COMPLIANCE STANDARDS FOR AML AND COMBATING THE FINANCING OF TERRORISM

Question 1

Financial Action Task Force

Answer 1

The intergovernmental body based at the Organization for Economic Cooperation and Development in Paris.

Question 2

Two step criteria for a jurisdiction to become a member of FATF

Answer 2

Step 1 — Fundamental criteria of membership
The jurisdiction should be strategically important:
Indicators
 Size of gross domestic product (GDP).
 Size of the banking sector.
 Impact on the global financial system, including the degree of openness of the financial sector and its interaction with international markets.
 Regional prominence in AML/CFT efforts.
 Level of commitment to AML/CFT efforts.
Additional considerations
 Level of adherence to financial sector standards.
 Participation in other relevant international
organizations.
 Level of AML/CFT risks faced and efforts to combat those risks.
If the jurisdiction were to become a member, FATF’s geographic balance should be enhanced.
Step 2 — Technical and other criteria
a) The country should provide a written commitment at the political level:
(i) Endorsing and supporting the FATF 40 Recommendations and the FATF AML/CFT Methodology (as amended from time to time).
(ii) Agreeing to implement all of the FATF Recommendations within a reasonable timeframe (three years).
(iii) Agreeing to undergo a mutual evaluation during the membership process for the purposes of assessing compliance with FATF membership criteria, using the AML/CFT Methodology applicable at the time
of the evaluation, as well as agreeing to undergo subsequent periodic mutual evaluations following admission as a full member.
(iv) Agreeing to participate actively in FATF and to meet all the other commitments of FATF membership, including supporting the role and work of FATF in all relevant forums.
The country should be a full and active member of a relevant FATF-style regional body.
c) The overall mutual evaluation needs to be regarded as satisfactory, and in particular the level of compliance with the Recommendations dealing with the money laundering and terrorist financing offenses, freezing and confiscation, customer due diligence, record-keeping, suspicious transaction reporting, financial sector supervision, and international co-operation need to be acceptable.
 In determining whether the overall level of
compliance is satisfactory, some flexibility may be allowed with respect to the Customer Due Diligence Recommendation due to its complexity and multi- faceted requirements. The assessed country, however, is expected to demonstrate signifcant progress
toward full compliance with the components of this Recommendation.
 It is expected that a country should obtain
ratings of fully or largely compliant for all FATF Recommendations listed above in paragraph c. If that is not achieved, however, then the country must, at a minimum, achieve ratings of LC or C for a large majority of these Recommendations, and, for the remainder, should demonstrate substantial progress toward full implementation and should provide a clear commitment at the Ministerial level to come into compliance within a reasonable timeframe and with a detailed action plan setting out the steps to be taken.

Question 3

FATF Objectives:

Answer 3

Spreading the anti-money laundering message worldwide
Monitoring implementation of the FATF Recommendations among FATF members.
Reviewing money laundering trends and countermeasures (“Typologies” exercise).

Question 4

FATF Objective 1.

Answer 4

Spreading the anti-money laundering message worldwide:
The group promotes the establishment of a global AML and anti-terrorist financing network based on expansion of its membership, the development of regional anti- money laundering bodies in various parts of the world, and cooperation with other international organizations.

Question 5

FATF Objective 2.

Answer 5

Monitoring implementation of the FATF Recommendations among FATF members.
Implementation is monitored through a two-pronged approach:
 An annual self-assessment exercise where member countries are required to ll out detailed standard questionnaires on the status of their compliance
with the Recommendations. This information is then compiled and analyzed, and provides the basis for assessing the extent to which the Recommendations have been implemented by both individual countries and the group as a whole.
 The more detailed mutual evaluation procedure. Each member country is examined by FATF on the basis
of an on-site visit conducted by a team of three or six experts in the legal, financial and law enforcement fields from other member governments. The experts write a report assessing the extent to which the evaluated country has moved forward in implementing an effective system to counter money laundering and to highlight areas in which further progress is still required.

Question 6

FATF

Answer 6

FATF does not have the power to impose fines or penalties against recalcitrant member-nations. However, in 1996, FATF launched a policy for dealing with nations that fail to comply with the FATF Recommendations that it describes as “a graduated approach aimed at enhancing peer pressure.” The first step is requiring the country to deliver a progress report at plenary meetings. The country may then receive a letter from the FATF president or a visit from a high-level mission. FATF may also issue a statement
that calls for financial institutions to give special attention to business relations and transactions with persons, companies and financial institutions domiciled in the non- complying country. Then, as a final measure, FATF may suspend the membership of the country in question.

Question 7

FATF Objective 3

Answer 7

FATF members gather information on money laundering trends in an effort to ensure that its Recommendations remain up to date.

Question 8

Financial Action Task Force 40 Recommendations

Answer 8

The 40 Recommendations provide a complete set of countermeasures against money laundering and terrorist financing, covering:
 The identification of risks and development of appropriate policies.
 The criminal justice system and law enforcement.
 The financial system and its regulation.
 The transparency of legal persons and arrangements
 International cooperation.

Question 9

Financial Action Task Force 40 Recommendations: 2012 Revision

Answer 9

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

Question 10

Financial Action Task Force 40 Recommendations: 2003 Revision

Answer 10

With its 2003 revisions of the 40 Recommendations, FATF expanded the reach of its global blueprint for cracking down on illicit movements of funds. It introduced substantial changes intended to strengthen measures to combat money laundering and terrorist financing, which established further enhanced standards by which countries can better combat money laundering and terrorist financing.

Question 11

2003 revisions of the 40 Recommendations by FATF

Answer 11

The most important changes made to the Recommendations were in 2003 and are as follows:
 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, including enhanced identification measures for higher-risk customers and transactions.
 Adopted a clearer definition of money laundering predicate offenses.
 Encouraged prohibition of so-called “shell banks,” typically set up in offshore secrecy havens and consisting of little more than nameplates and mailboxes, and urged improved transparency of legal persons and arrangements.
 Included stronger safeguards, notably regarding international cooperation in, for example, terrorist financing investigations.

Question 12

2012 revisions of the 40 Recommendations by FATF

Answer 12

In 2012, the Recommendations were revised again, incorporating the Nine Special Recommendations into the 40 Recommendations. The most important changes in this revision were:
 Creating a Recommendation on assessing risks and applying a risk based approach
 Creating a Recommendation for targeted financial sanctions related to proliferation of weapons of mass destruction
 Focusing more attention on domestic PEPs and those entrusted with a prominent function by an international organization Requiring identi cation and assessment of risks of new products prior to the launch of the new product
 Adding a requirement that nancial groups implement a group-wide AML/CFT program and have procedures for sharing information within the group
 Including tax crimes within the scope of designated categories of offenses for money laundering

Question 13

RECOMMENDATIONS

Answer 13

AML/CFT Policies and Coordination 1-2
 Assessing risks & applying a risk-based
approach
 National cooperation and coordination
Money Laundering and Confiscation
 Money laundering offence 3-4
 Confiscation and provisional measures.
Terrorist Financing and Financing of Proliferation 5-8
 Terrorist financing offence
 Targeted financial sanctions related to terrorism & terrorist financing
 Targeted financial sanctions related to proliferation
 Non-pro t organisations
Financial and Non-Financial Institution Preventative Measures 9-23
 Financial institution secrecy laws
 Customer due diligence and record keeping
 Additional measures for specific customers and activities
 Reliance, Controls and Financial Groups
 Reporting of suspicious transactions
 Designated non- financial Businesses and Professions
Transparency and Beneficial Ownership of Legal Persons and Arrangements 24-25
 Transparency and beneficial ownership of legal persons
 Transparency and beneficial ownership of legal arrangements
Powers and Responsibilities of Competent Authorities and Other Institutional Measures 26-35
 Regulation and Supervision
 Operational and Law Enforcement
 General Requirements
 Sanctions
International Cooperation 36-40
 International instruments
 Mutual legal assistance
 Mutual legal assistance: freezing and confiscation
 Extradition
 Other forms of international cooperation

Question 14

Some highlights of the 40 Recommendations: Risk Based Approach

Answer 14

Countries should start by identifying, assessing and understanding the money laundering and terrorist financing risks they face. Then they should take appropriate measures to mitigate the identified risks. The risk-based approach allows countries to target their limited resources in a targeted manner to their own particular circumstances, thereby increasing the efficiency of the preventative measures. Financial institutions should also use the risk-based approach to identify and mitigate the risks they face.

Question 15

Some highlights of the 40 Recommendations: Designated Categories of Offenses

Answer 15

The Recommendations specify crimes, called “designated categories of offenses,”that should serve as money laundering predicates — meaning that trying to conceal them through financial subterfuge would constitute criminal money laundering. Countries should also put in place provisions to allow for the confiscation of the proceeds of crime or otherwise prevent criminals from having access to their criminal proceeds.

Question 16

Some highlights of the 40 Recommendations: Terrorist Financing and Financing of Proliferation:

Answer 16

Countries should criminalize terrorist financing, including the financing of terrorist acts, organizations and individual terrorists, even if no terrorist activity can be directly attributed to the provision of financing. Countries should impose sanctions regimes that will allow them to freeze assets of persons designated by the United Nations Security Council for involvement in terrorism or the proliferation of weapons of mass destruction. Countries should also establish sufficient controls to mitigate the misuse of non-pro t organizations to provide support to terrorists.

Question 17

Some highlights of the 40 Recommendations: Knowledge and Criminal Liability:

Answer 17

The Recommendations include the concept that knowledge required for the offense of money laundering may be inferred from objective factual circumstances. This is similar to what is known, in some countries, as “willful blindness,” or deliberate avoidance of knowledge of the facts. In addition, the Recommendations urge that criminal liability and, where that is not possible, civil or administrative liability, should apply to legal persons as well.

Question 18

Some highlights of the 40 Recommendations:

Customer Due Diligence (CDD) measures

Answer 18

Financial institutions should conduct customer due diligence when they:
 Establish business relations
 Carry out an occasional transaction or a wire transfer
above the specified threshold
 Have a suspicion of money laundering or terrorist financing
Have doubts about the veracity or adequacy of previously obtained customer identification Information

Question 19

Some highlights of the 40 Recommendations:

Additional Customer Due Diligence on Specific Customers and Activities

Answer 19

Politically Exposed Persons (PEPs), including taking appropriate steps to identify PEPs, obtaining senior management approval of such business relationships, taking measures to establish the sources of wealth and funds, and conducting ongoing monitoring.
 Cross-Border Correspondent Banking, including understanding the respondent institution’s business, reputation, supervision and AML controls; obtaining management approval of such relationships; documenting the responsibilities of each institution; taking appropriate controls to mitigate risks associated with payable through accounts and taking steps to ensure accounts are not established for shell banks.
 Money or Value Transfer Services (MVTS). Countries should ensure that MVTS are licensed or registered, and subject to appropriate AML requirements
 New Technologies. Countries and financial institutions should assess the risks associated with developments of new products, business practices, delivery mechanisms and technology. Financial institutions should assess these risks prior to launching new products; they should also take appropriate measures to mitigate the risks identified.
 Wire Transfers. Countries should require financial institutions to obtain and send required and accurate originator, intermediary and beneficiary information with wires. Financial institutions should monitor
wires for incomplete information and take appropriate measures. They should also monitor wires for those involving parties designated by the United Nations Security Council and take freezing actions or otherwise prohibit the transactions from occurring.

Question 20

Some highlights of the 40 Recommendations:

Suspicious Transaction Reporting:

Answer 20

The Recommendations say that financial institutions must report to the Financial Intelligence Unit where they suspect or have reasonable grounds to suspect that funds are the proceeds of a criminal activity or are related to terrorist financing. The financial institutions and the employees reporting such suspicions should be protected from liability for reporting and should be prohibited from disclosing that they have reported such activity.

Question 21

Some highlights of the 40 Recommendations:

Expanded Coverage of Industries

Answer 21

The institutions and professions FATF recommends should be added to those subject to AML regulations include:
 Casinos, when customers engage in financial transactions equal to or above a designated threshold. (At a minimum, casinos should be licensed; authorities should prevent criminals from participating in casino operations and should supervise casinos to ensure compliance with requirements to combat money laundering and terrorist financing.)
 Real estate agents, when they are involved in transactions for clients concerning buying and selling properties.
 Dealers in precious metals and stones, when they engage in any cash transaction with a customer at or above a designated threshold.
 Lawyers, notaries and independent legal professionals and accountants when they prepare or carry out transactions for clients concerning: buying and selling real estate; managing client money, securities or other assets; establishing or managing bank, savings or securities accounts; organizing contributions for the creating or managing companies; creating, operating or managing legal persons or arrangements, and buying and selling businesses.
Trust and company service providers when they prepare or carry out transactions for a client concerning certain activities (e.g., when acting as a formation agent of legal persons; acting as a director or secretary of a company; acting as a trustee of an express trust; or acting as a nominee shareholder for another person).
FATF also designated specific thresholds that trigger AML scrutiny. For example, the threshold that financial institutions should monitor for occasional customers is €15,000; for casinos, including Internet casinos, it is €3,000; and for dealers in precious metals, when engaged in any cash transaction, it is €15,000.

Question 22

Some highlights of the 40 Recommendations:

Transparency and Beneficial Ownership of Legal Persons and Arrangements:

Answer 22

Countries should take appropriate measures to prevent the misuse of legal persons for money laundering
or terrorist financing, including ensuring information about the beneficial ownership and control of such legal persons is available to competent authorities, particularly with regard to legal persons that can issue bearer shares or have nominee shareholders or directors.

Question 23

Some highlights of the 40 Recommendations:

Powers and Responsibilities of Competent Authorities:

Answer 23

Countries should oversee financial institutions to ensure the financial institutions are implementing the FATF recommendations, are not owned by or controlled by criminals. The supervisors should be given sufficient resources and powers to effectively oversee the financial institutions within their jurisdiction. Designated non- financial businesses and persons should be subject to oversight as well, when they engage in certain financial activities. Countries should establish financial intelligence units and provide law enforcement and investigative authorities with sufficient resources and powers to investigate money laundering and terrorist financing and to seize or freeze criminal proceeds where found. Countries should implement measures to detect the physical cross-border movement of currency and bearer negotiable instruments. The authorities should provide meaningful statistics, guidance and feedback on the AML/CTF systems.

Question 24

Some highlights of the 40 Recommendations

International Cooperation:

Answer 24

Several Recommendations deal with strengthening international cooperation. Countries should rapidly, constructively and effectively provide the widest possible range of mutual legal assistance in money laundering and terrorist financing investigations, freezing and confiscation of criminal proceeds, extradition, and in other matters. Countries should ratify United Nations conventions against significant crimes and terrorism.

Question 25

Non-Cooperative Countries

Answer 25

For years, FATF was engaged in this initiative to identify “Non- Cooperative Countries and Territories” (NCCTs) in the global fight against money laundering. It developed a process to seek out critical weaknesses in specific jurisdictions’ anti-money laundering systems, which obstruct international cooperation in this area.
According to a June 2000 paper, “Review to Identify Non- Cooperative Countries or Territories: Increasing the Worldwide Effectiveness of Anti-Money Laundering Measures,” FATF’s assessment of a jurisdiction under 25 distinct criteria covered the following four broad areas:
Loopholes in financial regulations
Obstacles raised by other regulatory requirements
Obstacles to international cooperation
Inadequate resources for preventing and detecting money laundering activities
The goal of the NCCT process was to reduce the vulnerability of the financial system to money laundering by ensuring that all financial centers adopt and implement measures for the prevention, detection and punishment of money laundering according to internationally recognized standards.

Question 26

The Basel Committee on Banking Supervision

Answer 26

The Basel Committee on Banking Supervision, established in 1974 by the central bank governors of the G-10 countries, promotes sound supervisory standards worldwide.

Question 27

Statement of Principles called “Prevention of Criminal Use of the Banking System for the Purpose of Money Laundering”

Answer 27

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” in recognition of the vulnerability of the financial sector to misuse by criminals. This was a step toward preventing the use of the banking sector for money laundering, and it 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.
 Record keeping and audits.

Question 28

Core Principles for Effective Banking Supervision

Answer 28

In 1997, the Basel Committee issued its “Core Principles for Effective Banking Supervision,” a basic reference for authorities worldwide. “Banking supervisors must determine that banks have adequate policies, practices and procedures in place, including strict ‘know-your-customer’ rules, that promote high ethical and professional standards in the financial sector and prevent the bank being used, intentionally or unintentionally, by criminal elements,” said the guide.

Question 29

Customer Due Diligence for Banks Paper (Basel Committee)

Answer 29

The paper has five sections:

1 Introduction.

2. Importance of KYC standards for supervisors and banks.
3. Essential elements of KYC standards.
4. The role of supervisors.
5. Implementation of KYC standards in a cross-border context.

Question 30

Customer Due Diligence for Banks Paper (Basel Committee) seven specific customer identification issues:

Answer 30

Trust, nominee and fiduciary accounts.
Corporate vehicles, particularly companies with nominee shareholders or entities with shares in bearer form.
Introduced businesses.
Client accounts opened by professional intermediaries, such as “pooled” accounts managed by professional intermediaries on behalf of entities such as mutual funds, pension funds and money funds.
Politically exposed persons.
Non-face-to-face customers, i.e., customers who do not present themselves for a personal interview.
Correspondent banking.

Question 31

Customer Due Diligence for Banks Paper (Basel Committee) four key elements of KYC

Answer 31

The four key elements of KYC, according to this paper are:
Customer identification;
Risk management;
Customer acceptance; and q Monitoring.

Question 32

(Basel Committee) Consolidated KYC Risk Management

Answer 32

In October 2004, the Committee released another important publication on KYC: “Consolidated KYC Risk Management.” The publication is a complement to the Basel Committee’s Customer Due Diligence for Banks issued in October 2001. It examines the critical elements for effective management of KYC risk throughout a banking group. The paper addresses the need for banks to adopt a global approach and to 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 higher-risk accounts.

Question 33

European Union Directives on Money Laundering

Answer 33

FIRST UNION DIRECTIVE
SECOND UNION DIRECTIVE
THIRD UNION DIRECTIVE

Question 34

First Directive

Answer 34

The first European Union Directive on Prevention of the Use of the Financial System for the Purpose of Money Laundering (Directive 91/308/EEC) was adopted by the Council of Europe in June 1991.
Like all Directives adopted by the Council, it required European Union member states to achieve (by amending national law, if necessary) specified results. The Directive required the members to enact legislation to prevent their domestic financial systems
from being used for money laundering. The unique nature of the EU as a “Community of States” makes it fundamentally different from other international organizations. The EU can adopt measures that have the force of law even without the approval of the national Parliaments of the various member states. Plus, European law prevails over national law in the case of directives.
In this respect, EU Directives have far more weight than the voluntary standards issued by groups such as the Basel Committee or the Financial Action Task Force. Of course, the Directive applies only to EU member states and not to other countries.
The first directive of 1991 was confined to drug trafficking, as de ned in the 1988 Vienna Convention. However, member states were encouraged to extend the predicate offenses to other crimes.

Question 35

Second Directive

Answer 35

The following were the key features of the Second Directive:
 It extended the scope of the First Directive beyond drug-related crimes. The definition of “criminal activity” was expanded to cover not just drug trafficking, but all serious crimes, including corruption and fraud against the financial interests of the European Community.
 It explicitly brought bureaux de change and money remittance offices under AML coverage.
 The Directive said that knowledge of criminal conduct can be inferred from objective factual circumstances.
 It provided a more precise definition of money laundering
It widened the businesses and professions that are subject to the obligations of the Directive. Certain persons, including lawyers when they participate in the movement of money for clients, were required
to report to authorities any fact that might indicate money laundering. Covered groups included: auditors, external accountants, tax advisers, real estate agents, notaries and legal professionals.

Question 36

Third Directive

Answer 36

A Third EU Directive on the Prevention of the Use of the Financial System for the Purpose of Money Laundering and Terrorist Financing, based on elements of the Financial Action Task Force’s revised 40 Recommendations, was adopted in 2005.
In line with the FATF money laundering recommendations, the Third EU Directive extended the scope of the directives by: Defining “money laundering” and “terrorist financing” as separate crimes. The directive’s measures were expanded to cover not only the manipulation of money derived from crime, but also the collection of money or property for terrorist purposes.
 Extending customer identification and suspicious activity reporting obligations to trusts and company service providers, life insurance intermediaries and dealers selling goods for cash payments of more than 15,000 Euros.
 Detailing a risk-based approach to customer due diligence. The extent of due diligence that is performed on customers, whether simplified or enhanced, should be dependent on the risk of money laundering or terrorist financing they pose.
 Protecting employees who report suspicions of money laundering or terrorist financing. This provision instructs member states to “do whatever is in their power to prevent employees from being threatened.”
 Obligating member states to keep comprehensive statistics regarding the use of and results obtained from suspicious transaction reports such as: the number of suspicious transaction reports led; the follow-up given to those reports; and the annual number of cases investigated, persons prosecuted and persons convicted.
 Requiring all financial institutions to identify and verify the “beneficial owner” of all accounts held by legal entities or persons. “Beneficial owner” refers to the natural person who directly or indirectly controls more than 25 percent of a legal entity or person.

Question 37

The Third Money Laundering Directive applies to:

Answer 37

Credit institutions
Financial institutions;
Auditors, external accountants and tax advisors;
Legal professionals;
Trust and company service providers;
Estate agents;
High value goods dealers who trade in cash over 15,000 Euro
Casinos.

Question 38

The scope of the Third Money Laundering Directive differs from the Second Money Laundering Directive in that?

Answer 38

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 Euros.
The definition of financial institution includes certain insurance intermediaries.

Question 39

There were three main points of contention with regard to the Third Directive

Answer 39

the definition of politically exposed persons (PEPs); the inclusion of lawyers among those who are required to report suspicious activity; and the precise role of a “comitology committee.” The European Commission coined the term “comitology,” which means the EU system that oversees implementation of acts proposed by the European Commission.

Question 40

The Third Money Laundering Directive includes the following definition of a politically exposed person:

Answer 40

“Politically exposed persons” means natural persons who are or have been entrusted with prominent public functions and the immediate family members, or individuals known to be close associates, of such persons. Close associates must be identified only when their relationship with a PEP is publicly known or when the institution suspects there is a relationship. Finally, the commission said persons should not be considered PEPs after at least one year of not being in a prominent position.

Question 41

EGMONT GROUP OF FINANCIAL INTELLIGENCE UNITS

Answer 41

In 1995, a number of national financial intelligence units (FIUs) began working together in an informal organization known as the Egmont Group (named for the location of the first meeting, the Egmont - Arenberg Palace in Brussels). The goal of the group is to provide a forum for FIUs around the world to improve cooperation in the fight against money laundering and financing of terrorism and to foster the implementation of domestic programs in this field.

Question 42

EGMONT GROUP OF FINANCIAL INTELLIGENCE UNITS support includes:

Answer 42

Expanding and systematizing cooperation in the reciprocal exchange of information.
 Increasing the effectiveness of FIUs by offering training and promoting personnel exchanges to improve the expertise and capabilities of personnel employed by FIUs.
 Fostering better and secure communication among FIUs through the application of technology, such as the Egmont Secure Web (ESW).
 Promoting the operational autonomy of FIUs.
 Promoting the establishment of FIUs in conjunction
with jurisdictions with an AML/CFT program in place, or in areas with a program in the early stages of development.

Question 43

Approved a definition of an FIU:

Answer 43

It was amended in 2004 to reflect the FIUs’ role in combating terrorism financing as follows:
 A central, national agency responsible for receiving (and, as permitted, requesting), analyzing and disseminating to the competent authorities, disclosures of financial information:
 Concerning suspected proceeds of crime and potential financing of terrorism.
 Required by national legislation or regulation, in order to combat money laundering and terrorism financing.

Question 44

THE WOLFSBERG GROUP

Answer 44

The Wolfsberg Group is an association of 11 global banks that aims to develop financial services industry standards and related products for Know Your Customer, Anti-Money Laundering and Counter Terrorist Financing policies. Their principles hold no force of law and carry no penalties for those who do not abide by them.

Question 45

The Wolfsberg Anti-Money Laundering Principles for Private Banking

Answer 45

The Wolfsberg Anti-Money Laundering Principles for Private Banking was published in October 2000 and was revised in May 2002. These principles recommend controls for private banking that range from the basic, such as customer identification, to enhanced due diligence, such as heightened scrutiny of individuals who “have or have had positions of public trust.” The banks that released the principles with Transparency International said that the principles would “make it harder for corrupt people to deposit their ill-gotten gains in the world’s banking system.”

Question 46

Wolfsberg Principles for Private Banking revised in May 2002

Answer 46

In May 2002, the Wolfsberg Principles for Private Banking were revised. A section was added prohibiting the use of internal non-client accounts (sometimes referred to as “concentration” accounts) to keep clients from being linked to the movement of funds on their behalf (i.e., banks should forbid the use of such internal accounts in a manner that would prevent of officials from appropriately monitoring movements of client funds).

Question 47

The Wolfsberg Group also issued guidelines in early 2002 on The Suppression of the Financing of Terrorism:

Answer 47

The Wolfsberg Group also issued guidelines in early 2002 on “The Suppression of the Financing of Terrorism,” outlining the roles of financial institutions in the fight against money laundering and terrorism financing.

Question 48

Good to know.

Answer 48

The Wolfsberg Group, which has no enforcement powers, issued the guidelines to manage its members’ own risks, to help make sound decisions about clients and to protect their operations from criminal abuse.

Question 49

“Monitoring, Screening and Searching Wolfsberg Statement” in September 2003.

Answer 49

This document 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. In particular, it covered issues related to the development of risk-based processes for monitoring, screening and searching transactions and customers.

Question 50

USA PATRIOT ACT

Answer 50

Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act (USA Patriot Act) in October 2001 to strengthen money laundering laws and the Bank Secrecy Act to levels unseen since the original passage of the BSA in 1970 and the world’s First anti-money laundering law in 1986.
The USA Patriot Act has implications for U.S. institutions and non-U.S. institutions that do business in the United States.

Question 51

Section 311

Answer 51

Special Measures for Primary Money Laundering Concerns (31 U.S.C. 5318A). This section provides the U.S. Treasury Department with the authority to apply graduated, proportionate measures against a foreign jurisdiction, a foreign financial institution, a type of international transaction or a type of account that the Treasury Secretary determines to be a “primary money laundering concern.” By designating a country or a financial institution as a “primary money laundering concern,” the U.S. government can force U.S. banks to halt many of their financial dealings with the designee. Once identified, the Treasury Department can require U.S. financial institutions to follow any or all of the following five special measures.

Question 52

Section 312

Answer 52

Correspondent and Private Banking Accounts (31 U.S.C. 5318(i)). Requires due diligence and, in certain situations, “enhanced due diligence” for foreign correspondent (which includes virtually all account relationships that institutions can have with a foreign financial institution) and private banking accounts for non- U.S. persons.

Question 53

A private banking account is defined as?

Answer 53

A private banking account is de ned as an account with a minimum aggregate deposit of $1 million for one or more non-U.S. persons and which is assigned to a bank employee acting as a liaison with the non-U.S. person.

Question 54

Section 313

Answer 54

Section 313: Prohibition on correspondent accounts for foreign shell banks (31 U.S.C. 5318(j)). Prohibits U.S. banks and securities brokers and dealers from maintaining correspondent accounts for foreign unregulated “shell” banks that have no physical presence anywhere. The term “physical presence” is de ned as a place of business that is maintained by a foreign bank; is located at a fixed address (as opposed to solely an electronic address) where it 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; and is subject to inspection by the banking authority which licensed it at that location. The term shell bank does not include a bank that is a regulated affliate of a bank that maintains a physical presence.
The section also requires financial institutions 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 process requires the foreign banks to certify at least once every three years that they are not themselves shell banks and that they do not permit shell banks access to the U.S. correspondent account through a nested correspondent relationship.

Question 55

Section 319(a)

Answer 55

Forfeiture from U.S. Correspondent Account (18 U.S.C. 981(k)). In situations where funds have been deposited with a foreign bank, this section permits the U.S. Government to seize funds in the same amount from a correspondent bank account in the U.S. that has been opened and maintained for the foreign bank. The U.S. Government is not required to trace the funds, as they are deemed to have been deposited into the correspondent account. However, the owner of the funds may contest the seizure order.

Question 56

Section 319(b)

Answer 56

Section 319(b): Records relating to Correspondent Accounts for Foreign Banks (31 U.S.C. 5318(k)). Allows the appropriate Federal banking agency to require a  financial institution to produce within 120 hours ( five days) records or information related to the institution’s AML compliance or related to a customer of the institution or any account opened, maintained, administered or managed in the U.S. by the  financial institution.
The section also allows the Secretary of the Treasury or the Attorney General to subpoena records of a foreign bank that maintains a correspondent account in the U.S. The subpoena can request any records relating to the account, including records located outside the United States. If the foreign bank fails to comply with or fails to contest the subpoena, the Secretary or the Attorney General can order the U.S.  financial institution to close the correspondent account within ten days of receipt of such order.
Additionally, the section also requires foreign banks to designate a registered agent in the U.S. to accept service of subpoenas pursuant to this section. Furthermore, U.S. banks and securities brokers and dealers that maintain correspondent accounts for foreign banks must keep records of the identity of the 25 percent owners of the foreign bank, unless it is publicly traded, as well as the name of the correspondent bank’s registered agent in the U.S. Generally this information is collected on the certification form used to comply with Section 313 above and must be updated at least every three years or more frequently if the information is no longer correct.

Question 57

The Reach of the U.S. Criminal Money Laundering and Civil Forfeiture Laws

Answer 57

First enacted in 1986, the criminal money laundering law of the United States is a powerful legal weapon, but it may be used only if the property involved in the financial transaction at issue represents the proceeds of at least one designated underlying crime — a “specified unlawful activity” (SUA). However, SUAs include virtually every U.S. crime that produces economic advantage, including aircraft piracy, wire fraud, bank fraud, copyright infringement, embezzlement, export violations, illegal gambling, narcotics offenses, racketeering and even some environmental crimes.(18 USC 1956 and 1957.)
This money laundering law also reaches foreign individuals and foreign financial institutions if the financial transaction occurs in whole or in part in the U.S. or if the foreign financial institution maintains a bank account at a U.S. financial institution.
Although the prosecution must prove the existence of an SUA’s proceeds, it need not prove that the accused “knew” the exact source of the funds. The prosecution must prove only that the defendant knew that the funds came “from some form . . . of activity that constitutes a felony under state, federal, or foreign law, regardless of whether or not such activity” is an SUA (18 USC 1956(c)(1)). Courts have often ruled that “willful blindness,” which has been de ned as “the deliberate avoidance of knowledge of the facts,” is the equivalent of actual knowledge. Willful blindness may be proven by the circumstances surrounding the transaction and the defendant’s conduct.

Question 58

Office of Foreign Assets Control

Answer 58

OFAC administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals against targeted foreign countries, terrorists, international narcotics traffickers and those engaged in activities related to the proliferation of weapons of mass destruction. OFAC acts under presidential wartime and national emergency powers, as well as authority granted by specific legislation, to impose controls on transactions and to freeze foreign assets under U.S. jurisdiction. Many of the sanctions are based on United Nations and other international mandates, are multilateral in scope, and involve close cooperation with allied governments.
OFAC rules prohibit transactions and require the blocking of assets of persons and organizations that appear on one of a series of
lists that OFAC issues periodically. The agency has the power to impose significant penalties on those who are found to be in violation of the blocking orders.