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Anti-Money Laundering and OFAC Compliance for Transfer Agents SSA Annual Conference July 25, 2008.

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Presentation on theme: "Anti-Money Laundering and OFAC Compliance for Transfer Agents SSA Annual Conference July 25, 2008."— Presentation transcript:

1 Anti-Money Laundering and OFAC Compliance for Transfer Agents SSA Annual Conference July 25, 2008

2 The Securities and Exchange Commission, as a matter of policy, disclaims responsibility for any private publication or statement by any of its employees. The views expressed herein are those of the author and do not necessarily reflect the views of the Commission or of the author’s colleagues upon the staff of the Commission.

3 Three Types of Transfer Agents in AML Examinations  Bank-registered transfer agents: transfer agents that register with bank ARAs are considered subsidiaries of financial institutions with BSA/AML requirements (31 USC 5312(a)(2), a “financial institution”)  Mutual fund transfer agents: investment companies usually delegate their AML responsibilities to their transfer agents  All other transfer agents: no organic AML regulations (i.e., not financial institutions), but still examined under the 1934 Act

4 Statutory/Regulatory Overview  Bank Secrecy Act / USA Patriot Act – general “AML”  U.S. Economic and Trade Sanctions Administered by the Office of Foreign Assets Control – “OFAC”  FinCEN/IRS Form 8300  Criminal Anti-Money Laundering Laws

5 BSA – Patriot Act  Currency and the Foreign Transactions Reporting Act of 1970 (the “BSA”) and USA PATRIOT Act of 2001 – the foundation of most U.S. anti-money laundering and recordkeeping requirements (31 USC 5311-5355; 31 CFR 103)  Requires “financial institutions” (generally banks, broker-dealers, and mutual funds) to create written AML programs designed to: prevent money laundering and terrorist financing keep records of customer accounts and transactions report certain transactions to the government

6 SEC Examination for AML  SEC has delegated authority from Treasury’s Financial Crimes Enforcement Network (FinCEN) to examine BDs and mutual funds for AML (31 C.F.R. 103.56 31 C.F.R. 103.130)  Preamble to Fund AML rules permits delegation of day-to-day implementation of fund’s AML program to service providers (e.g., transfer agents)(67 FR 21117 (2002))

7 General AML Requirements  Board Approved Written Policies, Procedures and Controls  AML Compliance Officers  Independent Review and Testing  AML Training  Customer Identification Programs (“CIP”)  Suspicious Activity Reporting (“SAR”)  Due Diligence for US-based Correspondent Accounts, Foreign Correspondent Accounts, and Private Banking Accounts  Information Sharing Regulation

8 Office of Foreign Assets Control - OFAC  OFAC, an office within the Treasury Department, administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals against: targeted foreign countries terrorists international narcotics traffickers those engaged in activities related to the proliferation of weapons of mass destruction  Not a Securities Regulator: OFAC cannot mandate compliance and does not examine entities, but works with other regulators (i.e., SEC) in their role of ensuring compliance by financial institutions  OFAC may (and will) impose penalties for violations; strict liability for any violation

9 OFAC Overview  Five main underlying statutes in the creation of OFAC top two are Trading with the Enemy Act and International Emergency Economic Powers Act (“IEEPA”)  All trade or financial dealings with the following blocked entities are generally prohibited transactions: designated foreign countries specially designated nationals specific blocked persons  Who must comply – any individual, regardless of citizenship, who is physically located in the U.S. and American citizens anywhere in the world  Penalties: IEEPA civil – maximum $250,000 or twice the value of the transaction of the violation; criminal – maximum $1 million and up to 20 years

10 OFAC Compliance  The OFAC list: OFAC maintains and regularly updates a list of approximately 3,500 SDNs and blocked persons at  Transfer agent compliance: Monitor transactions to ensure that prohibited transactions are “blocked” – use of software or outside vendor Block required transactions Notify OFAC within ten days of blocking  Examinations look to what type of policies are in place regarding OFAC compliance?

11 FinCEN - IRS Form 8300  Since 1985, Section 60501 of the Internal Revenue Code (26 USC 60501) has required persons engaged in non-financial businesses (non financial institutions) to report receipt of cash or cash equivalent in excess of $10,000 in one transaction, or two or more related transactions, to file Form IRS/FinCEN 8300 within 15 days of receipt of the reportable funds. Aggregation period is one year  

12 Criminal Anti-Money Laundering Laws  18 U.S.C. §§ 1956 and 1957  Unlawful to “knowingly” conduct or attempt to conduct financial transactions with funds “known” to involve the proceeds of specified unlawful activity  Unlawful to transfer funds to or from the U.S. from or to a place outside the U.S. “knowing” that the funds involve the proceeds of unlawful activity, and that the transaction is designed to conceal the funds or avoid reporting requirements

13 Questions? Eric B. Garvey Senior Counsel (215) 861-9329

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