aml sanctions presentation

Trade and Financial Sanctions - Global Issues with Local Implications: Are You Exposed?

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www.amlcompliance.ca July 2011

What are Sanctions?

Designated Persons:

Terrorist Groups, Listed Individuals and Entities

A government’s legislated measures against Designated Persons, certain transactions, and Countries to achieve policy objectives.

Type I: People Type II: Purposes

Two Types – Two Parts to Our Agenda

vs.

What do People Sanctions Require?

Financial Institutio

n Records

Designated

Persons

Search for the Overlap

Determine possession/control of DP Property

Prevent transactions involving DP property

Disclose DP Property to RCMP/CSIS/FINTRAC

Report on Property/Screening to Regulator

Our Agenda: People Sanctions


1. What financial information records should be included in the search?

2. Which lists should be searched against?

3. How often should the search take place?

4. How should we conduct the searching?

5. How do we resolve potential matches?

Our Agenda: People SanctionsDetermine possession/control of DP Property

1. What is Property?2. What does

Determination involve?



1. What controls should be effected to freeze identified property/prevent unauthorized transactions?

2. What exceptions are available to freezing?

3. How does property become unfrozen?


1. When should the disclosure take place?

2. Who do you contact in the case of a match?

3. What information should you have available?

4. What reporting is required for FINTRAC?



1. What does the form represent?

2. What is the format and content of the form?

3. Who is the form submitted to?

4. When should the form be submitted?

5. Should copies of the form be kept?

Report on Property/Screening

to Regulator

What do Purpose Sanctions Require?

Prevent transactions involving sanctioned countries and specified purposes

Disclose attempted transactions to RCMP/CSIS/RCMP

vs.








General form of the legislative standard: Every entity must determine on a continuing basis whether it is in possession or control of property owned or controlled by or on behalf of a Designated Person

According to the OSFI Instruction Guide:

- Against information that FI collects and develops in the KYC process

- Includes: Third Parties, Beneficial Owners, Beneficial Owners (to the extent reasonably possible), Trust Settlors and Trustees. [silent on transactions]

Searching obligations generally relate to FIs – some regulations require MSB searching also – such as UN Libya Regulations








The most current lists of Designated Persons for prevailing and applicable sanctions legislation:

- United Nations Act (UNA)- Criminal Code (CC)- Special Economic Measures Act

(SEMA)- Freezing of Assets of Corrupt

Foreign Officials Act (CFOA)List updates should be conducted

with a regular frequency (monthly) using authoritative sources – or update confirmation conducted if software driven.

Search for the Overlap: Acts

United Nations Act (1985)

Enables the Canadian government to give effect to decisions passed by the

United Nations Security Council (UNSC)

Offences are punishable by fines up to CAD

100,000 or imprisonment of up to 10 years, along with property seizures.

R. v. Yadegari, 2011 ONCA 287: 3 years (Iran)

Criminal Code (1985)

Enables the Canadian Government to establish a list of terrorist entities on the recommendation of the Minister of Public

Safety and Emergency Preparedness.

Offences are punishable by a fine of up to CAD

100,000 and imprisonment of up to 10

years. No known

convictions/fines

Special Economic

Measures Act (1992)

Authorizes the Governor in Council to make orders or regulations to impose sanctions measures in relations to a foreign

state.


25,000 or imprisonment of up to 5 years.

No known convictions/fines

Freezing of Assets of

Corrupt Foreign Officials Act

(2011)Permits the Government of Canada to take

measures in respect of property designated officials and former officials and persons associated with them

(PEFP).


25,000 or imprisonment of up to 5 years.

No known convictions/fines


“Of 513 entries on the [UN Security Council Terrorist] list, 38 people are reported or believed to be dead... A third of the entries are missing basic information, such as full names, dates of birth and other particulars.”

Dead People on U.N. terrorism sanctions list: envoy, Reuters, July 14, 2009


“Of the hundreds of millions of dollars suspected of going toward funding terrorism overseas last year, $188,335 [was] frozen in 10 accounts in Canadian financial institutions as ‘terrorist assets’ at November 1, 2006.”

Terrorist funds almost unchecked, Edmonton Journal, September 29, 2007

Search for the OverlapUnited Nations Act Criminal Code Special Economic Measures

ActFreezing Assets of Corrupt Foreign Officials

1998

Sierra Leone Regulations

1999

Al-Qaida & Taliban Regulations

2001

Liberia Regulations Resolution on the Suppression

of Terrorism

2002

Regulations Establishing a List of Entities

2004

Sudan Regulations Iraq Regulations Democratic Republic of the

Congo Regulations

2005

Cote d’Ivoire Regulations

2006

Resolution on the Democratic People’s Republic of Korea

2007

Resolutions on Iran Resolution on Lebanon

Burma Regulations

2008

Zimbabwe Regulaitons

2009

Resolutions on Somalia

2010

Resolution on Eritrea Iran Regulaitons

2011

Resolution on Libya Libya RegulationsSyria Regulations

Tunisia and Egypt

Search for the Overlap: The Lists

No. List and Link Act Section/Regulation1 OSFI Consolidated Lists of Individuals and Entities

(Terrorism)Criminal Code Section 83.05(1)

http://www.osfi-bsif.gc.ca/osfi/index_e.aspx?ArticleID=524 United Nations Act Regulations Implementing the United Nations Resolutions on the Suppression of Terrorism (RIUNRST)United Nations Al-Qaida and Taliban Regulations (UNAQTR)

2 Joint OSFI/DFAIT List of Individuals and Entities (Iran) United Nations Act Regulations Implementing the UN Resolutions on Iran

http://www.osfi-bsif.gc.ca/osfi/index_e.aspx?ArticleID=2069

3 Joint OSFI/DFAIT List of Individuals and Entities (Korea) United Nations Act Regulations Implementing the UN Resolution on the Democratic People's Republic of Korea


4 List of Individuals and Entities Subject to UN Security Council Resolution 1532

United Nations Act United Nations Liberia Regulations

http://www.un.org/sc/committees/1521/aflist.shtml




http://www.un.org/sc/committees/1521/aflist.shtml


No. List and Link Act Section/Regulation5 List of Individuals and Entities Subject to UN Security

Council Resolution 1844United Nations Act Regulations Implementing the UN

Resolutions on Somalia

http://www.un.org/sc/committees/751/pdf/1844_cons_list_12Apr10.pdf Regulations Implementing the UN Resolution on Eritrea

6 List of Individuals and Entities Proposed for Designation (Libya)

United Nations Act Regulations Implmenting the United Nations Resolution on Libya and Taking Special Economic Measures

Special Economic Measures Act

http://daccess-dds-ny.un.org/doc/UNDOC/GEN/N11/268/39/PDF/N1126839.pdf?OpenElement

7 List of Individuals and Entities Subject to Special Economic Measures (Syria)

Special Economic Measures Act Special Economic Measures (Syria) Regulations

http://www.gazette.gc.ca/rp-pr/p2/2011/2011-06-08/html/sor-dors114-eng.html

8 List of Individuals and Entities Subject to Special Economic Measures (Iran)

Special Economic Measures Act Special Economic Measures (Iran) Regulations

http://canadagazette.gc.ca/rp-pr/p2/2010/2010-08-04/html/sor-dors165-eng.html

http://www.un.org/sc/committees/751/pdf/1844_cons_list_12Apr10.pdf

http://daccess-dds-ny.un.org/doc/UNDOC/GEN/N11/268/39/PDF/N1126839.pdf?OpenElement

http://www.gazette.gc.ca/rp-pr/p2/2011/2011-06-08/html/sor-dors114-eng.html

http://canadagazette.gc.ca/rp-pr/p2/2010/2010-08-04/html/sor-dors165-eng.html


No. List and Link Act Section/Regulation9 List of Individuals and Entities Subject to Special Economic

Measures (Burma)Special Economic Measures Act Special Economic Measures (Burma)

Regulations

http://www.international.gc.ca/sanctions/Burma-Birmanie_list-liste.aspx?view=d

10 List of Individuals and Entities Subject to Special Economic Measures (Zimbabwe)

Special Economic Measures Act Special Economic Measures (Zimbabwe) Regulations

http://www.international.gc.ca/sanctions/zimbabwe_list-liste.aspx?lang=eng&view=d

11 Freezing Assets of Corrupt Foreign Officials (Tunisia and Egypt)

Freezing Assets of Corrupt Foreign Officials Act

Freezing Assets of Corrupt Foreign Officials (Tunisia and Egypt) Regulations

http://www.international.gc.ca/sanctions/tunisia_egypt_regulations-reglements_tunisie_egypte.aspx?lang=eng&view=d

http://www.international.gc.ca/sanctions/Burma-Birmanie_list-liste.aspx?view=d

http://www.international.gc.ca/sanctions/zimbabwe_list-liste.aspx?lang=eng&view=d

http://www.international.gc.ca/sanctions/tunisia_egypt_regulations-reglements_tunisie_egypte.aspx?lang=eng&view=d








General form of the legislative standard: Every entity must determine on a continuing basis whether it is in possession or control of property owned or controlled by or on behalf of a Designated Person

No definition is provided for “continuing”. OSFI’s expectation is at least weekly screening. They assert that new client names should be checked against lists as part of, or as soon as reasonably possible after the opening of new accounts/changes to DP lists.








Manual Screening (Including ad-hoc electronic searches)

- All existing clients (+), every new client (+), and then every new listed DP against the entire client list (+).

- Logged manual comparison of source list against DP list with clear and documented matching criteria and results.

Automated Screening (Batch Driven)

- All client (+) names screening routinely against current DP lists, automatically updated (verified).








There key standard:“shall disclose… the existence of

property… that they have reason to believe is owned or controlled by or on behalf of a listed person”

OSFI recommends that the assessment be made “…based on all the information available to it [including]… “know your client” information and the determination may require the use of enhanced due diligence measures in the event of uncertainty”.








OSFI further suggests that: if an FI’s record matches or substantially matches that of a DP, the FRFI should compare personal identifiers, and may seek additional information from the client. Neither the RCMP nor CSIS are to be contacted in resolving a potential match according to the Guide.

In both exact and partial name matches, it is typically the personal identifier which confirms or disconfirms the match – along with circumstantial information.

Determine Possession or Control of Property

Determine DP PropertyDetermine possession/control of DP Property



Property means “property of every description and documents relating to or evidencing the title or right to property, or giving a right to recover or receive money or goods, and includes any funds, financial assets or economic resources.”

OSFI’s guidance suggest that property includes:

- A positive balance in a deposit account or GIC in the name of a DP

- A balance in excess of the amount owing on a credit card in the name of a DP (or where a DP is an authorized signer)

- Cash and securities in a brokerage account in the name of a DP

- Drawings by a DP under a letter of credit- An insurance benefit/refund claimed by

the DPObtain counsel’s counsel on how to proceed.

Determine DP PropertyDetermine possession/control of DP Property



Determination would include a search of all financial records for connections/characteristics of the DP (joint account or apparently owned/controlled property). That determination obligation becomes continuous after the initial search.

Prevent Transactions (Freezing Property)

Prevent Transactions





Accounts/Property should be frozen according to a set procedure, with appropriate user permissions and no possibility of other than senior management override.

It is important to remember that there are two types of persons subject to freezing orders:

A. Those you’re obligated to screen for; and,

B. Those you’re not obligated to screen for.






Lists of Designated Persons You Are Not Obligated to Screen For, But Can’t Transact With:

A. UN Iraq Regulations: Consolidated List of Financial Sanctions Targets – pursuant to the UNSC 661 Committee list

B. UN Côte d’Ivoire Regulations: Consolidated List of Financial Sanctions Targets – pursuant to the UNSC 1575 Committee list

C. UN Sudan Regulations: Consolidated List of Financial Sanctions Targets – pursuant to the UNSC 1591 Committee list

D. UN Democratic Republic of the Congo Regulations: Consolidated List of Financial Sanctions Targets – pursuant to the UNSC 1533 Committee List






Act and Regulation Specific – Consult Counsel!






Property becomes unfrozen through:

A. Judicial authorization, or,B. At the (documented) and

authoritative instruction of the entity responsible for the administration of the legislaiton (e.g. DFAIT).

Disclosing Transactions

Disclose






There key standard:“shall disclose forthwith… the

existence of property… that they have reason to believe is owned or controlled by or on behalf of a listed person”

Disclose






It depends on which regulation the match relates to (and some regulations don’t require any reporting at all)

Disclose – Who to Report ToFreezing Assets of Corrupt Foreign Officials –Tunisia & Egypt Regulations RCMP

Regulations Implementing the UN Resolutions on the Suppression of Terrorism FINTRAC/RCMP/CSIS

UN Al-Qaida and Taliban Regulations FINTRAC/RCMP/CSIS

Criminal Code of Canada FINTRAC/RCMP/CSISRegulations Implementing the UN Resolution on the Democratic People’s Republic of Korea RCMP/CSIS

Regulations Implementing the UN Resolutions on Somalia RCMP

Regulations Implementing the UN Resolutions on Iran RCMP/CSIS

UN Liberia Regulations RCMP/CSIS

UN Iraq Regulations DFAITSpecial Economic Measures (Burma) Regulations RCMP

Special Economic Measures (Zimbabwe) Regulations RCMP

Regulations Implementing the UN Resolutions on Libya and taking Special Economic Measure

RCMP/CSIS

Special Economic Measures (Syria) Regulations RCMP

Special Economic Measures (Iran) Regulations RCMP

Regulations Implementing the United Nations Resolution on Eritrea RCMP

Disclose






Complete information regarding the reasons to believe that the person involved is the same as the Designated Person, the measures taken to identify their property, personal identifiers details of property identified, associated accounts/persons, and transactions conducted/attempted.

Disclose






Prescribed Terrorist Property reporting: - Regulations Implementing the UN

Resolutions on the Suppression of Terrorism

- UN Al-Qaida and Taliban Regulations- Criminal CodeJudgment based Suspicious Transaction

Reporting: Consider whether the transactions conducted or attempted by the Designated Purposes is tainted by the affiliation (particularly important in the case of matches from the Freezing Assets of Corrupt Foreign Officials, for instance).

Reporting Transactions

Monthly Reporting

1. What does the form represent?

2. What is the format and content of the form?

3. Who is the form submitted to?

4. When should the form be submitted?

5. Should copies of the form be kept?

Report on Property/Screening

to Regulator

1. A declaration of terrorist property in the possession/Control of the FI

2. FRFI’s: 525 Long Form (property to report) and 525 Short Form (Nil Report)Others: Relevant form (usually based on the 525 standard)

3. FRFI’s: OSFIOthers: Relevant regulator

4. Monthly filing by the 15th of the month following calendar month to which the form relates

5. Yes!

Monthly Reporting

Purpose Sanctions

What do Purpose Sanctions Require?


Disclose attempted transactions to RCMP/CSIS/FINTRAC

vs.

Applicable Acts

United Nations Act (1985)

Enables the Canadian government to give effect to

decisions passed by the United Nations Security Council (UNSC)

Offences are punishable by fines up to CAD 100,000 or

imprisonment of up to 10 years, along with property seizures.

R. v. Yadegari, 2011 ONCA 287: 3 years (Iran)

Special Economic

Measures Act (1992)

Authorizes the Governor in Council to make orders or

regulations to impose sanctions measures in relations to a

foreign state.

Offences are punishable by a fine of up to CAD 25,000 or

imprisonment of up to 5 years.No known convictions/fines

Export and Import Permits

Act (1985)Composed of trade sanctions on

goods through three regulations: Area Control List

(ACL), Export Control List (ECL), and Import Control List (ICL).

Contraventions are punishable by a fine that is in the discretion

of the court and/or to imprisonment for a term not

exceeding 10 years.Multiple convictions

Prevent Transactions – UNA/SEMA

Regulation Name ProhibitionsRegulations Implementing the UN Resolution on the Democratic People’s Republic of Korea

Shall not knowingly export/import, sell, supply, transfer or ship, directly or indirectly: arms and related material; luxury goods; resouces contributing to the DPRK’s weapons programme; technical data related to the provision, manufacture, maintenance or use of arms and related materials or of resources contributing to the DPRK’s weapons programme.

Regulations Implementing the UN Resolutions on Somalia

Shall not knowingly export, sell, supply, transfer or ship, directly or indirectly, arms and related material, wherever situated, to any person in Somalia; or provide or transfer, directly or indirectly, technical, financial or other assistance related to military activities to any person in Somalia.

Regulations Implementing the UN Resolutions on Iran

Shall not knowingly export, sell, supply, transfer or ship, directly or indirectly, listed types of arms/missiles, nuclear, and related material, wherever situated, to any person in Iran or for the benefit of Iran, or financial services in respect of those things.

UN Liberia Regulations Shall not knowingly provide to any person in Liberia technical assistance related to the provision, manufacture, maintenance or use of arms and related material.

UN Iraq Regulations Shall not knowingly export, sell, supply or send to any person in Iraq arms and related material unless they are required by the Government of Iraq, or by a multinational force under unified command, to serve the purposes of Resolution 1546 of June 8, 2004.


Prevent Transactions – UNA/SEMA


Regulation Name ProhibitionsUN Côte d’Ivoire Regulations Shall not knowingly export, sell, supply or ship arms and related material, wherever situated, to any

person in Côte d'Ivoire, or provide technical assistance related to those things.UN Sudan Regulations Shall not knowingly export, sell, supply or ship arms and related material, wherever situated, to any

person in Sudan, or provide assistance related to those things.UN Democratic Republic of the Congo Regulations

Shall not knowingly export, sell, supply or ship arms and related material, wherever situated, to any person in the Democratic Republic of the Congo, or provide assistance related to those things.

Special Economic Measures (Burma) Regulations

Shall not export, sell, supply or ship any goods, wherever situated, to Burma, to any person in Burma or to any person for the purposes of any business carried on in or operated from Burma. Shall not import, purchase, acquire, ship or tranship any goods that are exported, supplied or shipped from Burma after the date of the coming into force of these Regulations, whether the goods originated in Burma or elsewhere.

Special Economic Measures (Zimbabwe) Regulations

Shall export, sell, supply or ship arms and related material, wherever situated, to Zimbabwe or to any person in Zimbabwe, or provide assistance related to those things

Regulations Implementing the UN Resolutions on Libya and taking Special Economic Measure

Shall not knowingly export, sell, supply or ship arms and related material, wherever situated, to Libya or any person in Libya, or provide assistance related to those things

Regulations Implementing the United Nations Resolution on Eritrea

Shall not knowingly export, sell, supply, transfer or ship, directly or indirectly, arms and related material, wherever situated, to any person in Eritrea; or provide assistance related to those things.

Prevent Transactions – EIPA Permits are required for the export of any goods

to countries listed in the ACL, currently Myanmar (Burma) and Belarus.

Permits are required for the export of goods on the ECL and the import of goods on the ICL.

The ECL list particularly seeks to control the states to which military goods and technology are exported.

The ICL requires permits for items such as weapons, textiles and apparel, and certain animals and foods. For some of those items, state prescriptions are specified.


Disclose

1. Who do you report to?

Disclose to RCMP/CSIS/FINTRAC

Transactions are prohibited.

Reporting entities should consider reporting attempted transactions to authority responsible for the administration of the legislation. (consult counsel)

Attempted transactions should be considered for Judgment based Suspicious Transaction Reporting.

Key Questions… Should you be screening for purpose

based transactions? How will you assess whether they are

prohibited if you do?

A Note on Recent FATF Notices All transactions involving Iran and DPRK

should be subject to documented scrutiny for potential suspicious transaction reporting

Post-Webinar Checklist

Documented policies and procedures for sanctions compliance Documented (and effective) method for

compiling/maintaining the right set of lists Documented (and effective) method for comparing the

right set of lists against the right set of client information (including third parties)

Documented (and effective) method for assessing and documenting potential matches

Documented (and effective) method for routine and match-driven reporting

Documented (and effective) method for wire screening [people and purpose based transactions]

Reference Sources

http://www.international.gc.ca/sanctions/

http://www.osfi-bsif.gc.ca/app/DocRepository/1/eng/issues/sanctions/osfi590/dsninstr_e.pdf

http://www.amlcompliance.ca/aml-compliance-obligations/

economic-sanctions-compliance/

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Williams McGuire AML Inc. (416)969-8166 extension 227

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