APAC Financial Crime

Briefing

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Moderator

Hue Dang, CAMSHead of Asia

ACAMS

Speakers

Joshua Heiliczer, CAMSDirector, AML Advisory Services

EY Hong Kong

Aaron Lau, CAMSManaging Partner & Head of Forensic Accounting and AML Compliance

AITLAU Management Services, Malaysia

AGENDA

Analyzing latest regional AML/CTF initiatives

Reviewing impact of global AML initiatives on Asia Pacific (Recent Enforcement Actions)

Surveying data analytics tools and other emerging AML technologies

4

Analyzing latest regional AML/CTF

initiatives

Malaysian National Risk Assessment Results

Changes in Malaysian AMLAFT legislation

Renamed to Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activity Act 2001;

Wider coverage and enhances the powers of the Competent Authority, FIED

Main areas includeInclusion of environmental crimes, evasion of indirect

taxes and human trafficking as predicate offences;

Seizure, Freezing and Forfeiture of terrorist property

Inclusion of what structuring and cross border movements of cash and bearer negotiable instruments

Financial Crime around the RegionTrade based money laundering in particular trade

mispricing;

Complex financial structures & legal arrangements to layer POC using jurisdictions with lax AML regimes and tax havens;

Using trade finance facilities like letters of credit & standby letters of credit to finance the movement of goods and value;

Direct and indirect tax evasion;

E-crimes – manipulation of data master files & falsification of data

Cornerstone to Risk-based Approach

Applies to every level in the AML/CFT Regime

Jurisdictional level (NRA to be completed by end 2015)

Sectoral level

Financial institution level

Effective allocation of resources to manage and mitigate

areas posed higher ML/TF risks

Comprehensive understanding of inherent ML/FT risks present in

customer base, products, delivery channels and services offered

and the jurisdictions within which it or its customers do business

Risk Assessment should be: Properly documented, maintained and communicated to relevant personnel with bank

Ready to provide it to the supervisor

Approved by senior management

Reviewed and updated on a regular basis

HONG KONG: ML/TF Risk Assessment

Governance and Oversight of ML/TF risk remain a key focus in our supervision Historical perspective – Many reviews are ‘look backs’

Assurance activity performed by Compliance function over the CDD or sanctions process essential – must be evidence that banks can self-detect control failures

Poor judgment or questionable decisions will be challenged

Effectiveness of key post holders, MLRO etc. Should help the AI to understand risk, dealing with that risk and recognizing

where the AI needs to be better

System or Program flaws, or risk events must be properly addressed / managed Documented form, to the right level of Authority

Risk Assessment processes to identify higher risk customers Industry benchmarking is important

Event driven reviews of risk are critical

HONG KONG: Supervisory Focus

HONG KONG: Supervisory Focus

Risk-based approach to CDD At what stage is your bank

Management of high risk customers Supervisory focus on source of wealth and funds will continue

Resource adequacy often drives effectiveness of implementation Known weaknesses should be clearly articulated

Correspondent Banks Due Diligence must reflect the ML/TF risks

AML/CFT IT systems Automation

Calibration / Validation

Alert clearance as a health check Timeliness / Quality / Resourcing

Guidance to staff, audit trail of work

Corruption, Drug Trafficking and Other Serious

Crimes (Confiscation of Benefits) Act (“CDSA”);

Terrorism (Suppression of Financing) Act

(“TSFA”);

Monetary Authority of Singapore (“MAS”) Act;

MAS Notice 626 Prevention of Money

Laundering and Countering the Financing of

Terrorism (“Notice 626”);

Guidelines to MAS Notice 626 (“626

Guidelines”)

SINGAPORE: Legal Structure of Singapore’s AML Regime

MAS

July 2014: Proposed Amendments to MAS Notices to FIs on Prevention of ML/CFT (Annexes A-K)626: Banks; 1014: Merchant Banks; 824: Finance

Companies; 3001: Money Changers; 314: Life Insurers; SFA04-N02: Capital Markets Intermediaries; SFA13-N01: Approved Trustees; FAA-N06: Financial Advisers; TCA-N03: Trust Companies; PSOA-N02: Holders of Stored Value Facilities; 626A(New): Non-Bank Credit Card or Charge Card Licensees

MAS (cont’d)

Key Themes to AmendmentsNRA of 2013, published in Jan 2014, identified key risk areas

Cross-border transactions

Money-Changers/Remitters

Corporate Service Providers Pawnbrokers

Gambling/IMAs

Emerging: Virtual Currency & Precious Stones & Metals Dealers

Adopt RBA: e.g. Conduct RA CDD on occasional customers transacting over S$1,500 KYC/TM of banking relationship must be enterprise-wide Customer-screening (UBOs) to ID high-risk customers EDD required for high-risk jurisdictions designated by FATF and MAS Wire Transfer threshold reduced from SGD2,000 to SGD1,500 and

add’l info required: Address, DOB, unique ID (IC, Passport, Birth Cert or BR/Inc. No.)

RBA for Domestic PEPs and families/close associates

Key Takeaways

Results of the Malaysia’s NRA

Major change in Malaysia’s AMLAFT legislation

Trade based money laundering in particular trade mispricing

HKMA’s focus is Enterprise-wide Risk Assessment

MAS revised amendments focuses on KYC/CDD/TM being enterprise-wide for banking relationships & UBO

Reviewing impact of global AML initiatives

on Asia Pacific (Recent Enforcement

Actions)

Bank Date Fine Amount Country Reason

BNP July 2014 USD 8.97 Billion US Sanctions

JP Morgan Chase January 2014 USD 2.6 Billion US Madoff – SAR Reporting

Credit Suisse May 2014 USD 2.6 Billion US Tax Evasion

HSBC January 2013 USD 1.9 Billion US Sanctions and Other Issues

Commerzbank March 2015` USD 1.45 Billion US Sanctions, AML and Olympus Fraud

UBS February 2009 USD 780 Million US Tax Evasion

Standard Chartered August and December 2012 USD 667 Million US Sanctions (NYDFS & US Treasury)

ING June 2012 USD 619 Million US Sanctions

Credit Suisse December 2009 USD 536 Million US Sanctions

RBS (Abn Amro) May 2010 USD 500 Million US Sanctions

Bank Leumi December 2014 USD 400 Million US Tax Evasion (NYDFS & US Treasury)

Lloyds Banking Group January 2009 USD 350 Million US Sanctions

Standard Chartered August 2014 USD 300 Million US AML Monitoring System (NYDFS)

Bank of Tokyo-Mitsubishi UFJ June and December 2013 USD 259 Million US Sanctions (NYDFS & US Treasury)

Bank of Tokyo-Mitsubishi UFJ November 2014 USD 250 Million US Failure to Comply with Original Consent Order (NYDFS)

Wachovia March 2010 USD 160 Million US Mexican Money Exchange

JP Morgan Chase January 2013 USD 88 Million US Sanctions

Julius Baer April 2011 EUR 50 Million (USD 72 Million) Germany Tax Evasion

Citibank Three Cease and Desist Orders No Fines US Correspondent Banking ControlsGrand Jury Review on AML issues

Recent Global Regulatory Fines

The Global Nature of Regulatory Actions

Regulatory actions in one jurisdiction are currently affecting banks globally:

A clear example of this, in addition to the fines, previously noted is the recent case of Banca Privada d'Andorra located in Andorra (Bordering Spain and France)

The bank is alleged to have laundered funds for Chinese, Russian and Venezuelan criminals in US Dollars through correspondent banking relationships

US FINCEN designated the Bank as a foreign financial institution of primary money laundering, earlier this month. Thereafter, the Bank was forced to cease operations.

As the result of a number of the recent enforcement actions senior managers have been removed as a result of AML fines.

BNP and Commerzbank are both recent examples

Regional regulators are also expecting a clear tone at the top

Personal Liability for Compliance Officers

In US and UK, compliance officers have also recently been targeted for personal liability

The US has fined two compliance officers

Thomas Haider – Moneygram – USD 1 Million (FINCEN – Dec. 2014) – Failure to establish adequate AML systems and controls in addition to failing file timely suspicious activity reports

Harold Crawford – Brown Brothers Harriman - USD 25,000 (FINRA Feb. 2014) - Failure to establish adequate AML systems and controls

The UK FCA has fined two compliance officers

Willis - Bank of Beirut UK – GBP 19,600 (Mar 2015) – Misleading the FCA on financial crime controls

Hussain - Habib Bank – GBP 17,500 (FSA fine May 2012) – Failure to maintain adequate AML systems and controls

Regional Regulatory Expectations

Regional Regulators are expecting that Senior Management, Compliance Officers and MLROs are all responsible for AML accountability

Bank systems are working and can monitor effectively for AML risk leading to the expansion, optimization and validation of transaction monitoring

Sufficient and Competent resourcing of the Compliance and Money Laundering Functions

The standard of willful blindness can subject the bank and individual staff to criminal liability

The importance of, and expectations around risk assessments

The risk based approach taken by a financial institution is underpinned by the risk assessment

Conducting tax evasion risk assessments and client reviews

KEY Takeaways

The global nature of regulatory actions

Correspondent Banking has been the jurisdictional tie for a number of recent AML fines particularly out of the US

Compliance officers are being targeted for personal liability

This necessitates everyone having increased vigilance in their roles

The critical role of risk assessments in measuring AML risk

Surveying data analytics tools and

other emerging AML technologies

Auditing the Screening and Transaction Monitoring System

Handshakes - New CDD tool for Malaysia and Singapore Capital Markets – The links between Datuk Jared Lim, Blumont Group Ltd and LionGold Corp Ltd

Challenges in Technology

Rapid changes

Heavy investment in hardware and software technology

Algorithms to identify tax evasion and terrorist financing

Virtual Currency/Bitcoin investigations

Key Takeaways

You can now audit the screening and transaction monitoring system

Handshakes – new CDD tool to find links between Malaysian and Singapore Capital Market (currently)

Changes in technology means constant enhancements required to ensure you are not outdated