Slide Deck for CFS Prep Session 2-24-14

1. CFCS Examination Preparation Series
February 24, 2014
Part 1:
Financial Crime Commonalities
Money Laundering
Ethics
International Standards
Global Anti-Corruption
Presented By
Charles Intriago
Brian Kindle

2. Brian Kindle
Executive Director
Association of Certified Financial Crime Specialists
Miami, FL

3. Charles A. Intriago
President and Founder
Association of Certified Financial Crime Specialists
Miami, FL

4. Certification | News
Guidance | Training | Networking
Global Private and Public Sector Community

5. CFCS Certification
The Mark of Knowledge and Skill
The Designation the Times Demand

6. What the CFCS Certification is
• Universal and not based on the laws or regulations
of any country
• Allows diverse professionals to demonstrate skill
and knowledge across multiple fields
• Designed for private and public sector specialists
• Promotes career growth, better jobs and
pay, confidence

7. Construction of CFCS Certification
• Eight month process
– Identification of Job Tasks
– Worldwide survey
– Writing of exam items based on job task and
survey findings
– Detailed review and selection of items by 60
experts and psychometricians
• Experienced ACFCS staff that has built 3 prior
certifications

8. Demand for CFCS Certification
• More than 1,000 professionals in 64 countries
have earned CFCS certification, or registered
for it, since its release in late May 2013
• 15 global institutions and organizations have
purchased certifications in bulk numbers for
their staffs

9. CFCS Exam Study Aids
• An extensive 347-page Exam Study
Manual, regularly revised and updated
• Live Online Exam Training Course and
prerecorded versions on acfcs.org
• Topic specific online training courses now
available on crucial subjects, such as
– The US Foreign Corrupt Practices Act
– The Foreign Account Tax Compliance Act (FATCA)

10. About the Exam
• 145 scenario based, four choice, multiple
choice questions
• Four hour exam session with no breaks, at one
of over 730 testing centers or online proctored
• Passing rate is 68%
• Results given immediately

11. Preparation Suggestions
• Recommended three weeks of study, if you commit 6
– 8 hours a week
• Review manual in detail, including referenced
materials in appendix
• Prepare based on your own strengths and
weaknesses
• Exam based on best practices, not what particular
organizations do

12. CFCS Examination Preparation Series
February 24, 2014
Financial Crime
Commonalities

13. Defining Financial Crime and its Permutations
• Crimes that have money or economic advantage as goal
• Non-violent action resulting in unlawful taking, moving or
disguising of money or other value by artifice, corruption
or deception for benefit of perpetrator or another
• ACFCS does not include profit-motivated crimes, like drug
and human trafficking at their source
• But, nearly all criminals become ‘financial criminal’ when
they possess or control the criminal proceeds

14. The Financial Crime Spectrum
• Money Laundering
• Fraud
• Corruption
• Tax evasion
•Terrorist financing
•Asset recovery
• Sanctions
• Compliance
• Enforcement

15. Globalization of Financial Crime
• FCPA, UK Bribery Act, GAC crackdown
• FATCA, IGAs, multinational tax enforcement
• OECD call for automatic financial account data sharing
•Global push against secrecy havens
•G20 call for greater financial transparency, cooperation
•FATF’s changing standards pointing to convergence

16. Technology and Financial Crime
• Identity theft, data breaches, other cybercrimes
• Compliance and enforcement technology-driven
• Data analytics in transaction monitoring, investigations,
customer due diligence
• Data security grows in importance for public, private
sectors

17. Commonalities of All Financial Crimes
• Require money laundering
• Require a financial institution
• Result in tax evasion
• Have interface with a government agency
• Create necessity to recover assets
• Often involve multiple countries
• Often involve public or private corruption

18. Benefits of Convergence

Regulatory expectations, emerging best practice

Government agencies doing it

Leveraging data, systems, tools to access and study data

Common case management system

Helps manage stakeholder interests, expectations

Can produce better SARs

All financial crime cases have AML component

Many cases involve complicit employees; security, HR

Broader career choices for staffs of converged units
18

19. Practical Considerations on Convergence

A single financial crime job family

Sharing best practices

Merge organizations or just work together?

History and culture clash

Skills – some units have skills others lack

Managing internal stakeholders’ expectations

Managing external stakeholders’ expectations
19

20. CFCS Examination Preparation Series
February 24, 2014
Money Laundering

21. Overview and Definition
• Actions or conduct designed to conceal
source, movement, control or ownership of money
illegally derived
• Movement of money derived through legitimate
means, but which is intended or destined to
further a crime
• Common element of all financial crimes
21

22. Stages of Money Laundering
• Placement
• First step in the process
• Infusion of criminal proceeds into traditional or nontraditional financial institutions
• Typically most vulnerable to detection at this point
• Moving assets away from their source
• Structured deposits
• Changing currency into other financial instruments
• Using non-bank institutions, like casinos
• Complicity of banks, brokers or other institutions
22

23. Stages of Money Laundering
• Layering
• Separates criminal proceeds from source through layers of
transactions
• Often involves multiple participants and entities, like shell
corporations, cross-border transactions
• More layers, more difficult it is to trace funds to perpetrator
• Wire transfers
• Asset movement among entities perpetrator controls
• Purchasing multiple financial instruments
23

24. Stages of Money Laundering
• Integration
• Puts laundered proceeds into legitimate economy to appear
legitimately derived, allowing funds to return to financial
criminal
• Makes it difficult to distinguish legitimate, illegitimate funds
• Detecting integration often requires informant, undercover
agent, forensic accounting. Examples:
• Real estate investments
• Trade-based money laundering
• Loans, business arrangements among complicit entities
24

25. AML Compliance Programs
• Obviously better to prevent illicit funds from entering financial
system than chasing them after the fact
• Key is robust anti-money laundering programs:
• Customer due diligence measures, including ongoing due
diligence
• Customer profiling and risk assessment
• Automated transaction monitoring systems
• Customer screening
• Investigation of suspicious or atypical customer transactions and
behavior
• Enhanced due diligence procedures for higher-risk customers
• Will be described in more detail in later section
25

26. Characteristics and Indicators of Money Laundering
• Red flags are situation-specific, depend on type of
organization, customer and scenario
• Key is to understand customer’s behavior, source of
funds to establish “normal” behavior
• Create customer profile, compare
activity, transactions against expectations and peer
group
• Good KYC and customer due diligence
programs, monitoring essential for detecting
laundering
26

27. Characteristics and Indicators of Money Laundering
Potential red flags
• Account activity inconsistent
with customer profile
• Account operated by third party
• Funds transfers from/to tax
haven
• Funds transfers to offshore
jurisdictions with no rationale
• Large cash transactions over
short period
• Multiple deposits to account by
different people
• Multiple transactions on same
day from different geographic
locations
• Many large deposits by ATM
• Same home address for funds
transfers by different people
• Structuring of transactions
• Variations in spelling of
names, addresses
• Withdrawing all or most funds in
short period
27

28. Money Laundering Methods and Vehicles
Financial Institutions, Intermediaries
and Other Entities
•
•
•
•
•
•
•
•
Correspondent Accounts
Private Banking
Securities Brokers
Insurance
Real Estate Agents
Precious Metal Dealers
Casinos
Gatekeepers:
Lawyers, Accountants, Auditors, Notaries, Others
28

29. Money Laundering Methods and Vehicles
Financial Vehicles and Value Transfer Systems
•
•
•
•
•
•
International Trade Price Manipulation
Prepaid Cards
Mobile Money
Credit Facilities and Lending
Black Market Peso Exchange
Hawala
29

30. Money Laundering Methods and Vehicles
Structures to Conceal Beneficial Ownership
•
•
•
•
•
•
Shell Companies
Shelf Companies
Trusts
Bearer Bonds and Securities
Nonprofits, Charities and Foundations
Fronts and Nominees
30

31. Money Laundering and Beneficial Ownership
• Determining “ultimate beneficial ownership” is
persistent issue in AML field
• Corporate registries are one key source
• Business data providers, open source intelligence
can also be useful
• Increasing regulatory scrutiny, attention being
focused on the issue
31

32. Money Laundering Trends and Technologies
• Money laundering risks in new technologies
• Mobile payments
• Digital currencies
• Virtual worlds
• Online banking and securities trading
• Money laundering schemes becoming more complex
• Facilitated by many institutions and
intermediaries, including company formation agents
32

33. Key Lessons
• Money laundering a constant element of all financial
crimes; each has money laundering nexus
• Unraveling complex corporate
structures, determining beneficial ownership is key
to due diligence, investigations
• AML compliance relies heavily on customer
profile, risk assessment, expected transactions and
activity
• “Three stages” are useful way to frame, analyze
suspicious activity
33

34. Practice Question
A compliance officer at a major insurance company has recently
noticed a pattern of potentially suspicious transactions from a longtime customer. The customer is employed in a consulting position that
requires her to travel internationally on an unpredictable schedule and
she often resides overseas for extended periods.
The customer has several properties insured with the company for
large amounts. In the past three years, she has overpaid her premiums
numerous times and then requested a refund be issued.
Concerned that the customer may be laundering funds through the
overpayment of premiums, the officer is investigating the
transactions.
Which fact would BEST indicate money laundering may be taking place?
34

35. Practice Question
A. The customer often requests that refunds be made by wire
transfer to banks outside of the country.
B. The customer makes the overpayments at different times of
the year and in varying amounts.
C. The customer has recently taken out a sizeable new insurance
policy on a commercial property with your company.
D. The customer has requested that refunds on excess premiums
be made to an offshore corporation
35

36. Review Question
You are an AML officer at a local bank, which holds accounts for a variety of
businesses in your region. Most businesses are tied to the tourism and
hospitality industry, as the region is a major vacation destination during the
summer months. Many accountholders are small businesses that deal
primarily in cash.
You are investigating an alert produced by your transaction monitoring system
on an account held by a local, family-owned restaurant located near one of the
largest tourist resorts in the area. After reviewing KYC information on the
account, you determine the family lives in a neighboring country.
Upon reviewing the account’s activity, you learn the following information.
Which fact best supports the possibility that the restaurant account may be
used for money laundering?
36

37. Practice Question
A. The restaurant makes large cash deposits into its account
biweekly from June until early September.
B. The account shows a pattern of funds transfers each month to
an account held at a bank in a neighboring country.
C. The restaurant’s account shows consistent deposit activity
throughout the calendar year.
D. The restaurant’s cash deposits were made through a
combination of counter and ATM deposits.
37

38. CFCS Examination Preparation Series
February 24, 2014
Ethics

39. Overview
•
There is no one accepted international standard
•
Ethical standards for different professions and
organizations –
compliance, regulation, enforcement, law, investiga
tion, etc.
•
Financial crime professionals confront numerous
ethical risks
•
“If you have to ask about it, it’s probably wrong.”
39

40. Duties to Client
• Financial crime specialist owes highest duty of
honesty, transparency and professionalism to
constituents, client, organization, colleagues
• Identifying who is your client in broad
terms, acting in their best interests is key to
ethical behavior
• Does not permit unethical or illegal behavior to
further “best interests” of client
40

41. Conflicts of Interest
• Take variety of forms – personal interests, current
and past clients, multiple clients
• Maintaining ethical standards relies on finding fair
and equitable resolution to conflicts
• In most cases, one client’s interests should not be
privileged over another
41

42. Conflicts of Interest
• Organizations should screen for conflicts of interest
at the start of relationships:
• Assess services, activities, types of employees to
identify areas where conflicts of interest may arise
• Implement written disclosure policies
• Designate conflict of interest officer or committee
• Create “conflicts of interest database”
• Training programs for employees on conflicts of
interest and their ethical resolution
42

43. Conflicts of Interest
• Conflicts should be recognized early in relationship
• If not, timely response is required, which can include:
• Promptly disclosing to past or present colleagues, clients or
organizations the nature of a potential conflict of interest
• Asking these persons and organizations to waive conflicts of interest that
may exist, if it is appropriate
• Creating an information wall or other safeguards to assure that persons
who were involved with a prior matter will not see or have access to files
from the new matter, and will not participate in the new matter
• Declining to accept the prospective matter or case
43

44. Data and Privacy Concerns
• Financial sector professionals often have access to
sensitive financial, personal information
• Organizations need policies and procedures to ensure
information of customers, clients, and other parties is
managed ethically
• “Information barriers” to separate sensitive data and reduce
potential for conflicts of interest
• Multi-tiered access systems to limit information to essential staff
• Processes to end relationships and purge or delete information
44

45. Ethics Policies and Procedures
• Code of ethics
• Employee training, ethics policies
• Confidential reporting, escalation policies
• Commitment, communication from top
leadership
45

46. Key Lessons
• Acting in client’s best interests guides ethical
behavior
• Information barriers are essential safeguard at
financial institutions
• Conflicts of interest are common ethical dilemma;
understanding how to resolve them is critical
46

47. Review Question
•
What should be one element of an organization’s
ethics policies?
A. Senior management approval for all new customer
relationships
B. Dismissal of any employees with conflicts of interest
C. Reporting of ethical violations through business lines
D. Regular communication on ethics from senior
management
47

48. CFCS Examination Preparation Series
February 24, 2014
International
Standards

49. Overview
• Combating financial crime is an international and
cooperative affair
• Financial crime is global phenomenon, requires
coordinated action at international level
• International standards set the pace for most of the
formal financial sector
• Some national laws have an extra-territorial
“international standards” effect
49

50. United Nations
• UN Security Council Resolutions
– Sanctions programs
• United Nations Convention Against Corruption
50

51. UNODC
• IMOLIN database
–Legal library of AML and related laws
–https://www.imolin.org/

52. Transparency International
• Anti-corruption NGO with over 100 chapters
worldwide
• Provides research, analysis and reporting on
corruption, corporate and financial transparency
issues globally
• Releases Corruption Perceptions Index annually
• http://www.transparency.org/research/cpi/ove
rview
52

53. Corruption Perceptions Index
53

54. OECD
• OECD Anti-bribery Convention
• Initiatives related to:
– Anti-money laundering
– Tax fairness and sharing
• Database of tax sharing agreements
– Corporate transparency
– Illicit financial flows

55. FATF
• Outgrowth of OECD
• Formerly 40 + 9 Recommendations, now 40
Recommendations
• Sets standards for AML cooperation among countries
• Peer reviews
• “Non-cooperative” jurisdictions, black or grey lists
55

56. World Bank
• Stolen Asset Recovery Initiative (StAR)
• http://star.worldbank.org/star/
• Doing Business Reports
– Database of business laws, regulations and
data on business climate and transparency
– www.doingbusiness.org

57. Basel Committee
• Establishes principles relating to banking
supervision
• http://www.bis.org/bcbs/
• Basel III Accords
• Customer Due Diligence for Banks
• Consolidated KYC Risk Management
57

58. Wolfsberg Group
• Group of largest international banks
– Set standards for private banking, correspondent
banking relationships
• Wolfsberg AML Principles for Private Banking
• Wolfsberg Principles for Intermediaries
– Maintains Due Diligence Repository database
– http://www.wolfsbergprinciples.com/diligence.html

59. EGMONT Group
• Organizations of FIUs meeting standards
• Provides cooperation between FIUs
59

60. INTERPOL
• Cooperative effort among police of countries
• Issue Notices to members that share
information, provide warnings, or request that
members track or detain suspects

61. FATF-style Regional Bodies
• Modeled after FATF on regional basis
• APGML
• Others
• Conduct peer reviews

62. National Laws with International Effect
• US:
• USA Patriot Act
• FCPA
• FATCA
• UK:
• UK Bribery Act
• EU:
• Directives
62

63. Key Lessons
• May not be used on day-to-day basis, but
international standards shape public and
private efforts
• International best practices may not be your
best practices
• Review source documents where possible
63

64. Review Question
• What organization would likely provide the most
useful sources of information for assessing
corruption risks of a country?
A. Basel Committee
B. Transparency International
C. Interpol
D. Wolfsberg Group
64

65. CFCS Examination Preparation Series
February 24, 2014
Global
Anti-Corruption

66. Overview
• Corruption has many definitions, takes many forms
• “Grand” corruption
• Petty corruption
• Commercial bribery and corruption
• Widespread negative consequences of corruption to
economic development, fair markets and
competitiveness, civil society
• ACFCS focuses on corruption of public officials, especially
involving corporations, business entities
66

67. What is a Corrupt Payment?
• Bribe or corrupt “payment” does not have to be made in cash
• Made from “payor” to recipient
• Can include nearly anything that induces recipient to grant
some official favor or advantage that payor should not or would
not otherwise have received
• Luxury goods
• Services
• Free use of property or goods
• Access and influence
67

68. Methods to Make and Conceal Corrupt Payments
•
•
•
•
•
•
•
Gifts, travel and entertainment expenses
Charitable contributions, contributions to nonprofits under control of
government official
Direct payment of campaign expenses
Payments to fictitious employees, or adding associates of official to
company payrolls
Payments to fictitious businesses, inflated payments to businesses for
the products or services provided
Payments through loans, or allowing official free use of services or
property
Third parties – sales agents, vendors, contractors, attorneys
68

69. Red Flags of Corrupt Payments
•
Records of fee payments to a third party are significantly higher
than other third parties in the same industry sector, without
compelling business rationale
•
Abnormal compensation arrangements, such as excessive
commissions or unusual reimbursements
•
Payments to domestic businesses, persons made to offshore
accounts
•
Substantial payments to contractors , employees or third parties
with little experience in the field they purportedly work in
69

70. Red Flags of Corrupt Payments
•
Invoices from companies or third parties that are vaguely
worded or do not clearly describe services performed
•
Employees or third parties with close ties or past business
associations with government officials
•
Employees or third parties who have entered into business
arrangement or transaction at request of a government official
•
Third parties using multiple shell companies to conduct
transactions, or are themselves a shell company
70

71. NGOs and Anti-Corruption Advocacy
• Non-governmental organizations, with and without backing of
national governments, have been active in anti-corruption
• World Bank
• Transparency International
• Corruption Perceptions Index, other publications
• United Nations and UN Office on Drugs and Crime
• Convention Against Corruption with 140 signatories
• Organization for Economic and Cooperation and Development
• Anti-Bribery Convention with 40 signatories
71

72. What Is the Foreign Corrupt Practices Act?
• US law enacted in 1977
• Two areas
- Anti-bribery provision
- Books and records/internal controls provisions
• Enforceable by DOJ and SEC
- DOJ: Criminal, civil jurisdiction over US
companies, their subsidiaries
- SEC: Civil jurisdiction over US “issuers”

73. Who the FCPA Covers
• Any issuer under US securities laws
• Domestic or foreign public companies registered
required to file periodic reports with SEC
• Domestic concerns, including US
companies, citizens, nationals, residents
• Person or entity that engages in any act in
furtherance of corrupt payment while in US territory
• International scope – 9 of top 10 largest FCPA cases
are non-US companies
73

74. FCPA Anti-Bribery Provision
•
Prohibits corruptly making, offering or
promising to make a payment, gift, or anything
of value, directly or indirectly, to a foreign
official for purpose of obtaining or retaining
business

75. FCPA Enforcement

76. FCPA Enforcement

77. Who Is A Foreign Official?
•
•
•
•
•
•
•
Very broadly defined
Not limited to high-level officials
Includes people acting on behalf of government entity
Includes employees of government-owned or
government-controlled entities
- "Instrumentality" = fact-specific inquiry
Includes political parties, party officials and candidates
Includes employees of international organizations
Effective "control" of the entity is key

78. Books and Records Provisions
• Only applicable to issuers under US securities laws
-BUT: Should still be part of robust compliance program for private
companies
• Issuers must "[m]ake and keep books, records… which… accurately and fairly
reflect transactions and dispositions of assets of the issuer“
• Issuer also must "devise and maintain a system of internal accounting
controls sufficient to provide reasonable assurances" that transactions are:
- Executed and access to assets is permitted only in accordance with
management authorization
- Transactions are recorded in a way to permit financial statements to be
prepared according to GAAP

79. UK Bribery Act
• Enacted in 2010, effective July 2011
• Goes beyond FCPA in enforcement scope, strictness
• Covers any UK citizen, all corrupt activities in
UK, and any company with operations in UK
• Stiff penalties – unlimited fines for corporations, 10
years for individuals
• Very limited enforcement so far
79

80. Provisions of UK Bribery Act
• Blanket prohibition on bribing any person, public or
private
• Specific provision criminalizing bribery of public
officials – can be any “financial or other advantage”
• Creates standalone offense of “failing to prevent
bribery” at an organization
• Organizations can avoid prosecution by
demonstrating effective anti-corruption
compliance
80

81. Anti-Corruption Compliance
US, UK have provided guidance, along with many public and
private-sector organizations. Best practices include:
• Commitment from senior management
• Effective procedures for risk assessment and internal audit
• Clearly articulated compliance policies, procedures, code of
conduct
• Compliance program oversight by senior management with
autonomy, adequate resources
• Ongoing training for new and current employees, as well as
third parties
81

82. Anti-Corruption Compliance
• Procedures for confidential reporting of corruption
violations and internal investigation
• Updating compliance programs and policies through
testing and review
• Risk-based due diligence on third parties and
transactions
• Due diligence on mergers, acquisitions and proper
integration after acquisition, merger, or joint venture
82

83. Third Parties
• Managing third-party relationships is critical for FCPA, anticorruption compliance
• Three steps to retain third parties, reduce FCPA exposure
1. Due diligence on third party's
background, reputation, experience, connections with
local government officials
2. Contractual provisions (FCPA representations, warranties)
3. Active oversight to ensure third party's commitment to
FCPA, other laws

84. Key Lessons
• Corrupt payments are increasingly made through complex
channels – not just stacks of cash and a bag man
• Third parties are a recurring risk, should be one focus of
anti-corruption programs
• US FCPA has international reach, has acted as standardsetter in many respects – should be understood

85. Practice Question
Global Widget Co. recently acquired a local company in Benistan, a country with a high
level of state involvement in the economy and history of corruption. Before purchasing
the company, Global Widget hired a major international law firm to conduct a due
diligence review and uncover any potential violations of global anti-corruption laws.
When the review came back free of problems or issues, Global Widget completed its
acquisition.
Three years later, Global Widget compliance executives were conducting their first anticorruption training with employees from the Benistan office. During the training
session, Global Widget was alerted by Benistan-based employees that the distributors
the company uses may be bribing local government officials. Global Widget had not
conducted a review of the distributors in Benistan. When it looked into the
allegations, it found widespread potential Foreign Corrupt Practices Act (FCPA) and UK
Bribery Act violations.
What are two weaknesses in Global Widget anti-corruption compliance program?
85

86. Practice Question
A. Global Widget did not include its distributors in Benistan when it conducted
its anti-corruption due diligence and training.
B. The due diligence review should have been conducted exclusively by local
counsel in Benistan because they would be better versed in the country’s
culture and laws.
C. Global Widget should have conducted anti-corruption compliance training as
soon as possible after acquiring the company in Benistan.
D. Global Widget failed to reach out directly to government agencies in
Benistan to request information on any history of corrupt payments at the
company it was acquiring.
86

87. Your Questions

88. Thank you for attending
Next Session is Wednesday,
February 26, 12:30 PM ET