CONDUCTING AND RESPONDING TO INVESTIGATIONS

Question 1

Law Enforcement Investigations

Answer 1

Once such an investigation is commenced, the relevant law enforcement agency might request information from a financial institution in order to obtain evidence. Requests for information can come in several forms, including subpoenas and search warrants.

Question 2

Subpoenas

Answer 2

Subpoenas are usually issued by grand juries, operating under the purview of a court and empowering a law enforcement agency to compel the production of documents and testimony.

Question 3

A search warant

Answer 3

A search warrant is a grant of permission from a court for a law enforcement agency to search certain designated premises and to seize specific categories of items or documents. Generally, the requesting agency is required to establish that probable cause exists to believe that evidence of a crime will be located. The warrant is authorized based on information contained in an affidavit submitted by a law enforcement officer.

Question 4

US banking regulatory agencies

Answer 4

In the United States and several other jurisdictions, the banking regulatory agencies do not need to use subpoenas or search warrants. Their authority to conduct examinations includes the ability to inspect all books and records of a regulated institution.

Question 5

Steps that law enforcement agencies can or should take in conducting a money laundering investigation include:

Answer 5

Follow the money. If the agency is aware of where the laundered money originated and/or where it ended up, it is appropriate for the agency to attempt to bring the two ends together and to compile a complete understanding of the ow of the funds.
Identify the unlawful activity. Most countries define money laundering in terms of predicate offenses or “specified unlawful activities.” These usually are very extensive and include many felony crimes. So for a money laundering case, prosecutors need to establish the ow of money as well as the existence of a predicate offense.
Document the underlying activity and transactions. This involves documenting not only the underlying predicate offense, but also the flow of funds through various banks and accounts.
Review databases. Financial Intelligence Unit’s (FIU) databases and commercial databases can provide very useful and extensive financial information. Also, records such as “Social Security” information In the United States (i.e., tax related information) can be useful for investigators.
Review public records. Court records, as well as corporate filings and credit reports, can provide useful background information. Also, phone records, real estate Multiple Listing Services (MLS) and newspapers can prove useful.
Review licensing and registration files. Files, such
as records held by motor vehicle departments and other registration databases, can provide background information and useful leads.
Analyze the financial transactions and account activity of the target. Look for the normal and expected transactions of the individual or entity based on self- disclosures, income and typical flows of funds by similarly situated persons. If the transactions are outside of the norm or professed anticipated level of activity, then analyze where the additional funds come from and the composition of the unusual activity.
Review STRs that might involve any potential individual linked to the target or the transactions or activity.
Conduct computer-based searches.
In cross-border cases, seek international assistance.

Question 6

Decision to Prosecute

Answer 6

When considering whether - or to what extent - to bring a case against an institution involving money laundering-related charges, prosecutors typically will look at many factors, including whether:
The institution has a criminal history.
The institution has cooperated with the investigation.
The institution discovered and self-reported the money laundering-related issues.
The institution has had a comprehensive and effective AML program.
The institution has taken timely and effective remedial action.
There are civil remedies available that can serve as punishment.
Deterring wrongdoing by others is needed and will be served by a prosecution.

Question 7

Responding to a Law Enforcement Investigation

Answer 7

When confronted with a law enforcement inquiry, the financial institution needs to ensure that the appropriate senior management is informed and that someone is designated as being responsible for responding to all law enforcement requests, for monitoring the progress of the investigation and for keeping senior management informed of the nature and progress of the investigation. If the inquiry appears to be focused on the institution and not just an account or customer, then the Board of Directors should be kept apprised as well. Of course, reports or information about an investigation should not be provided to any employees, officers or directors of the institution who might be implicated in the investigation.

Whenever an institution receives a subpoena, search warrant, or similar law enforcement demand or becomes aware of a government-related investigation involving the institution or one of its accounts or customers, the institution should conduct an inquiry of its own to determine the underlying facts, the institution’s exposure and what steps, if any, the institution should take.

Question 8

Summonses and Subpoenas

Answer 8

If an institution is served with a summons or subpoena compelling the production of certain documents, the institution should have its senior management and/or counsel review the summons or subpoena. If there are no grounds for contesting the summons or subpoena, the institution should take all appropriate measures to comply with the summons or subpoena on a timely and complete basis. Failure to do so can result in adverse action and penalties for the institution.

Question 9

Good to know ;-)

Answer 9

The financial institution should not notify the customer who is being investigated. If the government asks the bank to keep certain accounts open, such a request should be obtained in writing under proper letterhead and authority from the government.

Question 10

Search Warrants

Answer 10

In some instances, a financial institution may receive a warrant from law enforcement authorities to search its premises.
When a search warrant is served, it is important that everyone present remain calm. Every employee should know that, generally, a search warrant is not an open-ended demand. Instead, it gives the agents the right to enter the premises and to look for and seize certain items or documents. A search warrant does not compel testimony.

Question 11

When presented with search warrant, an institution should?

Answer 11

Call the financial institution’s in-house or outside counsel.
Review the warrant to understand its scope.
Ask for and obtain a copy of the warrant.
Ask for a copy of the affidavit that supports the search warrant. The agents are not obligated to provide a copy of the affidavit, but, if a financial institution is allowed to see the affidavit, the financial institution can learn more about the purpose of the investigation.
Remain present while the agents record an inventory of all items they seize and remove from the premises. Keep track of the records taken by the agents.
Ask for a copy of law enforcement’s inventory of what they have seized.
Write down the names and agency affiliations of the agents who conduct the search.

Question 12

On documents and computer records:

Answer 12

Documents and computer records that are protected by the attorney-client or other legal privilege should be so marked and retained separately from general records. Privileged records should be stored in an area (e.g., cabinet) marked “Attorney-Client Privilege.”
If the agents want to seize these records, institution representatives may object and suggest,as an alternative, that the records be given to the court for safekeeping. All employees should be trained on how to behave in a search, and someone should be designated to communicate with the agents.

Question 13

Orders to Restrain or Freeze Accounts or Assets

Answer 13

If the law enforcement agency or a prosecutor obtains a court order to freeze an account or to prevent funds from being withdrawn or moved, the institution should obtain a copy of the order and should comply with it. Generally, the order is obtained based on a sworn affidavit, which is sometimes included with the order. If the affidavit is not part of the order, the financial institution can ask to see
the affidavit, which should provide clues about why a customer’s information is being requested. Whether law enforcement authorities are obligated to provide the affidavit depends on each country’s laws and regulations.

Question 14

Monitoring the Institution’s Response to a Law Enforcement Investigation

Answer 14

When an institution receives a subpoena, summons or other government request, the institution should do more than just produce the records or information being sought. Financial institutions should ensure that all grand jury subpoenas, as well as other information requests from government agencies, are reviewed by senior management, an investigations group or counsel to determine how best to respond to the inquiry and to determine if the inquiry or the underlying activity might pose a risk to the institution. In addition, the institution should maintain a centralized control over all requests and responses in order to ensure that the requests are responded to on a complete and timely basis and to establish a complete record of what is provided. This centralized record will also assist with regard to the institution’s own internal investigation.

Question 15

Internal investigations

Answer 15

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

Question 16

Closing the Account

Answer 16

Some of the factors that the institution should consider are as follows:
The legal basis for closing an account.
The institution’s stated policies and procedures for
closing an account.
How serious is the underlying conduct. If the conduct is serious and rises to the level where the account would ordinarily be closed, then the institution should consider closing the account.
As stated above, if law enforcement requests the institution to keep the account open, the institution should request that the investigator or prosecutor make that request in writing on proper government agency letterhead with the appropriate authorized signature.

Question 17

Attorney - Client Issues
ATTORNEy-CLIENT PRIvILEGE,
APPLIED TO ENTITIES AND INDIVIDUALS

Answer 17

If counsel for the institution prepares a written report of an investigation, the institution should take steps to not inadvertently waive the attorney-client privilege by distributing the report to persons who should not receive it. Every page of the report should contain a statement that it is confidential and is subject to the attorney-client privilege and work-product privilege.

Question 18

Some methods for International co-operation.

Answer 18

International Money Laundering Information Network — The International Money Laundering Information Network (IMoLIN) serves as a clearinghouse of money laundering information for the bene t of national and international anti-money laundering agencies. It was developed and is administered by the Global Program against Money Laundering of the United Nations Office on Drugs and Crimes (UNODC) on behalf of the UN and other international organizations, including Interpol.

Question 19

IMOLIN

Answer 19

MoLIN has five main features, all but one accessible to the public:
 AMLID: Anti-Money Laundering International Database - A compendium and analysis of national AML laws and regulations, as well as information on national contact and authorities. The database is password-protected.
 Reference Data: Research and analysis, bibliography, conventions, legal instruments and model laws.
 Country Page: Includes full text of AML legislation where available, and links to national FIUs.
 Calendar of Events: Chronological listing of training events, conferences, seminars, workshops and other meetings in the AML field.
 Current Events: Current news of recent AML initiatives.

Question 20

Mutual Legal Assistance Treaties

Answer 20

The classic gateway, usually embodied in a treaty for mutual legal assistance (MLAT), provides a legal basis for transmitting evidence that can be used for prosecution and judicial proceedings.

Question 21

MLAT procedures vary, but, generally the following happens?

Answer 21

The central authority of the requesting country sends a “commission rogatoire” (letters rogatory, or letter of request) to the central authority of the other country. The letter includes the information sought, the nature of the request, the criminal charges in the requesting country and the legal provision under which the request is made.
The central authority that receives the request sends it to a local financial investigator to find out if the information is available.
An investigator from the requesting country then visits the country where the information is sought, and accompanies the local investigator during visits or when statements are taken.
The investigator asks the central authority for permission to remove the evidence to the requesting country.
The central authority sends the evidence to the requesting central authority, thereby satisfying the request for mutual legal assistance.
Local witnesses may need to attend court hearings in the requesting country.

Question 22

Financial Investigations Units

Answer 22

FIUs are agencies that receive reports of suspicious transactions from financial institutions and other persons and entities, analyze them, and disseminate the resulting intelligence to local law-enforcement agencies and foreign FIUs to combat money laundering.

Question 23

FATF on FIU’s

Answer 23

In 2003, the Financial Action Task Force (FATF) adopted a revised set of recommendations on combating money laundering that, for the first time, included explicit recommendations for the establishment and functioning of FIUs.

Question 24

A 2004 Report “Financial Intelligence Units

Answer 24

An Overview” by the International Monetary Fund said that although, in establishing an FIU, authorities may feel the need to respond to the calls of the international community, their decisions as to the FIU’s functions and the modalities of its operations need to be based on the country’s own crime- fighting policy objectives, resources and priorities. The responsibilities of the FIU also need to be harmonized with those of existing national agencies involved in the fight against financial crime, including law enforcement, supervisory agencies and policy-setting government bodies.

Question 25

The IMF on establishing the FIU’s

Answer 25

Objectives to be pursued by the establishment of the FIU need to be defined.

The FIU must be given the means to successfully pursue these objectives, for which it will become accountable.

Care should be taken not to give the FIU more responsibilities than it can handle, given its expected resources. In some cases, other agencies that have resources and experience may be in a position to exercise certain functions, such as the supervision of AML/CFT requirements, in a more effective way than an FIU.

Overlapping functions should be avoided to the extent possible, and, to the extent such overlap is unavoidable, coordination mechanisms should be established to minimize conflicts and to maximize cooperation between the concerned agencies.

Question 26

More on FIU’s

Answer 26

The FIUs, with the task of receiving and analyzing suspicious transaction reports and maintaining close links with police and customs authorities, share information among themselves informally in the context of investigations, usually on the basis of memoranda of understanding (MOU). The Egmont Group of FIUs has established a model for such MOUs. Unlike the MLAT, this gateway is not ordinarily used for obtaining evidence, but for obtaining intelligence that might lead to evidence.

Question 27

Principles of Information Exchange Between Financial Intelligence Units,” adopted in June 2001 and incorporated into the Group’s Statement of Purpose.

Answer 27

The Egmont principle of free exchange of information at the FIU level should be possible on the basis of reciprocity, including spontaneous exchange.

Differences in the definition of offenses that fall under the competence of FIUs should not be an obstacle
to free exchange of information at the FIU level. To this end, the FIU’s competence should extend to all predicate offenses for money laundering, as well as terrorist financing.
The exchange of information between FIUs should take place as informally and as rapidly as possible and with no excessive formal prerequisites, while guaranteeing protection of privacy and confidentiality of the shared data.
Should an FIU still need a Memorandum of Understanding to exchange information, it should be negotiated and signed by the FIU without undue delay. To that end, the FIU should have the authority to sign MOUs independently.

It should be possible for communication between FIUs to take place directly, without intermediaries.

Providing an FIU’s consent to disseminate the information for law enforcement or judicial purposes should be granted promptly and to the greatest extent possible. The FIU providing the information should not deny permission to disseminate the information unless doing so would fall beyond the scope of its AML/CFT provisions, could impair a criminal investigation, would be clearly disproportionate to the legitimate interests of an individual or legal person or the country of the providing FIU, or would otherwise not be in accord with basic principles of national law. Any refusal to grant consent should be appropriately explained.

Question 28

Practices observed by the FIU requesting the information

Answer 28

All FIUs should submit requests for information in compliance with the Principles for Information Exchange set out by the Egmont Group. Where applicable, the provisions of information-sharing arrangements between FIUs should also be observed.

Requests for information should be submitted as soon as the precise assistance required is identified.

When an FIU has information that might be useful
to another FIU, it should consider supplying it spontaneously as soon as the relevance of sharing this information is identified.

The exchange of information between Egmont FIUs should take place in a secure way. To this end, the Egmont FIUs should use the Egmont Secure Web (ESW) where appropriate.

Question 29

The Supervisory Channel

Answer 29

The Basel Committee on Banking Supervision, in its April 2002 “Report on Sharing of Information between Jurisdictions in Connection with the Fight against Terrorism,” cites the supervisory channel as the third of official gateway. It says that with regard to banking, information from supervisory agencies is normally of a general character and is designed to monitor the financial soundness of a banking group. Increasingly, however, inquiries relate more to specific assets or accounts because of concerns about reputational and legal risks. One example concerns accounts for Politically Exposed Persons (PEPs), a term used for public officials in the civil or military arms of government, who can be recipients of funds derived from public corruption. The ability to share information is often de ned by the legal framework under which the supervisory agency operates, but it may also be supported by an MOU. Unlike an MLAT, an MOU is not a treaty and usually is not binding on governments. Instead,it reflects an agreement among supervisory authorities. An MOU may be especially valuable with such entities as securities or trading firms, which fall within the jurisdiction of a specific regulatory authority. Information communicated through this gateway usually is provided for supervisory purposes only, and may not ordinarily be used as evidence or shared widely among governmental entities.
The Committee also indicated that enforcement agents should reach out through proper channels to FIUs, central banks and banking superintendents to determine the ling, reporting and licensing requirements applicable to the subjects of their investigations. In this way, they can determine what records they can reach through legal process, where to get the witnesses to introduce them into evidence, document compliance (or lack of) and rebut defenses.

Question 30

Recommendations 36 – 40 from the FATF

Answer 30

Recommendations 36 – 40 from the FATF’s 40 Recommendations pertain specifically to the international aspects of money laundering and terrorist financing investigations. They deal with mutual legal assistance treaties, extradition, confiscation of assets and mechanisms to exchange information internationally.