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6 Welcome to the ACAMS Web Seminar APAC Financial Crime Briefing: Applying the Latest Tools and Techniques 6

7 Speakers Dr. Amir Kumar Fellow Homeland Security and Counterterrorism at the Center for National Policy (Washington, DC, USA) Christopher Liu Head, Regional Consumer AML Compliance, Global Consumer Group Citibank (Singapore) Moderator Hue Dang, CAMS Head of Asia ACAMS

8 AGENDA Critical regulatory changes within Asian jurisdictions: India, Singapore, Hong Kong, China, Thailand, and Philippines The latest typologies for tax evasion and other financial crimes Effective customer on boarding strategies How to build an effective sanctions team

9 Critical regulatory changes within Asian jurisdictions: India, Singapore, Hong Kong, China, Thailand, Philippines, and Taiwan

10 New Indian government set up Special Investigation Team (SIT) to identify and bring bank to India black (unaccounted/non-taxed/not declared) money deposited in foreign banks Trade based money laundering will also be looked at by SIT No big names having any links with major political parties or corporate houses in the government's list of 628 foreign account holders that was provided in a report to the Supreme Court last month. Little chances of recovering huge amounts of untaxed money stashed in foreign banks by some 350-odd Indians, who may face prosecution for illegally depositing unaccounted money in foreign tax heavens. The report to the Supreme Court also reveals that the Central Board of Direct Taxes (CBDT) has obtained consent waivers from at least 174 account holders from the leaked HSBC list of 628 alleged black money account holders. Prosecution proceedings are in progress against 27 for not furnishing account details. Consent waivers are "no-objection" letters by account holders to the banks in divulging account details to investigating authorities. The Special Investigation Team (SIT) on black money is probing nine cases referred by the Central Bureau of Investigation (CBI). PM Modi made a strong case for sharing of information regards black money amongst nations at the G-20 meeting.

11 Regulatory changes Singapore The Monetary Authority of Singapore (MAS) regulates AML / CFT by way of a series of MAS Notices on the Prevention of Money Laundering and Countering the Financing of Terrorism). MAS Notice 626 is the primary notice applicable to Commercial Banks. The MAS 626 was updated in July 2014 clarified banks obligations under the AML/CFT requirements with regards to the Personal Data Protection Act in Singapore (PDPA). At the same time, the MAS issued a Consultation Paper P which will involve significant changes to the existing MAS Notices on AML/CFT. Other regulatory changes include the discontinuation by the MAS in issuing the S$10,000 bank note and revisions to the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act and the Mutual Assistance in Criminal Matters Act to strengthen the statutory framework on AML/CFT.

12 HONG KONG: AML Ordinance took effect 1 April RBA: ML/TF Risk Assessment is key to effective AML program: Properly documented, maintained and communicated to relevant personnel within the bank Ready to provide it to the supervisor Approved by senior management Reviewed and updated on a regular basis Supervisory Focus: Is the process for periodically reviewing and updating the ML/TF risk assessment adequate? Is the risk assessment in written form? Has the risk assessment been shared and communicated with all business lines across the bank, board of directors, management, and appropriate staff? Do those staff understand the risk assessment? ML/TF risk profile will be discussed in the kick off meeting Governance and Oversight Effectiveness of Key positions, MLRO, etc. System or Program flaws, or risk events must be properly addressed / managed National Risk Assessment completed by end 2015

13 THAILAND: AMLA No. 4 took effect on 2 February The new law enlarges the list of predicate offences, introduces new reporting entities and strengthen supervision. As part of the supervisory mechanism, a Settling Committee has been appointed and settling rules issued. From the perspective of an FIU/regulator, CDD measures are most crucial for the implementation of AML/CFT law. Once FIU guidance is received by FIs especially on CDD, key examination trends will surface as follows: AML/CFT policy, IT support and STR quality. A risk based approach (RBA) will be the order of the day for FI supervision.

14 CDD Necessity THAILAND: FIs find it difficult to appreciate the necessity of some CDD measures such as: Customer verification; Address verification; and BO identification. FIs see these as an obstacle to the conduct of financial transactions. However, FIs especially some banks in the provinces are still exploited as a channel for ML/FT. An example is the spread of the call center fraud victimizing customers such as in Thailand. This is possible through offenders ability to open bank accounts into which victims are persuaded to make transfers and from which the funds are eventually transferred into the offender s account. These cases point to banks persistent laxity on CDD measures, due to systematic lack of categorization of high and low customers for account monitoring.

15 OVERVIEW OF THE RATING SYSTEM 1. A covered institution is assigned a COMPOSITE RATING based on the following four (4) Components, to wit: Efficient BOD and SM oversight ( OVERSIGHT ) Sound AML policies and procedures embodied in a Board approved Money Laundering and Terrorist Financing Prevention Program ( MLPP ) Robust internal controls and audit ( CONTROLS AND AUDIT ) Effective implementation ( IMPLEMENTATION ) 2. Assigned based on a 1 to 4 numerical scale; 3. Composite Rating bears close relationship with the Components Rating; 4. Not derived by computing an arithmetic average of Component Ratings; 5. Highest rating of 4 indicates strongest RMS, most effective operational practices that entail the least degree of supervisory concern; 6. Lowest rating of 1 signifies weakest RMS and defective implementation which requires highest degree of supervisory concern and may place the CI within the framework of PROMPT CORRECTIVE ACTION

16 COMPOSITE RATING OVER ALL FRAMEWORK: Risk Management & Control Supervisory Concern Risk and Control framework Compatible with nature & complexity of activities and services 4 SOUND High level No cause for concern Clearly defined Fully compatible 3 ACCEPTABLE Acceptable level Minimal concern Adequately defined Sufficiently compatible COMPOSITE RATING 2 VULNERABLE Needs improvement Requires more than normal supervision. Insufficiently controlled, mitigated, and poorly defined Insufficiently compatible 1 GROSSLY INADEQUATE Needs drastic and/or immediate improvement Requires close supervisory attention. Inadequately mitigated, poorly controlled, and not defined Not compatible

17 The latest typologies for tax evasion and other financial crimes

18 Tax evasion Challenges in adopting the typology into Controls Tax evasion has been progressively designated as a predicate offences to Money Laundering across several APAC jurisdictions in the last few years (e.g. Hong Kong & Singapore in 2013). Regulators, enforcement agencies and consultants have circulated various typologies highlighting the red flags to tax evasion. These typologies, including a recent investigation by European regulators, often centers on the movement of fund flows from high tax jurisdictions to offshore tax haven or low tax jurisdictions. From a supervisory standpoint, regulators are increasingly expecting banks to demonstrate that they have strengthened their controls post the designation of tax evasion as a predicate offence. Regulators have started to mandate either KYC reviews from a tax evasion risk perspective or the introduction of dedicated transaction monitoring scenarios to monitor fund flows to &/from high tax risk jurisdictions.

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20 Example of a tax evasion typology The client has residence in a country with a relatively high tax regime The account was opened in another jurisdiction, known for a lower tax regime than the country of residence (tax haven) At the time of opening there was relatively little information flowing between the two jurisdictions (banking secrecy) The client did not have an economic purpose to open the account and/or has never visited the country The client is using Special Purpose Vehicles to create layers between himself and the money

21 Example of a tax evasion typology (2) The detection of red flags alone is not enough to determine if a transaction should be reported or not. Additional criteria would be: Higher than usual account activity or even account closure at a time when legislation is tightened Clients that only buy products that are also available in their country of residence Clients that have never visited the country where their account is booked Not every client with one or more red flags is automatically a tax evader. Especially in Asia, there are many reasons to open an account in a stable, non corrupt jurisdiction

22 Practical implementation of anti tax evasion controls The detection of tax crimes seems to be problematic but there are practical measures that mitigate the risk of onboarding or facilitating non tax compliant clients. A zero tolerance policy against any form of tax evasion Review existing AML/CTF/ABC systems and include tax evasion typologies Sound and thorough KYC requirements Frequent account reviews in line with the compliance risk of the client Training

23 Effective customer on boarding strategies

24 Effective customer on boarding strategies An institution s AML program can broadly be classified into 3 main pillars. These would be the Prevention (e.g. Customer Identification & Due Diligence), Detection (e.g. Transaction Monitoring) and Reporting (e.g. AML Investigations and Suspicious Activity/Transaction Reporting) pillars. Customer On boarding would be a key component of the Detection Pillar. Client on boarding strategies need to be risk based and customized to the firm s inherent risk which would include the types of customers, products being offered, and geography it is operating in. Factors to also consider are the local regulatory requirements and expectations which may impact the direction of the on boarding strategy. Customer on boarding for financial institutions would generally entail the following: Customer Identification & Verification Customer Risk Scoring Customer Due Diligence & Enhanced Due Diligence Name Screening Record Keeping

25 The requirements are generally recognized by all institutions but yet every organization is adopting a different model for customer on boarding. The main challenges faced by financial institutions is to find the most Effective on boarding strategy. Challenges and obstacles include, but not limited to, the following: What is the most optimal risk scoring model to deploy? Too many vs. too few High risk customers? EDD is not Enhanced Due Diligence if the requirements apply to an entire group of customers (e.g. Private Banking customers) How to drive consistency in on boarding for similar customers across different business groups? Is your Name Screening logic too fuzzy and generating too many false positives? Is your PEP list / Negative Adverse media list used for screening adequate? Is the on boarding policy overly complex thus creating implementation risk?

26 The requirements are generally recognized by all institutions but yet every organization is adopting a different model for customer on boarding. The main challenges faced by financial institutions is to find the most Effective on boarding strategy. Challenges and obstacles include, but not limited to, the following: What is the most optimal risk scoring model to deploy? Too many vs. too few High risk customers? EDD is not Enhanced Due Diligence if the requirements apply to an entire group of customers (e.g. Private Banking customers) How to drive consistency in on boarding for similar customers across different business groups? Is your Name Screening logic too fuzzy and generating too many false positives? Is your PEP list / Negative Adverse media list used for screening adequate? Is the on boarding policy overly complex thus creating implementation risk?

27 Financial inclusion 1.5 crore new bank account holders on one day in August 2014; 6-7 crore total new account holders to be added by Jan 26, 2015 Government to Bring Down Stake in Public Sector Undertakings (PSU) Banks to 52 Per Cent Through this disinvestment, a large amount of capital, almost closing to Rs. 3 lakh crore, can be introduced into banks itself, so that they have a lot more resources for financial inclusion While preserving the public ownership, the capital of these banks will be raised by increasing the shareholding of the people in a phased manner through the sale of shares largely through retail to common citizens of this country,

28 How to build an effective sanctions team

29 Sanctions Culture Still Relatively New In India Section 51 A of Unlawful Activities (Prevention) Act, 1967 and Amended in 2008 governs the implementation of UN s Al-Qaida Taliban UN Sanctions The Ministry of External Affairs shall update the list of individuals and entities subject to UN sanction measures on a regular basis. On any revision, the Ministry of External Affairs would electronically forward this list to the Nodal officers in Regulators, FIU-IND, IS-I Division and Foreigners' Division in MHA. It has been advised to banks that as and when list of individuals and entities, approved by Security Council Committee established pursuant to various United Nations' Security Council Resolutions (UNSCRs), are received from Government of India, Reserve Bank circulates these to all banks and financial institutions. Banks/Financial Institutions are required to update the consolidated list of individuals/entities as circulated by Reserve Bank and before opening any new account, it should be ensured that the name/s of the proposed customer does not appear in the list. Further, banks should scan all existing accounts to ensure that no account is held by or linked to any of the entities or individuals included in the list. Banks have been advised that full details of accounts bearing resemblance with any of the individuals/entities in the list should immediately be intimated to RBI and FIU-IND.

30 AML versus Sanction Programs Anti Money Laundering Sanctions Program element Applicable laws (driven by international standards e.g. FATF) Applicable sanctions (driven by country-specific foreign and domestic policy) Legal and regulatory obligations Roles and responsibilities/ escalations Roles and responsibilities/ escalations Governance PEP negative media client screening Sanctions negative media screening Client screening Transaction monitoring Transaction screening Transaction review SAR Filing Block / Reject / Cancel report Reporting obligations Risk-based approach Strict liability Risk or rules-based KYC/identify and verify KYC/identify and verify Client due diligence

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32 If you have additional questions for today s experts, or suggestions for future web seminars, please send those to: training@acams.org Thank you for joining us today! 32

33 Future Web Seminars NOV 25 DEC 03 Dec 10 Case Study: Dissecting the Inner Workings of Recent Ponzi Schemes Level: Basic/Intermediate Noon to 2:00pm EDT Building and Maintaining an Exceptional AML Team Level: Intermediate/Advance Noon to 2:00pm EDT Free Live Chat: Closing out 2014: ACAMS Year End Review Level: All Noon to 1:00pm EDT