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AML Compliance and Convergence

Sometimes we lose perspective. Anti-corruption compliance practitioners act as if they are inventing new and innovative concepts. I do not mean any disrespect but anti-corruption compliance programs build on compliance concepts that have been applied in many different situations, especially in the areas of banking and finance, securities, health care, and international trade.

My colleague Howard Sklar (Here) writes eloquently about the convergence of compliance across money laundering, trade export controls, and other areas. He has hit the nail on the head and for compliance officers the question is not limited to how do I build an effective anti-compliance program but how do I do so and integrate such requirements into other compliance regimes.

Anti-money laundering (“AML”) compliance, for example, contains many similar principles to anti-corruption compliance. It is worth comparing these concepts.

AML compliance issues have been around for decades but the game changer in the area was the USA PATRIOT Act of 2001 which imposed new requirements on financial institutions as a means to stem the flow of money to terrorist organizations. The federal government has been very successful in its efforts. Financial institutions have adjusted and incorporated anti-money laundering compliance programs into their business operations. Years from now we will say the same about anti-corruption compliance – companies have adjusted and incorporated anti-corruption compliance programs into their business operations. The pattern of adjustment and integration has been going on for years and there is nothing unique about anti-corruption compliance.

Financial institutions and brokers are required to adopt policies, procedures and internal controls (referred to the “Bank Secrecy Act (BSA)” controls) designed to prevent, detect and cause the reporting to appropriate authorities of any known or suspected money laundering, other criminal activity or suspicious transactions. Under the program, the company must (1) Appoint an AML compliance officer; (2) Implement policies and procedures required for compliance with the BSA and the Office of Foreign Assets Control (“OFAC”) regulations; (3) File a Suspicious Activity Report (“SAR”) with respect to any known or suspected crime or suspicious transaction with the Treasury Department’s Financial Crimes Enforcement Network (FinCEN); (4) Train relevant employees, including senior executives on a regular basis; and (5) Audit the Company’s compliance with anti-money laundering laws and regulations

The BSA requires broker-dealers and other financial institutions to file reports and to maintain a variety of records for five years. Among the most important requirements are the filing of

— Currency Transaction Reports (“CTRs”) for all transactions in currency of more than $10,000 (U.S. or foreign currency) by or on behalf of the same person on the same day,

–Reports of International Transportations of Currency or Monetary Instruments (CMIRs) when any person transports, mails or ships cash or traveler’s checks in any form or securities or negotiable instruments in bearer form that total more than $10,000 into or out of the U.S.

As part of its obligation to “Know Your Customer” (“KYC”), financial instutions and brokers are required to take certain steps in establishing and monitoring accounts. An account officer and the Account Opening Department shall be responsible to:

— make reasonable efforts to determine the true identity of all customers and legal and beneficial ownership of all accounts.

— obtain copies of all relevant documents relating to the formation of the entity and the identify of its senior officers, directors and agents authorized to use the account

— screen the account for matches under the OFAC procedure for prohibited persons

— screen senior government officials and political figures, particularly from certain countries because of the risk that funds could be derived from public corruption.

A financial institution or broker is required to file a SAR where the company knows os suspects criminal activity, as well as transactions that the Company “knows, suspects or has reason to suspect” involve funds derived from illegal activity; evasion of the BSA; or serves no business or apparent lawful purpose.

There are a number of “red flags” of suspicious activities, which include:

• The customer wishes to engage in transactions that lack business sense, apparent investment strategy, or are inconsistent with the customer’s stated business or strategy;

• The customer exhibits unusual concern for secrecy, particularly with respect to his identity, type of business, assets or dealings with companies;

• The customer exhibits an unusual lack of concern regarding risks, commissions, or other transaction costs;

• The customer appears to operate as an agent for an undisclosed principal, but is reluctant to provide information regarding the principal;

• The customer has difficulty describing the nature of his business and lacks general knowledge of his industry;

• For no apparent reason, the customer has multiple accounts under a single name or multiple names, with a large number of inter-account or third-party transfers;

• The customer is from, or has accounts in, a country identified as a haven for money laundering

• The customer, or a person publicly associated with the customer, has a questionable background including prior criminal convictions;

• The customer account has unexplained or sudden extensive wire activity, especially in accounts that had little or no previous activity;

• The customer account shows numerous currency or cashiers check transactions aggregating to significant sums;

• The customer account has a large number of wire transfers to unrelated third parties;

• The customer account has wire transfers to or from a bank secrecy haven country or country identified as a money laundering risk;

• The customer account indicates large or frequent wire transfers, immediately withdrawn by check or debit card;

• The customer account has unusual transactions or transactions that are disproportionate to the customer’s known business; or

• The customer attempts to avoid the filing of CTR or other required reports through the structuring of transactions to avoid such reports.

The AML Compliance Officer is responsible for:

• Reviewing draft SARs prepared by the relevant individual or business unit, completing and filing all SARs;

• Maintaining a log of all SARs filed and copies of each SAR filed, along with any related documentation, for at least seven years; and

• Reporting periodically to the chief compliance officer, se
nior officers and the governing board about SARs filed.

In addition to anti-money laundering compliance, the Company is also required to comply with laws enforced by the Treasury Department’s Office of Foreign Assets Control (“OFAC”). OFAC administers sanctions and embargos involving certain foreign nations as well as prohibitions on dealing with certain individuals and
entities involved in illicit activity. These prohibitions also apply to accounts owned or controlled and securities issued by these governments/groups. Compliance with OFAC requirements is required as part of the Company’s Anti-Money Laundering Compliance Program.

Without prior OFAC approval, the Company may not open or maintain an account, or effect any transaction for or on behalf of:

• Any citizen or resident of a Prohibited Country;

• Any entity incorporated under the laws of or located in or acting on behalf of a Prohibited Country; or

• Any person on any OFAC list.

OFAC has produced and regularly updates a list of individuals, entities and nations that are subject to the OFAC administered prohibitions. The persons and entities on the list are called “Specifically Designated Nationals and Blocked Persons” (“SDN list”).   No accounts will be opened for any person on the SDN list.

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