinated basis by relevant authorities -Including adequate info in the lists to help institutions search customer databases efficiently -Providing prompt feedback to institutions following circulation of the official lists -Providing information on the manner, means and methods used by terrorists -Developing government guidelines for business sectors and activities identified as high risk for TF -Developing uniform global formats for funds transfers that assist in detection of TF -Protecting financial institutions with safe harbor immunity to encourage information sharing and reporting -Performing EDD for "business relationships with remittance businesses, exchange house, casas de cambio, bureaux de change and money transfer agents", other high risk customers or those in high risk sectors, and activities "such as underground banking businesses or alternative remittance systems".

"Anti-Money Laundering Principles for Correspondent Banking"

Published by Wolfsberg Group in 2002. Updated in 2014. Steps financial institutions should take to combat TF/ML risks in correspondent banking. Update in 2014 highlighted the principles were intended to address risks in foreign correspondent relationships, not domestic. Recommendations include: -Due diligence should be risk based and ongoing, depending on location, type of business, ownership, customer base, regulatory status and AML controls of the correspondent banking client. Elements that should be considered when conducting due diligence: -Geographic risk -Branches, subsidiaries and affiliates of correspondent banking clients/of the institution -Ownership and management structures of the correspondent banking client -Client's customer base and business -Client's products and services -Client's regulatory status and history -Client's AML controls -Client's dealings with shell banks -Visits to the client's business -EDD regarding PEPs with the correspondent banking client and downstream correspondent (nested) relationships the correspondent provides -The principles should be part of the larger AML program.

The Wolfsberg Anti-Money Laundering Principles for Private Banking

Published in 2000, revised in 2002 and 2012. Recommend controls for private banking such as CDD, EDD. State that banks must "endeavor to accept only those clients whose source of wealth and funds can be reasonably established to be legitimate". Highlight need to ID beneficial owners for all accounts. Recommend that "at least one person other than the private banker" should approve all new clients and accounts. Situations that require EDD: PEPs, persons residing in and/or having funds from high risk countries, persons involved in types of "economic or business activities or sectors known to be susceptible to ML". Banks should have written policies on the ID and follow up of unusual/suspicious activities. Recommend a "sufficient" monitoring system. Also addressed: Reporting to management of ML issues, AML training, retention of relevant documents, deviations from policy, creation of an AML department and AML policy.

"Financial System Abuse, Financial Crime and Money Laundering"

Published in 2001 by the IMF, World Bank and International Monetary and Financial Committee (IMFC). Explored how the institutions could "play roles in protecting the integrity of fund international financial system from abuse" through the use of their influence to promote national anti-corruption programs.

"Monitoring, Screening and Searching Wolfsberg Statement"

Released in 2003 and updated in 2009. Provides further guidance on "the design, implementation, and ongoing maintenance of transaction monitoring frameworks for real-time screening, transaction monitoring and retroactive searches". Discussed need for appropriate transaction monitoring and customer monitoring to identify unusual or suspicious activity/txns, and for reporting. Covered issues related to development of risk based processes for TM and customer screening, searching monitoring.

Issues addressed by "CDD for Banks"

1. Importance of KYC standards for supervisors and banks 2. Essential elements of KYC standards 3. The role of supervisors 4. Implementation of KYC standards in a cross border context

Third EU Directive

Adopted in 2005. Extended the scope of the 1st and 2nd by: -Defining ML and TF as separate crimes. -Extending customer ID and suspicious activity reporting obligations to trusts and company service providers, life insurance intermediaries, and dealers selling goods for cash payments of more than 15k Euro -Detailing a risk based approach to CDD. -Protecting employees who report suspicious txns. -Obligating member states to keep comprehensive statistics regarding the use of and results obtained from suspicious transaction reports, such as number filed, follow up given, annual number investigated, persons prosecuted/convicted -Requiring all financial institutions to ID and verify the "beneficial owner" of all accounts held by legal entities or persons. Directive applies to credit institutions, financial institutions, auditors, accountants, tax advisors, legal professionals, trust and company service providers, estate agents, high value goods dealers who trade in cash over $15k and casinos.

Terrorist Financing and Financing of Proliferation

Countries should criminalize TF, including the financing of terrorist acts, orgs and individuals, even if no terrorist activity can be directly attributed to the provision of financing. Countries should impose sanctions regimes that will allow them to freeze the assets of persons designated by the UN security council for involvement in terrorism or proliferation. Countries should also establish sufficient controls to mitigate the misuse of non-profit organizations to provide support to terrorists.

USA PATRIOT Act

Created in response to 9/11 in October 2001. "Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act". Strengthen ML laws and the BSA.

Other recommendations by "CDD for Banks"

-Banks should develop customer acceptance policies describing customer's background, country of origin, business and other risk indicators and develop clear descriptions of who is an acceptable customer -Private banking should not escape KYC policies -Banks should make effort to know identity of corporations and when professional intermediaries are involved, should verify the exact relationship between owners and intermediary -Banks should use standard ID procedures when dealing with non face to face customers and should never agree to open account for persons adamant about anonymity -Periodic bank-wide employee training should be provided that explains the importance of KYC policies and AML requirements -Internal auditors and compliance officials should regularly monitor staff performance and adherence to KYC procedures -Continued monitoring of high risk accounts by compliance personnel should be conducted to obtain a greater understanding of customers' "normal activities" and to enable the updating of identification papers & detection of suspicious txns -Banking regulators should ensure that bank staff follow KYC procedures, review customer files and a sampling of accounts, and emphasize that they take appropriate action against officers who fail to follow KYC procedures

Second EU Directive Definition of Money Laundering

-Conversion or transfer of property with knowledge that it is derived from criminal activity or from participation in that activity, for the purpose of concealing/disguising the illicit origins of property, or assisting anyone who is involved in the commission of the activity to evade legal consequences. -Concealing or disgusting the nature, source, location, disposition, movement, rights with respect to, or ownership of property, knowing it is derived from criminal activity or from an act of participation in that activity -The acquisition, possession or use of property, knowing, when it is received, that it was derived from criminal activity or from an act of participation in that activity -Participation in, association to commit, the attempt to commit, and the aiding, abetting, facilitating or counseling the commission of any of the mentioned actions.

2003 Major revisions to FATF 40

-Expanded coverage to include TF -Widened categories of businesses that should be included in national laws, including real estate agents, precious metals dealers, accountants, lawyers and trust services providers. -Specified compliance procedures on issues such as customer identification and due diligence, including enhanced identification measures for higher-risk customers and transactions -Adopted a clearer definition of predicate money laundering offenses -Encouraged prohibition of "shell banks" typically set up in offshore secrecy havens and consisting of little more than nameplates and mailboxes, and urged improved transparency of legal persons and arrangements -Included stronger safeguards, notably in international cooperation, for example in TF investigations

Egmont Group Organizational Groups

-The Heads of FIUs (HoFIUs) -The Egmont Committee -The Working Groups (IT, Legal, Operational, Outreach and Training) -Regional Groups -the Egmont Group Secretariat

Basel Committee specific customer ID issues related to high risk customers (according to "CDD for Banks")

-Trust, nominee, and fiduciary accounts -Corporate vehicles (i.e. companies w nominee shareholders or entities with shares in bearer form) -Introduced businesses -Client accounts opened by professional intermediaries, like pooled accounts -PEPs -non face to face customers -correspondent banking

Non-Cooperative Nation/Territory Indicators

1. Loopholes in financial regulations -No or inadequate regulations or supervisions of financial institutions -Inadequate rules for the licensing or creation of financial institutions, including assessing backgrounds of managers or beneficial owners -Inadequate CDD requirements for financial institutions -Excessive secrecy provisions regarding financial institutions -Lack of efficient suspicious transactions reporting 2. Obstacles raised by other regulatory requirements -Inadequate commercial law requirements for registration of business and legal entities -Lack of identification of the beneficial owner(s) of legal/business entities 3. Obstacles to international cooperation -Obstacles to cooperation from administrative authorities -Obstacles to cooperation from judicial authorities 4. Inadequate resources for preventing and detecting money laundering activities -Lack of resources in public and private sectors -Absence of a financial intelligence unit or equivalent mechanism

Effectiveness 11 Immediate Outcomes

1. Money Laundering/TF risks are known and actions are coordinated to combat/thwart the proliferation of ML/TF 2. International cooperation provides actionable information to use against criminals 3. Supervisors regulate financial institutions and non-bank financial institutions (NBFIs) and their risk based AML/CTF programs 4. Financial institutions and NBFIs apply preventative measures and report suspicious transactions 5. Legal persons are not misused for ML/TF and beneficial ownership information is available to authorities. 6. Financial intelligence information is used by authorities in ML/TF investigations 7. Money laundering offenses are investigated, criminally prosecuted and sanctions imposed. 8. Proceeds of crime are confiscated 9. Terrorist financing offenses are investigated, criminally prosecuted, and sanctions imposed. 10. Terrorist and terrorist organizations are prevented from raising, moving and using money, and not permitted to abuse non profit organizations 11. Persons and organizations involved in the proliferation of weapons of mass destruction are prevented from raising, moving and using money.

3 Intermediate outcomes

1. Policy, cooperation and coordination to mitigate money laundering and terrorist financing 2. Prevention of proceeds of crime into financial system and reporting of such when they do 3. Detection and disruption of ML/TF threats For each individual Immediate Outcome, assessors reach conclusions about the extent to which a country is (or is not) effective and provide an effectiveness rating based on the extent to which the core issues and characteristics are addressed

Inter-American Drug Abuse Control Commission (CICAD)

1990 created articles to address ML and drugs. Core mission is to strengthen the human and institutional capabilities and rot harness energy of member states to reduce the product, trafficking and use of illegal drugs in the Americas. -Serves as the Western hemisphere's policy form on all aspects of the drug problem. -Fosters multilateral cooperation on drug issues in the Americas. -Executes action programs to strengthen the member states' capacity to prevent and treat drug abuse, combat production and trafficking and deny traffickers their funds. -Promotes drug-related research, info exchange, training and technical assistance -Develops and recommends minimum standards for drug-related legislation, treatment, measurement of both drug consumption and cost of drugs to society, and drug control measures. -Carries out multilateral evaluations of progress by member states

FIUs in Action: 100 Santised Cases

1999 Report created by Egmont Group Training Working Group (TWG). Report identified six of the most frequent indicators for ML: -Large scale cash transactions -Atypical or uneconomical fund transfer to or from a foreign jurisdiction -Unusual business activity or transactions -Large and/or rapid movements of funds -Unrealistic wealth compared to client profile -Defensive stance to questioning

Customer Due Diligence for Banks

Paper prepared by Basel Committee in 2001 that identified deficiencies in a large number of countries' KYC policies. "KYC policies in some countries have signifiant gaps and in others they are non-existent. Even among countries with well-developed financial markets, the extent of KYC robustness varies". Followed a consultation document published in January 2001.

Section 314(b)

Provides financial institutions with the ability to share information with one another, under a safe harbor that offers protect from liability, to better identify and report potential ML or TF activities. This is a voluntary program. Institutions eligible for program include: -Banks -Casinos and card clubs -MSBs -Brokers or dealers in securities -Mutual funds -Insurance companies -Futures commission merchant and brokers in commodities -Dealers of precious metals, precious stones or jewels -Operators of credit card systems -Loan or finance companies

FATF Members

35 Member jurisdictions: Argentina, Australia, Austria, Belgium, Brazil, Canada, China, Denmark, France, Finland, Germany, Greece, Hong Kong, Iceland, India, Ireland, Italy, Japan, Republic of Korea, Luxembourg, Malaysia, Mexico, the Netherlands, New Zealand, Norway, Portugal, Russia, Singapore, South Africa, Spain, Sweden, Switzerland, Turkey, the UK, and the US.

FATF Mutual Evaluation unsatisfactory indicators

A mutual evaluation is unsatisfactory if the country: -Has 8 or more non-compliant/partially compliant ratings for technical compliance -Is rated non-compliant/partially compliant on any of the following FATF Recs: 3, 5, 10, 11, or 20 -Has a low or moderate level of effectiveness for 7 or more of the 11 effectiveness outcomes of the jurisdictions AML/CTF systems -Has a low level of effectiveness for 4 or more of the 11 effectiveness outcomes of its AML/CTF systems.

Section 312: Private Banking Definition

A private banking account is defined as: -An account with a minimum aggregate deposit of $1 million - for one or more non-US persons -assigned to a bank employee acting as a liaison with the non-US person. For these types of private banking accounts, US institutions must take steps to: -Ascertain the ID of all nominal and beneficial owners -Ascertain whether any such owner is a "senior foreign political figure" - Ascertain the source of funds and the purpose and expected use of the account -Monitor the account to ensure the activity is consistent with the information provided as to source of funds, and the purpose/use of the account, as needed to guard against ML and to report suspicious activity.

FATF 40 Group 3

Terrorist financing and the financing of proliferation -Terrorist financing offenses -Targeted financial sanctions related to terrorism and TF -Targeted financial sanctions related to proliferation -Non-profit organizations

"International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001"

Title III of Patriot Act. Contains most of the AML related provisions in the Patriot Act. Purpose is to "increase the strength of US measures to prevent, detect and prosecute international money laundering and the financing of terrorism, to provide a national mandate for subjecting to special scrutiny foreign jurisdictions, financial institutions operating outside the US, and classes of international transaction or types of accounts that pose particular opportunities for criminal abuse, and to ensure that ll appropriate elements of the financial services industry are subject to appropriate requirements to report potential ML transactions to proper authorities".

Fourth EU Directive

Adopted in 2015. Changes include: -Threshold for entities to report suspicious txns decreased to $10k -The scope of obliged entities enlarged from casinos to all "providers of gambling services" -CDD is to be applied for transfers of funds exceeding $1000 -New definitions for correspondent relationship, PEPs family members/close associates, senior management and others -Tax crimes relating to direct and indirect taxes are included in broad definition of "criminal activity" in line with FATF -An explanation of "financial activity on an occasional or very limited basis" was included -EU Commission must submit a report every 2 years on finds of ML and TF risk assessment affecting the internal market -EU executive in charge of identifying third country jurisdictions having strategic deficiencies -EDD should be applied to every PEP domestic or international. Risk extended to 12 months and measures applied to family/close associates -For groups, the directive sets the criteria for adequate compliance related to third parties for CDD -New requirements for beneficial ownership info, and info must be made available to authorities. -Obliged entities required to implement group-wide policies and take measures to appropriate their risks. -Administrative sanctions and measures now range from "name and shame" to withdrawal of authorization. Pecuniary sanc- tions for natural persons are set to at least EUR five million or 10% of the total annual turnover for entities. -Section dedicated to the rules for cooperation -Directive requests members states conduct ML/TF risk assessments and designate a responsible authority. They must ensure they take appropriate steps to identify and asses risks.

Section 319(b): Records relating to Correspondent Accounts for Foreign Banks

Allows the appropriate federal banking agency to require a financial institution to produce within 5 days records or information regarding the institution's AML compliance or related to a customer of the institution or any account opened, maintained, administered or managed in the US by the financial institution. The section also allow the Secretary of Treasury or Attorney General to subpoena records for a foreign bank that maintains a correspondent account in the US. Section also requires foreign banks to designate a registered agent in the US to accept service of subpoenas pursuant to this section. Additionally, US banks and securities brokers/dealers that maintain correspondent accounts for foreign banks must keep records of the identity of the 25% owners of the foreign bank (if not public) as well as the name of the correspondent bank's registered agent in the US.

Wolfsberg Standards

As of June 2016: -Wolfsberg CB Principles 2014 -Wolfs Group MIPS Paper 2014 -Wolfsberg Private Banking Principles 2012 - Wolfsberg Guidance on Prepaid and Stored Value Cards 2011 -Wolfsberg Anti-Corruption Guidance -Statement on the publication of the Wolfsberg Anti-Corruption Guidance 2011 -Wolfsberg Trade Finance Principles -Wolfsberg Monitoring Screening Searching Paper 2009 -Wolfsberg AML Guidance on Credit/Charge Card Issuing and Merchant Acquiring Activities 2009 -Wolfsberg Group, Clearing House Statement on Payment Message Standards 2007 -Wolfsberg Group, Notification for Correspondent Bank Customers -Wolfsberg Statement- Guidance on a Risk Based Approach for Managing Money Laundering Risks 2006 -Wolfsberg Statement on the Suppression of the Financing of Terrorism 2002

Prevention of Criminal Use of the Banking System for the Purpose of Money Laundering

Basel Committee Statement of Principles issued in 1988. The statement set out principles with respect to: -Customer identification -Compliance with laws -Conformity with high ethical standards and local laws and regulations -Full cooperation with national law enforcement to the extent permitted without breaching customer confidentiality -Staff training -Recordkeeping and audits

"Consolidated KYC Risk Management"

Basel Committee publication from October 2004. Examines critical elements for effective management of KYC risk throughout a banking group and addresses the need for banks to adopt a global approach and to apply the elements necessary for a sound KYC program. These elements consist of risk management, customer acceptance and identification policies, and ongoing monitoring of high risk accounts.

Power and Responsibilities of Competent Authorities

Countries should oversee financial institutions to ensure they are implementing the FATF recs and are not owned/controlled by criminals. Designated non-financial businesses/professions should be subject to oversight as well. Countries should establish financial intelligence units and provide law enforcement with sufficient resources to investigate ML/TF, and to seize/freeze assets. Countries should implement measures to detect the physical cross-border movement of currency and bearer negotiable instruments.

Risk Based Approach

Countries should start by identifying, assessing and understanding the money laundering and TF risks they face. Then they should take appropriate measures to mitigate those risks. Allows countries to allocate resources in a targeted manner and increase efficiency of preventative measures. Financial institutions should do the same

Transparency and Beneficial Ownership of Legal persons and arrangements

Countries should take appropriate measure to prevent the misuse of legal persons for money laundering or TF, including ensuring information about the beneficial ownership and control of such legal persons is available to competent authorities, particularly with regard to legal persons that can issue bearer shares or have nominee shareholders/directors.

Egmont Group of Financial Intelligence Units

Created in 1995 when a number of financial intelligence units began working together in an informal organization. Goal to provide forum for FIUs around the world to improve cooperation in fight against ML/TF and to foster the implementation of domestic programs in the field. As of 2015, 151 member FIUs and 19 observer organizations.

Financial Action Task Force of Latin America (GAFILAT)

Created in 2000. Develops enhanced recommendations in style of FATF to improve national policies against ML/TF. Members include: Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Cuba, Ecuador, Guatemala, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, and Uruguay.

International Due Diligence Repository

Created in 2004 by Wolfsberg Group and Banker's Almanac. Includes copies of company by-laws, relevant licenses, most recent annual reports, information about shareholders, biographies of board managers and senior management, information about each institution's AML policies and procedures. Move towards standardizing due diligence information.

Second EU Directive

December 2001. Require stricter ML controls across Europe. Extended the scope of the first directive beyond drug related crimes. Covers all serious crimes including corruption and fraud against the interest of the European community. Explicitly brought bureaux de change and money remittance offices under AML coverage. Clarified that knowledge of criminal conduct can be inferred from objective factual circumstances. Included more precise definition of ML. Widened the businesses and professions subject to the obligations of the directive. Covered groups include: auditors, external accountants, tax advisers, real estate agents, notaries and legal professionals

FATF Improving Global AML/CTF Compliance on-going process

Document identifies countries or jurisdictions with strategic weaknesses in AML/CTF measures but that have provided a high level commitment to an action plan developed with the FATF: -FATF encourages its members to consider the strategic deficiencies identified within these jurisdictions -If a country fails to make sufficient or timely progress, FATF can increase its pressure on the country to make meaningful progress by moving it to the Public Statement -The document also provided information on jurisdiction no longer subject to FATF's on going global compliance process. This happens when a country has made significant progress on improving its programs.

Basel Committee on Banking Supervision

Established in 1974 by the central bank of governors in the G-10 countries. The committee promotes sound supervisory standards worldwide. The primary global standard-setter for the prudential regulation of banks and provides a forum for cooperation on banking supervisory matters. Its mandate is to strengthen the regulation, supervision and practices of banks worldwide with the purpose of enhancing financial stability. Located in Basel, Switzerland. Members include the US Board of Governors of the Federal Reserve, Federal Reserve Bank of NY, Office of the Comptroller of the Currency, Bank of England, Bank of France, People's Bank of China, China Banking Regulatory Commission and others.

Caribbean Financial Action Task Force (CFATF)

Established in 1990-1992. Includes 27 states in the Caribbean Basin, Central and South America. Members agreed to enter into mutual assistance agreements with each other to assist investigations. Members include Bahamas, Barbados, Belize, BVI, Haiti, T&T, Venezuela, El Salvador, DR etc

Committee of Experts on the Evaluation of AML Measures (MONEYVAL)

Established in 1997 to conduct self and mutual assessment exercises of the AML measures in place in the Council of Europe member states that were not members of FATF. Members include: Albania, Armenia, Croatia, Cyprus, Czech Rep, Poland, Russia (now a FATF member), Serbia, Ukraine.

Asia Pacific Group on Money Laundering (APG)

Established in 1997. Provides focus for cooperative AML/CTF efforts in APAC region. Facilitates adoption of internationally accepted measures. 41 members. Including Australia, China, Japan, South Korea, India, USA, New Zealand.

Inter-governmental Action Group Against ML in West Africa (GIABA)

Established in 1999. Objectives are to: -Protect the national economies and financial/banking systems of members against the proceeds of crime and TF. -Improve measures and intensify efforts to combat proceeds of crime -strengthen cooperation members include: Benin, Burkina Faso, Cape Verde, Cote d'Ivoire, Gambia, Ghana, Guinea Bissau, Guinea Conakry, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone and Togo,

Eastern and South African AML Group (ESAAMLG)

Established in 1999. Promote the effective implementation of measures to combat ML/TF and other threats to financial system. Region specific projects. Members include: Angola, Botswana, Comoros, Ethiopia, Kenya, Lesotho, Malawi, Mauritius, Mozambique, Namibia, Rwanda, Seychelles, South Africa, Swaziland, Tanzania, Uganda, Zambia, and Zimbabwe.

Middle East and North Africa Financial Action Task Force (MENAFATF)

Established in 2004. Aims to adopted and implement FATF recommendations. Implement relevant UN treaties and agreements, cooperate to raise compliance with standards and measures within MENA region, to work together to identify regional ML/TF issues and develop regional solutions, to build effective arrangements and systems throughout the region to effectively fight ML/TF and that do not contradict with culture values or governments of member countries. Members include: Algeria, Bahrain, Egypt, Mauritania, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Palestine, Qatar, Iran, Saudi Arabia, Syria, Tunisia, UAE and Yemen.

Non-cooperative countries

FATF was engaged in an initiative to identify Non-Cooperative Countries and Territories (NCCTs) in the global fight against money laundering. It developed a process to seek out critical weaknesses in specific jurisdictions' anti-money laundering systems that obstruct international cooperation in this area. On February 14, 2000, FATF published a report on Non-Cooperative countries that set out the 25 criteria to help identify relevant detrimental rules and practices. It described a process whereby jurisdictions having such rules and practices can be identified and encouraged to implement international standards in this area.

FATF 40 Group 4

Financial and Non-Financial Institution Preventative Measures -Financial institution secrecy laws -Customer due diligence and recordkeeping -additional measures for specific customers and activities -Reliance, controls and financial groups -Reporting suspicious transactions -Designated non-financial businesses and professions

Suspicious Transaction/Activity reporting

Financial institutions must report to the appropriate financial intelligence unit when they suspect or have reasonable groups to suspect funds are proceeds of criminal activity or related to TF. The institution and employees reporting such suspicions should be protected form liability for reporting and should be prohibited from disclosing they have reported such activity

Customer Due Diligence (CDD)

Financial institutions should conduct customer due diligence when they: -Establish business relationships -Carry out an occasional transaction or wire above the threshold -Have a suspicion of ML or TF -Have doubts about the veracity or adequacy of previously obtained customer ID information. Financial institutions must: -ID the customer and verify their identity using reliable independent sources/docs/data/info. -Take reasonable to measures to verify the identity of the beneficial owner such that the institution is satisfied they know who it is. -Understand and (where appropriate) obtain info on the purpose and intended nature of the business relationship -Conduct ongoing due diligence on the business relationship and scrutinize the transactions made in the course of the relationship to ensure txns are consistent with the institution's knowledge of customer. -Maintain records of the customer info as well as transaction to enable them to comply with requests from authorities -Rely on other parties to conduct CDD in certain circumstances; however, the institution remains liable. -Establish group-wide AML program for financial groups

Money Laundering Control Act of 1986

First criminal money laundering law in the US. Can be used if the property involved in the financial transaction represents the proceeds of at least one designated underlying crime, a "specified unlawful activity" (SUA). Also reaches foreign individuals and foreign financial institutions if the transaction occurs in whole/in part in the US or if the foreign financial institution maintains a bank account with a US financial institution. Prosecution must prove the existence of SUA proceeds and that the defendant knew that funds originated from some illegal activity. Willful blindness.

FATF 40 Recommendations

First issued in 1990, revised in 1996, 2003 and 2012. After 9/11, FATF adopted Nine Special Recommendations on TF. In 2012 these were combined into the 40 Recommendations. The Recommendations set minimum standards of action for countries to implement according to their particular circumstances and constitutional frameworks. In 2012, FATF introduced the risk assessment as the first recommendation, underscoring that assessing risk is the first step in combating money laundering and terrorist financing.

FATF membership step 1

Fundamental criteria of membership: The jurisdiction should be strategically important based on quantitive and qualitative indicators: -Size of GDP -Size of banking, insurance and securities sectors -population -Impact on global financial systems including degree of openness and interaction with international markets -Active participation and in a FATF-style regional body and regional prominence in AML/CTF efforts. -Level of AML/CTF risks faced and efforts to combat those risks -Level of adherence to financial sector standards -Participation in other relevant international organizations FATF's geographic balance should be enhanced by the jurisdiction's membership

Report on Observance of Standards and Codes (ROSCs)

IMF and World Bank program that ended FATF publicizing Non-Cooperative countries and territories. Collective framework with FATF for conducting assessments using a single global methodology of countries' compliance with FATF 40. ROSCs summarize the extent to which countries observe the 12 areas and associated standards for their operational work of the IMF and World Bank. The 12 areas include: accounting; auditing; AML/CFT; banking supervision; corporate governance; data dissemination; fiscal transparency; insolvency and creditor rights; insurance supervision; monetary and financial policy transparency; payments systems; and securities regulation.

Section 319(a): Forfeiture from US Correspondent Account

In situations where funds have been deposited with a foreign bank, this section allows US gvt to seize funds in the same amount from a correspondent bank account in the US that has been opened and maintained for the foreign bank. US government is not required to trace funds, however, the owner may contest the seizure.

FATF 40 Group 7

International Cooperation -International instruments -Mutual Legal Assistance -Mutual Legal Assistance regarding freezing and confiscation -Extradition -other forms of international cooperation

Core Principles for Effective Banking Supervision

Issued by Basel Committee in 1997, a basic reference for authorities worldwide. "Banking supervisions must determine that banks have adequate policies, practices and procedures in place, including strict KYC rules that promote high ethical and professional standards in the financial sector and prevent the bank being used, intentionally or not, by criminal elements".

Sound Management of Risks Related to Money Laundering and Financing of Terrorism

Issued by Basel Committee in Feb 2016. Describe how banks should include AML and TF risks within their overall risk management framework. Guidelines discuss the following issues: -Risk Analysis and Governance -Three lines of defense 1. The Line of Business 2. The AML compliance function 3. The Audit function -CDD and acceptance -Transaction monitoring systems and ongoing monitoring -Management of Information -Reporting of Suspicious Transactions and Asset Freezing

FATF Style Regional Bodies (FSRBs)

Nine FSRBs that have similar functions to those of FATF. Considered FATF associate members. Protection of FATF brand is in the common interest.

Office of Foreign Assets Control (OFAC)

OFAC administers and enforces economic and trade sanctions based on US foreign policy and national security goals. These target foreign countries, terrorists, narcotics traffickers and those engaged in proliferation activities. OFAC acts to impose controls on transactions and freeze foreign assets under US jurisdiction. Many sanctions are based on UN and other international mandates that are multilateral and involve cooperation with allied governments. OFAC sanctions programs prohibit transactions and require blocking the assets of persons and organizations that appear on one of a series of lists. OFAC has power to impose significant penalties on those found to be violating blocking orders within each sanction program. All US persons must comply with OFAC regulations. All foreign subsidiaries owned or controlled by US companies or their foreign branches must comply with sanctions regarding Syria, Cuba, and North Korea.

Section 312: Correspondent and Private Banking Accounts

Requires DD and sometimes EDD for foreign correspondent accounts (which includes essentially all account relationships that institutions can have with a foreign institution) and private banking for non-US persons. The due diligence program must address three measures: 1. Determining whether EDD is necessary 2. Assessing the ML risk presented by correspondent account 3. Applying risk based procedures and controls reasonably designed to detect and report suspected ML. EDD must be applied for correspondent account established for foreign bank operating under: 1. An offshore banking license 2. A license issued by foreign country designated as non-cooperative 3. A license issued by foreign country that has been designated as warranting special measures pursuant to Section 311. EDD that must be implemented in the above situations includes: 1. Conducting enhanced scrutiny for possible ML and suspicious transactions including: -obtaining info relating to foreign banks AML program -Monitoring transactions in and out of correspondent account in a manner designed to detect possible suspicious activity -Obtaining info about correspondent account that is being used as a PTA. 2. Determing whether the correspondent account is being used by other foreign banks that have a correspondent relationship with the foreign bank for which the correspondent account was established, and taking steps to assess and mitigate risks associated with these accounts. 3. Determining, for any foreign bank whose shares are not public, the identity of the owners of the foreign bank with the power to vote 10% or more of any class of securities of the bank m and the nature and extent of the ownership interest of these individuals.

Egmont Group Revised Documents

Revised in 2013. Lay foundation for future work of the Egmont Group and contribute to greater int'l cooperation and info exchange between FIUs. These documents include: The Egmont Charter, Egmont Principles for Information Exchange, Operational Guidance for FIUs.

FATF Effectiveness Assessment

Seeks to assess the adequacy of a members implementation of the FATF Recommendations, and identifies the extent to which a member achieves a defined set of outcomes that are central to a robust AML/CFT system. The focus is on the extent to which the legal and institutional framework of the member is producing the expected results. FATF defines effectiveness as "the extent to which the defined outcomes are achieved." Effectiveness is evaluated on the basis of 11 Immediate Outcomes.

IMF and World Bank Efforts

Since 2001, the institutions have required countries that benefit from their assistance programs to have effective ML controls. September 2001, they fully integrated ML/TF efforts into its surveillance exercises and programs. -Concentrating on ML over other forms of financial abuse -Helping to strengthen financial supervision and regulation in countries -More closely interacting with the Organization for Economic Cooperation and Development (OECD) and the Basel Committee on Banking Supervision. -Insisting on the application of international AML standards in countries that ask for financial assistance.

Additional CDD on specific customers and activities

Some customer types and activities pose heightened risks, especially: -PEPs -Cross-border correspondent banking -Money or Value transfer services - New technologies -Wire transfers

Expanded coverage of industries

The Recommendations expand the fight against money laundering by adding new non-financial businesses and professions to the roster of financial institutions that are the usual focus of AML effort. These designated non-financial businesses and professions include: -Casinos with txns over $3k -Real estate agents -Dealers in precious metals and stones in transactions over $15k -Lawyers, notaries and independent legal professional and accountants -Trust and company service providers

FATF Public Statement

This document identifies: -Countries or jurisdictions with strategic deficiencies that are so serous that FATF calls on its members and non-members to apply countermeasures -Countries or jurisdictions for which the FATF calls on its members to apply enhanced DD measures proportionate to the risks arising from deficiencies associated with the country.