ACAMS TODAY Magazine - May June 2007

ACAMStoday ®

The Magazine for Career-Minded Professionals in the Anti-Money Laundering Field

Suspicious Transactions: Inspect All Lines of Business p.18

Hedge Funds:

The New Frontier p.26

may/june 2007 Vol. 6 no. 3 A publication of the Association of Certified Anti-Money Laundering Specialists (ACAMS) Miami, FL USA

www.acams.org

Focus Your AML Training with Targeted Delivery p.8

www.acams.org/espanol

Be a part of the most highly-anticipated conferences in the Anti-Money Laundering (AML) field. Network with colleagues, listen to regulators, learn from the best.

Join your fellow anti-money laundering (AML) professionals for the latest insights, tips & tools to meet tomorrow’s money laundering challenges

Choose from four ACAMS’ conferences around the world!

Conferencia y Exhibición Latinoamericana sobre Lavado de Dinero de ACAMS en conjunto con lavadodinero.com June 27-29, 2007 Hotel Camino Real, México DF (Conference conducted in Spanish)

Participate in interactive sessions, workshops and roundtables covering cutting-edge AML topics

ACAMS 6th Annual International Money  Laundering Conference & Exhibition September 24-26, 2007 Caesars Palace, Las Vegas

Protect your organization with best practices for combating money laundering



ACAMS European Money Laundering Conference & Exhibition

in conjunction with moneylaundering.com November 7-9, 2007 NH Grand Hotel Krasnapolsky, Amsterdam

Middle East-North Africa International Money Laundering/Terrorist Financing Conference & Exhibition

December 3-5, 2007 Dubai

Network with AML professionals from around the world Learn from expert speakers from key industries



Earn continuing education credits: CAMS, CLE, CPE, CRCM, CFSSP

Register Today! Call 1.866.459.CAMS or +1.305.373.0020 Online www.ACAMS.org/conferences Email [email protected] Use Code 7DAY01 at registration ACAMS, Brickell Bayview Center, 80 Southwest 8th Street, Suite 2350, Miami, FL 33130 USA

In this issue ACAMS

Executive Director: Gregory J. Calpakis, CAMS Senior Vice President of Business Development: Geoffrey Chunowitz, CAMS Communications Manager: Karla Monterrosa-Yancey Director of Communications for Latin America: Gonzalo Vila Director of Marketing: Patrick Dolan Education and Training: Rebecca Lentz-Fernandes, CAMS and Gabrielle Hartmann, CAMS Member Services Manager: Briseida Nunez Member Services Representatives: Saida Aliyy, Gabriel Cruz, Lucia Morales, Giovanna Oquendo, Adriana Real and Trenice Simpson Certification Coordinator: Tamara Ofner, CAMS Website Design and Development: Diego Sanz, Victor Pena, and Michael Reyeros Graphic Designer: Aimee N. Youngs Membership and Certification Account Executives: Jeffrey Aronofsky, CAMS, Camila Levy, Sonia Leon. Advertising Opportunities: Andrea Winter and Ryan Lucia Events Administration: Barbara Schpilberg-Sanz, Zulema Moreno, and Michael Rodriguez

From the editor ACAMS news and member spotlight James Richards, CAMS: There’s no substitute for thinking creatively

Anti-money laundering monitoring in the securities markets

8 10 12 14

Suspicious transactions: Inspect all lines of business

16

Why money launderers find life insurance appealing

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BSA/AML scrutiny: Getting it right How to provide services to money services businesses-safely

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Fighting financial fraud requires enterprise-wide analysis and controls

24

Smooth sailing or uncertain waters? -The proposed US anti-money laundering regulations for hedge funds

26

Expertise: A challenge beyond certification

28 30

Delivering the training you need A day in the life of a compliance officer Techniques to reduce false positives

ACAMS Advisory Board

Chairperson: John J. Byrne, CAMS, SVP, AML Strategies, Bank of America, USA Samar Baasiri, CAMS, Head of Anti-Money Laundering Unit, BankMed, Lebanon L. Kim Estrada, CAMS, AVP - Separate Accounts Compliance Officer, AEGON Financial Partners, USA Rainer G. Hoerning, CAMS, Senior Compliance Officer and Vice President of Credit Suisse, Switzerland Barry M. Koch, CAMS, Global Head of AML, American Express Company, USA James Richards, CAMS, SVP and Corporate BSA Officer, Wells Fargo & Company, USA Saskia Rietbroek-Garces, CAMS, President, AML Services International, LLC, USA Nancy Saur, CAMS, MICA, Compliance Officer, Bodden Complaince Services Ltd., Cayman Islands Richard A. Small, Global Anti-Money Laundering Leader, GE Money, USA Daniel Soto, CAMS, Chief Compliance Officer, RBC Centura, USA

ACAMS Today is designed to provide accurate and authoritative information concerning international money laundering controls and related subjects. In publishing this work, neither the authors nor the association are engaged in rendering legal or other professional services. The services of a competent professional should be sought if such assistance is required.

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ACAMS events calendar and web seminar schedule ACAMS web seminar registration form

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ACAMS Today is published six times a year for ACAMS members. To join or advertise, contact: ACAMS Brickell Bayview Center 80 Southwest 8th Street, Suite 2350 Miami, FL 33130 Tel. 1-866-459-CAMS (2267) or 1-305-373-0020 Fax 1-305-373-5229 or 1-305-373-7788 E-mail: [email protected] Website: www.acams.org • www.acams.org/espanol



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May/June 2007

On the cover

Suspicious Transactions: Inspect All Lines of Business p.18

May/June 2007

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From the editor January/February CAMS Graduates

T

his year brings change not only for the anti-money launder-

Denine

Agnew

Farrah

Leon-Robinson

Goulbourne

Alleyne

TR

Lew

Katherine Kelly

Anthony

David

Li

Wilson

Aparicio

Nelson H

Lopez Jimenez

Bernardo Antonio

Aviles

Shirley Siew Toh

Low

Yevgeniya

Balyasna

Patrick W

Lynch

Lauren

Barth

Craig F

Mallanda

Anuradha

Batra

Anthony

Mangano

John A

Beccia III

John

Marchiel

Jean Pierre

Blanchard

Amanda

Marquis

will launch computer-based testing. Members all over the world will

Kristine M

Boucher

Mario

Marrero

have the opportunity to take the CAMS examination at their conve-

Isaac London

Boyd

Olivia

Martinez Alas

Edward

Brady

Joseph

McHugh

Ivan Ernesto

Brugal Molina

Sharvette L

Mitchell

Piroon

Bullman

Victor K

Mitsunaga

Cristopher

Burgess

Ana Sofia

Mogollon

Amy M

Canter

Fareed

Mohammed

insurance so appealing. Keeping AML professionals alert requires

Terry

Caraher

Gerda

Mooy

appropriate methods to deliver the right training at the right time, and

Guillermo Antonio

Carias

Leon

Mulgrew

Kristin

Casey

Kristina

Mulholland

Janice

Caulfield

Joel R

Mullett

Jorge Galileo

Chevez Pineda

Silvia Corina

Murillo de Gonzalez

Jing

Chu

Kajal

Negi

Mirla

Contreras

Germito

Nieves

Giancarlo

D’Alessandro

Luis E.

Nunez Santana

Sandra

Dato

Robert F

O’Keefe

Bronwen E

David

Sheila M

O’Leary

James M.

Davis

Ing Yan

Ong

Peter

de Boer

Roger G.

Osorio S.

Naida

De Puy

Gloria Ines

Palencia de Mata

Val

Dekhman

Abraham David

Pije LL M, MA

Kristen

DeSimone

Philip

Portera

Christopher B

Dillon

Sarah E

Protopopov

Kori Lynn

Duffy

Paige

Pryor

Bruce

Dyer

Carolina de Lourdes Ramos de Marranzini

Nancy

Elia

Ratna

Rasiawan

Eva

Errico

Eugenia

Rodriguez

James

Foskett

Carlos Alfredo

Rodriguez Aviles

Basil K

Fox Jr

Veronica

Rosa

Michelle

Garcia G

Sudeepto

Roychowdhury

Mariel

Garcia Rojas

Letizia

Silenzi

Bonny

Garcia-Morla

Robert W

Smith III

Lynn

Gerber

Jose

Steenbeek

Lisa M

Giannone

John M

Stock

Lilian

Gomez de Alegria

Sally G

Stubbs

[email protected] to request ACAMS Today in Spanish, in elec-

Jose Alfredo

Gonzalez

Marcelo

Suarez Castillo

tronic format.

Dave B

Guerrero

Daravann

Suon

Svetlana

Gultyaeva

Jenny J

Tavarez

Jennifer

Hanley

Adinda

Teijgeler

Victoria

Harold

Daniel

Tholander

Zhouhong

Heacock

Victoria

Thomas

Lenin Rafael

Herrera Sanchez

Grant

Tomkins

Selena

Holmes

Carlos Ernesto

Torres Vasquez

Jonathan T

Horan

Tanya

Turner Velasco

Louis

Idarraga

EE

van Faassen

Noreen

Joyce

Luc EA

Verholt

Wendy

Kaminker

Roberto H

Vides Burgos

Julio Cesar

Kellman Rodriguez

Aarti

Weister

Michelle L

Kenny

Margreet

Wenting

Obaid A

Khan

Ofer

Yitzhaki

Monica E

LaCroix

Wren

York

Jennifer N

Leathers

Eric S.

Zimmer

Maria Dolores

Lebron

ing (AML) field but also for ACAMS members! Meeting the need of our international membership ACAMS unveiled the

newly revised CAMS examination in March at the moneylaundering. com and Money Laundering Alert 12th International Conference and Exhibition in Hollywood, Florida. July marks a new beginning for the CAMS examination. ACAMS

nience when and where testing centers are available. Keeping up with the continuous flow of AML information, this ACAMS Today issue will explain why money launderers find life

customizing it for your employees’ precise responsibilities. Suspicious activity reports should not be limited to money laundering, but are a practical way of keeping your institution safe from other financial woes and fraudulent activities. Discover how banks can provide services to money services businesses (MSBs) safely. Examine what hedge funds and securities markets have in common and find out what questions to ask of your AML department before the regulators arrive. False positives not only cost money but tie up valuable resources. Explore the possibility of using statistical methods to monitor customer transactions. Learn the relationship between fraud and money laundering schemes and how they overlap within a financial institution. Interested in acquiring more knowledge or receiving continuing education credits? Don’t forget to register for upcoming web seminars by filling out the registration form in the back of this issue. If you prefer to read us in Spanish, be sure to e-mail us at

And don’t forget to send your comments, article ideas and article submissions to [email protected]. We hope you enjoy this issue of ACAMS Today.

A

Karla Monterrosa-Yancey Communications Manager ACAMS



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ACAMS News CAMS soon to be a computer-based test The CAMS examination will no longer be a paper and pencil test. ACAMS has partnered with Thomson Prometric, a psychometric and assessment services company based in Baltimore, Maryland, and will launch the computer-based examination in July. Members are projected to be able to start registering for the English version of the computer-based test at the end of May. The Spanish version of the test will follow shortly thereafter. In an interview published in the Q1 2007 US Edition issue of Financial Services Tech-

nology (FST) magazine titled “Cleaning Up Banking,” ACAMS executive director Gregory Calpakis described the importance of the change: “We are going to move to computerbased testing…with a firm that has…[testing] sites around the world. This system will enable better access for our members to take the exam at any time.” The CAMS examination will now be available to members worldwide in more than 130 countries. Computer-based testing provides savings for members, convenience and instant test scores. Members will submit their examination application to ACAMS for

general registration. Once members register, pay and complete their application, ACAMS will send them confirmation numbers by e-mail and instruct them on how to contact Thomson Prometric to schedule where and when to take the exam. Concurrently, with the launch of computer-based testing, ACAMS has begun developing an online version of the CAMS examination preparation seminars. The online training will include additional Q &A’s and provide interactive online simulations. A

Member Spotlight Bashir Al-Nakib, CAMS Beirut, Lebanon Bashir Al-Nakib, a quality management system (QMS) certified lead auditor with a master’s degree in international public law, is head of Lebanese Canadian Bank’s compliance division. He was formerly quality compliance auditor for Lebanese Canadian Bank and branch manager for ABN AMRO Bank, N.V., in Beirut. Al-Nakib built the AML risk matrix within the Lebanese Canadian Bank and implemented the AML reporter solution for screening and monitoring bank customers. His responsibilities include ensuring bankwide compliance with laws, regulations and international standards and focusing on global risks associated with money laundering and terrorism financing. He represents compliance at various committees, identifies laws and regulations applicable to business lines, and reviews compliance policies, procedures and monitoring systems. In addition, Al-Nakib develops online compliance training, performs periodic testing of targeted regulations, identifies changes to international laws and acts, interfaces with bank regulators and auditors, and reviews new products. Al-Nakib is a member of the Lebanon Bankers Association AML Committee and of the Union of Arab Banks Group Certified Compliance Officers, and is founder and moderator of two discussion forums based through Group AML Professionals & Group Lebanese Compliance Officers. In his efforts to increase awareness in combating money laundering, terrorist financing and financial crimes in the MENA

region, Al-Nakib is an avid promoter of CAMS and has participated as a speaker at conferences worldwide. Al-Nakib also served as expert moderator during an ACAMS Hawala live chat and participated at the Hawala conference organized by the United Arab Emirates (UAE) Central Bank in Abu Dhabi. In April Al-Nakib launched from Beirut the 1st Compliance Alert portal in the MENA region, www.compliancealert.org, with a solid 400-member data base. Michelle Peter-Idah Abuja, Nigeria Michelle Peter-Idah is team leader of the monitoring and analysis department of the Nigeria Financial Intelligence Unit (NFIU). She holds a master’s degree in international relations and a bachelor of science degree in political science and public administration. Her duties at the NFIU include analysis and development of strategic intelligence on money laundering/terrorist financing trends, patterns and typologies. She recently submitted a report on research she was mandated to conduct, which sought to advise government on trends and patterns of alternative remittance corridors in Nigeria and associated money laundering risks. As a pioneer staff member of the NFIU Peter-Idah helped define its structure and institutional framework to meet international best practices. She has also been involved in sensitization projects for Financial Institutions (FIs) and Designated Non Financial Institutions (DNFIs also known as DNFBPs), acting as facilitator in training on the design and implementation of customer identifica-

tion programs. Her work with stakeholder government agencies, the international community and reporting entities within Nigeria was instrumental in getting Nigeria dropped from the Financial Action Task Force (FATF) Non-Cooperative Counties and Territories (NCCTs) list. She has also represented the NFIU at different forums, including National Cyber Crime Working Group (NCWG), Groupe Inter-gouvernemental d’Action contre le Blanchiment en Afrique (GIABA), and at inter-ministerial meetings. On a day-to-day basis, she helps manage the business process of the monitoring and analysis unit and the development of operational metrics.

Andrés Terrero, CAMS Santo Domingo, Dominican Republic Andrés Terrero is president of the Dominican Republic’s Chamber of Accounting, the highest organization charged with protecting the Dominican state’s heritage by administering and financially managing the country’s public resources and accounting for expenditures. Until his recent appointment Terrero was director of internal auditing for the Central Bank of the Dominican Republic, where he supervised anti-money laundering compliance systems. Terrero is also a consultant and serves on the reporting team for the Observance of Standards and Codes of the World Bank. Terrero will be a speaker at the ACAMS Latin American Money Laundering Conference and Exhibition on June 27-29, 2007. A

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RECERTIFICATION REMINDER CAMS Class of 2004 You work hard everyday on complex AML issues. You attend AML seminars and conferences. You are a leader in your department, company, or region. And to top it off — you are CAMS certified—Don’t lose it! If you received the CAMS designation in 2004, it’s time to recertify. Protect your standing in the field, the respect you’ve earned and the credentials to prove it.

Why Is CAMS Important? Maintaining your CAMS designation is vital in today’s financially volatile and increasingly connected world. The money laundering risks and the solutions needed to combat them are at an all time high, driving an urgent need for professionals who fully comprehend the potential risks, the changing regulations and the actions needed to stay one step ahead.

Professionals who have earned the mark of an expert in the field - the CAMS designation - are what organizations, businesses and regulators are demanding.

To recertify, simply visit www.acams.org and click the CAMS certification link followed by the recertification link or call directly to 1.786.871.3026 where an ACAMS representative will personally assist you. By recertifying in the next 60 days, receive $50 off the $250 recertification fee. Mention CODE: 7DAM01

Recertify now and protect your CAMS designation. ACAMS • Brickell Bayview Center • 80 SW 8th Street, Suite 2350 • Miami, FL 33130 

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+1-866-459-CAMS (US) • +1-305-373-0020 • [email protected] May/June 2007

Board Spotlight James Richards, CAMS: There’s no substitute for thinking creatively ACAMS advisory board member James Richards, CAMS, is senior vice president and corporate Bank Secrecy Act officer at Wells Fargo in San Francisco, California. ACAMS TODAY: What are some of the critical AML challenges facing Latin America? JAMES RICHARDS: Certain countries in the region have traditionally been considered high risk, since they are known to be drug-producing or drug-transit countries. Additionally, the presence of certain terrorist and paramilitary groups elsewhere in the region can create significant challenges for local banks and their U.S. correspondents, especially when scrutinizing transactions originating in or passing through those areas. High-profile cases involving investigations into political corruption, which led to the legitimate need to apply enhanced due diligence to certain business relationships, have created additional challenges for financial institutions in the region. AT: What advice would you give on how to best deal with these challenges? JR: A strong sanctions compliance program is essential, as is the need to have a comprehensive and rigorous client due diligence program. As AML regulations in the region increase, institutions would be well advised to incorporate a heightened sensitivity to brand risk into their AML controls and procedures. AT: What are some key techniques that help you detect money laundering? JR: First, financial institutions are not required to detect money laundering: We are required to detect and report suspicious activity. That said, combining a robust use of technology with a strong and practical training program are key ingredients for an effective transaction-monitoring and customer-surveillance program. There are many technology solutions available to monitor transactions — ranging from sophisticated link-analysis and pattern-monitoring software to the more basic, rules-based scenarios — and institutions should evaluate how best to match the many alternatives to their own particular products, services, geographies, customer types and transactions. The first step in doing this is, obviously, conducting a thorough AML risk-assessment so that you can best match the avail-

able monitoring or surveillance capabilities to your own institution’s risk profile. Working in parallel, you must partner your monitoring program with your AML training — remember, your people will always be your first and best line of defense. AML training should be customized for sales, operations and other functional areas, should be practical, and should be subject to regular re-assessment for its effectiveness. Be cognizant of employee turnover — especially in retail banking— and be sure to take what you learn from the suspicious activity you actually see and make adjustments to your up-front training. Also consider inviting your regulators to take the training or at least attend the training sessions, and seek their feedback. AT: In your opinion what are the AML issues facing an international company on a daily basis? JR: Large, international companies typically have multiple regulators in numerous jurisdictions. Managing those relationships should always be a high priority, and the company should proactively reach out to its regulators to ensure that communication remains open and effective. It is also critical to have a coordinated and organized approach when addressing compliance and legal issues that span several countries’ laws and regulations, especially when national laws may conflict with each other or with the laws of the home country. Such conflicts may arise in the areas of customer privacy, cross-border information sharing, and compliance with sanctions in the face of “antidote” rules. In addition to meeting these legal and regulatory challenges, an effective AML compliance program must partner with the business in order to ensure that decisions about new product launches and expansion into high-risk markets are informed by a comprehensive understanding of the associated risks. AT: As an ACAMS board member what career advice would you give ACAMS members? JR: Think creatively. The money laundering risks associated with emerging technologies and new products arise much more quickly than the legislation seeking to control those risks. A creative approach — “thinking outside of the box” — is one

ingredient to implementing reasonable controls and “best practices” in your program. Another aspect of creative thinking is to challenge assumptions and the status quo: What worked ten years ago, five years ago, or even two years ago may not be the best way. Continue to network. Sharing information and experiences with your counterparts at other institutions, and with your regulators, will allow you to keep abreast of new developments and will facilitate the ongoing assessment and improvement of your program. Benchmark. One of the results of effective networking is the ability to benchmark. Regular benchmarking is a valuable exercise when evaluating your policies, procedures and controls. It can also provide valuable and practical information for consulting with your business partners about new product launches, expansion into high-risk markets, reputational risk and the like. AT: Does having the CAMS designation make a difference in today’s world in an effort to fight money laundering? JR: I really won’t even consider hiring someone in a senior position unless they have the CAMS designation. It’s as simple as that. AT: What factors motivated you to join the ACAMS advisory board? JR: I was on the first ACAMS advisory board, and have been privileged to remain. The board has had and has many of the pioneers of the AML field: Rick Small, John Byrne, Dan Soto, and others that have been my mentors over the years. Today the board is a group of highly intelligent and experienced individuals who possess an impressive level of subject matter expertise. They’re also creative thinkers who bring a fresh approach to complex problems and issues. I feel privileged to be part of this group. With the wealth of young, talented ACAMS members eager to make contributions through the board, it’s probably time for me to move aside and let that talent take the association to the next level. It’s clear to me that the association’s work can make a positive contribution not only to its financial institution members but also to the efforts of law enforcement and many governments to combat money laundering and terrorist financing. A

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Training

Delivering the training you need

Third in a series of articles about training Editor’s Note: This is the third article in a series of articles about training issues. The previous two articles covered what training is, why it is important, whom to train and how to tailor specific content to your trainees. This article discusses when and how to train.

Timing of training ost new hires to an organization undergo some form of orientation, whether they are industry veterans or new to the business. Orientation is generally the time for an institution to impart its core values to the employees and to explain to them how to navigate the organization’s channels and hierarchies. But it is also a busy time for new employees, since they are getting hit from all sides with demands for their attention. During this hectic period, it is important to insist on the importance of compliance of all kinds, including anti-money laundering (AML) efforts. But unless the employee’s primary job is directly related to

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AML efforts, a detailed AML course would not likely have a lasting impact at this time, given the flood of information directed at incoming employees during orientation. Still, orientation will give most new hires information relevant to AML efforts, such as how sales staff should document new customers’ identities, cash-handling employees should record large currency transactions, and how wire transaction personnel should react to potential sanctions program alerts. While that training is not specific to AML, the employee is still learning procedures that integrate AML into his or her daily work. In some ways, this is some of the most important training of all – how to implement AML through workplace routine. Once the employee have had a brief introduction to the concept of AML within the initial orientation and have had time to master some of the basics of their jobs, they should be exposed to more detailed AML training. Generally, new employees with AML responsibilities should get the more detailed training within a few months of

starting the job. The training should emphasize the importance and methods of reporting potentially suspicious activity. Since this is one of the most important parts of the AML program, and one of the least likely to become a common occurrence (or one would hope!), the sooner the training is delivered the sooner another set of eyes and ears will join the institution’s efforts to identify suspicious activity. Since institutions bear the responsibility for ensuring they have adequate compliance programs – which includes competent employees – it is in an institution’s best interest to get its staff trained quickly. Once employees have been through orientation, they should continue to be trained, as their level of AML responsibilities requires. Institutions constantly provide information to personnel, so much so that they often must create strict controls to limit the flow of information so it can be managed effectively. AML becomes a few more drops in the massive information stream to the employees.

How often staff needs AML training will depend on the nature of the employees’ duties and the culture of compliance at the institution. Employees who don’t have specific AML responsibilities may not even require AML training – particularly when they have no customer contact and only incidental involvement in customer activity. But employees who do have customer contact or can effect customer activity – by taking instructions in person, by telephone, mail, internet or other means – need to continue to hear the AML message. Frequency of training should be based on factors related to the institution’s AML risk assessment. Higher risk areas – particularly account opening, cash handling and customer contact – need training more frequently, since these employees are the institution’s first line of defense against money launderers. Generally, employees in high-risk functions are trained at least every two years, if not more often, depending on such factors as the size of the institution, the type of training and the manner in which it is delivered. In addition to the risk-based assessment of an employee’s role in the institution, training should consider the general culture of compliance in the institution. The stronger management’s commitment to compliance – regardless of the expense or revenue impacts – the less critical it is to drive out the importance of compliance through training. This holds true for AML as well. This is not to say that management’s commitment alone will satisfy an institution’s training requirement. But it can help foster a compliant culture in the organization – one that holds regulatory compliance in high regard – which can in turn drive down the costs of more frequent training. I started this series of training articles by pointing out that training can be defined as “to make prepared (as by exercise) for a test of skill.” Just as athletes do not become proficient by chance, an institution’s staff will likewise not achieve competence, much less proficiency, without adequate training. Delivery of training Even the greatest training program on paper won’t be effective if it isn’t delivered properly to the institution’s personnel. Delivery is determined by many factors, including the institution’s size, geographic spread, training budget, timeframes and technological sophistication (such as the availability of video players and computer bandwidth). Generally, one of the most effective means of delivering training is with in-per-

son presenters. This type of training is one of the most interactive. If the presenter is dynamic, knowledgeable and engaging, this training will grab an audience’s interest, hold it and allow the material to be readily absorbed and retained. But finding enough presenters that meet all these requirements can be challenging. In addition, in institutions with a broad geographic footprint, sending trainers out incurs travel, lodging and meal expenses. These problems can be minimized through a program of train-the-trainers, whereby the people delivering the training, who are usually closer and often more familiar to the audience, are taught how to administer the training. While the level of understanding of the subject matter may not be as great as having subject-matter experts, this is a cost-effective means of delivering basic training while allowing the experts to deal with questions that arise later (as well as

Even the greatest training program on paper won’t be effective if it isn’t delivered properly. continue to manage the AML issues within the institution). One of the fastest and most economical means of delivering training is through computer-based courses. There are a large number of these courses available, ranging from off-the-shelf courses to those offering a host of customization options. In general, prices rise as customization increases. Computerbased training allows a standardized version of the training, broken down by audience, to be delivered. Further, such courses facilitate tracking of completion by employees. Good course design can offset the tedium of reading text on computer screens with at-

tention-grabbing graphics, concise phrasing, engaging content and just the right amount of interaction, such as interim knowledge assessments that require a variety of different types of responses. Computer courses can also be delivered over the Internet or through intranets, which accommodate large and geographically dispersed audience. These types of courses greatly facilitate testing, particularly if the testing involves the use of a random sampling of a large pool of questions that fairly gauge the comprehension of the test-takers. Plus, the course can usually be modified after it was created, which will allow updates with minimal expense. Videos, whether streaming video, VHS tapes or DVDs, are another popular and lowcost way to deliver training. They are not highly interactive, require the use of training logs and do not facilitate testing, but there are fairly simple ways to get around those drawbacks. One thing to be mindful of when using video distribution is that not all playback machines are the same – Europe and the U.S. tend to run on different formats, for instance. Also, while videos can be easy to reproduce, updating may be difficult. Some institutions produce their own videos, which generally decreases the cost and increases the flexibility with the content. But videos are generally only good for a few viewings, since the more often the video is shown, the less an audience may pay attention to it. For institutions that do not have access to video or computers for training, paper-based training may still be effective. It is very helpful to have really good writers to prepare this type of training; the effectiveness of the course depends heavily on the writing, since there is no teacher to add inflection and tone. This type of training greatly benefits from thorough assessments to ensure that employees actually read the material and understand what they’ve read. The largest expense with this type of training is the cost or reproduction and distribution. Once an institution sets up the frequency of its training and determines how to deliver it, there are additional considerations for the training program, such as how to document the training program and how to handle some of the customization challenges. The next article in the series will address these matters. A Kevin Anderson, CAMS, vice president, Bank of America [email protected] Falls Church, VA U.S.A. May/June 2007

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AML Workplace

A day in the life of a compliance officer

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ou have probably read many articles about the hectic life of a compliance officer. No matter what business you’re in, there are always policies, procedures and regulations with which to comply. But keeping up with the numerous anti-money laundering (AML) requirements imposed on financial institutions is a particular challenge for compliance officials who wear the AML officer hat on top of their other regulatory headwear. Let us pay tribute to those compliance officers who lead or are responsible for other banking areas as well. Any similarity with your own job is purely coincidental.

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This article is not intended to make anyone feel sorry for you; it is simply an attempt to cheer you up. If you chose this career, consider yourself a high achiever. If it was chosen for you, look at it as a great opportunity. In either case, many tools are available to guide you. Most may be found in regulatory websites, from international AML organizations and law enforcement agencies,

or through workshops, seminars and AML committees that share best practices. The compliance officer starts a typical with the best of intentions to follow the “todo list,” prioritized by certain mandatory deadline dates. A rare few may finish their “to-do list” within the next eight hours, but most will never be that lucky, so you’re probably facing a ten-hour day at the office.

Every day is a learning opportunity.

Among your responsibilities: • Risk-based monitoring for unusual activity, including: detection, investigation, suspicious reporting to law enforcement agencies, documenting the file with supporting documents, deciding either to close the account or continue monitoring. Having an automated system to detect and report suspicious activity might make a difference. You may also end up increasing your staff according to the systems’ effectiveness. You will need to decide whether to bring in an automated system or allow your IT programmers to create one in-house. • Making sure that currency transactions reports (CTR), suspicious activity reports (SAR) or any other required report is completed correspondingly and accurately. Again, having an automated system to help with the process might make a difference; however, SAR narratives are still a manual process that takes time and effort to do correctly. Informative documents like the Financial Crimes Enforcement Network (FinCEN’s) “SAR Activity Review: Trends, Tips and Issues” provide meaningful information about the SARs’ preparation, use and value. Similarly, you may find informative documents from your country’s banking associations, law enforcement agencies, and regulatory agencies. • Training staff in all corresponding areas. Many things must be taken into consideration in preparing effective training. In addition to seeking information on the web and through AML associations, you might ask your AML peers if they are willing to share their PowerPoint presentations or guide you to sources they use to improve training effectiveness. • You may also add a long list of duties that might confuse just about everyone but the AML Officer (KYC, CIP, Section 314A, Section 314b, PEPs, shell banks, etc.)

How do you determine if you’re using your days effectively? The first step toward becoming a successful AML officer is recognizing your strengths and weaknesses. Draw yourself on a piece of paper and write your strengths on the right side of your body and your weaknesses on the left. Ask yourself the following questions: Are you organized? Do you consider it a nightmare to work with computer systems? Do you do enough research to keep yourself up-to-date regarding the AML field? How often do you seek further training for yourself? Are you considering

The first step toward becoming a successful AML officer is recognizing your strengths and weaknesses. certifying yourself as CAMS or attempting to obtain another type of AML certification? Do you periodically share ideas with other AML officers at professional meetings? How enthusiastic are you about your job? Ask yourself as many questions as you think are appropriate but do not make excuses for what you’re not doing. Once you have identified your professional strengths and weaknesses, review your daily tasks to determine if any of your weaknesses can be improved, thereby mak-

ing your days easier. Prepare an action plan with deadlines for specific improvements. Share those weaknesses with your superiors. In some cases the company you work for may cover some or all of the expenses for seminars, etc. Build up a strong compliance culture The second step toward becoming a successful AML Officer is documenting your efforts to comply with the regulatory burden that goes beneath that AML hat you’re wearing. Your compliance program must cover all corresponding regulatory requirements. If you need more staff then take the necessary steps to document it in writing. Talk with other AML officers to share approaches. All efforts must be reported directly to the compliance committee or board of directors. It is extremely important to keep the board on board. If they are not convinced of the seriousness of the regulatory issues that may arise from non-compliance, your efforts will be in vain. Besides training them in overall compliance, show them instances of bank non-compliance issues so they understand what’s at stake. AML compliance is a shared responsibility among all financial institution staff. The third and last step to success is sharing your knowledge with experts in the field and listening to their experiences. Every day is a learning opportunity. Remember that continued learning leads to experience and experience leads to success. Finally, a day in the life of a compliance/AML officer may differ from institution to institution, but it is truly your choice whether to make it better and move ahead, or stay complacent and in time quite possibly move out. A Gladys M. Castellano, CAMS, independent consultant, Guaynabo, Puerto Rico, [email protected]

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Practical Solutions

Techniques to reduce false positives The first article in this series discussed how even a modest reduction in the number of false positives produced by transaction monitoring can yield big cost savings. In addition to saving money, having fewer false positives frees up valuable resources to monitor transactions better. This article will identify further reasons why false positives occur. Profiling

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any financial institutions monitor current customer transactions to see if they vary significantly from past transactions. For that, it is necessary to develop a profile of each customer. One of the questions financial institutions face is whether to generate a profile based exclusively on more recent transactions or one that draws from a longer history (provided that history is available). Each approach has advantages and disadvantages.

Focusing on a shorter time period may ensure data that is more representative of what a customer is likely to do in the current period, and thus flags fewer activities as unusual. Unfortunately some customer activities, especially with retail customers, have a longer periodicity (e.g. they may roll over term deposits only once every 6 to 12 months), and with a shorter history these activities will get incorrectly flagged as unusual. Another risk may be that anomalous behavior, which may be more apparent when compared with a long-term behavioral pattern, will not be flagged and should be. On the other hand, a profile based on a longer period may be a better indicator of what is truly normal for a given customer. It takes into account activities with a longer cycle of time, such as term deposits. The disadvantage of this approach is that customer behavior does change with time, and this longer history may generate false positives.

In determining the length of time on which to base a profile the first thing to consider is the nature of different financial institutions. Using a longer period may be advisable for, say, a credit union, whose customer base consists primarily of individuals who are current and former employees of a single organization. These customers tend to be homogenous and stable; shortterm variations in behavior may warrant additional scrutiny. Similarly, a commercial bank with largely business customers may be better served profiling its customers over a shorter period of time, because its customers’ activity profile is a function of market conditions, which are dynamic. The solution to this dilemma is to understand various customer bases better and stratify them appropriately. Instead of using the same period to profile an entire customer base, use a profile period appropriate to the specific customer type. This may require statistical analysis of the transaction data for each customer type. While performing this analysis keep in mind one-time events: A credit union may run a campaign selling Home Equity Line of Credit (HELOCs) or a retail bank may have a “Sale” on CDs. These will warp the activity profiles of a given customer type. Thus, correct profiling is a function of both the nature of business and customer type, with an allowance for one-time events. All these should be considered. Tolerance or Variance Tolerance or variance is a factor applied to each profile to compensate for variations from the historical average for an account. Ask a banker what the tolerance should be for any given customer and you will get as many opinions as the number of times you ask. Some customers, especially business accounts, are more volatile, while certain customer types are steady. Consequently each type warrants different tolerances. The first step is to stratify the customer base into appropriate types. The customer type should be based first on the nature of the business, and then, within each customer type, on the number and size of

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transactions. This stratification of customer base will be helpful not just for estimating the tolerance, but for reducing the false positives and improving the monitoring process overall. Once customers have been stratified a number of techniques can be used to arrive at the optimal tolerance percentage. A simple iterative method will be to analyze, for a given customer type, the historical data of confirmed suspicious activities vs. false positives. If the ratio of false positives to suspicious activity for the given customer type is very high, then use a higher tolerance, and vice versa. However, please keep in mind that these proportions are subjective. Thus, increasing the tolerance simply to reduce the number of false positives may be misleading and may not sit well with the regulators. A better way to determine the tolerance level is through statistical analysis. By using a statistical model, the tolerance percentage can be determined rationally instead of through a guess estimate. There are many such models. If the number of transactions is large and the population in each customer type is sufficiently large, assuming that the transaction distribution follows a normal curve may be reasonable. In that case using the “68-95-99.7 rule” (which states that in case of a normal distribution, 68% of transactions will be within +/- 1 standard deviation of the mean, 95% within +/- 2 standard deviation and 99.7% within +/- 3 standard deviation of the mean), the bank can determine how many standard deviations away from the mean a transaction needs to be to require further scrutiny. Yet another mathematical approach is Chebyshev’s Inequality. In probability theory this rule named after Pafnuty Chebyshev, the mathematician who first proved it states that in any data sample or probability distribution, nearly all the values are close to the mean value, and provides a quantitative description of “nearly all” and “close to.” For example, no more than 1/4 of the values are more than two standard deviations away from the mean, no more than 1/9 are more than three standard deviations away, no more than 1/25 are more than five standard deviations away, and so on. Details on how to use these models will be discussed in a later article.

Monitoring Period The monitoring period is the unit of time over which a customer’s activity is analyzed. If the monitoring period is one month, then the incoming/outgoing amounts and counts are aggregated for the month and compared with the profile. The premise of profilebased monitoring is that while individual transactions may vary significantly, the aggregated transactions over a period of time should be comparable. If they are not, they need to be scrutinized. Thus, by increasing the monitoring period, we lower the probability of variance from historical activity, since transactions with higher periodicity get averaged in. On the other hand, using too small a monitoring period will generate excessive false positives. Consider this hypothetical example: A customer’s activities are spread uniformly over time and exceed the profile amount in each period being monitored. If the monitoring period is weekly, the activities will be flagged as unusual once a week. Supposing the monitoring period for this customer is increased to monthly. The base amount will also increase by four (as the historical period over which the profile is created is adjusted similarly.) Given the same behavior as previously, it will trigger a flag once a month. Therefore, instead of flagging four suspicious activities per month, the system now flags one suspicious activity per month. Of course, in real life customer activities are almost never as predictable as in this example, but increasing the monitoring period overall has a significant impact on the number of potentially suspicious cases identified. The trade-off is having a more granular monitoring versus having fewer false positives. As a result the closer you monitor (shorter period), the quality of monitoring improves, but so does the number of false positives until there comes a point where shortening the monitoring period becomes counter productive. As always in setting the monitoring period other factors such as customer type, risk class, nature of transactions need to be considered. Yet another thing to think about is the time limit on reporting suspicious activities. While it may be acceptable to have a longer monitoring period for a low-risk customer, transacting lower amounts primarily through a Demand Deposit Account (DDA)

account, a high-risk customer transacting higher volumes via a higher-risk activity such as a wire transfer may warrant a shorter monitoring leash. Summary False positives may be handled in many ways. Some of the simpler ones were discussed in this article. The recurrent theme in all these is to know your customers and their behavior better, as well as the activi-

Ask a banker what the tolerance should be for any given customer and you will get as many opinions as the number of times you ask. ties being monitored. One set of techniques, briefly touched upon in this article, is to use statistical methods to analyze the transactions of a customer, a group of similar customers and the customer base as a whole. Statistical methods can, when applied judiciously, greatly enhance the quality of monitoring and significantly reduce the bane of false positives. But only high-end automated monitoring systems provide such statistical analysis tools. The next article in this series will discuss other factors contributing to false positives and describe how to use statistical methods for bringing them to an optimal level. A Sunil Choudhary, CAMS, CISSP, is an independent consultant who specializes in optimizing automated transaction monitoring for Bank Secrecy Act and antimoney laundering (BSA/AML) compliance, [email protected]

May/June 2007

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Practical Solutions

Anti-money laundering monitoring in the securities markets

Why it matters and how it should be done

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t’s 4:27 p.m. and Nicole, a star equity sales/trader with your investment bank, is frantically fielding calls from her hedge fund clients. These same clients have, for the past two days, been aggressively buying shares of a large food conglomerate on the strength of market rumors of a hostile takeover. Research houses, including yours, have rated the stock as overweight (a technical term which means the stock of the large food conglomerate is very attractive to buy). She has been advising her clients to build up a sizable position in the stock, and all but two have been following her advice. This is not the first time Nicole has noticed odd behavior from these two clients. For example, a streak of losing trades (consistently buying high, selling low) has appeared regularly for these two clients, and so has frequent intra-day trading that results in no appreciable P&L or position change. To top it off, last-minute cancellations and corrections to trading instructions and changes to posttrade allocations (sometimes to 3rd parties) have become a regular feature of the clients’ activity. Changing payment instructions of a trade settlement to a 3rd party beneficiary is a classic money laundering red flag because you are paying out the proceed of a trade to a party different from your client and no Know Your Customer (KYC) has been done on this 3rd party. Nicole meant to say something to her compliance officer, having vaguely recalled from last year’s anti-money laundering training that suspicious transactions must be reported to her manager and to the anti-money laundering (AML) compliance officer. But it’s three minutes to market close, she has no time to think about this now since, in her view, these types of concerns do not impact her firm’s or her clients’ bottom lines. Furthermore, she assumes that compliance must be monitoring this type of thing anyway. She makes a mental note to call compliance in the morning … if she remembers. Imagine that you are the anti-money laundering (AML) compliance officer for 14

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that investment bank. The question for you is: “What transaction monitoring are you doing?” If your answer is none, or not a lot, then read on, since this article may offer you a few valuable ideas.

and country risk. (I will not elaborate on this topic, since much has already been written on it.) Once risk-ranking has been completed and high-risk clients identified, risk-based monitoring can begin.

Why is transaction monitoring fundamental? Regardless of which area of financial services you’re in, transaction monitoring is an integral and fundamental link to a strong AML compliance program. Having an AML transaction monitoring program not only addresses regulatory requirements in most jurisdictions, but more importantly, it provides your firm with an early warning mechanism for spotting money laundering red flags.

Step 2: Focus on high-risk clients. The aim here is to detect unusual or suspicious transactions undertaken by your high-risk clients, which may indicate money laundering. To say behavior is unusual is initially to say only that it warrants closer scrutiny. Typically, suspicious behavior is cumulative; where a single unusual occurrence might not warrant special notice (e.g. a one-off purchase of a substantial block of shares at a slightly off-market price), the repeated occurrence of events, or the occurrence of several types of unusual behavior, can make a series of transactions inherently more suspicious (e.g. a pattern of loss-making trades preceding closure of an account). There may, however, be instances when a single occurrence is cause for concern (e.g. a request to pay settlement proceeds to a third party whose name and other details match an Office of Foreign Assets Control sanctioned name). Your AML transaction monitoring system should endeavor to address all such situations through application of transaction profiling, suspicious pattern recognition filters (automated programs that detect irregular trades or patterns of trades), and monitoring of electronic messages or e-surveillance. 1. Transaction Profiling – The most common profiling techniques involve comparing the client’s actual trading activity versus (a) the same client’s previous trading history in a stock, a sector or a market, and (b) trading by other clients in the same industry (also known as peering). 2. Suspicious Pattern Recognition – Securities products can be used both for the layering and integration stages of money laundering. The filters below aim to highlight transactions or patterns of transactions based on layering techniques that may

How is it done? Heavy transaction activity, market volatility and the speculative nature of securities trading make attempts to monitor for money laundering transactions a difficult process and all but guarantee numerous false positives. But all is not lost. There are ways to monitor securities transactions meaningfully, but they require combining the use of an automated monitoring system and a riskbased monitoring program. Note: “Transaction monitoring,” as the term is used in this article, refers to monitoring client orders, trades, executions, positions and allocations for suspicious activity. It should be distinguished from monitoring sources and destinations of funds, which is an integral part of AML monitoring but which falls outside the purview of this article. Furthermore, it is important to mention that effective AML monitoring depends on a variety of circumstances: Monitoring for certain types of activity may make sense for one institution, but not for all. Step 1: Risk-rank your clients. This requirement is not new. Each financial institution must have its own riskranking methodology. Most involve three core risks: client (type) risk, product risk,

lead to the integration stage or to further layering out of the account to another destination or to be recycled back to the same account: •U  nusual Trading – Associates sell trades with corresponding buy trades executed in the same account for the same instrument within a threeday period, usually at the same or a higher price. The focus is on noneconomic activity (i.e. short-term trading profitability does not appear to be an issue). • Parking - Identifies cases of trade pairs having the same primary account, same quantity, same price, opposite side-of-market and same security. Parking is illegal when the motive is illicit, for instance when ownership is concealed and disclosure requirements are circumvented by colluding parties. • Cancels and Corrects - Identifies specific patterns of cancellations and corrections of key attributes of a transaction (i.e. price, volume, trading conditions and settlement instructions). Typical patterns include a large number of cancellations and corrections for one client, account or trader, and last-minute changes to standard settlement instructions (particularly if it results in a thirdparty payment).

• Position Differential - Identifies positions that have exceeded a specified level of change intra-day. It will help detect possible issues related to large purchases or sales of a particular security on a given day or multiple days. • Top 10 Money Losers - Identifies the top 10 clients who consistently have the greatest realized loss based on monthly transactions. 3. Monitoring of Electronic Messages / E-Surveillance – This is often overlooked as an AML monitoring tool. Subject to privacy laws in your jurisdiction, reviewing e-mails and instant messaging chat of employees who regularly interact with a suspect client can be an effective way to further investigate unusual and suspicious transactions emanating from transaction monitoring. Step 3: Keep on top of your AML monitoring program – The effectiveness of a monitoring program is not measured solely by the number of suspicious transactions flagged and SARs filed. It is equally important to ensure that: 1. Your coverage is comprehensive— are you capturing all the relevant transactions that need to be monitored? 2. Your methodology and approach are adjusted to the changing risk profiles of your clients and the market— are new

high-risk client types or money laundering techniques identified? 3. You are on top of technology issues — focus on developing your technology/creating new filters. 4. You are aware of the hot topics in AML that your regulators are focused on. Studying AML enforcement cases is an excellent way to do this. 5. You continually gather internal/ external intelligence. It is extremely difficult to spot money laundering from AML monitoring alone. Obtaining leads and clues internally (from employees) and externally (from regulators, law enforcement, media) is extremely valuable. Your AML transaction monitoring program is analogous to a ship’s radar. This tool helps the captain navigate safely through a sea of icebergs. The more sophisticated and powerful the radar, the easier and faster it is to detect problems early. Why is this important? Because at the end of the day, it’s all about protecting your firm’s name and reputation, and that’s the real bottom line. A Tadeo (Jun) Claravall, CAMS, CIA, CPA, Sydney, Australia, [email protected]

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AML Challenges

Suspicious transactions: Inspect all lines of business

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s Bank Secrecy Act (BSA) officer of your financial institution, you work hard to protect your company from money laundering. You pore through an endless stream of transactions and reports to ensure the flow of money in and out is legitimate. But what about financial shenanigans or fraudulent activity that takes place elsewhere in your organization?

 Employee turnover and movement, leaving inexperienced staff behind  Varying opinions as to what constitutes suspicious activity  Recalcitrant, disgruntled or inattentive employees  Limited software programs due to cost constraints  Ineffective software

Suspicious activity reports (SARs) are not for money laundering alone. In most institutions one department, usually BSA compliance or risk management, is responsible for filing SARs. But one department cannot monitor every aspect of the business single-handedly, especially activity undetectable by software and left to the human eye to catch. Even with the strongest internal controls, BSA training and on-going updates, the BSA officer may face any or all of the following:

So just how does the BSA officer ensure that suspicious activity, even the seemingly most innocuous event, is funneled to the correct area? That can be a daunting challenge. Many organizations invest heavily in creating a sales and/or customer service culture. But the BSA officer, in cooperation with senior management, must strive to create a BSA culture — a culture which says it’s no longer acceptable to dismiss unusual behavior or possible fraudulent intent as a lapse

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of judgment. If a loan officer discovers altered documents while processing a loan, it’s not enough simply to deny the loan. If a customer closes a newly opened large certificate of deposit, paying a large penalty, it’s not enough to write it off as a poor financial decision. To that end, training, and on-going training, must be specifically tailored to each employee’s job function. Training by specific example is generally the best method. And for training to be successful BSA officers and their staff must continually keep abreast of new money laundering typologies and frauds, integrating them into the proper internal controls. In a nutshell, train your people to make the connection between suspicious activity and the need to file a SAR. Currently, the SAR for depository institutions shows 20 categories of suspicious activity, plus an additional check-off box — other — for situations otherwise

Is your institution monitoring safe deposit box activity? not defined. Let’s take a look at some of those activities and areas out of the mainstream, which may require closer scrutiny and investigation, and which may warrant filing SARs. Safe Deposit Boxes: Is your institution monitoring safe deposit box activity? Most people keep a safe deposit box for jewelry, important documents and assorted valuables, items needed very infrequently. It is certainly not inconceivable that a person wouldn’t need to access their box for several years. The box, however, can act as the perfect unassuming location for the storage of huge sums of illegal cash, awaiting entry into the financial system. Hence, the greater the number of trips — especially if preceded or followed by deposits or withdrawals — the greater the risk. Verifications: We all know individuals may alter and fabricate documents to obtain a loan. As previously mentioned, discovery of fraudulent documents may necessitate filing a SAR. The same holds true if your institution receives a verification request with totally erroneous information. If a copy of your customer’s statement has been attached there’s a good chance it may have been tampered with. Don’t take the position that it is up to the requesting institution to address the issue. Open-End Credit: Does your institution provide home equity lines of credit, personal lines of credit, credit cards or overdraft protection? Is the pay-down and advance activity being monitored? Open-end lines of credit are another conduit through which money can be laundered. Consistent large pay-downs, whether by cash or check, followed by consistent large draw-downs, can be an indication of money laundering. The greater the frequen-

cy the greater the risk, particularly with home equity lines of credit. Currency Alteration: A customer regularly comes into your institution depositing or exchanging large denomination bills. Your tellers notice that each bill has a corner cut off. This is an old but not well-publicized scam, whereby an individual collects the four corners of a higher denomination bill, then affixes them to a one-dollar bill. The bills are then passed into the economy through the general public. The perpetrator has just made $4.00 to $99.00 overnight. Talk about stretching a dollar. The shenanigan is successful because people do not normally scrutinize a bill, especially if it’s mixed in with others. A typical use of altered currency is at a restaurant where the check is presented in a billfold style holder. By inserting the cash poker hand style, just one end of the bill becomes visible, making detection difficult. If the perpetrator is caught with the altered currency don’t be surprised to see them turn into a victim, claiming someone passed the bill onto him/her. They may even bring the bill back to your institution claiming they received it from you, playing the customer service card to be reimbursed. A financial institution with 100 branches, hundreds of tellers and teller turnover, is the perfect setting to conceal laundering the altered bills. Altering currency is a crime. Victims of the crime, usually small businesses, are not able to file SARs or determine the extent or pattern of the crime. Stock Fraud: Your company makes a loan secured by stock. The borrower defaults and you exercise your right by selling the shares to satisfy the loan. The stock certificate either turns out to be a fake or, if it is authentic, represents shares that were already sold. The borrower has obtained a duplicate certificate from the issuer by claiming to have

lost the original. While this is no guarantee, it may be prudent — when accepting the certificate as collateral — to send a certified letter to the issuer advising them the shares have been pledged for security, are in your possession and are not to be sold. Obtain their acknowledgement in writing. Cash Recycling: A customer of your institution, like thousands of others, makes regular cash and check deposits to his or her checking account. All the deposits are in even amounts, with the checks payable to your customer drawn on the account of the same third party, or on your customer’s account at another depository institution. The customer proceeds to write what appears to be a normal number of monthly checks, but instead of paying the usual living expenses the checks are payable to the third party or himself/ herself, deposited back to the same account they were drawn on. This could be money laundering or check-kiting, but it also could be a scheme for showing activity on a statement in an attempt to obtain a loan or mortgage, especially by a self-employed customer. A small amount of funds can easily be manipulated back and forth between accounts, creating the illusion of an account with an extremely active revenue stream. Remember, even though your institution may not suffer a loss, an attack on a depository institution is an attack on the financial system as a whole. One of the major benefits of SAR filings is documenting activity, which can then be cross-referenced by law enforcement in ways that lead to success in unrelated investigations. A Charles Falciglia, CAMS, compliance and security manager for ADP Federal Credit Union, [email protected]

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AML Challenges Why money launderers find life insurance appealing

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orldwide, the life insurance industry generates a massive flow of funds – some of it not as clean as we would like to think. According to the recently issued FBI Report (Financial Crimes Report to the Public) the US Insurance industry alone collects US$1 trillion in premiums each year. Life insurers promote highly flexible investment-type products offering clients the opportunity to dispose of large volumes of money with relative ease and to recover their money whenever they want, even if that means taking a loss. Those features explain the potential attractiveness of this business to money launderers. Access all levels At least in theory, there is no restriction on how life insurance products may be used in a money laundering operation. Money launderers are creative and seem to get a kick out of beating law enforcement authorities and money laundering reporting officers (MLROs). So if using life insurance products suits their purposes, they will use them. Life insurance products may be potentially used in all three textbook stages of the classical money laundering paradigm – placement, layering, integration. Often there is no clear distinction between these three money laundering cycles. MLROs should keep an open mind as to how life insurance products can be used and at which stage of the money laundering cycle. One important factor to weigh is market custom, since that might influence how money launderers will operate. For example, in markets that are still cash-based it should not come as a surprise when life polices (namely investment-type life policies) are purchased with cash, i.e. at the placement stage. Finally, how, to what extent and at which stage of the laundering process life insurance is used will also depend on the type of products available and prevailing market practices. The three steps to heaven Placement: The launderer buys one or more single-premium (lump sum type) or high periodical annual, half-yearly, quarterly or monthly payments (which indirectly serve to break down premiums into smaller amounts) premium policies with criminal cash paid directly to an insurance company 18

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or an intermediary. If the intermediary is acting in collusion with the money launderer he or she will try to give the insurer a personal check instead of cash so as to avoid arousing suspicion. It is vital that the insurer in such circumstances ask how the intermediary is being paid. The launderer or his accomplices may also pay additional payments (top-ups) under pre-existing policies, hoping that the insurer will not be as vigilant as when the policy was issued. Single large cash payments, or a series of apparently linked cash payments made over a short period (e.g, 12 months), therefore merit special attention from the insurer’s underwriters and MLROs, who need to ask themselves such questions as: 1. Does the transaction make sense, in light of: • the client’s known or reasonably assessed level of financial resources (the occupation/business declared on the insurance application will provide an indication and/or • a comparison with clients in the same type of occupation/business? If, for example, a client works in a role that normally commands only modest pay, the fact that he buys large/numerous single/regular premium policies (or makes large top-ups), whether in cash or not, should register as unusual. 2. What is the source of the funds for the target transaction? 3. Why is the client making numerous purchases in a relatively short interval? 4. Why is the client paying in cash? Is his business normally cash-intensive? Layering/Integration: The money launderer may purchase life insurance policies by paying premiums either directly to the insurer or through a broker by check or bank/wire transfer. He may further cloud matters by using accomplices to make cash deposits at different branches into one or more bank accounts owned by the money launderer. The money launderer will then use this money to make payments for a new policy or to make additional payments under an existing policy. A launderer will already have overcome a major hurdle if he has placed criminal money in the banking system, and insurers should not lower their guard through blind reliance on banks’ Know Your Customer (KYC) checks. Insurers must still satisfy

themselves that they really know their client and entertain no doubts about any aspect of the transaction. Confusing the audit trail: In order to further confuse the audit trail the money launderer might opt to spread his purchases over a period of time rather than make a large single-premium payment. An insurance company, when underwriting a new application, should (by taking a risk-based approach) review the client’s entire insurance history with the company and not treat the current purchase in isolation. The insurer’s analysis should verify whether the client has: 1. any other policies with the company. If yes, what type of policies and how much in total has he paid or is he paying? (This should include both regular, single premiums and top-ups). 2. recently taken out any policy, e.g. within the last six to 12 months? • I f yes, is the size and type of the payment consistent with those made by the same client in the past? • If the transaction is not consistent with those made in the past, is there a legitimate reason? What has changed in the client’s circumstances -- for example, has the customer received an inheritance or early retirement payment, sold a property, or won the lottery? 3. a history of surrendering policies soon after issue? If yes, why? Were any reasons given? Can the intermediary shed any light on the client’s behavior? 4. always used the same intermediary? If not, why not? Use of the same intermediary might increase the launderer’s risk of being caught, since the intermediary is more likely to be aware of the client’s total investments. We will now look at a couple of money laundering cases in which life insurance products were exploited and consider the lessons they hold.

Figure 1 Case 1: Single-premium (investment) policies The launderer has two principal options when purchasing single-premium policies: 1. Buy directly or use intermediaries who remit payment to the insurer. A launderer may purchase the policies in his own name, by paying premiums directly to an insurer or to a broker, using either (a) cash (placement) or (b) personal/bank checks/ wire transfers (layering/integration). When an intermediary is used, the insurer should verify how the client made the payment. Large amounts of cash should raise a red flag. High commission payments to brokers may act as a disincentive to rigorous KYC controls. Insurers should operate Know Your Intermediary procedures to ensure that their distribution channels are an effective first line of defence. 2. Use accomplices. The launderer gives funds to others who purchase single-premium policies in his or their names. If the latter, they subsequently transfer beneficial ownership of the policy to the launderer. The insurer needs to establish the relationship between whoever pays the premium, the policyholder and the ultimate beneficiary. The next stage in the cleaning process may also take one of two forms: 1. Surrendering the policy. Normally this will occur within a couple of years despite a substantial penalty for early liquidation. A check from the insurer will be reinvested for further layering/integration. Internal monitoring should flag suspicious patterns, such as numerous surrenders that originate from or are somehow linked to the same client or intermediary. Requests for re-payments to third parties should be queried; the insurer should confirm the identity of the person who receives the policy proceeds if different from the policy owner. It might be advisable not to allow payments to or from third parties as this might increase the risk of money laundering especially if the third party is unrelated to the policyholder. Third parties might be criminal themselves who are using the policyholder’s (their accomplice) policy to launder their money. If one had to allow such payments one would need to go through the KYC process in respect of such third party. Insurers must weigh the commercial aspects of allowing such payments with the associated costs of applying KYC to third parties.

Warning signal

Failure

Premiums were paid by third-parties.

To establish a connection between who paid the premiums, the policyholder and the ultimate beneficiary.

Brokers paid premiums out of their own accounts and were reimbursed by the policyholder in cash.

•T  he insurer did not ask how the broker was paid by the clents. • Neither broker nor insurer made serious inquiries about the source of funds. Some may argue that the insurer should be able to rely on KYC checks carried out by another equally regulated financial institution such as insurance intermediaries, especially in reputable jurisdictions where they are directly subject to anti-money laundering (AML) legislation.

But one must remember that insurers remain ultimately responsible for Know Your Customer (KYC) controls. Consequently they cannot and should not rely blindly on Third Party KYC. They must be satisfied as to the reliability and trustworthiness of the intermediary that the intermediary has adequate AML procedures in force. Furthermore, they should obtain written confirmation from the intermediary that the insurer can be supplied with proof of identification and source of funds immediately upon request. A risk-based approach requires that special attention go to large transactions, new client business, introductions by intermediaries not encountered before, and business originating from jurisdictions where verifying customer details is difficult, which are associated with corruption, the narcotics trade and other criminality, and which have weak AML controls. • Broker had no limits for acceptance of cash payments. The fact that the broker was reimbursed in cash is reasonable grounds for suspicion. Brokers with weak AML compliance were used.

• The brokers failed to ensure that their staff was properly trained. • The insurer failed to adopt Know Your Broker procedures, and the insurer seems to have provided little supervision/analysis of broker-initiated business.

Repeat single-premium policy Basic KYC procedures were not followed. Despite insufficient client inforpurchases by the same client. mation the insurer issued the policies. If the insurance history of the client had been examined (e.g. at the underwriting stage) it is likely that the insurer would have realized that the client had a history of surrendering policies at an early stage or of receiving the proceeds of surrendered policies. The criminals routinely liquidated their policies not long after inception.

The insurer did no transaction monitoring, which would have picked up the multiple purchases and early surrenders by the same client.

2. Securing a bank loan. The launderer retains the policy and uses it as collateral against a loan to buy, say, property. The loan is subsequently repaid by surrendering the policy. Once again the insurer’s transaction (riskbased) monitoring should detect unusual surrender patterns, especially early instances when the policy has been assigned or payment directed to a third party. Bank staff might question why a customer chooses to secure a loan on a single premium policy rather than buy the property with the same money outright. Case 2: The blind leading the blind? Drug traffickers purchase numerous policies through brokers in different jurisdictions. The traffickers make accomplices beneficiaries under the policies, while premiums are paid by third parties. The investigation found in Figure 1 revealed basic failures by both the brokers and insurer.

Conclusion Life insurance products may not be a first choice for channeling dirty funds, but clearly they can be abused and they are known to have been exploited by criminals: their vulnerability was recognized in the Financial Action Task Force’s Typologies Reports. With financial institutions such as banks taking the necessary prevention of money laundering precautions there is a real risk that money launderers will turn their attention to the insurance industry if they perceive that the insurance industry has in place weak and inadequate PML Procedures. Insurers and Intermediaries neglect the risk at their peril. As has been said on numerous occasions, money laundering, after all, is like water -- it chooses the path of least resistance. A Mark Camilleri CAMS, FCII, DMU (AMS), Chartered Insurer, may be reached on [email protected]. This article is intended as a general guide to the subject; specialist advice should be sought on individual circumstances. May/June 2007

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Compliance

BSA/AML scrutiny: Getting it right

How can you avoid being caught unaware or unprepared? Having supervised BSA/AML compliance both as a BSA officer for the U.S. operations of an international bank and as a key member of the regulatory compliance practice of Accume Partners an internal audit and risk management firm operating across the United States I am well acquainted with the compliance operations of numerous foreign and domestic banks of various asset sizes and with different branch networks. My experience has taught me one thing: The most common mistakes are also ones that are not difficult to fix! See for yourself, and use this as a checklist to re-examine your institution’s capabilities and performance. 1. Have you performed a risk assessment to support your AML program? Banks are required to have risk-based AML programs. BSA/AML policy and procedures should address risks and demonstrate the quality of your internal controls to mitigate them. Look at your risk assessment (if already performed) and ensure your policy and procedures are addressing the identified risks appropriately.

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n the years since 9/11 banks have sought to strengthen their compliance with the Bank Secrecy Act (BSA) and keep abreast of changes in regulatory emphasis and focus. The intensified policy focus catalyzed by 9/11 was reflected in stiff requirements imposed under the USA PATRIOT Act, which compelled banks to gear up for compliance enhancements. Despite governmental insistence, it often was difficult for boards of directors (BOD), audit committees or even executives to fully grasp the new procedures sought by their own BSA compliance officers. The result was delays in introduction of necessary monitoring tools and appropriate training programs, which in turn led to friction with regulators. With the Federal Financial Institutions Examination Council (FFIEC) release of its BSA

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examination manual in June 2005 a revised version was published in July 2006 the procedures followed by bank examiners are now out in the open. These have been a great help to BSA compliance officers and internal auditors in their efforts to foster changes in the anti-money laundering (AML) culture of their own institutions. Nevertheless, a look at written agreements, consent orders and the like suggests that the banking system is still well off the mark, and many institutions still cannot pass this ‘open book’ examination. In view of these findings, it is not surprising that banks face more in-depth BSA examinations year after year. Fortunately, it is not difficult to ensure that your institution is fully prepared to pass its next regulatory examination.

2. Who is your BSA officer? Regulations require banks to have a BSA officer, but designating just anyone is not an answer. Make sure the officer is knowledgeable, experienced and qualified for the crucial role, and that this appointment is approved by the board of directors. The BSA officer should be capable of guiding employees to ensure BSA compliance, updating policy and procedures, identifying suspicious and unusual activities and ensuring all required reporting and record-keeping. 3. When was your BSA/AML policy and program last revised? It is not enough to have annual board approvals. The policy/ program should be a living document, updated continually to reflect changes in regulatory requirements and best practices, and to address suggestions made by audits or regulators. 4. Is the BSA/AML training effective? How do you train your employees? Is the training generic, or is it tailored to specific employee functions? If training is not customized to fit the roles and responsibilities of targeted employees, it is not adequate. Provide BSA/AML training to all appropriate employees, management and board mem-

bers. And don’t forget that BSA officers must be trained and retrained as well. 5. Do you have effective ‘independent testing’ of BSA/AML? This is required by the regulations. Having a BSA audit is not enough; the audit should be performed by knowledgeable individuals or entities. If the audit is performed by in-house personnel, how independent are they from compliance and operations? What are their reporting lines? How knowledgeable, experienced and trained are they? Do they have the necessary expertise to audit BSA functions effectively? Remember, a thorough audit by knowledgeable people can go a long way toward insuring against regulatory criticism. 6. Do you know your customers? Who are the high-risk customers? Are there any politically exposed persons (PEPs), money services businesses (MSBs), liquor stores, real estate agents, non-resident aliens (NRAs), correspondent banks, etc. If none of these are in your customer base, then identify those who are your high-risk customers and perform enhanced due diligence (EDD) on them. 7. How strong is your customer identification program (CIP)? The CIP should be risk-based. Remember, while the precise methods of identity verification are determined by the bank, you cannot compromise on the minimum CIP information required from your new customers. Are you verifying that the bank opens new accounts for existing customers only after confirming that their identity can be established from information already available? Any missing pieces of information on existing customers should be obtained when they open additional accounts. 8. Do your suspicious activity reports (SARs) enable quality communication? Remember, the people reviewing your SARs are from outside the bank and know neither your business nor your customers. But they are performing a very crucial function, and your SARs must be unambiguous in telling them clearly: WHAT is suspicious? WHEN did the activity take place? WHY was it considered suspicious? WHO was involved? (If this relates to a funds transfer, for instance, who is being reported on originator or beneficiary?) WHERE did it happen? (Where did the funds originate and where were they

going.) Do not forget to describe ‘‘HOW” in the narrative as well: How did this suspicious activity or transaction take place and how was it identified? The narrative should explain the five Ws and “How” clearly. 9. Do you document why you decided not to file a SAR? Most banks maintain good documentation on the SARs they file, but at times fail to document why they conclude, after investigating, that no SAR is warranted. It is important to document ALL investigations performed. Remember to document the basis for concluding that nothing suspicious has been found and the activity was normal. Open investigations should be acted upon to conclude whether a SAR is appropriate, and this conclusion must be reached within a reasonable time. Alerts or cases should not remain open for months, since that may raise concerns about the quality of the bank’s monitoring.

12. Do you use AML software? If so, ensure it is thoroughly reviewed after it is installed so you can identify any glitches between application software and this system. You must be certain that all customers, accounts and transactions are mapped correctly. Remember the old software maxim: GIGO – garbage in, garbage out. If the AML software is not correctly mapped, it is of little use. Similarly, the software is only as good as the parameters set for the reports and alerts. Do those parameters make sense? The quantity and quality of alerts would determine this. 13. Are you aggregating cash across your institution? Unless this basic step is implemented, you cannot be sure that your currency transaction reports (CTRs) are accurate and complete. Also, do not forget that all IRS correspondence received on your reporting is to be answered in a timely manner.

The most common mistakes are also ones that are not difficult to fix! 10. Do you have a formal SAR review process? Some banks still have not implemented formal SAR reviews. Make sure that 90 days after filing a SAR, you are reviewing the activities to determine whether a follow-up SAR is required. Document your decision, since not all such reviews will result in a follow-up SAR. 11. How effective is your monitoring? Does it encompass all activities or exclude some? Are all products and services covered? While monitoring should focus on high-risk products/services/customers, you must still review every product, service or relationship to identify those with high risks and document this. Such activities as international trade finance transactions and safe deposit operations may slip through the cracks. While your institution’s risk profile may not warrant devoting substantial time or resources to monitoring those activities, remember that they may fall outside your automated monitoring software. Make sure the staff handling these are trained and fully aware of red flags, and that escalation procedures for any unusual activities they notice are documented and understood.

14. How involved and committed are the board of directors and management? Are BSA matters discussed in formal management and board meetings and board members and managers involved? Remember, a BSA officer is the key resource on all BSA matters, but it is the tone at the top that determines the culture of the organization. 15. Have you documented your Office of Foreign Asset Control (OFAC) risk assessment and program? Although it is not part of BSA regulations, the OFAC program goes hand-in-hand with BSA/AML, and for all practical purposes it is an integral part of any BSA function, audit or regulatory review. Your bank’s OFAC program should address your OFAC-related risks, which should be identified and documented through a formal OFAC risk assessment. I hope this helps you to get it right at your institution. A K.D. Mehra, CAMS, CRCM, director of internal audit, Accume Partners, [email protected]

May/June 2007

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Compliance

How to provide services to money services businesses — safely An overview for bankers

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he term, money services business (MSB), covers a broad range of financial service providers. These companies serve diverse groups of clients with a variety of services, and range in scope from neighborhood grocers that cash checks to multinational firms handling high-volume, high-value transactions across borders. But whatever their size, MSBs have one serious problem in common: Bankers are afraid to do business with them. Concerned about regulatory scrutiny, many banks have been shunning the MSB industry. Some have even closed MSB accounts, leaving legitimate businesses without the banking services they need. The U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) includes money transmitters in its definition of MSBs. FinCEN also includes the U.S. Postal Service, and four other types of financial service providers if they perform transactions of more than $1,000 for a single person on a given day: • Currency dealers or exchangers • Check cashers • Issuers of travelers checks, money orders or storedvalue instruments • Sellers or redeemers of travelers checks, money orders or stored-value instruments. In 2005 FinCEN and the federal banking agencies issued interpretive guidance on how to assess and minimize the risk associated with these customers and remain in compliance with the Bank Secrecy Act.1 Initial risk assessment Banking organizations must assess the risks associated with these businesses, just as they must for any potential accountholder, and apply the requirements of the Bank Secrecy Act accordingly. They should: 1. Collect and verify identifying information consistent with the bank’s customer identification program (CIP.) 2. Obtain evidence that the potential client is registered with FinCEN, if required. Ask the client to provide a completed FinCEN Form 107, Registration of Money Service Business, and I.R.S. Acknowledgement letter.2

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Financial Crimes Enforcement Network, The Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Office of the Comptroller of the Currency and the Office of Thrift Supervision, “Interagency Interpretive Guidance on Providing Banking Services to Money Services Businesses Operating in the United States,” April 26, 2005. 2 FinCEN maintains a listing of registered MSBs, by state, on its website. Information about registration, including exceptions, forms and a list of registered MSBs can be found at http://www.msb.gov/

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3. Obtain evidence that the MSB is in compliance with state licensing requirements.3 4. Determine whether the potential client is a “principal” or an agent of another MSB. Businesses serving solely as agents are not required to register with FinCEN. One way to ascertain agency status might be to search the website of the principal money services business (e.g. Western Union) for agents and see if the potential client is listed. In any event, agents should be asked to provide documentation of their status, such as contracts or agreements with the principal. 5. Find out: • What products and services are offered? • Is this a new or established business? • Are money services the principal business of this organization or an ancillary operation? • Is the business located in a High-Risk Money Laundering and Related Financial Crimes Area? 4 • Is it located in a High-Intensity Drug Trafficking Area? 5 • What level of financial activity is expected? • What is the purpose of the account? Not all MSBs pose the same level of risk. A properly registered, long-established business that offers check-cashing services to neighborhood residents and accepts domestic bill payments might be assessed as a lower risk. A higher risk could be assigned to a newly established money-transmitter specializing in cross-border funds transfers to countries identified as high risk for money laundering. Due diligence for higher risk If higher risk is assessed at the initial stage, additional due diligence is recommended. The level of perceived risk determines the additional due diligence a bank should consider. Those additional procedures are more rigorous and can be extensive depending on the assessed level of risk.

For some potential clients, a bank may wish to consider engaging a consultant, to assist in conducting a risk assessment, perhaps through a site visit. Typically the cost of these consulting services is absorbed by the potential client. The consultant’s procedures may include: • Ascertaining the types of products and services offered by the MSB and their anticipated volume. • Gaining an understanding of the MSB’s

A risk-based monitoring system should include all accounts, including those of MSBs. customer base and markets served. • Reviewing the business’ anti-money laundering program and assessing the level of the MSB’s compliance. The consultant can test a sample of transactions to assess the level of compliance with its customer identification program (CIP), currency transaction reporting (CTR), suspicious activity reporting (SAR), and recordkeeping requirements. • Reviewing the MSB’s written operating procedures. • Providing a written report addressed to both the bank and the MSB. This documents the bank’s due diligence, and may serve as an independent test of the MSB’s compliance.

Ongoing monitoring and reporting Client acceptance procedures are just the first step. Banks must also identify and report suspected violations of the law or suspicious transactions. A risk-based monitoring system should include all accounts, including those of MSBs. As with any customer, variances in expected account activity, while not necessarily suspicious, may indicate that additional review is needed. With an MSB, red flags might include unusual or unexplained size, nature or frequency of transactions. For example: •D  eposits of checks or funds transfers from high-risk jurisdictions or from different jurisdictions than expected or typically seen in the account. • Unusually large or frequent deposits. • Deposits of cash in an account that typically receives only checks or wires. • Deposits of checks with unusual annotations, symbols or stamps. While banks are expected to manage the risk of these and all accounts, guidance from FinCEN and the federal banking agencies specifically states that “banking organizations will not be held responsible for their customers’ compliance with the Bank Secrecy Act and other applicable federal and state laws and regulations.” The guidance clarifies expectations for acceptance and monitoring of these client relationships, and allows banking organizations to provide services to MSBs, assessing the risks as they must with any accountholder. As with any new account, the key challenge is to assess the level of risk the new account poses and implement sound internal controls to mitigate money laundering and terrorist financing risks. A Ivan A. Garces, CPA, CFE, CAMS, is director of forensic services for Kaufman, Rossin & Co., Miami, FL, USA, [email protected].

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State licensing requirements vary. Check with your state’s department of professional regulation for licensing requirements. Information about state regulations can be found at http://www.mtraweb.org/. 4 The Treasury Department’s list of these areas is at http://www.fincen.gov/le_hifcadesign.html. 5 High-Intensity Drug Trafficking Areas can be found at http://www.whitehousedrugpolicy.gov/hidta/

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Protecting Your Institution Fighting financial fraud requires enterprise-wide analysis and controls

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inancial institutions must have a clear understanding of the nature and types of fraud and the financial, compliance and regulatory dangers fraud poses before they can respond with effective, enterprise-wide control measures. Countering fraud requires: •R  ecognizing the need for an enterprisewide risk protection program • Documenting a strategic plan to address gaps in fraud coverage • Understanding and identifying compliance requirements • Developing a fraud control strategy. These steps look good on paper. Further, they’re the correct measures to implement. However, an important question to ask before proceeding should be: “How can my financial institution analyze risk, close the gaps, and put effective fraud and compliance controls into place without first identifying what it is we are dealing with and what we need to anticipate?” Your financial institution would not, we trust, organize and staff a centrally managed corporate sales department and buy sales management software without knowing what’s being sold. Similarly, your institution should not organize and staff a department with a senior compliance executive for financial crimes or a VP for risk control and fraud management, and license analytical software, without knowing what financial institution fraud is and what risks it carries. Hence, the first step in fraud control is identifying precisely what fraud consists of and how it’s conducted. Unless this is done, fraud control will remain elusive and the personnel and resources needed to protect from fraud will not be properly defined, the proper people will not be hired and trained correctly and the right detection tools will not be put in place. What constitutes financial institution fraud and how can it be categorized? All fraud is made up of transactions. A transaction is either a financial event, such as cashing a fraudulent check (a debit 24

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against a customer’s Demand Deposit Account (DDA), or a non-financial event, such as a change in loan payment frequency from monthly to annual to hide a lapping scheme. For our purpose, fraud does not involve the physical theft of assets, e.g., robbery. It does include identify theft, though strictly speaking the theft of an identity does not result in a direct financial loss until a fraudulent transaction occurs. Hundreds of financial and non-financial transactions can make up a total fraud scenario. Plus, there are complex combinations of fraud, e.g., layering, a technique used to hide money laundering or to perpetrate and hide an internally-generated fraud. As mentioned earlier, it’s important to recognize types of fraud so that an effective, holistic approach to its control and management can be put in place. Once it’s agreed that fraud is transaction-based, it becomes easier to classify types of fraud. Risk can then be measured and the personnel resources and preventive tools identified. Fraud is generated either internally or externally. If collusion exists, fraud may be reflected in both internally-generated and externally-generated transactions. Regardless of the origin of the fraud the analyst needs to work seamlessly with colleagues internally and externally to mitigate operational and compliance risks. Examples of externally-generated fraud: • check fraud • kiting • deposit fraud • automated clearing house (ACH) fraud • loan fraud • ATM fraud • money laundering • point of sale (POS) fraud The transaction characteristics of different types of fraud are for the most part different, although computerized analytics looking for one type of fraud can sometimes detect another. For example, rapid turnover of funds is both an anti-money laundering (AML) indicator and one of the kiting detection algorithms.

Examples of internally-generated fraud and collusion: • lapping schemes • s kimming and manipulation of interest balances • falsely issued loans • backdating of deposit dates to hide an internal kite • stealing of dormant funds • fraudulent posting of force pay transaction to hide nonpayment of loans • teller cashing fraudulent checks • manipulation of the general ledger to reclassify accounts reflecting fraudulent activity or to reclassify a profit center experiencing unexpected losses Once it’s recognized that fraud can be identified and classified from a transactional standpoint, a model or matrix can be constructed that will support the personnel skills and analytical tools needed to detect, prevent and manage fraud. The matrix should identify the types of transactions associated with various types of fraud and the skill levels needed to detect, prevent and manage them. A few examples follow: Money laundering schemes generally involve customer activity, not necessarily account activity. The transaction analytics associated with detecting money laundering revolve around complex sets of rules, and pattern recognition using intuitive algorithms and event-scoring. Rules should be applied to all of a customer’s accounts (e.g., deposit, loan, investment, trust), a large variety of transactions, (e.g., cash deposits, wire transfers, transfers between customers, loan principal payments) and often between accounts held by different customers. Rules should also be applied to measure the probability of a customer’s laundering money, i.e., risk scoring, and the probability factors should be dynamically updated based on suspicious transaction activity.

Individuals with proper skill levels and analytical tools with the capacity to detect money-laundering fraud are highly specialized. Understanding complex layering of transactions must be supported by both personnel capabilities and analytical software tools. Note, however, that a software tool designed to detect possible money laundering may not detect such fraudulent transactions as a lapping scheme, check fraud or the skimming of interest from an account. Check and deposit fraud schemes involve specific accounts and only limited types of deposit/check transactions. Understanding the profile of the transaction activity and its relation to the customer’s pattern of using the deposit account is critical to detecting check fraud. Software tools that excel in detecting check and deposit fraud are available. For example, check fraud can be detected through analysis of check number sequences over or under a customer’s known pattern of writing checks. A combination of an out of sequence check that is also out-of-average for the customer’s usual check amount (disregarding common outof-average transactions such as mortgage payments) becomes highly suspect. This combination of events might not turn up in an AML detection routine. The analysis associated with suspicious check fraud events includes signature comparisons, which can be done manually or via digitized means. The skill level needed for check fraud analysis is completely different from that needed for AML. Someone experienced in deposit administration can often do an excellent job supporting analysis of suspicious check and deposit activity. Internally generated fraud schemes are associated with 65 percent to 75 percent of fraud losses, according to the American Bankers Association (ABA) and the Tower Group. Complex transaction activity is often used to hide internal fraud. One of the more successful and elusive is a loan lapping scheme, which may involve backdating principal payment transactions. A lapping scheme can be further hidden from view by account maintenance changes, such as altering the grace period for delinquent notices from 15 days to 99 days, changing loan payment frequencies from monthly to annual, and changing the interest basis from simple interest to amortized. The personnel skill level and the software needed to analyze and uncover internally generated fraud does not reside with

CAMS-credentialed personnel, nor with Deposit Administration. Historically, it has been the province of the internal audit department, which should have a Certified Fraud Examiner (CFE) on staff and a Computer Assisted Audit Tool (CAAT) to support internal fraud detection. Fraud associated with manipulation of financial reporting includes knowing how to evaluate the procedures for entering and monitoring transactions and their effect on the general ledger. This includes: • processing journal entries • recording recurring and nonrecurring adjustments • consolidating adjustments and reclassifications • examining the elements of the financial statements for inconsistencies, unusual transactions and unusual variances. The skills needed for detecting suspicious financial activity are completely different from those needed to combat money laundering and check and deposit fraud. A CPA with a background in forensic accounting is a good choice.

Money laundering schemes generally involve customer activity, not necessarily account activity. These fraud and compliance examples help clarify the importance of classifying fraud and its risks. Once the risk model or matrix is developed, and skill levels and analytical tools identified, an important early phase in developing and implementing an enterprise–wide, holistic approach is completed. The resources and analytical tools should complement each other. Ideally, they should function off the same database, have an integrated management alert system, have a common note-taking documentation file, and feed the same case management and suspicious activity reporting (SAR) processes. The resources and tools should be structured to provide consolidated management analytics and reporting.

As the profession and role of the AML specialist continues to evolve, the expectations placed on the specialist will change. While responsibilities may vary from one financial institution to the next, the specialist’s role can’t be contained in a compliance silo. Further, the specialist can’t be expected to detect and investigate all types of fraud. As the examples above show, the fraud thread winds its way across transaction types and internal functions. Historically, AML/Bank Secrecy Act compliance personnel have been challenged to show where the return on investment (ROI) is in their function. Institutional leadership must recognize that fraud and compliance are overlapping risk matters that might be extremely difficult to quantify through customary evaluation models. However, in these times of intense regulatory oversight a strong commitment to all risk mitigation measures is called for. Today’s AML specialists may find themselves in a struggle with branch operations over Know Your Customer (KYC) and Customer Identification (CIP) requirements, especially when branch personnel are tasked with enhancing account opening by up–selling or cross-selling products and services. In conclusion, the variety of risk and fraud that exists today means an organizational assessment system needs to continually be deployed to combat fraud. While it can be expected that an AML specialist might need to wear more than one hat, it is unfair for him or her to be considered a “jack of all trades” when confronting fraud and compliance issues. The complexity of today’s banking methods, along with the sophistication of schemes and advanced tactics of external and internal fraudsters and criminals, makes the use of analytical tools a necessity, not a luxury. A Charles Thiel CIA CFE, president and CEO Focus Technology Group Charles.Thiel@Focus Technology Group. com Robert Goldfinger, CAMS V.P . business development Focus Technology Group Robert.Goldfinger@Focus Technology Group.com

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Regulatory Assessment

Smooth sailing or uncertain waters?

The proposed US anti-money laundering regulations for hedge funds

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he hedge fund industry manages billions of dollars but is not yet subject to US anti-money laundering regulations. Neither are the draft rules that the Financial Crimes Enforcement Network (FinCEN) published in September 2002 fully fit for purpose as Ross S. Delston, CAMS, of GlobalAML.com, Washington, DC, explains. [1] Background to the proposed regulations Although the proposal by the Financial Crimes Enforcement Network (FinCEN), the US financial intelligence unit, was originally published over four years ago in September 2002, it is still expected to become final. [2] A virtually identical proposal for investment advisers was published in May 2003. [3] In August 2006, the US Senate Permanent Subcommittee on Investigations of the Committee on Homeland Security and Governmental Affairs issued a report on tax haven abuses recommending that the Treasury Department finalize the FinCEN proposal, including the reporting of suspicious activity reports, or SARs, which is not part of the current proposal. [4] Hedge funds, along with investment advisers, are the last major component of the financial sector not covered by anti-money laundering and anti-terrorist financing (AML) requirements; banks, mutual funds, broker-dealers, insurance companies, money services businesses, among others, all must comply with requirements similar to or more rigorous than those in the proposal. In addition to hedge funds, other “unregistered investment companies” that otherwise meet the criteria set forth in the proposed rule would be covered by the proposal, such as “private equity funds, venture capital funds, commodity pools and real estate investment trusts (REITs).” [5] Since all investment companies may not be registered, they are required to file a notice with FinCEN that gives basic details such as name, address, and email address of the hedge fund, any investment adviser, and the compliance officer; the dollar amount of 26

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assets under management; and the number of investors. [6] Which hedge funds are covered? The proposed definition of an “unregistered investment company” is similar, but not identical, to the definition of a “private fund” in the SEC registration rule for hedge fund advisers. An “unregistered investment company” would include a company that: 1. would be an investment company but for the exclusions from registration provided by sections 3(c)(1) or 3(c)(7) of the Investment Company Act of 1940, or is a commodity pool or REIT; [7] 2. permits owners to redeem their ownership interests within two years of purchase; 3. has total assets at the end of the most recently completed calendar quarter of US$1million or more; and is organized in the United States, sells ownership interests to a “US person,” or is organized, operated or sponsored by a US person. Elements of an effective anti-money laundering program Under the proposed regulation, within 90 days of the publication of the final regulation, [8] hedge funds will be required to “develop and implement anti-money laundering programs reasonably designed to prevent them from being used to launder money or finance terrorist activities and achieve and monitor compliance with the applicable requirements [of US law].” [9] These include four main elements: Establishment and implementation of written policies and procedures Policies and procedures “… should set forth clearly the details of the program, including the responsibilities of the individuals and departments involved.” [10] As part of establishing and implementing these policies and procedures, each hedge fund must identify vulnerabilities to money laundering and terrorist financing, understand the legal

requirements, identify risk factors, and periodically assess the effectiveness of the procedures and internal controls. Examples of potential money laundering transactions mentioned in the Federal Register Notice relating to the proposed regulation include: •T  he use of questionable checks and unusual wire activity; • Investor difficulty in describing the reasons for frequent wire transfers to unfamiliar bank accounts or to foreign countries; • Frequent purchases of interests in hedge funds, followed by redemptions, particularly if proceeds are wired to unrelated third parties or bank accounts in foreign countries; and • Non-economic transfers, such as redemptions that result in penalties. • In any of these circumstances, hedge funds should take reasonable steps to determine if its suspicions are justified, and, if necessary, refuse to enter into a transaction that appears designed to further illegal activity. Under the proposal, there is no requirement to submit suspicious activity reports — SARs — to FinCEN, although this may always be done on a voluntary basis. Independent testing Periodic (typically yearly) testing by individuals knowledgeable about the hedge fund’s money laundering risks and legal requirements is required. This may be done by those within the company or its affiliates as long as they are not involved in the operation or oversight of the program, or by a qualified service provider. A written report should be part of the review and any recommendations should be promptly implemented or submitted to the general partner, board of directors, or senior management, for their consideration. [11] Designation of a compliance officer An individual or a committee may be

charged with the responsibility for overseeing the AML program, as long as they are competent and knowledgeable about legal requirements and money laundering risks, “and empowered with full responsibility and authority to develop and enforce appropriate policies and procedures throughout the company. Whether the compliance officer is dedicated full time to BSA [Bank Secrecy Act] compliance would depend on the size and complexity of the company.” [12] Although the implementation and operation of the compliance program may be conducted by non-employees, the person responsible for supervision “should be an officer, trustee, general partner, organizer, operator, or sponsor, as appropriate.” [13] Ongoing training Employees of the hedge fund and any affiliated or third-party service provider must be trained on requirements that are relevant to their functions and as to signs of money laundering that could arise in the course of their work. The training may be accomplished through outside or in-house seminars, and be conducted by employees or outside experts. The level, frequency and focus of the training would depend on the responsibilities of the employee. [14] What’s next for hedge funds: future AML requirements? The FinCEN proposal does not require two critical elements of an AML program: a customer identification program (CIP), and the filing of SARs with FinCEN. [15] However, hedge funds should assume that these elements will be imposed in the future, since no AML framework is complete without them. Without customer identification/verification at the initial stage of the customer due diligence (CDD) process, it would be difficult to know what the risks are in any hedge fund’s client base. And without SARs, a hedge fund that encounters suspicious activities is not required to give voice to its suspicions. Although a recent Senate subcommittee report recommended that SARs be included in the final rule, it is not clear whether FinCEN will do so immediately. Finding a competent compliance officer may not be an easy task. There aren’t enough to go around at the moment, and other financial institutions are already facing this issue. Conclusions For larger funds, including funds of funds, an in-house compliance operation will likely be needed, with activities such as database software, independent testing, and training, to be performed by third parties. It

Remember that inquiry is always afer the fact, when hindsight passes for perfect vision. is not clear to what extent the regulators will allow hedge funds, particularly smaller and mid-size funds, to rely on third party administrators or other service providers to handle AML tasks. No matter who takes on the tasks of compliance, the responsibility for effective implementation and the legal liability remain with the hedge fund. What government agency will be responsible for on-site AML compliance examinations of hedge funds? For registered hedge funds, it will be the Securities and Exchange Commission (SEC), whose Office of Compliance Inspections and Examination (OCIE) is currently examining registered hedge funds. But what about unregistered hedge funds? Although FinCEN has this authority by law, for financial institutions that do not have a Federal functional regulator, an existing Treasury regulation [16] delegates this authority to the Internal Revenue Service (IRS), which already has a unit that is responsible for on-site examinations of entities such as insurance companies and money services businesses, among others. And what if the IRS examiner stumbles across a possible violation of the Internal Revenue Code? There is no legal prohibition preventing that examiner from filing a referral to the tax side of the IRS. It is also not clear whether the SEC and IRS (and the Commodity Futures Trading Commission) will follow the example of the banking regulators in applying the AML rules in a rigorous and sometimes hypertechnical manner. But some convergence will undoubtedly occur, hastened by the occasional cry for a level playing field and, from time to time, the occasional Congressional inquiry, such as the Senate tax haven inquiry referred to above. In order to mitigate reputational risk, hedge funds should consider strengthening their compliance function to take into account the areas covered by the FinCEN regulation, including robust customer due diligence as well as customer identification and verification. The fact that an investor is a “friend of friends and family” won’t be much of a defense. Remember too that the inquiry is always after the fact, when hind-

sight passes for perfect vision. The Managed Funds Association in its 2005 Sound Practices for Hedge Fund Managers recommends that hedge funds adopt AML procedures now, without waiting for the rule to become final, and includes a model set of procedures as a starting point. [17] To the extent that there is another major terrorist attack in the US, all bets are off, and hedge funds should expect that the full range of AML requirements will be imposed very quickly, as would be the case if money laundering or terrorist financing that involved a hedge fund or investment adviser directly were to be discovered. AML is a critical issue that is constantly evolving, not always by intelligent design. It isn’t going away any time soon and therefore financial institutions should follow the dictum of the American Boy Scouts: “Be Prepared.” A

Notes 1. The author wishes to thank Laura Badian and John Sampson, former colleagues at Kalorama Partners, LLC, for their most helpful comments. 2. The text of the proposal may be found at 67 Fed. Reg. 60617 (September 26, 2002). 3. 68 Fed. Reg. 23646 (May 5, 2003). 4. Tax Haven Abuses: the Enablers, the Tools, and Secrecy (August 1, 2006), at p. 10, available at http://hsgac.senate.gov/_files/TAXHAVENABUSES8106FINAL.pdf 5. Ibid., at 60618. 6. Ibid., at 60622. 7. Prior to the adoption of the SEC registration requirement, most hedge funds relied on these exclusions to avoid Investment Company Act registration. 8. Sec. 101.132(b), at p. 60624, although a 180-day phase in is more typical for regulations of this type. 9. Ibid., at 60620. 10. Ibid. 11. Ibid., at 60621. 12. Ibid. 13. Ibid. 14. Ibid., at 60622. 15. Ibid., at 60621. 16. 31 CFR Sec. 103.56(a)(8). 17. Available at www.mfainfo.org/ hedgefunds.htm or by contacting Mr. Delston. Ross S. Delston, CAMS, is an attorney, former US banking regulator and the founder of GlobalAML.com, Washington, DC, USA, [email protected]. This article was first published in Money Laundering bulletin. May/June 2007

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Expertise

A challenge beyond certification

R

ecently I have observed e-mail traffic among my ACAMS colleagues that has convinced me there is a false belief relative to expertise and certifications. It is my intention to dispel some of the myths surrounding what certification means and to outline what an individual must do to become an industry expert. I will be relying on the fact that through my own efforts I have been able to become qualified to give expert opinion evidence throughout Canadian courts in the areas of: a. Money laundering: Methods employed locally and internationally through the use of off-shore havens, smuggling methods, use of nominees, use of payablethrough and numbered bank accounts, use of money services businesses. b. Organized crime: The history, organization of organized crime with particular emphasis on Triads (Asian-based organized crime) and the threat they pose to Canada. c. Drug-trafficking organizations: Structure and operation, drug-packaging and -cutting techniques, and the profitability of trafficking in various commodities, including heroin, cocaine, methamphetamine and cannabis and its derivatives.

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d. Contraband smuggling organizations: Structure, operation and smuggling techniques of contraband smuggling organizations. Additionally, I oversaw the expert witness program for the Royal Canadian Mounted Police, which included providing seminars to law enforcement and prosecuting attorneys relative to becoming and being recognized as an expert. Throughout the world many individuals have been declared experts either by their peers, their profession or the courts. Some of them carry no designations from any recognized professional organization but have been deemed to be experts due to their respect, technical expertise and above all ability to communicate. Becoming certified in a field of study

does not immediately qualify someone as an expert. Like a university degree, the certification establishes that an individual has “foundational” knowledge of the subject. This, in my view, is an excellent first step but places someone only at the embryonic stages of achieving recognized expertise. Even working for years in an industry does not ensure the title of expert. Expertise can only be achieved by the individual through a concentrated effort and through following a plan. First and foremost it is paramount that an individual become not just an average communicator but an excellent one. I have observed many individuals who clearly have the requisite background and experience to be called experts but are incapable of putting their point across and therefore fail miserably. Individuals seeking to achieve expert status should take training in advanced communication skills. The second skill required is an ability to write in a clear and concise manner. In order to provide expert testimony there is always a need to prepare either affidavits or a “will state” document that frames what you will be offering to the court. To achieve the two aforementioned skills those wishing to achieve expert recognition should make themselves available for speaking engagements, write articles and papers to help develop and establish their expertise and routinely attend conferences and workshops pertaining to the field of expertise. Being asked to speak and write articles indicates a degree of acceptance by a profession, which in and of itself is a sign that your expertise is acknowledged. At this stage, an individual who is also certified in a discipline can make a strong case for promotional opportunities and greater remuneration. In order to demonstrate the aforementioned it is essential that the individual keep a log

Expertise can only be achieved by the individual through a concentrated effort and through following a plan.

of all activities relative to his or her field of expertise. What is an expert? An expert is a teacher, guide, advisor to one’s profession and/or judicial proceedings. The expert is afforded an opportunity to provide an opinion based on facts. It is essential that experts be capable of expressing their opinions clearly and persuasively. A court assesses whether a person has demonstrated that he or she has acquired specialized knowledge through study or experience in regard to the matters before the court. To guide the courts in Canada, the Supreme Court provided four principles: 1) Whether the theory or technique can be and has been tested; 2) Whether the theory or technique has been subjected to peer review and publication; 3) The known or potential rate of error, or the existence of standards; and 4) Whether the theory or technique used has been generally accepted. Another key consideration is the independence demonstrated by the expert in both the preparation of any report and subsequent testimony. The expert must be seen not to have been influenced by anyone, and all opinions must be based on his or her analysis. By adopting this approach the Court receives an unbiased opinion. An expert must be seen to be honest and objective. He or she must have excellent analytical skills to a degree sufficient to form opinions that assist in arriving at a decision or verdict. Expert opinion evidence is accepted by a court based on four principles that were established in the case of R. v. Lavallee, a precedent that would appear to be applicable throughout common-law countries: 1) An expert opinion is admissible if relevant, even if it is based on secondhand evidence. 2) This second-hand evidence (hearsay) is admissible to show the information on which the expert opinion is based, not as evidence going to the existence of the facts on which the opinion is based. 3) Where the expert evidence is composed

of hearsay evidence, the problem is the weight to be attributed to the opinion. 4) Before any weight can be given to the expert’s opinion, the facts upon which the opinion is based must be found to exist. (1990 S.C.R. 852) Affidavit and/or Will-State Preparation As a rule of thumb preparation of documents should follow four criteria: First, an individual must set out his or her expertise and experience in order for the Court to assess whether the experience is relevant to the subject under examination. I usually keep this to two pages and attach an up-to-date curriculum vitae as an exhibit. The second area should be the primer. In this section the writer demonstrates his or her knowledge of the subject under examination. My practice has been to provide an overview of the subject matter and to dem-

I do for making any presentation. First, it is an absolute that the truth be told. One should not embellish or endeavor to appear to have more expertise than your affidavit establishes. During testimony it is simply a matter of listening to the questions, responding only to the specific question and finally trusting the crown or lawyer you are testifying for. My experience has shown that problems arise when an individual endeavors to go outside his or her field of expertise. Second, the more experience gained the better understanding of the rules of testifying one gleans. I constantly urge individuals to understudy a recognized expert prior to advancing one’s self as an expert. What will be learned is the manner in which to respond to questions that include an assumption. My response is always, “Although I do not agree with your assumption I would opine……” As human beings we will make mistakes,

Becoming an expert is both a challenge and a satisfying achievement. onstrate how my experience enables me to formulate certain opinions. The third area pertains to analysis of the information provided. It is necessary to sift through and consider all the factual information before formulating an opinion. My practice is to note in the body every document that was provided to me and to frame my opinions solely based on the documents at hand. It is not necessary to rely on every document, but it is necessary to indicate what was relied on. Lastly, the expert should provide a section on his or her opinions based on the evidence reviewed.

and this is not fatal, providing you admit up front you made a mistake. Mistakes do not detract from acceptance as an expert unless the individual tries to conceal the error.

Providing Evidence I follow the same rules for testifying as

Garry W.G. Clement, C.F.E., CAMS, Cobourg Police Services, Ontario, Canada, [email protected]

Conclusion: Becoming an expert is both a challenge and a satisfying achievement. What must be understood is the fact that diplomas, certifications and experience alone are not enough to qualify someone as an expert. It takes a commitment and a plan to become recognized within one’s professional community. Speaking from experience, it is well worth the effort. A

May/June 2007

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ACAMS Events Calendar CAMS Examinations May 19

Washington, DC, United States (English only)

June 9

CAMS Examination Preparation Seminars May 4

New York, NY, United States

Richmond, VA, United States (English only)

May 11

Amsterdam, Netherlands

June 16

Amsterdam , Netherlands (English only)

May 18

Miami, FL, United States

June 23

Miami, FL United States (English only)

May 18

San Juan, Puerto Rico (conducted in Spanish)

June 27

Mexico City, Mexico (English and Spanish)

May 25

Hong Kong, China

June 30

Hong Kong, China (English and Spanish-There will be a maximum of 65 registrations for this exam.)

May 26

Managua , Nicaragua (conducted in Spanish)

June 30

New York, NY United States (English and Spanish)

June 8

Los Angeles, CA United States

June 30

San Juan, Puerto Rico (conducted in Spanish)

June 22

Chicago, IL United States

June 26

Mexico City, Mexico (conducted in Spanish)

Web Seminar Schedule English

Spanish

May 23, 2007 Suspicious Activity Monitoring: Audit your system like a regulator Financial institutions from global banks to neighborhood money transmitters are grappling with policy and procedure requirements for detecting suspicious activity. In this session you’ll learn how to assess suspicious activity at all stages of the transaction process, and you’ll get an update on new forms of suspicious activity arising from the latest money laundering techniques. You will also see how to audit the full range of your own institution’s financial transactions for signs of danger. $245.00 members; $345.00 non-member

14 de junio 2007 Casas de cambio, remesadoras y negocios afines: Pasos prácticos para evitar problemas con los bancos y las autoridades Para la mayoría de los bancos y muchos reguladores gubernamentales, las casas de cambio, las remesadoras de dinero, los pagadores de cheques, y otros negocios de servicios monetarios son particularmente vulnerables al lavado. Algunos casos recientes sirvieron para mostrar las debilidades de estos En este panel los expertos explicarán las mejores prácticas que estos negocios deben seguir para ser considerados “serios” por la industria bancaria y los reguladores. Los Negocios de Servicios Monetarios se encuentran en el ojo de la tormenta. En muchos aspectos los NSM han probado ser innovador es en el campo del cumplimiento antilavado. No obstante, algunos reguladores no los consideran detenidamente y los califican de alto riesgo aun cuando muchos de estos negocios tienen programas antilavado tan buenos o mejores que los de los bancos que cierran sus cuentas. Aquí, usted recibirá información directamente de expertos sobre todos estos desafíos que enfrentan estas instituciones, hacia dónde se dirige esta problemática y cómo éstos pueden mantener abiertas sus cuentas bancarias.

June 20, 2007 Community banks: Solutions for special vulnerabilities This session will tackle the most urgent issues confronting small banks. Not only must they comply with the Bank Secrecy Act and USA Patriot Act, but they must meet tough new FFIEC regulatory requirements. Innovative strategies tailored to community banks will be discussed, including procedures for high-risk products your bank may soon introduce to meet FFIEC recommendations. Learn how to persuade your board to provide the funds to keep regulators at bay, and how to train your staff creatively and inexpensively. Plus, get tips on your Customer Identification Programs, enhanced due diligence and concentration accounts. $245.00 members; $345.00 non-member 30

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For further information on upcoming ACAMS web seminars, contact the Member Services Department at 305-373-0020

ACAMS Web Seminar Registration Form Name: Title: Company: Address: City/State/Zip/Country: Telephone: (

)

Fax: (

)

Email: ACAMS Membership Number: Suspicious Activity Monitoring: Audit your system like a regulator; $245.00 members; $345.00 non-member C  ommunity banks: Solutions for special vulnerabilities; $245.00 members; $345.00 non-member

Save more, when you buy more! Non-Members: $26 off when purchasing 2 web seminars Members: $36 off when purchasing 2 web seminars

Total Amount:

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Register by fax now: +1-305-373-7788, or write ACAMS, 80 Southwest 8th Street, Suite 2350, Miami, FL 33130, or call +1-305-373-0020.

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(make check payable to ACAMS) Please send to: ACAMS Brickell Bayview Center 80 Southwest 8th Street, Suite 2350 Miami, FL 33130 May/June 2007

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2007 ACAMS Achievement Awards

ACAMS wants to recognize you and honor your achievement! Are you or someone you know an unsung AML hero in your community or field? Do you know a colleague or supervisor who has tackled complex AML issues and developed a well-planned compliance strategy or program that earned praise from regulators? Or have you gone beyond the call of duty by educating others in your local community about the dangers of money laundering and how to detect it in their business? be honored among the best in the field ! A C A M S wants to recogni z e you and celebrate your achievement ! Each year ACAMS honors visionaries who have made a

The recipients of these awards are announced and hon-

difference in their institution or AML international community

ored during a special presentation at the ACAMS’ 6th Annual

by tackling the challenges and risks posed by money launder-

International Conference in Las Vegas, September 24 – 26, 2007.

ing and terrorist financing. The ACAMS Community Impact Award recognizes an ACAMS member who has raised awareness in their community about money laundering and the efforts to combat it. The ACAMS AML Professional of the Year

Please nominate a deserving colleague whose contributions have made an impact on the AML community—even if that candidate is you!

award recognizes an AML specialist who has made a strong

Visit www.acams.org/achievementawards for eligibility

and lasting contribution to advancing the anti-money launder-

requirements and information for submitting nominations.

ing field and industry.

Deadline for nominations is August 1, 2007.

ACAMS • Brickell Bayview Center • 80 SW 8th Street, Suite 2350 • Miami, FL 33130 Telephone +1-866-459-CAMS (US) • +1-305-373-0020 • Fax +1-305-373-7788 [email protected] • www.acams.org