AML/CFT PDF

AML/CFT Learning Objectives By the end of this paper participants will be able to: Demonstrate clear understanding of Anti-Money Laundering Describe the application of Anti-Money laundering to Insurance business Discuss the basic process of Money Laundering Understand NAICOM Anti-Money Laun...

AML/CFT Learning Objectives By the end of this paper participants will be able to: Demonstrate clear understanding of Anti-Money Laundering Describe the application of Anti-Money laundering to Insurance business Discuss the basic process of Money Laundering Understand NAICOM Anti-Money Laundering Act 2013 Identify the roles of Insurance Institutions in the AML Process Understanding the Concept of Money Laundering Introduction Money laundering is increasingly gaining both national and international attention due to rising financial crimes which is appearing in different shades and sophistication, changing in complexity as the world trade and development increases in volume. The pressure is increasing on institutions to comply with the money laundering regulations because the impact of financial crimes on every organization or society is huge and sometimes unquantifiable. Effectively tracing, monitoring, and managing this menace has gradually become very difficult and expensive, basically because financial crimes has been associated with man since he commenced commerce.. Corporate organizations are required to take effective steps to combat money laundering and engage quicker and more efficient approach to deter money laundering. This imposes on organizations the responsibility to gain holistic overview of money laundering, and its impacts on national economy and international development History of Money Laundering The term "money laundering" is said to originate from Mafia ownership of Laundromats in the United States. Gangsters that were earning huge sums in cash from extortion, prostitution, gambling and bootleg liquor needed to show a legitimate source for these monies. One of the ways in which they were able to do this was by purchasing outwardly legitimate businesses and to mix their illicit earnings with the legitimate earnings they received from these businesses. Laundromats were chosen by these gangsters because they were cash businesses and this was an undoubted advantage to people like Al Capone who purchased them. Al Capone, however, was prosecuted and convicted in October, 1931 for tax evasion. Arising out of this experience: History of Money Laundering "Money laundering is called what it is because that perfectly describes what takes place - illegal, or dirty, money is put through a cycle of transactions, or ‘washed’, so that it comes out the other end as legal, or clean money. In other words, the source of illegally obtained funds is obscured through a succession of transfers and deals in order that those same funds can eventually be made to appear as legitimate income". It would seem that the conviction of Al Capone for tax evasion was the trigger for getting the money laundering business off the ground. Since then, the term has been widely accepted and is in popular usage throughout the world. Definitions of Money Laundering “Money Laundering is the criminal practice of filtering ill-gotten gains or illegal money through a series of transactions involving the bank, such that the funds are “purified” and disguised to look like proceeds from legal activities. It is the process of concealing the original source or existence or illegal application of income with a view to legitimize it. Definitions of Money Laundering What is Money Laundering (ML)? - ML is the process of legitimizing ill-gotten wealth/funds which include derivative and predicate offences Money laundering can be said to be the conversion of proceeds of crime to legitimate status. It is therefore the concealment of proceeds of crime among legitimate wages earned lawfully in a society. It is the attempt at making money that is dirty become clean. Money Laundering is the process of which large amount of illegally obtained money (drug trafficking, terrorist activities or other heinous crimes) is given the appearance of having originated from a legitimate source. Why do People Engage in Money Laundering? To Avoid Prosecution To Increase Profit Illegally To Avoid Seizure of Accumulated Wealth To Appear Legitimate To Manage Tax Evasion Effects of Money Laundering on the Economy Facilitates the ambition Allow Disrupts the of the drug trafficker, Disrupts the criminals economy by the terrorist, the moral maintain Provides a encouraging organized criminals, the foundation of control legitimate idleness, insider dealer, the tax the society by over cover for laziness and evader, the smugglers, encouraging the proceeds illegitimate financial and others who wish to get-rich-quick from income crimes, thus avoid being caught syndrome at any illegitimate lowering because of their illegal cost. sources productivity. transactions. Money Laundering Process Three Stages of Money Laundering Process (VIDEO)  PEC - Five Stages of Money Laundering Process After integration, the illegal money then comes out as clean money 5. Unfettered: through business revenue or claims. The return of funds to the legitimate economy for later extraction. e.g. 4. Integration: putting the funds into the main stream of commerce and investment through the purchase of luxury items, shares, real estates, etc. The creation of complex networks of transactions which attempt to obscure the link between the initial entry point, and the end of the laundering cycle. e.g. 3. Layering Putting the illegal fund which has entered the financial system through series of financial operations to misled potential investigators, and give the funds the appearance of having legal origin The initial point of entry for funds derived from criminal activities. e.g. Placing the proceeds of predicate criminal activities in to bank or non bank financial institutions 2. Placement in order to disguise it; Using “front” such as; Hotels, Cinemas, or Casinos; Using “smurfing” techniques by placing smaller deposits in different places 1. Sourcing: Dirty money is generated from corrupt activities and narcotics; Methods of Money Laundering Move: Illegal cash is introduced into the economy through The money launderer uses commercial concerns The criminal spends transfers, sale and that may be knowingly or the money into the purchase of assets, and unknowingly part of the economy; purchase changes the shapes and laundering scheme, and of flashy cars, big size of the illegal money this ultimately becomes estates, wasteful so as to conceal the trail the interface between a expenditures on between money and crime criminal and the financial luxurious lifestyle or money and criminal sector or investment in assets. Hide: Invest: Sources of Funds in Money Laundering Corruption Proceeds Drug Production Human Trafficking and Trafficking SOURCES Embezzlement, OF Misappropriation, Poaching/ ILLEGAL and Theft of Public Funds Terrorism FUNDS Tax Exemptions Stolen Motor and Evasions Vehicle from Abroad Smuggling of Arms, Minerals and Dangerous Materials  Application of Anti-Money Laundering to Insurance Business Vulnerability of the Insurance Industry The vulnerability of the Insurance sector lies in the following among others: ML can come Perceived Acceptance of through bogus weak cash premium claims by a money regulations of which make it Launderer who the sector in difficult to purchase a terms of the trace sources legitimate business, AML/CTF of funds then arson or other means cause a claim to recover part of that investment Weak Varieties of services implementatio and products offered n of AML/CFT by insurance requirement companies especially those with cash surrender value and investment features. Examples: Possible Areas to watch out In the Insurance Industry Purchase of insurance product Unusual payment methods, such Structured monetary inconsistent with the customer’s of cash and cash equivalents instruments (Smurfing & need when its unusual. splitting) Early termination of a product A customer who shows little (including during the “free look” concern for the investment period) especially at a cost to The transfer of the benefits of performance of a product, but a the customer, or where payment a product to an apparently great deal of concern about the is made by, or the refund check unrelated third party early termination features of a is directed to, an apparently product. unrelated third party. A customer who is reluctant to provide identifying information Short term single premium when purchasing a product, or policy (especially life policies) who provides minimal or seeming unhelpful details. Understanding NAICOM’s Anti-Money Laundering Act of 2013  NAICOM’s Anti – Money Laundry has evolved through … MONEY LAUNDERING ACT ASSOCIATED ACTS INSURANCE LAWS 1. National Insurance 1. Terrorism Commission Act, (Prevention) Act 1997 2011 (as amended) 2. Insurance Act Money Laudering (Prohibition) Act, 2003 2. Terrorism 3. National 2011 (as amended) Prevention (Freezing Insurance of International Commission (Anti- Terrorists Funds and Money other Related Laundering and Measures) Countering the Regulations 2013, Financing of including successor Terrorism) laws and Regulations, 2013 Regulations.  General Requirements Insurance Companies Reinsurance Companies 1) Regulations Brokers apply to all Agents insurance institutions Lost Adjusters Inspection Engineers Marine Surveyors  General Requirements General Insurance Business 2) Life Insurance Business Regulations Annuities apply to all insurance Loss Adjusting transactions All other insurance transactions  General Requirements Establish procedures for responding to authorized requests for information on 3) Set up AML/CFT Issues established procedures Establish framework to ensure and for managing monitor compliance with the and reporting regulation AML/CFT Report AML/CFT Issues to NAICOM, Issues NFIU (Nig. Fin. Intel. Unit) and other law enforcement agencies.  General Requirements Charging or receiving a premium 4) Insurance Institutions that will necessitate a refund of forbidden to any part of that premium to the charge/receive/ refund customer is forbidden premium in Refunding / returning any excess excess of the amount overpaid on a premium actual premium on a policy is forbidden.  General Requirements 5) Insurance Soliciting, acquiring and providing Institutions funds for terrorism is forbidden forbidden to Collecting, receiving or making undertake available funds for terrorist organisation transactions is forbidden with terrorists Making available funds, properties or and or other services, by any means directly or terrorist indirectly, is forbidden organisations  Specific Provisions… 1. Objectives Creating Establishing Enforcing the Awareness - Framework - Regulation - promote enhance ensure compliance with compliance with compliance with subsisting subsisting subsisting legislations on legislations on legislations on AML/CFT AML/CFT AML/CFT  Specific Provisions… 2. AML/CFT Institutional Policy and Programs Establish Establish internal policies procedures Identify to identify and controls to AML/CFT AML/CFT Issues track, record sources in the course of and report an insurance AML/CFT issues transactions  Specific Provisions… 3. Customer Due Diligence Measures Insurance Insurance transactions Insurance institutions shall cannot be institutions should develop necessary undertaken with endeavour to policies and anonymous or know their procedures for fictitious policy customers (KYC) identifying their holders policy holders  Specific Provisions… 4. Suspicious Transactions and Currency Transactions Report Report any currency Identify, document transaction in excess and report any Identify and report of N5M/N10M or its transaction that may any transaction that equivalence in be unusual because lack obvious foreign currency for of size, volume, type economic rationale an individual or or pattern corporate bodies respectively  Specific Provisions… 5. AML/CFT Training Design comprehensive AML/CFT training programs for all employees and agents Implement comprehensive AML/CFT training for all employees and agents Equip all employees and agents with relevant skills to discharge their AML/CFT Compliance task  Specific Provisions… 6. Designation of Compliance and Reporting Officers Appoint designated AML/CFT Chief Compliance Officer at the level of Management Appoint ML Reporting Officer with relevant competence, authority and independence to implement the Company’s AML/CFT compliance  Specific Provisions… 7. Internal control Measures and Record keeping Such review may be carried out by Such report Maintain all Conduct should contain records of independent Company’s suggestions to transactions, review of Internal audit strengthen both domestic Company’s Company’s Inspection AML/CFT & international AML/CFT department implementation for at least 5 program Qualified and program years. Experienced AML Consultants  Specific Provisions… 8. Other High Risk Activities Establish policies Establish polices Subsidiaries and procedures to prevent the outside of the to address risk misuse of country should associated with technological comply with non face-to- development in AML/CFT face businesses AML/CFT issues Measures and transactions  Specific Provisions… 9. Sanctions Contraventions of AML/CFT laws include any of the following penalties: # Fine # Suspension of license # Withdrawal of operating license # Termination of employee’s appointment # Blacklisting an employee from working in the insurance industry # Employee’s name published in Company’s financial reports and Newspapers # Report employee to NFIU, FRC # Report defaulting institutions to Anti-Granft Agencies Roles of Insurance Institutions in AML/CFT Process Roles of Insurance Institutions… Regulators (NAICOM & NFIU) are out to: Insurance Institutions Should: Issue additional/review of existing NAICOM and NFIU KYPG and for Strengthen, develop, and enhanced legislation from time to implement policies, procedures, time. and controls designed to Strengthen AML/CFT supervision prevent and detect ML/TF to enhance compliance Support the development of Establish measures that will capacity in the insurance sector on integrate agents and brokers best practice into their AML programmes Sensitization and awareness and to monitor compliance with creation to the insurance industry the programme. operators Application of appropriate sanctions, etc. Roles of Insurance Institutions Cost of Non-compliance – Insurance Institution Cost of Non-compliance – (S. 21.1 & 3) Employees (S. 21.2 & 3)  Regulatory sanctions  Imprisonment including revocation of license, imposition of  Suspension from professional penalties, etc association  Reputational damages and  Details of officer forwarded to other operational risks that EFCC by NAICOM and could lead to collapse published in the annual accounts  Huge financial cost through penalties  Image impingement and in- house disciplinary actions  Legal risk with EFCC and that may lead to dismissal. other law enforcement agencies that can lead to winding up of the company. Roles of Insurance Institutions Cont’d Benefits of AML/CFT Relationship Managers Compliance  Know your client adequately – possibly as you know yourself  Know your customers completely  Know your customer’s customers Attracts and enhances  Maintain the profile of your patronage through customer customers including customer’s trust and confidence history, transactions, risk classification, as well as Lowers the frequency of continuous update. sanctions/penalties to the  Designed a simplified forms that organization will help to easily actualize this.  Cooperation in supplying the Enhances the management details should be highly of AML/CFT compliance, advocated and encouraged. etc. Fines for None Compliance None development of AML/CFT programme attracts a fine of N1,000,000.00 Failure to file Currency Transaction Report/Suspicious Transaction Report (CTR/STR) within 7 and 30 days - between N500,000.00 and N1,000,000 for each day of contravention Contraventions of any of the provisions attracts not less than N1,000,000 and additional fine of N10,000 for everyday that the offence subsists as well as suspension and withdrawal of operating license Dealing with an anonymous person, a fine of between N10m and N50m in addition to prison terms of between 2 to 5 years. Willful obstruction of the officers of the Commission, Ministry or Agency in their exercise is guilty of N1m with 2 to 3 years jail term. COUNTERPROLIFERATION  What is Counterproliferation? Counterproliferation refers to diplomatic, intelligence, and military efforts to combat the proliferation of weapons, including both weapons of mass destruction (WMD), long-range missiles, and certain conventional weapons. Measures to combat proliferation by analyzing and preventing related financial transactions are referred to as counter-proliferation financing. Nonproliferation and arms control are related terms. In contrast to nonproliferation, which focuses on diplomatic, legal, and administrative measures to dissuade and impede the acquisition of such weapons, counterproliferation focuses on intelligence, law enforcement, and sometimes military action to prevent their acquisition Proliferation financing refers to the act of providing funds or financial services which are used, in whole or in part, for the manufacture, acquisition, possession, development, export, trans-shipment, brokering, transport, transfer, stockpiling or use of nuclear, chemical or biological weapons and their means of delivery and related materials (including both technologies and dual-use goods used for non- legitimate purposes), in contravention of national laws or, where applicable, international obligations. Source: Wikipedia How to prevent Proliferation Finance The first step is education about the risk at hand. This includes conducting an internal risk assessment to better understand potential exposure to proliferation financing and the areas of concern which would require mitigation. Financial institutions should also undertake efforts to move beyond focusing merely on the entities and individuals listed on sanctions lists, and instead familiarize themselves with the wider networks of proliferating actors. Final Statements “…Effective anti-money laundering and combating the financing of terrorism regimes are essential to protect the integrity of markets and of the global financial framework as they help to mitigate the factors that facilitate financial abuse…” - Min Zhu, Deputy Managing Director , IMF THANK YOU THANK THANK YOU YOU ??? ??? ??? ??? ??? ??? ??? ??? ???