Recent Developments on AML/CFT Rules and Enforcement Actions. Oliver Muñoz Esquivel Legal Advisor (CNV)

Transcription

1 Recent Developments on AML/CFT Rules and Enforcement Actions. Oliver Muñoz Esquivel Legal Advisor (CNV)

2 Disclaimer This speech expresses the author's views and does not necessarily reflect those of the CNV, the Commissioners, or other members of the staff. 2

3 Outline of Presentation Recent changes in AML/CFT rules of conduct. Current trends on CTR and SAR filings. Enforcement actions objectives and remedies. Recent enforcement actions conducted by CNV. Recent enforcement actions conducted in the US. Case problem discussion and analysis. 3

4 Recent changes in the AML/CFT rules of adopted by CNV 4

5 Acuerdo is now the main rule Pursuant to Opinion : Acuerdo regulates the same subject matter regulated by Acuerdo Therefore, it implicitly derogates Acuerdo

6 Acuerdo : key features (1) Extends application of rules and policies to prevent terrorist financing activities. Introduces several changes in customer identification requirements. For instance: Article 5 of Acuerdo required a copy of the passport, cedula and another valid ID of the client, whilst Acuerdo only requires a copy of one document. 6

7 Acuerdo : key features (2) Requires implementation of reasonable customer due diligence (CDD) measures to determine beneficial ownership and control structure of customers. Acknowledges the usefulness of lists of persons of potential concern issued by renowned international organizations and foreign regulatory or supervisory authorities, such as OFAC. 7

8 Acuerdo : key features (3) Requires updating customer information annually, and focus is on customers of potentially higher risk (e.g. non residents; companies with nominee directors and bearer shares; trusts or private interest foundations that are personal holding assets vehicles). Recommends to put in place appropriate risk management systems to determine whether a potential customer, a customer or the beneficial owner is a politically exposed person (PEP). 8

9 When CDD measures are required? Brokerage houses are required to undertake CDD measures when: opening an investment account; carrying out occasional transactions (wire transfers) above the legally designated threshold (USD10,000). This also includes situations where the transaction is carried out in a single operation or in several operations that appear to be linked; there is a suspicion of money laundering or terrorist financing, regardless of any exemptions or thresholds; or the brokerage house has doubts about the veracity or adequacy of previously obtained customer identification data. 9

10 What CDD measures are required? Brokerage houses are required to apply the following CDD measures: identifying and verifying the customer's identity; for all customers, the financial institution should determine whether the customer is acting on behalf of another person, and should then take reasonable steps to obtain sufficient identification data to verify the identity of that other person. for customers that are legal persons or legal arrangements, the financial institution should be required to take reasonable measures to (a) understand the ownership and control structure of the customer and (b) determine who are the individuals that ultimately own or control the customer. 10

11 Politically Exposed Persons (PEPs) Methodology for assessing compliance with the FATF 40 Recommendations and 9 Special Recommendations. PEPs are individuals who are or have been entrusted with prominent public functions in a foreign country, for example Heads of State or of government, senior politicians, senior government, judicial or military officials, senior executives of state owned corporations, important political party officials. Business relationships with family members or close associates of PEPs involve reputational risks similar to those with PEPs themselves. The definition is not intended to cover middle ranking or more junior individuals in the foregoing categories. 11

12 Current trends on CTR and SAR filing. 12

13 Suspicious Activity Reports (SARs) Brokerage houses must file SARs with UAF within 60 days of detection where: No particular amount & the intermediary knows or suspects: Transaction involves $ from illegal activity or intended/conducted to hide illegal source of funds; Transaction designed to evade reporting requirements; Transaction has no legitimate business purpose or not type customer normally engages in. 13

14 Currency Transaction Reports (CTRs( CTRs) Brokerage houses must file CTRs with UAF through CNV on a monthly basis. These reports apply to the following transactions: NOT ONLY Deposits or withdrawal of cash above USD10,000, but also Incoming/outcoming wire transfers above USD10,000 Recurrent transactions within a short period of time in order to avoid the legally designated threshold limit (USD10,000) 14

15 Current trends on SAR filings William J. Fox Director Financial Crime Enforcement Network (FinCEN( FinCEN) With respect to the filing of Suspicious Activity Reports, at risk is the quality of the information reported... if current filing trends continue, the total number of Suspicious Activity Reports filed this year will far surpass those filed in previous years. financial institutions are becoming increasingly convinced that the key to avoiding regulatory and criminal scrutiny is to file more reports, regardless of whether the conduct or transaction identified is suspicious. These defensive filings populate our database with reports that have little value, degrade the valuable reports in the database and implicate privacy concerns. Financial institutions from the smallest community banks and credit unions to the largest international banks are telling us that they would rather file than face potential criticism after the fact. 15

16 SAR Filings by US financial institutions From 1996 to 2002 Source: Financial Crime Enforcement Network (FinCEN) SAR Activity Review-Trends, Tips and Issues. Issue 4. August

17 SAR Filings by US Broker-Dealers Trends and Patterns The broker-dealer suspicious activity reporting requirement became effective in the US on January 1, 2003 for broker-dealers not affiliated with banks or bank holding companies. By mid-march, a total of 119 entities had filed 555 SAR. Statistical analysis of data revealed several interesting trends and patterns, which are provided below: Source: Financial Crime Enforcement Network (FinCEN) 17

18 SAR Filings related to terrorist- financing in the US The following chart depicts the trend in filings of the 4,830 terrorist rrorist- financing-related Suspicious Activity Reports filed since October 2001: Source: Financial Crime Enforcement Network (FinCEN) SAR Activity Review-Trends, Tips and Issues. Issue 4. August

19 SAR Filings by Panamanian financial institutions - From 2001 to 2005 Reportes de Operaciones Sospechosas 5 Cantidad Casos reportados / / / / / / / / / / / /08 Período Source: Unidad de Análisis Financiero (UAF) Panama, Republic of Panama 19

20 CTR Filings by Panamanian financial institutions - From 2003 to 2005 Reportes de Transacciones Monto reportado / / / / / / / / / / / / / / / / / / / / / / / / /08 Monto reportado Período Source: Unidad de Análisis Financiero (UAF) Panama, Republic of Panama 20

21 Are SAR and CTR filings important? SAR and CTR filings serve to provide law enforcement, intelligence, and regulatory agencies with leads indicative of illicit activity. SAR and CTR filings also provide a fertile source for identifying trends and patterns of illicit activity as well as compliance-related deficiencies. 21

22 How to file a SAR? SARs must not be filed based solely on a person's ethnicity. Transactions to, from, or conducted by persons with possible affiliations with jurisdictions associated with terrorist activity should not be the only factor that prompts the filing of a SAR. Such information should prompt additional scrutiny of transactions and should be considered in conjunction with other relevant information in deciding whether a SAR is warranted. For example, these factors combined with a lack of any apparent legal or business purpose to a transaction or a series of transactions could provide the basis for filing a SAR. 22

23 Recent enforcement actions conducted in the US and Panama. 23

24 Objectives of enforcement actions related to AML/CFT Educate and guide securities intermediaries. Clarify the requirements of Law 42 of 2000 and the regulations adopted by CNV. Ensure that filings of reports required by Law 42 of 2000 are timely, accurate and complete. Deter non-compliance with Law 42 of 2000 and its implementing regulations. Punish egregious offenders. 24

25 Enforcement remedies available to the Securities Regulator (CNV) Disclosure of non compliance with AML/CFT rules of conduct and policies in the website of CNV. Formal Warning published at the Gaceta Oficial. Money Penalties ranging from $5000 to $1 million, depending on the seriousness of the violation. Must be assessed by the CNV as primary regulator, as a result of an investigation proceeding or upon request from UAF. 25

26 Recent enforcement actions conducted by CNV 8-Aug-05 CNV Merrill Lynch International & CO. C.V. PUBLIC FORMAL WARNING to MERRILL LYNCH INTERNATIONAL & CO. C.V. and the COMPLIANCE OFFICER for late filing of CTRs during April, May and June 2005, in violation of articles 3 and 8 of Acuerdo Aug-05 CNV Sterling Financial Investment Group PUBLIC FORMAL WARNING to STERLING FINANCIAL INVESTMENT GROUP and the COMPLIANCE OFFICER, for late filing of CTRs during May and June 2005, in violation of articles 3 and 8 of Acuerdo Aug-05 CNV Tower Securities, Inc. PUBLIC FORMAL WARNING to STERLING FINANCIAL INVESTMENT GROUP and the COMPLIANCE OFFICER, for late filing of CTRs during May and June 2005, in violation of articles 3 and 8 of Acuerdo

27 Enforcement actions conducted in the US (1) Broadway National Bank (November 2002) First Criminal Prosecution for failure to file SARs. $120 million in suspicious bulk cash and structured deposits. $4 million penalty Guilty Plea to Three Counts: Failure to File SARs Failure to properly file CTRs Failure to have an effective AML Program 27

28 Enforcement actions conducted in the US (2) Banco Popular de Puerto Rico (January 2003) Deferred Prosecution Criminal Information charged bank with failing to file SAR on accounts of drug dealers and money remitters. More than $30 million in drug money laundered through bank. $21.6 million Forfeiture Concurrent $20 million civil penalty by FinCEN. 28

29 Enforcement actions conducted in the US (3) Delta National Bank & Trust (October 2003) Criminal Prosecution Guilty plea to charge of failing to file SAR. Account belonged to a Colombian national involved in foreign exchange. Transactions involved $5-10 million. Bank agreed to $950,000 forfeiture 29

30 Enforcement actions conducted in the US (4) AmSouth Bank (October 2004) Deferred Prosecution Criminal Information charged bank with failing to file SAR. Suspicious transactions involved a $20 milllion fraud scheme. Bank was uncooperative in investigation. $40 million civil forfeiture. $10 million civil penalty assessed by FinCEN and FED. 30

31 Enforcement actions conducted in the US (5) Riggs Bank (January 2005) Criminal Prosecution Guilty Plea to Failure to File SARs. Suspicious transactions involved transactions with Pinochet and Equitorial Guinea. $16 million Criminal Fine. $25 million civil money penalty assessed by FinCEN. 31

32 Enforcement actions conducted in the US (6) The Federal Branch of Arab Bank plc (August 2005) Comptroller of the Currency Anti-money laundering program and suspicious transaction reporting violations, involving U.S. dollar clearing activities through correspondent banking relationships $24 million civil money penalty 32

33 Case Problem Discussion and Analysis A customer friendly Brokerage House in Panama received a subpoena issued by a grand jury in the US through its correspondent clearing firm to produce documents related to transactions carried out by one of its finest customers. From the documents, it is alleged that monies raised from a securities fraud in the US amounting to US$5 million were transferred to the customer's account. What are the issues the Principal Executive and Compliance Officer should consider? 33

34 Potential issues of concern under the USA Patriot Act When an international financial institution (such as a Panamanian Brokerage House) establishes a correspondent account in the US, it is subject to subpoena for documents regarding that account, even if the documents sought are located outside the US. If the international financial institution does not within 10 business days after receipt of a summons or subpoena to produce documents either comply or contest, the secretary of the Treasury or the Attorney General can require an account to be closed. If the U.S. correspondent financial institution does not comply with the closure order, it can face a civil penalty of up to $10,000 a day until the correspondent account finally is closed. 34

35 Potential issues of concern under Panamanian law Panamanian securities legislation precludes production of evidence in relation with transactions carried out in a customer's account unless there is a formal request from a competent authority or written consent from customer. Competent authorities are: CNV, criminal prosecutors and judicial courts. Liability issues. Can Brokerage House be held liable for providing evidence without the consent from customer? 35

36 Case Problem Potential considerations? Reviewing transactions carried out by the customer in the past? Terminating business relationship with the customer? Filing a SAR report in Panama with UAF? Amending the standard terms and conditions giving contractual rights of freezing, and getting written consents for disclosure? 36

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