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91 Cards in this Set

  • Front
  • Back
Financial Action Task Force
(FATF)
Financial Action Task Force
(FATF)
Countries with FATF Observer Status
n China
n Republic of Korea
To qualify for FATF membership, a country must:
n Be strategically important;
n Be a full and active member of a relevant FATF-style
regional body;
n Provide a letter from an appropriate minister or
person of equivalent political rank making a political
commitment to implement FATF Recommendations
within a reasonable time frame and to undergo the
mutual evaluation process

n Criminalize money laundering and terrorist financing;
require financial institutions to identify their customers,
to keep customer records and to report suspicious
transactions;
The following organizations are FATF associate members (3):
n The Asia/Pacific Group on Money Laundering (APG)
n The Council of Europe Select Committee of Experts
on the Evaluation of Anti-Money Laundering Measures
(MONEYVAL) - formerly PC-R-EV
n The Financial Action Task Force on Money Laundering
in South America (GAFISUD)
The FATF focuses on several important tasks including (3):
1. Spreading the anti-money laundering message
worldwide:
2. Monitoring implementation of the FATF
Recommendations among FATF members.
3. Reviewing money laundering trends and
countermeasures
1. Spreading the anti-money laundering message
worldwide:
The group promotes establishment of a global
AML and anti-terrorist financing network based on
expansion of its membership, the development of
regional anti-money laundering bodies in various parts
of the world, and cooperation with other international
organizations.
2. Monitoring implementation of the FATF
Recommendations among FATF members. Implementation is monitored through a two-pronged
approach:
n an annual self-assessment exercise
where member countries are required to
fill out detailed standard questionnaires
on the status of their compliance with the
Recommendations.n the more detailed mutual evaluation
procedure.
3. Reviewing money laundering trends and countermeasures
Faced with a financial system that has no geographic
horizons, operates around the clock in every time
zone, and maintains the pace of the global electronic
highway, criminals can constantly search for new points
of vulnerability and adjust their laundering techniques
to respond to counter-measures introduced by FATF
members and other countries.
The 40 Recommendations provide a complete set of countermeasures
against money laundering, covering (3):
n The criminal justice system and law enforcement
n The financial system and its regulation
n International cooperation
The FATF focuses on several important tasks including:
1. Spreading the anti-money laundering message
worldwide:
2. Monitoring implementation of the FATF
3. Reviewing money laundering trends and
countermeasures
Recommendations among FATF members.
1. Spreading the anti-money laundering message
worldwide:
The group promotes establishment of a global
AML and anti-terrorist financing network based on
expansion of its membership, the development of
regional anti-money laundering bodies in various parts
of the world, and cooperation with other international
organizations.
2. Monitoring implementation of the FATF
Recommendations among FATF members.
n an annual self-assessment exercise
where member countries are required to
fill out detailed standard questionnaires
on the status of their compliance with the
Recommendations.
n the more detailed mutual evaluation
procedure.
The 40 Recommendations provide a complete set of countermeasures
against money laundering, covering:
n The criminal justice system and law enforcement
n The financial system and its regulation
n International cooperation
The most important changes made in 2003 were:
n Expanded coverage to include terrorist financing.
n Widened the categories of business that should be
covered by national laws
n Specified compliance procedures on issues such as
customer identification and due diligence,
n Adopted a clearer definition of money laundering
predicate offenses.

n Encouraged prohibition of so-called “shell banks,”
typically set up in offshore
n Included stronger safeguards, notably regarding
international cooperation in, for example, terrorist
financing investigations.
Some highlights of the substance of the 40 Recommendations are:
Designated Categories of Offenses:
Knowledge and Criminal Liability:
Expanded Coverage of Industries:
Designated Categories of Offenses:
Recommendations specify crimes, called “designated categories
of offenses,” that should serve as money laundering predicates
Knowledge and Criminal Liability:
the concept that knowledge required for the offense
of money laundering may be inferred from objective factual
circumstances.
Expanded Coverage of Industries:
casinos, real estate agents, precious metals dealers, lawyers, notaries, and independent paralegals, trust and company service providers.
Beneficial ownership:
stress the need
for improved “transparency” concerning the beneficial ownership of companies and trusts.
“beneficial owner”
the
natural person(s) who ultimately owns or controls a customer and/
or the person on whose behalf a transaction is being conducted.
Customer Due Diligence (CDD) measures: Covered institutions
must (4):
n Identify the customer and verify that customer’s identity
using reliable, independent source documents, data or
information.
n Identify the beneficial owner, and take reasonable
measures to verify the identity of
n Obtain information on the purpose and intended nature
of the business relationship.
n Conduct ongoing due diligence on the business
relationship and scrutinize transactions
Customer Due Diligence on PEPs and Correspondent
Accounts:
seek tougher customer
due diligence checks on high-risk business areas such as
correspondent banking or dealings with people who have
questionable political histories.
Accounts in Anonymous or Fictitious Names:
stress that financial institutions should not keep
accounts that are either anonymous or held in obviously fictitious
names. They should undertake customer due diligence measures,
including identifying and verifying the identity of their customers
Shell Banks:
Countries should not approve the establishment or
accept the continued operation of shell banks. Financial institutions
should refuse to enter into, or continue, a correspondent banking
relationship with shell banks.
Currency Transaction Reporting:
countries should consider setting up a currency transaction
reporting system.
International Cooperation:
Countries should rapidly,
constructively and effectively provide the widest possible range of
mutual legal assistance in money laundering and terrorist financing
investigations
1 of 8 Special Recommendations:
1. Take immediate steps to ratify and implement the
relevant United Nations instruments regarding
terrorist financing,
2 of 8 special recommendations
2. Criminalize the financing of terrorism, terrorist acts and
terrorist organizations and ensure that these offenses
are designated as money laundering predicate offenses.
3 of 8 special recommendations
3. Each country should implement measures to freeze
without delay funds or other assets of terrorists, those
who finance terrorism and terrorist organizations.
Each country should also implement measures that
enable authorities to seize and confiscate property that
either derives from or is to be used in the financing of
terrorism.
4 of 8 special recommendations
4. Report suspicious transactions linked to terrorism.
5 of 8 special recommendations
5. Provide the widest possible range of assistance to
other countries’ law enforcement and regulatory
authorities for terrorist financing investigations.
6 of 8 special recommendations
Impose anti-money laundering requirements on
alternative remittance systems. An alternative
remittance system, or informal value transfer system
(IVTS) refers to any network or mechanism that can
be used to transfer funds or value from place to place
either without leaving a formal paper-trail of the entire
transaction or without going through regulated financial
institutions. IVTS include various ethnic practices, such
as hawala,
7 of 8 special recommendations
Strengthen customer identification measures in
international and domestic electronic funds.
8 of 8 special recommendations
Ensure that entities, in particular non-profit
organizations, cannot be used to finance terrorism.
The FATF
recommends that non-profit organizations:
n Maintain and be able to present full program
budgets that account for all expenses
n Conduct independent internal audits and
external field audits, the latter to ensure
funds are being used for intended purposes
n Identify every member of the board of
directors and formalize the process by which
they are elected, appointed and terminated.
(NCCTs)
“Non-Cooperative Countries and
Territories”
1. Loopholes in financial regulations
n No or inadequate regulations and supervision
of financial institutions;
n Inadequate rules for licensing and creation
of financial institutions, including assessing
the backgrounds of managers and beneficial
owners;
n Inadequate customer identification
requirements for financial institutions;
n Excessive secrecy provisions regarding
financial institutions;
n Lack of efficient suspicious transactions
reporting.
2. Obstacles raised by other regulatory requirements
n Inadequate commercial law requirements for
registration of business and legal entities;
n Lack of identification of the beneficial
owner(s) of legal and business entities.
3. Obstacles to international cooperation
n Obstacles to co-operation from administrative
authorities;
n Obstacles to co-operation from judicial
authorities.
4. Inadequate resources for preventing and detecting
money laundering activities
n Lack of resources in public and private
sectors;
n Absence of a financial intelligence unit or
equivalent mechanism.
The goal of the NCCT process
is to reduce the vulnerability of the
financial system to money laundering by ensuring that all financial
centers adopt and implement measures for prevention, detection
and punishment of money laundering according to internationally
recognized standards.
The Basel Committee on Banking Supervision,
established
in 1974 by the central bank governors of the G-10 countries,
promotes sound supervisory standards worldwide.
In 1988, the Basel Committee issued a Statement of Principles
called “Prevention of Criminal Use of the Banking System for the
Purpose of Money Laundering” in recognition of the vulnerability of
the financial sector to misuse by criminals. This was a step toward
preventing the use of the banking sector for money laundering, and
it set out principles with respect to (6):
n Customer identification
n Compliance with laws
n Conformity with high ethical standards and local laws
and regulations
n Full cooperation with national law enforcement to
the extent permitted without breaching customer
confidentiality
n Staff training
n Record keeping and audits.
(KYC)
Know Your Customer
A
number of specific sections in this paper offer recommendations
for tougher standards of due diligence for higher risk areas within a
bank.
The paper has five sections:
1. Introduction
2. Importance of KYC standards for supervisors and
banks
3. Essential elements of KYC standards
4. The role of supervisors
5. Implementation of KYC standards in a cross-border
context
The Committee discusses the following issues in the paper (12): 1 AND 2
n Banks should not only establish the identity of their
customers but also monitor account activity to identify
transactions that do not conform to the normal or
expected transactions for that customer or type of
account.
n The paper does not prohibit numbered accounts.
The Committee discusses the following issues in the paper (12): 3
n The paper has identified seven specific customer
identification issues:
n The paper has identified seven specific customer
identification issues:
q Trust, nominee and fiduciary accounts;
q Corporate vehicles, particularly companies
with nominee shareholders or entities with
shares in bearer form;
q Introduced business;
q 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;
q Politically exposed persons;
q Non-face-to-face customers, i.e. Customers
who do not present themselves for a
personal interview; and
q Correspondent Banking.
The Committee discusses the following issues in the paper (12): 4 AND 5
n Banks should develop customer acceptance policies
and procedures describing the customer’s background,
country of origin, business activities and other risk
indicators, and develop clear and concise descriptions
of who is an acceptable customer
n Private banking accounts should “under no circumstances” be allowed to escape KYC policies
The Committee discusses the following issues in the paper (12): 6 AND 7
n Banks should make every effort to know the identity
of corporations that operate accounts and, when
professional intermediaries are involved, verify
the exact relationship between the owners and
intermediary, wherever the law permits
n Banks should use standard identification procedures
when dealing with “non-face-to-face” customers and
never agree to open an account for persons who are
adamant about anonymity
The Committee discusses the following issues in the paper (12): 8 AND 9
n Bank-wide employee training should be provided that
explains the importance of the KYC policies, refresher
courses on basic and new requirements
n Internal auditors or compliance officials should
regularly monitor staff performance and adherence to
KYC procedures
The Committee discusses the following issues in the paper (12): 10 and 11
n Continued monitoring of high-risk accounts by
compliance personnel should lead to a greater
understanding of the customers’ “normal activities”
and enable the updating of identification papers and
detection of suspicious transaction patterns
n Bank regulators should ensure that bank staff follows
KYC procedures, review customer files and a sampling
of accounts, and emphasize that they will take the
“appropriate action” against officers who fail to follow
KYC procedures
The Committee discusses the following issues in the paper (12):
n The four key elements of KYC, according to this paper are:
q Customer identification
q Risk management
q Customer acceptance
q Monitoring
The unique nature of the EU
as a “Community of States” makes it fundamentally different from
other international organizations. how?
The EU can adopt measures that
have force of law even without approval by national Parliaments
of the various member states. Plus, European law prevails over
national law in the case of directives.
Key features of the Second Directive are:
n It extended the scope of the First Directive beyond
drug-related crimes.
n It explicitly brought bureaux de change and money
remittance offices under AML coverage.
n The Directive says that knowledge of criminal conduct
can be inferred from objective factual circumstances.
n It provides a more precise definition of ml
n It provides a more precise definition of money
laundering to include:
q The conversion or transfer of property with
knowledge that it is derived from criminal
q Concealing or disguising the nature, source,
location, disposition, movement,
q The acquisition, possession or use of
property, knowing, when it is received,
q Participation in, association to commit, the
attempt to commit, and the aiding, abetting,

activity
Key features of the Second Directive are:
n It extended the scope of the First Directive beyond
drug-related crimes.
n It explicitly brought bureaux de change and money
remittance offices under AML coverage.
n The Directive says that knowledge of criminal conduct
can be inferred from objective factual circumstances.
n It provides a more precise definition of ml
n It widens the businesses and professions that are
subject to the obligations of the Directive.
n It provides a more precise definition of money
laundering to include:
q The conversion or transfer of property with
knowledge that it is derived from criminal
q Concealing or disguising the nature, source,
location, disposition, movement,
q The acquisition, possession or use of
property, knowing, when it is received,
q Participation in, association to commit, the
attempt to commit, and the aiding, abetting,

activity
the
Third EU Directive extended the scope of the directives by:
n Defining “money laundering” and “terrorist financing”
as separate crimes.
n Extending customer identification and suspicious
activity reporting obligations
n Detailing a risk-based approach to customer
due diligence.
n Protecting employees who report suspicions
n Obliging member states to keep comprehensive
statistics regarding the use of and results obtained
from suspicious trans reports
n Requiring all financial institutions to identify and
verify the “beneficial owner” of all accounts
The Third Money Laundering Directive applies to: 7 of 11
n Credit institutions
n Financial institutions
n Auditors, external accountants and tax advisors
n Legal professionals
n Trust and company service providers
n Estate agents
n High value goods dealers who trade in cash over 15, 000
The Third Money Laundering Directive applies to: 8 -11
n Casinos
The scope of the Third Money Laundering Directive differs from the
Second Money Laundering Directive in that:
n It specifically includes the category of trust and company service
providers;
n It covers all dealers trading in goods who trade in cash over
15000 Euros; and
n The definition of financial institution includes certain insurance
intermediaries.
“comitology,”
the EU system that oversees
implementation of acts proposed by the European Commission.
Asia/Pacific Group on Money Laundering (APG) (6 points):
n Provides a focus for cooperative AML and anti-terrorist
financing efforts in the Asia/Pacific region;
n Provides a forum in which:
q Regional issues can be discussed and
experiences shared
q Operational co-operation among member
jurisdictions is encouraged;
n Facilitates the adoption and implementation by
member jurisdictions of internationally accepted AML
and anti-terrorist financing measures;
n Enables regional and jurisdictional factors to be taken
into account in the implementation of international AML
and anti-terrorist financing measures;
n Encourages jurisdictions to implement AML and antiterrorist
financing initiatives including more effective
mutual legal assistance; and
n Co-ordinates and provides practical support, where
possible, to member and
n Provides a focus for cooperative AML and anti-terrorist
financing efforts in the Asia/Pacific region;
n Provides a forum in which:
q Regional issues can be discussed and
experiences shared
q Operational co-operation among member
jurisdictions is encouraged;
n Facilitates the adoption and implementation by
member jurisdictions of internationally accepted AML
and anti-terrorist financing measures;
n Enables regional and jurisdictional factors to be taken
into account in the implementation of international AML
and anti-terrorist financing measures;
n Encourages jurisdictions to implement AML and antiterrorist
financing initiatives including more effective
mutual legal assistance; and
n Co-ordinates and provides practical support, where
possible, to member and
n Recognizes the need for action to combat money
laundering and terrorist financing;
n Recognizes the benefits to be obtained by sharing
knowledge and experience;
n Has taken or is actively taking steps to develop, pass
and implement anti money laundering and anti-terrorist
financing legislation and other measures based on
accepted international standards;
n Subject to its domestic laws, commits itself to
implementing the decisions made by the APG;
n Commits itself to participation in the mutual evaluation program;
n Contributes to the APG budget in accordance with
arrangements agreed by the APG.
Caribbean Financial Action Task Force
N
o global solution to the
world’s money laundering problem
is possible without the active
participation of Caribbean nations,
since many are or have been premier
laundering centers.
The declaration recommended laws of The Caribbean Financial Action Task
Force (CFATF):
n Defining money laundering based on the model laws
issued by the Organization of American States
n Concerning the seizure and forfeiture of drug proceeds
and linked assets. They should enable identification,
tracing and evaluation of property subject to seizure,
and permit freezing orders.
n Allowing judicial challenges to seizure orders by an
administrative body
n Permitting forfeiture in all cases following conviction
n 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.”
The declaration’s terms of CFATF:
n Permit continuation of numbered accounts at financial
institutions with the understanding that account
information would be made available to “competent
authorities” upon request, and insist on strong legal
requirements on customer identification
n Insist that in large currency transactions, customer
identification procedures and record keeping are
“mandatory”
n Amend bank secrecy laws to allow reporting of
suspicious transactions by financial institutions, but
leave it optional whether a statute is required
The CFATF monitors members’ implementation of the anti-money
laundering recommendations through the following activities:
n Self-assessment of the implementation of the
recommendations
n An ongoing program of mutual evaluation of members
n Coordination of, and participation in, training and
technical assistance programs
n Biennial plenary meetings for technical representatives
n Annual ministerial meetings
South American Financial Action
Task Force (GAFISUD)
The South American Financial Action Task Force was created in
December 2000 in Cartagena, Colombia. It includes countries such
as Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Paraguay,
Peru and Uruguay, and its main objective is to implement antimoney
laundering measures in South America.
Middle East and North Africa
Financial Action Task Force (MENAFATF)
At an inaugural Ministerial Meeting held in Manama, Bahrain,
in November 2004, the governments of 14 countries decided to
establish a Financial Action Task Force-style regional body for the Middle East and North Africa.
Eurasian Group on Combating Money
Laundering and Terrorist (EAG)
formed in October 2004 in Moscow,
with China, Russia, Kazakhstan, Tajikistan, Kyrgyzstan and Belarus
as the initial member countries.
Eastern and South African
Anti-Money Laundering Group. Its objectives were to:
n Adopt and implement the 40 Recommendations of the
Financial Action Task Force;
n Apply AML provisions to all serious crimes; and
n Implement any other measures contained in
multilateral agreements and initiatives to which
member states subscribe pertaining to the prevention
and control of the laundering of proceeds from all
serious crimes.
Organization of American States –
Inter-American Drug Abuse Control
Commission (CICAD)
n Serves as the Western Hemisphere’s policy forum on
all aspects of the drug problem;
n Fosters multilateral cooperation on drug issues in the
Americas;
n Executes action programs to strengthen the capacity
of member states to prevent and treat drug abuse,
combat production and trafficking of illicit drugs; and
deny traffickers their ill-gotten gains;
n Promotes drug-related research, information
exchange, specialized training, and technical
assistance; and
n Develops and recommends minimum standards for
drug-related legislation, treatment, the measurement
of both drug consumption and the cost of drugs to
society, and drug-control measures, among others.
Wolfsberg Group
12 global banks that
aims to develop financial services industry standards and related
products, for Know Your Customer, Anti-Money Laundering and
Counter Terrorist Financing policies. to draft anti-money laundering guidelines for private
banking that, if implemented by banks worldwide, would mark
an unprecedented private-sector assault on the laundering of corruption proceeds.
The principles list several situations that require further due diligence, including activities that involve:
n Public officials, including individuals who “have or have
had positions of public trust… and their families and
close associates”
n High-risk countries, including countries “identified by
credible sources as having inadequate anti-money
laundering standards or representing high-risk for
crime and corruption”
n High-risk activities, involving clients and beneficial
owners whose source of wealth “emanates from
activities known to be susceptible to money laundering”
n Offshore jurisdictions, which the principles do not
define
The principles also address:
n Reporting to management of laundering control issues
n AML training
n Retention of relevant documents
n Deviation from policy
n Creation of a laundering control department and a
control policy
The Wolfsberg recommendations include:
n Providing official lists of suspected terrorists on a
globally coordinated basis by relevant authorities
n Including adequate information in the lists to help
institutions search customer databases efficiently
n Prompt feedback to institutions following circulation of
the official lists
n Information on manner, means and methods used by
terrorists
n Development of government guidelines for business
sectors and activities identified as high-risk for
terrorism financing
n Development of uniform global formats for funds
transfers that assist in detection of terrorism financing
Among the more notable recommendations:
n Due diligence should be risk-based, depending on
the location, type of business, ownership, base, regulatory status and AML controls of the
correspondent banking client or business
n An institution should not offer its products or services
to a shell bank
n Generally, the new principles should not apply to
central banks and monetary authorities of member
countries of the FATF or multinational institutions such
as the International Monetary Fund and World Bank
n All correspondent banking client information should
be reviewed and updated periodically based on risk
factors
n The principles should be part of a financial institution’s
larger AML program
the IMF and World Bank have become more active in
combating money laundering by (4 points):
n Concentrating on money laundering over other forms
of financial abuse;
n Helping to strengthen “financial supervision and
regulation” in countries;
n More closely interacting with the OECD and the Basel
Committee on Banking Supervision; and
n Insisting on application of international AML standards
in countries that ask for assistance.
Other international organizations with money laundering and
terrorist financing initiatives:
n African Development Bank
n Asia Development Bank
n The Commonwealth Secretariat
n European Bank for Reconstruction and Development
(EBRD)
n European Central Bank (ECB)
n Europol
n Inter-American Development Bank (IDB)
n Interpol
n International Organization of Securities Commissions
(IOSCO)
n Offshore Group of Banking Supervisors (OGBS)
n World Customs Organization (WCO)
Section 311 of USA Patriot Act: Special Measures for Primary Money Laundering
Concerns
Provides the U.S. Treasury
Department to apply graduated, proportionate measures against
a foreign jurisdiction, a foreign financial institution, a type of
international transaction or a type of account that the Treasury
secretary determines to be a “primary money laundering concern.”
Once identified,
the Treasury Department can then apply any of five special
measures that require domestic financial institutions to (5 points):
1. Keep records and file reports on particular
transactions, including the identities of the participants
in the transaction and the beneficial owners of the
funds involved;
2. Obtain information on the beneficial ownership of any
account opened or maintained in the U.S. by a foreign
person or a foreign person’s representative;
3. Identify and obtain information about customers who
are permitted to use or whose transactions are routed
through a foreign bank’s “payable-through” account;
4. Identify and obtain information about customers
permitted to use, or whose transactions are routedthrough, a foreign bank’s “correspondent” account; or
5. Close certain payable-through or correspondent
accounts.
Section 312 of USA Patriot Act: Correspondent and Private Banking Accounts
Requires “enhanced due diligence” for foreign
correspondent (which includes virtually all account relationships
that institutions can have with a foreign financial institution) and private banking accounts.
The due diligence program must include
“appropriate, specific and
risk-based” enhanced policies, procedures and controls designed
to report suspected money laundering in a correspondent account
maintained in the United States. It must also be included in the
institution’s anti-money laundering program.
To fall under the rule, a private banking account must maintain
a minimum aggregate deposit of $1 million or more for one or
more non-U.S. persons and be assigned for liaison with the non-
U.S. person to a bank employee. If the account does not have a
minimum of $1 million, it is not covered by the rule but must still be subject to internal money laundering controls.
Section 313 USA Patriot Act:
Prohibits U.S. banks and securities brokers and dealers
from maintaining correspondent accounts for foreign unregulated “shell”
banks that have no physical presence anywhere
Section 319(b):
Records relating to Correspondent Accounts
for Foreign Banks: Allows the Secretary of the Treasury or the
Attorney General to issue a summons to, or to subpoena records
of, a foreign bank that maintains a correspondent account in the
U.S.
SUA
“specified unlawful activity”
(OFAC)
Office of Foreign Assets Control.
what OFAC does:
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, and those engaged in activities related to the
proliferation of weapons of mass destruction.