Introduction. Background on Money Laundering. Background on Terrorist financing. Bank Secrecy Act (Regulations)

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1 XM - US Compliance

2 Introduction Background on Money Laundering Background on Terrorist financing Bank Secrecy Act (Regulations) How MSB (Money Service Business) can help to prevent Money Laundering & Terrorist Financing AML/CTF

3 Definition of MSB Money Service Businesses are a type of financial institutions. Money transmitter Dealer in foreign exchange Issuer or seller of Travelers checks, Money order Check casher Provider and Seller of Prepaid card Agents * Certain foreign MSBs conducting business in the U.S. must now also register and comply with BSA

4 Background on Money Laundering Money laundering Definition: Conducting a financial transaction with illegal money Conducting a financial transaction for an illegal activity or purpose Conducting a financial transaction to conceal the source, origin, owner or purpose of the funds or the transaction Movement of legal money or illegal money for an illegal purpose It involves three different stages: 1. Placement 2. Layering 3. Integration Criminals avoid record keeping requirement and Paper trail by structuring, bribing employees or having front business to open accounts.

5 Background on Money Laundering The three stages of money laundering: Placement involves physically placing illegally obtained money into the financial system or the retail economy. Money is most vulnerable to detection and seizure during placement. Layering involves separating the illegally obtained money from its criminal source by layering it through a series of financial transactions, which makes it difficult to trace the money back to its original source. Integration involves moving the proceeds into a seemingly legitimate form. Integration may include the purchase of automobiles, businesses, real estate, etc. so that the money can be used without detection of its criminal source.

6 Background on Money Laundering Every year, huge amounts of funds are generated from illegal activities such as drug trafficking, tax evasion, people smuggling, theft, arms trafficking and corrupt practices. These funds are mostly in the form of cash. The U.S. Department of the Treasury has suggested that $600 billion represents a conservative estimate of the amount of money laundered each year, and some U.S. law makers believe that the amount lies somewhere between $500 billion and $1 trillion, Why bad guys use MSBs to move their illicit proceeds Global reach Cash driven Facilitation tool for variety of criminal activities Affords anonymity or use of false identification Located in corridors of operation Seasonal/regional factors Ease of agent exploitation

7 Background on Money Laundering Drug trafficking Human smuggling/trafficking Terrorist financing Pharmaceuticals Counterfeit goods Fraud Kidnapping Extortion Money laundering Trade based money laundering Other criminal activity Criminal Activity Identified by MSBs

8 Background on terrorist Financing Terrorism is a global problem. Terrorism is the unlawful use, or threatened use, of force or violence against individuals or property to intimidate or coerce governments or societies, often to achieve political, religious or ideological objectives. Terrorism financing can be raised by legitimate sources such as fund-raising activities and business profits, as well as illegitimate sources such as the drug trade and fraud.

9 Background on terrorist Financing Even though terrorist groups have similar qualities their sources of money may differ. Terrorist organizations obtain money from a number of legitimate and illegitimate sources, such as the following: Illegal Activities Wealthy Sponsors Charitable and Religious Institutions Commercial Enterprises State Sponsors

10 Bank Secrecy Act (BSA) It was passed by the Congress of the United States in The BSA is sometimes referred to as an "anti-money laundering" law ("AML") or jointly as BSA/AML. 9/11/2001 the terrorists attacked the United States The USA PATRIOT Act, passed In October 2001, amended the Bank Secrecy Act (BSA) to require all businesses defined in the BSA as financial institutions to implement an antimoney laundering (AML) program The Financial Crimes Enforcement Network FinCEN, a bureau of the U.S. Department of the Treasury, requires financial institutions to assist U.S. government agencies to detect and prevent money laundering. Financial institutions including MSB are subject to regulatory oversight by the Internal Revenue Service (IRS) and must comply with the Bank Secrecy Act. BSA requires reporting and recordkeeping, paper trails of transactions will help law enforcement in criminal, tax and regulatory investigations.

11 Bank Secrecy Act (BSA) Registration with FinCEN Agent List (January each year) Suspicious Activity Report (SAR) Anti-Money Laundering (AML) Compliance Program Currency Transaction Report (CTR) Monetary Instrument Log Record Retention (5 years); Receipts, handbooks, training material, etc.

12 Bank Secrecy Act (BSA) How MSB (Money Service Business) can help to Prevent Money Laundering & Terrorist Financing AML/CTF Establish Anti-Money Laundering Compliance Programs: Establish Customer Relationships. - Designation of a compliance officer - Development of internal policy - Ongoing training of employees and agents - Independent audit, testing and review File Suspicious Activity Reports (SAR). File Currency Transaction Reports (CTR). Keep Records.

13 The main dollars threshold of the BSA (The law) $1,000 for Currency Exchange. $2,000 SAR threshold. $3,000 Record Keeping: Name Address DOB (Date Of Birth) ID (Identification Document) SSN (Social Security Number) / 2 nd ID OCCUPATION $10,000 Filing of CTR. It is Xpress Money s policy to ascertain identity for all transactions regardless the $ amount of the transaction The SSN/2 nd ID and occupation are required for $2500 transaction and above

14 Dodd Frank Rules Consumers in the United States send billions of dollars abroad each year. In 2010, the Dodd-Frank Act expanded the scope of the Electronic Fund Transfer Act s requirements for certain international fund transfers. To implement the Dodd-Frank Act requirements, the Consumer Financial Protection Bureau (CFPB or Bureau) issued a new rule. All remittance transfer providers must comply with this rule by October 28, 2013

15 Dodd Frank Rules Dodd Frank regulations provide new customers protections. Prepayment Disclosures and receipts Error resolution (Up to 180 days from the promised delivery date of the receipt) Cancellation right (oral or written request within 30min of payment) Foreign language disclosure requirement (in English and the foreign language) Disclosure on foreign taxes and institution fees: Disclosure on taxes in foreign country Errors from incorrect account information : the provider would be required to attempt to recover the funds but would not bear the cost of the funds that cannot be recovered

16 What is Xpress Money s Compliance Policy Statement? Our policy is to stop criminals from using our services and products for the purpose of laundering money gained from any criminal activity and terrorist funding.

17 Xpress Money s Compliance Policies to Fight Against Money Laundering Ensure the effective implementation of laws and regulations at Xpress money in US and manage all aspects of the AML/CTF compliance program. Ensure the proper reporting of filing of Currency Transaction Report (CTR) and Suspicious Activity Report (SAR). Conduct examination and monitor all transactions. Ensure random Independent Audits to verify compliance with policies and procedures. Ensure that all Xpress Money employees and agents undergo Anti-Money Laundering compliance training program.

18 Xpress Money s Compliance Policies to Fight Against Money Laundering Best Practices - AML/CTF Comply with the laws of both countries involved in the transaction Cooperate with local regulators and law enforcement bodies Analyze money laundering and associated laws for each country. Approve country restrictions and transaction limits Monitor transactions randomly Not knowingly launder money Not processing a transaction unless we believe it has legitimate purpose Refuse obviously suspicious transactions Report suspicious transactions. Maintain records in accordance with the law and Xpress Money Policy

19 Xpress Money s Compliance Policies to Fight Against Money Laundering Best Practices - AML/CTF Not split transactions to avoid government identification Not advise customers on how to avoid identification, record keeping or reporting requirements or any Xpress Money policy. Not knowingly record false names or information Not create false records Not accept non-cash payments, except as allowed by special agreement with Xpress Money Not use consumer information collected for the purpose of managing Compliance or other risks for marketing or any other purpose Maintain records in accordance with the law and Xpress Money Policy

20 Xpress Money s Compliance Policies to Fight Against Money Laundering The Agents responsibilities Comply with Local laws and regulations. Comply with Xpress Money Policy & Procedures. Implement and enhance internal Policies, Procedures and controls. Train Employees. Maintain record keeping and reporting requirements. Monitor Transactions. The agent has to report any suspicious activity The compliance officer should report to the regulatory authority.

21 Xpress Money s Compliance Policies to Fight Against Money Laundering Know Your Customer KYC Principle objectives of KYC Policy: Ensuring that only legitimate and bona fide customers are accepted. Ensuring that customers are properly identified and that they understand the risks they may pose. Verifying the identity of customers using reliable and independent documentation. Monitoring customer accounts and transactions to prevent or detect illegal activities. Implementing processes to effectively manage the risks posed by customers trying to misuse facilities.

22 KYC has two stages: Xpress Money s Compliance Policies to Fight Against Money Laundering Know Your Customer KYC IDENTIFICATION VERIFICATION Do not hesitate to ask questions: What is the purpose of the transaction? What is your customer s business? What is the Source of funds and what will this be used for? Remember KYC doesn t mean to INVESTIGATE the customer; Be satisfied with the legitimacy of the transaction.

23 Xpress Money s Compliance Policies to Fight Against Money Laundering The RISKS faced by financial institutions for not implementing KYC policy There are five types of risks that an effective KYC policy can help to mitigate: Reputational Operational Legal Financial Concentration

24 Xpress Money s Compliance Policies to Fight Against Money Laundering Customer Identification Customer Identification document: Government Issued, Valid, contains Customer s Name, Contains Customer s Photograph, Contains Customer s Address (Preferred) The acceptable documents for identification acceptable in the US are as per below. Driver s License Passport Military ID Alien ID Valid record issued by Provincial/Federal/Territorial governments. The employee is to confirm that the details provided on the form match with the details mentioned on the ID document.

25 Xpress Money s Compliance Policies to Fight Against Money Laundering Customer Identification Requirements For every new customer. Name, Address, Type of ID document, ID document number and name of issuer, Source of funds and purpose of TRX Customer Identification Requirements For Transactions of US$ 2,500 and more. Address (To be validated from the ID document) DOB (To be validated from the ID document) Type of ID document ID document number and name of issuer SSN (Social Security Number) / 2 nd ID Occupation Relationship with beneficiary

26 Third Party Requirements Where Xpress Money determines that one of its clients or a person giving cash is acting on behalf of a third party, Xpress Money must keep a record that sets out: For an individual, the third party s name, address and date of birth and the nature of the principal business or occupation of the third party; For an entity, the third party s name, address and the nature of the principal business of the third party; For corporations, the entity s incorporation number and its place of issuance; The relationship between the third party and the client or the person who gives the cash. Xpress Money internal Policy does not allow: Third Party TRX Transactions for religious or charitable organizations

27 Currency Transaction Report (CTR) The basic BSA currency reporting rule requires a financial institution to file CTR for any transaction of $10,000 or more, occurring at different branches or locations. The same day must be aggregated for purpose of calculating $10,000 threshold. CTR must be filed to FinCEN by the 15 th calendar day after the day of the transaction Xpress Money must maintain a file for all CTR for at least 5 years.

28 Suspicious Activity Report (SAR) Under BSA Xpress Money must report SAR MSB form to FinCEN any activity involving or aggregating at least $2,000 and should keep a record for at least 5 years to be reported within 30 days. Funds derived from illegal activities. Structuring to avoid BSA reporting and record keeping requirements. No reasonable explanation for the transaction (unusual for the customer). Transactions that serve no business or apparent lawful purpose. Altered or false Identification.

29 Record Keeping Requirements: All agents need to maintain the record of all the transactions for at least 5 years. The objective of record keeping is to ensure that we are able to provide the basic information about customer and to reconstruct the individual transactions undertaken at the request of the relevant authorities or subpoenas from Law enforcement at any given time. The following are the essential details that the agent branch has to file and preserve: Full contact address and phone, mobile number of the sender/receiver Customer Identification Details of the transactions During the term of the agency or upon its termination, XM will, upon reasonable notice to the agent, inspect, audit and review the agent s books and records relating to compliance with XM s written policies and procedures and the international and local laws and regulations.

30 Black List Blacklist Sanctions: Sanctions imposed on blacklisted entities can include: Arrest and extradition Freezing of assets Prohibition on dealing with third parties Blacklist Laws: The laws under which blacklists are issued prohibit businesses (particularly in the financial sector) and individuals from dealing with blacklisted entities. However, to avoid legal problems and reputation risk, many businesses comply with the major blacklist laws even if such businesses are not expressly subject to regulation.

31 OFAC The Office of Foreign Assets Control (OFAC) of the U.S. Department of the Treasury administers and enforces economic and trade sanctions against targeted foreign countries, terrorism sponsoring organizations, and international narcotics traffickers based on U.S. foreign policy and national security goals. MSBs should establish and maintain an effective OFAC compliance program. written policies and procedures for filtering transactions for possible OFAC violations, Designating an individual responsible for day-to-day compliance Procedures for maintaining current lists of blocked countries, entities, and individuals.

32 Suspicious Transactions Any transaction that Has no business or apparent lawful purpose. Is not the kind in which a customer would normally be expected to engage Examples of suspicious transactions/red Flags: Most common indicators according to FAFT: Customers sending or receiving frequent amounts that are much greater than what would be expected for the customer. Customers avoiding thresholds. Customers trying to structure their transactions. Customers conducting suspicious transactions may appear nervous, rushed or defensive to questioning about his remittance. Customers who may be reluctant to show ID. Customers who may offer gifts to avoid certain record keeping requirements or if you handle the transaction in a certain way as he desires. Customers concealing the beneficial owner of funds. Two customers coming together but sending money transfer separately to the same beneficiary.

33 Our responsibilities Identification or Alert of Unusual Activity.

34 Our Duties In Case of Suspicious Transactions/Red Flag It is our duty and responsibility to report suspicious and unusual transactions to our Supervisor/Branch Compliance Officer DO NOT warn or inform the customer when you intent to file a Suspicious Transaction Report (STR/SAR). Any unauthorized disclosure is a criminal offense. Only disclose to your Supervisor/Branch Compliance Officer to file a STR/SAR. The Chief Compliance Officer shall investigate and forward the STR/SAR to relevant authorities.

35 PENALTIES Civil and criminal penalties can be imposed for violations of anti-money laundering laws and regulations. Penalties can result in substantial fines and in prison terms. Penalties may be assessed for: Failure to secure identifying information. Failure to maintain required records. Failure to file a report or filing a report containing any material omission or misstatement. OUR MAIN CONCERN IS XPRESS MONEY S REPUTATION

36 PENALTIES Failure to comply with the US AML/BSA legislative requirements can lead to criminal charges. The following are some of the penalties: Any MSB that fails to comply with BSA reporting and record keeping requirements faces possible civil penalties of up to $500 for negligent violations and the greater of the following two amounts for willful violations : The Amount involved in the transaction up to $100,000 or $25,000 Under certain circumstances, businesses can also be held criminally liable for the acts of their employees. The maximum criminal penalty for violating a BSA requirement is a fine of up to $500,000 or a term of imprisonment of up to 10 years or both. It is therefore important that agents and employees are thoroughly trained on how to comply with BSA regulations and that a system is in place to ensure that employees are following all anti money laundering laws and regulations.

37 Our responsibilities Verify the identity of Client (Customer Due Diligence measures). Know our customer, agent and Correspondent. Keep accurate and complete records. (Enhanced customer due diligence and ongoing monitoring) Maintain adequate control systems. (Policies and procedures to prevent money laundering and terrorist financing) Continually bear in mind the possibility of money laundering identifying suspicious transactions. Report suspicious transactions to FinCEN. Provide training to employees, agents, Customer services agents.

38 QUESTIONS THANK YOU! If you have any questions or concerns, please contact Xpress Money s Chief Compliance Officer Mary-Jo LaHood CAMS, Chief Compliance Officer US, Canada, & Latin America Xpress Money Services Inc Route 1 North, Suite 304 Princeton, NJ t: f: e: marie.lahoud@xpressmoney.com