Chapter 2 International AML CFT Standards

Question 1

Financial Action Task Force

Answer 1

Originally referred to as the G-7 Financial Action Task Force, today FATF
serves as the vanguard in promulgating AML guidance to governmental
bodies around the globe. The International Monetary Fund (IMF) and the World
Bank also offer important perspectives to the field

The intergovernmental body is based at the Organisation for Economic Cooperation and Development (OECD) in Paris, where it has its own secretariat. FATF can be accessed online

Question 2

FATF Objectives

Answer 2

set standards and promote effective
implementation of legal, regulatory, and operational measures for combating
money laundering, terrorist financing, and other related threats

FATF monitors countries’ progress in implementing the FATF Recommendations

• Spreading the AML message worldwide
• Monitoring implementation of the FATF Recommendations among its
  members
• Reviewing money laundering trends and countermeasures

Question 3

Spreading the AML message worldwide

Answer 3

FATF 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 organizations

Question 4

Monitoring implementation of the FATF Recommendations among its members

Answer 4

FATF adopted a new approach to
assessing technical compliance with the Recommendations

Based on experiences of FATF-Style Regional Bodies (FSRBs), the IMF, and the World Bank in conducting
compliance assessments with earlier versions of the FATF Recommendations

The methodology focuses on the technical compliance assessment, effectiveness assessment, and reviewing money laundering trends and countermeasures.

Question 5

Technical compliance assessment

Answer 5

The technical compliance assessment evaluates the specific requirements of
the FATF Recommendations, including how a member relates them to its
relevant legal and institutional frameworks and the powers and procedures of
its competent authorities. The focus is on the fundamental building blocks of
an AML/CFT system

Question 6

Effectiveness assessment

Answer 6

The goal of the effectiveness assessment is to assess the adequacy of a
member’s implementation of the FATF Recommendations and ensure there is
evidence that a member is achieving a defined set of outcomes

Effectiveness is evaluated on the basis of 11 Immediate Outcomes:
1. Money laundering/terrorist financing (ML/TF) risks are known, and actions
are coordinated to combat or thwart the proliferation of ML/TF.
2. International cooperation provides actionable information to use against
criminals.
3. Supervisors regulate financial institutions and nonbank financial institutions
(NBFIs) and their risk-based AML/CFT programs.
4. Financial institutions and NBFIs apply preventive measures and report
suspicious transactions.
5. Legal persons are not misused for ML/TF, and beneficial ownership
information is available to authorities.
6. Financial intelligence information is used by authorities in money laundering
and terrorist financing investigations.
7. Money laundering offenses are investigated and criminally prosecuted, and
sanctions are imposed.
8. Proceeds of crime are confiscated.
9. Terrorist financing offenses are investigated and criminally prosecuted, and
sanctions are imposed.
10. Terrorists and terrorist organizations are prevented from raising, moving,
and using money and are not permitted to abuse NPOs.
11. Persons and organizations involved in the proliferation of weapons of mass
destruction are prevented from raising, moving, and using money.

Question 7

Three Intermediate Outcomes that
represent major thematic goals of AML/CFT measures

Answer 7

1. Policy, cooperation, and coordination to mitigate money laundering and
   terrorist financing
2. Prevention of proceeds of crime entering into the financial system and
   reporting of such when they do
3. Detection and disruption of ML/TF threats

Question 8

Follow up assessments

Answer 8

Under the fourth round of FATF mutual evaluations, whether under regular or an
enhanced follow-up status, follow-up assessments are conducted after five
years.

Question 9

Fines and Penalties-FATF

Answer 9

FATF does not have the power to impose fines or penalties against recalcitrant
member nations

approach ranges from requiring the country to deliver a progress report at plenary
meetings to suspension of membership

In September 1996, Turkey became the first FATF member exposed to the peer pressure policy. Although a member since 1990, Turkey had yet to criminalize money laundering

Question 10

Reviewing money laundering trends and countermeasures

Answer 10

October 2013, FATF and the Egmont Group of financial intelligence units (FIUs) released a research report titled Money Laundering
and Terrorist Financing Through Trade in Diamonds, which examined the
vulnerabilities and risks of the “diamond pipeline”

FATF has been working under five-year mandates. In 2019, on FATF’s 30th anniversary, FATF members adopted of an open-ended mandate. This mandate acknowledges that FATF’s mission will continue to exist, as there are enduring concerns for the integrity of the financial system..

Question 11

FATF Three main activities

Answer 11

• Standard setting
• Ensuring effective compliance with the standards
• Identifying money laundering and terrorist financing threats

Question 12

FATF 40 Recommendations

Answer 12

These measures are detailed in the 40
Recommendations, which were first issued in 1990

• Identification of risks
• Development of appropriate policies
• Criminal justice system and law enforcement
  Financial system and its regulation
• Transparency of legal persons and arrangements
• International cooperation

With its 2012 revision, FATF introduced risk
assessment as the first recommendation, underscoring that assessing risk is
the first step in combating money laundering and terrorist financing

Question 13

FATF 40 recommendations-2003 revision

Answer 13

The most important changes made to the Recommendations in 2003 were:

• Expanded coverage to include terrorist financing
• Widened the categories of business that should be covered by national
  laws, including real estate agents, precious metals dealers, accountants,
  lawyers, and trust services providers
• Specified compliance procedures on issues such as customer
  identification and due diligence
• Adopted a clearer definition of money laundering predicate offenses
• Encouraged prohibition of “shell banks,”
• Urged improved transparency of legal persons and arrangements
• Included stronger safeguards, notably regarding international cooperation
  in, for example, terrorist financing investigations

Question 14

FATF 40 recommendations-2012revision

Answer 14

1. Manage, and mitigate AML/CFT risks using a risk-based approach
2. More information on assessing risks and applying a risk-based approach to
   all AML/CFT efforts

3.Creation of a Recommendation for targeted financial sanctions related to
the proliferation of weapons of mass destruction (WMD)

4.More attention on domestic PEPs and individuals entrusted with prominent
functions by international organizations

5. New requirement for the identification and assessment of risks of new
   products prior to their launch
6. New requirements on obtaining and sending accurate originator,
   intermediary, and beneficiary information in wire transfers (travel rule)
7. New requirement for financial groups to implement group-wide AML/CFT
   programs and establish procedures for sharing information within the
   group

8.Inclusion of tax crimes within the scope of designated categories of
offenses for money laundering

Question 15

FATF Recommendations number 1-2

Answer 15

AML/CFT Policies and Coordination
* Assessing risks and applying a riskbased approach
* National cooperation and
coordination

Question 16

FATF Recommendations number 3-4

Answer 16

Money Laundering and Confiscation
* Money laundering offenses
* Confiscation and provisional
measures

Question 17

FATF Recommendations number 5-8

Answer 17

Terrorist Financing and Financing of
Proliferation
* Terrorist financing offenses
* Targeted financial sanctions related
to terrorism and terrorist financing
* Targeted financial sanctions related
to proliferation
* Nonprofit organizations

Question 18

FATF Recommendations number 9-23

Answer 18

Financial and Nonfinancial Institution
Preventative Measures
* Financial institution secrecy laws
* Customer due diligence and
recordkeeping
* Additional measures for specific
customers and activities
* Reliance, controls, and financial
groups
* Reporting of suspicious transactions
* Designated nonfinancial businesses
and professions

Question 19

FATF Recommendations number 24-25

Answer 19

Transparency and Beneficial Ownership
of Legal Persons and Arrangements
* Transparency and beneficial
ownership of legal persons
* Transparency and beneficial
ownership of legal arrangements

Question 20

FATF Recommendations number 26-35

Answer 20

Powers and Responsibilities of
Competent Authorities and Other
Institutional Measures
* Regulation and supervision
* Operational and law enforcement
* General requirements
* Sanctions

Question 21

FATF Recommendations number 36-40

Answer 21

International Cooperation
* International instruments
* Mutual legal assistance
* Mutual legal assistance regarding
freezing and confiscation
* Extradition
* Other forms of international
cooperation

Question 22

FATF 40 Recommendations Highlights

Answer 22

1.Using a risk based approach
2.Designated categories of offenses-precursory crimes to ML
3.Terrorist financing and financing of proliferation-criminalize TF, freeze accounts etc
4.Knowledge and criminal liability-willful blindness,” or deliberate avoidance of knowledge of the facts

5.CDD Measures -Identify ID,UBO,nature of relationship,ongoing CDD

6.Maintain records of transactions

7.Rely on other parties for CDD

8.Establish a group wide AML/CFT program.

Question 23

Additional CDD on specific customers and activities:

Answer 23

1.Identify PEPs extra measures must be taken

2.Cross border correspondent banking-respondent institution’s business, reputation, supervision, and AML/CFT controls

3.Money or value transfer services (MVTS): Countries should ensure that
MVTSs are licensed or registered and subject to appropriate AML/CFT
requirements.

4.New products, delivery mechanisms, and technologies-assess risks prior to onboarding

5.Wire Transfers-Countries should require relevant ID information, monitor wire transfers for TF/ML

6.STR Reporting-Must have reasonable grounds befor reporting to FIU

7.Derisking-terminating or restricting relationships to manage risks

8.Expanded coverage of industries-DNFBPs-Casinos,Real estate agents, Dealers in precious materials,Lawyers,Notaries and other independent legal professionals,Trust and company service providers.-Specific thresholds for each type of firm. Fin org-$15,000, Casinos-$3,000, dealers-$15,000

9.Transparency and beneficial ownership of legal persons and arrangements-prevent misuse of legal person for ML/TF

10.Powers and responsibilities of competent authorities: Countries should
oversee financial organizations to ensure they are implementing the FATF
Recommendations

11.* International cooperation:-Countries should ensure that they provide the most assistance possible and should ratify UN resolutions on ML/TF.

Question 24

FATF membership criteria

Answer 24

1. The jurisdiction should be strategically important based on quantitative and qualitative indicators and additional considerations.
   *
   Quantitative Indicators
   o Size of gross domestic product (GDP)
   o Size of the banking, insurance, and securities sectors
   o Population

• Qualitative Indicators
  o Impact on the global financial system, including the degree of
  openness of the financial sector and its interaction with international
  markets
  o Active participation in an FSRB (Financial Action Task Force-Style Regional Body)and regional prominence in AML/CFT efforts
  o Level of AML/CFT risks faced and efforts to combat those risks
• Additional considerations
  o Level of adherence to financial sector standards
  o Participation in other relevant international organizations

2. FATF’s geographic balance should be enhanced by the jurisdiction
   becoming a member

Question 25

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

Answer 25

1. Submit Written committment endorsing FATF recommendations and AML/CFT Methodology 2013
   2.Agree to undergo evaluation periodically
   3.Agree to participate Actively in the FATF giving support wherever needed

The Plenary decides that a high-level visit to the country is warranted to verify the written commitment with the relevant ministers, representatives of the Parliament, and competent authorities

Recommendations essential for the establishment of a robust AML/CFT regime, such as Recommendations 3, 5, 10, 11 and 20, within 3 years

Based on the outcomes of the report of the high-level visit, the Plenary may decide to invite the country to participate in FATF as an observer, beginning with the next Plenary meeting.

may appoint a contact group to advise as to the appropriate time to extend such an invitation to the country

The contact group is open to all FATF members and associate members and should include at least one member of the Steering Group.

Question 26

Process for FATF membership-Step 2—Carrying out a mutual evaluation, agreeing on an action plan, and
granting membership

Answer 26

Membership is granted if the mutual evaluation is satisfactory. A mutual evaluation is not satisfactory if the country meets one of the following criteria

• Within a maximum of 3 years after being invited to participate in FATF as an observer, the mutual evaluation process for the country should be launched
• Has eight or more noncompliant/partially compliant (NC/PC) ratings for technical compliance
• Is rated NC/PC on any one or more of Recommendations 3, 5, 10, 11 and 20
• Has a low or moderate level of effectiveness for seven or more of the 11 effectiveness outcomes
• Has a low level of effectiveness for four or more of the 11 effectiveness outcomes

If not Satisfactory the country should commit to a satisfactory level within a reasonable time frame.

At each FATF meeting, the Plenary closely monitors the implementation of the country’s action plan

A country will not be granted full membership if it is rated NC/PC on any one or more of Recommendations 3, 5, 10, 11 or 20. Otherwise membership can be granted.

Question 27

Noncooperative Countries

Answer 27

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

Question 28

Noncooperative Countries-Loopholes in financial regulations

Answer 28

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

Question 29

Noncooperative Countries-Obstacles raised by other regulatory requirements

Answer 29

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

Question 30

Noncooperative Countries-Obstacles to international cooperation

Answer 30

• Obstacles to cooperation from administrative authorities
• Obstacles to cooperation from judicial authorities

Question 31

Noncooperative Countries-Inadequate resources for preventing and detecting money laundering activities

Answer 31

• Lack of resources in public and private sectors
• Absence of an FIU or equivalent mechanism

The next step in the NCCT initiative was the publication in June 2000 of the first review, which identified 15 NCCTs. The NCCT process ultimately involved 24 jurisdictions, including up to 19 jurisdictions at one time, until the jurisdictions eventually took the necessary steps to get off the list.

The NCCT list has been replaced by a new process whereby FATF started identifying jurisdictions with deficiencies in their AML/CFT regimes. This new FATF process was in response to the G-20 countries’ efforts to publicly identify high-risk jurisdictions and issue regular updates on jurisdictions with strategic deficiencies

Question 32

FATF’s two public documents-

Answer 32

1.High-Risk Jurisdictions Subject to a Call for Action (previously known as Public Statement)

This list is often referred to in the media as the “FATF blacklist.

2.Jurisdictions under Increased Monitoring (previously
known as Improving Global AML/CFT Compliance: On-going process)

identifies countries that are already actively engaging with FATF to address strategic deficiencies in their regimes to counter money laundering, terrorist financing, and proliferation financing

This list is externally referred to as the “FATF greylist.”

a country is considered to have made significant progress in improving its AML/CFT regime when it establishes a legal and regulatory framework for meeting its commitments

Question 33

Review process

Answer 33

FATF’s International Cooperation Review Group (ICRG) oversees the process
of identifying and reviewing jurisdictions with strategic AML/CFT deficiencies.

The process began in 2007 and was enhanced in 2009. It was updated in 2015
to reflect the revised FATF standards and mutual evaluation process

Results are considered poor when
20 or more Non Compliant and Partially Complaint Ratings

or Low level of effectiveness for 6 or more of the 11 outcomes

International Cooperation Review Group (ICRG) oversees the process of identifying and reviewing jurisdictions with strategic AML/CFT deficiencies

Once on ICRG scope jurisdiction has 1 year to work with FSRB or FATF to address issues before formal review.

FATF then prioritizes the review of those countries that have more significant financial sectors, such as US$5 billion or more in financial sector assets

Question 34

The Basel Committee on Banking
Supervision

Answer 34

established in 1974 by the central bank governors of the Group of Ten (G-10) countries, promotes sound
supervisory standards worldwide

Its mandate is to strengthen
the regulation, supervision, and practices of banks worldwide to enhance financial stability. The Committee is best known for its landmark publications on capital adequacy (Basel I, Basel II, and Basel III)

Question 35

MEMBERS OF THE BASEL COMMITTEE ON BANK SUPERVISION

Answer 35

Table on Page 184-186

OBSERVERS OF THE BASEL COMMITTEE ON BANK SUPERVISION
Pages also on page 186

Question 36

History of the Basel Committee

Answer 36

In 1988, the Basel Committee issued a Statement of Principles, called
Prevention of Criminal Use of the Banking System for the Purpose of Money
Laundering

The statement set out principles with respect to:

• Customer identification
• Compliance with laws
• Conformity with high ethical standards and local laws and regulations
• Full cooperation with national law enforcement to the extent permitted
  without breaching customer confidentiality
• Staff training
• Recordkeeping and audits

In 1997, the Basel Committee issued its Core Principles for Effective Banking
Supervision, a basic reference for authorities worldwide

It also urged nations to adopt FATF’s 40
Recommendations

The Core Principles were prepared with the assistance of 15 non-G-10 nations, including Brazil, Chile, Hong Kong Special Administrative Region (SAR, China), Mexico, Russia, Singapore, and Thailand.

The Core Principles for Effective Banking Supervision has been periodically
updated. The update in 2012 combined the core principles content with the
assessment methodology to create a more comprehensive document. It also
revised the structure of the 29 core principles, dividing them more clearly
between principles for banking supervisors and for banks

Question 37

The Basel Committee’s KYC guidance

Answer 37

use of due diligence requirements to mitigate the dangers of corrupt customers

Sound KYC policies and procedures are critical to protecting the safety and soundness of banks, as well as the integrity of banking systems

• The four key elements of a KYC program:
  o Customer identification
  o Risk management
  o Customer acceptance policy
  o Ongoing monitoring

Banks should ID customers and monitor accounts

Numbered accounts should not be prohibited, but they should be
subjected to exactly the same KYC procedures as other customer
accounts.

Question 38

The Basel Committee’s KYC guidance-High risk customers

Answer 38

Issues pertaining to High risk customers include:

1.Trust, Nominees, Fiduciary
2.Corporate Vehicles
3.Introduced Businesses
4.Customer accounts opened by intermediaries
5.PEPs
6. Non face to face customers
7.Correspondent Banking

Banks should develop policies to identify customer background,country, business and other risk indicators

Question 39

The Basel Committee-KYC Guidance

Answer 39

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

Question 40

The Basel Committee-Account opening Guidelines

Answer 40

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

Question 41

The Basel Committee-Consolidated KYC Risk Management

Answer 41

Released in 2004 as a complement to its CDD issued for banks in 2001.

addresses the need for banks to adopt a global approach and apply the elements necessary for a sound KYC program to both the parent bank or head office and all of its branches and subsidiaries

These elements consist of risk management, customer acceptance and identification policies, and ongoing monitoring of high-risk accounts

Question 42

The Basel Committee-Recent Guidance

Answer 42

Jan 2014-Sound Management of Risks Related to Money Laundering and Financing of Terrorism that superseded previous publications on customer due diligence
for banks and know-your-customer risk management

The guidelines discuss the following controls for banks to implement:

1.Risk analysis and Governance-use inherent and residual risks

2.Proper governance arrangements for a culture of Compliance the board should oversee and approve policies for risk, risk management and Compliance

3.Board should appoint a Chief AML officer.

Question 43

The Basel Committee-Three lines of defense-Business

Answer 43

1. The line of business, or the first line of defense

Is responsible for creating, implementing, and maintaining policies and procedures, as
well as communicating them to all personnel.

Question 44

The Basel Committee-Three lines of defense-AML and Compliance

Answer 44

2. The AML compliance and internal control functions

AML officer is responsible for ongoing monitoring for AML compliance

the AML officer must have sufficient independence from the business
lines to prevent conflicts of interest and unbiased advice and counsel.
The officer should not be entrusted with the responsibilities of data
protection or internal audit

Question 45

The Basel Committee-Three lines of defense-Audit

Answer 45

3. The audit function, or the third line of defense

should report to the audit
committee of the board of directors (or a similar oversight body) and
independently evaluate the risk management and controls of the bank.

accomplished through periodic assessments, including the
adequacy of the bank’s controls to mitigate the identified risks, effectiveness of the bank’s staff’s execution of the controls, effectiveness of the compliance oversight and quality controls, and effectiveness of the training.

Audits should be risk based

Question 46

The Basel Committee-CDD and Acceptance

Answer 46

Banks should develop a customer
acceptance policy to identify customers that are likely to pose a higher
money laundering risk (e.g., PEPs) and relationships the bank will not
accept

KYC Utility or third party database can be but the following needs to be considered:
o The utility specifies the date of the last update and when the information was last confirmed with the source.
o The utility clearly specifies the source of the information (e.g., the customer itself, a public registry)

Question 47

The Basel Committee-Customer Verification

Answer 47

(1) identification of the customer (whether an individual or a legal person) and
any beneficial owners or authorized signatories

(2) assessment of the customer’s risk profile information

(3) verification of the identity of the
customer and any beneficial owners or authorized signatories, as required
by applicable law, using reliable documentary and/or nondocumentary
sources

(4) further risk-based verification, such as verifying source of wealth and source of funds

Question 48

The Basel Committee-Minimum Information

Answer 48

legal name, residential address, unique identification number or other identifier,
and date and place of birth

Other info based on risk: Other names used, business address, residency status, occupation, income, expected use of the account for high risk income sources, personal reference or verification of employment

Documentary ID: Photo ID or using a utility to confirm address

Non documentary: public registers, private databases and other independent sources

Banks can use written declaration for ownership but not rely solely on them

Question 49

Transaction monitoring systems and ongoing monitoring

Answer 49

AML risks require more than just appropriate policies and procedures; banks must have adequate and appropriate monitoring systems. For most banks, this will involve an automated transaction monitoring system

Bank should document why it does not need a system if not implementing an automated system.

The transaction monitoring system should allow the bank to gain a centralized knowledge of information

Use TMS to conduct ongoing investigations

Question 50

Management of information

Answer 50

Retention of records is crucial, maintain for at least 5 years.

The CDD information should be kept up-to-date and accurate, which will mean
periodically assessing the information, generally on a risk-based frequency

Banks should also document decisions related to investigations of unusual
activity, whether or not a decision is made to file a SAR

Question 51

Reporting of suspicious transactions and asset freezing:

Answer 51

When suspicious activity has been reported, the bank should take appropriate action regarding the customer, including raising the risk rating of the customer and/or deciding whether to retain the relationship (either the account or the entire relationship)

Guidelines updated since 2014 and in 2020 new text was added that set out specific principles and examples between prudential and AML supervision.

Question 52

European Union Directives on
Money Laundering-First Directive

Answer 52

Prevention of the Use of the Financial System for the Purpose of Money
Laundering (91/308/EEC), was adopted by the Council of the European
Communities in June 1991

required members to enact legislation to prevent their domestic financial systems from being used for money laundering.

EU can adopt laws if nations in it don’t agree

In this respect, EU directives have
far more weight than the voluntary standards issued by groups such as the
Basel Committee and FATF

The First Directive confined predicate offenses of money laundering to drug
trafficking, as defined in the 1988 Vienna Convention

Question 53

European Union Directives on
Money Laundering-Second Directive

Answer 53

In December 2001, the EU agreed on a Second Directive (2001/97/EEC),

Member states agreed to implement it as national law by June 15, 2003;
Denmark, Germany, the Netherlands, and Finland met the deadline, Ireland and Spain complying shortly afterward. Other member
states eventually followed.

Question 54

European Union Directives on
Money Laundering-Second Directive-Key Features

Answer 54

Key features:

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

Question 55

European Union Directives on
Money Laundering-Third Directive

Answer 55

A Third EU Directive, 2005/60/EC

based on elements of FATF’s revised 40 Recommendations, was adopted in 2005

15/12/2007 deadline which was not met by all but eventually met

Question 56

European Union Directives on
Money Laundering-Third Directive-Key Features

Answer 56

the Third Directive extended the
scope of the First and Second Directives by

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

Question 57

European Union Directives on
Money Laundering-Third Directive-Applicability to types of professions

Answer 57

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

Question 58

European Union Directives on
Money Laundering-Third Directive-Scope difference compared to 2nd directive

Answer 58

The scope of the Third Directive differs from the Second Directive in that:

• It specifically includes the category of trust and company service providers.
• It covers all dealers trading in goods who trade in cash over €15,000.
• It expands the definition of financial institution to include certain insurance
  intermediaries

Question 59

European Union Directives on
Money Laundering-Third Directive-Issues

Answer 59

3 Main issues

1.The definition of PEPs: Should not be considered PEP if not in position for more than 1 year.

2.. The Directive included lawyers among those professionals who are
required to report suspicious activity

3. The precise role of a comitology committee: The European Commission
   coined the term “comitology,” which means the EU system that oversees
   the implementation of acts proposed by the European Commission.

Question 60

European Union Directives on
Money Laundering-Fourth Directive

Answer 60

Directive (EU) 2015/849 of the EU

Effect: 26/6/2015

Member states had two years from that date to adapt their national legislations accordingly.

This Directive repealed the Third Directive and its predecessors

Question 61

European Union Directives on
Money Laundering-Fourth Directive-Differences with predecessors part 1

Answer 61

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

Question 62

European Union Directives on
Money Laundering-Fourth Directive-Differences with predecessors part 2

Answer 62

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

Question 63

European Union Directives on
Money Laundering-Fourth Directive-Differences with predecessors part 3

Answer 63

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

Question 64

European Union Directives on
Money Laundering-Fifth Directive part 1

Answer 64

Directive (EU) 2018/843

9/7/2018

Focuses on 7 areas:

1.* Beneficial Owners: The Fifth Directive requires that national registers of
beneficial ownership (excluding trusts) be publicly accessible

• Cooperation and information sharing between regulators
• High-risk third countries: Additional monitoring on high-risk third countries
  is based on:
  o Countries on the FATF list and on the EU list
  o Autonomous assessment of additional countries based on 8 areas:

1. Criminalization of money laundering and terrorism financing
2. Customer due diligence (CDD) requirements, record keeping, and
   reporting suspicious transactions
3. Designated nonfinancial businesses and professions have the same
   CDD, record keeping, and reporting obligations.
4. Sanctions should be effective, proportionate and dissuasive.
5. Countries must ensure effective supervision.
6. International cooperation
7. Information about the beneficial owners of a legal entity and legal
   arrangements must be available.
8. Implement targeted financial sanctions (UN) to suppress terrorism

Streamline EDD approach including Additional info on customer, getting senior mgmt approval and enhancing monitoring of high risk entities

Question 65

European Union Directives on
Money Laundering-Fifth Directive part 2

Answer 65

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

Question 66

European Union Directives on
Money Laundering-Sixth Directive part 1

Answer 66

July 2021
Purpose: Improve the detection of suspicious transactions and close loopholes used by criminals to launder illicit proceeds

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

Question 67

European Union Directives on
Money Laundering-Sixth Directive part 2

Answer 67

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

Question 68

FATF-Style Regional Bodies and FATF and
Associate Members

Answer 68

There are nine FSRBs, which have similar forms and functions to that of FATF. They are also considered FATF associate members

FATF remains the only standard-setting body.

The following high-level principles apply to both FATF and FSRBs

• Role: Both FATF and FSRBs help jurisdictions implement FATF standards.

Autonomy: FATF and FSRBs are free-standing organizations

• Sharing common objectives and working in partnership:
• Reciprocity: FATF and FSRBs operate on the basis of (mutual, joint, or common) recognition of their work
• Common interest: Because FATF and FSRBs are part of a larger whole their success or failure is linked

Question 69

FATF member countries are also members of the nine FSRBs:

Answer 69

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

Question 70

Asia/Pacific Group on Money Laundering
(APG)

Answer 70

Established in Feb 1997

Adopted Terms of Reference in Bangkok which were revised in July 2012 for the 40 FATF recommendations

Terms included a committment that they would implement the 40 recommendations as per their constituitional frameworks and culture

APG and FATF have reciprocal rights of attendance

• Provides a focus for cooperative AML/CFT efforts in the Asia/Pacific region
• Provides a forum in which regional issues can be discussed and
  experiences shared
• Facilitates the adoption and implementation by member jurisdictions of internationally accepted AML/CFT measures
• Enables regional and jurisdictional factors to be taken into account in the implementation of international AML/CFT measures
• Encourages jurisdictions to implement AML/CFT initiatives, including more effective mutual legal assistance
• Coordinates and provides practical support, when possible, to member and observer jurisdictions in the region, when requested

Question 71

Asia/Pacific Group on Money Laundering
(APG) Members

Answer 71

The APG is voluntary and cooperative in nature

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

The APG Secretariat is headquartered in Sydney, Australia.

Question 72

Caribbean Financial Action Task Force
(CFATF)

Answer 72

The group consists of 27 states in the Caribbean Basin

It was established as the result of meetings convened in Aruba in May 1990 and Jamaica in November 1992.

Central and South America that have agreed to implement common countermeasures to address the problems of money laundering, terrorist financing, and the financing of the WMD proliferation

Main objective of CFATF-compliance with recommendations and prevent ML/TF crimes

19 recommendations were created, which complemented the FATF 40 recommendations.

Nov 1992 meeting- commitment to implement Org of American States regulations and 1988 UN convention against illict drug trafficking also mandated establishing a secratariat for coordination.

Question 73

Caribbean Financial Action Task Force
(CFATF)-Recommendations

Answer 73

The Declaration recommended laws:
* Defining ML based on the model laws issued by the OAS
* Concerning the seizure and forfeiture of drug proceeds and linked assets
* Allowing judicial challenges to seizure orders by an administrative body
* Permitting forfeiture in all cases following conviction
* Permitting courts to decide that “all property obtained during a prescribed period of time by a person convicted of drug trafficking has been derived from such criminal activity”

The Caribbean nations agreed to enter into mutual assistance agreements with one another to assist in money laundering investigations

Question 74

Caribbean Financial Action Task Force
(CFATF)-Members

Answer 74

Anguilla, Antigua and Barbuda, Aruba, The Bahamas,
Barbados, Belize, Bermuda, Cayman Islands, Curaçao, Dominica, El Salvador, Grenada, Guyana, Haiti, Jamaica, Montserrat, Saint Kitts and Nevis, Saint Lucia, Saint Maarten, Saint Vincent and the Grenadines, Suriname, Trinidad and Tobago, Turks and Caicos Islands, Venezuela, and Virgin Islands

The CFATF Secretariat is hosted by the Government of
Trinidad and Tobago in the Port of Spain.

Question 75

Committee of Experts on the Evaluation of
Anti-Money Laundering Measures and the
Financing of Terrorism (MONEYVAL)

Answer 75

In September 1997, MONEYVAL was established by the Committee of
Ministers of the Council of Europe to conduct self- and mutual-assessment exercises of the AML measures in place in Council of Europe member states that were not members of FATF.

MONEYVAL became an associate member of FATF in 2006

October 13, 2010, the Committee of Ministers adopted the Resolution
CM/Res(2010)12, The statute elevated MONEYVAL to an independent monitoring mechanism within the Council of Europe, answerable directly to the Committee of Ministers on January 1, 2011

The MONEYVAL Statute was further amended in 2013 by the Resolution CM/ Res(2013)13.

Question 76

Committee of Experts on the Evaluation of
Anti-Money Laundering Measures and the
Financing of Terrorism (MONEYVAL) -Members

Answer 76

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

*Nonmember States of the Council of Europe.

MONEYVAL is hosted by the Council of Europe in Strasbourg, France.

Question 77

Financial Action Task Force of Latin America
(GAFILAT)

Answer 77

December 2000 in Cartagena de Indias, Colombia

memorandum of understanding was signed by government
representatives from nine countries: Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Paraguay, Peru, and Uruguay

full members of the task force, including Mexico (2006), Costa
Rica and Panama (2010), Cuba (2012), Guatemala, Honduras, and Nicaragua (2013), and the Dominican Republic (2016)

GAFILAT was created in the style of FATF and accepts its 40 Recommendations

GAFILAT supports its members in the implementation of the 40
Recommendations as national legislation and the creation of a regional prevention system against ML/TF, The two
main tools are training measures and mutual evaluations

Question 78

Financial Action Task Force of Latin America
(GAFILAT)-Members

Answer 78

Argentina, Bolivia, Brazil, Chile, Colombia, Costa
Rica, Cuba, Dominican Republic, Ecuador, Guatemala, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, and Uruguay

GAFILAT has legal capacity and diplomatic status in the Argentine Republic where its Secretariat is located in Buenos Aires

Question 79

Inter-Governmental Action Group against
Money Laundering in West Africa (GIABA)

Answer 79

December 10, 1999, by a decision of the Authority of
Heads of State and government of the Economic Community of West African States

January 2006, GIABA revised its mandate to fully incorporate and
properly reflect its fight against the financing of terrorism

Objectives:

• Protect the national economies and the financial and banking systems against ML/TF
• Improve measures and intensify efforts to combat the proceeds from crime
• Strengthen cooperation among its members

Republic of Benin, Burkina Faso, Republic of Cape
Verde, Republic of Côte d’Ivoire, Republic of The Gambia, Republic of Ghana, Guinea Bissau, Republic of Guinea, Republic of Liberia, Republic of Mali, Republic of Niger, Federal Republic of Nigeria, São Tomé and Príncipe, Republic of Senegal, Republic of Sierra Leone, and Togolese Republic

GIABA’s Secretariat is located in Dakar in Senegal, West Africa.

Question 80

Middle East and North Africa Financial
Action Task Force (MENAFATF)

Answer 80

Manama, Bahrain, in November 2004, the governments of 14 countries decided to establish a FATF-style regional body for the Middle East and North Africa

Voluntary in nature, and cooperates with other intl bodies

Objectives:
* Adopt and implement FATF’s 40 Recommendations and related UN conventions/security council resolutions
* Implement the relevant UN treaties and agreements and UN Security Council Resolutions
* Cooperate to raise compliance with these standards and measures within the MENA region
* Work together to identify regional money laundering and terrorist
financing issues,experiences and solutions
* Build effective arrangements and systems throughout the region not contradicting constituitional frameworks or culture

Question 81

Middle East and North Africa Financial
Action Task Force (MENAFATF)-Members

Answer 81

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

MENAFATF is headquartered in Manama, Bahrain.

Question 82

The Eurasian Group on Combating Money
Laundering and Financing Terrorism (EAG)

Answer 82

October 2004 in Moscow

The EAG was created for the countries of the Eurasian region that are not included in the existing FSRBs

Act in accordance with FATF 40 recommendations

The main tasks of EAG are:
* Assisting member states in implementing the FATF Recommendations
* Developing and conducting joint activities aimed at ML/TF
* Implementing a program of mutual evaluations of member states based on the FATF Recommendations
* Coordinating international cooperation and technical assistance programs with specialized international organizations, bodies, and interested states
* Analyzing money laundering and terrorist financing trends,exchanging best practices

Republic of Belarus, China, Republic of India,
Republic of Kazakhstan, Kyrgyz Republic, Russian Federation, Republic of Tajikistan, Turkmenistan, and Republic of Uzbekistan.

The EAG is headquartered in Moscow, Russian Federation

Question 83

Eastern and Southern African Anti-Money
Laundering Group (ESAAMLG)

Answer 83

Tanzania in 1999

Angola, Botswana, Eritrea, Eswatini, Ethiopia, Kenya,
Lesotho, Madagascar, Malawi, Mauritius, Mozambique, Namibia, Rwanda, Seychelles, South Africa, Tanzania, Uganda, Zambia, and Zimbabwe

main decision-making body of the ESAAMLG is the Council of Ministers, which comprises state member ministers who manage financial matters

MOU

• Adopt and implement the 40 FATF Recommendations
• Apply AML measures to all serious crimes
• Implement measures to combat the financing of terrorism
• Implement any other measures contained in multilateral agreements

Region-specific projects and studies are also undertaken by the ESAAMLG

For example, a project was initiated in 2014 for wildlife trade

ESAAMLG is headquartered in Dar es Salaam, Tanzania.

Question 84

Task Force on Money Laundering in Central
Africa (GABAC)

Answer 84

Established in 2000-

Groupe d’Action contre le Blanchiment d’Argent en Afrique Centrale (GABAC)

In February 2012, GABAC became an observer organization of
FATF. In October 2015, FATF recognized GABAC as an FSRB and admitted it as an Associate Member

Cameroon, Central African Republic, Chad, Congo, Democratic Republic of the Congo, Equatorial Guinea, and Gabon.

GABAC is headquartered Libreville, Gabon.

Question 85

Other Influencing Bodies-Organization of American States: InterAmerican Drug Abuse Control Commission part 1

Answer 85

In May 1992,the OAS unanimously approved a set of 19 articles written in statutory language that it recommended its member nations enact.

CICAD (Comisión Interamericana para el Control del Abuso de Drogas) -Drug Abuse Control Commission is an OAS entity

CICAD’s role includes

• Serving as the Western Hemisphere’s policy forum on all aspects of the illegal drug trade
• Fostering multilateral cooperation on drug issues in the Americas
• Executing action programs to strengthen the capacity of member states to prevent and treat drug related offences
• Promoting drug-related research,info exchange,training
• Developing and recommending minimum standards for drug-related legislation, treatment, cost of drugs to society
• Conducting regular multilateral evaluations of progress by member states

Question 86

Other Influencing Bodies-Organization of American States: InterAmerican Drug Abuse Control Commission part 2

Answer 86

Within CICAD is an Anti-Money Laundering Unit (CICAD-AMLU), which was established in 1999.

Model Regulations are developed,They were influenced by and
are compatible with FATF’s 40 Recommendations.

In 1999, the Inter-American Development Bank (IADB) and CICAD started a program in 8 countries for training

In 2001, another program was developed and conducted for judges and prosecutors within the eight countries

In 2002, a long-term project was begun to establish financial intelligence units in Argentina, Chile, Ecuador, Brazil, Peru, Uruguay, and Venezuela

Question 87

Egmont Group of Financial Intelligence Units

Answer 87

Egmont Group found in 1995 with several national FIUs

goal of the group is to provide a forum for FIUs around the world

The Egmont Group comprises several organizational groups, including the Heads of FIUs.

Support includes:

• Serving as the operational arm of the international AML/CFT apparatus
• Providing a platform for the secure exchange of expertise and financial intelligence to combat AML/CFT
• Expanding and systematizing cooperation in the reciprocal exchange of information
• Increasing the effectiveness of FIUs by offering training and promoting personnel exchanges
• Fostering better and secure communication among FIUs via secure web
• Promoting the operational autonomy of FIUs
• Promoting the establishment of FIUs in conjunction with jurisdictions with an AML/CFT program in areas with early development

Question 88

Egmont Group of Financial Intelligence Units Governing documents

Answer 88

These documents include The Egmont Charter and the Egmont Principles for Information Exchange and Operational Guidance for FIUs

The latter document is binding for members and includes several provisions, including General Framework and International Co-operation requirements provisions include:

• The Egmont Group fosters the development of FIUs and information exchange.
• International cooperation among FIUs should be encouraged
• Information-sharing arrangements must recognize and allow room for case-by-case solutions to specific problems.
• FIUs should exchange information with foreign FIUs
• FIUs should use the most efficient means to cooperate.
• Exchanged information should be used only for the purpose for which the information was sought or provided

Case studies are also provided by Egmont group,

Question 89

Egmont Group of Financial Intelligence Units- Initiatives

Answer 89

The Egmont Group undertook an initiative that resulted in the publication of “FIUs in Action: 100 Cases from the Egmont Group

Several best practices from this analysis can benefit FIUs. Examples include: Disclosures of suspicious activity by financial organizations should continue to be made, even while an investigation is being
conducted by an FIU

the report identifies six common indicators

• Large-scale cash transactions
• Atypical and uneconomical fund transfers to or from a foreign jurisdiction
• Unusual business activities and transactions
• Large and/or rapid movements of funds
• Unrealistic wealth compared with client profile
• Defensive stance to questioning

Question 90

The Wolfsberg Group

Answer 90

2000 at the Wolfsberg castle in Switzerland

Anti-Money Laundering Principles for Private Banking was
published in October2000

These principles recommend controls for private banking

The Principles state accept only those clients whose source of wealth can be reasonably established

need to identify the beneficial owner of funds “for all accounts”

urge private bankers to perform due diligence on “money managers and similar intermediaries”

EDD:

• Politically exposed persons
• People residing in and/or having funds from high-risk countries
• People involved in types of “economic or business activities or sectors known to be susceptible to money laundering.”

Clients may also require greater scrutiny as a result of:
* Information gained from monitoring their activities
* External inquiries
* Derogatory information, such as negative news reporting
* Other factors that may expose the bank to reputational risk

Question 91

The Wolfsberg Group-Principles

Answer 91

banks should have written policies on the “identification of and follow-up on unusual or suspicious activities,”

should include a definition of what is suspicious, as well as examples of such activity.

The Principles also addressed:
* Reporting money laundering issues to management
* AML training
* Retention of relevant documents
* Deviations from policy
* Creation of an anti-money laundering department and an AML policy

Question 92

The Wolfsberg Group- guidelines on the suppression of the
financing of terrorism

Answer 92

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

Performing enhanced due diligence for “business relationships with high risk services like gambling,remittances,exchange houses

Question 93

Wolfsberg Guidelines on Correspondent Banking in 2002

Answer 93

The guidelines were updated in 2014 to highlight that the Principles were intended to address the risks associated with foreign correspondent relationships, not domestic

Due diligence should be risk-based and on an ongoing basis,
following elements be considered when conducting due diligence:

• Geographic risk
• Branches, subsidiaries, and affiliates of correspondent banking clients and
  of the institution
• Ownership and management structures of the correspondent banking
  client
• Client’s customer base and business
• Client’s products and services
• Client’s regulatory status and history
• Client’s anti-money laundering controls
• Client’s dealings with shell banks
• Visits to the client’s business
• Enhanced due diligence regarding the involvement of PEPs
• The Principles should be part of a financial institution’s larger AML program,anti-bribery and corruption, fraud, and evasion of sanctions

Question 94

Wolfsburg-International Due Diligence Repository

Answer 94

collaborating with the Banker’s Almanac in 2004

Details in the Repository include copies of company bylaws, relevant licenses, extracts from commercial registers or certificates of incorporation

More recently, Information about shareholders with stakes of more than 5%, biographies of board members and senior management, and information about each financial institution’s AML policies and procedures

Banker’s Almanac has added further functionality to the Repository with the inclusion of an alert service that updates users with any changes to documents or status of an institution

Question 95

Banker’s Almanac Report

Answer 95

The group released Monitoring, Screening and Searching Wolfsberg to provide further guidance on “the design, implementation, and ongoing maintenance of transaction monitoring frameworks for real-time screening transaction monitoring, and retroactive searches.”

discussed the need for appropriate monitoring of transactions and customers to identify potentially unusual or suspicious activity and transactions and for reporting such to competent authorities

covered issues related to the development of risk-based processes for monitoring, screening, and searching transactions and customers

Question 96

The World Bank and the International
Monetary Fund

Answer 96

The IMF and the World Bank have supported the efforts of FATF

Since 2001, the two organizations have required countries
that benefit from their programs to have ML controls

“Enhancing Contributions to Combating Money
Laundering,”-Strengthening against ML

In September 2000, IMF and WB integrated fight against ML into programs, nternational Monetary and Financial
Committee (IMFC) was preparing a paper

(1) “prepare a joint paper with the Bank on
their respective roles in combating money laundering and financial crime, and in protecting the international financial system,” and
(2) “explore incorporating work on financial abuse

Question 97

The World Bank and the International
Monetary Fund-Joint Exercises

Answer 97

February 2001,IMFC, “Financial System Abuse, Financial Crime, and Money Laundering,”, explores how org can play role in protecting systems from abuse through use of their influence to promote national anti-corruption programs.

• Concentrating on money laundering over other forms of financial abuse
• Helping to strengthen financial supervision and regulation in countries
• More closely interacting with the Organisation for Economic Co-operation
  and Development and the Basel Committee on Banking Supervision
• Insisting on the application of international AML standards in countries that request financial assistance

April 2004, Pilot program, assesses a nation’s compliance with international AML/CFT. The program put an end to FATF’s practice of publicizing noncooperative countries and territories

Question 98

The World Bank and the International
Monetary Fund Collaboration with FATF

Answer 98

World Bank and IMF aligned with FATF for conducting assessments based on 40 recommendations

Carried out as part of Financial Sector Assessment Program and result in Report on the Observance of Standards and Codes
(ROSC).

12 areas:
accounting, auditing, AML/CFT, banking supervision, corporate governance, data dissemination, fiscal transparency, insolvency and creditor rights, insurance supervision, monetary and financial policy transparency, payments systems, and securities regulation

ROSCs are prepared and published at the request of the member country

Updates to the ROSCs are produced regularly, however, new reports are prepared and published every several years

Question 99

World Bank and IMF-Reference Guide to AntiMoney Laundering and Combating the Financing of Terrorism

Answer 99

Launched in 2002, supplement launched in 2006

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

Question 100

Key US Legislative and Regulatory
Initiatives-USA PATRIOT Act

Answer 100

(USA PATRIOT Act) in October 2001

Strengthen ML laws to extent unseen since passing of BSA in 1970 and ML act in 1986

Title III-Purpose to increase strength of US measures to prevent,detect, and prosecute Intl ML and TF

Regulaltions to follow the act are compiled in 31 Code of Federal Regulation Chapter X

Question 101

USA PATRIOT Act-Section 311: Special Measures for Primary Money Laundering
Concerns (31 U.S.C. 5318A)

Answer 101

US government can force US banks
to halt many of their financial dealings with the designee of ML concern

Treasury Department can require US financial organizations to follow any or all
of the following five special measures:

1.Keep records and/or file reports on certain financial transactions

2.Obtain information on the beneficial ownership of any account opened or
maintained in the United States by a foreign person or representative

3.Identify and obtain information about customers who are permitted to use,
or whose transactions are routed through, a foreign bank’s payablethrough account.

4. Identify and obtain information about customers permitted to use, or
   whose transactions are routed through, a foreign bank’s correspondent
   account.
5. Close certain payable-through and correspondent accounts

Section 311 designations differ from OFAC that can be more general

Question 102

Section 312: Correspondent and Private Banking Accounts (31
U.S.C. 5318(i))

Answer 102

This section requires due diligence and, in certain situations, EDD for foreign
correspondent accounts all relationships wit a foreign financial organization, as well as private banking for non-US people

The correspondent banking portions of the rule apply to US banks, credit
unions, thrift organizations, trust banks, broker-dealers, futures commission
merchants and introducing brokers in commodities and mutual funds, and
US-based agencies and branches of foreign banks

Foreign financial organizations covered by the rule include foreign banks,
their branches, foreign
broker-dealers, futures commission merchants, introducing brokers in
commodities and mutual funds that operate in the United States, and money
transmitters and currency exchangers organized in a foreign country.

Question 103

Section 312: Correspondent and Private Banking Accounts (31
U.S.C. 5318(i))-CDD Program

Answer 103

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

Question 104

Section 312: Correspondent and Private Banking Accounts (31
U.S.C. 5318(i))-EDD

Answer 104

EDD procedures must be applied to
a correspondent account established for a foreign bank operating under:
* An offshore banking license
* A license issued by a foreign country designated as noncooperative by an
international organization, with which designation the Treasury Secretary
agrees
* A license issued by a foreign country that has been designated by the
Treasury Secretary as warranting special measures pursuant to Section 311
of the USA PATRIOT Act

EDD that must be implemented in these situations includes:

• Conducting enhanced scrutiny(AML program, Transaction monitoring, infro on PTA)
• Determining whether the correspondent account is used by other banks for which the account was setup
• Determining UBOs of Banks not publicly traded who can vote more than 10%

Question 105

Section 312: Correspondent and Private Banking Accounts (31
U.S.C. 5318(i))-Private Banking

Answer 105

The private banking portions of the rule apply to the same organizations
covered by the correspondent banking provisions

a private banking account is defined as (a) an account with
a minimum aggregate deposit of 1M,
(b) an account for one or more foreigner
(c) an account that is assigned to a bank employee acting as a liaison with the non-US person

US organizations must take reasonable
steps to:
* Ascertain the identity of all nominal and beneficial owners of the accounts
* Ascertain whether any such owner is PEP
* Ascertain the source and purpose of the funds
* Monitor the account to ensure its activity is consisten

Question 106

Section 313: Prohibition on Correspondent Accounts for Foreign Shell Banks (31 U.S.C. 5318(j))

Answer 106

This section prohibits US banks and securities brokers and dealers from
maintaining correspondent accounts for foreign, unregulated shell banks that
have no physical presence

• Is authorized to conduct banking activities
• Employs one or more individuals on a full-time basis at that location
• Maintains operating records at that location
• Is subject to inspection by the banking authority which licensed it at that location

requires financial organizations to take reasonable steps to ensure that foreign banks with correspondent accounts do not themselves permit access to such accounts by foreign shell banks

Banks and securities brokers are permitted to use a certification form to comply with the rule that has to be certified every 3 years that they are not shell banks and don’t permit access to shell banks.

Question 107

Sections 314(a) and 314(b): Help “law enforcement identify, disrupt, and prevent
terrorist acts and money laundering activities by encouraging further
cooperation among law enforcement, regulators, and financial institutions to
share information regarding those suspected of being involved in terrorism or
money laundering.”

Answer 107

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

Question 108

Section 314 (b)

Answer 108

• Section 314(b): 314(b) information sharing is a voluntary program. Entities
  that may participate in 314(b) include US financial organizations subject to
  an AML program requirement under FinCEN regulations

o Banks, credit unions, and other depository institutions
o Casinos and card clubs
o Money services businesses
o Brokers and dealers in securities
o Mutual funds
o Insurance companies
o Futures commission merchants and introducing brokers in
commodities
o Dealers in precious metals, precious stones, and jewels
o Operators of credit card systems
o Loan and finance companies
o Government-sponsored enterprises

Expanded details around Section 314(b) were included in a FinCEN Section 314(b) Fact Sheet issued in December 2020, which
rescinded previous guidance and an administrative ruling

Allows for ML activities to be identified not just transactions

Question 109

• Section 319(a): Forfeiture from US correspondent account (18 U.S.C. 981(k)).

Answer 109

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

owner of the funds may contest the seizure order

Question 110

Section 319(b): Records relating to correspondent accounts for foreign
banks (31 U.S.C. 5318(k)).

Answer 110

Require companies to provide within 5 days records or info related to AML compliance of a customeror any account operated in the US

allows the Treasury Secretary and the Attorney General to subpoena records of a foreign bank that maintains a correspondent account in the United States

If bank fails to comply Treasury Sec or Attorney Gen can get account closed within 10 days

foreign banks must designate a registered
agent in the United States to accept service of subpoenas pursuant to this
section

Banks and brokers must keep records for ID for over 25% ownership of foriegn banks. Info collected on certificate for section 313 and must be updated at least once every 3 years.

Question 111

Anti-Money Laundering Act (AMLA) of 2020

Answer 111

first AML-related law of substance (excluding the USA PATRIOT Act recertification) to be passed since
the USA PATRIOT Act in 2001.

passed as part of the National
Defense Authorization Act (NDAA)

not directly promulgated by a US regulatory agency (e.g., OCC, FinCEN)

In addition to enhancing US AML laws (e.g., the BSA), the AMLA shifts the focus
of AML compliance from a regulatory perspective to national defense

streamline AML/CFT systems, solidify by law a risk-based approach requirement to AML/CFT compliance programs

Establishing FIs for AML/CFT, Reporting Database , FinCEN investigatory powers

Required enhanced cooperation between FIs ,regulators and other agencies

cannabis, marijuana, or hemp not mentioned, still unclear

Question 112

Expansions for Firms under AMLA

Answer 112

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

Question 113

AMLA New Requirements

Answer 113

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

Question 114

AMLA-The Kleptocracy Asset Recovery Rewards Act

Answer 114

KARRA is effectively a whistleblower program for individuals who report on the proceeds of corruption moving through US financial organizations

Along with the AMLA, the NDAA also brings a legal requirement to expand KARRA

key provision of the AMLA is the expansion of whistleblower protection for those providing original info

Question 115

AMLA-Beneficial ownership

Answer 115

AMLA aims to create a central repository for all beneficial ownership

Corporate Transparency Act (CTA)

1) to create transparency within those structures to find and remove potential criminals hiding behind them; and

2) to create a database for use by state and federal law enforcement entities

CTA made in response to FATF

The CTA will ask business owners to provide, among other requirements:
* A legal form of personal identification
* Applications to form a corporate entity
* Information on the registering agent

Question 116

AMLA-Strategic priorities

Answer 116

• The screening of customers and business
• Transaction value and volume to and from high-risk jurisdictions
• Potentially high-risk third-party transactions from these jurisdictions

AMLA also calls for the establishment of the first AML/CFT strategic
priorities, which should be announced within six months of the law’s
passage

Question 117

AMLA-8 Strategic priorities part 1

Answer 117

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

Question 118

AMLA-8 Strategic priorities part 2

Answer 118

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

Question 119

The Reach of the US Criminal Money
Laundering and Civil Forfeiture Laws

Answer 119

Money Laundering Control Act of 1986 , 1st ML law of the US

Can be used if property involved is a representative of at least 1 crime-“specified unlawful activity” (SUA)

Law also applies to foreign countries and people

Prosecution must prove existence of proceeds of SUA but does not need to prove accused knew source of funds only that funds came from some form of criminal activity.

Willfull blindness=knowledge can be proven via circumstances and conduct

Question 120

US criminal money laundering and civil
forfeiture laws (Case example))

Answer 120

US$1.2 billion (1MBD) investment fund had been returned to the people of Malaysia.

From 2009 to 2015, over US$4.5 billion in funds from 1MBD was embezzled to purchase luxury real estate, fine art, hotels, fund a movie,pay bribes

US District Courts in California and the District of Columbia led efforts to seize over US$1.7 billion in stolen assets

high-level 1MDB officials and their associates embezzled and laundered funds through the US, Switzerland, Singapore, and Luxemburg

To file a civil forfeiture complaint, the US government must be able to identify the property to be seized

It determined that funds were used in the US to purchase
luxury homes in Beverly Hills and New York and to invest in a boutique hotel in Beverly Hills and the Park Lane Hotel in Manhattan.

Used fake IDs and documents laundered the funds through a series of complex transactions and shell companies with bank accounts located in the US and abroad

FBI and IRS led investigations ,US courts beginning in 2016 filed 41 forfeiture actions and seized USD 1.7 Bn

Question 121

US criminal money laundering and civil
forfeiture laws (Case example))-Key Takeaways

Answer 121

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

Question 122

Office of Foreign Assets Control

Answer 122

OFAC administers and enforces economic and trade sanctions based on US foreign policy and national security goals

Many of its sanctions are based on United Nations and other
international mandates that are multilateral in scope and involve close cooperation with allied governments

The OFAC sanctions lists primarily include:
* Country-based sanctions:
* List-based sanctions:
* Secondary sanctions:-Non US , sanctioned entities
* Sectoral sanctions: Known as “surgical or smart” sanctions

general licenses and specific licenses

A general license authorizes a particular type of transaction for a class of persons without the need to apply for a license

A specific license is a written document issued by OFAC to a specific person or entity

Question 123

Office of Foreign Assets Control (Case
example: US sanctions)

Answer 123

In 2014, OFAC reached a record US$963 million settlement following a US$8.9 billion penalty imposed for Sanctions violations.

BNPP’s systemic practice of concealing, removing,
omitting, and obscuring references to information about US-sanctioned parties in almost 4,000 financial transactions routed to or through US banks between 2005 and 2012

violation of US sanctionsinvolving Sudan, Iran, Cuba and Burma

BNPP’s methods included removing references to sanctioned parties,replacing sanctioned parties with BNPP’s name or a code word or otherwise structuring the payments

Question 124

Office of Foreign Assets Control (Case
example: US sanctions) -Key Takeaways

Answer 124

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