Anti-Money Laundering Bangladesh 1 st Annual Summit

Transcription

1 Anti-Money Laundering Bangladesh 1 st Annual Summit Dhaka, February 7, 2017 REVIEW

2 Fintelekt s 1st Annual AML summit in Dhaka provided an exclusive opportunity for dialogue and debate on various aspects of AML and CFT related to the banking and financial services industry in Bangladesh. The summit was attended by Chief Anti-Money Laundering and Compliance Officers (CAMLCOs) and Deputy Chief Anti-Money Laundering Compliance Officers (Deputy CAMLCOs) of a number of banks in Bangladesh. The deputy governor and head BFIU of Bangladesh Bank addressed the summit in the inaugural session followed by the Managing Director & CEO, Mutual Trust Bank and deputy director - Financial Intelligence Unit, Nepal Rastra Bank. This was followed by presentations made by various technology companies. Topics such as identity matching, challenges of beneficial ownership and modern AML platform were covered. Representatives from major banks in the country also presented on the topics like AML implementation challenges and AML risk assessment. Topics like trade based money laundering and transforming local AML platform into a global program were discussed in depth.

3 Inaugural Session Abu Hena Mohd. Razee Hassan, Deputy Governor and Head BFIU, Bangladesh Bank Criminals use the banking sector for various types of financial crimes. In most of these cases, KYC requirements are complete, but officials often neglect to monitor such transactions, which results in successful fraudulent transactions. Mr. Hassan discussed various initiatives taken by Bangladesh Financial Intelligence Unit (BFIU) to bridge all such gaps. He shared various landmarks that Bangladesh has achieved and steps that need to be taken to tackle money laundering and terrorist financing issues. The success of the money laundering drive depends on the commitment of officials for appropriate compliance. Recently, a National Co-ordination Committee has been formed, headed by the honourable finance minister and comprising of members from 22 agencies. This committee is responsible for policy issues and overseeing national Anti-Money Laundering (AML) and Counter-Financing of Terrorism (CFT) implementation. The constitution of Bangladesh strives to ensure that there is no unheard income or property. This will eventually ensure the spirit of independence and economic emancipation of every citizen of Bangladesh. Banks and financial institutions (FIs) must strengthen their AML and CFT compliance so as to avoid lapses in the process. A process should be created for internal monitoring. BFIU arranges a lot of trainings for CAMLCOs of all banks. Implementation of these trainings at the appropriate levels is important. The BFIU is working for the entire sector, and not just for banks and financial institutions. To support this, all the banks and financial institutions should train their staff to be prepared at all times. - Abu Hena Mohd. Razee Hassan, Bangladesh Bank Fintelekt Anti-Money Laundering Bangladesh 1st Annual Summit 3

4 Inaugural Session Anis A. Khan, Managing Director & CEO, Mutual Trust Bank The awareness about anti money laundering and compliance has gone up manifolds globally. Though corporate governance is extremely important, it is considerably weak. Mr. Khan emphasized on the fact that there is a need to balance business with compliance. He shared worldwide examples from his experience and highlighted the tasks that need to be given priority. If a reporting entity is non-compliant, their image, reputation and goodwill can be tarnished. This in turn results in to generating less business and income. Thus, business has to be balanced with compliance, so that shareholders expectations can be met, along with being compliant with AML/CFT requirements. After ensuring compliance, sustainability is of utmost importance. Training should be imparted to all the employees of FIs, in the form of conferences, seminars, workshops, role plays, videos and exposure to experienced people. Stock market is another space which needs to be looked at for likely instances of money laundering. The name of technology is tarnished because of its misuse by money launderers and terrorist financers. It is therefore necessary for employees of banks and FIs to grow with the help of technology, so that they are capable of beating the people who misuse technology and their organizations. Fraudsters are very progressive. They use technology to come up with new ways to misuse banks and FIs. Thus banks and FIs need to work hard and ensure that fraudsters are thwarted, blocked and annihilated. - Anis A. Khan, Mutual Trust Bank Fintelekt Anti-Money Laundering Bangladesh 1st Annual Summit 4

5 Inaugural Session Hari Kumar Nepal, Dy Director - Financial Intelligence Unit, Nepal Rastra Bank AML and CFT have become a matter of day-to-day life for all financial institutions. This regime is never going to end. Good AML and CFT measures speak a lot about a country and its practices. Mr. Nepal spoke about the importance of implementing it in daily life and avoiding being a victim to crime. He also highlighted the achievements of Bangladesh, showing their progress over the years in cutting the flow of money to illegal activities. Any terrorist activity in any country impacts the entire world. It forces all the countries to look at the situation from a different perspective and apply relevant check points in their system. Amongst all the evils associated with financial crimes, tax evasion, Trade Based Money Laundering (TBML) and beneficial ownership are most serious. The government is unable to function properly because illegal money is being siphoned outside the country. This necessitates a control mechanism. It will be easier to control all other forms of crime if we can control tax evasion and corruption. Countries can put laws in place to control financial crimes and be compliant technically, but unless it shows results in effectiveness, it is not of much use. Bangladesh ranks higher in effectiveness of AML and CFT measures as compared to Bhutan and Sri Lanka. Good AML and CFT practices not just reflect good compliance, but also reflect good governance, good status of law, transparency, financial stability and ultimately overall economic progress. - Hari Kumar Nepal, Nepal Rastra Bank Fintelekt Anti-Money Laundering Bangladesh 1st Annual Summit 5

6 Presentation: Identity Matching Future Trends and Innovations Rahul Oberai, Regional Sales Director - APAC South, Accuity Rahul discussed the importance of the banking industry in controlling financial frauds in any country. He talked about the need for screening and identifying relationships and shared some of the best practices from around the world. He also shared information about identity matching for trade finance. Senior management from banks and FIs are being personally accountable for non-compliance. Banks have the largest penetration as compared to other industries. They have easy access to information, be it demographic or behavioural data. Thus banks are playing a big role in helping the regulators. They need to be efficient in helping the regulators with the right information. Banks can no longer comply with regulation specific to their jurisdiction; they need to comply with global regulations as well. The two important factors while identity matching are: i. Data: Without the right data, any screening tool is useless. There is a need for a single data warehouse. ii. Process: Manual checks are not adequate. Screening needs to be automated. There needs to be a facility for single view of risk. Some important considerations for banks: i. Independent Review by a reputable company or auditor ii. Training to make sure that the KYC screening team understands the importance of this function iii. Filtering solutions provided by a leading vendor iv. Sanction data to be updated regularly v. Good customer data to be maintained Imports of dual-use goods (Goods designed for commercial applications, but which can be used to create weapons of mass destruction) cannot be stopped completely. There has to be more due diligence when dual-use goods are involved. Leveraging on technology is the only option to find a balance between rising compliance costs and margins. Bankers are being asked by their auditors to explain the combination of chemicals to create explosive devices. They are just bankers, not chemists. - Rahul Oberai, Accuity Fintelekt Anti-Money Laundering Bangladesh 1st Annual Summit 6

7 Presentation: AML Risk Assessment Challenges & Best Practices John Mathews, Executive Vice President & Head Client Services, Principal Officer - AML, HDFC Asset Management, India For any organization, protecting the entity s reputation should be of primary concern. Every organization has a risk appetite, and whatever risks the organization is being exposed to should be in line with their risk appetite. John shared the importance of AML risk assessment, inputs that make robust policies and a strong risk-based compliance. He also shared the best practices in an AML risk assessment and ways to mitigate risk. An AML Risk Assessment program helps an organization to identify and mitigate risks, prepare a strong AML compliance program and detect and prevent potential violations of laws. There are two ways to assess risk: Rule-based approach and risk-based approach. Four pillar approach for an AML risk assessment program: i. Overarching Contours: Maintaining a single, consistent enterprise-wide model and formally defined structures ii. People: Experienced chief risk officer, knowledgeable and dedicated team and continuous training iii. Process: Globally consistent and standardized methodology, automated scoring and individual judgment iv. Technology: Opting for automation to facilitate speedy analysis, standard risk factors, trend analysis, dynamic real time reporting and escalation and maintaining a central repository of data and knowledge. The full risk assessment includes the following steps: i. Risk Assessment: Identifying and analyzing risks ii. Audits: Conducting audits iii. Robust Policies: Using inputs from risk assessment and audits to prepare policies, alert management, EDD measures and vigorous monitoring iv. Risk-based compliance: Around internal controls, internal validations, compliance audit and board level involvement The cost of compliance is less than the cost of result of non-compliance. - John Mathews, HDFC Asset Management, India Fintelekt Anti-Money Laundering Bangladesh 1st Annual Summit 7

8 Presentation: The Essential Components Required to Meet Regulatory Compliance in a Modern AML Platform Chris McAuley, Director, Fraud and Financial Crimes Unit, SAS With a constantly rising threat of financial crime, a strong AML platform is the need of the hour. Chris highlighted essential components any AML platform must have to tackle money laundering and other financial crimes in an effective way. Financial crime is a growing area to address in risk management. The financial crimes agenda is increasingly driven by technological challenges and tightening compliance regulations. Key AML challenges globally: i. High volumes of alerts and false positives: Inefficient processes and weak detection rates ii. Existing detection engines are rigid and black box: Cannot plug in new data and fraudsters continually adapt to them iii. No quick and easy way to explore disparate data sources: No comprehensive analysis or emerging trends Some of the essential AML components are: i. Effective Detection Engine ii. Advanced Scenario Management iii. Watch List Monitoring iv. Real Time Analytics v. Enterprise Case Management vi. Advanced Data Visualization vii. Easy User Reporting viii. System Management The heart of any AML system is alert generation. Alerts are central to detecting money laundering. - Chris McAuley, SAS Fintelekt Anti-Money Laundering Bangladesh 1st Annual Summit 8

9 Presentation: Overcoming AML Implementation Challenges Sarwar Chowdhury, Consultant, Islami Bank Bangladesh There is a lot at stake for banks today. One negative report or a penalty can cause business and reputational loss, affecting the growth of the bank. There is also a personal liability on heads of banks and compliance officers. Sarwar discussed the AML challenges the banks of Bangladesh are facing and shared ways to overcome those challenges. Top 5 AML challenges in Bangladesh are: i. Senior management and board exposure to AML requirements or criticality ii. Availability of the right skills and manpower iii. Poor base level customer and transaction data iv. Limited cost effective and Bangladesh specific solutions v. Need is immediate as the danger of De-risking is immediate The most critical requirement for a successful AML program is seriousness and focus by the board and senior management. People, process and technology are the three key ingredients for successful AML implementation. AML implementation consists of 3 phases: i. AML diagnostic: Analysis, assessment, testing and analytics ii. Risk map: Hand holding, pilot, demos and sample checks iii. Implementation plan: On-ground implementation Four important parts in an AML program are: i. Risk based framework: Forms the base of the AML program and requires significant analytics, subject matter and on-ground assessment support. ii. KYC and due diligence: Incorporates equal parts of people, process and technology. Standardization and integrity of KYC information is critical. iii. Transaction monitoring: Critical and essential component to determine ML gaps. Selection of the right tool is important considering cost, scalability, usability and flexibility. iv. Training and resources: Staffing the AML department with the right people and aligning the HR and training departments to the requirements. Information Technology (IT) is the backbone of any AML system. Without a robust IT infrastructure, criminals will always be a step ahead. - Sarwar Chowdhury, Consultant Fintelekt Anti-Money Laundering Bangladesh 1st Annual Summit 9

10 Presentation: Getting to Grips with the Challenge of Beneficial Ownership Ryan Martis, Consultant, Bureau van Dijk Beneficial Ownership (BO) has gained a lot of importance in the last few years. Organizations have realised that it is extremely important to know their third parties. It is important for organizations to find a technology to suit internal compliance procedures which will help them solve this issue. Ryan shared illustrations to show the complexities of BO and discussed the pressing priorities. Beneficial owner is a person who exercises ultimate effective control over a juridical person. Tools and data are required that define qualifying levels of Beneficial Ownership based on different needs and regulations. AML teams should aim to stay ahead of regulations and be prepared for increasing domestic scrutiny. Circular ownership makes it difficult to understand the real owner. There is no quick fix to the challenge of Understanding Beneficial Ownership (UBO). - Ryan Martis, Bureau van Dijk Fintelekt Anti-Money Laundering Bangladesh 1st Annual Summit 10

11 Presentation: Trade Based Money Laundering Kamlesh Rangan, Director & Operations Lead - AML Centre of Excellence, Ernst & Young The world is possibly losing billions of dollars annually in lost taxes to trade-mispricing alone. 80% of illicit financial flows from developing countries are channelled through Trade Based Money Laundering (TBML) methods. Kamlesh discussed red flag indicators and common typologies in regards with TBML. He also shared information on advanced techniques to counter TBML. TBML is the process of disguising the proceeds of crime and moving value through the use of trade transactions in an attempt to legitimize their illicit origins. Nearly 80% of money laundering conducted in Bangladesh is under cover of export-import business. Major red flag indicators to identify TBML are: i. Price manipulation: Discrepancies between the value of goods reported on invoice and the fair market value ii. Inconsistent documentation: Locations, terms, or description of goods not consistent with letter of credit iii. High risk products: Goods being shipped are high risk for money laundering activities iv. High risk jurisdictions: Goods being shipped to countries designated as high risk for money laundering activities v. Mode of shipment: Shipment does not make economic vi. sense Unrelated business: Commodity being shipped is not in line with the exporter or importer s regular business activities vii. Mode of payment: Method of payment appears inconsistent with the risk characteristics of the transaction viii. Entity type: Use of front (or shell) companies Pillars of a robust TBML compliance framework are: i. Governance and control framework ii. Customer due diligence iii. Risk assessment iv. Effective screening process v. System driven approach vi. Skilled resources and effective trainings Trade is a highly document centric process and has a lot of continuous real-time transactions. This makes management of the process really complex. - Kamlesh Rangan, Ernst & Young Fintelekt Anti-Money Laundering Bangladesh 1st Annual Summit 11

12 Presentation: AML Maps & Lessons for Bangladesh Sarabjeet Singh, Partner, Risk & Advisory Practice, BMR Advisors Sarabjeet highlighted some of the AML issues that Bangladesh is facing. He discussed the effects of global de-risking on Bangladesh, key areas of concern and emphasized on the importance of a good AML program. The causes for increase in AML actions are: i. Enhanced global cooperation and coordination and pressure on tax havens and equivalent regimens ii. On-ground activation of laws by regulators and agencies iii. Technological advancements Deficiency of AML program and deficiency of KYC norms fetch highest penalties globally. Imprisonments because of AML inadequacy have increased post 2012, reflecting the intent of regulators to establish personal liabilities on individuals, even for organization centric AML actions. Former chairmen of board along with founders have been the most convicted professionals amongst individuals. This trend is expected to continue and grow. Banking, Financial Services and Insurance (BFSI) entities (around 70% banks) have attracted more than 60% of the total penalties. AML actions against banks constitute 50% of all records but around 75% of all penalties. This clearly reaffirms the status of banks being most at risk, by AML regulators. Key areas of concern are: i. Inadequate due diligence ii. Lack of continuous monitoring iii. Insufficient AML expertise iv. Technology A money launderer looks for the weakest link. All he needs is ONE weak bank with a weak control, and he is in the system. - Sarabjeet Singh, BMR Advisors Fintelekt Anti-Money Laundering Bangladesh 1st Annual Summit 12

13 Presentation: Transforming Local AML Platform into a Global Program Tarun Bhatia, Managing Director - Investigations and Disputes, Kroll The world is in a situation where organizations can no longer think of being just local. Bangladesh is very well positioned, as it is surrounded by growing economies. Tarun talked about what external parties look at when they want to penetrate a new country. He pointed out the key issues that continue to affect Bangladesh and shared some of Kroll s use cases on AML globally. Three key areas Kroll focuses on are: i. Business Intelligence to support new initiatives ii. Internal investigations to address a known problem iii. Intelligence to help address complex problems Bangladesh is a young country and located strategically: is surrounded by growing economies and has a large and young population. The country has a vibrant economy driven by consumption and exports. Thus it has strong potential but with specific challenges. Lack of transparency and corruption in Bangladesh could disrupt growth. Regulations with regards to filing of corporate records are lax and there are issues with Intellectual Property Rights ( IPR ) enforcement. Three key risks that continue to affect Bangladesh are: i. The corporate governance environment is still evolving ii. Risk to security of assets can impact local investments iii. Corruption remains a key challenge There has been a significant rise in money laundering related frauds emanating from rapid globalization and increased use of technology. Central Banks and regulators have wealth of information to assist in the detection of money-laundering at a macro level. Money laundering strategies adapt and develop as controls improve, so Financial Institutions must proactively manage risks. Regulators and Central Banks must leverage their internal data and foster international cooperation to identify systemic money laundering issues. There is no one size fits all solution to detect moneylaundering through financial institutions. - Tarun Bhatia, Kroll Fintelekt Anti-Money Laundering Bangladesh 1st Annual Summit 13

14 Contact Oliver Dickson Vice-President Fintelekt Advisory Services Pvt Ltd 202, Orchard, Nachiket Park Baner Road, Pune India Copyright Fintelekt Advisory Services Pvt Ltd For limited circulation only.