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Acronyms
CFT Combating the financing of terrorism
FATF Financial Action Task Force
ETF ACH or ATM

Definitions
Money Laundering Process of making dirty money look clean
Willful Blindness deliberate avoidance of knowledge of the facts or purposeful indifference. Willful blindness is the equivalent of actual knowledge
Correspondent banking banking services by one bank (correspondent) to another (respondent). Correspondent banks are usually big banks helping out small banks for a fee
Cuckoo Smurfing A (legit account) transfers $ to C (criminal) w/o knowing and B's (criminal) money is transferred to A's vendor (legit company). All this is done by an insider at a bank
Hawalas Occurs between money dealers (local money exchanges working together from different countries)
Black Market Peso Ex. Occurs between money dealers but on a massive scale, mainly working for cartels and interntional entities
Structuring Breaking large deposits into smaller ones
Microstructuring microstructuring less than $1,000 or even smaller but happens over many many times

Important ACTS
requires U.S. financial institutions to perform due diligence and, in some cases, enhanced due diligence, with regard to correspondent accounts
Section 312 established or maintained for foreign financial institutions and private banking accounts established or maintained for non-U.S. persons.

Section 313 prohibits US FIs from opening or maintaining corrspondent accounts for foreign shell banks and requires them to take reasonable steps to ensure that a corrspondent account is not being used indirectly to provide banking services to a shell bank
Section 319 requires US FIs to maintain records with the names and contact info of the owners of foreign banks for which they maintain correspondent accounts.

Points
The United Nations 2000 Convention Against Transnational Organize Crime (Palermo Convention) described money laundering as:
1) The conversion or transfer of property, knowing it is derived from a criminal offense, for the purpose of concealing or disguising its illicit origin or
of assisting any person who is involved in the commission of the crime to evade the legal consequences of his actions

2) The concealment or disguising of the true nature, source, location, disposition, movement, rights with respect to, or ownership of property
knowing that it is derived from a criminal offense

3) The acquisition, possession or use of property, knowing at the time of its receipt that it was derived from a criminal offense or from parcitipation in a crime

In 2001, FATF expanded its mandate to cover the financing of terrorism. Before, it only covered money laundering. TF may include funds from
perfectly legitimate sources used to finance acts of terrorism.

THREE STAGES IN THE MONEY LAUNDERING CYCLE

1) Placement: Physical disposal of cash or other assets derived from criminal activity
(Breaking up large amounts of cash into smaller sums and depositing them directly into a bank account and/or transporting cash across borders to
deposit in foreign FIs, or to buy high value goods- such as artwork, antiques, and precious metals and stones which can be resold for payment by
check or bank transfer.)

2) Layering: The separation of illicit proceeds from their source by layers of financial transactions intended to conceal the origin of the proceeds.
This second stage involves converting the proceeds of the crime into another form and creating complex layers of financial transactions to disguise
the audit trail, source and ownership of funds.

3) Integration: Supplying apparent legitimacy to illicit wealth through the re-entry of the funds into the economy in what appears to be normal
business or personal transactions

( This stage entails using laundered proceeds in seemingly normal transactions to create the perception of legitimacy. The launderer might invest
the funds in real estate, financiala ventures or luxury assets. It is exceedingly difficult to distinguish between legal and illegal wealth.

EFFECTS OF MONEY LAUNDERING:

1) Increased crime and corruption: briberies
2) Undermining the legitimate private sector: Money launderers have access to substantial illicit funds, allowing them to subsidize front company product and services below market rates
3) Integration : makes it exceedingly difficult to distinguish between legal and illegla wealth
4) Weakening FIs: Negatively affect the stability of individual banks
- Reputational risk: loss of public confidence due to adverse publicity and integrity of the organization
- Operational risk: potential for loss resulting from inadequate internal processes, personnel or systems. Such losses occur when FIs incur reduced or terminated inter-bank or correspondent bank services or increased cost for these services.
- Legal risk: potential lawsuits, adverse judgments, unenforceable contracts, fines and penalties, increased expenses for an org.
- Concentraton risk: potential for loss resulting from too much credit or loan exposure to one borrower or group of borrowers. Lack of knowledge about a particular customer or who is behind the customer, or what the customer's relationship can place a bank at risk
For these reasons, the Basel Committee on Banking Supervision has issued statements such as the 2001 CDD for Banks Paper

Correspondent banking:
Vulnerable to money launderers for two reasons:
1) The indirect relationship means that the correspondent bank provides services for indiv/entities for which it has neither verified the identities nor obtained any first-hand knowledge
2) The amount of money that flows through correspondent accounts can pose a significant threat to FIs, as they process large volumes of transactions for their customers' customer

Payable-through-accounts
allows the respodent bank's customers to conduct their own transactions-including sending wire transfers, making and withdrawing deposits and
maintaining checking accounts- through the respondent bank's correspondent account w/o needing to clear the transactions through the respondent
bank

Payable through accounts vs. Correspondent: The differece is that with PTA, customers have the ability to directly control funds at the
correspondent bank. W/ correspondent banking, respondent bank will take orders from their customers and pass them on to the correspondent
bank

Concentration accounts
internal accounts established to facilitate the processing and settlement of multiple or individual customer transactions w/in the bank, usually on the same day.
Risks:
1) if the customer identifying info, such as name, transaction amount and account #, is separated from the financial transaction; audit trail is lost and accounts may be misused or adminstered improperly.

Private Banking
Vulnerabilities of private banking with regard to ML:
1) Perceived high profitability
2) Intense competition
3) Powerful clientele
4) Confidentialitaly
5) Close relationship of trust
6) Commissions
7) Secrecy developed by the relationship managers and clients
8) The relationship becoming client advocates to protect their clients

Credit unions
Risk: Credit unions contain high levels of cash transactions which increases the risk of money laundering and TF

3 Key Goals of AML program

1) Prevent and dtect ML and TF, report suspicious activity and train employees
2) Satisfy regulatory requirements, report suspicious activity to authorities and train employees
3) Train All employees
4) Reduce regulatory burdens; help the court systems in convicting MLers and protect the institution

Art Dealers should

1) Require all art vendors to provide names and addresses. Ask that they sign and date a form that states that the item was not stolen and that they are authorized to sell it.
2) Verify the identities and addresses of new vendors and customers. Be suspicious of any item whose asking price is not commensurate with its market value
3) If there is reason to believe an item might be stolen, contact artloss.com
4) Look critically when a customer asks to pay in cash. Avoid accepting cash payments
5) Be aware of Money Laundering Regulations
6) Appoint a senior staff member to whom employees can report suspicious activities

Travel Agenies can be used as a means for money laundering

1) Purchasing an expensive airline ticket for another person who then asks for a refund
2) Structuring wire transfers in small amounts to avoid recordkeeping requirements, especially when the wires are from foreign countries.

Vehicle resellers can be used as a means for money laundering

1) Structuring cash deposits below the reporting threshold, or purchasing vehicles with sequentially numbered checks or MOs.
2) Trading in vehicles and conducting successive transactions of buying and selling new and used vehicles to produce complex layers of transactions
3) Accepting third party payments, particularly from jurisdictions with ineffective money laundering controls.
4) Down trading and accepting the difference in cash

FATF in its 40 Recs suggests that employees of FIs askquestions about the identity of B.Os before issuing, accepting or creating bearer shares and trusts

Terrorist Financing vs. Money Laundering

Terrorist financing uses funds for an illegal political purpose, but the money is not neceessarily derived from illicit proceeds.
Money laundering always involves the proceeds of illegal activity. The purpose of laundering is to enable the money to be used legally.

Charities or NPO are vulnerable to misuse for TF:

1) Enjoy the public trust
2) Having access to considerable sources of funds
3) Being cash-intensive
4) Frequently having a global presence, often in or next to those areas that are exposed to terrorist activity
5) Often being subject to little or no regulation and/or having few obstacles to their creation
To help regain trust and avoid being a public enemy, FATF recommended two things:
1) Maintain and be able to present full program budgets that account for all expenses
2) Conduct independent internal audits and external field audits, the latter to ensure funds are being used for intended purposes
Acronyms
OECD FATF's secretariat is located at the Organization for Economic Cooperation and Developement in Paris.

Definitions
Designated Categories of Offenses trying to conceal money laundering through financial subterfuge would constitute a criminal money laundering.
Comitology European Commission coined the term "Comitology," which means the EU system that oversees implementation of ats
proposed by the Euro commission

Sections
Provides the U.S. Treasury Dept. with the authority to apply graduated, proportionate measures against a foreign
jurisdiction, a foreign FI, a type of international transaction or a type of account that the Treasury Secretary determines to
be a "primary money laundering concern." The US Gov can force US banks to halt many of their financial dealings with
the designee. Once identified, the Treasury Dept can require US FIs to follow any or all of the following 5 special
measures:

1) Keep records and/or file reports on certain financial transactions, including a description of the transactions, identities
and addresses of the participants in the transactions and the identities of the BOs of the funds involved
Section 311
2) Obtain information on the BO of any account opened or maintained in the US by a foreign person or a foreign person's rep
3) Identify and obtain info about customers who are permitted to use, or whose tranactions are routed through, a foreign
bank's "payable-through" or "correspondent" 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 or correspondent accounts.

Requires due diligence and, in some situations, EDD for foreign correspondent and private banking accounts for non-US persons
The due diligence program must address 3 measures:
Section 312 1) Determining whether EDD 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 ML
Prohibits US banks and securities brokers and dealers from maintaining corrspondent accounts for shell banks
Section 313 Process requires the foreign banks to certify at least once every 3 years that they are not themselves shell banks and that
they do not permit shell banks to the US correspondent account through a nested correspondent relationship

Forfeiture from US correspondent account. In situations where funds have been deposited with a foreign bank, this
section permits the US gov to seize funds in the same amount from a correspondent bank account in the US that has
Section 319(a) been opened and maintained for the foreign bank. The US Gov is not required to trace the funds, as they are deemed to
have been deposited into the correspondent account

Records relating to Correspondent Accounts for Foreign Banks

Allows the appropriate Federal banking agency to require a FI to produce w/in 120 hours (5 days) records or info related
to the institution's AML compliance or related to a customer of the insitutition or any account opened, maintained,
administered or managed in the US by the FI
Section 319(b)
* Also allows the Secretary of the Treasury or Attorney General to subpoena records of a foreign bank that maintains a
correspondent account in the US. If foreign bank fails to comply with or fails to contest the subpoena, the Secretary or AG
can order the US FI to close the correspondent account within ten days of receipt of such order

Important Points
FATF does not have the power to impose fines or penalties against non-cooperative country. However, they can pressure that particular country by issuing a warning to other FIs to stop doing business with that country
Wolfsberg does not hold no force of law
Threshold that FIs should monitor for occasional customers AND precious metal dealers is $15,000 pounds; for casinos, including internet casinos, it is $3,000 pounds
NCCTS (non-cooperative countries - no additions were made to the list after September 2001. The only modifications were the removal of ncct countries
CFATF (Carribean FATF) has 6 supporting nations: Canada, U.S, Mexico, Spain, Netherlands, France (C.U.M.N.F). Jamaica met at Kingston meeting
In a joint meeting between the IMF and World Bank in April 2004, the two bodies agreed to put an end to FATF's practice of publicizing NCCT
Private banking is defined as an account with a minimum aggregate deposit of $1 million for one or more non-US persons

EU Directives
Prevention of the Use of the Financial System for the purpose of Money Laundering
First Directive June 1991. EU Directives have far more weight than the voluntary standards issued by groups like the Basel Committee
Banking Supervision or the FATF

Amended the prior one. Required stricter Money Laundering controls across the continent.
Second Directive Extended the scope of the first directive to serious crimes including corruption and fraud
willful blindness
Extended the scope of the directives by:
- Defining ML and TF as separate crimes.
- Extending customer identification and suspicious activity reporting obligations to TCSP, life insurance intermediaries and
Third Directive dealers selling goods for cash payments of more than 15,000 Euros

- Keep comprehensive stats regarding the use of and results obtained from suspicious transaction reports
- Requiring all FIs to identify and verify the "beneficial owner"
The difference between the second and third directives are:
- It specifically include the category of TCSP
- Covers all dealers trading in goods who tradein cash of 15,000 Euros
- Definition of FI includes certain insurance intermediaries

Points
Countries must meet these two-step criteria to become a Member of FATF:
1) The jurisdiction should be strategically important:
- Size of gross domestic product (GDP)
- Size of the banking sector
- Impact on the global financial system, including the degree of openness of the financial sector and its interaction with international markets
- Regional prominence in AML/CFT efforts
- Level of commitment to AML/CFT efforts
- Level of adherence to financial sector standards
- Participation in other relevant international organizations
- Level of AML/CFT risks faced and efforts to combat those risks
2) Provide a written commitment at the policital level:
- Endorsing and supporting the FATF 40 Recs and FATF AMl/CFT Methodology
- Agreeing ti implement all of the FATF Recs within a reasonable timeframe (3 years)
- Agreeing to undergo a mutual eval. during the membership process for the purposes of assessing compliance wit FATF membership
- Agreeing to participate actively in FATF and to meet all other commitments of FATF membership, including supporting the role and work of FATF in all relevant forums

Objectives of FATF :
1) Spreading the AML message worldwide:
the group promotes the establishment of a global AML and anti-terrorist financing network based on expansion of its membership, the development of regional aml bodies in various parts of the world and cooperation with other international orgs
2) Monitoring implementation of the FATF Recs among FATF members
3) Reviewing money laundering trends and countermeasures

FATF focuses on three main activities (core work)

1) Create a standard
2) Apply and enforce that standard
3) Identifying money laundering and terrorist financing threats

FATF's Recommendations have become the world's blueprint for effective national and international AML and CTF related controls

The most important changes made to the Recs were in 2003 and are as follows:
1) Expanded coverage to include TF
2) Widened the categories of business that hsould be covered by national laws including gatekeepers
3) Compliance procedures on issues such as CIP, CDD and EDD for higher-risk customers and transactions
4) Encouraged prohibition of "shell banks,"
5) Included stronger safeguards, notably regarding international cooperation

2012 - The recommendations were revised again but this time incoporating the Nine Special Recs. The most important changes were:
1) Creating a Rec on assessing risks and applying a risk based approach
2) Creating a Rec for targeted financial sanctions related to proliferation of weapons of mass destruction
3) Focusing more attention on domestic PEPs and those entrusted with a prominent function by an international org
4) Requiring identification and assessment of risks of new product PRIOR to the launch of new product
5) Adding a requirement that financial groups implement a group-wide AML/CFT program and have procedures for sharing info within the group
6) Including tax crimes within the scope of designated categories of offenses for ML

CDD: Customer Due Diligence measures

1) Establish business relations
2) Carry out an occasional transaction or a wire transfer above the specified threshold
3) Have a suspicion of ML or TF
4) Have doubts about the veracity or adequacy of previously obtained customer identification information
Using the risk based approach:
- identify the customer and verify that customer's identity using reliable, independent source documents, data or info. Establishing accounts in anonymous or obviously fictitious names should be prohibited
- identify the b.o and take reasonable measures to verify the identity of the b.o such that the FI is satisfied that it knows who the b.o is. For legal reasons and arrangements, this should include understanding the ownership and control structure of the customer
- understand, and obtain info on the purpose and intended nature of the business relationship
- Conduct ongoing due diligence on the business relationship and scrutinize transactions undertaken in the course of that relationship to ensure that the transactions are consistent with the institution's
knowledge of the customer, the customer's business and risk profile and source of funds.

- Maintain records of the above customer info as well as all transactions to enable them to comply with requrests from competent authorities

Additional CDD on:

1) PEPs
2) Cross-border correspondent banking. Ensure that the account is not a shell bank
3) MVTS (Money or Value Transfer Services. Make sure that they are registered or licensed and subject to appropriate AML requirements
4) New Technologies. Assess the risks associated with the developments of new products, business practices, delivery mechanisms and technology. Assess these risks PRIOR to launching new products
5) Wire transfers. Monitor wires for incomplete info and take appropriate measures. Monitor wires for those involving parties designated by the UN Security Council and take freezing actions or prohibit the transactions from occurring

Basel Commitee is based in Switzerland

Objective: promotes sound supervisory standards worldwide.
Services are provided exclusively to central banks and international organizations
4 Key Elements of KYC:
1) Customer Identification
2) Risk Management
3) Customer acceptance
4) Monitoring

APG
Voluntary and cooperative in nature. Not derived from an international treaty and it is not party of any international org.
APG has worked closely with FATF. They have reciprocal rights of attendance at each other's meetings and sharing documents.

Egmont Group of FIUs

Goal: provide a forum for FIUs around the world to improve cooperation in the fight against money laundering and financing of terrorism
- Expanding and systematizing cooperation in the recriporcal exchange of information
- Increasing the effectiveness of FIUs by offering training and promoting personnel exchanges
- Fostering better and secure communication among FIUs using Egmont Secure Web
- Promoting the operational autonomy of FIUs
- Promoting the esetablishing of FIUs
In 2004, the group issued "Best Practices for the Exchange of Information Between Financial Intelligence Units."

Wolfsberg Group
An association of 11 global banks that aims to develop financial servces industry standards and related products for KYC, AML and CTF policies
- Their principles hold no force of law and carry no penalties for those who do not abide by them
The principles list serveral situations that require further due diligence:
1) Public Officials, including individuals holding or having held. PEPs
2) High risk countries
3) High risk activities
In 2002, the Wolfsberg Principles added a section to prohibit the use of internal accounts (concentration accounts)
* Recommended EDD for business relationships with remittance businesses, exchange houses, casas de cambio, bureaux de change and money changing agents
* Due diligence should be risk based
* Should not offer its products or services to a shell bank

OFAC
OFAC administers and enforces economic and trade sanctions based on US Foreign policy and national security goals AGAINST foreign
countries, terrorists, interational traffickers and those related to weapons of mass destruction.

- Prohibits transactions and require the blocking of assets of persons and organizations that appear on one of a series of lists that OFAC issues periodically
- The agency has the power to impose significant penalties on those who are found to be in violation
- All U.S Persons (U.S Citizens, Permanent resident aliens, entities within the US, US incorporated entities and foreign branches and all
foreign subsidiaries owned or controlled by US companies must comply.)
AML Program:
1) identify high risk operations (products, services, customers, and geopgraphic locations); provide for periodic updates to the institution's risk
profile; and provide for an AML compliance program tailored to manage risks.

2) Inform the board of directors (or a committee of the board) and senior management of compliance initiatives, known compliance
deficiencies, suspicious transaction reports filed and corrective action taken

3) Assign clear accountability to persons for perforamance of duties under the AML program
4) Provide for program continuity despite changes in management or employee composition or structure
5) Meet all regulatory requirements and recommendations for AML compliance
6) Provide for periodic review as well as timely updates to implement changes in regulations. Genreally, this should be done at least on an annual basis
7) Implement risk-based CDD policies, procedures and processes
8) Provide sufficient controls and monitoring systems for the timely detection and reporting of suspicious activity. (Institutions should consider
centralizing their own review and report-filing functions.)

9) Provide for dual controls and segreation of duties. Employees who complete the reporting forms should not also be responsible for filing the
reports or granting the exemptions.

10) Comply with all recordkeeping requirements, including retention and retrieval of records.
11) Provide sufficient controls and monitoring systems for the timely detection and reporting of activity, such as for large currency or large transaction reporting.

Compliance Officer:
A person should be designated as the AML compliance officer. THis individual should be responsible for designing and implementing the program, making
necessary changes and disseminating information about the program's successes and failures to key staff members, constructing AMl related content for staff
training programs and staying current on legal and regulatory developments in the field.

The department can be organized into subgroups. Examples include:

- The investigations Group: Monitors alerts generated on customer transactions, such as those from automated systems, as well as referrals from line of
business staff. The group also investigates such alerts and referrals and files STRs with FIU as required.

- Line of Business Support Group: Assigns a risk code to all clients based on scoring of the CDD risk assessment, performs additional due diligence on medium
and high risk clients identified via the CDD process and provides a first line of contact for line of business questions on AML matters.

- The program oversight group: performs periodic reviews and updates of the program, coordinates implementation activities with the line of business support
group to ensure that line of business procedures get updated to incorporate program changes, and montors regulatory environment for changes to the program.
Also may be involved in preparing training materials and providing guidance and advice on more complicated AML issues not addressed by the line of business
support group. This group generally would have primary responsibility for coordinating regulatory examinations with the lines of business.

Who needs AML training?

1) Customer contact staff: Loans,credits and loan operations staff need training that reflects an understanding of the credit function and how money launderers
might misue credit products

2) Back office personnel: Proof operators may not have a need for specialized traning beyond some general training but staff in the cash vault, wire transfer
operations and trade finance operations amy need training

3) Audit and compliance staff: These are the people charged with overseeing, monitoring and testing ML controls and they should be training about changes in regulation
4) AML compliance staff: Doesnt need training as much but need to know new and up to date trends
5) Senior management and BOD: It is important that the compliance department has strong board support, and one way to ensure that is to keep board
members aware of the reputation risk that ML poses to the institution.

Board of Directors:
- Consist of reviewing and approving the overall AML program and ensuring that there is ongoing oversight.
- Once an exam by a supervisor or auditor is conducted, it is the board's duty to ensure that any necessary corrective action is taken. The
board will be responsible if problems cited by the examiner or auditor are not corrected

Senior management:
must show its commitment to compliance by:
- establishing a strong compliance plan that is approved by the BODs and is fully implemented
- insisting that it be kept informed of compliance efforts, audit reports and any compliance failures, with corrective measures instituted
- communicating compliance expectations to the institution personnel
- Including regulatory compliance within the job descriptions and job performance evaluations of institution personnel
- Implementing procedures, processes and controls to ensure compliance with the AML program
- Conditioning employment on regulatory compliance
As AML units build their CDD files, they can identify information other departments can use to sell products and to expand profits.

CDD program should have the following:

- Full identification of customer and business entities, including source of funds and wealth
- Development of transaction and activity profiles of each customer's anticipated activity
- Definition and acceptance of the customer in the context of specific products and services
- Assessment and grading of risks that the customer or the account present
- Account and transaction monitoring based on the risks presented
- Investigation and examination of unusual customer or account activity
- Documentation of findings

KYE
Acronyms

Definitions

Sections

Important Points
Risk-based approach should be F.E.P (Flexible, Effective, Proportionate)
4 different levels of risk: Prohibited, High, Medium, Low/Standard

Points
4 Basic Elements of an AML program
1) A system of internal policies, procedures and controls
2) A designated compliance officer with day-to-day oversight over the AML program
3) An ongoing employee training program
4) An independent audit function to test the AML program

Internal AML policies should be established by higher management or the board of directors

Institution-level policies should be approved by the board and business unit porcedures can be approved by business unit management

An AML compliance program should include policies, procedures and processes that:
1) Identify high-risks operations (products, services, customers, and geographic locations); periodic updates to the institution's risk profile
2) Inform the board of directors of compliance initiatives, deficiencies, suspicious transaction reports filed and corrective action taken
3) Assign clear accoutability to persons for perforamance of duties under the AML program
4) provide for program continuity despite changes in management or employee composition or structure
5) Meet all regulatory requirements and recs for AML compliance
6) Periodic reviews and updates to implement changes in regulations. Done on an annual basis
7) Implement risk based CDD policies, procedures and processes
8) Efficient controls and monitoring systems to drect and report suspicious activity
9) Provide for dual controls and segregation of duties. Employees who complete the reporting forms should not also be responsible for filing
10) Comply with all recordkeeping requirements, including retention and retrieval of records
11) Provide sufficient controls and monitoring systems for the timely detection and reporting of activity, such as large currency or transaction reporting
12) Provide adquate supervision of employees who handle currency transactions, complete reports, grant exemptions, monitor for suspicious activity or engage in any other activity relating to AML laws
13) Train employees to be aware of their responsibilities under AMLlaws, regulations and internal policy guidelines
14) Incorporate AML compliance in the job descriptions and performance eval of appropriate personnel
15) Develop and implement screening programs to ensure high standards when hiring employees. Implement sanctions for employees who consistently fail to perform in accordance with AMl framework
16) Develop and implement program testing to assess the effectiveness of the program. This is separate from the independent audit requirement -- to assess the effectiveness of the program
Acronyms
IMoLN International Money Laundering Information Network serves as a clearninghouse of money laundering information for the benefit of national and international AML agencies
MLAT mutual legal assistance. Comission rogatoire (letter of request). Provides a legal basis for transmitting evidence that can be used for prosecution and judicial proceedings
MOU memorandum of understanding. Unlike the MLAT, this gateway is not ordinarily used for obtaining evidence but for obtaining intelligence that might lead to evidence. Occurs when FIU members share information among and between themselves

Definitions
isueed by grand juries, operating under the purview of a court and empowering a law enforcement agency to compel the
Subpoenas production of documents and testimony

Sections

Important Points
* If the inquriry from LE to be focused on the institution, the board of directors should be kept apprised
* If the inqury from LE to be focused on an account, escalate to a senior management
* If an institution is served with a summons or subpoena, escalate to senior management or counsel to review the summons or subpoena

Points
Reports or information about an investigation should not be provided to any employees, officers or directors of the institution who might be implicated in the investigation

If the government asks the bank to keep certain accounts open, such a request should be obtained in writing under proper letterhead and authority from the gov

Search warrant goes with an Affidavit (purpose of the investigation)

- ask for inventory list

Orders to restrain or freeze accounts or assets

If the law enforcement agency or a prosecutor obtains a court order to freeze an account or to prevent funds from being wtihdrawn:
- The institution should obtain a copy of the order and should comply
- Ask for an affidavit

When an institution receives a subpoena, summons or other government request, the institution should ensure that senior management or in house counsel first review to best respond

Start an Internal invsetigation when:

- A report of examination from the regulators
- Information from third parties, such as customers
- Information derived from surveillance or monitoring systems
- Information from employees or a company hotline
- Receipt of a governmental subpoena or search warrant
- Learning that government investigators are asking questions of institution employees, business associates, customers or even competitors
- The filing of a civil lawsuit against the institution or a customer of the institution

1) Internal investigations should always be documented: Purpose, Scope, how the investigation is conducted, the conclusions reached as a result and any follow up actions taken

Closing the account:

- Based on its internal investigation, the institution should make an independent determination as to whether to close the account in issue. Some of the factors should consider are:
1) Legal basis for closing an account
2) The institution's stated policies and procedures for closing an account
3) How serious is the underlying conduct. If the coundct is serious and rises to the level where the account would ordinarily be closed, then the institution should consider closing the account
4) If law enforcement requests the institution to keep the account open, the institution should request that the investigator or prosecutor make that request in writing on proper letterhead with signature

IMoLN:
1) AMLID - Anti Money laundering international database. An analysis of national AML laws and regulations as well as info on national contact and authorities. Database is pw protected
2) Reference data: Resarch and analysis, bibliography, conventions, legal instruments and model laws
3) Country page: Includes full text of AML legislation where available, and links to national FIUs
4) Calendar of events: Chronological listing of training events, conferences, seminar,s workshops and other meetings in the AML field
5) Current events: Current news of recent AML initiatives

The egmont principle of free exchange of information at the FIU level should be possible on the basis of reciprocity, including spontenous exchange.
FIU should have the autority to sign MOUs independently
The exchange of information between Egmont FIUs should take place in a secure way. They should us the Egmont Secure Web (ESW) where appropriate
Should strive to respond within 1 week or 1 month if an FIU has to query the databases with a third party (financial institutions)

The Supervisory Channel (3rd official gateway)

**Unlike MLAT, MOU is not a treaty and nonbinding on governments. It is a reflection of an agreement among supervisory authorities. An MOU may be valuable with such entities or securities or
trading firms, which fall within the juridisction of a specific regulatory authority. Information communicated through this gateway usually is provided for superivosory purposes only and may not be
used as evidence or shared widely among governmental entities.

3 Channels:
MLAT between countries (evidence can be used.) Commision rogatoire (Letter rogatory) or letter of request
MOU between FIUs (evidence cannot be used)
Supervisory Channel between supervisors (evidence cannot be used)

Search Warrants
When presented with a search warrant:
1) Call the FI's in house or outside counsel
2) Review the warrant to understand its scope
3) Ask for and obtain a copy of the warrant
4) Ask for a copy of the affidavit that supports the search warrant. The agents are not obligated to provide a copy but if the FI is allowed to see the avvidavit, the FI can learn more about the purpose of the investigation
5) Remain present while the agents record an inventory of all items they seize and remove from the premises. Keep track of the records taken by the agents
6) Ask for a copy of law enforcements inventory of what they have seized
7) Write down the names and agency affiliations of the agents who coundct the search

Orders to restrain or freeze accounts or assets

If the law enforcement agency or a prosecutor obtains a court order to freeze an account or to pevent funds from being withdrawn or moved, the institution should obtain a copy of the order and should comply.
Ask for a copy of the affidavit but it may not be given to you.

Orders to keep the account open

If law enforcement requests the institution to keep the account open, the institution should request that the investigator or prosecutor make that request in writing on proper government agency letterhead with the appropriate authorized signature

Summons and Subpoenas

If an institution is served with a summons or subpoena compelling the production of certain documents, the insitution should have its senior management an/or counsel review the summons or subpoena
If there are no grounds for contesting the summons or subpoena, the institution should take all appropriate measures to comply on a timely andcomplete basis. Failre to do so can result in adverse action and penalties
Also, the FI should NOT notify the customer who is being investigated
If the government asks the bank to keep certain accounts open, such a request should be obtained in writing under proper letterhead and authority from the gov.

Notices to employees:
With regard to investigations conducted by the government, employees should be informed of the investigation and should be instructed not to produce corporate documents directly, but rather, should inform senior
management or counsel of all requests for documentation and should provide the documents to them for production. In that way, the institution will know what is being requseted and what has been produced. In
addition, the institution can determine what, if any, requests should be contested. The same procedure should be followed with regard to requeests for employee interviews
Bust Out scheme:

DEFINITION of 'Bust-Out'

A type of credit card fraud where an individual applies for a credit card, establishes a normal usage pattern and solid repayment history, then racks up numerous charges and maxes out the card with no
intention of paying the bill. Bust-out consists of an initial phase where the individual works to develop the card issuer’s trust and a strong credit profile with the goal of opening numerous accounts and receiving
credit line increases so that more funds are available for the second phase of the fraud, where the individual makes transactions that he or she doesn’t plan to repay.

Commission Rogatoire
The letter typically specifies the nature of the reuqest, relevant criminal charges in the requesting country, the legal provision under which the request is made and the information sought

CDD
Who is the customer and transaction monitoring

CIP
Verify the identity of its customers

DNFB (designated non financial businesses and professions)

Casinos
Real estate agents
Dealers in precious metals and precious stones
Lawyers, notaries, accountants
Trust and company service providers
Acting as a formation agent of legal persons
Acting as a nominee shareholder for another person

Discloure letter:
A document that requires a person who has information relevant to an investigation to answer questions at an interview, to provide information or to produce documentation. The order can be
exercised not only against a person whose assets are under investigation but also against a third party such as a FI

Dry Trust = Bare Trust

EDD
additional examination and cautionary measures aimed at identifying customers and confirming that their activeities and funds are legitimate

FSAP( Financial Sector Assessment Program)

Established in 1999 by the International Monetry Fund and the World bank, it assesses jrusidictions for their financial systems' strengths and weaknesses with an aim to reducing potential for crises

Front Company
A business that commingles illicit funds with revenue generated from the sale of legitimate products or services. Criminals use front companies to launder illicit money by giving the funds the appearance of legitimate origin; pizza parlos

Letter of credit
a credit instrument issued by a bank that guarantees payments on behalf of its customer to a third party when certain conditions are met. Commonly used to finance exports. Exporters want assurance that the ultimate buyer of
its good will make payment and this is given by the buyer's purchase of a bank letter of credit.

Lockbox
Service offered by banks to companies in which teh company receives payments by mail to a post office box and tha bank picks up the payments several times a day, deposits them into the company's account and notifies the company of the deposits

MLRO
Money laundering Reporting Officer. He/She is the key person in the implementation of AML strategies and policies

OFAC
require US persons, including FIs, to block and file reports on accounts, payments or transfers in which an OFAC designated COUNTRY, ENTITY or INDIVIDUAL has an interest
Extraterritorial reach because they require US persons and entities located outside of the US to comply. Independent of origin or final destination. If a US FI acts as an intermediary ofr a
transaction that involves an OFAC designated entity, the funds must be blocked

Operational Loss
The risk of direct or indirect loss of operations due to inadequate or failed internal processes, people or systems as a result of external events

Predicate crimes
Felonies or "all offenses in the criminal code"

SRO (Self regulatory organization)

a body that represents a profession (e.g. lawyers, notaries, other indepdent legal profesisonals or accountants)

Smurfs
Individuals hired by money launderers to go from FI to FI purchasing monetary instruments or depositing currency or monetary instruments in amounts under the reporting threshold

Split deposits
A seriies of deposits in which a customer splits a sum of money and makes smaller deposits into two or more accounts that add up to the original amount

Zakat
Aka tithing. Requires a donation to a charity representing a fix portion of a muslim's posessions, generally 2.5% of an individual's net worth
Wolfsberg and correspondent accounts
- Further due diligence on:
1) PEPs
2) High risk countries
3) High risk activities

Correspondent accounts
1) Due diligence should be risk based, depending on location, type of business, ownership, customer base, regulatory
status and AML controls of the correspondent banking client or business

2) An institution should not offer its products or services to a shell bank

3) New principles do not apply to central banks, monetary authorities of member countries of FATF , IMF or World bank
4) All correspondent banking client information shouldbe reviewed and updated periodically based on risk factors
5) Principles should be part of a FI's larger AML program

**Has no enforcement powers and can't force penalties

Private banking:
The circumstances of the following categories of persons are indicators for defining them as requiring EDD:
- Persons residing in and/or having funds sourced from countries identified by credible soruces as having inadequate AML standards or representing high risk for crime and corruption
- Persons engaged in types of economic or business activities or sectors known to be suceptible to MLering
- PEPs

- No shell banks
- Establish Beneficial Owner ( the person who will receive the funds)

- Banks will establish the identity of its clients and BOs prior to establishing business relationships with such persons; Name, DOB and address
- Understand the structure of natural persons (Who is the B.O), trusts, partnerships, foundations and unincorporated associations.

Risk Based Approach

Most common risks are:
- Country risk (NCCT) or known for corruptions
- Customer risk (PEPs, Cash intensive businesses, Unregulated cahrities, dealers in high value goods, and account for gatekeepers)
- Services risk (International correspondent banking services, Private banking services and services involving banknote and precious metal trading and delivery)

Prohibit the use of concentration accounts

Basel Committee
Established by the G10 countries to promote sound supervisory standards worldwide
BIS (Bank for international settlements
Set to establish:
1) customer identificatio
2) compliance with laws
3) conformity with high ethical standards and local laws and regulations
4) Full cooperation with national law enforcement to the extent permitted without breaching customer confidentiality
5) Staff training
6) Record keeping and audits

Banking supervisors must determine that banks have adequate policies, practices and procedures in place including strict
KYC rules and promote high ethical and professional standards in the financial sector and prevent the bankbeing used,
intentionally or unintentionally by criminal elements

- Urged nationals to adopt the 40 Reccommendations of the FATF

The committee has identified deficiencies in large number of countries' KYC policies based on an internal survey in 1999
The committee's interest in KYC centers on the use of due diligence requirements to mitigate the dangers of bad customers
Without due diligence, banks can be subject to RLOC risks.

1) Banks should not only establish the identity of their customers, but should also monitor account activity to identify
transactions that do not conform to the normal or expected transactions for that customer or type of account. "To ensure
that records remain relevant, there is a need for banks to undertake regular reviews of existing records. An approrpiate
time to do so is when a transaction of significance takes place, when customer documentation standards change
substantially, or where there is a material change in the way that the account is operated.

2) Does not prohibit numbered accounts. Hoewver, they should be subjected to exactly the same KYC as other customer accounts

3) Private banking should not be allowed to escape KYC policies

4) Banks should make every effort to know the identity of corporations that operate accounts and should verify the exact relationship between the owners and intermediary

5) Banks should use the standard identification procedures when dealing with "non-face-to-face" customers and should never agree to open an account for persons who are adamant about anonymity

6 principles set forth

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 withoutbreaching customer confidentiality
Staff training
Record keeping and audits
1) Palermo Convention requires all participant countries to apply that convention's money laundering offenses to "the widest range of predicate offenses"

AML - Expert www.aml-expert.com/study-notes

Placement - taking dirty money and phyiscally depositing it with an FI or using it to purchase an asset (e.g depositing
cash in a FI, purchasing high value assets such as art, precious metals or stones, which can then be sold with payment
made by bank transfer or cheque)

Layering - Ownership and location of the funds is disguised (e.g. wiring funds from one account to another, converting
cash into depositary instruments -- money orders, travellers cheques, etc), buying and reselling high value goods or
prepaid access or stored value items (like gift cards), investing in property or legitimate businesses, investing in stocks
bonds or life insurance, using shell companies which disguise the B.O)

Integration - placing clean money into the economy using an apparently normal business or personal transaction, so that
criminals can add it to their wealth. By this stage separating illegal and legal wealth is very difficult

Effects of ML
1) Increased crime and corruption
2) Undermine the legitimate private sector by undercutting their prices
3) Reputational risk of dealing with criminals, cost of investigations and fines
4) Loss of control over monetary policy in smaller countries as the size of ML transactions causes measurement errors. This can cause currency exchange
rate and interest rate fluctuations
5) Economic distortion, because ML are not interested in the economics of a transaction, they will put their money into schemes that offers privacy
rather than economic benefit
6) Loss of tax revenue. This increases the burden of taxation on normal tax payers
7) Risks to privatisation, as criminals can outbid legitimate purchases, so key assets come under criminal control
8) Reputation risk for the country
9) Social costs e.g. treating drug addicts

Methods of Money Laundering

Wires, ACH, ATMs and credit/debit cards. Indicators of ML include:

- Transaction to secrecy havens or high risk areas withour jurisdiction
- Many small incoming transactions that are then sent out of the account in one bulk payment
- Funds activity that is repititive, unexplained, or with unusual patterns

Correspondent Banking
- This is where one bank (the correspondent) provides services to another bank (the respondent). Banks set up these correspondent relationships across the globe
to provide services in jurisdictions where they have no physical presence. Large international banks have many thousands of correspondent banking relationships. The respondent
obtain services such as: cash management (e.g. interest bearing accounts in a range of currencies), international wires, cheque clearing, payable through accounts foreign exchange. Credit worthy banks
can be offered credit products such as letters of credit or credit card account services.
- Correspondent banking is vulnerable for two reasons:
* The FI carries out transactions for the customers of another institution. This indirect relationship means the customer
identity hasn't been verified by first hand knowledge
* The volumes of transactions mean that its not possible to know which transactions represent legitimate business and which are suspicious
Additional Risks:
- Although the regulatory regime may be undrestood, the effectiveness over a specific respondent bank may be difficult to ascertain
- The level of AML controls at the respondent can be assessed using standard questionnaires, however the effectiveness of the due diligence may be difficult to ascertain
- Nesting of respondent banks means that the correspondent is further away from the actual customer

- Note that the USA Patriot Act enforced a number of provisions against correspndent banking.

Payable Through Accounts (PTAs)

These are accounts, similar to respondent accounts, but where the respondent bank offers the service direct to their customers. This means that they could send a wire transfer
without first clearing the transaction with the respondent. This means that the respondent's customers can directly control funds at the correspondent bank without oversight from the respondent
The PTA account has a number of subaccounts that can be offered to customers such as individuals, commercial businesses, exchange houses, or other banks.
Aspects of PTAs that could impact AML efforts:
- PTAs with banks in offshore locations may have weak licensing or supervision
- PTAs where the CDD is performed only on the respondent, not the respondent's customers
- PTAs where the sub account holders can deposit and withdraw currency
- PTAs used by a subsidiary of a respondent bank, which can perform banking activity without direct supervision

Concentration Accounts
- Also known as special use, omnibus, settlement, suspense, intraday, sweep or collection accounts. They are internal accounts used to assist
with the settlement and processing of customer transactions, often in conjunction with private banking, trust and custody of accounts, funds transfers.

- They pose an AML threat if the customer identifying information is lost when the account is used, this loses the audit trail. Good practices include:
* Require dual signatures on all general ledger entries
* Prevent direct customer access to concentration accounts
* Capture information in customer statements
* Prevent customer knowledge of concentration accounts
* Reconcile the accounts frequently, ensure segregation between reoncilement and those that use the accounts on a day-to-day basis
* Resolve discrepancies timely
* Monitor for recurring customer names

Private Banking
- Offered to wealthy customers who seek confidentiality and personalised service. Often operates semi-autonomously to other parts of the bank
and is higly lucrative. Key factors in private banking:
* High profitability
* Competition
* Powerful clientele
* Confidentiality and secrecy between client and banker
* Trust between client and banker
* Commission-based compensation
* Relationship managers that can become client advocates in order to protect their clients

Often assets move overseas to corporations in secrecy havens. PICs ( private Investment Companies) are established by individuals to hold assets. They
maintain confidentiality and are used for tax or trust related reasons. The secrecy laws of the offshore havens where PICs are located conceals the true
identity of the B.O. Sometimes PICs are created with nominee owners (who hold the title to the company for the benefit unnamed owners) this can
sometimes be protected by attorney-client)
PEPs (politically exposed persons) are a further risk in private banking, as they may have access to the proceeds of bribed, extortion and embezzlement

Structuring or Smurfing
*Organising a transaction in such a way to avoid triggering a reporting or record-keeping threshold. It is one of the most well known ML methods, and is a crime in many contries.
The People who perform this activity are known as runners or smurfs, employed by the launderers. They deposit small amounts of cash under the reporting
threshold, or purchase monetary instruments (cashiers cheques) in amounts under the reporting threshold.

*A structurer may have 20 or more accounts open, some in false identities of dead people. Cash is supplied to the structurer by a money broker. The
structurer deposits the cash in small quantities. The money broker then uses cheques drawn on the accounts to make payments for exports from the
country where the structuring takes place to a different country (often linked to drug production)

Microstructuring
This is the same as structuring, but for very small amounts, e.g. $800. The cash from the sale of drugs is deposited in one country and often withdrawn in foreign countrt to pay for the supplies of the drugs
It is very difficult to detect but some signs might be:
- using blank deposit slips rather than paying in book slips
- frequent small cash deposits not consistent with usual business or personal activity
- cash deposits followed quickly by ATM withdrawals in a high risk country

Cuckoo Smurfing
This requires an insider in a FI, often a money remitter or alternative remittance system. The first step is when a customer provides money to an alternative
remittance system *ARS) for transfer to a bank acocunt in a foreign country. Rather than sending the money to the destination, the insider advises an
accomplice in the destination country of the bank account details of where the cash should have been sent. The associate then deposits dirty cash into the
unwitting customer's account, who believes that it is the international transfer they awaited. The the alternative remitter provides the funds to the associate,
who has swapped dirty money for clean money received from the remitter, which is supported by a genuine receipt. The bank account used here is often
innocent, but the cash deposit would be by a launderer, so retain CCTV footage.

Bank Complicity
Employees can pose a significant ML risk. Background screening for criminal history should be performed, as well as ongoing monitoring for any employees
that may be performing criminal activities. Screening should include outsourced staff such as cleaners.

Credit Unions and Building Societies

Although a low risk due to their small size and the difficulty of hiding large transactions, they are still vulnerable because they contain a large volume of cash
transactions

Credit Cards
- Credit card associations such as MC, Visa, AMEX and Discover
- Issuing banks, which issue cards to customers
- Acquiring banks, which process transactions for merchants who accept credit cards
- Third Party processors, who have contracts with issuers and acquirers to provide transaction processing and other services

Credit cards are often used in the layering or integration stages, as cash payments to cards are often reestricted. Accounts are usually over-paid, creating a
credit balance, which can be returned via a refund.

Money Remitters and Money Exchange Houses

Money remitters move money for their customers, who often dont have access to traditional banking services, they are also often cheaper than banks. Their
services also cover all global locations, including ones without a formal banking infrastructur. Key Types:

- Separate networks such as Western Union and Moneygram

- Underground networks (alternative remitters)
- Money transfer via foreign branches of a bank, where visiting workers can remit funds back home
- International money Orders

Insurance Companies
Red Flags include:
- Cash payments on insurance policies
- Refunds requested during cancellation period
- Policy payments made from abroad
- Beneficiary of policy has no relation to the owner
- Unconcerned with pentalties for early redemption
- Bonds sold in one jurisdiction that are redeemed by an entity in another jurisdiction

Brokers-Dealers
Red Flags include:
- The customer is acting as an agent for an undisclosed beneficiary
- Large number of accounts, with transactions between them, without just cause
- Unexplained wire activity
- Deposits made to fund an investment account that are then withdrawn
- Penny stock, Regulation S stock and bearer bonds activity, which have all been associated with ML

Black Market Peso Exchange Indicators

Red flags include:
- Payments made in cash or by wire by a third party
- Use of third party cheques, bank drafts or money orders
- Structured currency deposits under the reporting threshold
- Consumer checking accounts that become dormant
- Personal checking accounts opened by foreign nationals who come into the bank together
- Multiple accounts opened the same day
- Increases in the amounts of currency deposits by US businesses that export to Columbia

Electronic AML Solutions

Examples:
- Transaction monitoring - scanning the transactions for ML activity
- Watch list filtering - screening new accounts, existing customers, beneficiaries and counterparties against lists of known criminals and terrorists
- Automation of regulatory reporting - such as currency transaction report (CTRs) or suspicious transaction reports (STRs)
- Maintenance of audit trail

Conducting and responding to an investigation

There are several types of investigation:
- Law enforcement activities
- Internal invstigations

In addition, it is important to consider the following aspects:

- How to conduct the investigation
- International co-operation

Law enforcement investigations

- Subpoenas are issued by grand juries and empower law enforcement to obtain evidence (i.e. document & testimony).
- A search warrant allows law enforcement to enter a specific location and seize specific categories of items of documents. It doesnt force testimony.
In the US and other jurisdictions, banking regulators have the power to inspect all bank books and records as they see fit

Search warrants
These are not open-ended, agents can enter the premises, and look for and seize certain documents. A warrant does not compel a testimony. Take the following steps:
- Call legal counsel
- Review the warrant to understand the scope
- Obtain a copy of the warrant
- Ask for the affidavit that accompanies the warrant (if you are allowed to see it, it will provide some context to the warrant)
- Watch the agents perform their search, make a record of any seized items
- Ask for the agents inventory of items seized
- Note the names and agency affiliations of the agents

Documents and computer records that are protected by attorney-client privilege should be marked and retained in a separate area. If agents wish to seize
these, suggest that they are given to the court for safe keeping

Orders to restrain or freeze accounts or assets

Only freeze one you have a copy of the warrant issued by a court requiring the freezing of the funds or account

Internal investigations
Scope of the criminal offence of money laundering
1) Countries should criminalise ML on the basis of United Nations Convention against illicit traffic in Narcotic Drugs and Psychotropic substances, 1988 (the Vienna Convention) and the United Nations Convention against Transnational Organized Crime, 2000 (The Palermo Convention)

2) Countries should ensure that:

a) The intent and knowledge required to prove the offence of Ml is consistent with the standards set forth in the Vienna and Palermo Conventions, including the concept that such mental state may be inferred from objective factual circumstances
b) Criminal liability, and, where that is not possible, civil or administrative liability, should apply to legal persons. This should not preclude parallel criminal, civil or administrative proceedings with respect to legal persons in countries in which such
forms of liability are available. Legal persons should be subject to effective, proportionate and dissuasive sanctions, Such measures should be without prejudice to the criminal liability of individuals

Provisional measures and confiscation

3) Countries should adopt measures similar to those set forth in the Vienna and Palermo conventions, including legislative measures, to enable their competent authorities to confiscate property laundered, proceeds from ML or predicate offences, instrumentalities
used in or intended for use in the commission of these offences, or property of corresponding value, without prejudicing the rights of bona fide third parties

Such measures should include the authority to:

a) identify, trace and evaluate property which is subject to confiscation
b) carry out provisional measures, such as freezing and seizing, to prevent any dealing, transfer or disposal of such property
c) take steps that will prevent or void actions that prejudice the State's ability to recover property that is subject to confiscation
d) take any appropriate investigative measures

4) Countries should ensure that financial institution secrecy laws do not inhibit implementation of the FATF Recommendations
Customer Due Diligence and record keeping

5) Financial institutions should not keep anonymous accounts or accounts in obviously fictitious names
FI should undertake customer due diligence measures, including identifying and verifying the identity of their customers, when:
* establishing business relations
* carrying out occasional transactions: (i) above the applicable designated threshold, or (ii) that are wire transfers in the circumstances covered by the Interpretative Note to Special Recommendation VII;
* there is a suspicion of ML or TF; or
* the FI has doubts about the veracity or adequacy of previously obtained customer identification data
The customer due diligence (CDD) measures to be taken are as follows:
a) Identifying the customer and verifying that customer's identity using reliable, independent source documents, data or information
b) Identifying the beneficial owner, and taking reasonable measures to verify the identity of the beneficial owner such that the financial institution is satisfied that it knows who the beneficial owner is
c) Obtaining information on the purpose and intended nature of the business relationship
d) Conducting ongoing due diligence on the business relationship and scrutiny of transactions undertaken throughout the course of that relationship to ensure that the transactions being conducted are consistent with the institution's knowledge of the customer, their business and risk profile
including, where necessary, the source of funds

6) FI should, in relation to PEP, in addition to performing normal due diligence measures:

a) Have appropriate risk management system to determine whether the customer is a PEP
b) obtain senior management approval for establishing business relationships with such customers
c) Take reasonable measures to establish the source of wealth and funds
d) Conduct enhanced ongoing monitoring of the business relationship

7) FIs should, in relation to cross-border correspondent banking and other similar relationships, in addition to performing normal due diligence measures:
a) Gather sufficient information about a respondent institution to understand fully the nature of the respondent's business and to determine from publicly available information the reputation of the institution and quality of supervision, including whether it has been subject to a ML or TF investigation
or regulator action
b) Assess the respondent institution's AML and TF controls
c) Obtain approval from senior management before establishing new correspondent relationships
d) Documents the respective responsibilities of each institution
e) With respect to "PTA (payable through accounts", be satisfied that the respondent bank has verified the identity of and performed on-going due diligence on the customers having direct access to accounts of the correspondent and that it is able to prove relevant
customer identification data upon request to the correspondent bank
8) FIs should pay special attention to any ML threats that may arise from new or developing technologies that might favour anonymity, and take measures, if needed, to prevent their use in money laundering schemes. In particular, FIs should have policies and procedures in place to address any specific risks
associated with non-face to face business relationships or transactions

9) Countries may permit FIs to rely on intermediaries or other third parties to perform elements (a) - (c) of the CDD process or to introduce business, provided that the criteria set out below are met. Where such reliance is permitted, the ultimate responsibility for customer identification and verification
remains with the FI relying on the third party
The criteria that should be met are as follows:
a) A FI relying upon a third party should immediately obtain the necessary information concerning elements (a) - (c) of the CDD process. FIs should take adequate steps to satisfy themselves that copies of the identification data and other relevant documentation relating to the CDD requirements
will be made available from the third party upon request without delay
b) The FI should satisfy itself that the third party is regulated and supervised for, and has measures in place to comply with CDD requirements in line with Recommendations 5 and 10
It is left to each country to determine in which countries the third party that meets the conditions can be based, having regard to information available on countries that do not or do not adequately apply the FATF Recommendations

10) FIs should maintain for at least 5 years, all necessary records on transactions, both domestic or international, to enable them to comply swiftly with information requests from the competent authorities. Such records must be sufficient to permit reconstruction of individual transactions
(including the amounts and types of currency involved if any) so as to provide, if necessary, evidence for prosecution of criminal activity
FIs should keep records on the identification data obtained through the customer due diligence process (e.g. copies or records of official identification documents like passports, identity cards, driving licenses or similar documents), account files and business correspondence for at least 5 years
after the business relationship is ended.
The identification data and transaction records should be available to domestic competent authorities upon appropriate request

11) FIs should pay special attention to all complex, unusual large transactions, and all unusual patterns of transactions, which have no apparent economic or visible lawful purpose. The background and purpose of such transactions should, as far as possible, be examined, the findings established in writing,
and to be available to help competent authorities and auditors

12) The customer due diligence and record-keeping requirements set out in Recommendations 5,6 and 8 to 11 apply to designated non-financial businesses and professions in the following situations:
a) Casinos - when customers engage in financial transactions equal to or above the applicable designated threshold
b) Real estate agents - when they are involved in transactions for their client concerning the buying and selling of real estate
c) Dealers in precious metals and dealers in precious stones - when they engage in any cash transactions with a customer equal to or above the applicable designated threshold
d) Lawyers, notaries, other independent legal professionals and accountants when the prepare for or carry out transactions for their client concerning the following activities:
- buying and selling of real estate
- managing of client money, securities or other assets
- management of bank, savings or securities accounts
- organisation of contributions for the creation, operation or management of companies
- creation, operation or management of legal persons or arrangements, and buying and selling of business entities
e) Trust and company service providers when they prepare for or carry out transactions for a client concerning the activities listed in the definition in the Glossary.

Reporting of suspicious transactions and compliance

13) If a FI suspects or has reasonable grounds to suspect that funds are the proceeds of a criminal activity, or are related to TF, it should be required, directly by law or regulation, to report promptly its suspicions to the FIU

14) FIs, their directors, officers and employees should be:

a) Protected by legal provisions from criminal and civil liability for breach of any restriction on disclosure of information imposed by contract or by any legislative, regulatory or administrative provision, if they report their suspicions in good faith to the FIU, even if they did not know
precisely what the underlying criminal activity was, and regardless of whether illegal activity actually occurred.
b) Prohibited by law from disclosing the fact that a suspicious transaction report (STR) or related information is being reported to the FIU

15) FIs should develop programmes against ML and TF. These programmes should include:
a) The development of internal policies, procedures and controls, including appropriate compliance management arrangements, and adequate screening procedures to ensure high standards when hiring employees
b) An ongoing employee training programme
c) An audit function to test the system

16) The requirements set out in Recommendations 13 to 15, and 21 apply to all designated non-financial businesses and professions, subject to the following qualifications:
a) lawyers, notaries, other independent legal professionals and accountants should be required to report suspicious transactions when, on behalf of or for a client, they engage in a financial transaction in relation to the activities described in Recommendation 12(d).
Countries are strongly encouraged to extend the reporting requirement to the rest of the professional activities of accountants, including auditing
b) Dealers in precious metals and dealers in precious stones should be required to report suspicious transactions when they engage in any cash transaction with a customer equal to or above the applicable designated threshold
c) Trust and company service providers should be required to report suspicious transactions for a client when, on behalf of or for a client, they engage in a transaction in relation to the activities referred to Recommendation 12(e)
Lawyers, notaries, other independent legal professionals, and accountants acting as independent legal professionals, are not required to report their suspicions if the relevant information was obtained in circumstances where they are subject to professional secrecy or legal professional privilege

17) Countries should ensure that effective, proportionate and dissuasive sanctions, whether criminal, civil or administrative, are available to deal with natural or legal persons covered by these Recommendations that fail to comply with AML or CTF requirements

18) Countries should not approve the establishment or accept the continued operation of shell banks. FIs should refuse to enter into, or continue, a correspondent banking relationship with shell banks. FIs should also guard against establishing relationships with respondent foreign FIs that permit their accounts
to be used by shell banks

19) Countries should consider the feasibility and utility of a system where banks and other FIs and intermediaries would report all domestic and international currency transactions above a fixed amount, to a national central agency with a computerised data base, available to competent authorities for use in ML
or TF cases, subject to strict safeguards to ensure proper use of the information

20) Countries should consider applying the FATF Recommendations to businesses and professions, other than designated non-financial businesses and professions, that pose a ML or TF risk

Measures to be taken with respect to countries that do not or insufficiently comply with the FATF Recommendations
21) FIs should give special attention to business relationships and transactions with persons, including companies and FIs, from countries which do not or insufficiently apply the FATF Recommendations. Whenever these transactions have no apparent economic or visible lawful purpose, their background and purpose
should, as far as possible, be examined, the findings established in writing, and be available to help competent authorities. Where such a country continues not to apply or insufficiently applies the FATF Recommendations, countries should be able to apply appropriate countermeasures

22) FIs should ensure that the principles applicable to FIs, which are mentioned above are also applied to branches and majority owned subsidiaries located abroad, especially in countries which do not or insufficiently apply the FATF Recommendations, to the extent that local applicable laws and regulations permit.
When local applicable laws and regulations prohibit this implementation, competent authorities in the country of the parent institution should be informed by the FIs that they cannot apply the FATF Recommendations.

Regulation and supervision

23) Countries should ensure that FIs are subject to adequate regulation and supervision and are effectively implementing that FATF Recommendations. Competent authorities should take the necessary legal or regulatory measures to prevent criminals or their associates from holding or being
the beneficial owner of a significant or controlling interest or holding a management function in a financial institution. Businesses providing a service of money or value transfer, or of money or currency changing should be licensed or registered, and subject to effective systems for monitoring and ensuring
compliance with national requirements to combat ML and TF

24) Designated non-financial businesses and professions should be subject to regulatory and supervisory measures as set out below
a) Casinos should be subject to comprehensive regulatory and supervisory regime that ensures that they have effectively implemented the necessary AML and TF measures. At a minimum:
 *Casinos should be licensed
*Competent authorities should take the necessary legal and regulatory measures to prevent criminals or their associates from holding or being the B.O of a significant or controlling interest, holding a management function in, or being an operator of a casino
*Competent authorities should ensure that casinos are effectively supervised for compliance with requirements to combat ML and TF

b) Countries should ensure that the other categories of a designated non-financial businesses and professions are subject to effective systems for monitoring and ensuring their compliance with requirements to combat ML and TF. This should be performed on a risk-sensitive basis
This may be performed by a government authority or by an appropriate self-regulatory organisation, provided that such an organization can ensure that its members comply with their obligations to combat ML and TF

25) The competent authorities should establish guidelines, and provide feedback which will assist FIs and designated non-financial businesses and professions in applying national measures to combat ML and TF, and in particular, in detecting and reporting suspicious transactions

Institutional and other measures necessary in systems for combating ML and TF

Competent authorities, their powers and resources

26) Countries should establish a FIU that serves as a national center for the receiving (and, as permitted, requesting), analysis and dissemination of STR and other information regarding potential ML and TF. The FIU should have access, directly or indirectly, on a timely basis to the financial, administrative
and law enforcement information that it requires to properly undertake its functions, including the analysis of STR.

27) Countries should ensure that designated law enforcement authorities have responsibility for ML and TF investigations. Countries are encouraged to support and develop, as far as possible, special investigative techniques suitable for the investigation of ML, such as controlled delivery, undercover operations and other
relevant techniques. Countries are also encouraged to use other effective mechanisms such as the use of permanent or temporary groups specialised in asset investigation, and cooperative investigations with appropriate competent authorities in other countries

28) When conducting investigations of ML and underlying predicate offences, competent authorities should be able to obtain documents and information for use in those investigations, and in prosecutions and related actions. This should include powers to use compulsory measures for the
production of records held by FIs and other persons, for the search of persons and premises, and for the seizure and obtaining of evidence.

29) Supervisors should have adequate powers to monitor and ensure compliance by FIs with requirements to combat ML and TF, including the authority to conduct inspections. They should be authorised to compel production of any information from FIs that is relevant to monitoring such compliance
and to impose adequate administrative sanctions for failure to comply with such requirements

30) Countries should provide their competent authorities involved in combating ML and TF with adequate financial, human and technical resources. Countries should have in place processes to ensure that the staff of those authorities are of high integrity

31) Countries should ensure that policy makers, the FIU, law enforcement and supervisors have effective mechanisms in place which enable them to co-operate, and where appropriate coordinate domestically with each other concerning the development and implementation of policies and activities
to combat ML and TF

32) Countries should ensure that their competent authorities can review the effectiveness of their systems to combat ML and TF by maintaining comprehensive statistics on matters relevant to the effectiveness and efficiency of such systems. This should include statistics on the STR received and disseminated; on ML and TF
investigations, prosecutions and convictions, on property frozen, seized and confiscated; and on mutual legal assistance or other international requests for co-operation.

Transparency of legal persons and arrangements

33) Countries should take measures to prevent unlawful use of legal persons by Money Launderers. Countries should ensure that there is adequate, accurate and timely information on the beneficial ownership of control of legal persons that can be obtained or accessed in a timely fashion by competent
authorities. In particular, countries that have legal persons that are able to issue bearer shares should take appropriate measures to ensure that they are not misused for ML and be able to demonstrate the adequacy of those measures. Countries could consider measures to facilitate access to B.O and control
information to FIs undertaking the requirements set out in Rec. 5

34) Countries should take measures to prevent the unlawful use of legal arrangements by ML. In particular, countries should ensure that there is adequate, accurate and timely information on express trusts, including info on the settlor, trustee and beneficiaries, that can be obtained or accessed
in a timely fashion by competent authorities. Countries could consider measures to facilitate access to B.O and control info to FIs undertaking the requirements set out in Rec 5

International Cooperation
35) Countries should take immediate steps to become party to and implement fully the Vienna COnvention, the Palermo convention, and the 1999 United Nations International Convention for the Suppression of the Financing of Terrorism.
Countries are also encouraged to ratify and implement other relevant international conventions, such as the 1990 Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the proceeds from Crime and the 2002 inter-american convention against Terrorism

Mutual legal assistance and extradition

36) Countries should rapidly, constructively and effectively provide the widest possible range of mutual legal assistance in relation to ML and TF investigations, prosecutions, and related proceedings. In particular, countries should:
a) Not prohibit or place unreasonable or unduly restrictive conditions on the provision of mutual legal assistance
b) Ensure that they have clear and efficient processes for the execution of mutual legal assistance requests
c) Not refuse to execute a request for mutual legal assistance on the sole ground that the offence is also considered to involve fiscal matters
d) Not refuse to execute a request for mutual legal assistance on the grounds that laws require financial institutions to maintain secrecy or confidentiality

37) Countries should, to the greatest extent possible, render mutual legal assistance notwithstanding the absence of dual criminality.
When dual criminality is required for mutual legal assistance or extradition, that requirement should be deemed to be satisfied regardless of whether both countries place the offence within the same category of offence or denominate the offence by the same terminology, provided that
both countries criminalise the conduct underlying the offence.

38) There should be authority to expeditious actions in response to requests by foreign countries to identify, freeze, seize and confiscate property laundered, proceeds from ML and predicate offences, instrumentalities used in or intended for use in the commission of these offences, or property of corresponding value

39) Countries should recognise ml as an extraditable offence. Each country should either extradite its own nationals, or where a country does not do so solely on the grounds of nationality, that country should, at the request of country seeking extradition,
submit the case without undue delay to its competent authorities for the purpose of prosecution of the offences of set forth in the request.

Other forms of cooperation

40) Countries should ensure that their competent authorities provide the widest possible range of international cooperation to their foreign counterparts. There should be clear and effective gateways to facilitate the prompt and constructive exchange
directly between counterparts, either spontaneously or upon request, of information related to both ML and the underlying predicate offences. Exchanges should be permitted without unduly restrictive conditions. In particular:
a) Competent authorities should not refuse a request for assistance on the sole ground that the request is also considered to involve fiscal matters.
b) Countries should not invoke laws that require FIs to maintain secrecy or confidentiality as a ground for refusing to provide cooperation
c) Competent authorities should be able to conduct inquiries; and where possible, investigations, on behalf of foreign counterparts

Where the ability to obtain information sought by a foreign competent authority is not within the mandate of its counterpart, countries are also encouraged to permit a prompt and constructive exchange of information with non counterparts. Cooperation with foreign authorities
other than counterparts could occur directly or indirectly. When uncertain about the appropriate avenue to follow, competent authorities should first contact their foreign counterparts for assistance

FATF Summary
1) Countries to criminalise ML
2) Ensure that intent and knowledge to prove the offence of ML is with the standards set forth in the Vienna and Palermo conventions.
3) Confiscate assets if found laundering
4) Countries to ensure that FI sececy laws do not inhibit implementation of the FATF Recommendations
5) FIs should not keep anonymous accounts and accounts in fictitious names
6) FI to perform due diligence on PEP accounts:
1) Identify PEP account
2) obtain approval for establishing business relationships with such customers
3) Take reasonable measures to establish the source of wealth and funds
4) Monitor
7) FIs should perform due diligence on correspondent banking institutions
8) FIs should have policies and procedures in place to handle non-face to face relationships or transactions
9) FIs should perform due diligence when using a third party vendor for CDD process
10) FIs should maintain for at least 5 years, all necessary records on transactions, both domestic and international. Data and records should be available to domestic authorities upon request
11) FIs to pay attention to complex, unusual and out of pattern transactions. Findings should be established in writing for auditors
12) Recommendations 5,6 and 8 to 11 apply to:
- Casinos
- Real estate agents
- Lawyers, notaries, and other independent legal professionals and accountants
- Trust and company service providers
13) If a FI suspects or has reasonable grounds to suspect that funds are the proceeds of a criminal activity or are related to TF, report promptly its suspicions to the FIU
14) FIs, their directors, officers and employees should be:
- Proected by legal provisions from criminal and civil liability for breach of any restriction on disclosure of information imposed by contract or by any legislative
- Prohibited by law from disclosing the fact that a suspicious transaction report or related information is being reported to the FIU
15) FIs should develop programms against ML and TF. These programmes should include:
- Development of internal policies, procedures and controls, including appropriate compliance management arrangements, and adequate screening procedures
- Ongoing employee training program
- Audit function to test the system
16) Recommendations 13 to 15 and 21 apply to all non-financial business and professions:
- Lawyers, notaries, other independent legal professionals and accountants should be required to report suspicious transactions
- Dealers in precious metals and dealers in precious stones should be required to report suspicious transactions when they engage in any cash transaction
- Trust and company service providers should be required to report suspicious transactions
Lawyers, notaries, other independent legal professionals, and accountants acting as independent legal professionals, are not required to report their suspicions if the relevant information was obtained in circumstances where they are subject to professional secrecy or legal professional privilege
17) Countries should ensure that effective, proportionate and dissausive sanctions, whether criminal, civil or administrative, are available
18) Countries should not approve the establishment or accept the continued operation of shell banks and refuse to enter into a correspondent banking relationship with shell banks.
19) Countries should consider the feasibility of a system where banks and other FIs report all domestic and international currency transactions above a fixed amount to a national central agency with a computerised data base
20) Countries should consider applying the FATF Recommendations to business and professions, other than non-financial businesses and professions, that pose a ML or TF risk
21) FIs should give special attention to business relationships and transactions with persons, including companies and FIs, from countries which do not or insufficiently apply the FATF Recommendations.
22) FIs should ensure that the principles applicable to FIs, which are mentioned above are also applied to branches and majority owned subsidiaries located abroad, especially in countries which do not or insufficiently apply the FATF Recommendations
23) Countries should ensure that FIs are subject to adequate regulation and supervision and are effectively implementing the FATF Recommendations. Businesses providing a service of money or value transfer should be licensed or registered and regularly monitored
24) Designated non-financial businesses and professions should be subject to regulatory and supervisory measures as set out below:
- Casinos should be subject to comprehensive regulatory and supervisory regime that ensures that they have effectively implemented the necessary AML and TF measures
*Casinos should be licensed
- Countries should ensure that other categories of a desginated non-financial businesses and professions are subject to effective systems for monitoring and ensuring their compliance
25) Competent authorities should establish guidelines, and provide feedback which will assist FIs and designated non-financial businesses and professions in applying national measures to combat ML and TF
26) Countries should have an FIU to disseminate information from STRs
27) Countries should ensure designated law enforcement authorities have responsibility for ML and TF investigations
28) Exercise the use of seizure and search of persons and premises when conducting investigations of ML and related offenses to prosecute launderers
29) Supervisors to ensure that compliance requirements and standards are met
30) Countries are encourage to support their competent authorities with financial, human and technical support in combating ML and TF
31) Countries to ensure that policymakers, FIU, law enforcement and supervisors have effective mechanism to co-operate to implement policies and activities to combat ML and TF
32) Countries should ensure that competent authorities review the effectiveness of their systems to combat ML and TF by providing STR statistics (investigations, prosecutions, convictions, seized and confiscated cases)
33) Countries should take measures to prevent unlawful use of legal persons by ML such as ensuring the rightful B.O (beneficial owner).
34) Countries should take measures to prevent the unlawful use of legal arrangements by ML -- ensure that there is a way to figure out the settlor, trustree and beneficiaries.
35) Countries should take immediate steps to become party of FATF and implement ML/TF programs (vienna and palermo convention)
36) Practice to use of mutual legal assistance in relation to MF and TF investigations
37) Use Mutual Legal Assistance notwithstanding the absense of dual criminality
38) There should be authority to expeditious actions in response by foreign countries to identity, freeze, seize and confiscate property laundered involving from ML and predicate offenses
39) Countries to recognize ML as an extraditable offense.
40) Countries should cooperate with other countries and their requests to combat ML and TF

Higlights:
http://aml-expert.com/study-notes/Key_highlights_of_the_40_recommendations