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2 Welcome to the ACAMS Web Seminar Understandingthe the Impact of the FATF Revised Recommendations on Local Anti money Laundering Regulations June 26, :00 PM 2:00 PM A sound check will be performed 5 minutes before the start time 2

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6 Speakers: Zia Ullah Partner, Regulatory and Compliance Advisory Pannone LLP David Blackmore Director, DB Risk and Compliance Services Mark Dunn Market Planning Manager LexisNexis International Business Information Solutions

7 Welcome to the ACAMS Web Seminar Understanding the Impact of the FATF Revised Recommendations on Local Anti money Laundering Regulations

8 FATF Revised Recommendations - an overview Zia Ullah, Partner June 2012

9 Who am I? Head of Compliance Advisory Former Group Head of Sanctions and Policy, Barclays plc Was not a lawyer (for a while)

10 Summary The FATF standards have been revised to strengthen global safeguards and further protect the integrity of the financial system. Key Changes include: The Risk Based Approach Transparency International Cooperation Operational Standards New Threats and New Policies Terrorist Financing Clarifying Obligations

11 Key Areas

12 1. Tax crimes The list of predicate offences for money laundering has been expanded to include serious tax crimes, which will bring the proceeds of tax crimes within the scope of the powers and authorities used to investigate money laundering.

13 2. Customer Due Diligence Clarifying various aspects of the customer due diligence ( CDD ) measures in light of concerns raised by the private sector, particularly in relation to the identification and verification of beneficial owners where a step by step CDD process has been adopted. d

14 3. Transparency of Legal Persons Improving the transparency of legal persons by requiring companies to maintain basic information relating to the company, it s directors and shareholders. New requirements for nominee directors and shareholders to disclose their status to the company registry, or be licensed, will also help reduce risks in relation to the camouflaging of ownership.

15 4. PEPs The strengthening of requirements on financial i institutions to identify politically ll exposed persons ( PEPs ) with new measures applied to domestic PEPs and PEPs from international organisations. The FATF has decided not to sanction the publication of lists of PEPs, but is intending to develop further guidance which will include information on how to identify a PEP and his/her family members and close associates.

16 5. UN targeted sanctions A new recommendation has been developed aimed at ensuring the consistent and effective implementation of United Nations targeted sanctions to counter the financing of the proliferation of weapons of mass destruction.

17 6. Special Recommendations Integration of the FATF s nine Special Recommendations on terrorist financing within the 40 Recommendations to reflect the importance of countering terrorist financing and its close connections with AML measures.

18 7. Exchange of Information More effective exchanges of information for investigative, supervisory and prosecutorial purposes at international level in order to assist international cooperation and help countries trace, freeze and confiscate illegal assets.

19 8. Improving Operational Standards Improving operational standards by expanding the Recommendations concerned with law enforcement and financial intelligence units to clarify the functions of agencies responsible for combating money laundering and terrorist financing, and setting out the range of investigative techniques and powers which should be available to them.

20 9. Requirements for Financial Groups Updating the Recommendations to reflect practices in the financial a sector (e.g. setting out clearer requirements for financial groups) and applying the experience gained from countries implementation of the FATF Recommendations (e.g. by clarifying CDD requirements where countries have had practical difficulties with implementation).

21 10. Transparency Enhancing transparency of cross border wire transfers.

22 Impact on 4 th EU MLD www2.acams.org/webinars

23 4 th EU MLD Further guidance/clarification is required in a number of areas, including: The application of a risk based approach to AML; Scope; The application of simplified customer due diligence; The definition of and approach to Politically Exposed Persons and beneficial ownership; and The application of the AMLD to legal l professionals.

24 EXCELLENCE AND EXCELLENCE AND ENERGY IN ALL THAT WE DO www2.acams.org/webinars

25 Practical considerations of the potential changes to firms systems & controls David Blackmore Director, DB Risk and Compliance Services

26 FATF s Objectives Enabling countries to: identify the risks, develop policies & domestic coordination; pursue money laundering, terrorist financing & the financing of proliferation; apply preventive measures for the financial sector & other designated sectors;

27 FATF s Objectives (2) Enabling countries to: establish powers & responsibilities for the competent authorities (e.g. investigative, law enforcement & supervisory authorities) & other institutional measures; enhance the transparency & availability of beneficial i ownership information i of legal l persons & arrangements, & facilitate international cooperation.

28 Likely Global Policy Issues The risk based approach (R 1, 2): Potential for wide variety of Risk Assessments Thus uneven implementation could risk yet more regulatory arbitrage A major legal undertaking for widely differing jurisdictions Consequently, a key management challenge for firms! Crucial role for Boards & Senior Management; Significant investment needed in management skills & competences, staff recruitment, awareness & training, HR policies on compliance / breaches, + systems and controls (inc I.T.)

29 Likely Global Policy Issues The risk based approach: requires a new compliance culture where the exercise of judgement largely replaces the box ticking approach; firms operating cross border will have bigger challenges hll in those countries which h do not currently have a risk based approach (R17, 18, 19, 20 21) 21)

30 Likely Global Policy Issues The risk based approach: Size of the challenge significantly greater because of new areas Counter proliferation & International financial sanctions (R 5, 6, 7); Prevention of abuse of non profit organisations (R 8); Revised definition of PEPs to include domestic PEPs & those in international organisations + corruption risks (R 12 + R 10) Inclusion of tax crimes as a predicate money laundering offence some discretion to member states potential for arbitrage increases.

31 Likely Global Policy Issues The risk based approach: Size of the challenge significantly greater because of the continued majorfocus on financing of terrorism ( R 5 9 inc); Varying understanding of what terrorism is; Firms need certainties from government!

32 Practical Action The EU now working on 4 MLD; Aim is a draft by Autumn Directive by end 2013; Important for Member States, firms + global networks as FATF intend Mutual Evaluations under the new Recommendations to start from end 2013!

33 Practical Action Key tasks for firms: Have we started a documented GapAnalysis to FATF Recommendations? Are we reviewing our Risk Assessments? Are they up to date, or have the risks to our firm changed? Do they include new products / services / law & regulation? Impact of economic climate/market turbulence? How is the involvement /ownership & drive of Senior Management demonstrated?

34 Practical Action Key tasks for firms (2): Are our Policies & Procedures / Handbooks / Manuals fit for purpose? Is our monitoring programme accurately targeted? How do we demonstrate the ongoing effectiveness of our RBA? Do we take an holistic approach to financial crime, or keep AML/CTF separate from fraud, insider dealing, market abuse, etc?

35 Access to Information on Beneficial Ownership (TRANSPARENCY AND BENEFICIAL OWNERSHIP OF LEGAL PERSONS AND ARRANGEMENTS) Mark Dunn Market Planning Manager LexisNexis International Business Information Solutions

36 While many jurisdictions require the submission of shareholders lists and director information to the authorities, they do not require a declaration of beneficial ownership where this differs from nominal ownership and do not require shareholders that are corporate vehicles to disclose their beneficial ownership some jurisdictions do not require books and records to be kept at all. Behind the Corporate Veil Using Corporate Entities for Illicit it Purposes (OECD, November 2001) www2.acams.org/webinars Lack of beneficial ownership data The due diligence problem In all countries covered by the survey, a company registry exists, but the extent of the information available from the registry varied significantly from jurisdiction to jurisdiction In nearly all cases, the information in the company registry relates to legal ownership and not necessarily the beneficial ownership of the corporate vehicle. The Misuse of Corporate Vehicles Including Trust and Company Service Providers (FATF October, 2006) Even the most effective anti-money laundering and anti-terrorist financing system which includes a sophisticated cross-agency collaboration framework will be of limited use to minority investors and other stakeholders in listed companies who have to rely on publicly available and instantly accessible information about the control and ownership of listed companies. Beneficial ownership and control: a comparative study. Disclosure, information and enforcement (OECD March 2012) The absence of public information about the beneficial owner is seen by some stakeholders as hindering the practical implementation of the requirements. Obliged entities, with support from civil society organisations, have made a strong plea for public support initiatives in this area. The European Commission's Internal Security Strategy has also highlighted this issue Report from the Commission to the European Parliament and the Council on the application of Directive 2005/60/EC on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing (European Commission April, 2012) 36

37 Link between beneficial ownership and financial crime Many initiatives highlight the problem Prevention of Criminal Use of the Banking System for the Purpose of Money Laundering (BiS, December 1988) Behind the Corporate Veil: Using Corporate Entities for Illicit Purposes (OECD, 2001) Customer Due Diligence for Banks (BIS, October 2001) Options for Obtaining Beneficial Ownership and Control Information (OECD, 2002) The Misuse of Corporate Vehicles Including Trust and Company Service Providers (FATF, October 2006) Identification of Ultimate Beneficial Ownership and Control of a Cross Border Direct Investor (OECD, March 2007) The Puppet Masters: How the Corrupt Use Legal Structures to Hide Stolen Assets and What to Do About It (World Bank, October 2011) Beneficial ownership and control: a comparative study. Disclosure, information and enforcement (OECD March 2012) Report on the legal, regulatory and supervisory implementation across EU Member States in relation to the Beneficial Owners Customer Due Diligence requirements under the Third Money Laundering Directive [2005/60/EC] (European Supervisory Authorities, April 2012) Report from the Commission to the European Parliament and the Council on the application of Directive 2005/60/EC on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing (European Commission, April 2012) however, lack of beneficial ownership data for AML practitioners still a serious problem 37

38 European Supervisory Authorities Report on the legal, regulatory and supervisory implementation across EU Member States in relation to the Beneficial Owners Customer Due Diligence requirements under the Third Money Laundering Directive [2005/60/EC] / April

39 Availability of ownership and control information across the European Union European Supervisory Authorities Report Report focuses on the availability of ownership and control information across the European Union on ultimate beneficial owners of legal entities and legal arrangements Obtained from financial services supervisors who are members of the European Supervisory Authorities : European Banking Authority European Insurance and Occupational Pensions Authority European Securities and Markets Authority National supervisors submitted replies to a questionnaire and discussed the issues in the Joint Committee of the European Supervisory Authorities Sub Committee on Anti Money Laundering Availability of ownership and control information across the European Union European Supervisory Authorities Report April

40 European Supervisory Authorities Report April

41 European Supervisory Authorities Report April

42 European Supervisory Authorities Report April

43 European Supervisory Authorities Report April

44 European Supervisory Authorities Report April

45 Availability of ownership and control information across the European Union European Supervisory Authorities Report April

46 Availability of ownership and control information across the European Union European Supervisory Authorities Report April

47 Many high growth markets indicate high corruption risk Lack of beneficial ownership data even bigger problem Real GDP Growth IMF Data Mapper (September 2011) Transparency International Corruption Perceptions Index (November 2011) 47

48 Current approach to due diligence Attempting to address problem using multiple resources High Risk Assessment Individual Subscription Databases Aggregated Subscription Databases Outsourced Risk Advisors Company Registrars Web search Low Due Diligence Resources and Cost High 48 48

49 OECD Options for obtaining i beneficial i ownership information 49

50 Options for obtaining beneficial ownership OECD Option Benefits Costs Upfront tdisclosure improved dtransparency imposes significant ifi costs on business vehicles (especially beneficial ownership and control information smaller entrepreneurial businesses) available at all times strong deterrent effect The holding of information by intermediaries implementation is cheap costly and time consuming for companies (particularly when foreign parties are involved) the client identification and verification rules, and related recordkeeping requirements, represent a potentially costly and cumbersome set of identification practices. potential for delays in the provision of information ex post Investigative system may avoid unnecessary costs and burdens on business vehicles, which may stifle legitimate business formations maintain a reasonable balance between ensuring proper monitoring / regulation of business vehicles and protecting legitimate privacy interests potential for delays in the provision of information Beneficial ownership and control: a comparative study. Disclosure, information and enforcement OECD March

51 Options for obtaining beneficial ownership OECD Option Benefits Costs Upfrontdisclosure improved transparency imposes significantcostscosts on business vehicles (especially beneficial ownership and control information smaller entrepreneurial businesses) available at all times strong deterrent effect The holding of information by intermediaries implementation is cheap costly and time consuming for companies (particularly when foreign parties are involved) the client identification and verification rules, and related recordkeeping requirements, represent a potentially costly and cumbersome set of identification practices. potential for delays in the provision of information ex post Investigative system may avoid unnecessary costs and burdens on potential for delays in the provision of information business vehicles, which may stifle legitimate business formations maintain a reasonable balance between ensuring proper monitoring / regulation of business vehicles and protecting legitimate privacy interests Beneficial ownership and control: a comparative study. Disclosure, information and enforcement OECD March

52 FATF Revised Recommendations 52

53 E. TRANSPARENCY AND BENEFICIAL OWNERSHIP OF LEGAL PERSONS AND ARRANGEMENTS 24. Transparency and beneficial ownership of legal persons Countries should take measures to prevent the misuse of legal persons for money laundering or terrorist financing. Countries should ensure that there is adequate, accurate and timely information on the beneficial ownership and control of legal persons that can be obtained or accessed in a timely fashion by competent authorities. In particular, countries that have legal persons that are able to issue bearer shares or bearer share warrants, or which allow nominee shareholders or nominee directors, should take effective measures to ensure that they are not misused for money laundering or terrorist financing. Countries should consider measures to facilitate access to beneficial ownership and control information by financial institutions and DNFBPs undertaking the requirements set out in Recommendations e o 10 and Transparency and beneficial ownership of legal arrangements Countries should take measures to prevent the misuse of legal arrangements for money laundering or terrorist financing. In particular, countries should ensure that there is adequate, accurate and timely information on express trusts, t including information on the settlor, trustee t and beneficiaries, i i that t can be obtained or accessed in a timely fashion by competent authorities. Countries should consider measures to facilitate access to beneficial ownership and control information by financial institutions and DNFBPs undertaking the requirements set out in Recommendations 10 and 22. International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation: The FATF Recommendations FATF, February

54 INTERPRETIVE NOTE TO RECOMMENDATION 24 (TRANSPARENCY AND BENEFICIAL OWNERSHIP OF LEGAL PERSONS) Competent authorities should be able to obtain, or have access in a timely fashion to, adequate, accurate and current information on the beneficial ownership and control of companies and other legal persons (beneficial ownership information) that are created in the country. As part of the process of ensuring that there is adequate transparency regarding legal persons, countries should have mechanisms that: (a) identify and describe the different types, forms and basic features of legal persons in the country. (b) identify and describe the processes for: (i) the creation of those legal persons; and (ii) the obtaining and recording of basic and beneficial ownership information; (c) make the above information publicly available; and (d) assess the money laundering and terrorist financing risks associated with different types of legal persons created in the country. International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation: The FATF Recommendations FATF, February

55 B. BENEFICIAL OWNERSHIP INFORMATION 7. Countries should ensure that either: (a) () information on the beneficial ownership of a company is obtained by that company and available at a specified location in their country; or (b) there are mechanisms in place so that the beneficial ownership of a company can be determined in a timely manner by a competent authority. 8. In order to meet the requirements in paragraph 7, countries should use one or more of the following mechanisms: (a) Requiring companies or company registries to obtain and hold up to date information on the companies beneficial ownership; (b) Requiring companies to take reasonable measures to obtain and hold up to date information on the companies beneficial ownership; (c) Using existing information, including: i. information obtained by financial institutions and/or DNFBPs, in accordance with Recommendations 10 and 22; ii. Information held by other competent authorities on the legal and beneficial ownership of companies (e.g. company registries, tax authorities or financial or other regulators) iii. information held by the company as required above in Section A; and iv. available information on companies listed on a stock exchange, where disclosure requirements (either by stock exchange rules or through law or enforceable means) impose requirements to ensure adequate transparency of beneficial i ownership. International Standards on Combating Money Laundering and the Financing of Terrorism & Proliferation: The FATF Recommendations FATF, February

56 Summary 56

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58 If you have suggestions for future web seminars or additional questions for today s experts, please send them to: training@acams.org Thank you for joining us today! 58

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