Money Laundering Notes (CAMS)

I. SECTION 1: EXAM TIPS

 Disclaimer
o The material contained herein is in no way associated with the ACAMs or any
copyrighted source.
o The information has been formatted by the owner using public sources which are
free in nature and do not infringe copyright.
o The information in this lesson is the work product of the producer of this video
and not meant to be reproduced without the owner’s consent.

 General Exam Tips

o Download and review the exam objectives;
o Make a skeleton outline from the objectives;
o Read the text in full once;
o Create a list of definitions from either the text, website, etc.;
o Complete the online modules;
o While completing the online modules, take notes by filling in the objective outline;
o Go through the textbook again: this time, highlight and extract information based on
information that is relevant to the objective outline;
o Once you have done this, you can look at your outline and identify the gaps or
concepts about which you remain unsure;
o Visit the relevant public websites (competent authorities, government, organization
websites to find examples, definitions and further information);
o Take that information and add it to your outline;
o Listen to the audiobook to identify both what you have learnt and what gaps need to
be filled in your outline;
o Go through the exam objectives again (the version without your notes). See if you
can answer these without your notes. Highlight the ones you cannot answer and
focus on those, until you have them cold; and
o Do the practice exams. While checking the answers, highlight the ones you missed.
Double check them against your notes and supplement as necessary.
o Be alert when you read the questions. There may be more than one correct answer
but there may also be the BEST or MOST correct answer. This all depends on what
the question is asking.

II. PART 2: BASICS OF MONEY LAUNDERING

 Terrorist Financing vs. Money Laundering

o Terrorist financing uses funds for illegal purposes.
 Money is not necessarily derived from illicit proceeds.

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 o Money Laundering could use funds for legal purposes.
 Always involves proceeds from illegal activity.
 Stages of Money Laundering (Mentioned in the USA PATRIOT)
o Placement is the physical disposal of cash or assets derived from criminal activity.
 Introduction of illicit proceeds into the financial system. This is achieved by
placing the funds into circulation through formal financial institutions,
casinos and businesses.
o Layering is the separation of illicit proceeds from their source by layers of financial
transactions intended to conceal the origin of the proceeds.
 Converting the proceeds of the crime into another form and creating
complex layers of financial transactions to conceal the source and ownership
of the funds.
 Co-mingling illegitimate funds with legitimate ones; making foreign exchange
transactions with illegal funds; and depositing small amounts of cash into
various accounts.
o Integration occurs by supplying apparent legitimacy to illicit wealth through the re-
entry of the funds into the economy in what appears to be normal business or
personal transactions.
 Laundering proceeds in seemingly normal transactions to create the
perception of legitimacy.
 Mental State required to establish Money Laundering as defined by FATF & EU Directive
o “the intent and knowledge required to prove the offense of money laundering
includes the concept that such a mental state may be inferred from objective factual
circumstances.”
o A number of jurisdictions also use the legal principle of willful blindness in money
laundering cases to prove knowledge. Courts define willful blindness as the
“deliberate avoidance of knowledge of the facts” or “purposeful indifference” and
have held that willful blindness is the equivalent of actual knowledge of the illegal
source of funds or of the intentions of a customer in a money laundering
transaction.
 Economic Consequences of Money Laundering
o Enhanced profitability of criminal activity;
o One of the most serious microeconomic effects of ML is felt in the private sector by
undermining the legitimate private sector;
o Weakened financial institutions;
o Effect on foreign investment;
o Government loss of control;
 Illicit proceeds dwarfing government budgets.
o Economic distortion and instability;
 Currency and interest rates and/or
 Certain markets are affected.
o Loss of tax revenue;
o Privatization of state-owned property and resources to money launders;

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 o Reputation of the country (as a haven); and
o International sanctions.
 Social consequences of ML
o Reputational Risks – loss of public confidence in the integrity of the organization.
o Operational Risks – loss resulting from inadequate internal process, personnel
systems or from external events.
o Legal Risks – lawsuits, judgments, unenforceable contracts, increased expenses for
an organization, closure of the organization.
o Concentration Risks – the potential for loss resulting from too much credit or loan
exposure to one borrower or group of borrowers.
III. MONEY LAUNDERING LAWS
 Applicable laws
o When breaking down laws you want to list the following:
 Date enacted;
 Purpose of law;
 List the applicable sections of the law;
 Who is the law applicable to;
 Enforcement;
 Exceptions; and
 Case examples.

 Money Laundering Act of 1986 18 USC § 1956

o (a)
 (1) A person who knowingly is involved in a transaction involving the
proceeds of some form on unlawful activity
 (A)
 (i) with the intent to promote the carrying on of specified activity or
 (ii) with the intent to engage in conduct constituting a violation of
7201 or 7206 of the Internal Revenue Code;
o 26 U.S. Code § 7201 - Attempt to evade or defeat tax
o 26 U.S. Code § 7206 - Fraud and false statements
OR
 (B) Knowing that the transaction is designed in whole or in part -
 (i) to conceal or disguise the nature, location, source or ownership or
control of the proceeds of unlawful activity or
 (ii) to avoid transaction reporting requirements under state and
Federal Law.
 shall be sentenced to a fine of not more than $500,000 or twice the value of
the property involved in the transaction, whichever is greater, or
imprisonment for not more than twenty years or both.

 (2) Whoever transports, transmits, transfers a monetary instrument or funds

from a place in the US to or through the US to outside of the US -

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  (A) with the intent to promote the carrying on of specified unlawful activity
or
 (B) knowing that the monetary instrument or funds involved in the
transportation, transmission or transfer represent the proceeds of some
form or unlawful activity and knowing that such transportation is designed in
whole or part -
 (i) conceal or disguise the nature of the location, source, ownership or
control the proceeds of specified unlawful activity; or
 (ii) to avoid a transportation reporting requirement under State and Federal
Law.
 shall be sentenced to a fine of not more than $500,000 or twice the value of
the monetary instrument of funds involved in the transportation,
transmission or transfer whichever is greater or imprisonment for not more
than twenty years, or BOTH.
 (3) Whoever, with the intent-
 (A) to promote the carrying on of specified unlawful activity;
 (B) to conceal or disguise the nature, location, source, ownership or control
of property believed to be the proceeds of specified unlawful activity; or
 (C) to avoid a transaction reporting requirement under state or federal law or
attempts to conduct a financial transaction involving property used to
conduct or facilitate specified unlawful activity, shall be fined under this title
or imprisoned for not more than 20 years or both.
o (b) Penalties –
 (1) Whoever conducts or attempts to conduct a transaction in subsection 1, 2
or 3 is liable for a civil penalty of not more than the greater of -
 (A) the value of the property or
 (B) $10,000
 (2) Jurisdiction over foreign persons – for purposes of adjudicating an action
filed or enforcing a penalty, district courts have jurisdiction over a foreign
person. If that foreign person:
 (A) commits an offense under this law;
 (B) converts his or her own property in which US has ownership;
interest by virtue of the entry of an order of forfeiture by US court; or
 (C) foreign person is a financial institution that maintains a bank
account at a financial institution in the US.
 (3) Court authority over assets – may issue a pretrial restraining order or take
any other action necessary to ensure that any bank account or other
property held by the defendant in the United States is available to satisfy a
judgment under this section.
 (4) Federal Receiver (appointment)

o Definitions

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  Financial transaction means a transaction which affects interstate or foreign
commerce and involves the movement of funds by wire or other means, one
or more monetary instrument, or the transfer of property, vehicle, vessel or
aircraft. see (c)(4)(A)(i)-(iii)
 or
 involves a financial institution which is engaged in activities of which affects,
interstate or foreign commerce in any way or degree. See (c)(4)(B).
o Predicate Offenses
 Predicate Offenses are crimes underlying money laundering or terrorist
finance activity.
 Includes every racketeer influenced and corrupt organization (RICO)
predicate offense, including each “federal crime of terrorism.”
 Sale of Drugs
o Joaquin “El Chapo” Guzman Loera was indicted in New York
for Leading a Continuing Criminal Enterprise and other Drug-
Related Charges. Guzman Loera is also charged with using
firearms in relation to his drug trafficking and money
laundering. The laundering related to the bulk smuggling
(from the US to Mexico) of more than $14 billion in cash
proceeds from narcotics sales throughout the United States
and Canada.
 Securities Fraud
o Brown and Goldenberg, along with others, participated in a
large-scale stock fraud scheme perpetuated by Delta, its
managers and employees. Numerous witnesses and
supporting documentary evidence established that Brown and
Gary Todd created B&G Consulting, which the Government
proved was used by both Brown and Todd to launder money
and funnel kickback payments. There was also evidence
presented that showed Brown was involved in money
laundering through certain jewelry stores and that Brown
personally participated in providing cash payments to Delta
employees.
o Defendant Pagartanis ran a ponzi scheme where he defrauded
17 investors out of 13 million from 2000 - 2018. Defendant
told victims that their capital would be invested in legitimate
real-estate related investments. He provided them with
publicly available literature via the internet, from an unrelated
third-party company. He had no affiliation with this company
whatsoever. He made materially false and fraudulent
representations to victims using interstate communications,
including telephone calls and e-mails. In addition, he used the
funds from new investors to pay returns to new ones. Among

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 the charges that Defendant was indicted on were: wire fraud,
securities fraud and money laundering. The defendant
knowingly engaged in unlawful activity activities (wire fraud
and securities). Such transactions were designed in whole or
part to conceal disguise the nature and source of the funds,
which meets the test for money laundering.
 Foreign Corruption Practices Act (FCPA)
o Rule
 Prohibits companies and their individual officers from
influencing foreign officials with any personal
payments or rewards.
o Purpose
 Enacted the FCPA to bring a halt to the bribery of
foreign officials and to restore public confidence in the
integrity of the American business system.
o Application
 The FCPA applies to any person who has a certain
degree of connection to the United States and engages
in corrupt practices abroad, as well as to US
businesses, foreign corporations trading securities in
the US, American nationals, citizens, and residents
acting in furtherance of a foreign corrupt practice,
whether or not they are physically present in the US
o Enforced
 Securities Exchange Commission (Sec)
 Department of Justice (DOJ)
 FINCEN
o Connection to Money Laundering
 Violating FCPA is not automatically Money Laundering.
 Since the payments received are derived from an
illegal activity (bribe), the subsequent attempt to
legitimize the funds then becomes an act of money
laundering.
o Advisement Cases
 FINCEN Advisory on Human Rights Abuses Enabled by
Corrupt Senior Foreign Political Figures and their
Financial Facilitators.
 A foreign official can be prosecuted under the money
laundering statute but not the FCPA statute.

 18 U.S. Code § 1957

o Engaging in monetary transactions in property derived from specified unlawful
activity.

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 o prohibits depositing or spending more than $10,000 of the proceeds from a
predicate offense.

 Bank Secrecy Act 1970 (BSA) AKA Currency and Foreign Transaction Reporting Act
o Rule: authorizes the US treasury secretary to issue regulations that impose extensive
record-keeping reporting requirements on financial institutions.

 Application Reporting requirements

 FinCEN Form 112 (formerly Form 104) Currency Transaction
Report (CTR): CTR must be filed for each deposit, withdrawal,
exchange of currency, or other payment or transfer, by, through or
to a financial institution, which involves a transaction in currency of
more than $10,000.
 FinCEN Form 105 Report of International Transportation of
Currency or Monetary Instruments (CMIR): Each person (including
a bank) who physically transports, mails or ships, or causes to be
physically transported, mailed, shipped or received, currency,
traveler's checks, and certain other monetary instruments in an
aggregate amount exceeding $10,000 into or out of the United
States
 FinCEN Form 114 (formerly Treasury Department Form 90-22.1)
Report of Foreign Bank and Financial Accounts (FBAR): Each
person (including a bank) subject to the jurisdiction of the United
States having an interest in, signature or other authority over, one
or more bank, securities, or other financial accounts in a foreign
country must file an FBAR if the aggregate value of such accounts
at any point in a calendar year exceeds $10,000.
 Treasury Department Form 90-22.47 and OCC Form 8010-9, 8010-
1 Suspicious Activity Report (SAR): Banks must file a SAR for any
suspicious transaction relevant to a possible violation of law or
regulation.
o When financial institution suspects an insider is committing
a crime.
o When an entity detects a possible crime involving $5,000 or
more AND has substantial basis for identifying a subject.
o When any entity detects a possible crime involving $25,000
or more even if there is no substantial basis for identifying
the suspect.
o When entity suspects currency transactions aggregating
$5,000 involving money laundering or violation of the act.
 FinCEN Form 110 Designation of Exempt Person: Banks must file
this form to designate an exempt customer for the purposes of CTR
reporting under the BSA. In addition, banks use this form biennially

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 (every two years) to renew exemptions for eligible non-listed
business and payroll customers.
o Transactions falling under the Electronic Funds Transfer
Act, made through automated clearinghouse, ATM, or
point-of sale are exempt from this act (book).
 Record Keeping
 Monetary Instrument Log (MIL) must indicate cash purchases of
monetary instruments, such as money orders, cashier's checks and
traveler's checks, in value totaling $3,000 to $10,000, inclusive.
o Name, address, SSN purchaser, date of Purchase,
instrument, serial number
 Checks, wire transfers, direct deposits over $100.
o Financial institutions must file and retain microfilm copies
of checks meeting this criterion. 31 CFR 1020.410
 BSA requires that a bank maintain most records for at least five
years.
 Record Keeping Exception – The BSA does not require a bank to
maintain records for the following types of funds transfers: (1)
funds transfers where both the originator and beneficiary are the
same person and that originator’s bank and the beneficiary’s bank
are the same bank; and (2) transfers where the originator and
beneficiary are any of the following:
o Bank;
o A wholly owned domestic subsidiary of a bank chartered in
the United States;
o A broker or dealer in securities;
o A wholly owned domestic subsidiary of a broker or dealer in
securities;
o The United States;
o A state or local government; and
o A federal, state, or local government agency or
instrumentality.
o Money Laundering and US Patriot Act of 2001 (anti-terrorism) amended the BSA
act. Covered financial institutions must comply with ‘Know Your Customer’ (KYC)
requirements:
 Information sharing regulations and participation in cooperative efforts;
 Identification of beneficial owners of accounts;
 Development and implementation of formal ML programs; and
 BSA expansions, new reporting and record-keeping requirements for
different industries (such as broker dealers) and currency transactions.
o Private Right of Action (BSA): NO. MB Financial Bank N.A -the bank Secrecy Act
does NOT provide the plaintiffs with a private cause of action.

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 o Preemption (BSA): Yes, to the extent that it conflicts, see Tiffany v. National Bank
of Missouri, 85 U.S. 409 (1874), the National Bank Act was found by the lower
federal courts to preempt conflicting state law.
o United States v. Miller, 425 U.S. 435 (1976 ) that individuals DO NOT have a
"reasonable expectation of privacy" under the Fourth Amendment in financial
records pertaining to them but maintained by a bank in the normal course of
business.
o Examples: California Bankers Association v. Schultz: US Supreme Court held that
the Constitution did not protect the privacy of personal information in records
maintained by business and government. A confidential customer-bank
relationship does not mean that one has waived all right to the privacy of the
papers. The maintenance of such financial transactions provided a "virtual current
biography of the individual customers. BSA upheld against a 4th amendment
challenge.
o Example: In 2011, the Observer reported that Wachovia, a one-time major US
bank, was implicated in laundering money for Mexican drug lords, through its lax
laundering controls, a violation of the Bank Secrecy Act. It moved money in and
out of casas de cambio without proper due diligence.
o Tiede v. CorTrust Bank – Tiede alleges that she was discharged in retaliation for
her refusal to discontinue filing SARs and CTRs on certain CorTrust customers. She
contends that as the bank secrecy officer, she was required to file these reports or
risk criminal prosecution under the BSA. CorTrust responds that Tiede's discharge
claim is preempted because it conflicts with federal law granting national banks
the power to discharge its officers at-will. This court has previously recognized
federal banking preemption in a wrongful termination claim brought by a bank
officer.
 Patriot Act Sections that related to Money Laundering and Counter Terrorism Financing
(CTF)
o Section 311: Treasury department to apply measures against foreign jurisdictions,
foreign institutions or types international transactions that are determined to be a
primary money laundering concern.
 Five special measures:
 Keep records and files on certain financial transactions:
o Description of the transactions; and
o Identities and addresses of participants and beneficial owners.
 Obtain information on the beneficial ownership of any account
opened or maintained in the US foreign person.
 Identify and obtain information about customers who are permitted
to use, or whose transactions are routed through, a foreign bank’s
payable through account.
 Close certain payable-through or correspondent accounts.
o Section 312: Correspondent and Private Banking Accounts require EDD for foreign
correspondent accounts and private banking for non-US persons.

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  Due Diligence Program
 Must be appropriate, specific and risk-based and where necessary to
include policies, procedures and controls to reasonably designed to
identity and report suspected money laundering in a correspondent
account maintained in the US.
 Must be included in instruction’s AML/CFT program.
 The due diligence program must address three measures:
o Determine whether enhanced due diligence is necessary.
o Assessing the money laundering risks pretended by the
correspondent account.
o Applying risk-based procedures and controls reasonably
designed to detect and report suspected money laundering.
 Enhanced Due Diligence
 Conducting enhanced scrutiny for possible ML and suspicious
transaction including:
o Obtaining information relating to the foreign bank’s AML/CFT
program;
o Monitoring transactions in and out of the correspondent
account in a manner reasonably designed to detect possible
ML and suspicious activity;
o Obtaining information about the correspondent account that
is being used as a payable-through account.
 Private Banking Rule
 An account with a minimum of $1 million dollars;
 For one or more-US persons; and
 Which is assigned to a bank employee acting as a liaison with the non-
US person.
 Covered Private Banking Accounts
 Ascertain the identity of all nominal and beneficial owners of the
accounts.
 Ascertain whether any such owner is as senior foreign PEP.
 Ascertain the source of the funds in the account and the purpose and
expected use of the account.
 Monitor the account to ensure the activity in the account is
consistent with the information provided as to the source of the
funds and the purpose and expected use of the account, guard
against ML and report any suspicious activity.
o Section 313 Prohibition on correspondent accounts for foreign shell banks.
 Prohibits US banks and Securities brokers and dealers from maintaining
correspondent accounts for foreign, unregulated shell banks that have no
physical presence anywhere.
 Physical presence test for shell banks:
o Fixed address;

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 o Employs at least one full time employee; and
o Bank records are kept at the fixed address.
o Section 314 (a) & (b) cooperation among law enforcement, regulators, and
financial institutions to share information regarding those suspected of being
involved in terrorism or money laundering.”
o Section 319 (a) Forfeiture from US Correspondent Account
 US Government may seize funds deposited in a foreign bank, where a
correspondent account in the US has been established for the foreign bank.
 US Government is not required to trace the funds as they have been
deposited into the correspondent account.
 Owner of the account may dispute the seizure.
o Section 319 (b) Records relating to Correspondent Accounts for foreign banks
 The Extraterritorial aspect of the Patriot Act
 Federal agency may require production documents and records from a FIU
within 120 hours (5 days) information related to:
 Customer’s information or any account opened, maintained,
administered or managed by the financial institution or
 Institution AML compliance.
 Requires foreign banks to designate a registered agent in the US to
accept service of subpoenas pursuant this section.
 The subpoena can request any records relating to the account,
including records located outside the United States. If the foreign
bank fails to comply with or fails to contest the subpoena, the
Secretary or the Attorney General can order the US financial
institution to close the correspondent account within ten days of
receipt of such order.
 US banks and securities brokers and dealers that maintained
correspondent accounts for foreign banks must keep records of their
identity of the 25 percent owners of the foreign bank, unless it is
publicly traded as well as the name of the correspondent bank’s
registered agent in the US.
o Section 326 Customer Identification Program (CIP)
 Customer Identification Program (CIP) is a government program that requires
financial institution to identify anybody seeking to open an account. By
federal law, The FI must verify the identity of all customers and retain client
information.
 Section 326 of the USA PATRIOT ACT requires financial institutions to
implement procedures that enable them to form a reasonable belief
that they know the true identity of the client.
 FI compelled to obtain what is known as “Personally Identifiable
Information” about individuals and entities doing business with them.
 Definitions

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  Pursuant to the CIP rule, a "customer" is a "person" (an individual, a
corporation, partnership, a trust, an estate, or any other entity
recognized as a legal person) who opens a new account, an individual
who opens a new account for another individual who lacks legal
capacity, and an individual who opens a new account for an entity
that is not a legal person (e.g., a civic club)
 Pursuant to the CIP rule, an "account" is a formal banking
relationship to provide or engage in services, dealings, or other
financial transactions, and includes a deposit account, a transaction
or asset account, a credit account, or another extension of credit. An
account also includes a relationship established to provide a safe
deposit box or other safekeeping services or to provide cash
management, custodian, or trust services.
o An account DOES NOT include:
 Products or services for which a formal banking
relationship is not established with a person, such as
check cashing, funds transfer, or the sale of a check or
money order.
 Any account that the bank acquires. This may include
single or multiple accounts as a result of a purchase of
assets, acquisition, merger, or assumption of liabilities.
 Accounts opened to participate in an employee benefit
plan established under the Employee Retirement
Income Security Act of 1974.
 CIP Program requirements
 Reasonable and practical risk-based procedures for verifying the
identity of each customer. Banks should conduct a risk assessment of
their customer base and product offerings, and in determining the
risks, consider:
o The types of accounts offered by the bank;
o The bank’s methods of opening accounts;
o The types of identifying information available; and
o The bank’s size, location, and customer base, including types
of products and services used by customers in different
geographic locations.
 Policies and Procedures must include:
o What CIP require: Name, DOB, Address, ID #, Corporate filings,
Resolutions.
o Customer verification;
o How to conduct Verification through documents;
o How to conduct Verification non-documentary methods;
o Recordkeeping and retention requirements;
o Comparison with government lists;

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 o Customer notice;
o Reliance on another FI;
o Use of third parties to perform services; and
o Other legal requirements.
 EU Directive 1
o Adopted by Council in 1991.
o Prevent the use of the financial system for ML.
o Confined predicate offenses for ML to drug trafficking as defined in the Vienna
Convention.
o Member states were encouraged to extend the predicate offenses to other crimes in
to their national law.
 EU Directive 2
o Adopted in 2001.
o Required stricter money laundering controls across the continent.
o The definition of criminal activity was expanded to cover not just drug trafficking,
but all serious crimes, including corruption and fraud against the financial interests
of the European community.
o It explicitly brought bureaux de change and money remittance offices under AML
coverage.
o It clarified that knowledge of criminal conduct can be inferred from objective factual
circumstances.
 EU Directive 3
o Adopted in 2005.
o Based on FAFT recommendations.
o Extended the scope of 1st and 2nd directive.
o Defined money laundering and Terrorist financing as separate crimes.
o Extended customer identification and suspicious reporting obligations to report cash
payments for more than $15,000 EURO for:
 Trust company service providers;
 The definition of financial institution includes certain insurance
intermediaries.
 Red Flags
o single premium insurance bonds redeemed at a discount;
o policy-holders who are unconcerned about penalties for early
cancellation;
o policy holders redeem the policy within free look period; and
o dealer selling goods for cash payments
o Detailed risk-based approach to CDD
 extent of due diligence that is performed on customers
 simplified or enhanced based on risk
o Requiring all financial institutions to identify and verify beneficial owner
 natural person who directs or indirectly controls more than 25% of a legal
entity.

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 EU Directive 4
o Adopted in 2015.
o Repealed 3rd directive.
o Prevent the use of the Financial system for purposes of ML and TF.
o Thresholds for entities reporting Suspicious transactions decreased from $15,000 to
$10,000.
o The scope of obliged entities was enlarged from just casinos to all “providers of
gambling services.”
o According to the EU directives, independent legal professional is obligated to report
suspicion of money launderings in a client relationship when participating in
financial or corporate transactions.
o Applied to transfers exceeding $1,000.
o Each member country must hold beneficial ownership information in a central
registry and it must be available to competent authorities.
o Enhanced due diligence (EDD) applied to PEP
 Definition of PEP expanded to include domestic persons.
 Risk extended to 12 months and measures applied to family members and
close associates of peps.

IV. METHODS OF MONEY LAUNDERING

 Concentration Account – The primary money laundering risk pertaining to the use of
concentration accounts is the fact that the customer identifying information may not be
included, making the audit trail difficult or impossible to follow. Risk: Customer
identification can be lost.
 Black Market Peso Exchange (BMPE) – process by which money in the US derived from
illegal activity is purchased by Columbian peso brokers and deposited in US Bank accounts
that the broker has established.
o Brokers sell checks and wire transfers drawn on those accounts to legitimate
businesses, which use them to purchase goods and services in the US.
 Steps
 Converting illicit drug proceeds from dollars or euros to Colombian
pesos by
 Facilitating purchases by Colombian importers of goods
manufactured in the United States or Europe through peso brokers.
 Red flags
 Payment made in cash by a third party with no connection to the
underlying transaction;
 Payment made by wire transfers from third parties unconnected to
the underlying transaction; and
 Payment made with checks, bank drafts or money orders not drawn
on the account of the purchaser.
 Letters of credit – issued by a bank that guarantees payments on behalf of its customer to a
3rd party (buyer) when certain conditions are met. These can be used in exporting foreign

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 goods. Where they bank where the buyer can direct a bank to pay an exporter to send
goods.
 Trade-Based Economy
o Risks
 Transactions involving higher-risk goods (e.g. trade in weapons or nuclear
equipment).
 As an example, in a letter of credit arrangement, a bank can serve as the
Issuing Bank, allowing its customer (the buyer) to purchase goods locally or
internationally, or the bank can act as an Advising Bank, enabling its
customer (the exporter) to sell its goods locally or internationally. The
relationship between any two banks may vary and could include any of the
roles listed above.
 Over invoicing at a price above Fair Market Value.
 Multiple invoicing – practice of issuing numerous invoices for the
same shipment of goods, thus allowing the money launder the
opportunity to make numerous payments and justify them with the
invoices.
 Under-invoicing at price below Fair Market Value.
 Ghost-shipping involves the fictitious trades where a buyer and seller
collude to prepare all documentation indicating goods were sold,
shipped and payments were made but no goods are shipped.
 Over-shipping or Short-shipping is the difference in the invoiced quantity of
goods where the buyer or seller gains excess value based on payment made.
 Alternative remittance systems (ARSs) or Informal value transfer systems (IVTS).
o Types
 Hawala (Arabic)
 Hundi (Hindi word means collect)
 Chiti Banking
 Chop Shop Banking (china)
 Poey Kuan (Thailand)
o Legitimate Use
 Cheaper and faster than formal banking system.
o ML
 Because hawala is a remittance system, it can be used at any phase of the
money laundering cycle.
 It can provide an effective means of placement: when the hawaladar
receives cash, he can deposit the cash in bank accounts. He will justify
these deposits to bank officials as the proceeds of legitimate business.
 component of many layering schemes is transferring money from one
account to another, while trying not to leave a paper trail. A basic
hawala transfer leaves little if any paper trail.
 Hawaladars often operate within or in addition to a legitimate or
front business to provide cover for the activity and commingle the

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 funds in the business accounts. He may also use some of the cash
received to pay for his business expenses, reducing his need to
deposit the cash into the bank account.
 A Hawala transfers can be layered to make following the money even
more difficult. This can be done by using hawaladars in several
countries and by distributing the transfers over time.
 Charities / NPO
 Vulnerable to misuse for terrorist financing:
 Enjoying public trust;
 Having access to considerable sources of funds;
 Being cash-intensive;
 Having a global presence, sometimes near terrorist activity; and
 Often subject to little or no regulation.
 Mitigate risk
 FATF recommends they use traditional bank accounts
 maintain and be able to present full program budgets that account
for all expenses; and
 conduct independent internal audits and external field audits, the
latter to ensure funds are being used for intended purposes.

 Commercial products
o Checking / savings accounts; or
o Brokerage accounts; or
 Its international nature; the speed of their transactions; the use wire
transfers
 They use cash accounts not subject to AML rules
 They are competitive commission based
 The ease of converting holdings into cash without significant loss of
principal;
 The practice of maintaining securities accounts in the name of nominees or
trusts; and weak AML programs
o Loans; or
o Wire transfers.
 Money service businesses (MSB) – money value transfer service (MVTS) transmits or
converts currencies, provides money transmission, cash-checking and money orders.
 Examples: MoneyGram, Post office
 Types
 Foreign Dealer – MSB deal in foreign exchange and provide money
exchange.
o Common method of laundering money through legal money.
 Check Casher
 Traveler’s Check or Money Order
 Money transmission

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  Prepaid Providers
o Open loop—purchased at any merchant that accepts issued
cards on the payment network,
o Closed loop –limited to buying goods or services from the
merchant issuing the card.
 Risk
o Cashing checks without obtaining adequate proof of identity;
failing to file Currency Transaction Reports when required;
and transmitting funds overseas without sufficient due
diligence.
 Ensure the institution has a reliable third-party source
that will enable verification of the customers.
 New Payment Products and services
o Prepaid Cards
 No face to face relationship
 Open loop cards permit payments at domestic and foreign points of sales
through global payment networks.
 High value limits and no limits on the number of cards individuals can acquire
 Global access to cash through ATMs
 Offshore card issuers that may not observe laws in all jurisdictions
 Anonymous cardholders, funding and access to funds
 Substitute for bulk-cash smuggling
 The new product would enable customers to move funds around the world
quickly.
o Virtual Currency – a medium of exchange that operates in a digital space. It can be
converted into a Fiat (government issued currency) or it can substitute for real
currency.
 FINCEN definitions
 Centralized virtual currency – have a centralized repository and a
single administrator such as Liberty reserve. Buyers and sellers alike
trust this middle man to handle their assets. This is common in a bank
setup, where a customer trusts the bank to hold his or her money.
The reason for this setup is that banks offer security and monitoring
that an individual cannot accomplish on his or her own.
 Decentralized Virtual Currency – have no repository or
administrators but work as peer-to-peer media of exchange without a
need for an intermediary such as Bitcoin.
 User – obtains VC to purchase goods and services.
 Exchanger – person engaged as a business in the exchange of VC for
real currency, funds or other VC.
 Administrator – is a person engaged as a business in issuing a VC who
has authority to redeem.

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 o Administrators and exchangers identified as MSB. If operating
as an MSB by FINCEN they must comply with registration or
license, reporting, recordkeeping and other regulations
applicable to transmitted including AML/CFT requirements.
 Corporate Vehicles
o Corporations
 Structure
 Limited Liability Companies (LLC)
o Can be owned by anyone even foreign persons
 International Business Corporations (IBC)
o Entities formed outside a person’s country’s residence
 FATF: Companies used to facilitate ML
 Shelf company – corporation with no activity, has been created and
put on the shelf. It is later sold to someone who prefers a previously
registered corporation.
 Shell company – a company that at the time of incorporate has no
significant assets or operations.
 Risks
 Shell companies accomplish the objective of converting the cash
proceeds of crime into alternative assets
 Through the use of shell companies, the launderer can create the
perception that illicit funds have been generated from a legitimate
source
 Once a shell company is established, a wide range of legitimate
and/or bogus business transactions can be used to further the
laundering process
 Shell companies can also be effective in concealing criminal
ownership. Nominees can be used as owners, directors, officers or
shareholders.
o Bearer Shares – Companies issue shares in bearer form (‘bearer shares’). This means
that the shares are not listed on any share register but ownership rests with the
person who has physical possession of the share certificate at a particular point in
time. The bearer certificate will state that the holder or bearer of the certificate is
the legal owner of the share. In order to receive dividends, holders of bearer shares
must send the company a voucher claiming the dividends to which they are entitled
and that have been declared.
 A person who holds the bonds or shares gets to claim ownership.
 They belong on the surface to bearer.
 When they are transferred there are no registry of owners and the transfers
take place by physically handing over bonds or share certificates.
 Under FAFT 40 Section “Competent Authorities:” Countries should
implement measures to detect the physical cross-border movement of

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 currency and bearer-negotiable instruments. The authorities should provide
meaningful statistics, guidance and feedback on AML/CFT systems.
o Dealers in High Value Items
 Risks
 Laundering risks and ways laundering can occur through vehicle
sellers include:
o Structuring cash deposits below the reporting threshold or
purchasing vehicles with sequentially numbered checks or
money orders.
o Trading in vehicles and conducting successive transactions of
buying and selling new and used vehicles to produce complex
layers of transactions.
o Accepting third-party payments, particularly from jurisdictions
with ineffective money laundering controls.
 Mitigation
o Require all art vendors to provide names and addresses. Ask
that they sign and date a form that states that the item was
not stolen and that they are authorized to sell it.
o Verify the identities and addresses of new vendors and
customers.
o If there is reason to believe an item might be stolen,
immediately contact the Art Loss Register (www. artloss.com),
the world’s largest private database of stolen art.
o Look critically when a customer asks to pay in cash.
o Be aware of money laundering regulations.
o Appoint a senior staff member to whom employees can report
suspicious activities.
 Commodities and Future Accounts
 Risks
o Withdrawal of assets through transfers to unrelated accounts
or to high-risk countries,
o Frequent additions to or withdrawals from accounts,
o Checks drawn on, or wire transfers from, accounts of
o Third parties with no relation to the client,
o Clients who request custodial arrangements that allow them
to remain anonymous,
o Transfers of funds to the adviser for management followed by
transfers to accounts at other institutions in a layering
scheme,
o Investing illegal proceeds for a client and
o Movement of funds to disguise their origin.
 Trusts – private fiduciary arrangements that allow a grantor, settlor, to place assets for
future distribution to beneficiaries.

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  Classification
 Revocable grantor can terminate or
 Irrevocable grantor cannot terminate once created.
 Purpose
 Estate Planning and or
 Asset planning.
 Risk
 Take advantage of strict secrecy rules in order to conceal the identity
of the true owner or beneficiary of the trust property.
 Used to hide assets from legitimate creditors to protect the property
from seizure or to masks the various links in the money flows
associated with ML and tax evasion schemes.
 It can be used as part of the first step in converting illicit cash into less
suspicious assets; it can help hide criminal ownership of funds or
other assets; and it is often an essential link between different money
laundering vehicles and techniques, such as real estate, shell and
active companies, nominees and the deposit and transfer of criminal
proceeds.
 Trust Company service Provider Provide the following services:
 Acting as a formation agent of legal persons;
 Acting as (or arranging for another person to act as);
 A director or secretary of a company, a partner of a partnership, or a
similar position in relation to other legal persons;
 Providing a registered office, business address or correspondence for
a company, a partnership or any other legal person or arrangement;
 Acting as (or arranging for another person to act as) a trustee of an
express trust; and
 Acting as (or arranging for another person to act as) a nominee
shareholder for another person.
o Banks and depository institutions
 Structuring is the act of evading reporting requirements by conducting
transactions under thresholds.
 Thresholds – see BSA act
 Electronic fund Transfers –any transfer of funds that is initiated by electronic
means,
 Illicit funds can be easily hidden among the millions of legitimate
funds transfers that occur each day.
o Funds can be transferred to other accounts, banks and
jurisdictions with each layer of transactions making it more
difficult of LEO and investigative agencies to trace origins.
 Such as:
o automated clearing machine (ATM);
o electronic terminals;

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 o mobile phones;
o telephones; or
o magnetic strips.
 Risks
o Electronically moving funds from one country to another,
moving funds from one financial institution to another, and
converting the cash placed into the system in to monetary
instruments.
 correspondent banking – provision of banking services by one bank
(“correspondent bank”) to another bank (“respondent bank”)
 correspondent banks are usually large international banks who act
for thousands of respondent banks all over the world.
o Correspondent banking relationships create a situation where
a financial institution carries out transactions for behalf of
another bank’s customers.
o The amount of money that flows through correspondent
accounts can pose a significant threat to financial institutions,
as they process large volumes of transactions for the
respondent’s banks transactions.
 respondent banks can undertake international financial transactions
for themselves and their customers in jurisdictions where they have
no physical presence.
 private banking – personalized and confidential products and services to
wealthy clients at fees that are based on asset management.
 Risks
o The risks associated with this are offshore “non-resident”
private banking
o These customers may hold assets in Private Investment
companies (PIC) in secrecy havens
o Perceived high profitability
o Intense competition
o Powerful clientele
o The high level of confidentiality associated with private
banking
o The close relationship of trust developed between relationship
managers and their clients
o Commission-based compensation for relationship managers,
o A culture of secrecy and discretion developed by the
relationship managers for their clients
o The relationship managers becoming client advocates to
protect their clients.

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o New Products - Financial institutions should assess these risks prior to launching
new products; they should also take appropriate measures to mitigate the risks
identified. Risks Include:
 anonymity;
 geographic reach;
 alternative to physical cross-border transportation;
 easy access to cash;
 and the fact that several entities are
 required to issue prepaid cards – the program manager,
 issuer, acquirer, payment network, distributor and agents – that may be hard
to all supervise or monitor
o There are several ways commodity and futures accounts are susceptible to money
laundering, including:
 Withdrawal of assets through transfers to unrelated accounts or to high-risk
countries,
 Frequent additions to or withdrawals from accounts,
 Checks drawn on, or wire transfers from, accounts of third parties with no
relation to the client,
 Clients who request custodial arrangements that allow them to remain
anonymous,
 Transfers of funds to the adviser for management followed by transfers to
account at other institutions in a layering scheme,
 Investing illegal proceeds for a client, and
 Movement of funds to disguise their origin.
o Politically exposed persons (PEP) – individuals who are have been entrusted
domestically with prominent public functions.
 Screening
 The ability to positively match your customer with a PEP on a
database can be a challenge. These lists do not always provide all
relevant information related to PEPs that would assist in identifying
them. For instance, there is no unique identifier, such as a date of
birth or address.
 Two types
 Foreign PEP
 Domestic PEP
 Risks
 Use of third parties when it appears to shield the identity of a PEP.
 Use of family members or close associates as legal owners.
 Use of corporate vehicles (legal entities and legal arrangements) to
obscure i) ownership, involved industries, or iii) countries.
 Declarations of information from PEPs that are inconsistent with
other information, such as publicly available asset declarations and
published official salaries.

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  The PEP or facilitator seeks to make use of the services of a financial
institution or a designated non-financial business or profession
(DNFBP).
o nonfinancial businesses and professions include: casinos, real estate agents and
dealers in precious stones.
o Financial Intermediaries
 Trusts
 Company service providers
 Securities dealers
 Non-bank financial institutions
 Third Party Payment Processors (TPPP) processors are not subject to
any aml/cft requirements.
o Vulnerabilities
 For example, TPPPs that provide services to
telemarketing, gambling (online, casinos etc.) or
Internet merchants and/or process RCCs for these
entities may present a higher-level risk of risk to a
financial institution, because these types of businesses
carry a high risk for consumer fraud and money
laundering.
 Multiple financial institution relationships: The TPPP
may maintain relationships at multiple institutions,
which hinders a financial institution’s ability to see the
entire customer relationship. This is done on purpose
by TPPPs engaged in suspicious activity to limit the
financial institutions’ ability to recognize suspicious
activity and exit the relationship.
 Money laundering: TPPPs can be used by criminals to
mask transactions and launder the proceeds of crime.
One way to engage in money laundering through a
TPPP is to send funds directly to a financial institution
from a foreign jurisdiction through an international
ACH payment. Given the large number of transactions
conducted through a TPPP, this activity may not be
identified.
o High return rates from unauthorized transactions: TPPPs
engaged in suspicious activity or being used by criminals may
have higher than average return rates related to unauthorized
transactions. At the merchant level, the criminal merchant
may have acceptable return rates compared to the percentage
of the TPPP’s total transaction volume, but when compared
against individual originators, the return rate will be
significantly higher.

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 Pawnbrokers
o businesses licensed or registered as pawnbrokers under state
or municipal law are specifically exempted from the definition
of “dealer” for purposes of the interim final rule. Therefore,
pawnbrokers are not required to establish anti-money
laundering programs under this rule as long as they are
properly licensed or registered with the appropriate state or
local government and engaged in pawn transactions.
 Dealer in High-End Items
o Gold
 Valuable and easy to transport.
 Easily brought and sold anonymously for currency
 Holds value regardless of form.
 More readily accepted than precious stones
 Way to transfer wealth
 Carries cultural or religious significance
 Casinos
o Risks
 Cash intensive business
 ML using occurs in the placement and layering stage.
For example, using casino credits to add a layer of
transactions before the funds are cashed in.
 Paying off gambling debts in cash just under the
 reporting requirements; purchasing chips.
 Engaging in minimal gambling and then cashing the
chips back in.
 using the gambling house for banking-like financial
services, including wiring funds overseas; betting on
both “red” and “black” spaces in roulette; and
purchasing.
 chips with cash just under the reporting requirements.
 Online Gambling.
 Some operate illegally.
o Site Offshore
o Haven for cyber criminals
 Transactions are conducted through debit and
credit cards.
 Tracing the source and ownership of illegal
money can be difficult.
 Credit card industry
o Card associations – AmEx, Discover, MC and visa
 which license member banks to issue bankcards OR
 authorize merchants to accept cards.

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 o Issuing banks (Chase, Citi, Bofa)
 Solicit new customers and issue credit cards.
o Acquiring banks –underwrites the merchant. First primary
contact for the merchant. (Chase, Bofa, Wells Fargo)
 Process transactions for merchants who accept cards.
o Third-party payment processors (TPPP) (Paypal) who contract
with issuing or acquiring banks to provide payment processing
services to merchants. Merchants do not have a direct
relationship with TPPP financial institution. Third-party
payment processors often use their commercial bank accounts
to conduct payment processing for their merchant clients. For
example, the processor may deposit into its account remotely
cleared checks (RCCs) generated on behalf of a merchant
client, or process ACH transactions on behalf of a merchant
client. In either case, the bank does not have a direct
relationship with the merchant.
 Processors generally are not subject to BSA/AML
regulatory requirements. As a result, some processors
may be vulnerable to money laundering, identity theft,
fraud schemes, or other illicit transactions, including
those prohibited by OFAC.
o Credit Examples
 They are more likely to be used in the layering or
integration stages of money laundering . One example
of using credit cards for money laundering purposes is
overpaying a credit card balance and then asking for a
refund. Receiving a check from the reputable credit
card company makes it look like the funds received are
legitimate.
 Gatekeepers
o FATF, professionals such as lawyers, accountants, notaries, investment advisors
and trust and company service providers are the most useful to a potential money
launderuer.
 Managing complex legal arrangements
 Risks
o The primary concern with regard to the use of gatekeepers –
attorneys, notaries, accountants and auditors – is the fact that
they can be used to enhance secrecy and to keep hidden the
beneficial owner of an account or transaction.
 Arrangements may serve to obscure the links between the proceeds
of crime and the perpetrator.
 Buying and selling property
 Property transfers are used to conceal source of illegal funds in

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 o Escrow accounts
 Holds diverse funds,
 Facilitate the movement of funds by cashier’s check,
wire transfers or company checks.
o Loan Back
 Launder provides an associate with specific amount of
illegitimate money. Associate then provides a loan or
mortgage back to trafficker for the same amount with
all the necessary loan documentation validated
through scheduled payments made on loans by
traffickers.
o Red flags
 Large Amounts of cash for purchase
 All Cash does not involve traditional financing
but does not necessarily mean use of physical
cash.
 Disguising the beneficial ownership
 Using an unlicensed agent
o Reverse Flip
 Launderer purchases a property below market value
and then the launder secretly provides the difference
to the seller.
o Stages
 The placement stage;
 Example: using physical cash to purchase an
asset, or money instrument.
 Purchasing diamonds, cashier’s checks.
 The layering stage; or
 real estate investments
 The final investment in the integration.
 The launderer, for instance, might choose to
invest the funds in real estate, financial
ventures or luxury assets.
o Methods
 Using large amounts of cash
 Disguising the beneficial ownership
 Using an unlicensed agent
 Multiple purchases and sales of property over a short
period of time.
 Performing financial transactions
 Issuing checks, making deposits, withdrawing funds, illegal retail
exchange operations, buying/selling stock, and sending and receiving
funds transfers.

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 V. Organizations, Agencies
 Supervisory Authorities and Organizations (name, purpose, mandates, members)
o Office of Controller Currency (“OCC”)
 Background
 Part of US Department of Treasury, Ensuring a Safe and Sound
Federal Banking System for All Americans.
 Purpose
 Serves to charter, regulate, and supervise all national banks and thrift
institutions and the federal branches and agencies of foreign banks in
the United States.
 main objectives:
 to ensure the safety and soundness of the national banking system;
 to foster competition by allowing banks to offer new products and
services;
 to improve the efficiency and effectiveness of OCC supervision
especially to reduce the regulatory burden;
 to ensure fair and equal access to financial services to all Americans;
 to enforce anti-money laundering and anti-terrorism finance laws
that apply to national banks and federally licensed branches and
agencies of international banks; and
 to investigate misconduct committed by institution-affiliated parties
of national banks, including officers, directors, employees, agents and
independent contractors (including appraisers, attorneys and
accountants).
 Authority
 OCC regulations pre-empt virtually all state banking and financial
services laws for national banks and their diverse range of non-bank,
corporate operating subsidiaries.
 Cease & Desist Orders (C&D): Banking organizations subject to cease
and desist orders are required to take actions or follow proscriptions
in the orders. 12 U.S.C. § 1818(b).
 Civil Money Penalty Orders (BCMP): Banking organizations subject to
civil money penalties must pay fines. 12 U.S.C. § 1818(i)(2).
 Formal Agreements (FA): Banking organizations that are subject to
formal agreements agree to take actions or follow proscriptions in the
written agreement. 12 U.S.C. § 1818(b).
 Notices Filed (NFB): Banking organizations against whom an "OCC
Complaint" (in the form of a Notice of Charges and/or Notice of Civil
Money Penalty Assessment) is filed have an opportunity to litigate the
matter before an Administrative Law Judge. 12 USC § 1818(b) (Notice
of Charges) and 12 USC 1818(i) (Notice of Civil Money Penalty
Assessment).

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  Prompt Corrective Action Directives (PCAD): Banking organizations
that are subject to prompt corrective action directives are required to
take actions or to follow proscriptions that are required or imposed
by the OCC, under section 38 of the FDI Act. 12 U.S.C. §1831o.
 Safety & Soundness Orders (SASO): Banking organizations that are
subject to safety and soundness orders are required to take actions or
to follow proscriptions that are imposed by the OCC under section 39
of the FDI Act. 12 U.S.C. §1831p-1.
 Securities Enforcement Actions (SEB): Banking organizations that are
engaged in securities activities, such as municipal securities dealers,
government securities dealers, or transfer agents, can be subject to
various OCC sanctions, including censures, suspensions, bars and/or
restitution, pursuant to the federal securities laws.
o The Financial Crimes Enforcement Network (FINCEN)
 Background
 Formed in 1990, part of the Bureau of the United States Department
of the Treasury that collects and analyzes information about financial
transactions in order to combat domestic and international money
laundering, terrorist financing, and other financial crimes.
 Purpose
 To safeguard the financial system from illicit use, combat money
laundering and promote national security.
 Objectives
 To fulfill its responsibilities toward the detection and deterrence of
financial crime, FinCEN:
o Issues and interprets regulations authorized by statute;
o Supports and enforces compliance with those regulations;
o Supports, coordinates, and analyzes data regarding
compliance examination functions delegated to other Federal
regulators;
o Manages the collection, processing, storage, dissemination,
and protection of data filed under FinCEN's reporting
requirements;
o Maintains a government-wide access service to FinCEN's data,
and networks users with overlapping interests;
o Supports law enforcement investigations and prosecutions;
o Synthesizes data to recommend internal and external
allocation of resources to areas of greatest financial crime risk;
o Shares information and coordinates with foreign financial
intelligence unit (FIU) counterparts on AML/CFT efforts; and
o Conducts analysis to support policymakers; law enforcement,
regulatory, and intelligence agencies, FIUs and the financial
industry.

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  Authority
 Section 314(a) Patriot Act enable federal law enforcement agencies,
through FinCEN, to reach out to more than 45,000 points of contact
at more than 27,000 financial institutions to locate accounts and
transactions of persons that may be involved in terrorist financing
and/or money laundering. A web interface allows the person(s)
designated in §314(a)(3)(A) to register and transmit information to
FinCEN.
 Enforcement
 FinCEN's Enforcement Division serves as the primary action arm of
FinCEN. The division:
o Employs an intelligence-driven approach to target
examination efforts in high-risk areas;
o Investigates referrals from examining authorities and uses
effective, proportionate, and dissuasive measures to enforce
compliance with the BSA;
o Proactively investigates and exercises the full range of FinCEN
authorities to disrupt the illicit use of the financial system by
priority targets.

o Office of Foreign Asset Control (OFAC)

 Background
 OFAC, the Office of Foreign Assets Control, is the division of the US
Department of Treasury that administers and enforces economic and
trade sanctions based on US foreign policy and national security
goals against targeted foreign countries, terrorists, international
narcotics traffickers and those engaged in activities related to the
proliferation of weapons of mass destruction.
 OFAC acts under presidential wartime and national emergency
powers, as well as authority granted by specific legislation, to impose
controls on transactions and to freeze foreign assets under US
jurisdiction.
 Many of the sanctions are based on United Nations and other
international mandates that are multilateral in scope and involve
close co-operation with allied governments. OFAC sanction programs
prohibit transactions and require the blocking of assets of persons
and organizations that appear on one of a series of lists that OFAC
issues periodically. OFAC has the power to impose significant
penalties on those who are found to be in violation of the blocking
orders within each of the sanction programs.
 Purpose
 Administers and enforces economic and trade sanctions based on
foreign policy and national security goals against targeted foreign

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 countries, terrorists and international narcotic traffickers and those
engaged in activities related to the proliferation of weapons of mass
destruction.
 Freezing or blocking of foreign assets of persons and organizations
under US Jurisdiction.
 Imposition of significant penalties on those who are found to be in
violation of the blocking orders within each of the sanction programs.
o Please note that travel bans are issued by the state
department.
 Authority
 Impose significant penalties on those who are found to be in violation
of the blocking orders within each of the sanction programs.
 Imposition of economic and trade sanctions based on UN and other
mandates.
 Freezing or blocking of foreign assets of persons and organizations
under US Jurisdictions.
 Rules
 Prohibit transactions and require the blocking of assets of persons
and organizations that appear on one of the services of lists that
OFAC issues.
 US persons
o All US Citizens and permanent resident aliens, regardless of
where they are located.
o All persons and entities within the US.
o All US Incorporated entities and their foreign branches.
o The Office for Professional Body Anti-Money Laundering Supervision (OPBAS)
 Background
 new regulator set up by the government to strengthen the UK’s anti-
money laundering (AML) supervisory regime and ensure the
professional body AML supervisors provide consistently high
standards of AML supervision.
 Sits within the UK Financial Conduct Authority (FCA)
 Purpose
 The Government has established OPBAS as part of a wider package of
reforms to strengthen the AML supervisory regime in the United
Kingdom.
 OPBAS duties and powers to ensure the professional body AML
supervisors meet the standards required by the Money Laundering
Regulations 2017.
o Financial action task force (FATF) also known G7 Financial task force
 Not mandatory
 Membership Requirements

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  The jurisdiction should be strategically important based on
quantitative and qualitative indicators and additional considerations.
 FATF’s geographic balance should be enhanced by the jurisdiction
becoming a member.
 The country should provide a written commitment at the
political/ministerial level.
 Within a maximum of three years after being invited to participate in
FATF as an observer the mutual evaluation process for the country
should be launched.
 35 member countries
 two regional organizations: gulf cooperation council, European
commission
 31 associate members observers
 Membership is granted if the mutual evaluation is satisfactory.
 No prosecutory power
 History
 Launched by group of seven nations in 1989
 3 Major Tasks
 Spreading the anti-money laundering message worldwide.
 Monitoring implementation of the FATF.
 Recommendations among FATF members and reviewing money
laundering trends and counter measures.
 three main activities:
 (1) standard setting,
 (2) ensuring effective compliance with the standards,
 (3) and identifying money laundering and terrorist financing threats.
 Purpose
 Disseminates AML guidance to governmental bodies around the
globe.
 Changes way banks around the world conduct affairs.
 Influenced Changes in global laws.
 Objectives
 Monitors member countries’ progress in implementing FATF
recommendations.
 set standards and promote objective implementation of legal,
regulatory and operational measures for combatting ML and CTF
 Reviews money laundering and terrorist financing techniques and
counter-measures.
 Promotes the adoption and implementation of the FATF
recommendations globally.
 Areas of focus Areas
 Spreading AML message

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  Monitoring implementation (success of member maintaining
AML/CFT system) fulfills objectives:
o Technical compliance assessment how member relates to its
legal and institutional framework, procedures and power of its
competent authorities. Building block of the AML/CFT system.
o Effectiveness assessment the adequacy of a member’s
implementation of FATF recommendations, the extent of
which a member achieves a defined set of outcomes that
central to the AML/CFT system. The extent legal and
institutional framework of the member is producing expected
results.
 FATF’s Recommendations (2012), what are the designated thresholds for
transactions
 The threshold that financial institutions should monitor for occasional
customers is €15,000 [Recommendation 10]; for casinos, including
Internet casinos, it is €3,000 [Recommendation 22]; and for dealers in
precious metals, when engaged in any cash transaction, it is €15,000
[Recommendation 22-23].
 Requirements for additional Customer due diligence (CDD)
 PEP
o Identify AND
o Obtain senior management approval of business relationships
AND
o Establish sources of wealth AND
o Conducting ongoing monitoring.
 Cross Border Correspondent Banking
o Understand the respondent institution’s business, reputation,
management and AML controls.
 MSB/ MVTS
o Ensure these FI are registered, licensed and subject to AML
requirements.
 New Technologies
o FATF’s Recommendation 15: Countries and financial
institutions should assess the risks associated with
developments of new products, business practices, delivery
mechanisms and technology. Financial institutions should
assess these risks prior to launching new products; they
should also take appropriate measures to mitigate the risks
identified.
 Wire Transfers
o Require FI to obtain and send required and accurate
originator, intermediary and beneficiary information with
wires.

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 o Monitor wires for incomplete information and take
appropriate measures.
o Check screening lists such as UN security council and freeze or
prohibit transactions.
 Transparency and beneficial ownership of legal persons and
arrangements
o Countries should take measures to prevent the misuse of legal
persons for ML or CTF.
 FATF 40 Recommendations (est 1990, revised in 1996, 2003 and 2012)
 Coverage Areas: Recommendations, the complete set of
countermeasures against money laundering and terrorist financing
covers what 5 elements?
o Identification of risks and development of appropriate
policies.
o The criminal justice system and LEO.
o The financial system and its regulation.
o The transparency of legal persons and arrangement/s.
o International cooperation.
 Recommendations
o Recommendations 1-2
 High Risk Rating
 Countries with strategic deficiencies in their
AML/CFT regimes
 Risk Assessment
 Customer risk factors such as non-resident
customers, cash-intensive businesses, complex
ownership structure of a company, and
companies with bearer shares.
 Country or geographic risks such as countries
with inadequate AML/CFT systems, countries
subject to sanctions or embargos, countries
involved with funding or supporting of terrorist
activities, or those with significant levels of
corruption.
 Product, service, transaction or delivery
channel risk factors such as private banking,
anonymous transactions, and payments
received from unknown third parties.)
o Risk Based Approach Recommendation 1
 Countries should start by identifying, assessing and
understanding the money laundering and terrorist
financing risks they face. Then they should take
appropriate measures to mitigate the identified risks.

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  The risk-based approach allows countries to allocate
their limited resources in a targeted manner to their
own particular circumstances, thereby increasing the
efficiency of the preventative measures.
 Financial institutions should also use the risk-based
approach to identify and mitigate the risks they face.
 National Cooperation and Coordination
 Law of reciprocity – allowing a country’s
authorities to cooperate with authorities of
other countries to the degree that their law
allows them to do the same.
o Recommendations 3-4
 Money Laundering offenses Confiscation and
provisional measures
o Recommendations 5-8
 Terrorists financing offenses
 Targeted financial sanctions related to CTF
 Targeted financial sanctions related to proliferation
 Non-profit organization
o Recommendations 9-23
 Financial institution secrecy laws –Transparency
 Do not approve the establishment or accept
the continued operation of shell companies.
 CDD and record-keeping
 Establishing business relationships.
 Carrying out occasional transactions under
certain circumstances.
 There is a suspicion of money laundering or
terrorist financing.
 The financial institution has doubts about the
veracity or adequacy of previously obtained
customer identification data.
 A bank should not establish a banking
relationship, or carry out any transactions, until
the identity of the customer has been
satisfactorily established and verified in
accordance with FATF Recommendation 10.
 Additional specific customers and activities.
 Reliance, controls and financial groups.
 Reporting suspicious transactions.
 Designed non-financial businesses and professions.
o Recommendations 24-25

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 Transparency and beneficial ownership of legal
persons.
 Transparency and beneficial ownership of legal
arrangements.
o Recommendations 26-35
 Regulations and supervision
 Operational and LEO
 General Requirements
 Sanctions
o Recommendation 36-40
 International cooperation
 International instruments
 Mutual legal assistance
 Mutual legal assistance regarding freezing and
confiscating of assets
 Extradition
Section Topic Recommendations
I AML/CTF Policies and Coordination 1-2
Assessing risks and applying a risk-based approach
National cooperation and coordination
II Money Laundering and Confiscation 3-4
Money laundering offences
Confiscation and provisional measures
III Terrorist Financing and Financing of Proliferation 5-8
Terrorist financing offences
Targeted financial sanctions related to terrorism and
terrorist financing
Targeted financial sanctions related to proliferation
Non-profit organizations
IV Financial and Non-Financial Institution Preventative Measures 9-23
Financial institution secrecy laws
Customer due diligence and recordkeeping
Additional measures for specific customers and activities
Reliance, controls and financial groups
Reporting of suspicious transactions
Designated non-financial businesses and professions

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V Transparency and Beneficial Ownership of Legal Persons and 24-25
Arrangements
Transparency and beneficial ownership of legal persons
Transparency and beneficial ownership of legal
arrangements

VI Powers and Responsibilities of Competent Authorities and 26-35

Other Institutional Measures
Regulation and supervision
Operational and law enforcement
General requirements
Sanctions
VII International Cooperation 36-40
International instruments
Mutual legal assistance
Mutual legal assistance regarding freezing and confiscation
Extradition
Other forms of international cooperation

o FATF regional Style Bodies (FRSB)

 Not mandatory
 No prosecutory power
 Duties
 AML/CFT technical assistance needs for their individual members
 Mutual evaluation and follow-up processes by helping jurisdictions to
implement FATF standards
 Standards and typologies
 9 Regional bodies
 Asia group on ML
 Caribbean Financial Action Task force
o Issued its own set of 19 recommendations, which were
specific to the region
 Defining money laundering based on the model laws
issues by the organization of American states.
 Permitting forfeiture in all cases following conviction.
 Indicate whether it is relevant that a predicate offense
may have been committed outside the local
jurisdiction.
 (OAS) Model Regulations and the 1988 UN Convention Against Illicit
Traffic in Narcotic Drugs and Psychotropic Substances. They also

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 mandated the establishment of the Secretariat to coordinate the
implementation of these by CFATF member countries. The
Declaration recommended laws
 defining money laundering based on the model laws
issued by the Organization of American States;
 concerning the seizure and forfeiture of drug proceeds
and linked assets that enable the identification, tracing
and evaluation of property subject to seizure and that
permit freezing orders;
 allowing judicial challenges to seizure orders by an
administrative body;
 permitting forfeiture in all cases following conviction;
and
 permitting courts to decide that “all property obtained
during a prescribed period of time by a person
convicted of drug trafficking has been derived from
such criminal activity.
 Council of Europe Committee of experts on the evaluation of AML
measures (MONEYVAL)
 Eurasian Group (EAG)
 Eastern and South African ML Group
 Intergovernmental Action Group against ML in West Africa
 Task force on ML in Central Africa
 Financial Action Task force of Latin America
 Shared Principles - Common interest - protect the FATF brand and interests.
 Role -plays an essential role identifying and addressing aml/technical
assistance for individual members.
 Autonomy free standing organizations that share common goals of
combating ML and the financing of terrorism and proliferation and of
fostering effective AML/CFT systems.
 Reciprocity- basis of (mutual or joint or common) recognition of their
work, imply place similar mechanism for effective participation and
involvement in each other’s activities.
o Basel Committee and Banking Supervision
 Not mandatory
 No prosecutory power
 History
 Formed by Members of central bank governors of G-10
 Purpose
 Sets global standards for bank regulation
 Provides a platform for cooperation on banking supervisory matters.
 Objectives
 Strengthen the regulation, supervision and practices of banks globally

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  Enhancing financial stability
 Six Principles : Prevention of Criminal Use of the Banking System of Purpose
of Money Laundering
 Customer identification,
 Compliance with laws,
 Conformity with high ethical standards and local laws and
regulations,
 Full cooperation with national law enforcement to the extent
permitted without breaching customer confidentiality,
 Staff training, and
 Record keeping and audits.
 7 specific customer identification issues
 Trust, nominee and fiduciary accounts;
 Corporate vehicles, particularly companies with nominee
shareholders or entities with shares in bearer form;
 Introduced businesses;
 Client accounts opened by professional intermediaries, such as
“pooled” accounts managed by professional intermediaries on behalf
of entities such as mutual funds, pension funds and money funds;
 Politically exposed persons (PEPs);
 Non-face-to-face customers: i.e. customers who do not present
themselves for a personal interview; and
 Correspondent banking.
 Recommendations
 KYC Program
o Risk Management
o Customer acceptance and
o Identification policies and
o Ongoing monitoring of a higher-risk accounts
 Due diligence mitigates the following risks:
o Reputational
o Operational
o Legal
o Concentration
 CDD recommendations
o Importance of KYC standards for supervisors and banks
o Elements of KYC Standards
 Customer identification
 Establish the identity of their customers
 Risk management
 Numbered accounts should not be prohibited
but subject to same KYC procedures as other
customer accounts.

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 o Such accounts should in no
circumstances be used to hide the
customer identity from a bank’s
compliance function or from the
supervisors.
 Customer acceptance policies and procedures
 Describe the Customer origin, business
activities background, and other risk factors.
 Standard identification procedures when
dealing with non-face-to face customers.
 Monitoring account activity to identify abnormal
activities.
 Monitor high risk accounts to enable the
updating of identification papers and detection
of suspicious activity and patterns.
o Role of supervisors
 Periodic bank-wide employee training of AML and KYC
requirements.
o Implementation of KYC standards in cross-border context.
o Egmont group of FIU
 Named after Egmont Palace in Brussels
 Not mandatory
 No prosecutory power
 Members
 National FIUS
o In the UK, the FIU is part of the National Crime Agency (NCA),
which was established in 2013.
o In the US, FINCEN was established in 1990 to safeguard the
financial system from illicit use and combat money laundering.
o The Australian Transaction Reports and Analysis center
(AUSTRAC) was established in 1989 as a primary source for
financial intelligence to fight organized crime and terrorism.
 Objective
 Provide a forum for operational autonomy of FIU around the world to
improve cooperation and fight against AML/CTF in early stages of
development.
o Memorandum of Understanding (MOU) are used by FIUs to
share intelligence.
o MLATS are used to produce evidence.
 To foster implementation of domestic programs in this field.
 Principles
 Expanding and systemizing co-operation in the reciprocal exchange of
information.

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 Increasing the effectiveness of FIU by offering training and promoting
personnel exchanges to improve the expertise and capabilities of
personnel employed by FIUs.
 Foster better and secure communication among FIUs through the
application of technology such as Egmont Secure Web (ESW).
 Promoting the establishment of FIUs in conjunction with AML/CFT
program in place or in areas with a program in early stages of
development.
 Information sharing
 Free exchange of information based on reciprocity
 Grant permission with LEO when appropriate
 Respect privacy and confidently
 Working Groups
 Operational
 Legal
 Outreach
 IT
 Training
o The Wolfsberg Group
 Not mandatory
 No prosecutory power
 Members
 Association of 13 global banks
 Purpose
 Aims to promote the establishment autonomy develop standards and
guidance related to KYC, AML CTF.
 Anti-Money Laundering Principles for Correspondent Banking

 Risk
 Financial institution can look at to avoid becoming conduits for
terrorist financing, including:
o Use of an account as a front for a person with suspected
terrorist links,
o Appearance of an account-holder’s name on a list of
suspected terrorists,
o Frequent large cash deposits in accounts of non-profit
organizations,
o High volume of transactions in the account, and
o Lack of a clear relationship between the banking activity and
the nature of the accountholder’s business.
 Recommendations
 Providing official lists of suspected terrorists on a globally coordinated
basis by relevant authorities.

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  Developing uniform global formats for funds transfers that assist in
the detection of terrorism financing.
 Including adequate information in the lists to help institutions search
customer databases efficiently.
 Protect financial institutions with safe harbor immunity to encourage
them to share information and to report to authorities.
 Providing prompt feedback to institutions following circulation of
official lists.
 Providing information on the manner, means and methods used by
terrorist.
 Developing government guidelines for business sectors and activities
identified as high-risk for terrorism financing.
 Performing EDD for business relationships with remittance
businesses, exchange houses, casa de cambio, bureau de exchange,
and money transfer agents.
 Principles for AML CTF
 Accept clients whose source of income can reasonably be established
as legitimate.
 Identify beneficial owners for all accounts
 Due diligence on money managers and similar intermediaries have a
sufficient diligent process
 At least one person other than private banker approve all new clients
and accounts
 AML Principles for corresponding Bank
 Approval of higher risk Correspondent Banking relationships at the
time of on-boarding and periodic review shall be subject to a higher
level of approvals by business and Compliance, or relevant control
function. Periodic reviews shall be conducted of all high risk.
Correspondent Banking relationships, at minimum on an annual basis.
o International Money Laundering Information Network (IMoLIN) serves as a
clearinghouse of money laundering information for the benefit of national and
international anti-money laundering agencies.
VI. Risk Management
o Risk Rating
 Prohibited – The company will not tolerate any dealings of any kind given the
risk. Countries subject to economic sanctions or designated as state sponsors
of terrorism, such as Sudan or Iran, are prime candidates for prohibited
transactions. Prohibited customers would include shell banks.
 Sources of funds for terrorism
o Kidnapping /ransom
o Human trafficking
o Contributions to charity

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  High Risk – The risks here are significant but are not necessarily prohibited.
To mitigate the heightened risk presented, the firm should apply more
stringent controls to reduce the risk, such as conducting enhanced due
diligence and more rigorous transaction monitoring. Countries that are noted
for corruption or drug trafficking are generally deemed high risk. High-risk
customers may include PEPs; high-risk products and services may include
correspondent banking and private banking.
 Medium Risk – Medium risks are more than a low- standard-risk of money
laundering, and merit additional scrutiny, but do not rise to the level of high-
risk. A retail business that excepts low levels of cash, but cash intensive.
 Low or Standard Risk – This represents the baseline risk of money
laundering; normal business rules apply.
o Reasoning: risk-based approach requires financial institutions to have systems and
controls that are commensurate with the specific risks of ML.
o The ML/TF risk model is subject to regular review and management. In some
countries, there is a legislative obligation for such reviews to be undertaken on a
regular basis — usually annually or when new products, delivery channels or
customer types are introduced.
o Risk Factors (Score based on each individually scored and then combined)
 customer type
o NOTE: Employee risk are not part of the FATF risk factors
 assessing
o Industry alone does not determine the risk
o During onboarding process
 Automated account opening platform should require
data entry prior to allowing the account be opened.
o throughout the duration of the relationship
 risky customers
o casinos
o offshore corporations and banks in tax havens
o embassies
o MSB
o import/export companies
o cash sensitive businesses (restaurants, retail stores, parking)
 Product
 Different organization face varying risks
o does a particular new or current product or service
o enable significant volumes of transactions rapidly
o customer engage in transactions with minimal oversight by
the institution
o levels of anonymity to the users
o high transaction or investment value
o allow payments to third parties

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  Location
 terrorist and sanction list
 reputation of the country
 monitoring news media
o Adjusting risk
 receipt of LEO inquires, such as subpoenas
 unusual activities, alerts, cases and suspicious transaction (STR) filings
 transactions that violate economic sanction programs
 significant volumes of activity where it would not be expected (Credit union
engaging in corresponding banking or charity with large international
transactions, business engaged in large cash transaction where this would be
expected)
o Risk mitigation/4 pillars/Must be addressed
 First line of defense: Foundation to the AML program to mitigate AML and
CTF risks and clearly indicate the risk of the business.
 Types
o Internal controls
 Policies
 Risk based due diligence
 Segregation of duties
 Record retention polices
 Procedures
 Management reports and other built-in safeguards
that keep the program working.
 These internal controls should enable the compliance
organization to recognize deviations from standard
procedures and safety protocols.
 A matter as simple as requiring a corporate officer’s
approval or two signatures for transactions that
exceed a prescribed amount could be a critical internal
control element that if ignored seriously weakens an
institution’s AML/CFT program and attracts unwanted
attention from supervisory authorities.
 Second line of defense: compliance function (“Culture of compliance”)
 The sophistication of the compliance function should be based upon
the institution’s nature, size, complexity, regulatory environment, and
the specific risk associated with the products, services, and clientele.
No two institutions will have exactly the same compliance structure
because the risk facing each institution is going to be different, as
identified in their respective risk assessments.
 CO appointed by the board
 Board must be on board and committed
 CO hold parties responsible for compliance

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 CO articulate matters of importance to senior and executive
management, particularly significant changes that may present risk to
the organization, such as a sudden or substantial increase in STRs or
currency transaction reports (CTRs).
 CO have the means to communicate at all levels of the organization
— from front-line associates all the way up to the CEO and Board of
Directors.
 Based on:
o institution nature, size, complexity
o risks and services of clientele
 monitors controls of the business
o designing and implementing program
o disseminating information successful
o staff targeted training
 purpose
 explain the law and regulations
 policies and procedures that mitigate risk
 Demonstrate the distribution of the training to
appropriate employees.
o Names of employees who took the
training with their department name
 Who to train (role based)
 Customer-facing staff
 Operations personnel
 AML/CFT compliance staff
 Senior management and board of directors
 Independent testing staff
 What to train on (topic)
 background and history of ML and CTF
 applicable laws
 penalties
 How to train
 identify the issues that must be communicated
and decide how best to disseminate the
message
 identify the audience by functional area and
level of employee/management
 determine the needs that should be addressed
 determine who can best develop and present
the training program
 When to train

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  new employees should receive training based
on their job function within reasonable time
after joining or transferring to a new job
 regular schedule
 existing employees should attend annual
training
 Tests should be considered as a means to
evaluate how well the training is understood
with a mandatory passing score.
o managing adherence to CTF and AML regulations
 Third line of defense / independent audit to test effectiveness
 Must be sufficiently qualified and not involved in the compliance
process (independent)
 Look for new risk areas
 Report to Board

VII. Customer Due Diligence

 Customer Due Diligence (CDD)
o Best way to prevent ML and CTF
o Methods
 Know your Customer (KYC)
 Verify customer identity using reliable independent source
documents, data or information.
o The verification can be conducted using documentary and/or
non-documentary methods.
 Corporations – incorporation docs, bylaws, financial
statements (audited).
 Research: company search, public records, databases,
bank references, contacting corporate entity by
telephone.
 identify the beneficial owner and take reasonable steps to verify the
identity of the beneficial owner.
 understand and as appropriate obtain information on purpose and
intended nature of the business relationship.
 conduct ongoing due diligence on the business relationship and
scrutiny of transactions undertaken throughout the course of the
relationship to ensure that the transaction being conducted are
consistent with the institution of the knowledge of the customer,
business, risk profile and where necessary, the source of funds.
 Know your employee (KYE)
 Employee background on criminal background (FDIC guide)
o Applies Contractors
o Re-screen promoted employees

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  Conflicts of interest
 Compliance is a condition of employment
 Susceptibility to ML
 Financial to employee violations of AML
o Civil penalties
o Termination of employment
o Criminal penalties
 Use These Sanctions and screening lists
 Sanctions
o Country sanction lists
o Published lists of terrorists, traffickers
 The Specially Designated Nationals and Blocked
Persons (SDN)
 Monetary
 Economic
o Targeted sanctions (individuals, key leaders, named terrorists,
traffickers)
 Freezing assets
 Travel bans
o Sectoral sanctions
 Targeted at Key sectors of the economy
o Comprehensive (Country or territory)
 comprehensive sanctions are targeted at regimes
responsible for gross human rights violations and
nuclear proliferation.
 Prohibited indirect and direct trade with a particular
country.
 Automated Solutions
 Technology systems to automate compliance activities.
 Transaction monitoring: scanning and analyzing data.
 for potential money laundering activity.
o monitor transactions and identify anomalies that might
indicate suspicious activity.
 Watch list filtering: screening new accounts, existing customers,
beneficiaries and transaction counterparties against terrorist, criminal
and other blocked-persons watch lists.
 Automation of regulatory reporting: filing suspicious transaction
reports (STRs), currency transaction reports (CTRs), or other
regulatory reports with the government.
o The decision on whether or not to file a STR should be
subjected to a quality assurance review.
 A detailed audit trail: demonstrates compliance efforts to regulators.

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  Gather CDD information from new and existing customers, score
responses, store CDD data for subsequent use.
o Report by each country’s compliance with the legal
requirements within their country.
 conduct advanced evaluation and analysis of suspicious/unusual
transactions identified by monitoring system in the context of each
client's risk profile and that of their peer group.
 view individual alerts which the broader context of the client's total
activity at the institution.
 use data from the institutions core customer and transaction systems
and databases to inform/update monitoring and case management
activities.
 Financial institutions should aim to apply their customer acceptance
policy, procedures for customer identification, process for monitoring
higher risk accounts and risk management framework on a global
basis to all of their offices, branches and subsidiaries. The firm should
clearly communicate these policies and procedures through ongoing
training and regular communications, as well as conduct monitoring
and testing to ensure compliance with the policies and procedures.
 Several types of internal reports financial institutions may use to discover
money laundering and terrorist financing:
 Daily cash activity in excess of the country’s reporting threshold,
 Daily cash activity just below the country’s reporting threshold (to
identify possible structuring),
 Cash activity aggregated over a period of time (e.g., individual
transactions over a certain amount, or totaling more than a certain
amount over a 30-day period) to identify possible structuring,
 Wire transfer reports/logs (with filters using amount and geographical
factors),
 Monetary instrument logs/reports,
 Check kiting/drawing on uncollected fund (significant debit/credit
flows),
 Significant change reports, and
 New account activity reports.
 Identify Red Flags (potential suspicious and risky transactions and activities)
of AML / CTF
 Common indicators of ML and CTF
o Prompt further monitor
o Multiple indicators are present
 Type of red flags
o Customer furnishes unusual or suspicious identification or
refuses to provide originals.

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  Customer unwilling to provide personal background
information.
 Customer does not want a statement on the account
mailed to him.
 Customer’s IP address does not match the identifying
information provided at registration.
 Customer accounts for a business in a branch that is
located on the other side of town from where the
business is located.
 Customer holds multiple accounts under the same
name.
o Unusual non-cash transactions
 Customer deposits a large number of traveler’s
checks, often in the same denominations and in
sequence.
 Customer deposits large numbers of consecutively
numbered money orders.
 Customer deposits checks and/or money orders that
are not consistent with the stated purpose of the
account or nature of business.
 Customer deposits a large number of third-party
checks.
 Funds deposited are moved quickly out of the
account via payment methods inconsistent with the
established purpose of the account.
o Unusual cash transactions
 Customer makes large cash deposit without having
counted the cash.
 Customer frequently exchanges small bills for large
bills.
 Customer’s cash deposits often contain counterfeit
bills or musty or extremely dirty bills.
 Customer comes in with another customer and they
go to different tellers to conduct currency
transactions under the reporting threshold.
 Customer makes large cash deposit containing many
larger denomination bills.
 Customer opens several accounts in one or more
names, and then makes several cash deposits under
the reporting threshold.
 Customer withdraws cash in amounts under the
reporting threshold.

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 Customer withdraws cash from one of his or her
accounts and deposits the cash into another account
the customer owns.
 Customer conducts unusual cash transactions through
night deposit boxes, especially large sums that are not
consistent with the customer’s business.
 Customer makes frequent deposits or withdrawals of
large amounts of currency for no apparent business
reason or for a business that generally does not
generate large amounts of cash.
 Customer conducts large cash transactions at different
branches on the same day, or coordinates others to do
so on his or her behalf.
 Customer deposits cash into several accounts in
amounts below the reporting threshold and then
consolidates the funds into one account and wire
transfers them abroad.
 Customer attempts to take back a portion of a cash
deposit that exceeds the reporting threshold after
learning that a currency transaction report will be
filed.
 Customer conducts several cash deposits below the
reporting threshold at ATMs.
 Corporate account has deposits or withdrawals
primarily in cash, rather than checks.
 Customer frequently deposits large sums of cash
wrapped in currency straps.
 Customer makes frequent purchases of monetary
instruments with cash in amounts less than the
reporting threshold.
 Customer conducts an unusual number of foreign
currency exchange transactions.
 Customer indulges in foreign exchange
transactions/currency swaps without caring about the
margins. Noncustomer deposits cash into a customer
account, which was subsequently withdrawn in a
different geographic location.
o Frequent round dollar or whole dollar deposits
 discrepancies in goods and commodities sold
 no apparent business relationship between the parties
 lack of documentation to support the transactions
o Unusual wire transfers
 wire transfer sent/received from the same person to
and from different accounts

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  wire transfer activity to and from secrecy havens or
high-risk areas without a business reason or
inconsistent with customer's transaction history
 an increase in international wire transfer activity with
no history of such activity or where the stated business
of the customer does not warrant it
o Unusual activity indicative of trade-based ML
 discrepancies in the description of goods or commodity
in the invoice or of actual goods shipped.
 no apparent business relationship between the parties
and transactions.
 frequent transactions in round or whole dollars
 lack of appropriate documentation to support
transactions.
o unusual activity indicative of human trafficking
 accounts open for foreign workers where the agency is
the custodian.
 a business customer does not exhibit normal payroll
expenditures payroll costs, non-existent or extremely
low for the size of the customers alleged operations,
workforce and or business model.
 multiple apparently unrelated, customer sending wire
transfers to the same beneficiary.
 payments to employment or student recruitment
agencies that are not licensed/registered to have labor
violations.
 a customer establishes an account or visits a branch to
conduct transactions while escorted by third party.
 inflows are largely received in cash where substantial
cash receipts are inconsistent with the customer's line
of business; extensive use of cash to purchase assets
and to conduct transactions.
 When to use Enhanced Due Diligence (additional scrutiny)
 customers that pose higher ML and CTF risk require closer look at
account opening and more frequently during their account
relationships.
o Source of funds and wealth.
o Identifying information on individuals with control over the
account, such as signatories or guarantors.
o Occupation or type of business.
o Financial statements.
o Banking references.
o Domicile.

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 o Proximity of the customer’s residence, place of employment,
or place of business to the bank.
o Description of the customer’s primary trade area and whether
international transactions are expected to be routine.
o Description of the business operations, the anticipated volume
of currency and total sales, and a list of major customers and
suppliers.
o Explanations for changes in account activity.
VIII. INVESTIGATIONS
 Conducting and Responding to AML/CFT investigations
o Identify the sources of AML/CFT investigation.
 Regulatory recommendations or official findings.
 Financial institutions may initiate investigative efforts based on
o A report of examination from the regulators;
o Information from third parties, such as customers;
o Information derived from surveillance or monitoring systems;
o Information from employees or a company hotline;
o Receipt of a governmental subpoena or search warrant;
o Learning that government investigators are asking questions
of institution employees, business associates, customers or
even competitors; and
o The filing of a civil lawsuit against the institution or a customer
of the institution.
 Transaction monitoring
o Transaction monitoring rules should be reviewed periodically
and adjusted to ensure that they operate as planned.
o Tuning practices may include the results of monitoring rules,
examining specific thresholds and conducting above and
below the line testing to determine necessary changes in
rules.
 Referrals from customer-facing employees
o FI may have policy in place where customer-facing employees
can refer matters to be investigated for potential suspicious
activity.
 Depending on the size there may be a manual process
via email, telephone or internal reporting system that
routes the referrals to the appropriate investigative
teams.
 Internal hotlines
o Also known as ethics, compliance or whistleblower hotlines
and allow employees to report fraud, harassment, violations
of code of conduct, theft of property and inappropriate gifts.
 Negative media information

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 o Investigations maybe initiated in response to notable media
stories about a financial institution’s customer, how a product
is used in the market, geographic location it serves or a ML or
Terrorist event.
 Receipt of governmental subpoena or search warrant
o Subpoenas issued by grand juries operating under the purview
of a court and empower a LEO agency to compel production of
documents and testimony.
o Search warrant – grant of permission from a court for LEO to
search a certain designated premise and to seize specific
categories of items or document once they establish probable
cause exists. The warrant is then issued by a judge based on
information contained in an affidavit.
 FI must
 Legally fulfill the requirements of the subpoena
or warrant
 Determine whether the activity of its customer,
identified in the subpoena or warrant, requires
the filing of a STR.
 List the key steps for conducting the investigation.
 Step 1 Review internal transactions
 Step 2 Identify and review external information to understand the
customer, related entities and relevant media.
 Step 3 Contact business line employees responsible for account
relationships and interview them.
 Step 4 Generate a written report documenting relevant findings.
 Review the suspicious transaction report (STR) decision-making process.
 Decision on whether or not to file a suspicious transportation report
(STR) often involves weighing the aggravating and mitigating factors
arising from the research conducted during the investigative process.
 Filing an STR should include
o Details of the suspicious activity related to demographics
o Why the institution finds the activity suspicious.
 The recipient of the STR does not have the intimate
knowledge of what is expected activity for a particular
institution, client and product, and will only stand to
benefit from the inclusion of this information.
 Capturing any known typologies identified as part of
the review should be added in the STR as well.
o Preparing to close an account.
o Unusual high balances compared to known sources of
income.
o Multiple cash deposits made just under the threshold.

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 List the factors to be considered for closing an account and for prosecuting a
financial institution for money laundering violations.
 Legal Basis
 Institution’s stated policies and procedures for closing an account
 The reputational risk to the institution posed by maintaining the
account.
 Correspondence with law enforcement and requests from LEO to
either cancel or maintain the account.
 The seriousness of the underlying conduct.
 Decision to prosecute a financial institution of ML violations. The Institution
has
 A criminal history.
 A comprehensive and effective AML/CFT program.
o Evidenced by
 CDD error rates
 Quality assurance testing on STR filings
 Percentage of products and services monitored for
suspicious activity
 Services monitored for suspicious activity
 Deterring wrongdoing by others is needed and will be served by the
prosecution.
 Has cooperated with the investigation.
 Taken timely and effective remedial action.
 Advice and recommendations from regulatory agencies and or the
FIU for the jurisdiction are available.
 Channels through which financial institutions may receive information to
initiate an investigation.
 Steps that financial institutions should take to ensure that investigations are
conducted thoroughly and effectively.
 Mechanisms that encourage and facilitate AML/CFT co-operation between
countries
 Three gateways that assist with the AML co-operation between
countries
o Memorandums of Understanding (MOU)
o For criminal proceedings, there are two primary means of
obtaining evidence: Mutual Legal Assistance Treaty (MLAT)
and a letter rogatory.
o For civil proceedings, there is only a letter rogatory.
o Mutual legal assistance treaties (MLATs) provide a legal basis
for transmitting evidence can be used for prosecution and
judicial proceedings.
 Procedures can vary but the typical process is outlined
below.

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  The central authority of the requesting country
sends a commission rogatoire (letters rogatory,
or letter of request, discovery requests) to the
central authority of the other country. The
letter includes the information sought, the
nature of the request, the criminal charges in
the requesting country and the legal provision
under which the request is made.
 The central authority that receives the request
sends it to a local financial investigator to find
out if the information is available.
 An investigator from the requesting country
then visits the country where the information is
sought and accompanies the local investigator
during visits or when statements are taken.
 The investigator asks the central authority for
permission to remove the evidence to the
requesting country.
 The central authority sends the evidence to the
requesting central authority, thereby satisfying
the request for mutual legal assistance. Local
witnesses may need to attend court hearings in
the requesting country.
 The role played by Financial Intelligence Units (FIUs) in combating
money laundering.
o FIU are mandatory national agencies the handle financial
intelligence.
 Receive reports of suspicious transactions from
financial institutions and other persons and entities.
 Analyze the reported suspicious transactions.
 Disseminate the resulting intelligence to the local law
o The supervisory channel
 State the principles of information exchange between FIU.
o Practices that maximize cooperation between FIUs and can be
useful to government authorities when considering anti-
money laundering legislation.
o Differences of the definition of offenses that fall under the
competence of FIUs should not be an obstacle to free
exchange of information at the FIU level.
 Responding to LEO investigations
 Designate a person to:
o Receive service of legal documents and requests;
o Respond to requests;

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 o Monitor the progress of the investigation; and
o Keep senior management informed of the nature and progress
of the investigation.
 Three Steps
o Notify Senior Management and board;
o Retain outside counsel;
o Inform and instruct relevant employees
o Provide LEO with copies of internal investigation
 Service of a warrant
 Obtain an inventory of the materials LEO took
 Review the warrant to determine the scope
 Fully cooperate with LEO and remain calm

IX. Case Examples

 BSA Violations
o Bank of Mingo – The Financial Crimes Enforcement Network (FinCEN) today
announced the assessment of a $4.5 million civil money penalty against Bank of
Mingo of Williamson, West Virginia (Mingo), for willfully violating the Bank Secrecy
Act (BSA). Mingo had severe and systemic failures in many aspects of its anti-money
laundering (AML) program. As a result of these failures, Mingo processed millions of
dollars in structured and suspicious cash transactions through the institution. Mingo
serviced high-risk customers without effectively monitoring their accounts for
suspicious activity. In one example, Mingo was aware of a high volume of unusual
cash transactions conducted by a corporate customer yet failed to file the requisite
currency transaction reports (CTRs) or suspicious activity reports (SARs).
 BSA Violation
o U.S. Bank willfully violated the BSA's program and reporting requirements by failing
to maintain an effective risk-based policies, as required by the BSA, U.S. Bank
devoted an inadequate amount of resources to its AML program from 2011 to 2014.
First, the Bank capped the number of alerts its automated transaction monitoring
system would generate for investigation. Testing indicated that these caps caused
the Bank to fail to investigate and report large numbers of suspicious transactions.
Nonetheless, instead of removing the alert caps, the Bank terminated the testing
that demonstrated the caps’ deficiencies. Similarly, from May 2009 until June 2014,
U.S. Bank allowed non-customers to conduct currency transfers at its branches
through a large money transmitter. Although the Bank knew that it had an obligation
under the BSA to monitor those transfers for suspicious activity, it failed to include
them in its automated transaction monitoring system. The Bank also employed
inadequate procedures to identify and address high-risk customers that caused it to
fail to effectively analyze and report the transactions of such customers. The willfully
deficient practices described above caused U.S. Bank to fail to file thousands of
suspicious activity reports (SARs).
 Tax Evasion

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 o Lombard Bank - Swiss private bank Lombard Odier said it would pay $99.8 million
under a non-prosecution agreement with US authorities to settle an investigation
into allegations it helped wealthy American clients evade taxes.
o Lombard Odier nonetheless opened, maintained and serviced accounts for US
persons that it knew or had reason to know were likely not declared to the IRS or
the Treasury Department, as required by US law. Lombard Odier offered traditional
Swiss banking services, such as numbered accounts and holding clients’ mail, that
assisted US clients in the concealment of assets and income from the IRS. Lombard
Odier also assisted US clients in concealing their assets and income by opening and
maintaining accounts in the names of non-US corporations, foundations, trusts or
other entities that it knew were beneficially owned by US persons. Lombard Odier
maintained at least 32 entity accounts that were operated without compliance with
the requisite corporate formalities. The non-US jurisdictions in which the entities
were incorporated or formed included the British Virgin Islands, Liechtenstein and
Panama. In some instances, Lombard Odier referred clients to its Swiss-based
affiliate, Favona SA, which is also part of the Lombard Odier Group, to set up entity
structures. In addition, Favona provided administrative services, including
accounting services and supplying corporate directors.
 Private Banking
o Juan Garcia Abrego & Cali Cartel – A banking arm of the American Express Company
settled for $32 million today a Federal money-laundering case that involved
Mexico's largest drug cartel, also a principal conduit for Colombian cocaine entering
the United States. The American Express Bank International was accused of
laundering drug money through Cayman Islands accounts for the Juan Garcia Abrego
gang, also known as the Gulf cartel. Mr. Garcia initially, in 1989, gave millions in drug
profits to an aide, Ricardo Aguirre Villagomez, known as Kenny Rogers for his strong
resemblance to the singer. The aide channeled the money through a foreign
exchange house in Monterrey, Mexico, which then had duffel bags stuffed with $50
and $100 bills flown to the Texas side of the Rio Grande Valley and deposited in a
local bank. Mr. Giraldi and Maria Lourdes Reatagui, then working for Bankers Trust,
opened bank accounts in Switzerland and New York to receive this money, and
created Cayman Islands companies to control the accounts. Mr. Giraldi, forced to
resign in February 1990, joined the American Express bank in Beverly Hills, Calif., in
April, bringing Ms. Reatagui, who became a bank director, with him. Receiving the
drug money as collateral, the bank issued loans for the cartel to invest in
meatpacking, computer and real estate companies, as well as two car dealerships, in
the Rio Grande Valley and throughout Mexico.
 Panama Papers and the misuse of Attorney Client Privilege
o The Panama Papers are 11.5 million leaked documents that detail financial and
attorney-client information for more than 214,488 offshore entities. The documents,
some dating back to the 1970s, were created by, and taken from, Panamanian law
firm and corporate service provider Mossack Fonseca, and were leaked in 2015 by
an anonymous source. The documents contain personal financial information about
wealthy individuals and public officials that had previously been kept private. While

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 offshore business entities are legal (see Offshore Magic Circle), reporters found that
some of the Mossack Fonseca shell corporations were used for illegal purposes,
including fraud, tax evasion, and evading international sanctions.
 Brokerage Firm Charged with Anti-Money Laundering Failures
o Albert Fried Co (AFCO). The Securities and Exchange Commission today charged a
Wall Street-based brokerage firm with failing to sufficiently evaluate or monitor
customers’ trading for suspicious activity as required under the federal securities
laws. An SEC investigation found that Albert Fried & Company failed to file
Suspicious Activity Reports (SARs) with bank regulators for more than five years
despite red flags tied to its customers’ high-volume liquidations of low-priced
securities. On more than one occasion, an AF&Co customer’s trading in a security
on a given day exceeded 80 percent of the overall market volume. In other
instances, customers were trading in stocks issued by companies that were
delinquent in their regulatory filings or involved in questionable penny stock
promotional campaigns. Certain customers also were the subject of grand jury
subpoenas received by AF&Co. AF&Co agreed to be censured and pay the $300,000
penalty without admitting or denying the findings in the order, which credits the
firm for its cooperation and the remedial measures already undertaken. AFCO has
now Developed a detailed CIP program.
 Pump and Dump Scheme
o Robert Bandfield, a US citizen and resident of Belize, and Gregg R. Mulholland, a dual
US and Canadian citizen, were sentenced to 6 and 12 years in prison, respectively. In
May 2016, Bandfield pleaded guilty to money laundering conspiracy that involved
shell companies, enabled his clients to fraudulently manipulate the stocks of dozens
of US publicly-traded companies.
o Mulholland, the secret owner of Legacy Global Markets S.A. (Legacy), an offshore
broker-dealer and investment management company based in Panama City, Panama
and Belize City, Belize, pleaded guilty to money laundering conspiracy for
fraudulently manipulating the stocks of more than 40 US publicly-traded companies
and then laundering more than $250 million in fraudulent proceeds through at least
five offshore law firms. As part of the sentences, Bandfield was ordered to forfeit,
among other things, $1 million and all his rights and interests in three corporate
entities -- IPC Management Services LLC, IPC Corporate Services Inc. and IPC
Corporate Services LLC (collectively, “IPC Corp”) - that he founded and controlled in
Belize, whereas Mulholland was ordered to forfeit, among other things, a Dassault-
Breguet Falcon 50 aircraft, a Range Rover Defender vehicle, two real estate
properties in British Columbia, and funds and securities on deposit at more than 25
bank and brokerage accounts.
o January 2009 and September 2014, Bandfield, Mulholland and their co-conspirators
engaged in three interrelated schemes: (1) to induce US investors to purchase stock
in various thinly-traded US public companies through fraudulent promotion of the
stock, concealment of their ownership interests in the companies, and fraudulent
manipulation of artificial price movements and trading volume in the stocks of those
companies; (2) to circumvent the payment of capital gains taxes and the IRS’s

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 reporting requirements under the Foreign Account Tax Compliance Act (FATCA); and
(3) to launder the fraudulent proceeds from the stock manipulation schemes to and
from the United States through debit cards and attorney escrow accounts. Between
2010 and 2014, Mulholland controlled a group of individuals (the Mulholland
Group). Through these schemes, Bandfield helped his corrupt clients -- who included
Mulholland and more than 100 others -- launder more than $250 million in
fraudulent proceeds. To facilitate these interrelated schemes, Bandfield and his co-
conspirators created shell companies in Belize and the West Indies for the corrupt
clients and placed nominees at the helm of these companies. This structure was
designed to conceal the clients’ ownership interest in the stock of US public
companies, in violation of US securities laws, and enable the corrupt investors to
engage in trading under the nominee’s names through brokerage firms also set up in
Belize. For example, this structure enabled the Mulholland Group to manipulate the
stock of Cynk Technology Corp, which traded on the US OTC markets under the
ticker symbol CYNK. Using aliases such as “Stamps” and “Charlie Wolf,” Mulholland
was intercepted on a court-authorized wiretap on May 15, 2014, admitting to his
ownership of “all the free trading” or unrestricted shares of CYNK. Prior to this
conversation between Mulholland and his trader at Legacy, there had been no
trading in CYNK stock for 24 trading days. Over the next two months, the stock of
CYNK rose from $0.06 per share to $13.90 per share, a more than $4 billion stock
market valuation for a company that had no revenue and no assets.
o Mulholland used the services of a US-based lawyer to launder the more than $250
million generated through his stock manipulation of CYNK and other US companies –
directing the fraud proceeds to five law firm accounts and transmitting them back to
members of the Mulholland Group and its co-conspirators. Other clients used
unidentifiable debit cards to freely transfer their fraudulent proceeds back into the
United States. Bandfield’s scheme also enabled the US corrupt clients evade
reporting requirements to the IRS by concealing the proceeds generated by the
manipulated stock transactions through the shell companies and their nominees. For
example, in response to a request received by a US corrupt client from a US transfer
agent who had to determine whether the proceeds from manipulative stock trading
transaction were taxable under US law, Bandfield forwarded an IRS Form signed by
co-defendant Andrew Godfrey as the nominee for the shell company which had
been set up at the request of the client. At one point during the government’s
investigation, Bandfield boasted to an undercover law enforcement agent that he
had specifically designed this “slick” corporate structure to counter then-President
Barack Obama’s new laws, a reference to FATCA.
 Terrorists’ use for Hawala
o Mohammad Younis pled guilty in Manhattan federal court to operating an
unlicensed money transfer business between the United States and Pakistan. One of
the money transfers was used to fund the May 1, 2010, attempted car bombing in
New York City’s Times Square by Faisal Shahzad, who is serving a life sentence in
federal prison. From January to May 2010, Younis provided money transmitting
services to individuals in the New York City area by assisting in the operation of a

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 hawala. On April 10, 2010, Younis engaged in two separate hawala transactions with
customers who traveled from Connecticut and New Jersey to meet with him in Long
Island. In each of the transactions, Younis provided thousands of dollars in cash to
the individuals at the direction of a coconspirator in Pakistan but without knowledge
of how the customers were planning to use the funds. At no time did Younis have
the license to operate a money transmitting business from either state or federal
authorities. One of the individuals to whom Younis provided money was Shahzad,
who on June 21, 2010, pled guilty to a 10-count indictment charging him with crimes
relating to his attempt to detonate a car bomb in Times Square on May 1, 2010.
 Attorney used to Launder Drug Money
o Boston-area criminal defense lawyer has been federally charged in a money-
laundering case, accused of conspiring with another defendant to conceal the source
of $1.7 million in illegal drug-trafficking proceeds over a four-year period starting in
2006. The co-defendant, Secundino Cespedes, and Rafael Benzan, a Massachusetts
business owner who reportedly participated in a federal sting operation against
attorney Lawrence Perlmutter, allegedly obtained money from drug dealers’
associates that the 50-year-old defense lawyer is accused of laundering through a
client trust account, reports the Boston Globe. Perlmutter is accused of depositing
drug-trafficking proceeds in small amounts in a client trust account and then using
cashier’s checks drawn on the account to bail out defendants in various
Massachusetts state-court drug cases, according to the Globe and the Daily News
Tribune. Perlmutter was not acting as defense counsel for the individuals for whom
he allegedly arranged to post this bail, the Globe reports, relying on an affidavit in
the case. He was arrested outside a Bank of America branch after allegedly obtaining
a $100,000 cashier’s check for a purported bail payment requested by Benzan.
 Attorney Scott Rothstein Ponzi Scheme
o Florida-based attorney Scott Rothstein pleaded guilty in 2009 to operating a $1.2
billion Ponzi scheme that involved pulling in investors for confidential out-of-court
legal settlements that were, in fact, entirely fabricated. The litigants that were
supposedly cashing out of structured settlements were said to be involved in sexual
harassment and whistle-blower cases that defendants wanted to remain secret. The
premise was viable, but Rothstein offered abnormally large returns for that type of
investment, in some cases more than 20 percent in 90 days.
o Rothstein originally maintained accounts at Gibraltar Private Bank & Trust, where he
was personally invested, and which was subsequently penalized $4 million by the
Financial Crimes Enforcement Network (FinCEN) in 2016 for Willful Anti-Money
Laundering Compliance Violations. The penalty was the result of deficiencies in
Gibraltar’s systems that caused the bank to miss alerts related to Rothstein’s
accounts. Rothstein’s role as an investor may have played a role in the lack of
regulatory filings related to his accounts; he would also go on to allege a Gibraltar
vice president assisted him in moving funds between accounts to fend off
compliance staff.
o Rothstein opened accounts at TD Bank to continue operating the scheme after some
investors informed him they preferred dealing with a large institution. He later

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 indicated that he gave his contact at TD Bank cash for his continued facilitation of
the scheme, also noting that the individual “handled any and all concerns raised by
bank compliance officials about the accounts” linked to the scheme. FinCEN
assessed a $37.5 million civil money penalty against TD Bank, N.A., in September
2013 for failure to file suspicious activity reports related to the massive Ponzi
scheme.
 HSBC’s $881 million money-laundering scandal
o HSBC paid $1.9 billion settlement in 2012 for helping Mexican drug cartels launder
money and breaching international sanctions by doing business with Iran. BC Bank
USA severely understaffed its AML compliance function and failed to implement an
anti-money laundering program capable of adequately monitoring suspicious
transactions and activities from HSBC Group Affilliates, particularly HSBC Mexico,
one of HSBC Bank USA’s largest Mexican customers. This included a failure to
monitor billions of dollars in purchases of physical US dollars, or “banknotes,” from
these affiliates. Despite evidence of serious money laundering risks associated with
doing business in Mexico, from at least 2006 to 2009, HSBC Bank USA rated Mexico
as “standard” risk, its lowest AML risk category. As a result, HSBC Bank USA failed to
monitor over $670 billion in wire transfers and over $9.4 billion in purchases of
physical US dollars from HSBC Mexico during this period, when HSBC Mexico’s own
lax AML controls caused it to be the preferred financial institution for drug cartels
and money launderers. Five-year-old deferred prosecution agreement with the
Department of Justice department for violations of the Bank Secrecy Act (BSA), the
International Emergency Economic Powers Act (IEEPA) and the Trading with the
Enemy Act (TWEA). In 2017, ist satisfied with the bank’s improvements to its
compliance systems after it was ensnared in a money-laundering scandal in Mexico.
In addition to forfeiting $1.256 billion as part of its deferred prosecution agreement
(DPA) with the Department of Justice, HSBC has also agreed to pay $665 million in
civil penalties – $500 million to the Office of the Comptroller of the Currency (OCC)
and $165 million to the Federal Reserve – for its AML program violations. The OCC
penalty also satisfies a $500 million civil penalty of the Financial Crimes Enforcement
Network (FinCEN). The bank’s $375 million settlement agreement with OFAC is
satisfied by the forfeiture to the Department of Justice. The United Kingdom’s
Financial Services Authority (FSA) is pursuing a separate action.
 The bank failings relating to its anti-money laundering (AML) policies and procedures over
corporate customers connected to politically exposed persons (PEPs)
o The Financial Conduct Authority (FCA) has fined Standard Bank PLC (Standard Bank)
£7,640,400. Standard Bank is the UK subsidiary of Standard Bank Group, South
Africa’s largest banking group. Standard Bank Group is an international banking
group with extensive operations in 18 African countries and operations in 13 other
countries outside of Africa. Between 15 December 2007 and 20 July 2011, Standard
Bank failed to comply with Regulation 20(1) of the Money Laundering Regulations
because it failed to take reasonable care to ensure that all aspects of its AML policies
were applied appropriately and consistently to its corporate customers connected to
PEPs. Guidance issued by the Joint Money Laundering Steering Group (JMLSG)

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 provides that where a corporate customer is known to be linked to a PEP, such as
through a directorship or shareholding, it is likely that this will put the customer into
a higher risk category, and that enhanced due diligence (EDD) measures should
therefore be applied. During the relevant period, Standard Bank had business
relationships with 5,339 corporate customers of which 282 were linked to one or
more PEPs.
o This meant that it did not consistently:
 carry out adequate EDD measures before establishing business relationships
with corporate customers that had connections with PEPs; and
 conduct the appropriate level of ongoing monitoring for existing business
relationships by keeping customer due diligence up to date.
o The FCA considers these failings to be particularly serious because:
 Standard Bank provided loans and other services to a significant number of
corporate customers who emanated from or operated in jurisdictions which
have been identified by industry recognized sources as posing a higher risk of
money-laundering;
 Standard Bank identified issues relating to its ability to conduct ongoing
reviews of customer files early in the relevant period, but failed to take the
necessary steps to resolve the issues; and
 The FCA has previously brought action against a number of firms for AML
deficiencies and has stressed to the industry the importance of compliance
with AML requirements.
 Liability of Corporate Officers
o Money Gram CCO gets fined – Thomas E. Haider, the former Chief Compliance
Officer of MoneyGram International, Inc. Mr. Haider has agreed to a three-year
injunction barring him from performing a compliance function for any money
transmitter and has agreed to pay a $250,000 penalty. He also has admitted,
acknowledged, and accepted responsibility for the following, among other things:
(1) failing to terminate specific MoneyGram outlets after being presented with
information that strongly indicated that the outlets were complicit in consumer
fraud schemes; (2) failing to implement a policy for terminating outlets that posed a
high risk of fraud; and (3) structuring MoneyGram’s anti-money laundering (AML)
program such that information that MoneyGram’s Fraud Department had
aggregated about outlets, including the number of reports of consumer fraud that
particular outlets had accumulated over specific time periods, was not generally
provided to the MoneyGram analysts who were responsible for filing suspicious
activity reports with FinCEN.
o Office of Comptroller of currency (“OCC”) fines former chief compliance/risk officer
of Gibraltar Private Bank. Charles Sanders was fined $2,500 for causing the bank to
fail to file SARs. The bank’s BSA’s officer had investigated activity related to a Ponzi
scheme and prepared SARs for filing. Mr. Sanders agreed to the content of the SARs
but failed to timely file the reports.
 Virtual currency and Money laundering

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 o Liberty Reserve - The founder of Liberty Reserve, a virtual currency once used by
cybercriminals around the world to launder the proceeds of their illegal activity, pleaded
guilty today to running a massive money laundering enterprise. The US Department of
Justice charged Liberty Reserve, a Costa Rica-based money transmitter, and seven of its
principals and employees with operating an unregistered money transmitter
business and money laundering for facilitating the movement of more than 6
billion USD in illicit proceeds. In a coordinated action, the Department of the Treasury
identified Liberty Reserve as a financial institution of primary money laundering
concern under Section 311 of the USA PATRIOT Act, effectively cutting it off from
the US financial system. Liberty Reserve was designed to avoid regulatory and law
enforcement scrutiny and help criminals distribute, store, and launder the proceeds of
credit card fraud, identity theft, investment fraud, computer hacking, narcotics
trafficking, and child pornography by enabling them to conduct anonymous and
untraceable financial transactions. To use LR currency, a user opened an account
through the Liberty Reserve website. While Liberty Reserve ostensibly required basic
identifying information, it did not validate identities. Users routinely established
accounts under false names, including blatantly criminal names (“Russia Hackers,”
“Hacker Account,” “Joe Bogus”) and blatantly false addresses (“123 Fake Main
Street, Completely Made Up City, New York”). To add a further layer of anonymity,
Liberty Reserve required users to make deposits and withdrawals through
recommended third-party exchangers generally, unlicensed money transmitting
businesses operating in Russia, and in several countries without significant
governmental money laundering oversight or regulation at that time, such as
Malaysia, Nigeria, and Vietnam. By avoiding direct deposits and withdrawals from
users, Liberty Reserve evaded collecting information about them through banking
transactions or other activity that would create a central paper trail. Once an
account was established, a user could conduct transactions with other Liberty Reserve
users by transferring LR from his or her account to other users, including front
company “merchants” that accepted LR as payment. For an extra “privacy fee” (75 US
cents per transaction), users could hide their Liberty Reserve account numbers when
transferring funds, making the transfers completely untraceable.
 VC exchanger failed to register as a MSB
o Alexander Vinnik of BTCe – A grand jury in the Northern District of California has
indicted a Russian national and an organization he allegedly operated, BTC-e, for
operating an unlicensed money service business, money laundering, and related
crimes. Mr. Vinnik is alleged to have stolen the identities, facilitated drug trafficking,
and helped to launder criminal proceeds from syndicates around the world,” said
Chief Don Fort, IRS Criminal Investigation. “Exchanges like this are not only illegal,
but they are a breeding ground for stolen identity refund fraud schemes and other
types of tax fraud. BTC-e, founded in 2011, was one of the world’s largest and most
widely used digital currency exchanges. The indictment alleges that BTC-e allowed
its users to trade in the digital currency “Bitcoin” with high levels of anonymity. innik
and others developed a customer base for BTC-e that was heavily reliant on
criminals, including by not requiring users to validate their identity, obscuring and

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 anonymizing transactions and source of funds, and by lacking any anti-money
laundering processes. The indictment alleges BTC-e was operated to facilitate
transactions for cybercriminals worldwide and received the criminal proceeds of
numerous computer intrusions and hacking incidents, ransomware scams, identity
theft schemes, corrupt public officials, and narcotics distribution rings. Thus, the
indictment alleges, BTC-e was used to facilitate crimes ranging from computer
hacking, to fraud, identity theft, tax refund fraud schemes, public corruption, and
drug trafficking. The investigation has revealed that BTC-e received more than $4
billion worth of bitcoin over the course of its operation. BTC-e was not registered as
a money services business with the US Department of the Treasury, had no anti-
money laundering process, no system for appropriate “know your customer” or
“KYC” verification, and no anti-money laundering program as required by federal
law. According to the company’s website, BTC-e is located in Bulgaria but organized
or otherwise subject to the laws of Cyprus. The exchange allegedly maintains a base
of operations in the Seychelles Islands and its web domains are registered to shell
companies in, among other places, Singapore, the British Virgin Islands, France, and
New Zealand. The indictment charges BTC-e and Vinnik with one count of operation
of an unlicensed money service business, in violation of 18 U.S.C. § 1960, and one
count of conspiracy to commit money laundering, in violation of 18 U.S.C. § 1956(h).
FinCEN today assessed a $110 million civil money penalty against BTC-e for willfully
violating US anti-money laundering (AML) laws. Alexander Vinnik was assessed $12
million for his role in the violations.

X. Additional References Website Links

o https://www.ffiec.gov/bsa_aml_infobase/documents/BSA_AML_Man_2014_v2.pdf
o https://www.banktrack.org/download/compliance_policy/ing_group_compliance_p
olicy.pdf
o http://corporate.moneygram.com/Documents/Corp%20site
%20docs/Compliance/LatAm%20and%20Caribbean/aml_lacaml0908_eng.pdf
o https://www.federalreserve.gov/newsevents/pressreleases/files/enf20170530a1.pd
f
colleague

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