Chapter 2 International AML CFT Standards Flashcards

Question

Process for FATF membership-Step 1—Engaging with the country and granting observership

Answer 1

1. Submit Written committment endorsing FATF recommendations and AML/CFT Methodology 2013 2.Agree to undergo evaluation periodically 3.Agree to participate Actively in the FATF giving support wherever needed The Plenary decides that a high-level visit to the country is warranted to verify the written commitment with the relevant ministers, representatives of the Parliament, and competent authorities Recommendations essential for the establishment of a robust AML/CFT regime, such as Recommendations 3, 5, 10, 11 and 20, within 3 years Based on the outcomes of the report of the high-level visit, the Plenary may decide to invite the country to participate in FATF as an observer, beginning with the next Plenary meeting. may appoint a contact group to advise as to the appropriate time to extend such an invitation to the country The contact group is open to all FATF members and associate members and should include at least one member of the Steering Group.

Answer 2

Membership is granted if the mutual evaluation is satisfactory. A mutual evaluation is not satisfactory if the country meets one of the following criteria * Within a maximum of 3 years after being invited to participate in FATF as an observer, the mutual evaluation process for the country should be launched * Has eight or more noncompliant/partially compliant (NC/PC) ratings for technical compliance * Is rated NC/PC on any one or more of Recommendations 3, 5, 10, 11 and 20 * Has a low or moderate level of effectiveness for seven or more of the 11 effectiveness outcomes * Has a low level of effectiveness for four or more of the 11 effectiveness outcomes If not Satisfactory the country should commit to a satisfactory level within a reasonable time frame. At each FATF meeting, the Plenary closely monitors the implementation of the country’s action plan A country will not be granted full membership if it is rated NC/PC on any one or more of Recommendations 3, 5, 10, 11 or 20. Otherwise membership can be granted.

Answer 3

On February 14, 2000, FATF published an initial report on NCCTs that listed the 25 criteria that help identify relevant detrimental rules and practices and that are inconsistent with the 40 Recommendations

Answer 4

* No or inadequate regulations or supervision of financial organizations * Inadequate rules for the licensing or creation of financial organizations, including assessing the backgrounds of managers and beneficial owners * Inadequate customer identification requirements for financial organizations * Excessive secrecy provisions regarding financial organizations * Lack of efficient SAR reporting

Answer 5

* Inadequate commercial law requirements for registration of business and legal entities * Lack of identification of the beneficial owner(s) of legal and business entities

Answer 6

* Obstacles to cooperation from administrative authorities * Obstacles to cooperation from judicial authorities

Answer 7

* Lack of resources in public and private sectors * Absence of an FIU or equivalent mechanism The next step in the NCCT initiative was the publication in June 2000 of the first review, which identified 15 NCCTs. The NCCT process ultimately involved 24 jurisdictions, including up to 19 jurisdictions at one time, until the jurisdictions eventually took the necessary steps to get off the list. The NCCT list has been replaced by a new process whereby FATF started identifying jurisdictions with deficiencies in their AML/CFT regimes. This new FATF process was in response to the G-20 countries’ efforts to publicly identify high-risk jurisdictions and issue regular updates on jurisdictions with strategic deficiencies

Answer 8

1.High-Risk Jurisdictions Subject to a Call for Action (previously known as Public Statement) This list is often referred to in the media as the “FATF blacklist. 2.Jurisdictions under Increased Monitoring (previously known as Improving Global AML/CFT Compliance: On-going process) identifies countries that are already actively engaging with FATF to address strategic deficiencies in their regimes to counter money laundering, terrorist financing, and proliferation financing This list is externally referred to as the “FATF greylist.” a country is considered to have made significant progress in improving its AML/CFT regime when it establishes a legal and regulatory framework for meeting its commitments

Answer 9

FATF’s International Cooperation Review Group (ICRG) oversees the process of identifying and reviewing jurisdictions with strategic AML/CFT deficiencies. The process began in 2007 and was enhanced in 2009. It was updated in 2015 to reflect the revised FATF standards and mutual evaluation process Results are considered poor when 20 or more Non Compliant and Partially Complaint Ratings or Low level of effectiveness for 6 or more of the 11 outcomes International Cooperation Review Group (ICRG) oversees the process of identifying and reviewing jurisdictions with strategic AML/CFT deficiencies Once on ICRG scope jurisdiction has 1 year to work with FSRB or FATF to address issues before formal review. FATF then prioritizes the review of those countries that have more significant financial sectors, such as US$5 billion or more in financial sector assets

Answer 10

established in 1974 by the central bank governors of the Group of Ten (G-10) countries, promotes sound supervisory standards worldwide Its mandate is to strengthen the regulation, supervision, and practices of banks worldwide to enhance financial stability. The Committee is best known for its landmark publications on capital adequacy (Basel I, Basel II, and Basel III)

Answer 11

Table on Page 184-186 OBSERVERS OF THE BASEL COMMITTEE ON BANK SUPERVISION Pages also on page 186

Answer 12

In 1988, the Basel Committee issued a Statement of Principles, called Prevention of Criminal Use of the Banking System for the Purpose of Money Laundering The statement set out principles with respect to: * 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 * Recordkeeping and audits In 1997, the Basel Committee issued its Core Principles for Effective Banking Supervision, a basic reference for authorities worldwide It also urged nations to adopt FATF’s 40 Recommendations The Core Principles were prepared with the assistance of 15 non-G-10 nations, including Brazil, Chile, Hong Kong Special Administrative Region (SAR, China), Mexico, Russia, Singapore, and Thailand. The Core Principles for Effective Banking Supervision has been periodically updated. The update in 2012 combined the core principles content with the assessment methodology to create a more comprehensive document. It also revised the structure of the 29 core principles, dividing them more clearly between principles for banking supervisors and for banks

Answer 13

use of due diligence requirements to mitigate the dangers of corrupt customers Sound KYC policies and procedures are critical to protecting the safety and soundness of banks, as well as the integrity of banking systems * The four key elements of a KYC program: o Customer identification o Risk management o Customer acceptance policy o Ongoing monitoring Banks should ID customers and monitor accounts Numbered accounts should not be prohibited, but they should be subjected to exactly the same KYC procedures as other customer accounts.

Answer 14

Issues pertaining to High risk customers include: 1.Trust, Nominees, Fiduciary 2.Corporate Vehicles 3.Introduced Businesses 4.Customer accounts opened by intermediaries 5.PEPs 6. Non face to face customers 7.Correspondent Banking Banks should develop policies to identify customer background,country, business and other risk indicators

Answer 15

1.Know identity of Corporations operating accounts and relationships if using intermediaries. 2.Use standard procedures when dealing with non face to face clients 3.Periodic bank wide training to be provided 4.Internal Audit and Compliance should regulary review 5.Ongoing monitoring of high risk accounts 6.Bank regulators should ensure that bank staff follow KYC related procedures

Answer 16

In February 2003, the Committee issued account opening and customer identification guidelines and a general guide to good practices based on the principles of the Committee’s paper

Answer 17

Released in 2004 as a complement to its CDD issued for banks in 2001. addresses the need for banks to adopt a global approach and apply the elements necessary for a sound KYC program to both the parent bank or head office and all of its branches and subsidiaries These elements consist of risk management, customer acceptance and identification policies, and ongoing monitoring of high-risk accounts

Answer 18

Jan 2014-Sound Management of Risks Related to Money Laundering and Financing of Terrorism that superseded previous publications on customer due diligence for banks and know-your-customer risk management The guidelines discuss the following controls for banks to implement: 1.Risk analysis and Governance-use inherent and residual risks 2.Proper governance arrangements for a culture of Compliance the board should oversee and approve policies for risk, risk management and Compliance 3.Board should appoint a Chief AML officer.

Answer 19

1. The line of business, or the first line of defense Is responsible for creating, implementing, and maintaining policies and procedures, as well as communicating them to all personnel.

Answer 20

2. The AML compliance and internal control functions AML officer is responsible for ongoing monitoring for AML compliance the AML officer must have sufficient independence from the business lines to prevent conflicts of interest and unbiased advice and counsel. The officer should not be entrusted with the responsibilities of data protection or internal audit

Answer 21

3. The audit function, or the third line of defense should report to the audit committee of the board of directors (or a similar oversight body) and independently evaluate the risk management and controls of the bank. accomplished through periodic assessments, including the adequacy of the bank’s controls to mitigate the identified risks, effectiveness of the bank’s staff’s execution of the controls, effectiveness of the compliance oversight and quality controls, and effectiveness of the training. Audits should be risk based

Answer 22

Banks should develop a customer acceptance policy to identify customers that are likely to pose a higher money laundering risk (e.g., PEPs) and relationships the bank will not accept KYC Utility or third party database can be but the following needs to be considered: o The utility specifies the date of the last update and when the information was last confirmed with the source. o The utility clearly specifies the source of the information (e.g., the customer itself, a public registry)

Answer 23

(1) identification of the customer (whether an individual or a legal person) and any beneficial owners or authorized signatories (2) assessment of the customer’s risk profile information (3) verification of the identity of the customer and any beneficial owners or authorized signatories, as required by applicable law, using reliable documentary and/or nondocumentary sources (4) further risk-based verification, such as verifying source of wealth and source of funds

Answer 24

legal name, residential address, unique identification number or other identifier, and date and place of birth Other info based on risk: Other names used, business address, residency status, occupation, income, expected use of the account for high risk income sources, personal reference or verification of employment Documentary ID: Photo ID or using a utility to confirm address Non documentary: public registers, private databases and other independent sources Banks can use written declaration for ownership but not rely solely on them

Answer 25

AML risks require more than just appropriate policies and procedures; banks must have adequate and appropriate monitoring systems. For most banks, this will involve an automated transaction monitoring system Bank should document why it does not need a system if not implementing an automated system. The transaction monitoring system should allow the bank to gain a centralized knowledge of information Use TMS to conduct ongoing investigations

Answer 26

Retention of records is crucial, maintain for at least 5 years. The CDD information should be kept up-to-date and accurate, which will mean periodically assessing the information, generally on a risk-based frequency Banks should also document decisions related to investigations of unusual activity, whether or not a decision is made to file a SAR

Answer 27

When suspicious activity has been reported, the bank should take appropriate action regarding the customer, including raising the risk rating of the customer and/or deciding whether to retain the relationship (either the account or the entire relationship) Guidelines updated since 2014 and in 2020 new text was added that set out specific principles and examples between prudential and AML supervision.

Answer 28

Prevention of the Use of the Financial System for the Purpose of Money Laundering (91/308/EEC), was adopted by the Council of the European Communities in June 1991 required members to enact legislation to prevent their domestic financial systems from being used for money laundering. EU can adopt laws if nations in it don't agree In this respect, EU directives have far more weight than the voluntary standards issued by groups such as the Basel Committee and FATF The First Directive confined predicate offenses of money laundering to drug trafficking, as defined in the 1988 Vienna Convention

Answer 29

In December 2001, the EU agreed on a Second Directive (2001/97/EEC), Member states agreed to implement it as national law by June 15, 2003; Denmark, Germany, the Netherlands, and Finland met the deadline, Ireland and Spain complying shortly afterward. Other member states eventually followed.

Answer 30

Key features: * It extended the scope of the First Directive beyond drug-related crimes * It explicitly brought currency exchanges and money remittance offices under AML coverage. * It clarified that knowledge of criminal conduct can be inferred from objective factual circumstances * It provided a more precise definition of money laundering to include-conversion or transfer of property from illicit funds, concealing key details pertaining to ownership of property, buying property knowing it was bought via illicit means, participating or attempting to participate in any of these actions. * It widened the businesses and professions that are subject to the obligations of the Directive

Answer 31

A Third EU Directive, 2005/60/EC based on elements of FATF’s revised 40 Recommendations, was adopted in 2005 15/12/2007 deadline which was not met by all but eventually met

Answer 32

the Third Directive extended the scope of the First and Second Directives by * Defining money laundering and terrorist financing as separate crimes. * Extending customer identification and SAR reporting obligations to trusts and company service providers, life insurance intermediaries, and dealers selling goods for cash payments of more than €15,000 * Detailing a risk-based approach to CDD * Protecting employees who report suspicions of money laundering or terrorist financing * Obligating member states to keep comprehensive statistics regarding the use of and results obtained from SARs * Requiring all financial institutions to identify and verify (ID&V) the beneficial owner of all accounts held by legal entities or persons (More than 25% ownership)

Answer 33

* Credit institutions * Financial institutions * Auditors, external accountants, and tax advisors * Legal professionals * Trust and company service providers * Estate agents o High-value goods dealers who trade in cash over €15,000 euros * Casinos

Answer 34

The scope of the Third Directive differs from the Second Directive in that: * It specifically includes the category of trust and company service providers. * It covers all dealers trading in goods who trade in cash over €15,000. * It expands the definition of financial institution to include certain insurance intermediaries

Answer 35

3 Main issues 1.The definition of PEPs: Should not be considered PEP if not in position for more than 1 year. 2.. The Directive included lawyers among those professionals who are required to report suspicious activity 3. The precise role of a comitology committee: The European Commission coined the term “comitology,” which means the EU system that oversees the implementation of acts proposed by the European Commission.

Answer 36

Directive (EU) 2015/849 of the EU Effect: 26/6/2015 Member states had two years from that date to adapt their national legislations accordingly. This Directive repealed the Third Directive and its predecessors

Answer 37

* Anyone making/receiving payments of €10,000 or more * The scope of obliged entities went from Casinos to all gambling services * CDD should be applied for transfers of funds exceeding €1,000, new definitions: o Correspondent relationship o PEPs’ family members and persons known to be close associates o Senior management and others * Tax crimes pertaining to direct/indirect tax included in the list of criminal activity as per FATF recommendation * An explanation of “financial activity on an occasional or very limited basis” was included. * The EU must submit a report every 2 years on the findings of risk assessment reviews * The EU executive is also in charge of identifying third-country jurisdictions that have strategic deficiencies with regard to AML and CFT * Special attention is given to PEPs. In this regard, EDD should be applied to every PEP,

Answer 38

* New requirements regarding beneficial ownership information were introduced, particularly for trusts and similar legal arrangements * For groups (and their branches and subsidiaries), this Directive sets the criteria for adequate compliance related to CDD of third parties * Data in the statistics relevant to effectiveness in combating ML/TF were enlarged to include: size and importance of sectors and # cross border info request from other FIUs * Entities part of a group must implement group wide policies and procedures * Penalties for breaching provisions: now not naming and shaming but withdrawing authorization, sanctions set to EUR 5 Million or 10% of revenue for entities

Answer 39

* An entire section of the Directive is dedicated to the rules for cooperation between member state FIUs, the European Supervisory Authorities and the EU Commission * Directive not regulation, thus some discretion allowed * At the national level, the Directive requests that member states conduct an AML/CFT risk assessment and designate a responsible authority,obliged entities take appropriate steps to identify and assess their own risks such as Customer , products, services, geography

Answer 40

Directive (EU) 2018/843 9/7/2018 Focuses on 7 areas: 1.* Beneficial Owners: The Fifth Directive requires that national registers of beneficial ownership (excluding trusts) be publicly accessible * Cooperation and information sharing between regulators * High-risk third countries: Additional monitoring on high-risk third countries is based on: o Countries on the FATF list and on the EU list o Autonomous assessment of additional countries based on 8 areas: 1. Criminalization of money laundering and terrorism financing 2. Customer due diligence (CDD) requirements, record keeping, and reporting suspicious transactions 3. Designated nonfinancial businesses and professions have the same CDD, record keeping, and reporting obligations. 4. Sanctions should be effective, proportionate and dissuasive. 5. Countries must ensure effective supervision. 6. International cooperation 7. Information about the beneficial owners of a legal entity and legal arrangements must be available. 8. Implement targeted financial sanctions (UN) to suppress terrorism Streamline EDD approach including Additional info on customer, getting senior mgmt approval and enhancing monitoring of high risk entities

Answer 41

* Prepaid Cards: Lower threshold from€150 from €250 in store and €50 online * Enhanced identification of PEPs-Established list of PEPs * Extended scope of sectors and persons subject to AML/CFT obligations: o Estate agents o Auditors, external accountants, and tax advisors o Art traders o Custodian wallet providers * Exchangers between virtual currencies (e.g., cryptocurrencies) and fiat currencies will be required to have AML/CFT controls and need to be licensed or registered (virtual to virtual not required)

Answer 42

July 2021 Purpose: Improve the detection of suspicious transactions and close loopholes used by criminals to launder illicit proceeds * Introduction of the EU centralized system of bank account registries: Providing info on banking without delay as a centralized hub of information. * Introduction of EU Central AML Authority (AMLA): Enhancing cooperation between FIUs across countries,direct supervision when the directive has been transposed and new rules kick in * Regulatory normalization: Uniform enforcement of AML laws and closing loopholes in countries legislation. Catalog of 22 ML offences including tax evasion,insider tracking,human trafficking,cybercrime and environmental crime.' * Extension of criminal liability to organizations:ML offences now applicable to Organisations

Answer 43

* Money laundering punishments: Prison sentences at least 4 years,exclusion of public benefits, disqualification from commercial activities,freezing of accounts etc * Extending regulatory scope: Broadening scope of offenses including aiding and abetting,virtual asset transfers have same AML requirements as wire transfers * Implementation of the “Cryptoasset Travel Rule”: Based on Recommendation 16, VASPs to share certain ID for the receiver for Transactions higher than $1000 or Eur 1000 * Prohibition of anonymous cryptoasset wallets: * Prohibition of cash purchases over €10,000:

Answer 44

There are nine FSRBs, which have similar forms and functions to that of FATF. They are also considered FATF associate members FATF remains the only standard-setting body. The following high-level principles apply to both FATF and FSRBs * Role: Both FATF and FSRBs help jurisdictions implement FATF standards. Autonomy: FATF and FSRBs are free-standing organizations * Sharing common objectives and working in partnership: * Reciprocity: FATF and FSRBs operate on the basis of (mutual, joint, or common) recognition of their work * Common interest: Because FATF and FSRBs are part of a larger whole their success or failure is linked

Answer 45

* Asia/Pacific Group on Money Laundering (APG) * Caribbean Financial Action Task Force (CFATF) * Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL, formerly PC-R-EV) * Eurasian Group (EAG) * Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG) * Financial Action Task Force of Latin America (GAFILAT) (formerly known as Financial Action Task Force on Money Laundering in South America (GAFISUD) * Inter-Governmental Action Group against Money Laundering in West Africa (GIABA) * Middle East and North Africa Financial Action Task Force (MENAFATF) * Task Force on Money Laundering in Central Africa (GABAC)

Answer 46

Established in Feb 1997 Adopted Terms of Reference in Bangkok which were revised in July 2012 for the 40 FATF recommendations Terms included a committment that they would implement the 40 recommendations as per their constituitional frameworks and culture APG and FATF have reciprocal rights of attendance * Provides a focus for cooperative AML/CFT efforts in the Asia/Pacific region * Provides a forum in which regional issues can be discussed and experiences shared * Facilitates the adoption and implementation by member jurisdictions of internationally accepted AML/CFT measures * Enables regional and jurisdictional factors to be taken into account in the implementation of international AML/CFT measures * Encourages jurisdictions to implement AML/CFT initiatives, including more effective mutual legal assistance * Coordinates and provides practical support, when possible, to member and observer jurisdictions in the region, when requested

Answer 47

The APG is voluntary and cooperative in nature APG members include Afghanistan, Australia, Bangladesh, Bhutan, the Kingdom of Brunei Darussalam, Cambodia, Canada, China, the Cook Islands, Fiji, Hong Kong SAR (China), India, Indonesia, the Republic of Korea (South Korea), Japan, Lao People’s Democratic Republic, Macao SAR (China), Malaysia, Maldives, The Republic of the Marshall Islands, Mongolia, Myanmar, Nauru, Nepal, New Zealand, Niue, Pakistan, Palau, Papua New Guinea, Philippines, Samoa, Singapore, Solomon Islands, Sri Lanka, Chinese Taipei, Thailand, Timor Leste, Tonga, United States of America, Vanuatu, and Vietnam. The APG Secretariat is headquartered in Sydney, Australia.

Answer 48

The group consists of 27 states in the Caribbean Basin It was established as the result of meetings convened in Aruba in May 1990 and Jamaica in November 1992. Central and South America that have agreed to implement common countermeasures to address the problems of money laundering, terrorist financing, and the financing of the WMD proliferation Main objective of CFATF-compliance with recommendations and prevent ML/TF crimes 19 recommendations were created, which complemented the FATF 40 recommendations. Nov 1992 meeting- commitment to implement Org of American States regulations and 1988 UN convention against illict drug trafficking also mandated establishing a secratariat for coordination.

Answer 49

The Declaration recommended laws: * Defining ML based on the model laws issued by the OAS * Concerning the seizure and forfeiture of drug proceeds and linked assets * Allowing judicial challenges to seizure orders by an administrative body * Permitting forfeiture in all cases following conviction * Permitting courts to decide that “all property obtained during a prescribed period of time by a person convicted of drug trafficking has been derived from such criminal activity" The Caribbean nations agreed to enter into mutual assistance agreements with one another to assist in money laundering investigations

Answer 50

Anguilla, Antigua and Barbuda, Aruba, The Bahamas, Barbados, Belize, Bermuda, Cayman Islands, Curaçao, Dominica, El Salvador, Grenada, Guyana, Haiti, Jamaica, Montserrat, Saint Kitts and Nevis, Saint Lucia, Saint Maarten, Saint Vincent and the Grenadines, Suriname, Trinidad and Tobago, Turks and Caicos Islands, Venezuela, and Virgin Islands The CFATF Secretariat is hosted by the Government of Trinidad and Tobago in the Port of Spain.

Answer 51

In September 1997, MONEYVAL was established by the Committee of Ministers of the Council of Europe to conduct self- and mutual-assessment exercises of the AML measures in place in Council of Europe member states that were not members of FATF. MONEYVAL became an associate member of FATF in 2006 October 13, 2010, the Committee of Ministers adopted the Resolution CM/Res(2010)12, The statute elevated MONEYVAL to an independent monitoring mechanism within the Council of Europe, answerable directly to the Committee of Ministers on January 1, 2011 The MONEYVAL Statute was further amended in 2013 by the Resolution CM/ Res(2013)13.

Answer 52

Albania, Andorra, Armenia, Azerbaijan, Bosnia and Herzegovina, Bulgaria, Croatia, Cyprus, Czech Republic, Estonia, Gibraltar*, Georgia, Guernsey*, Hungary, Holy See (since April 2011)*, Isle of Man*, Israel (since January 2006)*, Jersey*, Latvia, Liechtenstein, Lithuania, Malta, Republic of Moldova, Monaco, Montenegro, Poland, Romania, Russian Federation (also a FATF member since 2003), San Marino, Serbia, Slovak Republic, Slovenia, North Macedonia, and Ukraine *Nonmember States of the Council of Europe. MONEYVAL is hosted by the Council of Europe in Strasbourg, France.

Answer 53

December 2000 in Cartagena de Indias, Colombia memorandum of understanding was signed by government representatives from nine countries: Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Paraguay, Peru, and Uruguay full members of the task force, including Mexico (2006), Costa Rica and Panama (2010), Cuba (2012), Guatemala, Honduras, and Nicaragua (2013), and the Dominican Republic (2016) GAFILAT was created in the style of FATF and accepts its 40 Recommendations GAFILAT supports its members in the implementation of the 40 Recommendations as national legislation and the creation of a regional prevention system against ML/TF, The two main tools are training measures and mutual evaluations

Answer 54

Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Cuba, Dominican Republic, Ecuador, Guatemala, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, and Uruguay GAFILAT has legal capacity and diplomatic status in the Argentine Republic where its Secretariat is located in Buenos Aires

Answer 55

December 10, 1999, by a decision of the Authority of Heads of State and government of the Economic Community of West African States January 2006, GIABA revised its mandate to fully incorporate and properly reflect its fight against the financing of terrorism Objectives: * Protect the national economies and the financial and banking systems against ML/TF * Improve measures and intensify efforts to combat the proceeds from crime * Strengthen cooperation among its members Republic of Benin, Burkina Faso, Republic of Cape Verde, Republic of Côte d’Ivoire, Republic of The Gambia, Republic of Ghana, Guinea Bissau, Republic of Guinea, Republic of Liberia, Republic of Mali, Republic of Niger, Federal Republic of Nigeria, São Tomé and Príncipe, Republic of Senegal, Republic of Sierra Leone, and Togolese Republic GIABA’s Secretariat is located in Dakar in Senegal, West Africa.

Answer 56

Manama, Bahrain, in November 2004, the governments of 14 countries decided to establish a FATF-style regional body for the Middle East and North Africa Voluntary in nature, and cooperates with other intl bodies Objectives: * Adopt and implement FATF’s 40 Recommendations and related UN conventions/security council resolutions * Implement the relevant UN treaties and agreements and UN Security Council Resolutions * Cooperate to raise compliance with these standards and measures within the MENA region * Work together to identify regional money laundering and terrorist financing issues,experiences and solutions * Build effective arrangements and systems throughout the region not contradicting constituitional frameworks or culture

Answer 57

People’s Democratic Republic of Algeria, Kingdom of Bahrain, Republic of Djibouti, Arab Republic of Egypt, Islamic Republic of Mauritania, Hashemite Kingdom of Jordan, State of Kuwait, The Lebanese Republic, State of Libya, Kingdom of Morocco, Sultanate of Oman, State of Palestine, State of Qatar, Republic of Iraq, Kingdom of Saudi Arabia, Federal Republic of Somalia, Republic of Sudan, Syrian Arab Republic, Republic of Tunisia, United Arab Emirates, and Republic of Yemen. MENAFATF is headquartered in Manama, Bahrain.

Answer 58

October 2004 in Moscow The EAG was created for the countries of the Eurasian region that are not included in the existing FSRBs Act in accordance with FATF 40 recommendations The main tasks of EAG are: * Assisting member states in implementing the FATF Recommendations * Developing and conducting joint activities aimed at ML/TF * Implementing a program of mutual evaluations of member states based on the FATF Recommendations * Coordinating international cooperation and technical assistance programs with specialized international organizations, bodies, and interested states * Analyzing money laundering and terrorist financing trends,exchanging best practices Republic of Belarus, China, Republic of India, Republic of Kazakhstan, Kyrgyz Republic, Russian Federation, Republic of Tajikistan, Turkmenistan, and Republic of Uzbekistan. The EAG is headquartered in Moscow, Russian Federation

Answer 59

Tanzania in 1999 Angola, Botswana, Eritrea, Eswatini, Ethiopia, Kenya, Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, Rwanda, Seychelles, South Africa, Tanzania, Uganda, Zambia, and Zimbabwe main decision-making body of the ESAAMLG is the Council of Ministers, which comprises state member ministers who manage financial matters MOU * Adopt and implement the 40 FATF Recommendations * Apply AML measures to all serious crimes * Implement measures to combat the financing of terrorism * Implement any other measures contained in multilateral agreements Region-specific projects and studies are also undertaken by the ESAAMLG For example, a project was initiated in 2014 for wildlife trade ESAAMLG is headquartered in Dar es Salaam, Tanzania.

Answer 60

Established in 2000- Groupe d’Action contre le Blanchiment d’Argent en Afrique Centrale (GABAC) In February 2012, GABAC became an observer organization of FATF. In October 2015, FATF recognized GABAC as an FSRB and admitted it as an Associate Member Cameroon, Central African Republic, Chad, Congo, Democratic Republic of the Congo, Equatorial Guinea, and Gabon. GABAC is headquartered Libreville, Gabon.

Answer 61

In May 1992,the OAS unanimously approved a set of 19 articles written in statutory language that it recommended its member nations enact. CICAD (Comisión Interamericana para el Control del Abuso de Drogas) -Drug Abuse Control Commission is an OAS entity CICAD’s role includes * Serving as the Western Hemisphere’s policy forum on all aspects of the illegal drug trade * Fostering multilateral cooperation on drug issues in the Americas * Executing action programs to strengthen the capacity of member states to prevent and treat drug related offences * Promoting drug-related research,info exchange,training * Developing and recommending minimum standards for drug-related legislation, treatment, cost of drugs to society * Conducting regular multilateral evaluations of progress by member states

Answer 62

Within CICAD is an Anti-Money Laundering Unit (CICAD-AMLU), which was established in 1999. Model Regulations are developed,They were influenced by and are compatible with FATF’s 40 Recommendations. In 1999, the Inter-American Development Bank (IADB) and CICAD started a program in 8 countries for training In 2001, another program was developed and conducted for judges and prosecutors within the eight countries In 2002, a long-term project was begun to establish financial intelligence units in Argentina, Chile, Ecuador, Brazil, Peru, Uruguay, and Venezuela

Answer 63

Egmont Group found in 1995 with several national FIUs goal of the group is to provide a forum for FIUs around the world The Egmont Group comprises several organizational groups, including the Heads of FIUs. Support includes: * Serving as the operational arm of the international AML/CFT apparatus * Providing a platform for the secure exchange of expertise and financial intelligence to combat AML/CFT * Expanding and systematizing cooperation in the reciprocal exchange of information * Increasing the effectiveness of FIUs by offering training and promoting personnel exchanges * Fostering better and secure communication among FIUs via secure web * Promoting the operational autonomy of FIUs * Promoting the establishment of FIUs in conjunction with jurisdictions with an AML/CFT program in areas with early development

Answer 64

These documents include The Egmont Charter and the Egmont Principles for Information Exchange and Operational Guidance for FIUs The latter document is binding for members and includes several provisions, including General Framework and International Co-operation requirements provisions include: * The Egmont Group fosters the development of FIUs and information exchange. * International cooperation among FIUs should be encouraged * Information-sharing arrangements must recognize and allow room for case-by-case solutions to specific problems. * FIUs should exchange information with foreign FIUs * FIUs should use the most efficient means to cooperate. * Exchanged information should be used only for the purpose for which the information was sought or provided Case studies are also provided by Egmont group,

Answer 65

The Egmont Group undertook an initiative that resulted in the publication of "FIUs in Action: 100 Cases from the Egmont Group Several best practices from this analysis can benefit FIUs. Examples include: Disclosures of suspicious activity by financial organizations should continue to be made, even while an investigation is being conducted by an FIU the report identifies six common indicators * Large-scale cash transactions * Atypical and uneconomical fund transfers to or from a foreign jurisdiction * Unusual business activities and transactions * Large and/or rapid movements of funds * Unrealistic wealth compared with client profile * Defensive stance to questioning

Answer 66

2000 at the Wolfsberg castle in Switzerland Anti-Money Laundering Principles for Private Banking was published in October2000 These principles recommend controls for private banking The Principles state accept only those clients whose source of wealth can be reasonably established need to identify the beneficial owner of funds “for all accounts” urge private bankers to perform due diligence on “money managers and similar intermediaries” EDD: * Politically exposed persons * People residing in and/or having funds from high-risk countries * People involved in types of “economic or business activities or sectors known to be susceptible to money laundering.” Clients may also require greater scrutiny as a result of: * Information gained from monitoring their activities * External inquiries * Derogatory information, such as negative news reporting * Other factors that may expose the bank to reputational risk

Answer 67

banks should have written policies on the “identification of and follow-up on unusual or suspicious activities,” should include a definition of what is suspicious, as well as examples of such activity. The Principles also addressed: * Reporting money laundering issues to management * AML training * Retention of relevant documents * Deviations from policy * Creation of an anti-money laundering department and an AML policy

Answer 68

* Providing official lists of suspected terrorists on a globally coordinated basis by relevant authorities * Including adequate information in the lists * Providing prompt feedback to institutions following circulation of the official lists * Providing information on the manner, means, and methods used by terrorists * Developing government guidelines for business sectors and activities identified as high-risk for terrorism financing * Developing uniform global formats for funds transfers that assist in the detection of terrorism financing * Protecting financial institutions with safe harbor immunity to encourage them to share information and to report to authorities Performing enhanced due diligence for “business relationships with high risk services like gambling,remittances,exchange houses

Answer 69

The guidelines were updated in 2014 to highlight that the Principles were intended to address the risks associated with foreign correspondent relationships, not domestic Due diligence should be risk-based and on an ongoing basis, following elements be considered when conducting due diligence: * Geographic risk * Branches, subsidiaries, and affiliates of correspondent banking clients and of the institution * Ownership and management structures of the correspondent banking client * Client’s customer base and business * Client’s products and services * Client’s regulatory status and history * Client’s anti-money laundering controls * Client’s dealings with shell banks * Visits to the client’s business * Enhanced due diligence regarding the involvement of PEPs * The Principles should be part of a financial institution’s larger AML program,anti-bribery and corruption, fraud, and evasion of sanctions

Answer 70

collaborating with the Banker’s Almanac in 2004 Details in the Repository include copies of company bylaws, relevant licenses, extracts from commercial registers or certificates of incorporation More recently, Information about shareholders with stakes of more than 5%, biographies of board members and senior management, and information about each financial institution’s AML policies and procedures Banker’s Almanac has added further functionality to the Repository with the inclusion of an alert service that updates users with any changes to documents or status of an institution

Answer 71

The group released Monitoring, Screening and Searching Wolfsberg to provide further guidance on “the design, implementation, and ongoing maintenance of transaction monitoring frameworks for real-time screening transaction monitoring, and retroactive searches.” discussed the need for appropriate monitoring of transactions and customers to identify potentially unusual or suspicious activity and transactions and for reporting such to competent authorities covered issues related to the development of risk-based processes for monitoring, screening, and searching transactions and customers

Answer 72

The IMF and the World Bank have supported the efforts of FATF Since 2001, the two organizations have required countries that benefit from their programs to have ML controls “Enhancing Contributions to Combating Money Laundering,”-Strengthening against ML In September 2000, IMF and WB integrated fight against ML into programs, nternational Monetary and Financial Committee (IMFC) was preparing a paper (1) “prepare a joint paper with the Bank on their respective roles in combating money laundering and financial crime, and in protecting the international financial system,” and (2) “explore incorporating work on financial abuse

Answer 73

February 2001,IMFC, “Financial System Abuse, Financial Crime, and Money Laundering,”, explores how org can play role in protecting systems from abuse through use of their influence to promote national anti-corruption programs. * Concentrating on money laundering over other forms of financial abuse * Helping to strengthen financial supervision and regulation in countries * More closely interacting with the Organisation for Economic Co-operation and Development and the Basel Committee on Banking Supervision * Insisting on the application of international AML standards in countries that request financial assistance April 2004, Pilot program, assesses a nation’s compliance with international AML/CFT. The program put an end to FATF’s practice of publicizing noncooperative countries and territories

Answer 74

World Bank and IMF aligned with FATF for conducting assessments based on 40 recommendations Carried out as part of Financial Sector Assessment Program and result in Report on the Observance of Standards and Codes (ROSC). 12 areas: accounting, auditing, AML/CFT, banking supervision, corporate governance, data dissemination, fiscal transparency, insolvency and creditor rights, insurance supervision, monetary and financial policy transparency, payments systems, and securities regulation ROSCs are prepared and published at the request of the member country Updates to the ROSCs are produced regularly, however, new reports are prepared and published every several years

Answer 75

Launched in 2002, supplement launched in 2006 It explains the basic elements required to build an effective AML/CFT legal and institutional framework and summarizes the role of the World Bank and IMF in those efforts

Answer 76

(USA PATRIOT Act) in October 2001 Strengthen ML laws to extent unseen since passing of BSA in 1970 and ML act in 1986 Title III-Purpose to increase strength of US measures to prevent,detect, and prosecute Intl ML and TF Regulaltions to follow the act are compiled in 31 Code of Federal Regulation Chapter X

Answer 77

US government can force US banks to halt many of their financial dealings with the designee of ML concern Treasury Department can require US financial organizations to follow any or all of the following five special measures: 1.Keep records and/or file reports on certain financial transactions 2.Obtain information on the beneficial ownership of any account opened or maintained in the United States by a foreign person or representative 3.Identify and obtain information about customers who are permitted to use, or whose transactions are routed through, a foreign bank’s payablethrough account. 4. Identify and obtain information about customers permitted to use, or whose transactions are routed through, a foreign bank’s correspondent account. 5. Close certain payable-through and correspondent accounts Section 311 designations differ from OFAC that can be more general

Answer 78

This section requires due diligence and, in certain situations, EDD for foreign correspondent accounts all relationships wit a foreign financial organization, as well as private banking for non-US people The correspondent banking portions of the rule apply to US banks, credit unions, thrift organizations, trust banks, broker-dealers, futures commission merchants and introducing brokers in commodities and mutual funds, and US-based agencies and branches of foreign banks Foreign financial organizations covered by the rule include foreign banks, their branches, foreign broker-dealers, futures commission merchants, introducing brokers in commodities and mutual funds that operate in the United States, and money transmitters and currency exchangers organized in a foreign country.

Answer 79

The due diligence program must address three measures: 1. Determining whether enhanced due diligence is necessary 2. Assessing the money laundering risk presented by the correspondent account 3. Applying risk-based procedures and controls reasonably designed to detect and report suspected money laundering

Answer 80

EDD procedures must be applied to a correspondent account established for a foreign bank operating under: * An offshore banking license * A license issued by a foreign country designated as noncooperative by an international organization, with which designation the Treasury Secretary agrees * A license issued by a foreign country that has been designated by the Treasury Secretary as warranting special measures pursuant to Section 311 of the USA PATRIOT Act EDD that must be implemented in these situations includes: * Conducting enhanced scrutiny(AML program, Transaction monitoring, infro on PTA) * Determining whether the correspondent account is used by other banks for which the account was setup * Determining UBOs of Banks not publicly traded who can vote more than 10%

Answer 81

The private banking portions of the rule apply to the same organizations covered by the correspondent banking provisions a private banking account is defined as (a) an account with a minimum aggregate deposit of 1M, (b) an account for one or more foreigner (c) an account that is assigned to a bank employee acting as a liaison with the non-US person US organizations must take reasonable steps to: * Ascertain the identity of all nominal and beneficial owners of the accounts * Ascertain whether any such owner is PEP * Ascertain the source and purpose of the funds * Monitor the account to ensure its activity is consisten

Answer 82

This section prohibits US banks and securities brokers and dealers from maintaining correspondent accounts for foreign, unregulated shell banks that have no physical presence * Is authorized to conduct banking activities * Employs one or more individuals on a full-time basis at that location * Maintains operating records at that location * Is subject to inspection by the banking authority which licensed it at that location requires financial organizations to take reasonable steps to ensure that foreign banks with correspondent accounts do not themselves permit access to such accounts by foreign shell banks Banks and securities brokers are permitted to use a certification form to comply with the rule that has to be certified every 3 years that they are not shell banks and don't permit access to shell banks.

Answer 83

* Section 314(a): FinCEN’s regulations under Section 314(a) enable US federal, state, local, and foreign (European Union) law enforcement agencies, through FinCEN to reach 43,000 contacts in 22,000 org for investigations.

Answer 84

* Section 314(b): 314(b) information sharing is a voluntary program. Entities that may participate in 314(b) include US financial organizations subject to an AML program requirement under FinCEN regulations o Banks, credit unions, and other depository institutions o Casinos and card clubs o Money services businesses o Brokers and dealers in securities o Mutual funds o Insurance companies o Futures commission merchants and introducing brokers in commodities o Dealers in precious metals, precious stones, and jewels o Operators of credit card systems o Loan and finance companies o Government-sponsored enterprises Expanded details around Section 314(b) were included in a FinCEN Section 314(b) Fact Sheet issued in December 2020, which rescinded previous guidance and an administrative ruling Allows for ML activities to be identified not just transactions

Answer 85

permits the US government to seize funds in the same amount from a correspondent bank account in the United States that has been opened and maintained for the foreign bank owner of the funds may contest the seizure order

Answer 86

Require companies to provide within 5 days records or info related to AML compliance of a customeror any account operated in the US allows the Treasury Secretary and the Attorney General to subpoena records of a foreign bank that maintains a correspondent account in the United States If bank fails to comply Treasury Sec or Attorney Gen can get account closed within 10 days foreign banks must designate a registered agent in the United States to accept service of subpoenas pursuant to this section Banks and brokers must keep records for ID for over 25% ownership of foriegn banks. Info collected on certificate for section 313 and must be updated at least once every 3 years.

Answer 87

first AML-related law of substance (excluding the USA PATRIOT Act recertification) to be passed since the USA PATRIOT Act in 2001. passed as part of the National Defense Authorization Act (NDAA) not directly promulgated by a US regulatory agency (e.g., OCC, FinCEN) In addition to enhancing US AML laws (e.g., the BSA), the AMLA shifts the focus of AML compliance from a regulatory perspective to national defense streamline AML/CFT systems, solidify by law a risk-based approach requirement to AML/CFT compliance programs Establishing FIs for AML/CFT, Reporting Database , FinCEN investigatory powers Required enhanced cooperation between FIs ,regulators and other agencies cannabis, marijuana, or hemp not mentioned, still unclear

Answer 88

* An expansion of civil monetary penalties to so-called “repeat” BSA violators * New criminal offenses * Clawback provisions for remuneration and bonuses * Prohibitions of individuals convicted of BSA violations from sitting on the board of a financial institution * FinCEN’s authority to not only subpoena foreign financial institutions’ US account activity, but also foreign accounts * FinCEN’s authority to demand closure of correspondent accounts and impose daily fines for the failure to do so

Answer 89

* Require FinCEN to provide reports on how SARs and CTRs are used * Encourage enhanced international cooperation between countries and their FIUs * Provide a report on how to streamline and reduce the burden for FIs to report noncomplex cases * Create a report with guidelines on how to derisk accounts * Report on more or less “approved” ways to enhance AML reporting using tech * Publish information relating to emerging risks and trends for ML

Answer 90

KARRA is effectively a whistleblower program for individuals who report on the proceeds of corruption moving through US financial organizations Along with the AMLA, the NDAA also brings a legal requirement to expand KARRA key provision of the AMLA is the expansion of whistleblower protection for those providing original info

Answer 91

AMLA aims to create a central repository for all beneficial ownership Corporate Transparency Act (CTA) 1) to create transparency within those structures to find and remove potential criminals hiding behind them; and 2) to create a database for use by state and federal law enforcement entities CTA made in response to FATF The CTA will ask business owners to provide, among other requirements: * A legal form of personal identification * Applications to form a corporate entity * Information on the registering agent

Answer 92

* The screening of customers and business * Transaction value and volume to and from high-risk jurisdictions * Potentially high-risk third-party transactions from these jurisdictions AMLA also calls for the establishment of the first AML/CFT strategic priorities, which should be announced within six months of the law’s passage

Answer 93

1. Corruption: echoes the Wolfsberg Group recommendations and guidance on the methods and means used by corrupt political figures and their enablers to launder the proceeds of corruption 2. Cybercrime and relevant cybersecurity and virtual currency considerations:focuses on the misuse of cryptocurrency as a means to extort and move the proceeds of all forms of cybercrime 3. Foreign and domestic terrorist financing: references differences between terrorist activity and support 4. Fraud: “bank, consumer, health care, securities and investment, and tax fraud,parallels to the CTA, in that fraudulent incorporated entities are frequently utilized to launder the proceeds of fraud, although not as frequently as crimes such as tax fraud and tax evasion, Fraud generates bulk of illicit proceeds in the US.

Answer 94

5. Transnational criminal organization activity: “crime-terror nexus" is the use of ML for TF and underlying crimes used for TF. Criminal orgs may launder illicit proceeds and activities to gain favor of powerful individuals 6. Drug trafficking organization activity: builds guidance concerning the use of the global financial system to place, layer, and integrate the proceeds of drug trafficking activities, US financial system might be used as a financial “transit” point for those proceeds as well as final holding place. Also refernces intl and domestic sales of Fentanyl and related components. 7. Human trafficking and human smuggling: crime-terror nexus, victimes of human trafficking might be used for ML via trafficking. More benign expenses can be TF. 8. Proliferation financing: priority outlines both geographic and transactional risk, “gatekeepers, front or shell companies, exchange houses, or the illicit exploitation of international trade” are central to the laundering and movement of funds related to proliferation

Answer 95

Money Laundering Control Act of 1986 , 1st ML law of the US Can be used if property involved is a representative of at least 1 crime-“specified unlawful activity” (SUA) Law also applies to foreign countries and people Prosecution must prove existence of proceeds of SUA but does not need to prove accused knew source of funds only that funds came from some form of criminal activity. Willfull blindness=knowledge can be proven via circumstances and conduct

Answer 96

US$1.2 billion (1MBD) investment fund had been returned to the people of Malaysia. From 2009 to 2015, over US$4.5 billion in funds from 1MBD was embezzled to purchase luxury real estate, fine art, hotels, fund a movie,pay bribes US District Courts in California and the District of Columbia led efforts to seize over US$1.7 billion in stolen assets high-level 1MDB officials and their associates embezzled and laundered funds through the US, Switzerland, Singapore, and Luxemburg To file a civil forfeiture complaint, the US government must be able to identify the property to be seized It determined that funds were used in the US to purchase luxury homes in Beverly Hills and New York and to invest in a boutique hotel in Beverly Hills and the Park Lane Hotel in Manhattan. Used fake IDs and documents laundered the funds through a series of complex transactions and shell companies with bank accounts located in the US and abroad FBI and IRS led investigations ,US courts beginning in 2016 filed 41 forfeiture actions and seized USD 1.7 Bn

Answer 97

* All transactions that touch the US financial system are subject to US laws. * The US government can file a forfeiture complaint based on an allegation that the money or property was involved in or represents the proceeds of crime. * The US government must be able to identify the property to be seized to file a civil forfeiture complaint. * The US government works with international partners to assist with tracing the use of proceeds of criminally derived funds; this cooperation is essential for fighting financial crime.

Answer 98

OFAC administers and enforces economic and trade sanctions based on US foreign policy and national security goals Many of its sanctions are based on United Nations and other international mandates that are multilateral in scope and involve close cooperation with allied governments The OFAC sanctions lists primarily include: * Country-based sanctions: * List-based sanctions: * Secondary sanctions:-Non US , sanctioned entities * Sectoral sanctions: Known as “surgical or smart” sanctions general licenses and specific licenses A general license authorizes a particular type of transaction for a class of persons without the need to apply for a license A specific license is a written document issued by OFAC to a specific person or entity

Answer 99

In 2014, OFAC reached a record US$963 million settlement following a US$8.9 billion penalty imposed for Sanctions violations. BNPP’s systemic practice of concealing, removing, omitting, and obscuring references to information about US-sanctioned parties in almost 4,000 financial transactions routed to or through US banks between 2005 and 2012 violation of US sanctionsinvolving Sudan, Iran, Cuba and Burma BNPP’s methods included removing references to sanctioned parties,replacing sanctioned parties with BNPP’s name or a code word or otherwise structuring the payments

Answer 100

* Regulated firms should have robust controls, including independent quality control and assurance, in place to detect “stripping” (i.e., the deliberate removal of key payment-related information), a common sanctions evasion technique. * Non-US banks can be fined for noncompliance with OFAC sanctions if their transactions have a US connection, such as passing through a US bank. * Fines and penalties associated with sanctions noncompliance can be significant and damaging to a regulated business

Chapter 2 International AML CFT Standards Flashcards

(124 cards)