anti-money laundering & financial crime compliance standards for anti- money laundering and...

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A n ti - M o n e y L a u n d e r i n g & F i n a n c i a l C r i m e

COMPLIANCE STANDARDS FOR ANTI-MONEY LAUNDERING AND

COMBATING THE FINANCING OF TERRORISM

Presented by

ERM Institute

Saturday ,February 14, 2015

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Part II: Compliance Standards for AML/CFT

COURSE OBJECTIVESBy the end of this course, course attendants should be acquainted with:• The Financial Action Task Force( FATF) and its

Recommendations• The European Union Directives on Money Laundering• Regional and other International Initiatives on Money

Laundering• Key U.S. Legislative and Regulatory Initiatives Applied to

Transactions Internationally• Overview of Ghana’s AML/CFT Regime

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FINANCIAL ACTION TASK FORCE AND ITS

RECOMMENDATIONS• Origin & Formation of FATF: G-7 launched it

in 1989, based at the OECD in Paris.• Members & Observers: Currently 36

members( 34 jurisdictions and 2 regional organizations, i.e. GCC, EC)

• 29 International and regional organizations that are Associate Members or Observers of FATF

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CRITERIA FOR MEMBERSHIP OF FATF

• Two-step criteria must be met for a jurisdiction to become a Member

• Step 1- Fundamental criteria– Fundamental criteria of membership requires the

jurisdiction to be strategically important– Also, the other fundamental criteria is that the

jurisdiction becoming a must enhance FATF’s geographic balance

• Step 2- Technical/other criteria : Written commitment at political level

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OBJECTIVES OF FATF

• Spreading the anti-money laundering message worldwide

• Monitoring implementation of the FATF Recommendations among FATF members

• Reviewing money laundering trends and countermeasures

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OBJECTIVES OF FATF

• Spreading the anti-money laundering message worldwide• Monitoring implementation of the

FATF Recommendations among FATF members• Reviewing money laundering trends

and countermeasures

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FATF 40 RECOMMENDATIONS

• Recommendations first issued in 1990; revised in 1996, 2003 and 2012. Interpretative Notes added.

• After 9/11, FATF adopted Nine(9) Special Recommendations on Terrorist Financing

• 2012 revisions combined the Nine(9) Special Recommendations into the 40 Recommendations

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FATF 40 RECOMMENDATIONS

• FATF’s Recommendations have become the world’s blueprint for effective national and international AML and CTF related controls

• The IMF & World Bank recognized the FATF Recommendations as the international standard for combating money laundering and terrorist financing

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COUNTERMEASURES AGAINST ML/TF PROVIDED BY 40 RECOMMENDATIONS

• These measures cover:– The identification of risks and development of

appropriate policies– The criminal justice system and law enforcement– The financial system and its regulation– The transparency of legal persons and

arrangements– International cooperation

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KEY HIGHLIGHTS OF 40 RECOMMENDATIONS

• Risk-Based Approach to issues of ML/TF• Designated Categories of Offenses that

serve as ML predicates• Terrorist Financing and Financing of

Proliferation should be criminalized• Knowledge and Criminal Liability for ML

offenses as a result of “wilful blindness”• Customer Due Diligence (CDD) measures

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• Additional Customer Due Diligence on Specific Customers and Activities

• Suspicious Transaction Reporting• Expanded Coverage of Industries to include

Casinos, Real Estate Agents, Lawyers, etc.• Transparency and Beneficial Ownership of

Legal Persons and Arrangements to be scrutinized

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• Powers and Responsibilities of Competent Authorities overseeing financial institutions to be enhanced and monitored

• International Cooperation in ML/TF

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NON-COOPERATIVE COUNTRIES

• FATF “names and shames” countries that it judges have inadequate AML controls or did not cooperate in global ML effort

• FATF have been identifying these “Non-Cooperative Countries and Territories”(NCCTs)

• The goal of the NCCT process was to reduce the vulnerability of the financial system to ML by ensuring that proper standards are kept

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ASSESSMENT OF COUNTRIES

• Assessment of countries for purposes of classification as NCCTs or otherwise cover the following four(4) broad areas:– Loopholes in financial regulations– Obstacles raised by other regulatory requirements– Obstacles to international cooperation– Inadequate resources for preventing and

detecting money laundering activities

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ASSESSMENT OF COUNTRIES

• However in April, 2004, the IMF & World Bank adopted on a permanent basis, a pilot program they had that assesses a nation’s compliance with international AML and anti-TF standards

• The adopted program put an end to FATF’s practice of publicizing NCCTs

• While the original list of NCCTs no longer exists, in 2009 FATF issued a statement on high-risk and non-cooperative jurisdictions.

• Further, in March 2010, FATF issued guidance concerning how it would identify certain high-risk countries and set forth the countries’ specific strategic AML deficiencies

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THE BASEL COMMITTEE ON BANKING SUPERVISION

• Established by the central bank governors of the G-10 countries in 1974

• Aim is to promote sound supervisory standards worldwide

• Committee’s secretariat provided by the Bank for International Settlements(BIS) in Basel, Switzerland

• BIS is an international organization that fosters cooperation among central banks and other agencies in pursuit of monetary and financial stability.

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THE BASEL COMMITTEE ON BANKING SUPERVISION

• BIS services are provided exclusively to central banks and international organizations

• Banking supervisors have a role in ensuring that banks have procedures in place, including strict AML policies.

• This helps avoid involvement with drug traders and other criminals, as well as in the general promotion of high ethical and professional standards in the financial sector

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INPUTS OF THE BASEL COMMITTEE

• The Basel Committee over the years has set out several principles and guidelines to prevent the use of the banking sector for ML

• It has set out principles w.r.t:– 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– Record keeping and audits

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• The Committee also has a paper which identified seven(7) specific customer identification issues:– Trust, nominee and fiduciary accounts– Corporate vehicles, particularly companies with nominee shareholders

or entities with shares in bearer form– Introduced businesses– Client accounts opened by professional intermediaries, such as

“pooled” accounts managed by professional intermediaries on behalf of entities such as mutual funds, pensions funds and money funds

– Politically Exposed Persons– Non-face-to-face customers, i.e., customers who do not present

themselves for a personal interview– Correspondent banking

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• The four(4) key elements of KYC, according to this paper are:– Customer identification– Risk management– Customer acceptance; and– MonitoringThe Committee has subsequently issued several guidelines on customer identification and due diligence to help in the fight against ML and other financial crimes

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EUROPEAN UNION(EU) DIRECTIVES ON MONEY

LAUNDERING(ML)

• FIRST DIRECTIVE– First EU Directive on Prevention of the Use of the

Financial System for the Purpose of ML was adopted by the Council of Europe in June 1991.

– Directive required EU member states to amend national laws if necessary and also enact legislation to prevent their domestic financial systems from being used for ML

– European law prevails over national law in the case of directives

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LAUNDERING(ML)

• FIRST DIRECTIVE– These EU Directives have far more weight than

voluntary standards issued by groups such as the Basel Committee or the FATF. However they apply to only EU member states

– This first Directive was confined to drug trafficking, as defined in the 1988 Vienna Convention. However, member states were encouraged to extend the predicate offenses to other crimes

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LAUNDERING(ML)

• SECOND DIRECTIVE– The EU agreed on a Second Directive that amended the first

in December 2001– This Second Directive required stricter money laundering

controls across the continent of Europe– ONLY Denmark, Germany, the Netherlands met the agreed

deadline of June 15, 2003 for implementation– However, Ireland and Spain complied shortly afterwards and

other member states eventually followed

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KEY FEATURES OF THE EU’S SECOND DIRECTIVE

• Extended scope of First Directive beyond drug-related crimes to all other serious crimes like corruption and fraud against the financial interests of the European Community

• Brought bureaux de change and money remittance officers under AML coverage

• Stipulated that knowledge of criminal conduct can be inferred from objective factual circumstances

• Provided a more precise and inclusive definition of ML

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• Widened the businesses and professions that are subject to the obligations of the Directive to include auditors, external accountants, tax advisers, real estate agents, notaries and legal professionals

• The Second Directive was a tremendous step forward because its applicability included many of the important financial centers of the world

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• The Second Directive went well beyond similar standards issued by other organizations such as the UN and even FATF

• The Second Directive exceeded the norms contained in U.S. law and regulations

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THIRD DIRECTIVE

• Third EU Directive on the Prevention of the Use of the Financial System for the Purpose of ML and TF was based on elements of FATF’s revised 40 Recommendations

• The Third Directive was adopted in 2005• The Third Directive has been implemented by all

members, even though several members did not meet the original implementation deadline of December 15, 2007

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THIRD DIRECTIVE

• Third Directive in line with FATF Recommendations extended the scope of the directives. This was done by:– Defining “money laundering” and “terrorist financing”

as separate crimes– Extending customer identification and suspicious

activity reporting obligations to other corporate entities – Detailing a risk-based approach to customer due

diligence

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THIRD DIRECTIVE

– Protecting employees who report suspicions of ML or TF

– Obligating EU member states to keep comprehensive statistics regarding the use of and results obtained from suspicious transaction reports, etc

– Requiring all financial institutions to identify and verify the “beneficial owner” of all accounts held by legal entities or persons

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THIRD DIRECTIVE

• The Third Directive applies to:– Financial institutions– Auditors, external accountants and tax advisors– Legal professionals– Trust and company service providers– Estate agents– High value goods dealers who trade in cash over

15,000 Euro– Casinos

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DIFFERENCES BETWEEN SECOND AND THIRD

DIRECTIVES• Unlike Second, Third Directive specifically includes

the category of trust and company service providers

• Secondly, Third Directive covers all dealers trading in goods who trade in cash over 15,000 Euros, unlike Second Directive

• Finally, the definition of financial institution includes certain insurance intermediaries not included in the Second Directive

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THIRD DIRECTIVE

• There were three(3) main points of contention with regard to the Third Directive:– The definition of politically exposed persons (PEPs)– The inclusion of lawyers among those who are

required to report suspicious activity– The precise role of the so-called “comitology

committee” of the EU

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THIRD DIRECTIVE

• 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 EU Commission said persons should not be considered PEPs after at least one year of not being in a prominent position

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REGIONAL AND OTHER INTERNATIONAL INITIATIVES

• REGIONAL FATF-STYLE BODIES AND FATF ASSOCIATE MEMBERS– There are currently eight(8) regional FATF-style bodies and FATF

Associate Members– There are currently 21 international organizations that have

FATF-Observer status– Many FATF member countries are also members of these

bodies– They are as follows:

• Asia/Pacific Group on Money Laundering (APG)• Caribbean Financial Action Task Force (CFATF)

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• Council of Europe Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures (MONEYVAL)(formerly PC-R-EV)

• Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG)

• Eurasian Group (EAG)• Financial Action Task Force of South America against Money

Laundering (GAFISUD- Grupo de Accion Financiera de Sudamerica)• Intergovernmental Action Group against Money-Laundering in West

Africa (GIABA- Groupe Intergouvernemental d’Action contre le Blanchiment d’Argent en Afrique de l’Quest)

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

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• ASIA/PACIFIC GROUP ON MONEY LAUNDERING(APG)– An autonomous regional anti-money laundering body– Established in February 1997 at the Fourth Asia/Pacific

Money Laundering Symposium in Bangkok, Thailand by an agreement among its members

– APG’s adopted “Terms of Reference” recognized the FATF’s 40 Recommendations as the benchmark to be implemented by members according to their particular cultural values and constitutional frameworks

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– APG’s Terms of Reference which were revised at its 2006 Annual Meeting said that, to ensure a global approach, members of the APG would work closely with FATF

– The APG is voluntary and cooperative in nature and works closely with FATF and uses similar mechanisms used by FATF in its operations

– Even though FATF and APG have reciprocal rights of attendance at each other’s meetings, as well as reciprocal sharing of documents, the APG determines its own policies and practices

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– Membership of the APG is open to any jurisdiction within the Asia/Pacific region that meets its six point criteria

– It is not a precondition for participation in the APG that anti-money laundering or anti-terrorist financing laws already be enacted

– The APG Secretariat is located in Sydney, Australia

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• CARIBBEAN FINANCIAL ACTION TASK FORCE (CFATF)– Fosters ML controls in the Caribbean region– Main objective is to secure effective compliance with its

recommendations to prevent and control ML and to combat TF

– Group consists of dozens of states in the Caribbean basin and was established as the result of meetings convened in Aruba in May 1990 & Jamaica in November 1992.

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– Canada, France, Mexico, the Netherlands, Spain, The UK, US serve as “Cooperating and Supporting Nations”

– Has 19 Recommendations on ML which are complementary to the FATF 40 Recommendations and were revised in 1999

– Kingston Declaration which was endorsed and affirmed by member governments made a commitment to implement the FATF and Aruba Recommendations, the OAS Model Regulations, and the 1988 U.N. Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances

– The members agreed to enter into mutual assistance agreements with each other to assist in ML investigations

– They also agreed the ML should be an extraditable offense

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REGIONAL FATF-STYLE BODIES AND FATF ASSOCIATE

MEMBERS• FINANCIAL ACTION TASK FORCE ON MONEY LAUNDERING IN

SOUTH AMERICA (GAFISUD-GRUPO DE ACCION FINANCIERA DE SUDAMERICA)– The FATF on ML in South America was created in December 2000

in Colombia– Main objective is to implement AML measures in South America– GAFISUD, with a secretariat in Argentina, was created by an

intergovernmental agreement that left the door open for more countries to join

– GAFISUD has adopted the FATF’s Recommendations and expects to develop its own Recommendations for purposes of AML/CFT

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MEMBERS• MIDDLE EAST AND NORTH AFRICA FINANCIAL ACTION

TASK FORCE (MENAFATF)– Established in November 2004 in Manama,

Bahrain( headquartered )by 14 countries in the region. – Currently has 18 members– Voluntary in nature and was established by agreement

between its members– Independent organization having its own rules– Have adopted the FATF Recommendations and blueprints

for purposes of AML/CFT

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MEMBERS• EURASIAN GROUP ON COMBATING MONEY

LAUNDERING AND TERRORIST FINANCING(EAG)– Another FATF-style regional body formed in October

2004 in Moscow– Open to states in the region– Countries such as Georgia, Uzbekistan, Ukraine, Italy,

the UK and US as well as international organizations such as FATF, the World Bank and the IMF, sit as observers of the organization

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MEMBERS• EASTERN AND SOUTH AFRICAN ANTI-MONEY

LAUNDERING GROUP– 14 countries from East Africa to the southern tip of

Africa currently make up this FATF-style regional body

– In 1999, Group developed an MoU among its member states which among other things, adopts and implements the 40 Recommendations of FATF

– All 14 member states have signed memorandum

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MEMBERS• THE INTER-GOVERNMENTAL ACTION GROUP AGAINST MONEY LAUNDERING IN WEST

AFRICA (GIABA)The Inter-Governmental Action Group against Money Laundering in West Africa (GIABA)

established in the year 2000 is a major response and contribution of West African states to the fight against money laundering.

GIABA is a specialized institution of ECOWAS that is responsible for strengthening the capacity of member states towards the prevention and control of money laundering and terrorist financing in the region.

Apart from member states, GIABA grants Observer Status to African and non-African States, as well as Inter-Governmental Organizations that support its objectives and actions and which have applied for observer status.

GIABA has granted observer status to several bodies including FATF and the Egmont Group

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OTHER ANTI-MONEY LAUNDERING INITIATIVES

• ORGANIZATION OF AMERICAN STATES(OAS) INTER-AMERICAN DRUG ABUSE CONTROL COMMISSION (COMISION INTERAMERICANA PARA EL CONTROL DEL ABUSO DE DROGAS)(CICAD)– OAS in May, 1992 became first permanent international body to reach

an agreement on AML legislation– OAS unanimously approved of 19 articles, which it recommended its

member nations enact– OAS was a result of the work of the Western Hemisphere anti-drug

organization, CICAD, two years earlier– CICAD specializes in fighting drug trafficking and the drugs trade in

that hemisphere

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• EGMONT GROUP OF FINANCIAL INTELLIGENCE UNITS– Formed beginning 1995 by an informal coming together of FIUs in

Brussels– Goal of group is to provide a forum for FIUs around the world to

improve cooperation in the fight against ML and TF and foster implementation of domestic programs in this field

– Group has defined an FIU– In 2001, group issued a document, “Principles for Information

Exchange Between Financial Intelligence Units for Money Laundering and Terrorism Financing Cases”

– Document sets out guidelines for sharing information among FIUs

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– In 2004, the group issued “Best Practices for the Exchange of Information Between Financial Intelligence Units”

– As of June 30, 2010, there were 117 Egmont member FIUs

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• THE WOLFSBERG GROUP– An association of 11 global banks that aims to develop financial services industry

standards and related products for KYC, AML and CFT– Group first came together in 2000 at the Wolfsberg castle in Switzerland– Their principles hold no force of law and carry no penalties for those who do not abide by

them– Have publishes principles that recommend controls for private banking ranging from

customer identification, EDD and PEPs– Principles published in October 2000 and revised in May 2002 and is called “The Wolfsberg

Anti-Money Laundering Principles for Private Banking”– Principles also address:

• Reporting to management of ML issues• AML training• Retention of relevant documents• Deviations from policy• Creation of an AML department and an AML policy

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• WoIfsberg Group also issued guidelines in early 2002 on “The Suppression of the Financing of Terrorism” outlining the roles of FIs in the fight against ML and TF

• Wolfsberg Group has issued several other guidelines to further its aims

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• THE WORLD BANK AND THE INTERNATIONAL MONETRAY FUND( IMF)– Have jointly supported efforts of FATF in addressing the

resistance of certain nations to joining the international battle against ML

– Have a joint policy paper called “Enhancing Contributions To Combating Money Laundering”, detailing steps at combating ML

– Both are working with FATF and other international bodies to help fight ML and TF through implementation of several programs

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• Other international organizations with anti-money laundering and terrorist financing initiatives include:– African Development Bank– Asia Development Bank– The Commonwealth Secretariat– European Bank for Reconstruction and Development (EBRD)– European Central Bank (ECB)– Europol– Inter-American Development Bank (IADB)– Interpol– International Organization of Securities Commissions (IOSCO)– Offshore Group of Banking Supervisors (OGBS)– World Customs Organization (WCO)

OTHER INTERNATIONAL ORGANIZATIONS

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This is a brief overview of the principal elements of US law related to ML &TF that have a bearing on international transactions and jurisdictions

KEY U.S LEGISLATIVE AND REGULATORY INITIATIVES APPLIED TO TRANSACTIONS INTERNATIONALLY

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• USA PATRIOT ACT is an acronym for a U.S Congress law after 9/11 designed to disable mechanisms that finance terrorism

• It stands for “ Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act” (USA Patriot Act)

• Law has Sections which deal with ML &TF• Law has implications for US institutions and non-US

institutions that do business in the US

USA PATRIOT ACT

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• Law empowers US Treasury Department to provide regulations for which financial institutions doing business in the US and beyond are supposed to comply with

• The law allows the US to designate non-compliant financial institutions and countries to be placed on blacklists and sanctioned

• The law has provisions related to correspondent banking, customer and enhanced due diligence, AML programs, private banking, shell banks, PEPs, etc

USA PATRIOT ACT

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• US AML law first enacted in 1986• Defines “specific unlawful activity”(SUA) for which it

applies; but these include virtually every US crime• US AML also reaches foreign individuals and foreign

financial institutions if the transaction occurs in whole or in part in the US or if the foreign financial institution maintains a bank account at a US financial institution

• The law also addresses issues of “wilful blindness” in transactions

• Forfeiture of funds of foreign persons and institutions are also addressed in US law

US CRIMINAL MONEY LAUNDERING & CIVIL FORFEITURE LAWS

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• In addition to all these laws, the US Treasury Department’s Office of Foreign Assets Control (OFAC) administers and enforces economic and trade sanctions based on US Foreign Policy and national security goals

• This is done against targeted foreign countries, terrorists, international narcotics traffickers and people engaged in the proliferation of WMDs

• The US State Department, Treasury Department and Presidency are responsible for such actions

OFFICE OF FOREIGN ASSETS CONTROL (OFAC)

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• Foreign Account Tax Compliance Act (FATCA)– The Foreign Account Tax Compliance Act (FATCA)

requires United States persons including individuals who live outside the United States, to report their financial accounts held outside of the United States, and requires foreign financial institutions to report to the Internal Revenue Service(IRS) about their American clients. FATCA was designed primarily to combat offshore tax evasion and to recoup federal tax revenues.

– This also has AML/CFT implications

OTHER US LAW(S)

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• Anti-Money Laundering Act, 2008 (Act 749) • Anti-Money Laundering (Amendment) Act, 2014 (Act 874)• Anti-Money Laundering Regulations, 2011 (L.I. 1987)• Anti-Terrorism Act, 2008 (Act 762) and the Anti-Terrorism (Amendment) Act,

2012 (Act 842)• Anti-Terrorism Regulations, 2012 (L.I. 2181)• The Bank of Ghana and Financial Intelligence Centre(BOG/FIC) Anti-Money

Laundering/Combating the Financing of Terrorism (AML/CFT) Guideline, 2011• Securities And Exchange Commission–Ghana and Financial Intelligence

Center(SEC/FIC) Anti-Money Laundering/Combating Financing Of Terrorism (AML/CFT) Compliance Manual for Capital Market Operators,2011

• National Insurance Commission(NIC) and Financial Intelligence Centre(FIC) Anti-Money Laundering/Combating Financing Of Terrorism (AML/CFT) Guidelines

Overview of Ghana’s AML/CFT Regime

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• Essentially, Ghana’s AML/CFT laws are based on the Financial Action Task Force on Money Laundering (FATF)’s recommendations and best internationally accepted banking standards.

END OF PART II

Overview of Ghana’s AML/CFT laws cont’d

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• The passing of the EU Forth Directive in December last year– More scrutiny of PEPS and Ultimate Beneficial Owners as

a way of fighting bribery, corruption and tax evasion– Outsourcing of Due Diligence to third parties; reliance on

Due Diligence of Group Companies– Tighten rules on wire transfers. Transfers of over 1000

Euros to EU countries to be tightly monitored– EU states given up to two(2) years to implement 4th

Directive.

Current Global/Regulatory Trends in AML

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• US Financial Crime Enforcement Network (FINCEN), going directly after compliance officers of firms.

• In December 2014, one officer fined to the tune of 1 million USD for AML violations. Fines converted into a judgment which essentially bars him from working in the financial industry for the foreseeable future.

Current Global/Regulatory Trends in AML

anti-money laundering & financial crime compliance standards for anti- money laundering and...

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