1. Florida DBPR Anti-Money Laundering Conference August 23, 2013 SAR and CTR Primer: Monitoring, Gathering, and Evaluating Suspicious Activity David Batlle Area Financial Manager Office of Financial Regulation State of Florida

2. Bank Secrecy Act: CTRs and SARs Pari-Mutuel/Casino Operators Depository Institutions – Banks

3. Criminal Activity, Money Laundering, and Terrorist Financing are Not Politically Correct Italian Mafia – Sopranos Nigerian Scams Al Qaeda versus Timothy McVeigh

4. BSA/AML Perspective Cat People – Dog People; ET Believers – No ET; BSA Believers – BSA Nonbelievers: “Bankers should not be forced to act as cops, jury, judge and God.” “When the money leaves this bank, I don’t care where it goes.” It is unreasonable for the government to require the bank to act as a “CIA Agent.”

5. Currency Transaction Report CTR filing required for over $10,000. Filing required for multiple transactions over $10,000. SAR filing also required if “structuring” to avoid CTR filing is believed.

6. Suspicious Activity Report BSA/AML Program: Each bank shall develop and provide for the continued administration of a program reasonably designed to assure and monitor compliance with recordkeeping and reporting requirements…of the BSA. BSA/AML Pillars: Provide for a system of internal controls to assure ongoing compliance (written policies and procedures); Provide for independent testing for compliance to be conducted by bank personnel or by an outside party (annual independent program audit); Designate an individual or individuals responsible for coordinating and monitoring day-to-day compliance (BSA Officer); and Provide training for appropriate personnel (annual training for all personnel – teller to boardroom).

7. BSA/AML Program Components Pillar requirements: Written policies and procedures; independent audit; BSA Officer; and training. BSA Officer – qualified with adequate delegated authority. Risk Assessment – products, services, and market. Customer Identification Program (CIP) and account activity profile – normal and expected activity; PEP involvement. High-risk account designation – type of business; type of activities; volume of activity; risk to the bank. Enhance Due Diligence (EDD) of high risk accounts. Automated account monitoring software; adverse public information. SAR Review Committee; written investigation – file or not file in 30 days. Board of Directors reporting and oversight – “tone at the top.”

8. SAR Filing Required for Suspicious Activity Is the suspicious activity money laundering? Does not need to meet standard of “beyond reasonable doubt” or even “preponderance of evidence.” “Guilt by association?” Information resources: LexisNexis; World-Check; Google; Mugshots.com; OFAC List. Retail or wholesale: the teller line or the executive suite; the 3 stages of money laundering.

9. Three Stages of Money Laundering 1.Placement 2.Layering 3.Integration “None of that information is relevant…tell me what I need to do in this bank.” Must have an understanding of what is happening in the outside world, only then can you understand what is happening in the bank – or casino. Designated BSA Officer should be expert in the financial signature of criminal activity, as well as bank operating systems and BSA/AML regulations.

10. Placement Stash house “smurfing” at $9,800 multiple transactions. Bulk currency through “underground economy.” http://www.miamiherald.com/2013/03/19/3295434/mexican- currency-brokers-charged.html Casino Chips http://www.orlingrabbe.com/casinoml.htm

11. Layering Wire transfers; RDC; stored value; PayPal; commodities (cigarettes); ACH… IVTS: Black Market Peso/Currency/Grey Market Real; Hawala; Hundi; Fei Qian FinCEN Advisory: http://www.fincen.gov/news_room/rp/advisory/pdf/advisu9.pdfhttp://www.fincen.gov/news_room/rp/advisory/pdf/advisu9.pdf Latin American – based money remitter not remitting money to Latin America. Beacon Hill/Farol da Colina at $6.5 billion: http://www.the-american- interest.com/article-bd.cfm?piece=465http://www.the-american- interest.com/article-bd.cfm?piece=465

12. Integration Pablo Escobar, Colombia https://officialrecords.broward.org/oncoreV2/showdetails.aspx?id=5054097&rn= 2&pi=0&ref=search Lo Hsing Han, Myanmar (Burma) http://www.economist.com/news/obituary/21582234-lo-hsing-han-heroin-king- and-business-tycoon-died-july-6th-aged-about-80-lo-hsing-han

13. SAR Filing Weaknesses Dollar amount limited to small volume reviewed; not indicative of overall activity. Unreasonable threshold for suspicion – insider culpability/negligence. All suspects not identified, or limited to inclusion in narrative. Defensive SAR. Data dump. Activity exceeds normal and expected levels.

14. Consequences for BSA/AML Program Deficiencies Just say “no”: http://www.fdic.gov/news/news/financial/2007/fil07071.htmlhttp://www.fdic.gov/news/news/financial/2007/fil07071.html

15. Offshore: Layering and Integration Offshore is not always offshore: “I don’t export money, I import laws.” Forbes 7/23/12: $21 trillion offshore; U.S. GDP $17 Trillion in 2012. Stanford Financial: low profile and high volume; or high profile and low volume. Tax avoidance: transfer pricing. PATRIOT Act of 2001: Al Taqua and EDD for offshore correspondent accounts. Payable through accounts; PICs; bearer share corporations.