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Annual Anti-Money Laundering (AML) / Counter Terrorism Financing (CTF) Training 2012.

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Presentation on theme: "Annual Anti-Money Laundering (AML) / Counter Terrorism Financing (CTF) Training 2012."— Presentation transcript:

1 Annual Anti-Money Laundering (AML) / Counter Terrorism Financing (CTF) Training 2012

2 Objectives By the end of this training, you will be able to: Recognize the (3) stages of money laundering Understand GlobeOps role in combating money laundering and terrorist financing Increase awareness of GlobeOps regulatory requirements Recognize your role in fighting money laundering and terrorist financing Identify potential suspicious activity and how to escalate your suspicions Understand the offenses which relate to money laundering and terrorist financing 2

3 3 A Brief History of Money Laundering

4 What is Money Laundering & Terrorist Financing? Money Laundering: The process of changing the identity of money gained from illegal activities into clean money, thus concealing the true origin and ownership of the money. Terrorist Financing: The process by which terrorists fund their operations in order to perform terrorist acts; usually involves money laundering. 4 While illegal activities such as these have undoubtedly being going on for hundreds if not thousands of years, its only in the 20 th century that money laundering as a crime has really attracted interest. Money laundering as an expression is one of fairly recent origin. The original sighting was in newspapers reporting the Watergate scandal in the United States in 1973. Lets take a look at two of the most infamous money launderers!

5 Al Capone 5 One of Americas best known mobsters was also the inventor of modern money laundering. In fact, many of his first businesses were laundromats and thus extremely cash intensive. Some will say that Capones use of laundromats was the origin of the phrase money laundering! Capone was prosecuted and convicted in October, 1931 not for money laundering, but for tax evasion.

6 6 It has been said that he was the most successful criminal known. Escobar, a notorious leader of a Columbian drug cartel, at one time controlled 80% of the worlds cocaine trade. So how did he do it? Escobar used money laundering in order to effectively deposit billions of dollars gained from the sale of narcotics in the U.S. and offshore banking havens such as the Bahamas, Aruba and the Cayman Islands. Known at one point as the seventh richest man in the world by Forbes, Escobar used his criminally derived wealth to live an extravagant lifestyle filled with luxurious real estate, cars, helicopters, airplanes and even a private zoo with imported exotic animals! The growing suspicions of the U.S. government over Escobars wealth and the increase in conflict over the American and Columbia trade treaty eventually lead to Escobars death in a gunfight by Columbian authorities in his hometown of Medellin, Columbia. Pablo Escobar

7 7 Typically, a money laundering operation will have 3 key stages……

8 8 Placement Money initially placed into the financial system Example: Drug traffickers proceeds are broken up into smaller sums and deposited into a bank account over a period of time Layering Money is converted or moved through the financial system, in multiple transactions, in order to break the audit trail of the moneys original source Proceeds are used to purchase an investment instrument or may be wired to multiple bank accounts across several jurisdictions Integration Money is no longer distinguishable from its original source and has re-entered the legitimate economy Proceeds are re-invested into legitimate business ventures, used to purchase luxury items, real estate, etc. The Three Stages of Money Laundering

9 9 Placement Money initially placed into the financial system Example: Drug traffickers proceeds are broken up into smaller sums and deposited into a bank account over a period of time Layering Money is converted or moved through the financial system, in multiple transactions, in order to break the audit trail of the moneys original source Example: Proceeds are used to purchase an investment instrument or may be wired to multiple bank accounts across several jurisdictions Integration Money is no longer distinguishable from its original source and has re-entered the legitimate economy Proceeds are re-invested into legitimate business ventures, used to purchase luxury items, real estate, etc. The Three Stages of Money Laundering

10 10 Placement Money initially placed into the financial system Example: Drug traffickers proceeds are broken up into smaller sums and deposited into a bank account over a period of time Layering Money is converted or moved through the financial system, in multiple transactions, in order to break the audit trail of the moneys original source Example: Proceeds are used to purchase an investment instrument or may be wired to multiple bank accounts across several jurisdictions Integration Money is no longer distinguishable from its original source and has re-entered the legitimate economy Example: Proceeds are re-invested into legitimate business ventures, used to purchase luxury items, real estate, etc. The Three Stages of Money Laundering

11 Former military dictator of Panama, General Noriega, misappropriated approximately $23 million of funds from the Panama National Guard. The funds were deposited into various accounts he opened with the Bank of Credit and Commerce International in Luxembourg and London. From there, $11.5 million of the funds were transferred to an account in the name of Finlay International at the Union Bank of Switzerland in Zurich. The whole of the funds were then transferred to the Middle Eastern Bank in London. Finlay International instructed the Middle Eastern Bank to transfer the funds to several brokerage accounts opened at a commodities brokerage firm. Multiple transactions took place through the Finlay accounts set up at the brokerage firm, involving trades on the Chicago and London commodities markets. Gradually, the money was withdrawn from the brokerage accounts and used to buy luxury items in Paris, e.g. yacht, apartment in Europe, etc. 11 Can you see the various stages of money laundering in this scenario? Case Study – General Noriega Placement: the money is introduced to the financial system Layering: the money is moved through the financial system Integration: the money is unrecognizable from its original source

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13 SS&C GlobeOps Role SS&C GlobeOp Fund Clients Investment Managers & Fund Counterparties As part of its administrative services, SS&C GlobeOp conducts certain AML reviews on behalf of Fund clients, as designated in their Services Agreement Our clients and their counterparties rely on SS&C GlobeOp to conduct the appropriate AML/Know Your Customer Checks on the money which is used to fund trading accounts SS&C GlobeOp is licensed in Ireland under the Investment Intermediaries Act, 1995 SS&C GlobeOp is licensed in the Cayman Islands under the Mutual Funds Law 13

14 What does it mean to Know Your Customer? Also known as KYC Involves conducting a due diligence review on clients Verification of true identity, address, source of funds, nature of business etc Often involves risk assessment - source of wealth, type of client, location of client Required identity verification documents may include:- Passport or other government issued identification Official formation documents or other governing agreements Documents which verify the nature of the clients business 14

15 SS&C GlobeOps Regulatory Requirements SS&C GlobeOp must ensure sufficient AML/CTF procedures and controls are in place in order to maintain its good standing with each of our regulators 15 In Ireland, our regulator is the Central Bank of Ireland (Central Bank) and the relevant AML/CTF legislation is the Criminal Justice (Money Laundering & Terrorist Financing) Act 2010 In the Cayman Islands, our regulator is the Cayman Islands Monetary Authority (CIMA) and the relevant AML legislation is The Proceeds of Crime Law, The Money Laundering Regulations, the Terrorism Law, and The Guidance Notes on the Prevention and Detection of Money Laundering and Terrorist Financing

16 AML/CTF Procedures at a Glance Financial Services providers such as SS&C GlobeOp must implement certain procedures in order to effectively combat money laundering, terrorist financing, and other financial crimes. These procedures include: 16 Client identification procedures, including where appropriate, identification of beneficial owners, and the nature of the clients business Recognition of suspicious activity and reporting of such activity to the appropriate person(s) Staff training procedures regarding applicable AML/CTF regulations and company policies On-going monitoring of business arrangements Retention of documents for not less than 5 years Internal Audit procedures Designation of a Money Laundering Reporting Officer (MLRO) and Money Laundering Compliance Officer

17 Why is all of this important to you? Under the laws in the Cayman Islands and Ireland, it is a criminal offense of money laundering if a person possesses, conceals, disguises, transfers, converts, removes, acquires, or, in any way, handles the proceeds of criminal conduct A person commits a criminal offense if he or she knows or suspects, or has reasonable grounds for knowing or suspecting, that another person is engaged in criminal conduct, and he or she does not make the required disclosure to the Money Laundering Reporting Officer in their company. Only the Money Laundering Reporting Officer should make a report to SS&C GlobeOps regulator if they suspect or know about suspicious activity or money laundering. 17

18 It is important to ensure you do not discuss any suspicions of money laundering or other criminal conduct or any reporting of such conduct with anyone but your direct line manager and the firms Money Laundering Reporting Officer (MLRO). 18 Tipping Off In the event that you make a report of suspicious activity to the MLRO, you will be given specific instructions on how to proceed. It is a criminal offense if a person knows or suspects a disclosure of money laundering is about to take place, is taking place, or has taken place, and he or she makes a disclosure which is likely to prejudice an investigation.

19 Knowledge Check A prospective corporate investor wishes to subscribe into ABC Fund Limited, however they reside in a country not recognized by our regulators. In order to conduct the appropriate KYC checks, GlobeOp Investor Services requests documentation in order to identify the investor and its shareholders. The investor is reluctant to provide data relating to its shareholders and after many weeks, the Investor Services representative instructs the investor that they cannot process the subscription without this documentation. The investor states on a call, this is ridiculous, I have invested in many funds and none of them have given me a hard time. I am going to withdraw my subscription immediately! Keeping in mind the tipping off offense, which one of the below actions would be best practice to pursue? 19 A. Tell the Fund Manager of your suspicions. Let them deal with the investor. Hey, maybe theyll have better luck? B. Say nothing. No harm no foul. The investor didnt provide the documentation, so you couldnt process. Simple as that. C. Discuss the situation with your direct line manager. Coordinate a discussion to speak with the company MLRO.

20 If you said C you are correct! Although it is best practice to discuss the matter directly with your company MLRO, it is often acceptable to discuss the situation with your direct line manager, who may be able to guide you through the process, along with the MLRO. Remember, the tighter the loop of people involved, the better! By no means should any of your suspicions be discussed with the investor, client or co-worker (other than your direct line manager). 20

21 21 Suspicious Activity

22 What is Suspicious Activity? 22 Refers to types of activity that can be construed as questionable or suspect Important to Know Your Customer so you are better able to identify activity which is unusual or not in the normal range of activity for that client All SS&C GlobeOp personnel must monitor activity in client or investor accounts and always be alert to unusual or inconsistent transactions

23 Types of Suspicious Activity Some examples of Suspicious Activity may include: Reluctance for a client to provide additional information or documentation Requests from a client to remain anonymous Swaps or other transactions with a non traditional counterparty, e.g. other than a recognized bank or brokerage house Excessive frequency of contributions and withdrawals by a client or investor, especially where there is no financial gain or other benefit Unusually high volume transactions 23 Lets take a look at a scenario to test your recognition of suspicious activity!

24 Knowledge Check An Operations employee at SS&C GlobeOp is requested to send out a wire for a Fund expense by one of the Operations Managers at the Fund who he speaks to everyday and has a great working relationship with. The Operations Manager at the Fund says the expenses occurred during a business trip and hed really appreciate a prompt turnaround. When the employee requests documentation to substantiate the wire, the Manager jokes around, saying how foolish he is because he accidentally threw out the receipts. The employee tells him that its no problem, hell just need the Directors sign off on the expenses. The Manager immediately withdraws the requests to submit the expenses and tells the SS&C GlobeOp employee not to worry about it, hell just have his boss pay him directly. 24 Could this situation be construed as suspicious activity?

25 YES! Although the Operations Manager at the Fund may really have legitimately misplaced the receipts to support the expense wire and didnt want to create trouble or make things difficult for the Operations employee, it is worth the Operations employee checking into further to ensure the expense would have been legitimate and approved by the Funds Director. Each employee is responsible for being the first line in defense against money laundering and terrorist financing. It is your responsibility to report any activity which isnt the norm and could be construed as suspicious! 25

26 How to Report Suspicious Activity Suspicious Activity should be reported to GlobeOps MLRO or Deputy MLRO Doreen Hughes, AML Compliance Officer and MLRO X 3626 Cindy Vargas, Deputy MLRO X 3975 Suspicious Activity should be reported using the form available on the intranet Departments Administration Administration and Office Internal Reporting Form The MLRO and/or DMLRO will provide the employee with further instructions on how to proceed 26

27 Case Study - The Black Market Peso Exchange 27 The majority of drug traffickers in Columbia dont want the U.S. dollars they earn from drug sales because they rarely leave Columbia. They need their local currency to live their lives, purchase homes and other luxuries and pay for the operations of their drug trafficking business. So instead they have found a method to convert their ill gotten gains back to their native currency, the peso, through a series of transactions with a black market broker. Known as The Black Market Peso Exchange, this process involves a money broker who will purchase U.S. dollars derived from drug sales, negotiate an exchange rate of Columbian pesos for the U.S. dollars (usually 40% below the official exchange rate) and deliver those pesos to the drug traffickers in the Columbian bank accounts. This very successful and prevalent process of money laundering is even used by legitimate successful businessmen in Columbia who have pesos but want to buy cheap U.S. dollars to purchase goods in the U.S. The U.S. dollars from traffickers are often swapped with the pesos the legitimate businessmen want to convert and the money broker then receives the commissions from the difference in the exchange. It is estimated that the black peso exchange launders $5 billion dollars of drug money per year! Ever wondered how drug traffickers could possibly deposit tremendous amounts of illegal proceeds into U.S. bank accounts without arising suspicion by banks and regulators? The truth is, they dont! Lets take a look at this common scenario.

28 Case Study - The Black Market Peso Exchange 28 The majority of drug traffickers in Columbia dont want the U.S. dollars they earn from drug sales because they rarely leave Columbia. They need their local currency to live their lives, purchase homes and other luxuries and pay for the operations of their drug trafficking business. So instead they have found a method to convert their ill gotten gains back to their native currency, the peso, through a series of transactions with a black market broker. Known as The Black Market Peso Exchange, this process involves a money broker who will purchase U.S. dollars derived from drug sales, negotiate an exchange rate of Columbian pesos for the U.S. dollars (usually 40% below the official exchange rate) and deliver those pesos to the drug traffickers in the Columbian bank accounts. This very successful and prevalent process of money laundering is even used by legitimate successful businessmen in Columbia who have pesos but want to buy cheap U.S. dollars to purchase goods in the U.S. The U.S. dollars from traffickers are often swapped with the pesos the legitimate businessmen want to convert and the money broker then receives the commissions from the difference in the exchange. It is estimated that the black peso exchange launders $5 billion dollars of drug money per year! Drug Proceeds in USD Brokers sell USD to businessmen in Columbia who want $ for goods Goods are paid for by peso broker, using purchased drug proceeds Ever wondered how drug traffickers could possibly deposit tremendous amounts of illegal proceeds into U.S. bank accounts without arising suspicion by banks and regulators? The truth is, they dont! Lets take a look at this common scenario.

29 Summary There are (3) distinct phases of money laundering to be aware of; placement, layering & integration SS&C GlobeOp has a regulatory obligation to adhere to certain AML/CTF standards, which include the process of knowing your customer (KYC) The better you know your customer, the better equipped you will be to identify suspicious activity should it occur Money laundering is a serious offense but not reporting money laundering or suspicious activity is just as serious It is also an offense to tip off any outside parties to suspected or known money laundering activity by sharing your suspicions There are different types of suspicious activity and every employee must share in the responsibility for the firm to identify suspicious activity and report it to the company MLRO Money laundering is and has been an abundant problem in society and requires vigilance from everyone to protect the integrity of the financial system 29

30 30 You have now completed SS&C GlobeOps Annual Anti- Money Laundering & Counter Terrorism Financing Training

31 THANK YOU!


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