CAMS Chapter 2
The AMLA eight strategic priorities are:
1. Corruption: 2. Cybercrime and relevant cybersecurity and virtual currency considerations: 3. Foreign and domestic terrorist financing: 4. Fraud: 5. Transnational criminal organization activity: 6. Drug trafficking organization activity: 7. Human trafficking and human smuggling: 8. Proliferation financing:
According to Section 312, The due diligence program must address three measures:
1. Determining whether enhanced due diligence is necessary 2. Assessing the money laundering risk presented by the correspondent account 3. Applying risk-based procedures and controls reasonably designed to detect and report suspected money laundering
What are the five special measures from ection 311: Special Measures for Primary Money Laundering Concerns
1. Keep records and/or file reports on certain financial transactions, including a description of the transactions, the identities and addresses of the participants in the transactions, and the identities of the beneficial owners of the funds involved. 2. Obtain information on the beneficial ownership of any account opened or maintained in the United States by a foreign person or a foreign person's representative. 3. Identify and obtain information about customers who are permitted to use, or whose transactions are routed through, a foreign bank's payable-through account. 4. Identify and obtain information about customers permitted to use, or whose transactions are routed through, a foreign bank's correspondent account. 5. Close certain payable-through and correspondent accounts.
noncooperative countries and territories (NCCTs) 25 distinct criteria four distinct categories:
1. Loopholes in financial regulations 2. Obstacles raised by other regulatory requirements 3. Obstacles to international cooperation 4. Inadequate resources for preventing and detecting money laundering activities
Effectiveness is evaluated on the basis of 11 Immediate Outcomes:
1. Money laundering/terrorist financing (ML/TF) risks are known, and actions are coordinated to combat or thwart the proliferation of ML/TF. 2. International cooperation provides actionable information to use against criminals. 3. Supervisors regulate financial institutions and nonbank financial institutions (NBFIs) and their risk-based AML/CFT programs. 4. Financial institutions and NBFIs apply preventive 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 money laundering and terrorist financing investigations. 7. Money laundering offenses are investigated and criminally prosecuted, and sanctions are imposed. 8. Proceeds of crime are confiscated. 9. Terrorist financing offenses are investigated and criminally prosecuted, and sanctions are imposed. 10. Terrorists and terrorist organizations are prevented from raising, moving, and using money and are not permitted to abuse NPOs. 11. Persons and organizations involved in the proliferation of weapons of mass destruction are prevented from raising, moving, and using money.
the 11 Immediate Outcomes feed into the three Intermediate Outcomes that represent major thematic goals of AML/CFT measures:
1. Policy, cooperation, and coordination to mitigate money laundering and terrorist financing 2. Prevention of proceeds of crime entering into the 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. Ratings include a high, substantial, moderate, or low level of effectiveness.
three main points of contention (disagreement) regarding the Third Directive:
1. The definition of PEPs: The Third Directive defined PEPs as "natural persons who are or have been entrusted with prominent public functions and the immediate family members, or individuals known to be close associates, of such persons." Close associates must be identified only when their relationship with a PEP is publicly known or when the institution suspects there is a relationship. Finally, the Commission stipulated that persons should not be considered PEPs after one year of not being in a prominent position. 2. The Directive included lawyers among those professionals who are required to report suspicious activity. 3. The precise role of a comitology committee: The European Commission coined the term "comitology," which means the EU system that oversees the implementation of acts proposed by the European Commission.
Three lines of defense
1. The line of business, or the first line of defense 2. The AML compliance and internal control functions, as well as the larger compliance function and human resources and technology departments, comprise the second line of defense. 3. The audit function, or the third line of defense,
FATF membership criteria
1. 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
Section 314(b):
314(b) information sharing is a voluntary program. Entities that may participate in 314(b) include US financial organizations subject to an AML program requirement under FinCEN regulations, any association of such financial organizations, and unincorporated associations of financial organizations. This includes the following types of US financial organizations: o Banks, credit unions, and other depository institutions o Casinos and card clubs o Money services businesses o Brokers and dealers in securities o Mutual funds o Insurance companies o Futures commission merchants and introducing brokers in commodities o Dealers in precious metals, precious stones, and jewels o Operators of credit card systems o Loan and finance companies o Government-sponsored enterprises
Third Directive
A Third EU Directive, 2005/60/EC, On the Prevention of the Use of the Financial System for the Purposes of Money Laundering and Terrorist Financing, based on elements of FATF's revised 40 Recommendations, was adopted in 2005. The EU expected the Third Directive to be implemented by member states by December 15, 2007. Although several countries did not meet this original deadline, the Directive was eventually implemented by all members.
"FIUs in Action: 100 Cases from the Egmont Group."
According to the Egmont Group, this publication has provided invaluable assistance in identifying the components of money laundering cases. Several best practices from this analysis can benefit FIUs. Examples include: Disclosures of suspicious activity by financial organizations should continue to be made, even while an investigation is being conducted by an FIU, and additional information obtained by a financial organization's own inquiries have been shown in a number of cases to be very useful for later investigations by the authorities.
Beneficial ownership
Acknowledging the number of media events (e.g., Panama Papers, Pandora Papers) in which limited liability corporations and other corporate structures were used nearly anonymously to move vast sums of money, the AMLA aims to create a central repository for all beneficial ownership information. The structure of the Corporate Transparency Act (CTA) registry is not yet clear, but the intention is to pierce the corporate veil of anonymity for two key reasons: 1) to create transparency within those structures to find and remove potential criminals hiding behind them; and 2) to create a database for use by state and federal law enforcement entities, aimed at mitigating national security risks. The CTA utilizes a number of exemptions; however, the CTA itself and the exemptions were drafted in response to FATF criticism that the US had not policed entities created in or owned by US parties.
The Kleptocracy Asset Recovery Rewards Act
Along with the AMLA, the NDAA also brings a legal requirement to expand the Kleptocracy Asset Recovery Rewards Act (KARRA). KARRA is effectively a whistleblower program for individuals who report on the proceeds of corruption moving through US financial organizations. This is notable because it aligns with international guidance and efforts by groups such as the FATF and the Wolfsberg Group to identify criminals in politics, as well as professional money launderers, who are referred to colloquially as "enablers." Another key provision of the AMLA is the expansion of whistleblower protection for individuals who provide "original" information related to violations of AML laws to regulators and/or prosecutors, which follows international guidance regarding whistleblower programs.
FATF 40 Recommendations
A key element of FATF's efforts is its detailed list of appropriate standards for countries to implement. These measures are detailed in the 40 Recommendations, which were first issued in 1990 and have since been revised. FATF has also issued various Interpretative Notes, which are designed to clarify the application of specific recommendations and provide additional guidance.
What do banks need in order to guard against reputational, operational, legal, and concentration risks.
Customer identification is an essential element of an effective CDD program
Fourth Directive
Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015 On the Prevention of the Use of the Financial System for the Purposes of Money Laundering and Terrorist Financing took effect on June 26, 2015. Member states had two years from that date to adapt their national legislations accordingly. This Directive repealed the Third Directive and its predecessors.
Sixth Directive
Directive (EU) 2018/1673 of the European Parliament and of the Council of 23 October 2018 On the Prevention of the Use of the Financial System for the Purposes of Money Laundering and Terrorist Financing became effective on December 3, 2020. Regulated entities operating in the European Union are required to be compliant by June 3, 2021.
Fifth Directive
Directive (EU) 2018/843 On the Prevention of the Use of the Financial System for the Purposes of Money Laundering and Terrorist Financing was put in place on July 9, 2018.
Who oversees the process of identifying and reviewing jurisdictions with strategic AML/CFT deficiencies.
FATF's International Cooperation Review Group (ICRG)
• Section 314(a):
FinCEN's regulations under Section 314(a) enable US federal, state, local, and foreign (European Union) law enforcement agencies, through FinCEN, to reach out to more than 43,000 points of contact at more than 22,000 financial organizations to locate accounts and transactions of persons who may be involved in terrorism or money laundering. To obtain documents from a financial organization that has reported a match of a subject, a law enforcement agency must meet the legal standards that apply to the specific investigative tool that it chooses to use to obtain the documents.
Sections 314(a) and 314(b):
Help "law enforcement identify, disrupt, and prevent terrorist acts and money laundering activities by encouraging further cooperation among law enforcement, regulators, and financial institutions to share information regarding those suspected of being involved in terrorism or money laundering."
FATF's two public documents
High-Risk Jurisdictions Subject to a Call for Action (previously known as Public Statement), identifies countries and jurisdictions with strategic deficiencies that are so serious that FATF calls on its members and nonmembers to apply EDD and, in the most serious cases, countermeasures. This list is often referred to in the media as the "FATF blacklist." , Jurisdictions under Increased Monitoring (previously known as Improving Global AML/CFT Compliance: On-going process), identifies countries that are already actively engaging with FATF to address strategic deficiencies in their regimes to counter money laundering, terrorist financing, and proliferation financing. Once a jurisdiction is under increased monitoring, it means it has committed to swiftly resolve the identified strategic deficiencies within an agreed-upon time frame, while FATF keeps it under close scrutiny. This list is externally referred to as the "FATF greylist."
Prevention of Criminal Use of the Banking System for the Purpose of Money Laundering
In 1988, the Basel Committee issued a Statement of Principles, called Prevention of Criminal Use of the Banking System for the Purpose of Money Laundering, in recognition of the vulnerability of the financial sector to misuse by criminals. This was the Committee's first AML/CFT commitment and a step toward preventing the use of the banking sector for money laundering.
Egmont Group of Financial Intelligence Units
In 1995, several national FIUs began working together in an informal organization known as the Egmont Group (named for the location of the first meeting, the Egmont-Arenberg Palace in Brussels). The goal of the group is to provide a forum for FIUs around the world to improve cooperation and establish the environment needed to foster trust among countries to securely share sensitive information in the fight against money laundering and the financing of terrorism. The Egmont Group comprises several organizational groups, including the Heads of FIUs.
Core Principles for Effective Banking Supervision
In 1997, the Basel Committee issued its Core Principles for Effective Banking Supervision, a basic reference for authorities worldwide. It stated that, "Banking supervisors must determine that banks have adequate policies, practices, and procedures in place, including strict 'know-your-customer' rules that promote high ethical and professional standards in the financial sector and prevent the bank being used, intentionally or unintentionally, by criminal elements." It also urged nations to adopt FATF's 40 Recommendations. The Core Principles were prepared with the assistance of 15 non-G-10 nations, including Brazil, Chile, Hong Kong Special Administrative Region (SAR, China), Mexico, Russia, Singapore, and Thailand.
What guidelines did Wolfsberg issue in 2002?
In 2002, Wolfsberg issued guidelines on anti-money laundering principles for correspondent banking that outlined steps financial institutions should take to combat money laundering and terrorism financing through correspondent banking. Correspondent accounts are established by one financial institution with another financial institution to hold deposits, make payments on its behalf, and process other transactions. The guidelines were updated in 2014 to highlight that the Principles were intended to address the risks associated with foreign correspondent relationships, not domestic.
Second Directive
In December 2001, the EU agreed on a Second Directive (2001/97/EEC), which amended the First Directive to require stricter money laundering controls across the continent. Member states agreed to implement it as national law by June 15, 2003; however, only Denmark, Germany, the Netherlands, and Finland met the deadline, with Ireland and Spain complying shortly afterward. Other member states eventually followed.
"Financial System Abuse, Financial Crime, and Money Laundering,"
In February 2001, the IMFC, along with the IMF and World Bank, issued the background paper "Financial System Abuse, Financial Crime, and Money Laundering," which explores how the organizations could "play...role[s] in protecting the integrity of the international financial system from abuse" through use of their influence to promote national anti-corruption programs.
Seventh Directive
In July 2021, the EU Commission published a package of legislative proposals to further strengthen AML/CFT rules in the EU. This package might later be translated into the Seventh Directive. The aim of the proposals is to improve the detection of suspicious transactions and activities and close loopholes used by criminals to launder illicit proceeds and finance terrorist activities through the financial system.
Organization of American States: Inter-American Drug Abuse Control Commission
In May 1992, the OAS became the first permanent international body to reach an agreement on model legislation aimed specifically at dealing with money laundering. At its annual general assembly held in Nassau, the Bahamas, the OAS unanimously approved a set of 19 articles written in statutory language that it recommended its member nations enact.
Money Laundering and Terrorist Financing Through Trade in Diamonds
In October 2013, FATF and the Egmont Group of financial intelligence units (FIUs) released a research report titled Money Laundering and Terrorist Financing Through Trade in Diamonds, which examined the vulnerabilities and risks of the "diamond pipeline" and described all sectors of the diamond trade, including production, rough diamond sale, cutting and polishing, jewelry manufacturing, and jewelry retailers.
Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL)
In September 1997, MONEYVAL was established by the Committee of Ministers of the Council of Europe to conduct self- and mutual-assessment exercises of the AML measures in place in Council of Europe member states that were not members of FATF. MONEYVAL became an associate member of FATF in 2006. MONEYVAL members include: Albania, Andorra, Armenia, Azerbaijan, Bosnia and Herzegovina, Bulgaria, Croatia, Cyprus, Czech Republic, Estonia, Gibraltar*, Georgia, Guernsey*, Hungary, Holy See (since April 2011)*, Isle of Man*, Israel (since January 2006)*, Jersey*, Latvia, Liechtenstein, Lithuania, Malta, Republic of Moldova, Monaco, Montenegro, Poland, Romania, Russian Federation (also a FATF member since 2003), San Marino, Serbia, Slovak Republic, Slovenia, North Macedonia, and Ukraine.
Office of Foreign Assets Control
In addition to these laws and regulations, financial organizations and businesses in other countries must recognize the extraterritorial reach of regulations enforced by the US Department of the Treasury Office of Foreign Assets Control (OFAC). OFAC administers and enforces economic and trade sanctions based on US foreign policy and national security goals against targeted foreign countries, terrorists, international narcotics traffickers, and criminals engaged in activities related to the proliferation of WMD.
Section 319(a): Forfeiture from US correspondent account (18 U.S.C. 981(k)).
In situations in which funds have been deposited with a foreign bank, this section permits the US government to seize funds in the same amount from a correspondent bank account in the United States that has been opened and maintained for the foreign bank. The US government is not required to trace the funds, because they are deemed to have been deposited into the correspondent account. However, the owner of the funds may contest the seizure order.
In October 2013, FATF and the Egmont Group of financial intelligence units (FIUs) released a research report
Money Laundering and Terrorist Financing Through Trade in Diamonds
USA PATRIOT Act
Motivated by the terrorist attacks of September 11, 2001, and the urgent need to decipher and disable mechanisms that finance terrorism, the US Congress enacted the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act (USA PATRIOT Act) in October 2001 to strengthen money laundering laws and the Bank Secrecy Act (BSA) to levels unseen since the original passage of the BSA in 1970 and the Money Laundering Control Act of 1986 (Public Law 99-570), the world's first law to criminalize money laundering.
Basel Committee reports:
Prevention of Criminal Use of the Banking System for the Purpose of Money Laundering Core Principles for Effective Banking Supervision Consolidated KYC Risk Management Customer Due Diligence for Banks Sound Management of Risks Related to Money Laundering and Financing of Terrorism
what are the 12 areas and associated standards for the 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. The Report and Observe Standards and Codes ROSCs are prepared and published at the request of the member country and summarize a countries' observance of the standards.
Anti-Money Laundering Act (AMLA) of 2020
The AMLA represents a notable development in the US AML regulatory structure first and foremost because it was the first AML-related law of substance (excluding the USA PATRIOT Act recertification) to be passed since the USA PATRIOT Act in 2001.
First Directive
The EU's First Directive of the European Parliament and of the Council, On Prevention of the Use of the Financial System for the Purpose of Money Laundering (91/308/EEC), was adopted by the Council of the European Communities in June 1991. The First Directive confined predicate offenses of money laundering to drug trafficking, as defined in the 1988 Vienna Convention. However, member states were encouraged to extend the predicate offenses to other crimes.
What governing documents have the Egmont Group created to contribute to greater international cooperation and information exchange among FIUs.
The Egmont Charter and the Egmont Principles for Information Exchange and Operational Guidance for FIUs.
European Union Directives on Money Laundering
The European Union AML Directives are issued periodically by the European Parliament and implemented by member states as part of domestic legislation. The Directives are intended to prevent money laundering and terrorist financing and establish a consistent regulatory environment across the European Union, while allowing some flexibility based on local law. This is done by addressing the emerging money laundering and terrorist financing typologies, helping to close AML compliance gaps.
The World Bank and the International Monetary Fund
The IMF and the World Bank have supported the efforts of FATF in addressing the resistance of certain nations to joining the international battle against money laundering. Since 2001, the two organizations have required countries that benefit from their financial and structural assistance programs to have effective money laundering controls. In the joint policy paper "Enhancing Contributions to Combating Money Laundering," the two organizations detailed the steps they would take to strengthen the global assault on money laundering.
The Sixth AML Directive further intensifies
The Sixth AML Directive further intensifies the fight against financial crime by stating that people who have willfully cooperated in a crime (vs. those who execute a crime) are also punishable by law. Simply said, when individuals are in some way involved in a financial crime, such as money laundering or terrorist financing, either by assisting or willfully ignoring it, they can still be prosecuted and face a jail sentence (of four years instead of one). Being involved in a financial crime can result in sentences for the involved individuals within an organization and enforcement actions against the organization as well. If an organization in part or as a whole aids financial criminals, the organization could be suspended or barred from certain activities. It is also possible that the organization could be put under supervision or even liquidated.
The Wolfsberg Group
The Wolfsberg Group is an association of global banks that aims to develop financial services, industry standards, and guidance related to Know Your Customer (KYC), anti-money laundering, and counter-terrorist financing policies. The Wolfsberg Group, which has no enforcement powers, issued the guidelines to manage its members' own risks to help make sound decisions about clients and to protect their operations from criminal abuse. The Wolfsberg Anti-Money Laundering Principles for Private Banking was published in October2000 and have been routinely revised. These principles recommend controls for private banking that range from the basic, such as customer identification, to enhanced due diligence, such as heightened scrutiny of individuals who "have or have had positions of public trust."
Describe the assessment using a single global methodology of countries' compliance with FATF's 40 Recommendations
The World Bank and the IMF established a collaborative framework with FATF for conducting comprehensive assessments using a single global methodology of countries' compliance with FATF's 40 Recommendations. The assessments are carried out as part of the Financial Sector Assessment Program and result in a Report on the Observance of Standards and Codes (ROSC). ROSCs summarize the extent to which countries observe 12 areas and associated standards for the operational work of the IMF and World Bank.
Financial Action Task Force
The pace of international activity in the AML field accelerated in 1989 when the G-7 nations launched FATF at its annual economic summit in Paris. With France serving as its first chair, this multinational group started working toward a coordinated effort against international money laundering. Originally referred to as the G-7 Financial Action Task Force, today FATF serves as the vanguard in promulgating AML guidance to governmental bodies around the globe. The International Monetary Fund (IMF) and the World Bank also offer important perspectives to the field.
Technical compliance assessment
The technical compliance assessment evaluates the specific requirements of the FATF Recommendations, including how a member relates them to its relevant legal and institutional frameworks and the powers and procedures of its competent authorities. The focus is on the fundamental building blocks of an AML/CFT system. For each Recommendation, assessors reach a conclusion about whether a country complies with the FATF standard. The result is a rating of five possible levels of technical compliance: compliant, largely compliant, partially compliant, noncompliant, and not applicable.
FATF-Style Regional Bodies FSRBs
There are nine FSRBs, which have similar forms and functions to that of FATF. They are also considered FATF associate members. In setting standards, FATF depends on input from the FSRBs as much as from its own members; however, FATF remains the only standard-setting body.
Section 319(b): Records relating to correspondent accounts for foreign banks (31 U.S.C. 5318(k)).
This section allows the appropriate federal banking agency to require a financial organization to produce within 120 hours (5 days) records or information related to the organization's AML compliance or related to a customer of the organization or any account opened, maintained, administered, or managed in the United States by the financial organization.
Section 313: Prohibition on Correspondent Accounts for Foreign Shell Banks (31 U.S.C. 5318(j))
This section prohibits US banks and securities brokers and dealers from maintaining correspondent accounts for foreign, unregulated shell banks that have no physical presence.
Section 311: Special Measures for Primary Money Laundering Concerns (31 U.S.C. 5318A)
This section provides the US Department of the Treasury with the authority to apply graduated, proportionate measures against a foreign jurisdiction, foreign financial organization, type of international transaction, and type of account that the Treasury Secretary determines to be a "primary money laundering concern." By designating a country or financial organization as a primary money laundering concern, the US government can force US banks to halt many of their financial dealings with the designee. Once identified, the Treasury Department can require US financial organizations to follow any or all of the following five special measures:
Section 312: Correspondent and Private Banking Accounts (31 U.S.C. 5318(i))
This section requires due diligence and, in certain situations, EDD for foreign correspondent accounts, which includes virtually all account relationships that organizations can have with a foreign financial organization, as well as private banking for non-US people. The correspondent banking portions of the rule apply to US banks, credit unions, thrift organizations, trust banks, broker-dealers, futures commission merchants and introducing brokers in commodities and mutual funds, and US-based agencies and branches of foreign banks.
The International Monetary Fund (IMF)
an institution established in 1944 that provides loans and facilitates international monetary exchange
A country will not be granted full membership if it is rated NC/PC
any one or more of Recommendations 3, 5, 10, 11 or 20.
The Basel Committee on Banking Supervision
established in 1974 by the central bank governors of the Group of Ten (G-10) countries, promotes sound supervisory standards worldwide. The Committee is 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 to enhance financial stability. The Committee is best known for its landmark publications on capital adequacy (Basel I, Basel II, and Basel III). The Committee's Secretariat is located at the Bank for International Settlements in Basel, Switzerland, and it is staffed mainly by professional supervisors on temporary assignment from member institutions.
The four key elements of a KYC program:
o Customer identification o Risk management o Customer acceptance policy o Ongoing monitoring
The Basel Committee emphasizes specific customer identification issues related to high-risk customers including:
o Trust, nominee, and fiduciary accounts o Corporate vehicles, particularly companies with nominee shareholders or entities with shares in bearer form o Introduced businesses o Customer accounts opened by professional intermediaries, such as pooled accounts managed by professional intermediaries on behalf of entities such as mutual funds, pension funds, and money funds o PEPS o Non-face-to-face customers (i.e., customers who do not present themselves for a personal interview) o Correspondent banking
The CTA will ask business owners to provide, among other requirements:
• A legal form of personal identification • Applications to form a corporate entity • Information on the registering agent
For covered private banking accounts, US organizations must take reasonable steps to:
• Ascertain the identity of all nominal and beneficial owners of the accounts • Ascertain whether any such owner is a senior foreign political figure • Ascertain the source of the funds in the account and the purpose and expected use of the account • Monitor the account to ensure its activity is consistent with the information provided regarding the source of funds and the purpose and expected use of the account, as needed, to guard against money laundering, and to report any suspected money laundering or suspicious activity
What are the nine FSRBs:
• Asia/Pacific Group on Money Laundering (APG) • Caribbean Financial Action Task Force (CFATF) • Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL, formerly PC-R-EV) • Eurasian Group (EAG) • Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG) • Financial Action Task Force of Latin America (GAFILAT) (formerly known as Financial Action Task Force on Money Laundering in South America (GAFISUD) • Inter-Governmental Action Group against Money Laundering in West Africa (GIABA) • Middle East and North Africa Financial Action Task Force (MENAFATF) • Task Force on Money Laundering in Central Africa (GABAC)
The Fifth Directive further strengthens the EU's AML and CFT regime. It focuses on seven areas:
• Beneficial Owners • Cooperation and information sharing between regulators: • High-risk third countries: • Prepaid Cards: • Enhanced identification of PEPs: • Extended scope of sectors and persons subject to AML/CFT obligations: • Exchangers between virtual currencies (e.g., cryptocurrencies) and fiat currencies will be required to have AML/CFT controls and need to be licensed or registered, while being supervised and monitored by relevant authorities. Virtual-to-virtual currency exchanges do not fall under this supervision.
the IMF and World Bank have become more active in combating money laundering by:
• Concentrating on money laundering over other forms of financial abuse • Helping to strengthen financial supervision and regulation in countries • More closely interacting with the Organisation for Economic Co-operation and Development and the Basel Committee on Banking Supervision • Insisting on the application of international AML standards in countries that request financial assistance
According to Section 312, The EDD that must be implemented in these situations includes:
• Conducting enhanced scrutiny for possible money laundering and suspicious transactions, including: o Obtaining information relating to the foreign bank's AML program o Monitoring transactions in and out of the correspondent account in a manner reasonably designed to detect possible money laundering and suspicious activity o Obtaining information about the correspondent account that is being used as a payable-through account • Determining 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 reasonable steps to assess and mitigate the money laundering risks associated with such accounts • Determining, for any such foreign bank whose shares are not publicly traded, the identity of each of the owners of the foreign bank with the power to vote 10 percent or more of any class of securities of the bank and the nature and extent of the ownership interest of each such owner
OFAC sanction programs prohibit transactions and require the blocking of assets of persons and organizations that appear on one of several lists that OFAC issues periodically. The OFAC sanctions lists primarily include:
• Country-based sanctions: Sanctions brought against entire countries that prohibit nearly all types of transactions (e.g., North Korea, Iran, Cuba) • List-based sanctions: Examples include the Specially Designated Nationals and Blocked Persons (SDN) list, Consolidated Sanctions list, and Foreign Sanctions Evader list, among others • Secondary sanctions: sanctions directed at non-US, non-sanctioned, parties for transactions and other specific dealings with parties subject to OFAC sanctions (e.g., Iranian and Russian businesses and sectors) • Sectoral sanctions: Known as "surgical or smart" sanctions in that they are applied against very focused targets to reduce subsequent collateral economic damage; for example, instead of sanctioning an entire country, sectoral sanctions target a specific sector such as energy, finance, or defense
In 2012, the Recommendations were revised again, to incorporate the IX Special Recommendations on terrorist financing. The most important changes in this revision were:
• Creation of a Recommendation on implementing a process to identify, assess, monitor, manage, and mitigate AML/CFT risks using a risk-based approach • More information on assessing risks and applying a risk-based approach to all AML/CFT efforts • Creation of a Recommendation for targeted financial sanctions related to the proliferation of weapons of mass destruction (WMD) • More attention on domestic PEPs and individuals entrusted with prominent functions by international organizations • New requirement for the identification and assessment of risks of new products prior to their launch • New requirements on obtaining and sending accurate originator, intermediary, and beneficiary information in wire transfers (travel rule) • New requirement for financial groups to implement group-wide AML/CFT programs and establish procedures for sharing information within the group • Inclusion of tax crimes within the scope of designated categories of offenses for money laundering
Third Directive applies to:
• Credit institutions • Financial institutions • Auditors, external accountants, and tax advisors • Legal professionals • Trust and company service providers • Estate agents o High-value goods dealers who trade in cash over €15,000 euros • Casinos
The Basel Committee's 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
The most important changes made to the Recommendations in 2003 were:
• Expanded coverage to include terrorist financing • Widened the categories of business that should be covered by 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 high-risk customers and transactions • Adopted a clearer definition of money laundering predicate offenses • Encouraged prohibition of "shell banks," which are typically established in offshore secrecy havens and consist of little more than nameplates and mailboxes • Urged improved transparency of legal persons and arrangements • Included stronger safeguards, notably regarding international cooperation in, for example, terrorist financing investigations
The Wolfsberg guidelines were updated in 2014 to highlight that the Principles were intended to address the risks associated with foreign correspondent relationships, not domestic. It is recommended that the following elements be considered when conducting due diligence.
• Geographic risk • Branches, subsidiaries, and affiliates of correspondent banking clients and 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 anti-money laundering controls • Client's dealings with shell banks • Visits to the client's business • Enhanced due diligence regarding the involvement of PEPs with the correspondent banking client and downstream correspondent (nested) relationships the correspondent provides • The Principles should be part of a financial institution's larger AML program, including anti-bribery and corruption, fraud, and evasion of sanctions.
The Sixth Directive includes the following changes:
• Harmonization of predicate offences against money laundering in all member states. The list consists of 22 predicate offences. • Expanded regulatory scope by the introduction of "aiding and abetting," "inciting," and "attempting" as offences. This means that accomplices can face the same penalties as the individuals who profit directly from financial crimes. • Criminal liability is extended to legal persons. In this manner, companies can be criminally liable for the actions of employees who engage in criminal activities. • Tougher punishments for financial crime offenders, with the minimum jail sentence increasing from one year to four years. Legal entities will also face tougher sanctions in the form of exclusion, permanent or temporary disqualification or closure, and placement under juridical supervision. • Enhancement of cooperation and harmonization among member states addresses the issue of dual criminality, requiring member states to criminalize certain predicate offences.
The FATF 40 Recommendations provide a complete set of countermeasures against money laundering and terrorist financing, covering the following elements:
• Identification of risks • Development of appropriate policies • Criminal justice system and law enforcement • Financial system and its regulation • Transparency of legal persons and arrangements • International cooperation
The Seventh Directive package presents the following proposals:
• Introduction of the EU centralized system of bank account registries: • Introduction of EU Central AML Authority (AMLA) • Unification of AML/KYC rules in member states: • Extending the scope of crypto business models toward AML requirements: • Implementation of "Crypto Travel Rule": • Prohibition of anonymous crypto wallets: • Prohibition of cash purchases over €10,000:
According to Section 313, the term physical presence is defined as a place of business that is maintained by a foreign bank located at a fixed address (versus solely an electronic address) where it:
• Is authorized to conduct banking activities • Employs one or more individuals on a full-time basis at that location • Maintains operating records at that location • Is subject to inspection by the banking authority which licensed it at that location
Second Directive key features
• It extended the scope of the First Directive beyond drug-related crimes. The definition of criminal activity was expanded to cover not just drug trafficking, but all serious crimes, including corruption and fraud against the financial interests of the European community. • It explicitly brought currency exchanges and money remittance offices under AML coverage. • It clarified that knowledge of criminal conduct can be inferred from objective factual circumstances. • It provided a more precise definition of money laundering to include: o The 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 or disguising the illicit origin of the property, or assisting anyone who is involved in the commission of the activity to evade the legal consequences of his action o Concealing or disguising the nature, source, location, disposition, movement, and rights with respect to or ownership of property, knowing that the property is derived from criminal activity or from an act of participation in that activity o 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 the activity o Participation in, association to commit, the attempt to commit, and aiding, abetting, facilitating, or counseling the commission of any of the mentioned actions • It widened the businesses and professions that are subject to the obligations of the Directive. Certain persons, including lawyers when they participate in the movement of money for clients, were required to report to authorities any fact that might indicate money laundering. Covered groups included auditors, external accountants, tax advisors, real estate agents, notaries, and legal professionals.
The scope of the Third Directive differs from the Second Directive in that:
• It specifically includes the category of trust and company service providers. • It covers all dealers trading in goods who trade in cash over €15,000. • It expands the definition of financial institution to include certain insurance intermediaries.
Beyond the Egmont Group's analysis of the 100 cases, the report identifies six of the most frequently observed indicators of money laundering:
• Large-scale cash transactions • Atypical and uneconomical fund transfers to or from a foreign jurisdiction • Unusual business activities and transactions • Large and/or rapid movements of funds • Unrealistic wealth compared with client profile • Defensive stance to questioning
The Principles list several situations that require enhanced due diligence, including activities that involve:
• Politically exposed persons, such as public officials, holding or having held "senior, prominent or important public positions with substantial authority over policy, operations, or the use or allocation of government-owned resources, such as senior government officials, senior executives of government corporations, senior politicians, important political party officials, as well as their close family and close associates." • People residing in and/or having funds from high-risk countries, including countries "identified by credible sources as having inadequate anti-money laundering standards or representing high-risk for crime and corruption." • People involved in types of "economic or business activities or sectors known to be susceptible to money laundering." Clients may also require greater scrutiny as a result of: • Information gained from monitoring their activities • External inquiries • Derogatory information, such as negative news reporting • Other factors that may expose the bank to reputational risk
The Wolfsberg recommendations included:
• Providing official lists of suspected terrorists on a globally coordinated basis by relevant authorities • Including adequate information 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 terrorism financing • Developing uniform global formats for funds transfers that assist in the detection of terrorism financing • Protecting financial institutions with safe harbor immunity to encourage them to share information and to report to authorities • Performing enhanced due diligence for "business relationships with remittance businesses, exchange houses, casas de cambio, bureaux de change, and money transfer agents" and other high-risk customers or those in high-risk sectors and activities "such as underground banking businesses or alternative remittance systems
What additional topics does Wolfsberg's principles include:
• Reporting money laundering issues to management • AML training • Retention of relevant documents • Deviations from policy • Creation of an anti-money laundering department and an AML policy
In January 2014, the Basel Committee issued guidelines on Sound Management of Risks Related to Money Laundering and Financing of Terrorism that superseded previous publications on customer due diligence for banks and know-your-customer risk management. The guidelines discuss the following controls for banks to implement:
• Risk analysis and governance: • Three lines of defense: • Customer due diligence and acceptance: • Transaction monitoring systems and ongoing monitoring: • Management of information: • Reporting of suspicious transactions and asset freezing:
Highlights of the 40 Recommendations include:
• Risk-based approach • Designated categories of offenses: • Terrorist financing and financing of proliferation: • Knowledge and criminal liability: • Customer due diligence measures • Additional CDD on specific customers and activities: •DE risking: •Expanded coverage of industries • Transparency and beneficial ownership of legal persons and arrangements: • Powers and responsibilities of competent authorities: Countries • International cooperation:
The following high-level principles apply to both FATF and FSRBs:
• Role: • Autonomy: • Sharing common objectives and working in partnership: • Reciprocity: • Common interest:
The support provided by the Egmont Group includes:
• Serving as the operational arm of the international AML/CFT apparatus • Providing a platform for the secure exchange of expertise and financial intelligence to combat AML/CFT • Expanding and systematizing cooperation in the reciprocal exchange of information • Increasing the effectiveness of FIUs by offering training and promoting personnel exchanges to improve the expertise and capabilities of personnel employed by FIUs • Fostering better and secure communication among FIUs through the application of technology, such as the Egmont Secure Web (ESW) • Promoting the operational autonomy of FIUs • Promoting the establishment of FIUs in conjunction with jurisdictions with an AML/CFT program in place or in areas with a program in the early stages of development
FATF Objectives
• Spreading the AML message worldwide • Monitoring implementation of the FATF Recommendations among its members • Reviewing money laundering trends and countermeasures
Since its establishment, FATF has focused its work on three main activities:
• Standard setting • Ensuring effective compliance with the standards • Identifying money laundering and terrorist financing threats
Differences between the Fourth Directive and its predecessors include the following:
• The scope of obliged entities was enlarged from just casinos to all "providers of gambling services." • The European Commission must submit a report every two years on the findings of the risk assessment of money laundering and terrorist financing affecting the internal market. • The EU executive is also in charge of identifying third-country jurisdictions that have strategic deficiencies with regard to AML and CFT (i.e., high-risk third countries). • Special attention is given to PEPs. In this regard, EDD should be applied to every PEP, whether the individual is a domestic or third-country citizen. The risk these people pose is for at least 12 months, and measures they are subject to must also be applied to their family members and their known close associates. • For groups (and their branches and subsidiaries), this Directive sets the criteria for adequate compliance related to CDD of third parties.
