AML

Wolfsberg Group - AML Principals for Private Banking (2000, 2002, 2012) - general AML mgmt recs

ML reports to mgmt. AML training Document retention Deviations from policy Creation of AML dept and an AML policy o Prohibition on the use of concentration accounts (internal nonclient accounts) as they prevent monitoring of movement of funds

SECOND DIRECTIVE, 2001

* Moved beyond drug crimes - included corruption and fraud * Included Fx and money remittance offices * Infer Criminal conduct from facts * Definition of ML made more precise to include * Conversion of transfer of property w/knowledge it was derived from criminal activity * Concealing the nature, source, ownership, etc. of propery knowing its derived from criminal activity * Acquisition/use/possession of property knowing when received it was from criminal activity * Participating in, attempt to commit, aid, abet, etc., the commission of the above actions o Included intermediaries and businesses, auditors, real estate agents, notaries, etc as subject to mandatory reporting of aml

2012 40 Recs Revision Highlights - continued

* STR/SAR - mandatory reporting and ee protection/confidentiality * Adding new Non-Financial industries and professions - Casinos ($3000 cash threshold rec) Real estate agents Precious metal and stone dealers ($15k cash threshold) Lawyers, notaries and accountants Trust and company service providers carrying out transactions (e.g., agent of legal person) * Transparency of Beneficial ownership of legal persons and arrangements - regs on legal persons who can issue bearer shares or have nominee shareholders or directors * International cooperation

2012 40 Recs Revision Highlights - last card

* Transparency of Beneficial ownership of legal persons and arrangements - regs on legal persons who can issue bearer shares or have nominee shareholders or directors * Power and responsibilities of competent authorities - don't be corrupt/be effective * International cooperation

Report on Observance of Standards and Codes (ROSCs)

* World Bank and IMF's summary on extent to which countries observe 12 areas and associated standards: o Accounting, audit, AML/CFT, bank supervision, corp gov, data dissemination, fiscal transparency, insolvency and creditor rights, insurance supervision, monetary and financial policy transparency, payment systems, securities regs

THIRD DIRECTIVE - PEP DEFINITION

* includes immediate family members and close associates. * Close associates must only be identified when their relationship with a PEP is publicly known or Institution suspects a relationship. * No longer a pep after one year out of the position

2001 Customer DD for Banks - 4 Elements of KYC

1. Customer Identification 2. Customer acceptance policy 3. Risk Mgmt 4. Monitoring - significant transaction, change in C documentation standards, material change in way acct is operated

FATF NEW NCCT PROCESS

1. FATF "Public Statement" a. Country's strategic deficiencies are so serious that FATF calls on members to employ counter-measures or b. FATF calls on members to apply enhanced due diligence proportionate to the risks 2. "Improving Global AML/CFT Compliance: Ongoing Process" - ID countries with weaknesses but have provided high-level commitment to improvement a. If country fails to make progress threaten them being moved to the public statement b. Provides info on countries no longer subject to FATF's ongoing process because of improvements

The 4 FATF Effectiveness Ratings

1. High 2. Substantial 3. Moderate 4. Low

Basel's 2001 Customer Due Diligence for Banks - General Themes (4)

1. Importance of KYC standards 2. Elements of KYC Standards 3. Supervisor's role 4. Cross-border implementation of KYC

2016 Sound Mgmt of Risks Related to ML and TF & revised Guide to Account Opening - 3 lines of defense

1. LOB 2. AML Compliance 3. Audit

FATF's 25 Criteria/4 broad areas to Identify Slackers

1. Loopholes in financial regs (excessive secrecy, inadequate CDD) 2. Obstacles raised by other regulatory requirements (lack of ID of beneficial owners, lack of business registration) 3. Obstacles to international cooperation (lack of coop from admin and judicial authorities) 4. Inadequate resources for preventing and detecting money laundering activities (lack of FIU; lack of resources in public and private sectors)

Eleven Immediate Outcomes of the effectiveness assessment - 2013 Methodology

1. ML/TF risks known and action is coordinated 2. International cooperation results in actionable info to use against criminals 3. Supervisors regulate Financial Institutions and Nonbank financial inst (NBFI) and their risk-based aml/cft programs 4. FI and FBFI apply preventative measures and report suspicious transactions 5. Legal persons not misused and beneficial ownership is known to authorities 6. Financial intelligence info is used by authorities in their AML/TF investigations 7. ML offenses prosecuted and sanctions imposed 8. Confiscation of crime proceeds 9. TF offenses investigated and criminally prosecuted and sanctions imposed 10. Terrorists prevented from raising, moving and using money and not permitted to abuse nonprofits 11. Arms dealers involved in weapons of mass destruction preventing from raising moving and using money

THREE STAGES OF THE MONEY LAUNDERING CYCLE

1. Placement 2. Layering 3. Integration

FATF's THREE INTERMEDIATE OUTCOMES (major thematic goals)

1. Policy cooperation and coordination to mitigate money laundering and TF 2. Prevention of criminal money from entering financial system and reporting when it does 3. Detection and disruption of ML/TF threats

There 3 FATF Objectives

1. Spreading Message - Promoting estab of AML network by expanding membership 2. Monitor implementation of its recommendations among members via a. Technical Compliance Assessment - focuses on fundamentals - compliant, largely compliant, partially, noncompliant, n/a b. Effectiveness Assessment - adequacy of implementation of Fatf's recs and determines whether member achieves a robust AML/CFT system 3. Review trends and countermeasures - issue periodic reports on threats (e.g., diamond trade)

2016 Sound Mgmt of Risks Related to ML and TF & revised Guide to Account Opening - 3 Steps to Governance

1. identify and analyze those risks, which will lead to design and implementation of appropriate controls. Include inherent and residual risks at country, sector, bank and business level, etc. 2 Create a culture of compliance with a tone from the top 3 Board of Directors role - oversee and approve risk policies, clear understanding of ML risks, appoint qualified chief AML officer and give her authority to deal, becomes the board's proxy in day to day and have sufficient resources

FATF Membership Criteria

1. m/b a strategically important jurisdiction as measured by: a. Quantitatively - GDP, Population, Size of banking/insurance/securities sectors b. Qualitative - Country's impact on global financial system, participation in FATF type regional body; level of AML/CFT risks faced and efforts to combat them c. Other - level of adherence to financial sector standards, participation in relevant international orgs 2. FATF's geographic balance would be enhanced by the jurisdiction becoming a member

How many FATF-style Regional Bodies?

9 * APG * CFATF * MONEYVAL * GAFILAT * GIABA * MENAFATF * EAG * ESAAMLG * GABAC

40 Recs - Group 1 (recs 1-2)

AML/CFT policies and coordination among nations

2012 40 Recs Revision Highlights - Additional CDD

Additional CDD for: * PEPs * Cross-border correspondent banking (KYC, PTA risks) * MVTS - licensure and regs needed * New technologies/products -assess the risks * Wire transfers - FIs s/b required to have controls on originator, intermediary and beneficiary ID, monitor for sanctions

3rd Party Payment Processor

Bank customers that provides payment-processing services to merchants and other business entities and use their commercial bank accounts to conduct payment processing for merchants. Often not subject to any AML/CFT requirements

2004 Consolidated KYC Risk Mgmt

Banks need a global approach toKYC programs Same elements as 2001 - Customer ID and Acceptance, risk mgmt, monitoring of higher risk acts

2 types of sanctions

Comprehensive - prohibits virtually all transactions with a certain country Targeted - prohibit transactions w/specific industries or individuals on OFAC's Specially Designated Nationals and Blocked Parties List

MONEYVAL

Council of Europe Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures.

Predicate Crime

Crimes that MLs attempt to conceal through financial subterfuge

THIRD DIRECTIVE - EXPANSION OF APPLICABILITY TO...

FIs Credit inst auditors/accountants/tax advisors Legal professionals trust and company service providers estate agents high-value goods dealers who trade in cash over $15k casinos

FATF

Financial Action Task Force

40 Recs - Group 4 (9-23)

Financial and Nonfinancial Institution Preventative Measures a. Secrecy Laws b. CDD and record keeping c. Measures for certain customers d. Reliance, control and reporting groups e. Suspicious activity reporting f. Designated NF businesses and professions

Egmont Group of Financial Intelligence Units

Founded in 1995 to support : * expanding and systematizing cooperation * increase effectiveness of FIUs

FATF Noncooperative Countries and Territories (NCCT) Policy

Goal - reduce vulnerability in financial system by naming and shaming. 24 were named and on list until they shaped up enough to come off it. Replaced by new process

40 Recs-Group 7 (36-40)

International Cooperation a. International Instruments b. Mutual Legal Assistance i. Freezing ii. Confiscation iii. Extradition

40 Recs - Group 2 (3-4)

ML offenses and confiscation measures

MSBs - Definition and Types

Money Services Businesses - Aka Money or value transfer service (MVTS) USA defines them to include: i. Dealer in fx ii. Check casher (including a bar that cashes your check for you) iii. US Postal Service (money orders) iv. Issue of travelers checks or money orders v. Money transmitter (western union, paypal) vi. Provider and seller of prepaid access cards

PTA Definition

PAYABLE THROUGH ACCOUNTS (PTA) • Where a respondent bank's customers are permitted to conduct own transactions through the bank's correspondent account without first clearing the transaction through the respondent bank. The customer directly controls funds at the correspondent bank. • PTAs have Unlimited amount of subaccount holders - individuals, businesses, exchange houses

40 Recs - Group 6 (26-35)

Powers and Responsibilities of Competent Authorities and Others Institutional measures a. Regulations and supervision b. Operational and law enforcement c. Sanctions

What is RDC

REMOTE DEPOSIT CAPTURE • Check scanning for individuals • No need to go to the bank • Can set up multiple accounts • w/o proper controls c/b used to facilitate violations of sanctions requirements • Fraud is a greater risk - detected after occurrence

Wolfsberg Group - AML Principals for Private Banking (2000, 2002, 2012) - CDD/EDD

Recommendations - * at least one person other than the private banker approve new clients/accounts Enhanced DD for - PEPs People residing in high risk countries People involved in business activities known to be susceptible to ML Other sources of scrutiny - negative news, external inquiries, info from monitoring

Concentration account ML Risk & remedies (8)

Risk - separation of the customer information from the transaction - loss of audit trail • Policies to keep the accounts above-board: o Dual signatures on general ledger tickets o Prohibit direct customer access o Capture C transactions in their account stmts o Prohibit C's knowledge of the accounts or their ability to direct employees to conduct transactions through the accounts o Retaining appropriate transaction and customer ID info o Reconciling accounts frequently o Establish timely discrepancy resolution process o Identifying and monitoring recurring customer names

Securities Broker-Dealer ML Risks

Risk from international nature, transaction speed, ease of converting holdings, commission driven environment gives disincentive to verify clients, trustees/nominee accounts veil read IDs, weak AML

2 Steps to FATF Membership

Step 1 - Engaging with the country and granting "observership" Step 2 - Carrying out a mutual evaluation, agreeing on an action plan and granting membership

FATF Membership - Unsatisfactory Mutual Eval Causes

Technical Compliance fail: o 8 or more NC/PC o NC/PC on Recs for- ML offenses, TF Offenses, CDD, Recordkeeping, STRs (3,5,10,11,20) Effectiveness Outcomes fail: o Low or moderate level of effectiveness for 7 or more of the 11 Effectiveness Outcomes o Low level of effectiveness for 4 or more of the 11 effectiveness outcomes

40 Recs - Group 3 (5-8)

Terrorist Financing and Proliferations (TF and P) a. Defines offenses b. Targeted sanctions for T and P c. Use of Nonprofits

40 Recs - Group 5 (24-25)

Transparency and Beneficial Ownership of Legal Persons and Legal Arrangements

Reference Guide to AML and Combating the Financing of Terrorism, 2002

World Bank and IMF - general guide and their efforts

What happens if you get below a "High" effectiveness rating

a. Anything below High and fatf will give reasons why and recommendations on improvement b. No fines or penalties c. Peer pressure enforcement - Can require progress reports, issues warnings to members about bad members (Turkey) and suspension of membership

FATF Membership - Step 1 Hurdles to Observership

a. Country makes a written commitment to endorsing FATF's recs, undergoing mutual evaluation, actively participating in fatf b. The Plenary decides to make a high-level visit to the country c. Based on the outcomes of the visit, the Plenary may decide to allow the country to participate in the FATF as an observer (for a max of 3 years). If not, then a contact group will work with the country to help them meet the requirements of a successful mutual evaluation and reconsider at a later time

2016 Sound Mgmt of Risks Related to ML and TF & revised Guide to Account Opening - Audit Role

a. Report to audit cmte b. Evaluate through periodic assessments (risk based frequency) c. Properly scoped audits d. Proactive follow ups

2016 Sound Mgmt of Risks Related to ML and TF & revised Guide to Account Opening - AML Compliance Role

a. Working w/HR, technology b. Monitoring of AML compliance - sample testing, exception reports, escalation to sr mgmt. and/or board c. Sufficient independence from business lines to prevent conflicts of interest d. Should not have data protection or internal audit in their portfolio

2016 Sound Mgmt of Risks Related to ML and TF & revised Guide to Account Opening - LOB Role

a. create and implement policies and procedures on AML and communicating to Ees b. screen ees c. deliver training at hire and refreshers

Risks for TPPP

i. multiple institution relationships - hinders ability to see entire relationship, done on purpose by some to limit the bank's ability to see suspicious activity and end the relationship ii. Money Laundering - using international ACH payment iii. High Rate of Return from unauthorized transactions

Smurfing

multiple individuals making multiple cash deposits or buying multiple monetary instruments or bank drafts in amounts under the reporting threshold

International Due Diligence Repository

o Collaboration between Wolfsberg Group and Banker's Almanac o A move to standardizing due diligence info o Holds company bylaws, licenses, commercial register extracts, certs of incorporation, recent annual reports, shareholders w/stakes of more than 5 percent, bios of board members/senior mgmt., info on each FI's AML procedures and policies

World Bank and IMF focus

o Concentrating on mL over other forms of abuse o Strengthen financial supervision and regulation in countries o Closely interacting with Organization for Economic Co-operation and Development (OECD) and Basel Committee on Banking Supervision o Insisting on international AML standards in countries that ask for assistance

2016 Sound Mgmt of Risks Related to ML and TF & revised Guide to Account Opening - CDD and Acceptance

o Develop a customer acceptance policy to identify those posing higher risk (e.g., PEPs) and those they will not accept (sanctions list) o Basic for all and increased checks as the risk profile of the C increases o Verify beneficial owners o Either no transactions until CDD is done or develop appropriate controls while CDD is performed o IF ID cnb verified then don't open the account or close it o Numbered accounts OK but you have to go through CDD anyway - no anonymous accounts

Monitoring, Screening and Searching Wolfsberg Statement, 2003

o Guidance on real-time screening, transaction monitoring and retroactive searches o Development of risk-based processes for monitoring, screening and searching transactions and Customers

Vulnerabilities of Private Banking

o High profitability o Intense competition o Powerful clientele o High level of confidentiality o Close trust between mgrs. And clients o Culture of secrecy o Commission based comp for mgrs. o Use of private investments companies by Cs to reduce transparency of the beneficial owner o Cs maintaining personal and business wealth in multiple jurisdictions

2016 Sound Mgmt - Transaction Monitoring Systems

o IT system covering all accounts and transactions o Enable trend analysis of activity o Identify unusual business relationships and transaction, esp to transactional profile changes o Gain an enterprise level view of ML risk across the bank

Egmont Group's 100 Sanitised Cases - 6 most frequently observed indicators of ML

o Large-scale cash transactions o Atypical or uneconomical fund transfers o Unusual business activity or transactions o Large/rapid movements of funds o Unrealistic wealth compared to profile o Defensive stance to questioning

MONEYVAL Gambling typologies

o ML colludes with operator of offshore online casino, deposits criminal funds and withdraws as winnings o ML colludes with professional gamblers. Gamblers keep commission on winnings and transfer remainder to ML o ML uses stolen ID

Red Flags - parties

o Native to/residents of high risk country o Connected w/o apparent reason o Appear in multiple transactions in a short period of time o Under legal age o Attempt to disguise parties o Not directing their own transactions o Do not appear suitable reps

Correspondent Banking Vulnerabilities to ML (4)

o One bank carries out financial transactions on behalf of customers of another institution. Indirect relationship means they haven't verified these people/entities o Process large volumes of transactions for their customer's customers which makes it more difficult to identify suspect transactions because they don't know who the actual parties are to know whether the transaction is unusual * Compliance questionnaires only so valuable * Nesting - bank may not ask respondents how much they offer facilities to other institutions

PTA's AML Vulnerabilities (4)

o PTAs with foreign institutions in offshore havens o Correspondent bank considers the respondent bank to be its sole customer and fails to apply its CDD policies to the customers of the respondent bank o PTAs where subaccount holders have currency deposit and withdrawal privileges o PTAs in conjunction with subsidiary or other office of the respondent bank, which enables the RB to offer same services as a branch without supervision

2002 Wolfberg Guidelines on Terrorism Financing

o Providing official lists of suspected terrorists that's globally coordinated o Include enough info on lists to help banks search customer db o Provide prompt feedback to inst after circulation of the lists o Provide info on the means, manner and methods used by terrorists o Develop govt guidelines for business sectors and activities identified as high-risk for terrorism financing o Develop uniform global formats for funds transfers that assist in TF detection o Protect FIs with safe harbor immunity to encourage them to share info and report to authorities o Perform enhanced due diligence for: Remittance businesses Exchange houses Casas de cambio/bureax de change Money transfer agents Underground banking/alternative remittance businesses

2016 Sound Mgmt - Management of Information

o Recordkeeping of account opening info o Kept up to date - periodically assessing the info/risk based frequency o Document decisions on unusual activity, whether a SAR is filed or not o Retention is 5 years after account closure - or indefinitely if an investigation is open after account closing

2016 Sound Mgmt -Reporting Suspicious Transactions and Asset Freezing

o Sanctions - check at account opening and screen existing customer against changes to the sanction list - freeze accounts where needed. o Review unusual activity to refer to internal review, eliminate false positive, timely SAR filings

Red Flags for Lawyers - CLients

o Senior public position or family ties to such o Known criminal ties o Using agents w/o reason o Reluctant to provide information/secretive

FATF's 3 main activities under its Mandate

o Standard Setting o Ensuring effective compliance with standards o Identifying money laundering and terrorist financing threats

Red Flags - retainers

o Unusual transactions - size, frequency, execution o Do not correspond with normal business activity o Complicated ownership structures or from multiple countries o Last minute changes to instructions o No reason for the transactions o Exclusively keeping docs or goods, etc., without providing legal services o Abandoned transactions w/o concern for fees or after receipt of funds o Power of atty for no good reason

Microstructuring methods of detection

o Use of counter deposit slips o Frequent activity immediately after opening the account with incomplete information o Frequent cash deposits o Cash deposits followed by ATM withdrawals esp in high risk countries o Cash deposits made into business accounts by 3rd parties with no apparent connection

Prevention of ML in Fine Art

o Vendors provide names and addresses, sign and date form its not stolen o Verify ID of customers o If suspect theft - contact Art Loss Register o Avoid cash payments o Appt SAR officer

Concentration Risk

too much credit or loan exposure to one borrower or group of borrowers from lack of knowledge about a particular customer or the C's relationship to other borrowers

Concentration Account defined

• A centralized account used to facilitate processing and settlement of multiple customer transactions in a bank on the same day by aggregating funds from several locations to one centralized account • A.k.a. - suspense, sweep, collection, settlement, omnibus, special-use • Used for private banking, trust/custody, funds transfers and international affiliates

2001 CDD for Banks - Other

• Banks should develop customer profile procedures and describe who is acceptable as a C • Private banking should never escape KYC policies • Know identity of corporations and their intermediaries and their relationship • Periodic training on KYC AND AML policies • Internal audit and compliance monitoring for adherence • High risk account monitoring • Regulator audits

THIRD DIRECTIVE, 2005

• Based on FATF'S 40 recommendations • Defines ML and TF as separate crimes • Extends CDD and SAR reporting to trusts and company service providers, life insurance intermediaries, dealer of goods for cash payments of more than 15,000 euros • Risk-based approach to CDD • Protection of employees making reports • Obligating members to keep comprehensive stats on SARs • Require verification of beneficial owner of all accounts held by legal entities or persons -defined as one controlling more than 25% of a legal entity or person

Basel's 1997 Core Principles for Effective Banking Supervision

• Basic reference for authorities worldwide • Urging adoption of the 40 recommendations • Non-10 nations contributed

Palermo Convention Def of ML

• Conversion or transfer of property, knowing it's from criminal act, for the purpose of concealing or disguising its origin OR assisting someone to do so • Concealment/disguise of true nature, source, location, movements, rights of property knowing it's from criminal offense • Acquisition, possession or use of property knowing it was from a criminal act when received

1998 Basel Committee Statement of Principles (Prevention of Criminal Use of the Banking System for the Purpose of Money Laundering)

• Customer identification • Compliance • Conformity with ethics, local laws and regs • Full cooperation with national law enforcement without breaching confidentiality of customers (this was prior to AML legislation) • Staff training • Record-keeping and audits

STRUCTURING

• Designing a transaction to evade triggering a reporting or record keeping requirement * includes smurfing • Examples - o Breaking a large transaction into smaller ones o Breaking a large transaction into smaller ones conducted by two or more people o Sending money abroad

Organization of American States: Inter-American Drug Abuse Control Commission (CICAD)

• Focused on Western Hemisphere drug policy • Executes action plans to combat drug trade and ML • Addresses all aspects of drug problem - crime, treatment, consumption, cost to society • CICAD-AMLU - PROVIDES technical assistance and training to all member states

The Basel Committee on Banking Supervision

• Global standard-setter for prudential regulation of banks • Forum for cooperation on banking supervisory matters • Mandate to strengthen regs, supervision and practices of banks worldwide with purpose of enhancing financial stability • Staffed by professional supervisors on temp assignment from member institutions * Resulted from banking scandals in 70s * Set basic rules for multi-national banks

FATF Membership - Step 2 Hurdles to Membership

• Max of 3 years after being invited to be an observer, the mutual evaluation m/b held

2001 CDD for Banks - Higher Risk Customers

• Numbered accounts not prohibited, but sb subject to the same KYC • Specific Customer ID issues - higher risk for: o Trust, nominee, fiduciary accounts o Corporate vehicles - nominee shareholders or shares in bearer form o Introduced businesses o Client accounts opened by intermediaries (e.g., pooled accts on behlf of mutual funds, etc) o PEPs o Non face to face Cs - use standard ID procedures; never open an acct anonymously o Correspondent banking

Purpose OF PRIVATE INVESTMENT COMPANIES IN PRIVATE BANKING (PICs)

• PICs are established by individual by Cs in offshore jurisdictions to hold assets. • Shell companies formed to maintain C's confidentiality and for tax/trust related reasons • Excellent laundering vehicles • Secrecy laws of the havens where PICs are estab can conceal the true ID of the owner

Placement

• Physical disposition of cash or assets from criminal activity • Use of formal financial institutions, casinos or legit businesses • Examples: Blending funds w/legit business Foreign exchange Breaking up transactions to evade reporting requirements Smuggling loans

Yates Memo on accountability

• Reminds criminal prosecutors and investigators of corporate misdeeds to look at the individuals behind it • Resolution of corporate case does not provide protection to the individuals behind it

1st Directive (EU Directives on ML) - 1991

• Requires members to enact AML legislation aimed at drug trafficking • Directives override laws of the subject country

2012 40 Recs Revision Highlights - first five

• Risk Based Approach • Designated Categories of Predicate Offenses • Rec that countries criminalize Terrorist financing, controls on non-profits used to fund them and impose sanctions for TF and weapons proliferation • Use of Inferred Knowledge to attach criminal liability to natural and legal persons • Perform Customer Due Diligence - at the start, above thresholds, when ML/TF is suspected or when there's any doubt about veracity of the info and methods

2002 Wolfberg recs on Correspondent Banking -Due Diligence considerations

• Risk-based and on-going, depending on the usual factors (location, business type, ownership, customer base, regulatory status, AML controls of corresp) • Geographic risk • FI's and correspondent bank's branches, subsidiaries, affiliates • Ownership and mgmt. structure of the Correspondent banking client • Client's - o Customer base o Products/services o Regulatory status and history o AML controls o Dealings with shell banks o Visits to C's business • EDD for PEP involvement with corresp banking client and downstream/nested correspondent relationships the correspondent provides • Principles mb part of a larger AML program, including anti-bribery/corruption, fraud and evasion of sanctions

Use of Vehicle Sellers

• Structure deposits below reporting levels • Trading - complex layers • Accepting 3rd party payments from havens • Downtrading

FOURTH DIRECTIVE, 2015

• Threshold decreased to 10,000 • Casinos enlarged to "providers of gambling services" • CDD applied to transfers of funds greater than 1000 euros • Inclusion of tax crimes - direct and indirect taxes • EU must submit a report every 2 years on ML and TF • Enhanced due diligence (EDD) must be applied to every PEP, foreign or domestic • EU will identify deficient third-countries • Criminals in relevant areas cannot hold mgmt. functions or indirectly control obliged entities • Directive, not legislation, so member states have some discretion on application

Layering

• creating complex layers to conceal source and ownership of funds • examples: o moving funds from one country to another o converting cash placed into instruments o reselling high value goods o prepaid cards o real estate and other legit investments o placing money in stocks bonds or life insurance o shell companies

Integration

• reentry of funds into economy in what appears to be normal business or personal transactions • hard to spot unless the person is stupid about their taxes (outliving their means) • Examples: o Purchase of luxury goods - artwork, jewelry, autos o Investments via business enterprises

What is EFT

•Any electronic funds transfer, such as ACH or ATM, mobile phones, telephone, magnetic tapes * figures into Layering stage