ACAMs Foundation Training - Section 1

Examples of terrorist financing

(Student) Loan fraud Mortgage fraud Mandate fraud Auction sites Pre-paid cards / Virtual currency Money transfer operators Customers defrauding bank Trade finance fraud Alternative remittance systems (e.g. Hawala) Cyber threats Human trafficking/Migrant smuggling

FATF identifies two major categories of obliged entities.

1) Financial Institutions 2) Designated non-financial and business professions These entities must comply with AML CTF obligations as stated in the recommendations.

Netherlands: 6 AML/CFT supervisory authorities that ensure AML/CFT compliance of the whole range of financial institutions and DNFBPs.

1) the Dutch central bank for banks and other financial institutions, 2) the Authority for Financial Markets for the securities sector, 3) the Office for Financial Supervision for professionals, 4) the tax authorities for realtors and sellers of goods, 5) the Bar association for lawyers and 6) the gambling authority for casinos.

Five Pillars of the US Bank Secrecy Act

1. Designate a Compliance Officer 2. Training 3. Internal Controls 4. Audit 5. KYC and CDD

Smurfing

A money laundering placement tactic that involves the use of multiple individuals and/or multiple transactions for making cash deposits, buying monetary instruments or bank drafts in amounts under the reporting threshold. The individuals hired to conduct the transactions are referred to as "smurfs."

Wwft Risk Assessment

All Wwft-institutions have to make one, but can take into account their nature and size. Financial institutions also have to make an integrity risk assessment based on the Financial Supervision Act, this is called the systematic integrity risk analysis or SIRA.

The AML/CFT framework under the Wwft includes:

An ML/TF risk assessment A risk management system, consisting of policies, procedures, compliance, audits CDD and transaction monitoring Reporting of unusual transactions Record keeping and retention Training

Wwft Reporting Duty

An important difference with other countries worldwide is that the Netherlands has a reporting duty of unusual transactions, whereas other countries have a reporting duty of suspicious transactions. Institutions are required to report executed or intended unusual transactions. The reporting has to be done immediately once the institution has become aware of the unusual character of the transaction.

United Nations

An international organization established in 1945 in the aftermath of World War II. It is the organization with the broadest range of membership. headquartered in New York City. Its' primary mission is to promote international cooperation. It does not make laws. The UN issues papers dedicated to the fight against money laundering. It hosted both the Vienna Convention and the Palermo Convention. These conventions addressed money laundering specifically and are the basis for the AML and counter terrorist financing structure.

Financial institutions who must comply with these regulations have been identified by the FATF based on the products and/ or services they provide.

Any natural or legal person who conducts as a business one or more of the following activities or operations for or on behalf of a customer. This business can be: a) Acceptance of deposits and other repayable funds from the public. Banks are an example. b) Insurance, including intermediaries and brokers. c) Financial leasing and lending, and Money or value transfer services such as money remitters and bureau de change

The Office of Foreign Assets Controls (OFAC)

Bureau of the US Treasury Department is responsible for the US sanctions regime that prohibits, for instance, trade with certain countries or individuals. OFAC publishes a list of individuals and companies owned or controlled by targeted countries. It also lists individuals, groups, and entities, such as terrorists and narcotics traffickers designated under programs that are not country-specific, also known as "Specifically Designated Nationals" or "SDNs". OFAC works closely with the Department of Justice and the banking agencies to enforce sanctions and has assessed extremely large fines for violations of these rules.

The risks posed by the delivery channels

Channels of delivery identified by regulators, governmental authorities as being potentially high-risk for money laundering include: International correspondent banking services, International private banking services, and Services involving banknotes and cash. Or: Services or delivery channels implying an intermediary such as: Via a broker, Via any third party, and Via mobile devices.

European AML Directives

European AML Directives name the obliged entities. The obliged entities are the industries or professionals or businesses which have to adopt an AML CFT program and comply with it. They also set thresholds for certain financial transactions. The Directives are binding but leave a certain freedom to the European member states. The European states have two years to integrate the content of the Directives into their national legal framework.

European Directives

European Directives, especially the 4th and 5th European AML Directives, include more innovative products. Among these products note the presence of exchange services between virtual currencies (such as Bitcoin) and fiat currencies (traditional currencies), the providers of e-wallets and intermediaries in art.

Financial Action Task Force (FATF)

FATF is an inter-governmental body and consists of members that include regional organisations, observers, and associate members. FATF represent most major financial centres in all parts of the globe. FATF has issued 4 sets of recommendations so far. Each set has triggered European Directives. Standards to fight ML and TF are provided via recommendations issued by the FATF.

Integration

Finally, the proceeds are then integrated or used by the criminal to purchase goods and services in the legitimate economy.

Impact of Money Laundering to financial institutions

Financial institutions are also threatened by money laundering. Money laundering takes advantage of the institution by subjecting it to undue risk.

Impact of ML on reputation

Impact on reputation - Countries that permit money laundering or do not effectively prohibit money laundering open themselves to increased crime rates, corruption and political instability. This in turn generates international isolation. The FATF for instance identifies high-risk and non-cooperative jurisdictions and exert indirect pressure on them. Last but not least Money Laundering has a dampening effect on foreign investment.

Placement stage - Detailed Explanation

In the placement stage the illegal funds are "placed" into the financial system. A common example of this is when a drug trafficker deposits a large amount of cash or negotiable instruments into a bank account. Cash is not always involved in the placement stage and is not an integral part of all money laundering. What is the goal? Well, in order to use the proceeds, a criminal will first need to get this money into the legitimate financial system. The criminal sets out to make his proceeds appear to be earned or derived from legal or legitimate activit

Basel Committee also issued a paper called "Core Principles of Effective Banking Supervision".

In this paper they focused emphasized three things: First, the importance of having "know your customer" rules, Second, the need for banks to report suspicious activity and to engage in due diligence with regard to correspondent bank accounts, and Third, have sufficient controls and systems for preventing the bank from being abuse

Wolfsberg Anti-Money Laundering Principles for Correspondent Banking."

In this paper, they recommend: To prohibit the use of concentration accounts or internal bank accounts for the benefit of individual clients, to have the correspondent banking relationships approved by senior, independent official of the bank, to monitor the risks inherent to the correspondent bank itself such as: geographic risk, identification of the branches, subsidiaries and affiliates of the correspondent bank, identification of the ownership and management of the correspondent bank and to apply the correspondent banking principles to all the relationships maintained with non-bank financial institutions using a risk-based approach.

Dutch Predicate Offenses

Indicative of the broad definition of ML in the Netherlands is also that there is an all crimes approach and that it is not necessary to prove the predicate offence. Also, crimes committed abroad will be considered as predicate offences. The Dutch Supreme court already decided in 2008 that tax fraud is a predicate offence for money laundering. This means that when an institution has a suspicion of tax fraud, the transaction should be reported to the FIU because it can be related to money laundering.

Wolfsberg Statement on Monitoring Screening and Searching

It describes best practices to search for unusual activities. It discusses the need to monitor transactions and customers to identify unusual or suspicious activity and to report them to the appropriate authorities, your local FIU.

The Egmont Group

It is an international group of Financial Intelligence Units (FIUS). It was created in June 1995, when a group of government agencies and international organizations gathered at the Egmont-Arenberg Palace in Brussels to discuss ways to fight the global problem of money laundering. The Egmont Group was created to enhance mutual cooperation among countries and to share information concerning detecting and combating money laundering and terrorist financing. Around 150 FIUS belong to the Egmont Group at this stage.

Impact of Money Laundering to economic structure (cont.)

Money Laundering undermines the private sector of a country. The illegal front companies involved in money laundering have an unfair competitive advantage because they are more focused on laundering funds than making a legitimate profit and can therefore offer consuming goods and services at a more competitive price. For instance, money launderers often operate an artificial business at a loss in order to have a mechanism for laundering their money. A legitimate business - trying to make a profit and avoid losses - is not able to compete with the money launderer.

Examples of risky products

Money orders, Traveler's checks, and Products bought with cash because they can be acquired anonymously. Electronic money - which is any money unit stored on an electronic support such as a prepaid card. These money units are initially issued by a central bank. Speaking of non-paper money, let's not forget virtual currencies, and finally providing Wire transfer services.

Three basic stages of money laundering.

Placement Layering Integration Some money laundering activity does not happen with all three stages occurring in this way. Sometimes two of the steps can happen almost simultaneously.

Why are pre-paid cards vulnerable to money laundering?

Prepaid cards can be misused for money laundering or terrorist financing because they allow the person who places money on the card to remain anonymous and to feed the card with dirty money. The card can be handed out to another person who will remain anonymous as well and the funds stored on the card can then be spent without leaving any trace. It is possible to acquire many prepaid cards. In order to mitigate some of these risks, issuers of prepaid cards often have jurisdictional obligations to identify red flags, carry out identity checks and report suspicious activity. So, the risks often shift to jurisdictions that have not yet implemented these measures.

Definition of Money Laundering

Process of concealing or disguising the existence, source, movement, or illegal application of illicitly-derived property or funds to make them legitimate. However, the main thing to remember is that the objective of money laundering is to clean or conceal proceeds originating from criminal activity in order to use them in the legitimate economy.

In the reference guide issued by the IMF and WB, the two organizations recommended five specific steps:

Publicizing the need to put in place the necessary economic, financial and legal systems designed to protect against money laundering, recognizing the FATF 40 as the standard for AML, intensifying the focus on AML issues when performing financial sector assessments, working more closely with the major international AML groups, and increasing the provision of technical assistance by the IMF and The World Bank in the area of AML.

FATF Recommendations

Require customer due diligence, require adequate record keeping, require suspicious. activity reporting, prohibit money launderers and other criminals from maintaining positions of ownership or control in financial institutions, prohibit accounts for shell banks, require enhanced due diligence in relation to Politically Exposed Persons, detect and monitor cross-border currency transactions, and many more!

Section 311 of the USA PATRIOT Act

Section 311 of the USA PATRIOT Act is a provision that enables the United States to designate a foreign jurisdiction, bank, account, or transaction as a "primary money laundering concern". Once the designation is made, there are various sanctions - or special measures - that can be imposed which range from requiring the reporting of certain information to prohibiting activity with the entity or jurisdiction. Use of 311 sanctions has been considered 21 times and actually used six times. Each time it has been used, it has required the cessation of activity with the entity or jurisdiction.

Silk road

Silk Road was one of these forbidden internet places, an online black-market platform known for selling drugs. The platform connected illegal drug sellers with interested buyers online and the exchanges remained anonymous. The platform used Bitcoins as an exchange currency. In 2013 the founder of Silk Road was indicted on charges of money laundering and sentenced to life in prison. The exchanges on the black market are not monitored. This shows how new technologies can be used to launder funds.

Dutch Terrorist Financing

TF is broadly defined as intentionally providing resources or information or collecting, acquiring, possessing or providing to another person financial support for committing a terrorist crime. The difference with ML is that the origin of funds that are used for the financing of terrorism can be legal and illegal. And of course, the purpose is not to hide the origin to make it appear from a legal origin, but to finance terrorism.

Gambling

The 4th European Directive requires the gambling industry to identify the customers, who deal in cash when certain thresholds are reached.

Industry Guidance

The Basel Committee influenced the FATF's first recommendations. The Basel Committee, along with the Wolfsberg Group and the Egmont Group provide industry guidance.

European Union

The European Union (EU) is an economic and political union of member states located in Europe. EU member states must implement the content of the Directives. They do this by passing legislation. So, unlike the recommendations issued by FATF, Directives have the force of law for the countries belonging to the European Union The AML European Directives aim to prevent the financial system from being used to launder money, enhance cooperation between European member states, and to harmonize the EU efforts with international initiatives, such as the FATF's. The key word here is "prevention". The main purpose of the directives is to prevent EU countries from using bank secrecy laws when it comes to cooperating to fight money laundering and terrorist financing

MONEYVAL

The FATF-Style Regional body that supports and supplements FATF's work in Europe is known as MONEYVAL.

FATF

The Financial Action Task Force inter-governmental body established in 1989 by the Ministers of its Member jurisdictions. It consists of members that include regional organisations, observers, and associate members. FATF represent most major financial centres in all parts of the globe. FATF sets global standards for anti-money laundering policies. The latest guidelines from 2012 are called the 40 Recommendations. FATF measures these standards are being applied by member countries by conducting country evaluations, called Mutual Evaluation Reports, to determine the effectiveness of individual country's anti-financial crime regimes.

The second EU AML Directive (cont)

The First Directive listed credit institutions, financial institutions, and insurance companies as obliged parties. The second Directive added: Bureau de change, money transfer, real estate agents, investment firms, collective investment undertakings, dealers in high value goods, casinos, auditors and other independent legal professions, and foreign exchange and financial derivatives markets.

The International Monetary Fund and the World Bank are two agencies of the United Nations

The IMF's efforts focus on the stability of the international monetary system. World Bank is a source of financial and technical assistance to developing countries around the world. The World Bank is not a bank in the ordinary sense but a unique partnership to reduce poverty and support development. These two international bodies exert pressure on non-compliant states since they condition their assistance on efforts made by emerging countries to fight money laundering. In 2001, the IMF and The World Bank issued a joint paper entitled "Enhancing Contributions to Combating Money Laundering", in which they detailed steps that should be taken to strengthen the global fight against money laundering. In 2003, they developed a "Reference Guide to Anti-Money Laundering and Combating the Financing of Terrorism" in an effort to provide practical steps for countries implementing AML/CFT programs in accordance with international standards. The IMF and WB have actively supported the fight against money laundering and terrorist financing. Since 2001, the two institutions have required countries that receive aid or assistance from them to implement effective anti-money laundering programs.

Vienna Convention

The Vienna Convention is a crucial step in the fight against Money Laundering. Issued in 1988 by the UN and is officially known as the "Convention against illicit traffic in narcotic drugs and psychotropic substances". it addresses only drug trafficking. crimes unrelated to drug trafficking, tax evasion, fraud, kidnapping and theft, are not defined as money laundering offenses under the Vienna Convention. This treaty recognizes the links between drug trafficking and related organized criminal activities and calls for the signatory parties to establish drug trafficking as a criminal offense, including the conversion of drug trafficking proceeds into other property. It also urges signatories to adopt adequate measures of confiscation of illegally acquired property.

The Basel Committee

The committee is a non-governmental entity. It meets regularly and has issued a number of papers in relation with money laundering. The Basel Principles were designed to be general and to ensure that the business of all banks is conducted in conformity with high ethical standards and that laws and regulations pertaining to financial transactions are adhered to. The Basel Principles called for bank management to ensure that: Persons conducting business with the bank are properly identified, High ethical standards and laws are complied with, Transactions that do not appear legitimate are discouraged, and Cooperation with law enforcement agencies is achieved.

Examples of suspicious commercial account activity are:

The customer provides check cashing services but does not make cash withdrawals to fund the check cashing service. The corporate account shows little to no account activity followed by spurts of activity that do not seem to correspond to normal commercial business cycles. The customer is unwilling to provide certified Article of Incorporation. The commercial account involves activity in countries that are inconsistent with the known activity and purpose of the corporation. The customer maintains many different commercial accounts for no apparent legitimate reason.

Examples of suspicious non-cash transactions are:

The customer sends funds to a foreign country in a manner that does not seem to have any legitimate business purpose and is not in line with the customer's known type of business. The customer sends funds to countries designated and recognized as tax havens. The customer deposits a large amount of funds and immediately wires the funds out of the country. The customer frequently and seemingly randomly transfers funds between accounts

Money Laundering in the Dutch Criminal Code

The money laundering definition covers broadly the hiding or concealing of the nature, origin, location, disposal or transfer of an object that originated from crime, and the acquiring, possessing, transferring or converting of an object originating from crime.

Terrorist Financing Vs Money Laundering

The primary difference between terrorist financing and money laundering is that the source of funds for terrorist financing can be either legal or illegal. Funds are laundered to disguise their origin and connection with the terrorist activity and are then used for the purpose of supporting the terrorist activity. A distinction between money laundering and terrorist financing funds is that usually the sums of money involved in connection with terrorist activity are smaller than those involved in money laundering. In this regard, it is evident that the proceeds from drug trafficking and other crimes can be extensive, while most terrorist activity does not require the expenditure of much money.

Layering

The proceeds are then layered. This can consist of different activities to conceal the origin of the dirty money, such as by transferring the proceeds from the bank account to a holding company or paying the proceeds to a company in order to pay a false invoice. This can even take the form of a private loan issued by Company X to Company Y.

Placement

The process begins with the collection or generation of proceeds derived from some form of criminal activity. Those proceeds or dirty money are placed into the financial system, such as through a bank account.

Objective indicators of transactions - wwft

There are several objective indicators, these differ per type of institution. Some examples of objective indicators for banks are: A transaction for a sum of €10,000 or more that involves the exchanging of cash into other currencies or from small to large denominations of banknotes. The use of a credit card or a prepaid instrument of payment (prepaid card) in connection with a transaction for the sum of €15,000 or more. A money transfer for a sum of €2,000 or more.

Money laundering risks may be measured using various categories.

These categories can vary depending on the nature of the activities concerned but the most commonly used risk criteria are: Geography Customer risk Services risk These three risks are identified by the Wolfsberg Group in its statement "Guidance on risk-based approach for managing money laundering risks". Channels of delivery can be used as a risk parameter as well.

Bank Secrecy Act.

These laws, and the implementing regulations provide a broad overview of what banks and most other financial institutions must do to combat money laundering and terrorist financing.

Lawyers and legal professions

These professions are gateways to money laundering since they provide advice, counselling and help to structure legal and financial arrangements for their customers. These professionals offer a legitimacy to money launderers who want to structure their ill-gotten gains. Among the tactics used by these professionals are standing in as the beneficial owner for clients, standing in as the nominee director to conceal ownership, concealing identity of clients through claims of legal privilege and misuse of escrow accounts to conceal transaction origins from financial institutions or to hide identity of a person who has actually provided the proceeds.

Basel Committee issued its reference paper entitled "Customer Due Diligence (CDD) for Banks"

This paper is a reference for banking institutions that have to design a KYC program. The basic KYC program should include: A customer acceptance policy, the identification of the customer, an on-going monitoring of high-risk accounts, and risk management.

Palermo Conventio

UN treaty that addresses money laundering. This treaty was issued in 2000 by the United Nations and is formally known as the "Convention Against Transnational Organized Crime". It focuses on organized crime and is designed "to promote cooperation to prevent and combat transnational organized crime more effectively". One way it does this is that it expands the list of predicate offenses. The treaty also calls for measures to detect and monitor the movement of cash and negotiable instruments across borders and to promote "global, regional, sub-regional and bilateral cooperation among judicial, law enforcement and financial regulatory authorities in order to combat money-laundering". The Palermo Convention expands the Vienna Convention's attitude toward unlawful proceeds. The Palermo Convention calls for the identification, tracing, freezing, seizure, and eventual confiscation of the proceeds of crimes referred to by the Convention.

Examples of suspicious trade finance activity are:

Under- or over-invoicing of goods being shipped, Changes to the beneficiary at the last minute before pay-out, Importation of goods from a country that is not known for producing such goods, Any cash transactions, Transhipment of goods through various countries for no apparent commercial reason, Shipment of goods to a country that has little demand for such goods, Shipments without proper documentation, and Trade financing activity with a third world country that is known as having a lax legal infrastructure, in other words - a tax haven.

DNB specified issues raised on CDD Pillar wwft

Verification of the identity of client, beneficial owner and representative should be based on documents and information from an independent and reliable source. A copy (that is not certified) of an identity document is not considered an independent and reliable source. Nature and intended purpose of the business relationship should be described elaborately to allow for proper ongoing monitoring. Source of funds should be adequately evidenced in case of higher risk Institutions must develop a transaction profile of clients to be used for the transaction monitoring.

EDD is always applied:

When the client or the client's UBO is a politically-exposed person or PEP; When the client is a natural person or a legal entity established in a high risk non-EU member state as designated by the European Commission; When there is a correspondent relationship

Concentration accounts

a) A deposit account is used to aggregate funds from several locations into one centralized account. b) Concentration accounts are used by institutions to process and settle internal bank transactions. c) Concentration accounts are typically used for fund transfers, private banking transactions, trust and custody accounts, and international transactions. d) The money laundering risk occurs when a bank allows a customer to conduct a transaction through the bank's concentration account.

There are a variety of ways in which the proceeds of crime can be placed into the financial system. Here are some examples:

a) Blending of funds: Dirty money can be mixed with money earned from legal activity. Example is where the proceeds received by a cash-intensive restaurant, i.e a pizza delivery restaurant, are deposited into a bank account, together with proceeds earned from the illegal sale of narcotics. b) Foreign exchange: The illegal proceeds are used to purchase FX which can later be exchanged for local currency. c) Structuring is breaking up a large sum of dirty money into smaller amounts and then arranging for the deposit of those funds into several different bank accounts without triggering reporting requirements. Entities should monitor their operations in order to report structuring activities or attempts. d) Loans: Can be paid back with laundered funds. Our last example is prepaid cards. Illegal proceeds are used to purchase a prepaid card.

Electronic Funds Transfers

a) Electronic funds transfers operate with such speed and volume that international transfers of laundered money can be disguised by blending into the millions of other legitimate transfers that occur every day. b) The FATF's Recommendation 16 advises that financial institutions should be required to include accurate originator (the person sending the payment) information and beneficiary information in all payment messages and that this information should remain with the wire transfer or related message throughout the payment chain. c) Financial institutions are also expected to have controls in place to freeze and prevent transactions being processed where this information is missing.

Impact of Money Laundering to economic & social structure

a) Increases crime b) adverse effect on the economic & political stability (especially emerging countries) c) Whenever a country is known as being vulnerable to money laundering - because of corruption, inadequate laws and/or lax enforcement - criminals will tend to recognize it as a haven and will gravitate to it.

Insurance and ML risks

a) Insurance policies that have a surrender value or an investment or annuity component can be used to launder funds b) Money launderers use illegal cash to buy a policy. Then by redeeming the policy in return for a lump sum payment or by leveraging the policy into a stream of payments, the launderer can successfully convert the illegal funds into those from a known insurance company c) Another example of vulnerability in the insurance industry is the "free-look" period offered by many insurance policies. This period allows the purchaser the ability to make a payment, then terminate the contract, and receive a refund. This feature can be used by money launderers to legitimize the funds for mainstream use.

There are certain aspects of the securities broker-dealer industry that make it susceptible to money laundering. These include:

a) Its international nature b) The speed at which the transactions are conducted, c) The ease of converting one type of security into another type of security, d) The ability to use securities to transfer funds around the world, e) securities accounts placed under the control of a trustee can serve to conceal the identity of beneficial owners.

Examples of integration include

a) Selling luxury real estate purchased with illicit proceeds b) Purchasing cars or jewelry c) Making investments in legitimate business enterprises The goal of this final stage is to create the appearance that the proceeds were earned through legal activities and therefore make it very difficult for authorities to distinguish between legal and illegal proceeds.

Ways of layering funds

a) Sending wire transfers between banks and countries b) Converting deposited proceeds into monetary instruments such as prepaid cards or cryptocurrencies c) Investing in real estate, or other high value goods d) Using the money to purchase stocks or shares, bonds, or life insurance products e) Using shell companies to hide the real beneficial owner of the proceeds, along with other assets that may belong to them.

The mutual country assessment of the Republic of Panama organized by the FATF in 2017 has shown several discrepancies between the 40 recommendations of the FATF to combat financial crime and the reality of the country. The main issues detected were

a) The crimes of drug trafficking, corruption, financial crimes, crimes against intellectual and industrial property were identified as main offenses b) Reception of funds resulting from tax crimes committed abroad. Tax crimes are not criminalized by the Republic of Panama as a money laundering base or predicate offenses (this prevents an adequate cooperation in the requests received from abroad and impacts an efficient confiscation and seizing of assets) c) Purpose and legal arrangements may be used for the placement of assets from offenses committed abroad (especially corporations, private interest foundations, and trust). Remember the Panama papers case. d) No evidence on the effective availability and the adequate verification of the information on shareholders and beneficial owners of entities (no mechanisms secure the accuracy and updating of the available data).

Private banking is vulnerable to money laundering because

a) The high fee income generated by this activity b) the confidentiality usually surrounding this kind of select services, c) the relationship private bankers have with their rich customers, d) The possibility for Politically Exposed Person to be part of the clientele.

Shelf Company

a) a "paper company" that has fulfilled all requirements for legal registration and has been created and left with no activity. b) The company can then be sold to a person or group who wish to start a company without going through all the procedures of creating a new one. There are also called "blank check company".

Shell Company

a) a company that at the time of its incorporation has no significant assets or operations. b) They are primarily designed to hide the beneficial or true ownership of a company. c) they are "incorporated" offshore in jurisdictions that have little to no regulation. d) the launderer can anonymously funnel numerous transactions into the financial system, making it very hard for law enforcement to detect the transactions and prosecute the true owners of the companies. e) Shell companies can serve the purpose of projecting the perception of a legitimate company which is transacting business on a sound basis and which is unaffiliated with a regulated financial group that is subject to effective consolidated supervision.

Shell Bank

a) is an institution that has no physical presence in the country in which it is incorporated and licensed. b) Physical presence means meaningful mind and management located within a country. c) The existence simply of a local agent or low-level staff does not constitute physical presence d) Shell banks were historically used in the placement and integration stages of money laundering. e) They were normally set up with a P.O box address that was managed by a local agent. Most jurisdictions now prohibit the use of shell banks.

Correspondent Banking

a) is the provision of banking services by one bank, called the "correspondent bank", to another bank which is called the "respondent bank". b) Large international banks typically act as correspondents for thousands of other banks around the world. c) Respondent banks may be provided with a large range of services, including cash management such as interest-bearing accounts in a variety of currencies, international wire transfers, cheque clearing, payable-through accounts and foreign exchange services (FATF definition). d) Correspondent banks do not know the customers of the respondent banks and have little control over, or the ability to monitor those customers' transactions. This explains why correspondent banking is vulnerable to providing services to shell banks. f) An additional challenge is that a respondent bank's country may not have effective anti-money laundering laws.

Trust and Company Service Providers

a) provide their customers with solutions and advice to create a structure or a legal arrangement. b) They provide a similar help to the help provided by legal professionals in general. c) They can provide nominee shareholders so that their customer does not appear as a beneficial owner of a structure. d) They can provide company secretaries, directors, or even administration services. e) They help their customer to incorporate their company and remain anonymous in doing so. This arrangement is often found in tax havens.

Money exchanges and Money remitters

a) recognized as high-risk entities because they deal extensively with cash. b) they can be abused by money launderers given the ease with which these entities accept cash and transmit funds overseas. c) strongly regulated following FATF recommendations and the European Money Laundering Directives d) Money exchangers may also be vulnerable to use by unregulated, alternative remittance schemes such as Hawala (an Arabic wordmeaning change or transform).

Trust and Company Service Providers (cont)

a) the original owner of the property places his property into the hands of a person, with the view that this person shall hold the property for the benefit of another person - the beneficiary of the trust. b) In most jurisdictions there is no requirement for trusts to be registered or recorded. These characteristics make it difficult to identify the beneficiary of a trust. c) Per the fourth EU AMLD, each member country is required to have a central registry of beneficial owners.

The 5th EU Directive

adopted in May 2018. This Directive is an extension of the 4th Directive and was initially to be named "4th Directive number 2". The 5th Directive enlarges the existing scope of obliged entities. An example is that real estate agents must now report some rental activities. The 5th AMLD also added new obliged entities: Virtual currencies exchange platforms providers, Intermediaries in art dealing, etc. It also enhanced the obligation to create a trust registry and created a European high risk country list which is like the FATF high risk country list but within a European framework.

The case of the payment service provider, Multisafepay, shows that DNB uses the whole range of enforcement powers. DNB had identified a large number of AML/CFT shortcomings

an insufficient CDD policy and compliance function and lacking CDD and transactionmonitoring. After the institution did not adequately comply with DNB's instruction, DNB appointed a curator. With the intervention of a curator, the shortcomings were addressed and improved.

Terrorist financing

can be defined as the process by which terrorists fund their operations in order to perform terrorist acts. The two primary sources of financing used for terrorist activities are: Financial support from countries, organisations, or individuals, and A wide variety of revenue-generating activities, both legal and illicit, including smuggling and credit card fraud. Due to the fact that terrorist activity usually does not require much money, it is correspondingly more difficult to detect and, thus interdict.

Designated Non-Financial Businesses and Professions or DNFBP's

casinos, real estate agents, dealers in precious metals, dealers in precious stones, lawyers, notaries, other independent legal professionals, trust, and company service providers. Also included are accountants which are described as sole practitioners, partners, or employed professionals within professional firms.

Section 312 of the USA PATRIOT Act

concerns correspondent banking and private banking accounts for non-US persons or entities. It requires requires US banks to undertake due diligence before agreeing to open a correspondent account for a foreign bank. With regard to private banking accounts for non-US persons, this section requires US banks to: Determine the beneficial owners of the account, determine whether any of the owners is a "politically exposed person" (PEP), ascertain the source of the funds, determine the purpose of the account, and monitor the account. If the institution determines that the owner of the account is a PEP, the institution is obligated to conduct enhanced due diligence in order to determine if the source of the funds for the account is derived from corruption.

The Wolfsberg Group

created in 2000 by thirteen international private banks. The group aims to develop financial services industry standards and guidance related to Know Your Customer, Anti-Money Laundering, and Counter-Terrorist Financing policies. The key word of this slide is "not binding". The Group is neither a regulator nor a governmental agency. The principles of the Wolfsberg Group are considered as "best practice" principles but there is no legal obligation to follow them. There are strong regulatory reasons for all institutions to adhere to these principles wherever possible as part of their overall risk management strategies. They provide guidance that will help you understand terms or legal approaches to be adopted within the field of AML CFT.

Impact of ML on monetary data and on the equilibrium of currencies

due to the unfair competitive advantage held by money launderers that generates distorted prices.

The Wwft

implements the EU AML Directive and the FATF Recommendations. The Sanctions Act implements EU and UN sanction regimes. The Wwft has two important pillars: 1) CDD and 2) the reporting duty. The Sanctions regulations require the freezing of funds of designated persons or organisations, such as terrorists and terrorist groups.

USA PATRIOT Act

intended to deter and punish terrorist acts in the United States and around the world, and to enhance law enforcement investigatory tools among other things. The Act requires a number of actions on the part of financial institutions. We will review some important AML/CTF provisions of the USA PATRIOT Act and in particular, the provisions allowing the extraterritoriality of the Act and the potential consequences for foreign institutions.

Dark web

is an internet that works outside the scope of the traditional internet environment. It is only accessible by means of special software, allowing users and website operators to remain anonymous or untraceable. Once in the dark web it is possible to acquire numerous items that are not offered on a legal platform such as weapons, drugs, or organs. The lack of transparency is a paradise for the money launderer.

On a Dutch national level, the Ministry of Finance (together with the Ministry of Justice and Security)

is in the lead for the Dutch AML/CFT Act and the AML/CFT strategy and policy. The Dutch AML/CFT Act is called the "Wet ter voorkoming van witwassen en financieren van terrorisme", abbreviated as Wwft. The Wwft is accompanied by an Explanatory Note which provides useful guidance and explanations. The AML/CFT supervisors and the FIU issue further guidance and red flags to implement the AML/CFT requirements.

The credit and debit card industry

is not very vulnerable to the placement stage of money laundering, but revolving cards can be used in the layering and integration stages. For instance, a person can prepay - or overpay - a credit card bill and ask for a refund. The refund will have all earmarks of a legitimate payment from a reputable company. Furthermore, once funds are deposited into the financial system, credit cards and debit cards can be used to access the funds in other countries. Money can also be loaded onto these cards and transported out of the country.

European Supervisory Authorities (or ESAs)

issue specific guidelines to implement the AML directives.

1st European AML Directive

issued in 1991 and addressed drug trafficking exclusively as defined in the Vienna Convention and called for the identification of customers, appropriate recordkeeping, training, and the reporting of money laundering to the authorities in charge. The obliged entities - entities which have to comply with the AML provisions - were exclusively credit and financial institutions and insurance companies.

The second AML Directive

issued in 2001.The criminal activities covered by the 2nd European AML Directive are more numerous. Specifically, it expanded the scope of the First EU Directive to include not just drug trafficking, but also: The activities of organized crime, all serious. fraud, corruption, and crimes punishable by a severe sentence of imprisonment. It called for the identification of customers, cooperation with law enforcement authorities, filing of reports on money laundering, and furnishing of documents and necessary information to the proper authorities. In connection with the reporting requirement, the Second EU Directive provided a safe harbor for institutions that reported instances of money laundering in good faith.

The fourth EU Directive

issued in 2015 and aimed at harmonizing the European rules with the recommendations of FATF issued in 2012. This Directive addressed the ultimate beneficial ownership issue. It stated that beneficial owners must be identified, and EU member states must implement a central register containing information on beneficial owners and added national Politically Exposed Persons to the scope of the requirements. It also added the gambling industry as an obliged entity and required the establishment of a high-risk countries list by the EU Commission and the integration of electronic money products.

The third EU Directive

it addressed for the issue of terrorism for the first time. It provided more specific customer identification requirements and extended the coverage of the Directive to additional entities such as Trust and Company Service Providers. The Third EU Directive also addressed: Beneficial owners, large cash transactions, Politically Exposed Persons, the prohibition of shell banks and anonymous accounts, and the need for a risk-based approach. The Third EU Directive's main contribution was the integration of the risk-based approach.

Section 319 of the USA. PATRIOT Act

permits the US Government to do three things First the government can seize money laundering-related funds in a US-based correspondent account which is maintained by a foreign bank. Second, section 319 permits the US Government to subpoena information related to a foreign bank and to have its US correspondent account closed. Third, section 319 requires a foreign bank maintaining a correspondent account in the US to designate an agent located in the United States who is able to accept service of legal process on behalf of the foreign bank.

The international Money Laundering Information Network (IMoLIN)

serves as a clearinghouse for anti-money laundering information for AML agencies. It maintains various databases pertaining to relevant international contact information, legislation, events, conferences, and current news. In addition, Mutual Legal Assistance Treaties are a very formal means for countries to exchange information in order to obtain admissible evidence in court cases.

the Egmont Group Paper "Principles for Information Exchange Between Financial Intelligence Units for Money Laundering and Terrorism Financing Cases",

set out guidelines for sharing information among FIU's. In 2004, the Egmont Group issued "Best practices for the Exchange of Information Between Financial Intelligence Units". The Egmont Group offers an "international network designed to improve interaction among FIU's in the areas of communications, information sharing, and training coordination". An "FIU platform" was created to be a discussion forum among FIUS as well as the "FIU-Net" that receives information relative to Suspicious Activity Reports.

Impact of Money Laundering to social structure (cont.)

the social costs associated with money laundering including the effect of the underlying crime (such as the social cost generated by drug addictions) are significant too. The cost of government drives up due to the need for increased law enforcement. Further, a loss of tax revenue can occur when there is an influx of money launderers who usually do not pay taxes.

Wolfsberg AML Principles on Private Banking

they recommend: Taking reasonable steps to establish the identity of clients and beneficial owners, establishing the purpose of the private banking account and its anticipated account activity, and determining the source of wealth, the source of funds and the net worth of the customer.