Anti-Money Laundering (AML) Risk Assessment and CDD

Anti-Money Laundering (AML)

Risk Assessment

• Identifying and assessing the level of risk associated with a customer, product, or service
• Factors to consider: customer type, geographic location, product/service offered, and transaction volume
• Risk assessment helps to determine the level of due diligence required

Customer Due Diligence (CDD)

• Verifying customer identity and assessing their risk profile
• CDD involves:
  • Identifying and verifying the customer's identity
  • Understanding the customer's business and transaction patterns
  • Ongoing monitoring of customer activity

Transaction Monitoring

• Ongoing monitoring of customer transactions to identify suspicious activity
• Transaction monitoring involves:
  • Reviewing transactions against predefined rules and scenarios
  • Identifying and reporting suspicious transactions
  • Investigating and resolving alerts

Sanctions Screening

• Screening customers and transactions against sanctions lists
• Sanctions lists include:
  • OFAC (Office of Foreign Assets Control) lists
  • EU sanctions lists
  • UN sanctions lists
• Screening helps to prevent transactions with sanctioned individuals or entities

Compliance Regulations

• AML regulations vary by country and region
• Key regulations include:
  • US: Bank Secrecy Act (BSA) and USA PATRIOT Act
  • EU: EU's 5th Anti-Money Laundering Directive (5AMLD)
  • Global: Financial Action Task Force (FATF) recommendations

Suspicious Activity Report (SAR)

• A report filed with the Financial Crimes Enforcement Network (FinCEN) when a financial institution suspects suspicious activity
• SARs are used to identify and report potential money laundering or terrorist financing activity

USA PATRIOT Act

• Enacted in 2001 to prevent and detect terrorist financing and money laundering
• Key provisions include:
  • Enhanced customer due diligence
  • Increased information sharing between financial institutions
  • Strengthened suspicious activity reporting

Bank Secrecy Act (BSA)

• Enacted in 1970 to prevent money laundering and terrorist financing
• Key provisions include:
  • Customer identification and verification
  • Reporting of cash transactions exceeding $10,000
  • Maintenance of records and reporting of suspicious activity

FinCEN

• A bureau of the US Department of the Treasury responsible for collecting and analyzing financial data
• FinCEN provides guidance and regulation on AML/CFT issues

finTRAC

• A Canadian financial intelligence agency responsible for collecting and analyzing financial data
• finTRAC provides guidance and regulation on AML/CFT issues in Canada

Smurfing

• A type of money laundering technique where a large amount of money is broken into smaller transactions to avoid detection
• Smurfing involves:
  • Structuring transactions to avoid reporting thresholds
  • Using multiple accounts or individuals to disguise the source of funds

Anti-Money Laundering (AML)

Risk Assessment

• Identifies and assesses the level of risk associated with a customer, product, or service
• Factors to consider: customer type, geographic location, product/service offered, and transaction volume
• Risk assessment determines the level of due diligence required

Customer Due Diligence (CDD)

• Verifies customer identity and assesses their risk profile
• CDD involves identifying and verifying the customer's identity
• CDD involves understanding the customer's business and transaction patterns
• CDD involves ongoing monitoring of customer activity

Transaction Monitoring

• Ongoing monitoring of customer transactions to identify suspicious activity
• Transaction monitoring involves reviewing transactions against predefined rules and scenarios
• Transaction monitoring involves identifying and reporting suspicious transactions
• Transaction monitoring involves investigating and resolving alerts

Sanctions Screening

• Screens customers and transactions against sanctions lists
• Sanctions lists include OFAC, EU, and UN sanctions lists
• Screening helps to prevent transactions with sanctioned individuals or entities

Compliance Regulations

• AML regulations vary by country and region
• Key regulations include US: Bank Secrecy Act (BSA) and USA PATRIOT Act
• Key regulations include EU: EU's 5th Anti-Money Laundering Directive (5AMLD)
• Key regulations include Global: Financial Action Task Force (FATF) recommendations

Suspicious Activity Report (SAR)

• A report filed with the Financial Crimes Enforcement Network (FinCEN) when a financial institution suspects suspicious activity
• SARs are used to identify and report potential money laundering or terrorist financing activity

USA PATRIOT Act

• Enacted in 2001 to prevent and detect terrorist financing and money laundering
• Key provisions include enhanced customer due diligence
• Key provisions include increased information sharing between financial institutions
• Key provisions include strengthened suspicious activity reporting

Bank Secrecy Act (BSA)

• Enacted in 1970 to prevent money laundering and terrorist financing
• Key provisions include customer identification and verification
• Key provisions include reporting of cash transactions exceeding $10,000
• Key provisions include maintenance of records and reporting of suspicious activity

FinCEN

• A bureau of the US Department of the Treasury responsible for collecting and analyzing financial data
• FinCEN provides guidance and regulation on AML/CFT issues

FinTRAC

• A Canadian financial intelligence agency responsible for collecting and analyzing financial data
• FinTRAC provides guidance and regulation on AML/CFT issues in Canada

Smurfing

• A type of money laundering technique where a large amount of money is broken into smaller transactions to avoid detection
• Smurfing involves structuring transactions to avoid reporting thresholds
• Smurfing involves using multiple accounts or individuals to disguise the source of funds

Anti-Money Laundering (AML)

Customer Due Diligence (CDD)

• Crucial aspect of AML, involving identification and verification of customers' identities
• Involves gathering information on customers' risk profiles, business activities, and sources of wealth
• Helps assess the risk of money laundering and terrorist financing
• CDD requirements vary depending on customer's risk level, with:
  • Simplified Due Diligence (SDD) for low-risk customers
  • Enhanced Due Diligence (EDD) for high-risk customers

Transaction Monitoring

• Ongoing monitoring of customer transactions to detect and report suspicious activity
• Uses software and algorithms to identify patterns and anomalies in transaction data
• Helps identify potential money laundering and terrorist financing activities
• Transaction monitoring systems can be rule-based or AI-powered

Sanctions Screening

• Process of checking customers, transactions, and counterparties against sanctions lists
• Lists include OFAC, EU, UN, and other sanctions lists
• Helps prevent transactions with individuals or entities subject to economic sanctions
• Sanctions screening is a critical component of AML compliance

Compliance Regulations

• AML regulations vary by country and region, but share common goals:
  • Prevention of money laundering and terrorist financing
  • Detection and reporting of suspicious activity
• Key regulations include:
  • USA PATRIOT Act
  • Bank Secrecy Act (BSA)
  • EU's 5th Anti-Money Laundering Directive (5AMLD)
  • Financial Action Task Force (FATF) recommendations

Suspicious Activity Report (SAR)

• Report filed with FinCEN when a financial institution suspects a customer is engaged in suspicious activity
• SARs are confidential and can lead to further investigation and potential prosecution
• Filing a SAR does not imply wrongdoing, but rather a suspicion of potential wrongdoing

USA PATRIOT Act

• Enacted in 2001 to prevent the use of the US financial system for money laundering and terrorist financing
• Requires financial institutions to implement AML programs, including CDD, transaction monitoring, and sanctions screening
• Expanded the scope of BSA to include additional financial institutions and activities

Bank Secrecy Act (BSA)

• Enacted in 1970 to require financial institutions to maintain records and report certain transactions
• Requires financial institutions to implement AML programs, including CDD, transaction monitoring, and sanctions screening
• Regulated by FinCEN, which is responsible for enforcing BSA and its implementing regulations

FinTRAC

• Financial Transactions and Reports Analysis Centre of Canada, responsible for AML/CTF regulation in Canada
• Receives and analyzes reports of suspicious transactions and other information
• Works with law enforcement agencies to investigate and prosecute money laundering and terrorist financing

Smurfing

• Money laundering technique involving the breakup of large transactions into smaller, less conspicuous transactions
• Used to avoid detection by AML systems and reporting requirements
• Can be detected through transaction monitoring and other AML measures