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7 Welcome to the ACAMS Web Seminar Regional Update: Examining AML Developments in the Caribbean January 17, :00 Noon 1:00 pm ET 7

8 Moderator Ross Delston, CAMS Attorney + Expert Witness Washington, DC www2.acams.org/webinars Cindy Sadaphal, CAMS Attorney at Law and Co-Founder Association of Compliance Professionals of Trinidad & Tobago (ACPTT) Speakers Rowena Bethel Chief Executive Officer The National Insurance Board + former Regulatory Consultant Bahamas

9 Why did the CFATF place Belize and Guyana on a quasi-icrg list (aka, the grey list )? First some background on the process The ICRG list is a product of a FATF committee that places errant jurisdictions in categories: High-risk and non-cooperative: Iran, N. Korea Strategic AML/CFT deficiencies, not sufficient progress in addressing deficiencies or committee to an action plan: Algeria, Ecuador, Ethiopia, Indonesia, Kenya, Pakistan, Syria, Turkey (partial list)

10 ICRG list, cont. Other categories Improving: Afghanistan, Albania, Antigua and Barbuda, Argentina, Cambodia, Cuba (partial list) Not making sufficient progress: Mongolia No longer subject to monitoring: Morocco, Nigeria

11 CFATF s treatment of Belize and Guyana: Jurisdictions with strategic AML/CFT deficiencies that pose a risk to the international financial system... Subject to a call by CFATF... to apply counter-measures to protect the international financial system from the on-going ML and TF risks emanating from these countries. This is a serious, but not the most serious, possible category

12 CFATF s treatment, cont.: A more serious category would be that countries must apply counter-measures, including EDD and, possibly, not doing business at all But not clear what effect CFATF s action would have on FATF, will be discussed at upcoming FATF plenary in February

13 So how should banks respond? At a minimum EDD for correspondent banks Continuous monitoring of transactions from banks in the two countries Greater scrutiny of customers from those countries, including EDD (e.g., look at source of wealth, scrutinize for PEPs) Bu no clear answer on how to respond

14 The new AML/CFT mutual evaluation process: Based on 2012 FATF 40 Recommendations and 2013 Methodology New and significant emphasis on national risk assessments (NRAs) and FI RAs Hence, both countries and FIs must get serious about a quantitatively defensible approach that can demonstrate on what basis risk categories were determined

15 The new process, cont.: Significantly greater emphasis on effectiveness, based on 11 Immediate Outcomes (IOs), in addition to technical compliance (TC) with FATF 40 Recommendations Two-stage process with TC being done in advance of MER visit, allowing bulk of visit to focus on IOs IOs include understanding of risks, international cooperation and adequate supervision

16 The new process, cont.: More complex then earlier approach More work for countries, FIs, and assessors IOs based on assessors, not country s views Transparent subjectivity or subjective transparency, i.e., the reasons and weighting of rationale for IO ratings must be clearly stated, but based on assessor s views of the jurisdiction as a whole

17 What should banks and other FIs do as a result? Examine the rulebook, the Methodology, on issues such as a US-style independent AML audit by the FI, a new requirement Take compliance more seriously now than ever before, not always a given Be prepared for intensive interviews by assessors during MER visit to your jurisdiction

18 Conclusions The continued evolution of AML/CFT standards, not always by intelligent design A more intense MER process, which may make itself felt by greater domestic supervisory scrutiny, including on-site inspections and examinations, as well as more investigations, prosecutions and civil/criminal enforcement actions The good news? Our work has never been more needed, respected and talked about

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20 Trends in global tax cooperation Automatic exchange of information Multilateralism Whole of government approach Base Erosion Profit Shifting (B.E.P.S.) Tax Transparency and the maintenance of beneficial ownership information Collaboration between the OECD Centre for Tax Policy and the FATF Tax Crimes as predicate offences for FATF standards

21 Automatic exchange of information The new standard requires jurisdictions to automatically exchange information for tax purposes..in July 2013, the G20 Finance Ministers and Central Bank Governors fully endorsed the OECD proposal for a truly global model for multilateral and bilateral automatic exchange of information for tax purposes and declared their commitment to automatic exchange of information as the new global standard. G declaration on tax contained in the Tax Annex to the St. Petersburg G20 Leaders Declaration Precise construct of standard to be unveiled at G20 and Finance Ministers meeting in February Main global mechanisms of automatic exchange OECD/Council of Europe Multilateral convention FATCA UN & OECD Model double taxation agreements.

22 Tax Transparency and the maintenance of beneficial ownership information The OECD standard : A.1. Jurisdictions should ensure that ownership and identity information for all relevant entities and arrangements is available to their competent authorities. The term Relevant Entities and Arrangements includes: (i) a company, foundation, Anstalt and any similar structure, (ii) a partnership or other body of persons, (iii) a trust or similar arrangement, (iv) a collective investment fund or scheme, (v) any person holding assets in a fiduciary capacity and (vi) any other entity or arrangement deemed relevant in the case of the specific jurisdiction assessed..

23 A.1.1. Jurisdictions should ensure that information is available to their competent authorities that identifies the owners of companies and any bodies corporate. Owners include legal owners, and, in any case where a legal owner acts on behalf of any other person as a nominee or under a similar arrangement, that other person, as well as persons in an ownership chain. A.1.2. Where jurisdictions permit the issuance of bearer shares they should have appropriate mechanisms in place that allow the owners of such shares to be identified. One possibility among others is a custodial arrangement with a recognized custodian or other similar arrangement to immobilize such shares. A.1.3. Jurisdictions should ensure that information is available to their competent authorities that identifies the partners in any partnership that (i) has income, deductions or credits for tax purposes in the jurisdiction, (ii) carries on business in the jurisdiction or (iii) is a limited partnership formed under the laws of that jurisdiction. A.1.4. Jurisdictions should take all reasonable measures to ensure that information is available to their competent authorities that identifies the settlor, trustee and

24 beneficiaries of express trusts (i) created under the laws of that jurisdiction, (ii) administered in that jurisdiction, or (iii) in respect of which a trustee is resident in that jurisdiction. A.1.5. Jurisdictions that allow for the establishment of foundations should ensure that information is available to their competent authorities for foundations formed under those laws to identify the founders, members of the foundation council, and beneficiaries (where applicable), as well any other persons with the authority to represent the foundation.

25 Collaboration between the OECD Centre for Tax Policy and the FATF The GF will draw on the work of the FATF on beneficial ownership and ensure that all countries have information regarding beneficial ownership of entities operating in their jurisdictions

26 FATF Recommendations regarding transparency and beneficial ownership of legal persons and legal arrangements 24. Transparency and beneficial ownership of legal persons *..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 Transparency and beneficial ownership of legal arrangements *..In particular, countries should ensure that there is adequate, accurate and timely information on express trusts, including information on the settlor, trustee and beneficiaries, that can be obtained or accessed in a timely fashion by competent authorities.

27 Tax Crimes as predicate offences for FATF standards The FATF Notes, specifically, expand the scope of money laundering predicate offences by including tax crimes within its definition section. What is a tax crime for FATF purposes? FATF is only referring to serious offences in the area of tax law and leaves it up to the individual countries to define the statutory offence, but requires that both direct and indirect taxes be covered. A suitable definition may be accomplished by providing a list of offences or by imposing limits on amounts or penalties applicable to such offences.

28 In summary therefore Where a prescribed tax offence is found to have occurred, those involved in the crime may now be charged with money laundering as well as tax offences. Designated financial institutions are now obliged to be on the look out for suspected violations of pertinent tax laws by their clients/customers. Jurisdictions must consider tax crimes within respective Customer Due Diligence, and in AML enforcement and cooperation frameworks. Not only individuals and companies committing illegal tax activity are held to account, but also the professionals facilitating it. Source: Countries are not being asked to formulate a definition of tax crime for domestic purposes, simply being asked to ensure that foreign tax crimes be recognised as predicate offences for AML purposes, e.g. All crimes money laundering laws.

29 Implementation considerations.. necessary to determine what is included under the term tax offences. In this respect, FATF has voluntarily refrained from elaborating on this notion aside from the fact that it targets both direct and indirect taxes leaving each country to decide for themselves what is to be understood by this term in relation to their domestic law. Options are either establishment of limited amounts or enactment of a catalogue of crimes? To what extent will tax avoidance be included and if so, where will the line be drawn between tax planning, legal practice and criminal tax violations? Due diligence investigations may present challenges. In practice how can financial intermediaries ensure that the funds received from their client have been declared to the Inland Revenue? From an organisational planning perspective, there will be a need to hire and train additional staff and skills sets both at the level of the regulatory authorities and the financial intermediaries. This will necessitate supplementary costs to doing business. Increased reporting to MLROs/Compliance Officers and to FIUs.

30 What is BEPS? Base erosion and profit shifting (BEPS) refers to tax planning strategies that exploit gaps and mismatches in tax rules to make profits disappear for tax purposes or to shift profits to locations where there is little or no real activity but the taxes are low resulting in little or no overall corporate tax being paid. Source:

31 How will the BEPS Action Plan affect tax havens? The BEPS Action Plan aims to end the use of shell companies used to stash profits offshore or unduly claim tax treaty protection and neutralise all schemes that artificially shift profits offshore. Though the BEPS Action Plan is not about dictating whether countries should have a specific corporate income tax rate, it will have an impact on regimes that seek to attract foreign investors without requiring any economic substance. Source:

32 Why BEPS is considered necessary - In an increasingly interconnected world, national tax laws have not kept pace with global corporations, fluid capital, and the digital economy, leaving gaps that can be exploited by companies who avoid taxation in their home countries by pushing activities abroad to low or no tax jurisdictions. This undermines the fairness and integrity of tax systems. The project, quickly known as BEPS (Base Erosion and Profit Shifting) is looking at whether the current rules allow for the allocation of taxable profits to locations different from those where the actual business activity takes place and if not, what could be done to change this.. The plan recognises the importance of addressing the borderless digital economy, and will develop a new set of standards to prevent double non-taxation. This will require closer international co-operation, greater transparency, data and reporting requirements. A work-in-progress Radical shift in international tax policy Fully endorsed by G20. OECD working to a 15 point plan to address BEPS concerns, to be implemented in 3 phases: Sept. 2014, September 2015 & December 2015.

33 September 2014 deliverables An in-depth report identifying tax challenges raised by the digital economy and the necessary actions to address them (Action 1); Recommendations regarding the design of domestic and tax treaty measures to neutralise the effects of hybrid mismatch arrangements, both from a domestic and treaty law perspective (Action 2); Finalise the review of member country regimes in order to counter harmful tax practices more effectively (Action 5); Recommendations regarding the design of domestic and tax treaty measures to prevent abuse of tax treaties (Action 6); Changes to the transfer pricing rules in relation to intangibles (Action 8); Changes to the transfer pricing rules in relation to documentation requirements (Action 13); and A report on the development of a multilateral instrument to implement the measures developed in the course of the work on BEPS (Action 15).

34 September 2015 deliverables Recommendations regarding the design of domestic rules to strengthen Controlled Foreign Companies (CFC) Rules (Action 3); Recommendations regarding the design of domestic rules to limit base erosion via interest deductions and other financial payments (Action 4); Strategy to expand participation to non-oecd members to counter harmful tax practices more effectively (Action 5); Tax treaty measures to prevent the artificial avoidance of permanent establishment status (Action 7); Changes to the transfer pricing rules in relation to risks and capital, and other highrisk transactions (Actions 9 and 10); Recommendations regarding data on BEPS to be collected and methodologies to analyse them (Action 11); Recommendations regarding the design of domestic rules to require taxpayers to disclose their aggressive tax planning arrangements (Action 12); Tax treaty measures to make dispute resolution mechanisms more effective (Action 14);

35 December 2015 deliverables Tax treaty measures in the following areas: Changes to the transfer pricing rules to limit base erosion via interest deductions and other financial payments (Action 4); Revision of existing criteria to counter harmful tax practices more effectively (Action 5); and The development of a multilateral instrument (Action 15).

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38 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! 38

39 Future Web Seminars JAN 22 FEB 05 FEB 12 Focus on US Financial Institutions: Strategies to Effectively Address Examination Criticism Level: Intermediate/Advanced Noon to 2:00pm EDT FATCA Compliance Update for US Institutions Level: Intermediate Noon to 2:00pm EDT [case study] Combating Trade-Based Money Laundering: Proven Techniques for Identifying Red Flags and Tackling Monitoring Challenges Level: Intermediate/Advanced Noon to 2:00pm EDT