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1 Office of Corporate and Regulatory Compliance ACSDA Leadership Forum (ALF) October 8, 2007.

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Presentation on theme: "1 Office of Corporate and Regulatory Compliance ACSDA Leadership Forum (ALF) October 8, 2007."— Presentation transcript:

1 1 Office of Corporate and Regulatory Compliance ACSDA Leadership Forum (ALF) October 8, 2007

2 2 Presentation today Background Definition of Money Laundering Role of Compliance in the Industry The four Pillars of a Strong Anti-Money Laundering Program Structure of The Office of Corporate and Regulatory Compliance Questions Background Definition of Money Laundering Role of Compliance in the Industry The four Pillars of a Strong Anti-Money Laundering Program Structure of The Office of Corporate and Regulatory Compliance Questions

3 3 Background Brief History of USA AML Law YearRegulationKey Provisions On-goingOFAC Treasury declares specific countries and persons as prohibited or limited in having financial transactions with U.S. financial institutions Lists are updated and conditions may change; licenses may be granted Strict liability and severe fines for improper dealings. 1970Bank Secrecy Act Imposed civil and criminal penalties for non-compliance. Required banks to retain records, create an audit trail and report currency transactions over $10, Money Laundering Control Act Made money laundering a federal crime and created three offenses: 1. Structuring transactions to avoid BSA reporting 2. Knowingly helping to launder money 3. Knowingly engaging in (or blind eyeing) a transaction over $10,000 involving criminal activity. Mandated requirements procedures for banks. Imposed additional civil/criminal penalties.

4 4 Brief History of USA AML Law (continued) YearRegulationKey Provisions 1992Annunzio Wiley Act Required reporting of suspicious transactions within 30 days. Established safe harbor provision. Required banks to adopt AML policies, procedures, controls, as well as compliance, training, and audit programs. Required record retention of fund transfers. Strengthened penalties for federally chartered and/or depository institutions. 1996Funds Transfer Rule Required banks to collect/retain information on certain wires over $3,000. Required verification of identity of non-account holder parties (Joint rule). Required identifying information to be sent to each institution handling the payment (Travel rule). 1996Suspicious Activity Reporting Required financial institutions to file SARs for unusual or suspicious activities. 2001USA PATRIOT Act Extended customer identification rules significantly. Added anti-terrorist financing provisions. Applied rules to non-bank Financial Services Institutions, including broker dealers.

5 5 Anti- Money Laundering Regulations Office of Foreign Assets Control Regulations USA PATRIOT Act

6 6 Office of Foreign Asset Control (OFAC) Regulations Financial institution must identify and freeze the assets of targeted countries, terrorists, drug cartels and other specially designated persons Periodically issued as Specially Designated Nationals and Blocked Entities List (SDN List)

7 7 USA PATRIOT Act October 25, 2001 UUniting and SStrengthening AAmerica by UUniting and SStrengthening AAmerica by PProviding AAppropriate TTools RRequired to IIntercept and OObstruct TTerrorism

8 8 The USA PATRIOT Act Signed into law October 2001 Title III addresses implications for financial institutions Implemented through changes and additions to the Bank Secrecy Act Signed into law October 2001 Title III addresses implications for financial institutions Implemented through changes and additions to the Bank Secrecy Act Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism

9 9 Title III of the USA PATRIOT Act International Money Laundering Abatement and Anti- Terrorist Financing Act of 2001 Most comprehensive anti-money laundering legislation since the 1970 Bank Secrecy Act. Far reaching in scope and contains provisions for combating international money laundering and blocking terrorists access to the U.S. financial system. Relates to U.S. financial institutions relationships with foreign banks and with persons who are residents outside the U.S. International Money Laundering Abatement and Anti- Terrorist Financing Act of 2001 Most comprehensive anti-money laundering legislation since the 1970 Bank Secrecy Act. Far reaching in scope and contains provisions for combating international money laundering and blocking terrorists access to the U.S. financial system. Relates to U.S. financial institutions relationships with foreign banks and with persons who are residents outside the U.S.

10 10 AML compliance after the USA PATRIOT Act Requirements to understand, assess and monitor customer base Increased role of financial institutions in reporting suspicious activities

11 11 Know Your Customer (KYC)/ Enhanced Due Diligence (EDD) The objective of a KYC policy and procedures is to: Help detect suspicious activity in a timely manner; Comply with applicable laws and regulations; Minimize the risk that financial Institutions will be used for illegitimate activities; and Protect the financial institutions reputation. The objective of a KYC policy and procedures is to: Help detect suspicious activity in a timely manner; Comply with applicable laws and regulations; Minimize the risk that financial Institutions will be used for illegitimate activities; and Protect the financial institutions reputation.

12 12 What is Suspicious Activity? Examples: Sudden/Unexplained transaction volume or type; Lack of concern about risks/transaction costs; Transactions with money changers or off-shore banking centers; or No reason for maintaining relationship or apparent business purpose. Important for employees to understand the red flags inherent in their particular product area. Willful Blindness Where there are prominent red flags that signal that criminal activity is afoot, a jury may infer that a defendant deliberately ignored facts which would have otherwise been obvious to a reasonable person. Examples: Sudden/Unexplained transaction volume or type; Lack of concern about risks/transaction costs; Transactions with money changers or off-shore banking centers; or No reason for maintaining relationship or apparent business purpose. Important for employees to understand the red flags inherent in their particular product area. Willful Blindness Where there are prominent red flags that signal that criminal activity is afoot, a jury may infer that a defendant deliberately ignored facts which would have otherwise been obvious to a reasonable person.

13 13 Financial Crimes Enforcement Network (FinCEN) Created in 1990 as part of the US Treasury Department. Supports and cooperates with global law enforcement and similar agencies (e.g.. FATF) to combat international financial crimes. Provides strategic analysis. Enforces USA Patriot Act (e.g.. Section 314). Reviews Non-Cooperative Countries and Territories (NCCTs). Created in 1990 as part of the US Treasury Department. Supports and cooperates with global law enforcement and similar agencies (e.g.. FATF) to combat international financial crimes. Provides strategic analysis. Enforces USA Patriot Act (e.g.. Section 314). Reviews Non-Cooperative Countries and Territories (NCCTs).

14 14 What is Money Laundering? Patriot Act Expanded Definition: Flow of legitimately derived funds for illicit purposes, usually cross border. Patriot Act Expanded Definition: Flow of legitimately derived funds for illicit purposes, usually cross border.

15 15 Three Stages Of Money Laundering? Layering : Crossing borders, ownership, custody. Integration: Buying securities, apartment houses, annuities Placement: Going from the money bag to the bank. Layering : Crossing borders, ownership, custody. Integration: Buying securities, apartment houses, annuities Placement: Going from the money bag to the bank.

16 16 Key Role of Depositories Depository financial institutions (which include banks, savings & loan associations or thrifts, and credit unions) form the financial backbone of the United States. In almost every money laundering typology, a bank is employed domestically or abroad to hold or move funds. Depository financial institutions (which include banks, savings & loan associations or thrifts, and credit unions) form the financial backbone of the United States. In almost every money laundering typology, a bank is employed domestically or abroad to hold or move funds.

17 17 Correspondent Banking Seen as a money laundering gateway to the U.S. financial markets. Vulnerable to nesting. Seen as a money laundering gateway to the U.S. financial markets. Vulnerable to nesting.

18 18 Role of Compliance to the industry To promote compliance of industry laws and regulations. To emphasize interest in contributing to investor protection and the integrity of the financial industry. Effective compliance is good business. When scandal follows in the wake of compliance failure, customers question the integrity of their financial service provider. The question does not require a conclusive answer from the customers perspective. When clients begin to question the firms integrity, they walk and the value of the company leaves with them. To promote compliance of industry laws and regulations. To emphasize interest in contributing to investor protection and the integrity of the financial industry. Effective compliance is good business. When scandal follows in the wake of compliance failure, customers question the integrity of their financial service provider. The question does not require a conclusive answer from the customers perspective. When clients begin to question the firms integrity, they walk and the value of the company leaves with them.

19 19 The Anti-Money Laundering Program Designation of a BSA/AML Officer System of policies, procedures and internal controls Training Independent Testing Designation of a BSA/AML Officer System of policies, procedures and internal controls Training Independent Testing Four Requirements for the Program:

20 20 The BSA/Anti-money Laundering Program The program must be tailored to the risk of the bank Customer base Geographies Products and services The program must be tailored to the risk of the bank Customer base Geographies Products and services Documented Risk Assessment

21 21 Governance, Controls and Oversight Internal Compliance Committee Internal Compliance Committee Training Monitoring, Testing and Reporting Monitoring, Testing and Reporting Policies and Procedures Policies and Procedures Risk Assessment and Mitigation Risk Assessment and Mitigation Framework Pre-Cursers COMPLIANCE DEPARTMENT Larry Thompson Executive Managing Director Larry Thompson Executive Managing Director Donald F. Donahue Chairman and Chief Executive Officer Donald F. Donahue Chairman and Chief Executive Officer Compliance Program Framework Relationship Management Relationship Management Credit & Market Risk Credit & Market Risk Membership Services Membership Services Operations Support / Interface Compliance Department - Governance Board of Directors Board of Directors SAR Sub-Committee SAR Sub-Committee Internal Risk Management Committee Internal Risk Management Committee Audit Committee Audit Committee Compliance & OP Risk Committee Compliance & OP Risk Committee AML Steering Committee AML Steering Committee

22 22 Department Mission To protect DTCC from regulatory and reputational damage and harm. Provides enterprise-wide oversight and support to DTCCs subsidiaries and business areas in the establishment and implementation of procedures to ensure compliance with the applicable laws and regulations, including all AML laws and regulations. To protect DTCC from regulatory and reputational damage and harm. Provides enterprise-wide oversight and support to DTCCs subsidiaries and business areas in the establishment and implementation of procedures to ensure compliance with the applicable laws and regulations, including all AML laws and regulations.

23 23 OCRC Organizational Structure

24 24 OCRC General Responsibilities Training/Awareness Monitoring/Testing SAR/Other Reporting Policies and Procedures Self-Assessments/Participant Assessments OFAC Screening/Reporting Ongoing Assessment of Products/Services/Enhancements/Business Areas Training/Awareness Monitoring/Testing SAR/Other Reporting Policies and Procedures Self-Assessments/Participant Assessments OFAC Screening/Reporting Ongoing Assessment of Products/Services/Enhancements/Business Areas

25 25 OCRC General Responsibilities Ongoing Guidance to Business Areas Research and Investigation of Reported Incidents and Inquiries Monitoring of Employee Gift Reports Ongoing Guidance to Business Areas Research and Investigation of Reported Incidents and Inquiries Monitoring of Employee Gift Reports

26 26 Key Internal Partners Internal Audit - Identify gaps and deficiencies in compliance program before the regulators do Relationship Management - have the most contact with participants. They Know our Customers (KYC). Account Administration - perform DTCC on-boarding function. Verify the identify of Participants (CIP). Credit and Market Risk - prepare an AML risk assessment of prospective participants at the on-boarding stage Operations - help perform OFAC screening and are our eyes and ears on the field Internal Audit - Identify gaps and deficiencies in compliance program before the regulators do Relationship Management - have the most contact with participants. They Know our Customers (KYC). Account Administration - perform DTCC on-boarding function. Verify the identify of Participants (CIP). Credit and Market Risk - prepare an AML risk assessment of prospective participants at the on-boarding stage Operations - help perform OFAC screening and are our eyes and ears on the field

27 27 Key Internal Customers Operations Relationship Management Credit and Market Risk Account Administration We advise on applicability of regulations and help provide internal controls to ensure compliance Operations Relationship Management Credit and Market Risk Account Administration We advise on applicability of regulations and help provide internal controls to ensure compliance

28 28 Key External Customers The Financial Industry as a whole ALL of our regulatory bodies Federal Reserve Bank New York State Banking Authorities The Securities and Exchange Commission Financial Services Authority (EuroCCP Only) The Financial Industry as a whole ALL of our regulatory bodies Federal Reserve Bank New York State Banking Authorities The Securities and Exchange Commission Financial Services Authority (EuroCCP Only)

29 29 Questions and Answers


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