Money Laundering and Terrorist Financing

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Questions and Answers

What is the primary difference between Money Laundering and Terrorist Financing?

Sources of funds

Timeline of activities

Amount of money involved

Purpose of the funds (correct)

Politically Exposed Person (PEP) refers to individuals who hold or have held prominent public positions.

True

What does CDD stand for and what is its purpose?

CDD stands for Customer Due Diligence. Its purpose is to verify a customer’s identity and assess the level of criminal risk they present.

During the ______________ stage of money laundering, funds are moved, dispersed, and disguised.

layering Signup and view all the answers

Match the following with their definitions:

Placement = Placing 'dirty' money in the financial system Layering = Disguising the source of funds through financial transactions Integration = Making laundered money appear 'clean' in the financial system Signup and view all the answers

Define Partial Name Match.

A partial name match is when there is a partial match between identifiers in the Sanctions Lists with any information in your databases, and you are unable to conclude a false positive or a confirmed match. Signup and view all the answers

Explain Confirmed Match.

A confirmed match is when an individual, entity, or group matches all of the key identifiers published on the Sanctions Lists. Signup and view all the answers

What is a False Positive Result?

A false positive is a partial name match to listed individuals, entities, or groups, either due to the common nature of the name or due to ambiguous identifying data, which on examination proves not to be a confirmed match. Signup and view all the answers

What is a Negative Result in screening?

A negative result is when no match is identified upon conducting screening. Signup and view all the answers

What is the purpose of a Suspicious Activity Report (SAR)?

To alert law enforcement of potential money laundering or terrorist financing. Signup and view all the answers

What is the purpose of KYC?

Identifying and verifying customer identity to prevent financial crimes Signup and view all the answers

What are the essential components of a KYC process?

Risk assessment Signup and view all the answers

Match the following terms with their features: KYC and CDD

Purpose = Identify and verify customer identity / Assess money laundering and terrorist financing risks Timing = Onboarding / Ongoing Approach = Risk-based / Risk-based Scope = Basic customer information / Detailed customer profile, transaction history, and risk assessment Signup and view all the answers

How do you verify the identity of a customer during the KYC process?

Government-issued IDs, passports, proof of address, and other supporting documents Signup and view all the answers

What is the difference between KYC and CDD?

KYC involves identifying and verifying customer identity, while CDD assesses money laundering and terrorist financing risks Signup and view all the answers

What are the main components of an effective AML/KYC program?

Customer Identification Program, Customer Due Diligence, Enhanced Due Diligence, Transaction Monitoring, Reporting, Training and Awareness Signup and view all the answers

How do you verify a customer's identity during the KYC process?

Document Verification, Address Verification, Biometric Verification, Database Checks Signup and view all the answers

What are the consequences of non-compliance with AML and KYC regulations?

Reputational damage, Monetary penalties, Legal actions, Loss of licenses, Restrictions on business operations, Increased risk exposure Signup and view all the answers

Politically Exposed Persons can be individuals holding high-profile political roles.

True Signup and view all the answers

Sanctions are restrictions imposed on a country, a specific person, a legal entity, or an organization to prevent activities such as financial crime or ____________.

terrorism Signup and view all the answers

Which types of measures can non-financial sanctions encompass?

Academic boycotts Signup and view all the answers

What is the responsibility of the United States Treasury Office regarding sanctions?

Administering and enforcing autonomous US sanctions and embargoes. Signup and view all the answers

The Hawala system is based on trust and reputation rather than formal contracts and paperwork, and it involves conducting ______________.

remittances Signup and view all the answers

Match the following countries with the respective sanctioned country:

Cuba = Cuba Syria = Syria Iran = Iran North Korea = North Korea Myanmar = Myanmar Ukraine = Ukraine Venezuela = Venezuela Sudan = Sudan Crimea = Crimea Signup and view all the answers

The Hawala system is primarily based on formal contracts and paperwork.

False Signup and view all the answers

What is the meaning of Due Diligence?

The process of thorough investigation and analysis conducted before making a decision or entering into a business arrangement Signup and view all the answers

What are the main components of an effective AML/ KYC program for DPMS?

Risk Assessment Signup and view all the answers

What does OFAC stand for and what is its mission?

Office of Foreign Assets Control; Administers and enforces economic and trade sanctions based on US foreign policy and national security goals against targeted foreign countries and regimes Signup and view all the answers

The countries sanctioned by OFAC include ___, _, _, _, and ___.

Iran, Syria, Cuba, N.Korea, Sudan Signup and view all the answers

What is the role of a Compliance Manager?

To ensure the company complies with all legal regulations and ethical standards, conducting assessments, coordinating investigations, identifying risks, training staff, and reviewing compliance reports Signup and view all the answers

Study Notes

Definitions

Money Laundering: process of disguising the original ownership and control of criminal proceeds to make them appear legitimate
Terrorist Financing: activities that provide financial support to terrorists
Sanctions: political and economic decisions to protect national security interests or international law
Politically Exposed Person (PEP): natural persons with prominent public functions, including Heads of Government, Senior Politicians, State Government officials, etc.

Customer Due Diligence (CDD)

Act of collecting and identifying information to verify a customer's identity and assess criminal risk
Foundations of the Know Your Customer (KYC) process
Enhanced Due Diligence (EDD) required for high-risk customers

High-Risk Customers

Politically Exposed Persons (PEPs)
Dealers in precious metals and stones
Real Estate Agents
Beneficial owners
Lawyers, Accountants, and Auditors with financial dealings for customers
Shell Companies/Front Companies

Stages of Money Laundering

Placement: introducing "dirty" money into the financial system
Layering: concealing the illegal origin of funds through financial transactions
Integration: integrating laundered money back into the economy

AML/CFT Business Risk Assessment

Identifying and documenting risks inherent to the business activity
Considering customer risk, geographic risk, channel risk, products risk, and transactions risk

High-Risk Geographies

Sanctioned countries
Weak AML jurisdictions
Offshore destinations
Countries known for drug trafficking and terrorism
Countries with low rankings on the Corruption Index

Targeted Financial Sanctions

Freezing of funds owned or controlled by designated individuals or legal entities
Prohibition of making funds or supply of precious metal or stones
Reporting obligations for freezing and suspension measures

TFS Additional Obligations

Implementing the freezing and cancellation decision
Notifying the Supervisory Authority and the Executive Office
Cooperating with the Supervisory Authority and the Executive Office

Suspicious Activity Reporting

Suspicious Transaction Report (STR)
Suspicious Activity Report (SAR)
High-Risk Country Transaction Report (HRC)
High-Risk Country Activity Report (HRCA)

Suspicious Transaction Indicators

Unnecessarily complex transactions
Transactions without economic or commercial rationale
Large unexplained cash amounts
Transactions involving high-risk countries
Frequent or unexplained changes in ownership or business activities

AML/CFT Suspicious Transaction Indicators

Unnecessarily complex transactions
Transactions without economic or commercial rationale
Large unexplained cash amounts
Transactions involving high-risk countries
Frequent or unexplained changes in ownership or business activities

Customer Behavior Red Flags

Avoiding personal contacts or refusing to provide information
Using fake documents or unverifiable email addresses
Parties involved from high-risk countries or sanctioned countries
No apparent commercial reason for the parties to be connected

Company Behavior Red Flags

Frequent changes to business name or registration
Registration of company in a tax haven
Multiple sole proprietorship businesses set up by seemingly unrelated people

Trade-Based Money Laundering (TBML) Red Flags

Cash payments for high-value orders
Misclassification of weight, origin, and value on customs declaration forms
Goods shipped to or from high-risk jurisdictions
Goods transshipped through high-risk jurisdictions without apparent economic reason

Payment (Fund Transfer) Red Flags

High-value/volume funds transfers without logical purpose
Small amount fund transfers to avoid triggering alerts
Funds transfers without originator information
Transactions involving foreign currency followed by funds transfers to high-risk locations### Financial Action Task Force (FATF)
Established in 1989, headquartered in Paris
Released 40 Recommendations in 2000, serving as the international standard for countries to create national legal and regulatory frameworks
39 member countries, with Indonesia being the 40th member country
Primary aim is to combat money laundering, terrorist financing, and other threats to the integrity of the international financial system

FATF Grey List

As of 27th October 2023, countries on the Grey List include:
- Barbados, Burkina Faso, Croatia, Gibraltar, Jamaica, South Africa, and others
Countries on the Blacklist:
- Iran, North Korea, Myanmar

Executive Office of Anti-Money Laundering and Counter Terrorism Financing (EOCN)

Established in 2021, responsible for overseeing the implementation of the National AML/CFT Strategy and National Action Plan
Tasks include monitoring and assessing risks related to AML/CFT, financing illegal organizations, and financing proliferation

Designated Non-Financial Businesses and Professions (DNFBP)

Include:
- Lawyers and Notaries
- Accountants and Auditors
- Real Estate Agents
- Trust and Company Service Providers
- Dealers in Precious Metals and Stones
- High-Value Goods Dealers
These professions are subject to AML and CTF regulations

Dual-Use Goods

Include strategic goods, technology, and software that can be used for both civilian and military applications
Examples: chemicals with dual-use applications, and goods that contribute to the proliferation of Weapons of Mass Destruction

AML/KYC Program

Components:
- Customer Identification Program (CIP)
- Customer Due Diligence (CDD)
- Enhanced Due Diligence (EDD)
- Transaction Monitoring
- Reporting
- Training and Awareness

KYC Process

Verifying customer identity:
- Document Verification
- Address Verification
- Biometric Verification
- Database Checks

Compliance with AML and KYC Regulations

Adhere to internal policies and procedures
Conduct thorough customer due diligence and maintain up-to-date customer records
Continuously monitor customer transactions for suspicious activities
Report suspicious transactions promptly to the appropriate authorities
Stay updated on regulatory changes and attend regular training sessions

Consequences of Non-Compliance

Reputational damage
Monetary penalties
Legal actions
Loss of licenses
Restrictions on business operations
Increased risk exposure to money laundering, terrorist financing, and other illicit activities

AML/KYC Processes and Changing Regulations

Review regulatory updates, guidelines, and industry best practices
Participate in training programs and attend conferences or seminars
Establish strong communication channels with regulatory bodies and compliance professionals

Risk Assessment

Evaluating factors such as:
- Geographic location
- Nature of business
- Source of funds
- Expected transaction volume
- Past financial behavior
Categorizing customers as low, medium, or high risk

Suspecting Money Laundering Activities

Documenting and preserving evidence
Reporting suspicious activity to the AML officer or compliance department
Coordinating with the AML officer to file a suspicious activity report (SAR)
Cooperating with law enforcement or regulatory agencies during investigations

Privacy and Confidentiality of Customer Data

Adhering to data protection laws and regulations
Limiting access to customer information
Utilizing secure systems and technologies
Conducting regular audits to identify and address vulnerabilities

Identifying Beneficial Owners

Starting with top-level shareholders
Looking for individuals who control voting rights
Collecting company data
Identifying individuals with significant ownership or control positions
Monitoring changes and collecting data on beneficial owners

Politically Exposed Persons (PEP)

Individuals with a high-profile political role
Classifications:
- Foreign PEP
- Domestic PEP
- International PEP
- Relatives and Close Associates

The 3 Quadrants of Risk

High Risk:
- Ruling Royal Families
- Heads of State and government
- Members of government
- Senior officials of other state agencies and bodies
Medium Risk:
- Members of regional government
- Senior officials of international and supernational organizations
Low Risk:
- Mayors and members of local government
- Senior executives of local governmental bodies

Sanctions

Restrictions imposed on a country, person, legal entity, or organization
Types of sanctions:
- Multilateral
- Autonomous
- Economic
- Arms Embargoes
- Travel Bans and Visa Restrictions
- Diplomatic Sanctions
- Targeted Sanctions
- Multilateral Sanctions
- Non-Financial Sanctions

Specially Designated Nationals (SDNs)

Individuals or entities (financial institutions, companies, etc.) linked to human rights abuses, nuclear proliferation, terrorism, etc.
Designated by authorities for various reasons

Implementing Sanctions

UAE: Central Bank of the UAE
European Union: EU implements sanctions and embargoes under the Common Foreign and Security Policy (CFSP) framework
United Kingdom: Her Majesty’s Treasury (HMT)
United States: Office of Foreign Assets Control (OFAC)
United Nations: United Nations Security Council (UNSC)

Sanctioned Country List

Cuba, Syria, Iran, North Korea, Myanmar, Ukraine, Venezuela, Sudan, and Crimea

Sanctions Risk Mitigation Process

Grey Category: Conducting EDD on individuals from sanctioned countries, but not listed as SDN
Red Category: Do not deal with entities and individuals from certain countries
Proof of Residency: Documents required to verify residency

AML/CFT Sanctions

Procedures for identifying and preventing money laundering and terrorist financing
AL AYA GOLD LLC Sanction Procedure and Control: abiding by the UAE Cabinet's Resolution (74) of 2020### AML and KYC Regulations
Regularly screen databases and transactions against names on lists issued by the UN Security Council, Sanctions Committee, or Local Lists
Implement freezing measures without delay when a match is found
Implement decisions to lift freezing measures without delay, pursuant to Relevant UNSCRs or decisions of the Cabinet
Notify the Supervisory Authority in certain cases, including identification of funds and actions taken, detection of matches with listed persons or entities, and suspicion of a customer being listed

Concept of Anti-Bribery and Anti-Corruption

Anti-bribery: measures and strategies to prevent and combat bribery, aiming to ensure fair, transparent, and ethical practices
Anti-corruption: encompasses a broader scope, addressing all forms of corrupt behavior, promoting integrity, accountability, and transparency in both public and private sectors

Hawala System

A way of conducting remittances based on trust and reputation rather than formal contracts and paperwork
Involves a hawaladar receiving money from a customer and using a network of trusted contacts to transfer the funds to the recipient

Screening and Transaction Monitoring

Screening: focuses on uncovering various risks, including sanctioned individuals or entities, politically exposed persons, links to terrorist organizations, and high-risk countries or jurisdictions
Transaction monitoring: flags suspicious activities, such as large or unusual transactions, transactions beyond a customer's typical behavior, and involvement with high-risk countries

Suspicious Activity Report (SAR)

Header information: official header, including the reporting institution's name, address, contact information, and date of the report
Identifying information: complete name and any known aliases or alternative names of the subject(s) involved
Background information: briefly explain the relationship between the institution and the subject, including how the institution came into contact with the subject
Activity description: describe the nature and purpose of the account or relationship
Rationale for suspicion: explain why the activity raises concerns and what led you to believe it may be related to money laundering, fraud, or other illegal activities
Regulatory references: cite relevant regulatory provisions that require the reporting of suspicious activities
Impact assessment: describe the potential impact of the suspicious activity on the institution
Supporting documents: attach any supporting documents, records, or evidence that substantiate the SAR
Review and approval: indicate that the report has been reviewed and approved by appropriate personnel
Filing and reporting: specify the intended recipient of the SAR and the method of submission
Confidentiality and protections: include a statement regarding the confidentiality of SARs and the legal protections afforded to those who file them

Shell Companies

Can be used to launder money by concealing the true ownership of assets and making it difficult for authorities to trace the origin of funds
Process: incorporation, opening a bank account, layering, and integration

KYC (Know Your Customer)

Process of verifying and identifying customers to prevent financial crimes
Essential components: customer identification, customer due diligence, risk assessment, ongoing monitoring, and reporting of suspicious activities
Difference between KYC and CDD: KYC focuses on identifying and verifying customer identity, while CDD assesses money laundering and terrorist financing risks

Politically Exposed Persons (PEPs)

Individuals who hold prominent public functions or positions in foreign or domestic countries
Handling high-value transactions from PEPs: identify the PEP, assess the risk, conduct enhanced due diligence, verify the source of funds, and maintain comprehensive records

AML (Anti-Money Laundering)

Identify the source of funds: customer due diligence, document verification, risk assessment, transaction monitoring, enhanced due diligence, and source of wealth verification
How to ensure compliance with AML and KYC regulations: adhere to internal policies, conduct thorough customer due diligence, continuously monitor customer transactions, report suspicious transactions, and stay updated on regulatory changes

Trust, Holding, and Foundation Companies

Key differences: purpose, ownership, control, taxation, and regulation
Trust companies: manage and hold assets for the benefit of beneficiaries, regulated by trust law
Holding companies: own and control shares in other companies, regulated by corporate law
Foundation companies: manage and hold assets for a specific charitable or philanthropic purpose, regulated by foundation law

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Description

Learn about the concepts of money laundering and terrorist financing, including their definitions and characteristics.