12. The Outline of the Risk-Based Methodology 02/14/12 @2011 - ICBC Doha Branch
13. Risk Categories 02/14/12 @2011 - ICBC Doha Branch Category of Risk Description Corporate / Commercial Risks arising out of entrepreneurial or commercial activities. Economic / Financial / Market Risks driven by economic activity either of a region, jurisdiction or given market. Legal / Regulatory Risks arising from legal or regulatory requirements or evolving international standards. Organisational / Management Human Risks presented due to limitations of human or financial resourcing. Political / Societal Risks arising from changing political or societal expectations. Environmental / Acts of God Risks that can materialise without the ability to influence them. Technical / Operational / Infrastructure Risks caused or exacerbated by resourcing or technical limitations.
14. Examples of Risk Identification 02/14/12 @2011 - ICBC Doha Branch Objective: To travel from Al Rayyan to Doha for a meeting by bus for a meeting at a certain time. Risk Description Evaluation - Good Description? Failure to get from Al Rayyan to Doha on time for the meeting NO, this is simply the converse of the objective Being late and missing the meeting NO, This is a statement of impact of the risk, not the risk itself. There is no food on the bus so I get hungry NO, this does not impact on achievement of the objective. Missing my lift to the bus stop causes me to miss the bus causing me to be late and miss the meeting YES, This is a risk that can be controlled by making sure I allow plenty of time to get to the bus-stop. Severe weather prevents the bus from running and me getting to the meeting YES, although this is a risk which I cannot control, but against which I can make a contingency plan.
19. We need to balance different demands Review account opening opportunities across business lines Account openings Compliance will give you a timely response so you can respond to potential clients quickly Identify account openings that need to be escalated Optimise risk Build brand Effective use of resources Maximise opportunities Profitability 02/14/12 @2011 - ICBC Doha Branch
20. 02/14/12 @2010 Compliance Alert THE ONLY ISSUE? COMPLIANCE & REGULATORY RISK The problem is KYC KNOW YOUR - CUSTOMERS - CORRESPONDENTS - EMPLOYEES - SHAREHOLDERS ? 02/14/12 @2011 - ICBC Doha Branch
29. 02/14/12 @2011 - ICBC Doha Branch LOB Risk Assessment Evaluate Assess Evaluate inherent risks Assess controls Determine Develop Monitor and enhance controls Develop and implement action plans Determine residual risk/ establish thresholds Maintain and retain records Monitor Maintain
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33. 02/14/12 @2011 - ICBC Doha Branch Enhanced Risk Assessment Methodology Conduct detailed analysis of each category 1 2 5 3 4 Assess Risk Continuous Monitoring Purpose of Account Activity in Account Nature of the business Location Products and Services used
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35. Main AML Risk based Approach Factors 02/14/12 @2011 - ICBC Doha Branch Customer Risk Country Risk Sector Risk Product Risk
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41. 02/14/12 @2010 Compliance Alert Actions Impact Analysis Risk Response (controls) Quality of Risk Customer Risk Geographic Risk Product and Service Risk Quantity of Risk Response Effectiveness Analysis Identify Risk Categories Assess Quantity of Risk Assess Quality of Risk Action Plans Enhanced Risk Assessment Methodology Identify specific risks categories 02/14/12 @2011 - ICBC Doha Branch
42. Customer Risk Matrix 02/14/12 @2011 - ICBC Doha Branch Products/Services Used Customer Type Deposit Account Unsecured Loan/Credit Cards Wire Transfer Private Banking Trust Services PEP Moderate Moderate High Highest Highest High Net Worth Moderate Moderate High Highest Highest High Risk Nationality Moderate Moderate High High High High Risk Industry Moderate Moderate Moderate Moderate Moderate Cash Intensive Business Normal Moderate High Moderate Moderate Salaried Employee Normal Normal Normal Normal Normal Independent Consultant/Individual Entrepreneur Moderate Normal Normal Normal Normal Unemployed Moderate Moderate Moderate Moderate Moderate Charity Moderate High High High High
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44. Transaction Type Risk Matrix 02/14/12 @2011 - ICBC Doha Branch Customer Risk Rating Offshore Wire Transfer Wire Transfer to High Risk Jurisdiction Cash deposit under threshold/structuring transactions Large Cash Deposit Forex Early Loan Repayment Normal Standard Standard Standard Enhanced Standard Standard Moderate Enhanced Enhanced Enhanced Enhanced Enhanced Enhanced High Severe Severe Enhanced Enhanced Enhanced Enhanced Highest Severe Severe Severe Enhanced Enhanced Enhanced
50. Assessing AML Risk by Jurisdiction International Cooperation e.g OECD, UN Non-Cooperation status RISK 02/14/12 @2011 - ICBC Doha Branch Corruption Sanctions Black list status e.g tax haven
51. 02/14/12 @2011 - ICBC Doha Branch Case Study: The United Nations A FAMILY-RUN BUSINESS
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53. Test your AML Knowledge 02/14/12 @2011 - ICBC Doha Branch
54. Knowledge Test Q: Which of the following is the most common method of laundering money through a legal money services business? A. Purchasing structured money instruments B. Smuggling bulk-cash C. Transferring funds through Payable Through accounts (PTAs) D. Exchanging Colombian pesos on the black market Correct Answer is: A 02/14/12 @2011 - ICBC Doha Branch
55. Knowledge Test Q: In general, the three phases of money laundering are said to be: Placement A. Structuring and manipulation B. Layering and integration C. Layering and smurfing D. Integration and infiltration Correct Answer is: B 02/14/12 @2011 - ICBC Doha Branch
56. Knowledge Test Q: Which of the following is an indication of possible money laundering in an insurance industry scenario? A . Insurance products sold through intermediaries, agents or brokers B . Single-premium insurance bonds, redeemed at a discount C . Policyholders who are unconcerned about penalties for early cancellation D . Policyholders who make full use of the “free look” period Correct Answer is: C 02/14/12 @2011 - ICBC Doha Branch
57. Knowledge Test Q: Upon receipt of a legal document where the financial institution is asked by a government authority to produce account information and records, what is the recommended first step for the institution? A . Review the legal document and answer the authorities within 72 hours. B. Research all the account information within the institution on the account holder. C . File a suspicious activity report, if possible. D . Contact the institution’s Compliance Officer or legal counsel. Correct Answer is: D 02/14/12 @2011 - ICBC Doha Branch
58. Knowledge Test Q: Money Laundering refers to A . Transfer of assets/cash from one account to another B . Conversion of illegal money through banking channels C . Conversion of cash into gold for hoarding D . Conversion of assets into cash to avoid income tax Correct Answer is: B 02/14/12 @2011 - ICBC Doha Branch
59. Knowledge Test Q: Minimum retention period of the records according to Jammal Trust Bank that can be produced to the relevant Regulatory Authority in case of suspicious transactions is A . 5years B . 7 years C .10 years D .15 years Correct Answer is: A 02/14/12 @2011 - ICBC Doha Branch
60. Knowledge Test Q: The following can be called as suspicious transactions A . Customer insisting on anonymity. B. Work address difference from place of residency. C . Unusual terminating of account and refunds of interest D . All of the above Correct Answer is: D 02/14/12 @2011 - ICBC Doha Branch
61. Knowledge Test Q: Which of the following documents can be accepted as proof of customer identification. A . Electricity bill B . Salary slip C . Gym Membership D . Government Issued Photo ID Correct Answer is: D 02/14/12 @2011 - ICBC Doha Branch
62. Knowledge Test Q: Salaried employees, Government departments are classified as A . High Risk B . Low Risk C . Medium Risk D . No Risk Correct Answer is: B 02/14/12 @2011 - ICBC Doha Branch
63. Knowledge Test Q: PEPs (Politically Exposed Persons) & High Net Worth individuals could be classified as A . High Risk B . Low Risk C . Medium Risk D . No Risk Correct Answer is: A 02/14/12 @2011 - ICBC Doha Branch
64. Knowledge Test Q: What are the money laundering risks to organizations? A . Reputation Risk B . Compliance Risk C . Operational Risk D . Legal Risk Correct Answer is: A 02/14/12 @2011 - ICBC Doha Branch
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66. 02/14/12 @2010 Compliance Alert Best Practices Framework 02/14/12 @2011 - ICBC Doha Branch Risk-Based Customer Due Diligence Investigations & Reporting Customer Transactions Single Customer View Data Independent Audit Training/Self Testing Written Procedures AML Risk Assessment Risk Profile Project Planning/Execution Policies Corporate Governance Program Management
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68. Primary objective is profit maximisation but we place high importance on client care & other aspects of compliance. There are multiple assurances of this in the firm……. 02/14/12 @2011 - ICBC Doha Branch
Most crime is committed for money or some type of financial gain. Therefore, individuals committing crime need to engage in transactions with these funds to “disguise” the fact that the funds are derived from illegal activity. The funds must be laundered if they are to be secured and enjoyed. The underlying criminal (predicate) offense generates illegal proceeds. If there are any transactions with these proceeds, this constitutes “money Laundering” The Money Laundering Control Act first criminalized money laundering in the United States in 1986. The Three Stages of the Money Laundering Process: Placement - is the first stage , involves the physical introduction of bulk cash into the financial system. Typically accomplished through cash deposits and purchases of cash equivalent monetary instruments. At the placement stage, the funds are usually laundered relatively close to the under-lying activity, often, but not in every case, in the country where the funds originate. The major exception to this would be bulk currency smuggling which entails moving the physical cash proceeds to another country for placement. Layering - is phase 2. Layering involves separating the proceeds of criminal activity from their source through complex layers of transactions. The launderer seeks to separate the proceeds from the source through various complex layers of transactions. Typically involves more than one financial institution, and even better for obscuring the audit trail if more than one jurisdiction/country is involved. At this phase the launderer may choose an offshore financial center, a large regional business center, or a world banking center - any location that provides an adequate financial or business infrastructure. At this stage, the laundered funds may also only transit bank accounts at various locations where this can be done without leaving traces of their source or ultimate destination. I ntegration - the final stage, involved placing the laundered proceeds back into the economy in such a way that they re-enter the financial system as apparently legitimate funds. We will explore some products/services that are utilized at each stage of the process later in the presentation.
Most crime is committed for money or some type of financial gain. Therefore, individuals committing crime need to engage in transactions with these funds to “disguise” the fact that the funds are derived from illegal activity. The funds must be laundered if they are to be secured and enjoyed. The underlying criminal (predicate) offense generates illegal proceeds. If there are any transactions with these proceeds, this constitutes “money Laundering” The Money Laundering Control Act first criminalized money laundering in the United States in 1986. The Three Stages of the Money Laundering Process: Placement - is the first stage , involves the physical introduction of bulk cash into the financial system. Typically accomplished through cash deposits and purchases of cash equivalent monetary instruments. At the placement stage, the funds are usually laundered relatively close to the under-lying activity, often, but not in every case, in the country where the funds originate. The major exception to this would be bulk currency smuggling which entails moving the physical cash proceeds to another country for placement. Layering - is phase 2. Layering involves separating the proceeds of criminal activity from their source through complex layers of transactions. The launderer seeks to separate the proceeds from the source through various complex layers of transactions. Typically involves more than one financial institution, and even better for obscuring the audit trail if more than one jurisdiction/country is involved. At this phase the launderer may choose an offshore financial center, a large regional business center, or a world banking center - any location that provides an adequate financial or business infrastructure. At this stage, the laundered funds may also only transit bank accounts at various locations where this can be done without leaving traces of their source or ultimate destination. I ntegration - the final stage, involved placing the laundered proceeds back into the economy in such a way that they re-enter the financial system as apparently legitimate funds. We will explore some products/services that are utilized at each stage of the process later in the presentation.
In the U.S. there are now nearly 200 predicate crimes that constitute money laundering. Some of the illicit activities which are identified as predicate crimes under the Money Laundering Control Act can occur outside the U.S. The underlying criminal (predicate) offense generates illegal proceeds. If there are transactions with these proceeds, this constitutes money laundering. Criminal organizations commingle proceeds from many crimes; and Criminals act as brokers for funds unrelated to their own criminal activities. These trends make it more difficult to differentiate between drug-related money laundering and other forms of illegal money movements. Drug-related money laundering often supplies the “working capital” for other types of illicit activities, including a source of financing to terrorist groups (e.g., heroin trade in Afghanistan). Patriot Act Section 315 added foreign official corruption and certain foreign smuggling and export control violations to the U.S. list of predicate crimes. Tax offenses do not generally constitute a predicate offense for money laundering in most countries, with Mexico, however, a notable exception. Many people often confuse money laundering with fraud so you may want to highlight the differences. Fraud is carrying out a scheme to obtain money or any form of property by means of false pretenses. When a financial institution experiences a fraud it will incur a loss or disappearance of assets. When a financial institution is used to launder money it will not experience a loss unless funds are seized or frozen by the government. Money Laundering usually results in large quantities of illicit proceeds that need to be distanced from thsir source as quickly as possible in an undetected manner.
Illegal erworbene Mittel werden als 1. Schritt, dem Placement, auf einem Bankkonto angelegt. Als 2. Schritt, dem sog. Layering, wird die Herkunft der Mittel kaschiert. Dies geschieht durch verschiedene Methoden wie Überweisung der Mittel auf ein offshore Konto, durch Darlehen, durch falsche Rechnungen etc. 3. Und letzter Schritt, Wiedereinführung in regulären Wirtschaftskreislauf
Michael Matossian 2006 Middle East Conference – Harvard Arab Alumni Association
When CDD required—basic requirement A licensed party must conduct customer due diligence measures for a customer when— it establishes a business relationship with the customer; or it conducts a one-off transaction for the customer with a value (or, for transactions that are or appear (whether at the time or later) to be linked, with a total value) of at least the threshold amount; or it suspects the customer of money laundering or terrorist financing; or it has doubts about the veracity or adequacy of documents, data or information previously obtained in relation to the customer for the purposes of identification or verification. Note CDD must also be conducted under r 3.3.8 (Powers of attorney) and 3.3.10 (Wire transfers). In this rule: threshold amount means 55,000 Riyals (or its equivalent in any other currency at the relevant time). This rule is subject to the following provisions: rule 3.4.9 (Introducers) rule 3.4.10 (Group introductions) rule 3.4.11 (Intermediaries) rule 4.3.4 (When CDD may not be required—acquired businesses) rule 5.2.2 (2) (Licensed party must ensure no tipping off occurs).
Conduct detailed analysis of each category to better assess risk Purpose of the account Actual or anticipated activity in the account Nature of the customer’s business Customer’s location Products and services used by the customer
Identify specific risks categories Products and services Customers and entities geographic locations Product and Services Certain products and services offered by financial institutions may pose a higher risk of money laundering or terrorist financing Electronic funds payment services Electronic banking Private banking Trust and asset management services Foreign correspondent accounts (PTA’s and US dollar drafts) Loans secured by cash collateral and marketable securities Nondeposit account services (investment products and insurance)
How do we come up with the risk rankings to start with?
CLAMP model (Closed Loop Anti Money Laundering Program) A comprehensive and risk-based approach to AML compliance yields important benefits: Cost effective compliance with AML laws and regulations Reduced risk or reputational damage from regulatory action Increased protection of corporate assets and shareholder value
First line of defence owns day-to-day controls and procedures that manage risks Second line of defence interprets compliance risk and tailors procedures and control measures, to the risks facing the firm. Compliance monitors risk by testing controls. Secures corrective action for risks identified Third line of defence provides independent assurance to senior management that the model works Takeaway point: compliance is not an Island or a task done by just the Compliance Dept. – everyone has a role to play.