Chapter 4 - AML Compliance Program Flashcards Preview

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Flashcards in Chapter 4 - AML Compliance Program Deck (114):
1

What is the theory behind risk-based controls for AML/ATF?

  • No FI can reasonably detect all wrongdoings.
  • Using systems to detect, monitor and report riskier customers and transactions increase chances being unharmed by 
    • criminals
    • govermnent sanctions & penalties
  • As money laundering risks increase, stronger controls are necessary.

2

What basic controls are used
to address all risk levels (low, medium, high)?

All categories of risk must be mitigated by:

  • verification of customer identity
  • CDD policies
  • suspicious transaction monitoring
  • economic sanctions screening

3

Describe three ways in which
a risk-based approach is preferable to a more prescriptive approach to AML/ATF.

  1. Flexible. Risks vary across jurisdictions, customers, products, and delivery channels and over time.
  2. Effective. Companies are better equipped than legislators to effectively assess and mitigate ML and TF risks.
  3. Proportionate. Promotes a common sense and intelligent approach vs check box approach.Decreases impact on lower risk clients.

4

What are three basic categories
that are used to determine the
level of risk an organization faces?

  1. Geographical region
  2. Customer types.
  3. Products and services offered.

5

List the four basic risk categories.

  1. Prohibited.
  2. High Risk.
  3. Medium Risk.
  4. Low or Standard Risk.

6

Describe the "Prohibited" risk category.

  • The company will not tolerate any dealings of any kind.
  • Prime candidates for this category are countries:
    • subject to economic sanctions.
    • designated as state sponsors of terrorism (Sudan, Iran).
    • and shell banks.

7

Describe the "High Risk" category.

  • While risk is high, business is not prohibited.
  • Mitigated by controls such as :
    • EDD
    • Rigorous transaction monitoring.
  • Likely to include:
    • Countries noted for corruption or drug trafficking
    • PEPs
    • Correspondent Banking
    • Private Banking

8

Describe the "Medium Risk" category.

  • More than low or standard risk.
  • Less than high risk.
  • Merits additional scrutiny.

9

Describe the "Low" or "Standard Risk" category.

  • Represents the baseline risk of ML.
  • Normal business rules apply.
  • Likely to include:
    • FATF member countries
    • Domestic retail customers

10

What is the most basic way
a risk level might be calculated
in a risk scoring model?

  • Using numeric values in each category (geography, customer type, products & services).
  • For example, scored 1-10 - - 10 being the riskiest

11

Why does a risk scoring model
make the picture clearer when you combine categories (geography, client type, products & services)?

  • Categories in combination may radically change the level of risk. 
  • For example, a foreign company with rapid transfer capabilities will have less information readily available than a domestic publicly-traded company which has already provided vast info to become listed.

12

What general elements are considered
when setting thresholds in a risk scoring model?

  • High risk relationships should not represent too large a segment of the population.
  • If a portfolio is too heavily weighted toward high-risk segments, the costs for the risk level may be too high to support. 
  • Risk rating criteria should be periodically re-assessed to see if those rated as high risk are more likely to create issues.

13

What considerations should go into assessing
jurisdictional risk?

  • In what country do individual customers reside?
  • What are countries of citizenship?
  • Where are corporate customers headquartered?
  • Where might corporates conduct the majority of their business?

14

Since there is no definitive system for
assessing jurisdictional risks of countries,
what resources might FIs engage?

  • Terrorism and sanctions lists from
    • UK Financial Services Authority
    • US OFAC
    • US Financial Crimes Enforcement Network
    • World Bank
    • European Union
    • UN Security Council Committee
  • Membership lists of FATF or related regional bodies.
  • Reputational assessments:
    • US State Dept, "Int'l Narcotics Control Strategy Report"
    • Transparency Int'l, "Corruption Perceptions Index"
    • News media reports
  • The country's own:
    • AML legislation
    • Strength of it's financial industry

15

What considerations should go into
assessing risks posed by
Customer Type?

To whom are products being sold? For example:

  • individuals (criminal record, PEPs, more risk)
  • listed companies (less risk)
  • private companies (more risk)
  • corporate veils (trusts, charities, LLCs, hidden beneficial owners)
  • FI's

16

List eleven types of customers
which regulators usually consider higher risk for ML.

  1. Casinos
  2. Offshore corporations and banks in tax havens
  3. Leather good stores
  4. Currency exchange houses, money remitters, check cashers
  5. New & used dealerships (car, boat, plane)
  6. Machine parts manufacturers
  7. Travel agencies
  8. Brokers/dealers in securities
  9. Jewel, gem & precious metals dealers
  10. Import/export companies
  11. Cash intensive businesses (restaurants, retail stores, parking).

17

What is the one primary factor
of consideration when assessing
the risk of your products & services ?

What is the likelihood that the product might be used for money laundering or terrorist financing.

18

List seven questions to ask
when assessing a product or service for the risk of ML and TF.

Does a particular product or service:

  1. Enable significant volumes of transaction to occur rapidly?
  2. Allow customers to engage in transactions with minimal oversight by the institution?
  3. Afford significant levels of anonymity to users?
  4. Have an especially high transaction or investment value?
  5. Allow payments to a third party?
  6. Have unusual complexity?
  7. Require government verification of customer eligibility?

19

List twelve banking products that,
when assessing them for risk, have an
inherently higher risk profile.

  1. Private Banking
  2. Offshore international activity
  3. Wire transfer and cash management functions
  4. Transactions in which the primary beneficiary is undisclosed
  5. Loan guarantee schemes
  6. Traveler's Cheques
  7. Official bank cheques
  8. Money orders
  9. Foreign Exchange transactions
  10. Trade financing transactions with unusual pricing features
  11. PTAs - payable through accounts

20

What are the 6 high level steps of
setting policies, procedures, and controls in
an AML program?

  1. Identify and understand the applicable laws and regulations.
  2. Look at the institution's own risk assessment and guage its risk appetite.
  3. Create a process to stay on top of regulatory changes.
  4. Establish or approve AML policies through higher management or board of directors to set the tone for the organization.
  5. Use the policies as the basis of procedures and controls at the lines of business.
  6. Put the policies and procedures in writing.

21

Describe a high level explanation of standard operating procedures coming from an AML program.

  • Usually designed and drafted at a lower level than policies.
  • Modified as needed to reflect changes in products, personnel, promotions, and other operating procedures.
  • Are more detailed than the policies.
  • Translate policy into a workable practice.
  • Should include a process to facilitate effective implementation.

22

Describe the types of internal controls
that keep an AML program working.

  • Management reports that allow the compliance officer to recognize deviations from standard procedures and safety protocols.
  • Second level signatures or approval for transactions exceeded a prescribed amount.
  • Second level review of deviation from policies.
  • Technology controls (e.g. forcing the entry of required information, aggregate threshold detection, automated account monitoring).

23

Name 15 policies, procedures, and processes that should be included in an AML compliance program.

  1. Identify high-risk operations, provide for periodic updates to the insitituion's risk profile, and provide for an AML program tailored to manage risks.
  2. Inform the board of directors and senior managers of compliance initiatives, known compliance deficiencies, STRs filed, and corrective action taken.
  3. Assign clear accountability to persons for performance of duties under the AML Program.
  4. Provide for program continuity despite changes in management, employee composition, or structure.
  5. Meet all regulatory requirements & recommendations for AML compliance.
  6. Provide for periodic review and timely updates to implement changes in regulations (min annually).
  7. Implement risk-based CDD policies, procedures, and processes.
  8. Provide sufficient controls & monitoring systems for the timely detection & reporting of suspicious activity, LCTRs.. (Centralize!)
  9. Provide for dual controls and segregation of duties. (Filing vs. reporting/exempting). 
  10. Comply with all record keeping requirements including retention & retrieval of records.
  11. Provide for adequate supervision of employees who handle currency transactions or any other activity covered unde AML laws & regulations.
  12. Train employees to be aware of their responsibilities.
  13. Incorporate AML compliance into job descriptions and performance evaluations.
  14. Implement high-standard screening when hiring.
  15. Test the program implementation and execution separately from the audit function.

24

When designing an AML department, one person should be designated the AML Program Compliance Officer.

What should this individual be respobsible for?

An AML Program Compliance Office should be responsible for:

  • Designing and implementing program.
  • Disseminating formation about successes & failures.
  • Construct AML content for staff training programs.
  • Stay current on legal & regulatory requirements.

25

What three functional subgroups could an AML department
be organized into?

  1. The investigations group.
  2. LOB support group.
  3. Program oversight group.

26

What kinds of duties would be assigned to an Investigations Group when designing an AML department?

  • Monitor automated alerts.
  • Investigate referrals from LOB staff.
  • File STRs with the country's FIU.

27

What kinds of duties would be assigned to a Line of Business Support Group when designing an AML department?

  • Assign risk codes to all clients based on scoring on CDD risk assessment.
  • Perform EDD on medium and high risk clients via CDD process.
  • Act as first line of contact for LOB on AML matters.

28

What kinds of duties would be assigned to a Program Oversight Group when designing an AML department?

  • Periodically review & update the program.
  • Coordinate implementation activities with LOB support group.
  • Monitor the regulatory environment for changes in the program.
  • Coordinate regulatory examinations with the LOBs.
  • May be involved in:
    • preparing training materials
    • supporting AML issues not addressed by LOB support group

29

What are the six basic elements to consider
in the development of an effective
compliance training program?

  1. Who to train.
  2. What to train on.
  3. How to train.
  4. When to train.
  5. Where to train.
  6. Audit process.

30

Name five target audiences that should be
trained in AML topics relevant to them.

  1. Customer contact staff.
  2. Back office personnel.
  3. Audit and compliance staff.
  4. AML compliance staff.
  5. Senior management and board of directors.

31

Describe the overall needs of customer contact staff
in an AML training prgram.

  • Requires the deepest practical understanding of the why and what behind AML as the front line of defense.
  • Specific procedural training may be in order, e.g. for lenders, cash handlers.=

32

Describe the overall needs of back office staff
in an AML training prgram.

Specialized training may be required, for example:

  • proof operators
  • cash vault staff
  • wire transfer operations
  • trade finance operations

33

Describe the overall needs of audit & compliance  staff
in an AML training prgram.

Specialized training may be required for:

  • Procedures on oversight, monitoring and testing AML controls.
  • Changes in:
    • regulation
    • methods
    • enforcement

34

Describe the overall needs of AML compliance staff
in an AML training prgram.

As the team that runs the AML program, they may need specialized training in:

  • New trends or changes that may impact institutional risk.
  • Often requires attending conferences or specific industry presentations.

35

Desribe the overall needs of senior management and board of directors in an AML training prgram.

Since strong board support is essential, this audience must be kept aware of:

  • reputational risk posed by ML
  • ML issues and dangers to the FI

36

What ten basic matters should be
factored into AML training?

  1. General information (the compelling "why" of the work).
  2. Legal framework.
  3. Penalties for AML violations.
  4. How to react when faced with a suspicious client or transaction.
  5. How to respond to clients who want to circumvent reporting requirements.
  6. Internal policies such as ID verification & CDD.
  7. Legal record keeping requirements.
  8. Suspicious transaction reporting requirements.
  9. Currency transaction reporting requirements.
  10. Duties & accountabilities of employees.

37

List ten points to consider
when deciding how best to deliver
effective AML training.

  1. Decide what communication method is best used for specific issues like:
    • memo or email message
    • formal in-person training
    • e-learning
    • classroom training
  2. Assess the audience's needs by functional area and managerial status. 
  3. Address issues uncovered by audits or created by changes to systems, products, and regulations.
  4. Develop who can best develop and present the training.
  5. Create a course curriculum addressing objectives and outcomes.
  6. Establish a calendar identifying training topics and frequency.
  7. Consider what kinds of simple handouts to use.
  8. Create answer keys for tests and case studies.
  9. Focus on small, digestible, easily categorized segments.
  10. Track attendance, and consider when discplinary action is required for missing training.

38

Independent audit of an AML Compliance Program is essential to monitor and evaluate effectiveness and look for new risk factors.

List 16 things the audit should do.

  1. Address adequacy of AML risk assessment.
  2. Examine adequacy of CDD policy & procedure.
  3. Assess staff adherence to policy & procedure.
  4. Do transaction testing, especially high risk products, services, customers, grographic locations.
  5. Assess training adequacy.
  6. Assess compliance to laws & regulations.
  7. Examine integrity of management information systems
  8. Evaluate system ability to identify unusual activity.
  9. Assess how aggregate large cash is identified (either system or by proof tapes).
  10. Evaluate STR systems and subsequent research.
  11. Assess policy & process for accounts that generate mutliple STRs.
  12. Assess adequacy of record keeping.
  13. Track correction of previously identified deficiencies.
  14. Evaluate audit scope & frequency against risk profile of the organization.
  15. Consider if the board was responsive to earlier audit findings.
  16. Determine adequacy of training programs and materials.

39

What seven elements should a
sound CDD program include?

  1. Full identification of customers and business entities including source of funds and wealth when appropriate.
  2. Anticipated transaction and activity profiles.
  3. Definition and acceptance of customer in the context of products and services.
  4. Risk scoring the customer and accounts.
  5. Risk-based levels of transaction monitoring.
  6. Investigation of unusual customer or account activity.
  7. Documentation of findings.

40

According to the Basel Committee
customer identification guidelines,
what nine pieces of information should be collected in
a sound CDD program for personal clients?

  1. Legal name and other names used (maiden).
  2. Correct permanent physical address.
  3. Telephone, fax, email.
  4. Date and place of birth.
  5. Nationality.
  6. Occupation, position held, name of employer.
  7. Current, government-issued ID numbers.
  8. Type of account and nature of banking relationship.
  9. Signature.

41

What four methods should be used
to verify information collected at account opening
in a sound CDD program?

  1. Confirm DOB from a legal document (birth certificate, passport, etc.)
  2. Confirm permanent address with an official document (utility bill, tax assessment, bank statement).
  3. Customer contact to verify information to catch disconnected lines, returned mail or invalid email.
  4. Confirming validity of documentation through physical verification of the original or authorized certificatoin (e.g. embassy official).

42

Beyond collecting basic CDD customer information, what other information should an organization consider collecting, when appropriate, for a sound CDD program?

  • Source of wealth.
  • Customer's line of business.
  • Source of funds for large deposits, especially if in cash or disproportionate to their declared source of income.
  • Reason for opening at that location if home/work is not in proximity to FI.

43

What nine pieces of information should be collected in
a sound CDD program for corporate entities like corporations and partnerships?

  1. Name of institution.
  2. Primary place of operations.
  3. Mailing address.
  4. Names of primary contact people & authorized agents.
  5. Contact peoples' phone & fax numbers.
  6. Official identification number (e.g. TIN)
  7. Original or certified copy of Certificate of Incorporation, Memorandum and Articles of Association.
  8. Resolution of board of directors to open an account, with identification of operating authorities & beneficial owners.
  9. Nature, purpose, and legitimacy of business.

44

What secen methods could be used
to verify corporate entity information collected at account opening in a sound CDD program?

  1. For established entities, review latest report and accounts.
  2. Confirm documents through a business information service.
  3. Company search or inquiry to confirm it's not being dissolved.
  4. Use private or public databases to verify data.
  5. Obtain prior bank references.
  6. Physically visit the entity where possible.
  7. Contact the entity by phone, mail, or email.

45

What is the name of the Office of Foreign Asset Control's well-known list of suspected terrorists?

What does it include?

What action must be taken?

  • Specially Designated Nationals and Blocked Persons list.
  • Includes hundreds of names of individuals and businesses the US Government considers to be:
    • Terrorists
    • Internatinal Narcotics Traffickers
    • Others covered by US foreign policy, trade sanctions, UN & other internationally mandated sanctions
  • Must not only block or reject transactions, but to alert the OFAC.

46

What are some of the Arab naming customs that can make terrorist identification confusing for non Arab-persons?

  • Names are transliterated from Arabic script in which short vowels are left out. Results in spelling variations:
    • Mohammed, Mohamed, Mohamad
  • Arabic names are typically long:
    • the second name is their father's name
    • bin or ibn precedes name means son of
    • family name will have sometimes be proceeded by al
    • use of prefix Abd or Abdul meaning servant of, followed by one of 99 suffixes used to describe God.
  • Exceptionally common names are found like:
    • Mohamed, Ahmed, Ali
  • Often begin with Abu 
    • if used in first name means father of and is probably not their given name
    • followed by noun means freedom or struggle and is used by both terrorists and legitimate leaders
    • in surname can be accepted as a given name

47

What is the challenge of identifying PEPs
when consulting name-checking lists in a CDD program?

  • There is no clear way to identify PEPs.
  • There is a lack of available and useful information for PEPs around the world.
  • Dozens of private provider PEP lists exist but it can be a challenge to positively identify clients against it.
  • PEPs may open accounts in names of corporations instead of their own names.

48

Name two public lists that may prove
helpful in identifying PEPs.

  1. Corruption Perception Index 
    • published by Transparency Int'l, a NGO
    • only identifies high risk geographic areas
  2. Heads of State and Cabinet Members of Foreign Governments
    • published by www.CIA.gov
    • doesn't include unique identifiers, like DOB or address

49

According to the Basel Committee,
a global risk management program for CDD should include what three factors?

  1. Consistent identification and monitoring of customer accounts globally across business lines, geographical locations & subsidiaries.
  2. Oversight at the parent lvel to catch instances of unusual transactions that might go otherwise undetected.
  3. Where minimum CDD standards of the home and host countries differ, the higher standard of the two should apply.

50

Aml program Know your employee

- program to KYE - background, conflicts of interest - background screening current and future employees - essential - pre-employment background checks can - reduce turnover, deter theft or embezzlement - absent process - significant expenses in recruiting, hiring, training

51

Aml program Know your employee

- sensitivity of position/ access level - may require additional screening - verify references, experience, education, professional qualifications - should have policies that address information contrary to that provided

52

Aml program Suspicious or unusual transaction monitoring and reporting

- no hard fast rule for what constitutes suspicious - watch for activity not consistent w/ customers source of income Or regular business - risk based - factor in nature of business, location, frequency and size of transactions

53

Aml program Suspicious or unusual transaction monitoring and reporting Internal reports used

- daily cash activity in excess or just below the reporting threshold - cash activity aggregated over a period of time - wire transfer/ report logs - monetary instrument logs - / check kitting - significant change reports / new acct reports

54

Aml program Suspicious or unusual transaction monitoring and reporting Typical suspicious or unusual reporting process

- procedures to identify potential suspicious transactions or activity - formal evaluation of each instance, and continuation, of unusual Transactions or activity - documentation of the suspicious transaction reporting decision - procedures to periodically notify senior management of SARS - employee training on detecting suspicious transactions or activity

55

Aml program Suspicious or unusual transaction monitoring and reporting Typical suspicious or unusual reporting process

- prohibit disclosing SAR filings to the subject - good record keeping - key to manage regulator or legal implications - length of time determined by by national laws - can be shared country to country through FIU agreements - no international clearing house for keeping STRs

56

Aml compliance program Red flags or indicators of ML Suspicious trends caught by systems already in place including ATM

- ATM usage - convenience of ATMs - ideal financial delivery points - can deposit funds in US and have someone else w/draw in foreign Country - ease of access as terrorists travel - multiple access devices

57

Aml compliance program Red flags or indicators of ML Suspicious trends caught by systems already in place including Moving customers

- customer who moves frequently - no information that would suggest frequent travel is normal for the client

58

Aml compliance program Red flags or indicators of ML Suspicious trends caught by systems already in place including Opening deposits or investments

- determine the background of the customers first transaction - source of funds of initial deposit - of interest- wire transfers from outside the U.S., MIs, large cash transactions

59

Aml compliance program Red flags or indicators of ML Suspicious trends caught by systems already in place including Out of market windfalls

- customers too good to be true pay attention to: - addresses far from institution - no reason why to receive business - businesses may be preventing verification that there is no legitimate business after all - do not be persuaded by sales personnel - no questions asked

60

Aml compliance program Red flags or indicators of ML Suspicious trends caught by systems already in place including Credit balances

- overpay on credit lines or card accounts - may be legitimate or red flag for ML - periodic evaluations of credit products for unusual overpayments

61

Aml compliance program Red flags or indicators of ML Suspicious trends caught by systems already in place including Common addresses, phone numbers, IP addresses

- unrelated customers who share the same street IP addresses - same phone number or email account - customers who change address after account opening is especially Suspicious - consider evaluation of customers who have common data statistics

62

Aml compliance program Red flags or indicators of ML Suspicious trends caught by systems already in place including

- funding of account - allowing money to remain idle - lack of activity in investment account - red flag - long periods of inactivity followed by sudden liquidation - excessive outbound wire activity - common in STRs

63

Aml compliance program Red flags or indicators of ML Suspicious customer behavior

- unusual or excessively nervous behavior - discusses reporting/ record keeping requirements w/ apparent Intention of avoiding them - threatens employee to prevent this - reluctant to proceed w/ transaction after told it must be reported - suggests paying a gratuity to employee

64

Aml compliance program Red flags or indicators of ML Suspicious customer behavior

- hidden agenda or behaves abnormally - turn down chance to obtain higher interest rate on large acct Balance - customer is public official - opens accts in the name of a relative - large cash deposit w/ out having counted the cash

65

Aml compliance program Red flags or indicators of ML Suspicious customer behavior

- frequently exchanges small bills for large ones - cash deposits often obtain counterfeit bill, musty, or dirty bills - student uncharacteristically transfers/ exchanges large sums of Money - acct high velocity in movement of funds but has low beginning and ending balances

66

Aml compliance program Red flags or indicators of ML Suspicious customer behavior

- transaction involves offshore institutions whose names resemble Well known FIs - transaction involves unfamiliar countries or islands - agent, attorney or financial advisor acts on behalf of another person Without proper documentation

67

Aml compliance program Red flags or indicators of ML Suspicious customer behavior

- indulges in foreign exchange transactions/ currency swaps w/ out caring about margins - submits account documentation - shows unclear ownership structure

68

Aml compliance program Red flags or indicators of ML Suspicious customer identification circumstances

- suspicious identification documentation- refuse to produce originals - unwilling to provide personal background info - opening acct - try's to open acct w/ out identification/ references or complete address - address outside institutions service area

69

Aml compliance program Red flags or indicators of ML Suspicious customer identification circumstances

- home / business phone disconnected - no statement of acct or mail sent to him - questions regarding dissemination of the identification of customers - reluctant to reveal details about business activities or provide Financial statements

70

Aml compliance program Red flags or indicators of ML Suspicious customer identification circumstances

- provides no record of past or present employment on loan app - claims to be law enforcement officer - conducting undercover OP - no valid indicators

71

Aml compliance program Red flags or indicators of ML Suspicious cash transactions

- comes in w/ another customer - goes to different tellers - large cash deposit containing many large denomination bills - opens in one acct in one or more names - cash deposits under CTR - w/draws under CTR - w/ draws cash from one acct deposits it into another

72

Aml compliance program Red flags or indicators of ML Suspicious cash transactions

- unusual cash transactions - night deposits - large transactions - deposits or withdraws of large amounts of currency - no apparent Business reason - large cash transactions on the same day at different branches - cash into several accts under CTR - consolidates and wires out

73

Aml compliance program Red flags or indicators of ML Suspicious cash transactions

- takes back portion of cash deposit that exceeds CTR to prevent Reporting - cash deposits under ATM reporting threshold - corp acct has deposits/ withdraws primary in cash - deposits large sums of cash wrapped in currency wraps

74

Aml compliance program Red flags or indicators of ML Suspicious cash transactions

- frequent MI purchases in cash in amounts less than CTR - unusual number of foreign currency exchange transactions

75

Aml compliance program Red flags or indicators of ML Suspicious non-cash deposits

- deposits - large number of travelers checks - same denomination/ sequence - large number of consecutively numbered money orders - checks/ money orders - not consistent w/ stated purpose of acct - deposits large number of third party checks

76

Aml compliance program Red flags or indicators of ML Suspicious non-cash deposits

- funds w/ drawn not consistent w/ normal business or personal activity Of account holder - funds deposited are moved quickly out of account via Payment methods inconsistent w/ established purpose

77

Aml compliance program Red flags or indicators of ML Suspicious wire transfer transactions

- non acct holder send wire transfers w/ funds that include MIs under CTR - incoming wire transfer- instructions to covert funds to cashiers check - mail them to non acct holder - wire transfer directs large sums to secrecy havens

78

Aml compliance program Red flags or indicators of ML Suspicious wire transfer transactions

- incoming wire transfer immediately followed by MI purchase to Another party - increase in international wire activity in acct w/ no history of activity - frequently shifts purported international profits out of country - small incoming wire transfers - then orders large wire outside US

79

Aml compliance program Red flags or indicators of ML Suspicious wire transfer transactions

- bearer instruments followed by wire to third party - acct in name of currency exchange house wire transfer/ cash deposit Under reporting threshold

80

Aml compliance program Red flags or indicators of ML Suspicious safe deposit activity

- unusual amount of time spent in safe deposit area - visits safe deposit box area immediately before making cash deposits In sums under CTR - rents multiple safe deposit boxes

81

Aml compliance program Red flags or indicators of ML Suspicious activity in credit transactions

- financial statements - representations that don't represent accounting Principles - transaction made to appear more complicated than it needs to be - loans to offshore companies or secured by offshore banks - pay off problem loan w/ no known source

82

Aml compliance program Red flags or indicators of ML Suspicious activity in credit transactions

- purchases CD - uses collateral for loan - collaterilzes loan w/ cash deposits - offshore collateral to obtain loan - loan proceed unexpectedly transferred offshore

83

Aml compliance program Red flags or indicators of ML Suspicious commercial account activity

- statements noticeably different from statements in same line of Business - large business presents statements not prepared by accountant - check casher not making w/ draws of cash against check deposits - inordinately large number of accts for business type

84

Aml compliance program Red flags or indicators of ML Suspicious commercial account activity

- corp accts show little or no regular, periodic activity - circumstances that would cause banker to reject loan application because of doubts about collateral

85

Aml compliance program Red flags or indicators of ML Suspicious trade financing transactions

- import or export of commodities - prices substantially more or less than those in a similar market position - make change to letter of credit beneficiary right before payment - changes place of payment to acct in another country than previously stated

86

Aml compliance program Red flags or indicators of ML Suspicious trade financing transactions

- standby letter of credit used as bid or performance bond w/ out the reference to an underlying project or contract - letter of credit inconsistent w/ business - letter of credit covers good that have little demand- importer country - letter of credit covers goods rarely produced - exporter country

87

Aml compliance program Red flags or indicators of ML Suspicious trade financing transactions

- documents arrive w/out title documents - letter of credit received from HRC - high risk of ML - commodities shipped through jurisdiction- no apparent economic or logistical reason

88

Aml compliance program Red flags or indicators of ML Suspicious trade financing transactions

- transaction involves use of repeatedly amended or frequently extended letters of credit - size of shipment - in consistent w/ regular volume of - importer/ exporter

89

Aml compliance program Red flags or indicators of ML Suspicious investment activity

- uses investment acct as pass through vehicle to wire funds to offshore locations - investor uninterested in usual decisions to be made about accts - liquidate large portion of funds through small transactions

90

Aml compliance program Red flags or indicators of ML Suspicious investment activity

- deposits under CTR - cash, money orders, travelers checks, OBCs - cashes out annuity during free look period or surrenders annuity early

91

Aml compliance program Red flags or indicators of ML Suspicious employee activity

- exaggerates credentials, background or financial ability and resources of a customer in written reports - involved in excessive number of unresolved exceptions - lavish life style not explained by salary - frequently overrides internal controls- circumvents policy

92

Aml compliance program Red flags or indicators of ML Suspicious employee activity

- uses company resources to further private interests - assists transaction where ultimate beneficiary/ counter party undisclosed - employee avoids taking periodic vacations

93

Aml compliance program Red flags or indicators of ML Suspicious activity in a money remitter/ currency exchange house

- unusual use of money orders, travelers checks or fund transfers - two or more people working together in transactions - transaction altered to avoid CTR - comes in frequently to purchase $3k in instruments each time - transaction altered - avoid record of funds transfer, money order, or travelers checks greater than or equal to $3k

94

Aml compliance program Red flags or indicators of ML Suspicious activity in a money remitter/ currency exchange house

- same person uses multiple locations in short period of time - two or more persons use same identity - one person uses multiple identification documents

95

Aml compliance program Red flags or indicators of ML Suspicious activities in insurance setting

- cash payments on insurance policies - refund requested during policies legal cancellation period - policy premiums paid from abroad- offshore financial center - policy calling for periodic payment of premiums in large amounts

96

Aml compliance program Red flags or indicators of ML Suspicious activities in insurance setting

- changing named beneficiary of a policy to person w/ no clear relationship to policy holder - lack of concern - significant tax or other penalties assessed when canceling - redemption of insurance bonds originally subscribed by individual in one country by a business entity in another country

97

Aml compliance program Red flags or indicators of ML Suspicious activities in broker dealer settings Special notice to members

- acting as agent for undisclosed principal - reluctant to provide info or is otherwise evasive regarding that person or entity - no apparent reason - has multiple accts under single or multiple names - large number of inter-acct or third party transfers - unexplained or excessive wire activity - especially sudden activity

98

Aml compliance program Red flags or indicators of ML Suspicious activities in broker dealer settings Special notice to members

- funds deposit for long term investment - followed shortly after by request to liquidate position - transfer proceeds from acct - excessive journal entries between unrelated accts - no purpose - requests transaction conducted in manner to avoid reporting requirements

99

Aml compliance program Red flags or indicators of ML Suspicious activities in broker dealer settings Special notice to members

- no apparent reason or in conjunction with other red flags engages in transactions involving certain types of securities - acct shows unexplained high level of activity w/ low level of security transactions

100

Aml compliance program Red flags or indicators of ML Suspicious activities indicators of Black Market Peso Exchange

- payment made in cash by a third party - no connection to underlying transaction - payment made by wire transfer from third party w/ no connection to transaction - pmt made w/ chks, bank drafts, or MO not drawn on acct of purchaser

101

Aml compliance program Red flags or indicators of ML Suspicious activities indicators of Black Market Peso Exchange Businesses being abused

- structured currency deposits to individual chking accts w/ multiple daily deposits into multiple accts at different branches on same day - chking accts used for a period of time then become dormant - personal chking accts opened by foreign national who come to bank together

102

Aml compliance program Red flags or indicators of ML Suspicious activities indicators of Black Market Peso Exchange Businesses being abused

- multiple accts opened on the same or held by the same foreign national at various banks - increase in the frequency or amounts of currency deposits by US businesses acct holders who export to Colombia

103

Aml compliance program Good technology provides

- transaction monitoring - watch list filtering: screening new accts, existing customers - beneficiaries and transaction counter parties - automation of regulatory reporting - STRs and CTRs - detailed audit trail - demonstrates compliance efforts

104

Aml compliance program Technology already in place

- profiling system; case management tracking system - large cash transaction reporting - record keeping - background checks - corporate hot file - incident reporting database

105

Aml compliance program Technology Request for proposal (RFP) method

- send out proposals to software providers qualified to participate - products specs and application procedure - help to select system in responsibilities under ML regulations

106

Aml compliance program Technology Request for proposal (RFP) method

- systems help to identify - high risk customers - accts and transactions - aid in conducting, managing, and documenting investigations

107

Aml compliance program Technology Company decides to buy software look for these components Ability to:

- monitor transactions and identify anomalies - indicate suspicious activity - gather CDD info for new/ existing customers, score customer responses and store CDD data - conduct advanced evaluations and analysis of suspicious transactions

108

Aml compliance program Technology Company decides to buy software look for these components Ability to:

- view individual alerts w/ in broader context of clients total activity - workflow features - create a case from alert or series of alerts - ability to share aml info across monitoring and investigation units - use data from the institutions core customer and transaction systems and databases to inform/ update monitoring and case management activities

109

Aml compliance program Technology Company decides to buy software look for these components Ability to:

- store and recall at least 12 months data for trend analysis - manage assignment, routing, approval and ongoing monitoring of suspicious activity investigators - automated prep and filing STRs to FIU - standard and ad-hoc reporting on nature and volume of suspicious activity investigations and productivity for management

110

Aml compliance program Technology Company decides to buy software look for these components Ability to:

- enhanced ability to plan, assign and monitor the caseload per employee of AML related investigations - provide comprehensive reporting of all aspects of aml compliance - user friendly updating of risk parameter settings w/out need for special technical computing skills

111

Aml compliance program Technology Company decides to buy software look for these components Ability to:

- ease of use of the application as well as the configuration of new and changed transaction monitoring rules - ease of data integration, system implementation and configuration - scalability of application- ability of system to grow w/ institution

112

Aml compliance program Technology Company decides to buy software look for these components Ability to:

- extent to which system can be supported w/ internal resources - user satisfaction w/ hardware and software support - price, including initial cost, ongoing costs to sustain the system or to expand the capabilities of the system - what vendor will charge vs how much institution will need to spend

113

Aml compliance program Technology May reflect company's commitment to meet or exceed compliance Requirements

- institutions analyze how customers use products and services - marketing purposes - depending on institutions needs - software can automate tasks - may help w/ documentation management - track and report status of all documents - accounted and produced for compliance purposes

114

AML compliance

- top priority of any financial institution - risk-based - designed to mitigate ML and TF risks - should establish minimum standards - supplemented by policies/ procedures of various lines of business or legal entities