Unit 2 Summary PDF

Unit 2 : Comply with Anti-Money Laundering (AML) Regulations 1. Money Laundering Activities and Process 2. Role of AML 3. Types of Accounting Frauds 4. Anti-money laundering laws a...

Unit 2 : Comply with Anti-Money Laundering (AML) Regulations 1. Money Laundering Activities and Process 2. Role of AML 3. Types of Accounting Frauds 4. Anti-money laundering laws and regulations Compliance # Accounting fraud is the intentional manipulation of creating false or misleading financial report. in Singapore 1.1 Money laundering is an illegal process where large amounts of money Officer # Involves one or more accounting professionals and maybe other employees of the company. 4.1 Money laundering is a serious financial crime. # Falsification of the financial statements may be due to: *Singapore adopts a whole-of-government approach generated from criminal activities is disguised to appear as proceeds from Overstating revenue legitimate business. to combat money laundering and terrorism financing Under-recording of expenses (“ML/TF”). *Money can then be spent freely without raising suspicion Misstatement of assets and/or liabilities *Led by the Anti-Money Laundering and Countering the Financing of Terrorism Steering Committee Examples of money laundering crimes: *drug trafficking, *weapons 3.1 Cash Fraud Schemes (“AML/CFT Committee”), comprising Permanent trafficking, *human trafficking, *Bribery, *Tax evasion, *fraud (accounting Secretary (Ministry of Home Affairs), Permanent fraud, commercial fraud, insider trading, smuggling cigarettes, liquor..) *Skimming of Cash Sales Secretary (Ministry of Finance, Managing Director It is the theft of money before been recorded in books of business as receipts from sale of goods/services. (Monetary Authority of Singapore-MAS). *Fraud using voids and sales returns * Other than legislation, MAS sets out guidelines on 1.2 Money laundering process E.g. dishonest employee may void a sale after the customer leaves the store and steal the sales proceeds prevention of money laundering and countering from the cash register. financing terrorism for compliance by various Aim of money laundering: *Stealing cash in hand financial service providers/institutions. *conceal the criminal activity associated with it e.g. drug trafficking, fraud Employees with access to petty cash may steal cash by creating false receipts from vendors. and criminal breach of trust. 4.2 Report suspicious transactions 3.2 Accounts receivable fraud schemes *hide the source and ownership of crime proceeds so that the money *Suspicious Transaction Report (STR) is important in appears to have been obtained legitimately. combating money laundering and terrorism financing. #False credits, discounts and other write-offs *A high level of STR is internationally accepted *use funds to further criminal activities or other businesses. E.g 1 - Accounting personnel steal payments received from credit customers by issuing a credit note for indicator of the existence of a strong AML/CFT(countering defective merchandise. This reduces balance of amount due by the customer, enabling the accounting financing of terrorism) regime. 3 stages of “operations” - placement, layering and integration. personnel to pocket the difference. *Singapore’s Financial Intelligence Unit is known as E.g 2 - Perpetrators issue a write-off on receivable accounts that are slow in payment, enabling them to STRO (Suspicious Transaction Reporting Office). It (a) Placement steal the payments received from those accounts. *receives STRs and other financial information such as Obtain funds illegally and assets are first brought into the financial Cash Movement Reports (CMRs) and Cash Transaction #Kickbacks institution. Reports (CTRs) and It is an illegal commission paid to someone in exchange for preferential treatment. * analyse them to detect money laundering, terrorism A kickback favors the individual receiving the commission, usually at the expense of the person's employer. financing and other serious crimes. (b)Layering E.g. a buyer receives kickbacks from a supplier in exchange for being issued a purchase order in preference *Use multiple accounts, banks and intermediaries to disguise the origin of over other suppliers whose goods or services may be of lower price or higher quality. In this case, the *Regulators for several reporting industries require the illegally obtained funds and assets. employer of the buyer suffers from the kickback arrangement, since it must then pay more for purchases or businesses to comply with the AML/CFT legislation and deal with lower-quality goods or services. *Generate a series of transactions to distance the proceeds from their regulations. illegal source and obscure the audit trail. 3.3 Inventory fraud schemes Examples: Examples of requirements: *customer due diligence, #Outbound electronic funds transfers into a “bank secrecy haven” or a *record keeping, *internal controls, *training *Theft of inventory (includes retail merchandise, raw materials of finished goods) *suspicious transaction reporting jurisdiction with lax record-keeping and reporting requirements. *Sales returns schemes - sales returns recorded for products returned by customers, were not re-stocked in #Withdrawals of already-placed deposits in the form of highly liquid the inventory, but was being sold off by the perpetrators. -have issued the industry specific guidelines and monetary instruments, such as money orders or travelers checks. indicators on detection and reporting of STRs. 3.4 Payables and disbursement fraud schemes (c)Integration List of some of reporting industries required to comply *False or inflated invoices from vendors *Laundered money then appear as legitimate or legal, with the AML/CFT legislation and regulations: E.g. Employees submit false invoices to commit theft or collude with vendors to accept false of inflated *Bank. *Finance Company, *Casino Operator, *Law *unnoticed reinsertion of successfully laundered, untraceable funds into an invoices in return for kickbacks. Practice, *Legal Practitioner, *Moneylender, economy. *Duplicate payments - perpetrators make second payment for a vendor invoice. These payments will be *Money Changing, * Remittance Business, *money launderer spends the funds in transactions which appear made to themselves. *Pawnbroker, *Professional Accountant, *Auditor legitimate, often across borders.  7.Basic Criminal 8.Basic Criminal Offences 5. Customer Due Diligence and Importance through Know Your Offences under 6. Implementation of Anti-money Laundering Controls under Terrorist Financing Customer(KYC) AML Legislation 5.1 What is customer due diligence? 6.1 Criminalisation *Financial institutions and corporate service providers required to implement controls and parameters to detect suspicious transactions through procedures such as the customer due diligence process. *Money laundering and financing terrorism are considered criminal activities in Singapore. *It protects the integrity of businesses, financial institutions and the economy. *There are legislative requirements to report suspicious transactions to the authorities. *If not, institutions can become subject to misuse for purposes of money laundering, terrorism financing and corruption. 6.2 KYC *Customer due diligence required for institutions (covered by AML and CFT regulations) and which enter a business relationship with a customer. This means *Financial institutions must have KYC policies in place to help to prevent *identifying the customer and the persons connected to it and then *verify information collected by obtaining supporting documents. This process money laundering. *applies to new and existing customers on an ongoing basis to ensure that records remain up- *They must monitor customers activities and understand the types of to-date and relevant. transactions that should raise red flags. *Financial institutions must report suspicious activity to a financial (a)Customer due diligence measures investigation unit. *Identify the customer. *Identify the beneficial owner. KYC required for *Verify customer’s identity using reliable independent source documents, data or information (1) Opening of a bank account and taking reasonable measures to verify the identity of the beneficial owner. *Understand and obtain information (where appropriate) on purpose and intended nature of (2) Application of credit card/loan business relationship. (3) Opening of subsequent accounts *Conduct ongoing due diligence on continuing business relationship and *scrutinise transactions undertaken throughout the course of that relationship, 6.3 Record Management *ensure transactions conducted are consistent with the professional firm’s knowledge of the customer, their business, risk profile and source of funds. *Financial institutions and businesses also keep detailed records of transactions and implement software that can flag suspicious activities. (b) Supporting documents required *Customer data can be classified according varying levels of suspicion, and *Passport/NRIC details of individuals. transactions denied if they meet certain criteria. * Documents e.g. utility bills, bank statements, etc of individuals. *Details of company’s business and ownership structure (for corporate customers. * Recent and current financial statements (for corporate customers).