Money Laundering and Terrorist Financing

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