5.) Money Laundering Flashcards
When does money laundering occur?
Whenever there’s any form of relationship or arrangement involving property that represents the proceeds of a serious crime (a crime where the guilty are liable to one or more years in prison)
Describe are the circumstances in which a financial services business will be seen to be engaged in money laundering activity
If the financial services business enters into a relationship involving criminally derived property (property that is/bought with the proceeds of a crime)
Or
If the source of funds for the relationship is legitimate, but the purpose of the relationship is not
Note that, where a financial services business knows or suspects or (in some cases) has reasonable grounds to suspect the property is the proceeds of crime, it may also be guilty of the criminal offence of money laundering
Define laundering
The process by which criminals seek to wash criminal property so that it has a different appearance from that which it had
REFER TO the Columbus street butchers case - Some of the traditional methods of money laundering involve placing numerous small deposits of cash into the banking system, where it’s then moved into collection accounts which the launderer can use
What’s the best way for a financial services business to combat money laundering?
To be vigilant about the economic or commercial rationale for both relationships and transactions
What is the estimated amount of cash originating from serious crime that is laundered annually across the UK and the world?
UK = £25 billion
World = USD1.5 - 2.85 trillion
What is one way or checking whether a relationship or transaction is connected with terrorism?
Where an individual features on a published list of terrorist suspects or organisations, e.g. The Bank of England list or the US treasury office of foreign assets control list
What are the main sources of terrorist financing?
There are two main sources of terrorist funding:
DIRECTLY by a country’s organisations or citizens
INDIRECTLY by revenue generating activities, often of a criminal nature. Sometimes charities are used as a means of raising funds to support terrorismm
What are the warning signals or circumstances that a transaction may be suspicious?
Red flags should go up when:
Customers are reluctant to give full details
There’s no commercial rationale for a transaction
Money is moved in and out of an account within a short period of time
Multi-layered structures, or a complex web of accounts are set up
A customer originates from, or is dealing with, a high risk country, such as Syria or Iraq
A customer has frequent cash transactions
What has to be understood in order to identify a suspicious transaction?
To fully understand both the customer and the transaction.
It’s important a normal profile is set up at the start of the relationship, so that if there’s a deviation from the normal pattern of activity, it’s easier to identify an unusual transaction
What is the purpose of Jersey’s AML/CFT strategy group?
To provide a forum for the island agencies represented in the group to liaise, discuss and develop coordinated strategies and policies to enhance Jersey’s capability to prevent and detect financial crime and terrorist financing
Describe Jersey’s AML/CFT strategy group
REMEMBER AS J.J. CHIEF ECONOMIC SHADOW LAW
Chaired by the chief executive of the states of Jersey
Comprises officers from the following departments and agencies:
The chief minister’s department
The economic development department
The law officer’s department
The joint financial crimes unit (JFCU)
The JFSC
The shadow gambling commission
The group’s purpose is to provide a forum for the island agencies represented in the group (see above) to liaise, discuss and develop coordinated strategies and policies to enhance Jersey’s capability to prevent and detect financial crime and terrorist financing
Describe the IMF
The International Monetary Fund is an international organisation of 185 member states (including the UK)
Aims:
X Foster global monetary cooperation
X Secure financial stability
X Facilitate international trade
X Promote high employment and sustainable economic growth
X Reduce poverty around the world
Headquartered in Washington D.C.
Established to promote monetary cooperation
Part of its work is to conduct assessments of financial centres against international standards in the fight against money laundering
Describe the assessments carried out by the IMF
Part of the IMF’s work is to conduct assessments of financial centres that examine a jurisdiction’s adherence to international standards in the fight against money laundering
Describe the FATF
The financial action task force is an inter-governmental body
Set up in 1989
Set up for the development and promotion of national and international policies to combat money laundering and terrorist financing
The FATF has published 40 recommendations, and 9 special recommendations, which set out the measures national governments should take to implement effective AML programmes
What’s the purpose of the 40 recommendations and 9 special recommendations published by the FATF
40 AML recommendations (published 1990), setting out the measures national governments should take to implement effective AML programmes
9 special recommendations are CFT
What are the main relevant laws of Jersey’s AML framework/legislation
Remember AS DTP - Drink Till Pissed
Drug trafficking offences (Jersey) law 1988
Terrorism (Jersey) law 2002
Proceeds of crime (Jersey) law 1999
Define the main offences under the proceeds of crime (Jersey) law 1999
Assistance
Failure to report
Tipping off
Describe assistance, one of the three main offences under the proceeds of crime (Jersey) law 1999
To assist another person to launder proceeds obtained from drug trafficking or other serious crime. This covers all aspects of obtaining, concealing, disguising, converting or assisting the transfer of property to avoid its confiscation
The maximum penalty is 14 years in prison, a fine or both
Define a crime, for the purposes of the proceeds of crime (Jersey) law 1999
Any offence which would lead to a term of imprisonment in Jersey of one or more years.
This doesn’t mean that the offence has to be committed in Jersey, it could be committed in another country, and it doesn’t have to be an offence in that country.
A person doesn’t have to know or suspect a specific type of crime to commit the offence of money laundering
Describe failure to report, one of the three main offences under the proceeds of crime (Jersey) law 1999
If an employee has a suspicion, but doesn’t report this without undue delay to the MLRO, they may be guilty of an offence
Their duty to report will override their duty of confidentiality owed to their customer
Maximum penalty is 5 years in prison, a fine or both
Define the acronym MLRO
Money laundering reporting officer
Describe tipping off, one of the three main offences under the proceeds of crime (Jersey) law 1999
If an employee is aware that an investigation is taking place, and this info is disclosed to either the customer or any third party, they may be guilty of an offence.
This can be difficult in practice if an institution is instructed by the police not to process a transaction for a customer, and the employee has to explain why the transaction cannot go ahead, without falling foul of the tipping off provisions
The maximum penalty is 5 years in prison, a fine or both
Define and describe the money laundering (Jersey) order 2008, which financial services businesses which must also comply with, in addition to ‘the legislation’ (proceeds of crime/drug trafficking offences/terrorism Jersey laws), in order to be compliant in the fight against money laundering
Supplements ‘the legislation’ by including more detailed requirements
Introduced in 1999, along with the proceeds of crime law
Recently updated to:
X Bring into regulation types of businesses which were previously not regulated in terms of AML, e.g. estate agents, accountancy practices and law firms
X Extend the requirement to comply with the money laundering order to the overseas branches and subsidiaries of Jersey financial services businesses
Objective - To ensure that the business has an appropriate framework to facilitate the identification and reporting of money laundering
Main requirements -
Identification procedures
Record keeping procedures
Internal reporting procedures
General AML procedures
Employee training relating to AML procedures, Jersey’s laws and the recognition and handling of suspicious transactions
The appointment of a money laundering reporting officer (MLRO) and a money laundering compliance officer (MLCO)
Define the order which financial services businesses which must also comply with, in addition to ‘the legislation’ (proceeds of crime/drug trafficking offences/terrorism Jersey laws), in order to be compliant in the fight against money laundering
The money laundering (Jersey) order 2008
Describe the objective and main requirements of the money laundering (Jersey) order 2008
Objective - To ensure that the business has an appropriate framework to facilitate the identification and reporting of money laundering
Main requirements:
X Procedures - Identification/record keeping/internal reporting/General AML
X Employee training relating to AML procedures, Jersey’s laws and the recognition and handling of suspicious transactions
X The appointment of an MLRO and MLCO
Describe the different types of requirements and notes set out in the JFSC’s handbook (on AML/CFT)
Statutory requirements - These must be met: failure to comply is a criminal offence and may also attract a regulatory sanction e.g. imposing a direction, appointment of a manager or revocation of a license
Regulatory requirements - set out after statutory requirements, these must also be met. Failure to comply may attract regulatory sanction. This has equal status to the codes of practice issued by the JFSC
Guidance notes - These present the ways of complying with both the statutory and regulatory requirements. Other methods can be adopted, as long as they are complaint with the statutory and regulatory requirements
Define and describe the purpose of a company’s money laundering compliance officer (MLCO), and the JFSC’s relationship with them
The money laundering order 2008 requires that an MLCO be appointed. That person must monitor the business’ compliance with legislation relating to AML and CFT
There’s a requirement to notify the JFSC in writing within one month when a person is either appointed, or ceases to be, the MLCO
The same person may be MLRO and MLCO
The MLCO must:
X Be based in Jersey
X Have sufficient experience and skill
X Report directly to the board
Define and describe the purpose of a company’s money laundering reporting officer (MLRO), and the JFSC’s relationship with them
The money laundering order requires that an MLRO is appointed. This requirement has been in place since the original 1999 money laundering order
The role of the MLRO is to record and evaluate all internal suspicious activity reports (SARs), and dealing with making external reports to the law enforcement authorities
The same person may be MLRO and MLCO
An MLRO may appoint one or more deputy MLROs. If they do this, they must monitor the performance of the deputy MLROs
There’s a requirement to notify the JFSC in writing within one month when a person is either appointed, or ceases to be, the MLRO
The MLRO must:
X Be based in Jersey
X Have sufficient experience and skill
X Report directly to the board
What’s the difference between an MLRO and an MLCO?
The MLRO must record and evaluate all internal suspicious activity reports (SARs), and deal with making external reports to the law enforcement authorities
The MLCO must monitor the business’ compliance with legislation relating to AML and CFT
What are the five stages of gathering and processing required CDD/customer due diligence?
Step 0.1/pre-preparation is the business risk assessment, which enables an initial approach to be determined, then it’s necessary to go through 5 stages:
Stage 1) Consider whether the specific circumstances of the customer/product/service require further CDD requirements to be applied
To enable a customer profile to be prepared, CDD info must be collected on:
X The applicant for business
X Beneficial owners and controllers of that person
X Third parties on whose behalf they act
X The relationship to be established
The business must understand the nature of business the customer intends to conduct, and the rationale for the relationship/one-off transaction
Stage 2) The business evaluates the info, and considers whether it must collect more
Stage 3) Record a risk assessment for the customer
Stage 4) Verify identity of all parties determined in stage 1
Stage 5) Periodically update CDD info and risk assessment