Confidentiality products and transactions 

While wanting to keep a level of anonymity when making a transaction is not a crime, the every FSP should be concerned about prevention of financial crimes, so they should impose controls on anonymous transactions and services. For example, matching checks on location of logging in to make the transaction against the person’s/business’ given address should be carried out.

Risk management and mitigation 

Detecting financial terrorism activities and money laundering isn’t always easy as experienced fraudsters and criminals have ways of covering up their tracks and methods. This is why an FSP should introduce additional policies and procedures on how to manage and mitigate the risk of any emerging methods and services. It is important to pay special attention to proper risk assessment as this may jeopardize the integrity of any individual or business. The key stages are:

⇒ Assessing the risk.

⇒ Applying the assessment.

⇒ Reviewing the assessment.

⇒ Looking and using additional resources to complete risk assessment.

When clients are assessed for risks related to ML/FT they are put into 4 different categories, determining the level of risk they are to the business.

⇒ Very unlikely – very little to no chance for such illegal activities occurring with the client.

⇒ Unlikely – a small chance for such illegal activities occurring with the client (1% of transactions).

⇒ Likely – a moderate chance for such illegal activities occurring with the client (10% of transactions).

⇒ Very likely – a high chance for such illegal activities occurring with the client (20% of transactions).

The process of coming up with a final risk assessment bracket is complex and formed by different variables, circumstances and conditions. Once this is done, the risk assessment has to be applied. This must ensure a comprehensive development of the AML/CFT program and meet the obligations under the AML/CFT Act. It should also set out regulations for the conducting of customer due diligence on initial and ongoing bases.

The risk assessment will also have to be audited to determine whether it is accommodative enough to fulfill its purpose. The auditor has to be fully qualified.

In some cases the FSP will have to use additional sources to determine the real risk of ML/FT. There are 22 known methods, usually used to carry out these illegal activities:

⇒ Association with corruption.

⇒ Currency exchanges or cash conversion.

⇒ Cash couriers and currency smuggling.

⇒ Structuring (smurfing).

⇒ Use of credit cards, checks, promissory notes.

⇒ Purchase of portable valuable commodities.

⇒ Purchase of valuable assets.

⇒ Commodity exchanges (barter).

⇒ Use of wire transfers.

⇒ Underground banking and alternative remittance services.

⇒ Trade based ML/FT.

⇒ Gaming activities.

⇒ Abuse of non-profit organizations.

⇒ Investment in capital markets.

⇒ Mingling (business investment).

⇒ Use of shell corporations.

⇒ Use of offshore banks and businesses.

⇒ Use of nominees, trusts, family members or third parties.

⇒ Use of foreign bank accounts.

⇒ Identify fraud or false identification.

⇒ Use of gatekeeper professional services.

⇒ New payment technologies.

Compliance with the AML/CFT Program 

An FSP client should be presented with policies and procedures, explaining how the business should monitor and manage the compliance with the AML/CFT program. In addition, staff training in relevant areas should be outlined in these documents. In the scenario where a client is in a foreign country, the policies will provide information on the extent to which, the AML/CFT program rules apply in accordance with the relevant country’s laws.

The compliance officer is the person specifically appointed to make sure that all outlined policies, procedures and controls are properly followed through at any stage. He or she acts as the middleman or woman between the FSP and the senior management of the client business. The person appointed, has to have the relevant knowledge and experience and go through a vigorous vetting. They also have to be trained appropriately, in order to do their job efficiently and effectively.

Review of the Program

As every process, the progress and structure of the AML/CFT program needs to be reviewed and audited. This is done to determine whether some improvements are needed. For example, if the set out training is insufficient, arrangements for further or more complex sessions should be made. Amends to the program may also be needed if the assessed risk changes, either to go up or drop down.

It is a standard procedure to have the program audited every two years by an independent auditor with relevant experience and knowledge of the financial industry. He or she should not be involved in the risk assessment of the business entity or the development and maintenance of the AML/CFT program.

Penalties

There are complex penalties related to ML/FT, which are all outlined into the Anti-Money Laundering and Countering Financing of Terrorism Act 2009. Civil penalty proceedings may be raised within 6 years of the occurrence of the liability to pay such penalty. The AML/CFT supervisor may be ordered by the court to investigate and conduct interrogations.

A civil penalty may also lead to criminal proceedings, however , if the same person is liable for more than one civil penalties under the same part of the act, he or she will have to pay only one of them.

In addition, an AML/CFT supervisor has immunity and no legal civil penalty or criminal proceedings can be brought against him or her.

A civil liability act may occur when a reporting entity fails to do one or more of the following:

⇒ Conduct customer due diligence as required.

⇒ Adequately monitor accounts and transactions.

⇒ Not enter into or seize a business relationship with a person who does not produce or provide satisfactory evidence of the person’s identity.

⇒ Not enter into or seize a correspondent banking relationship with a shell bank.

⇒ Report transactions in accordance with subpart 2A of Part 2.

⇒ keep records in accordance with the requirements of subpart 3 of Part 2.

⇒ To establish, implement, or maintain an AML/CFT programmed.

⇒ Ensure that its branches and subsidiaries comply with the relevant AML/CFT requirements.

The consequences of civil liability act may be:

⇒ Issue a formal warning under section 80.

⇒ Accept an enforceable undertaking under section 81 and seek an order in the court for breach of that undertaking under section 82.

⇒ The injunction from the High Court under section 85 or 87.

⇒ A pecuniary penalty under section 90.

If you need more information on the SPFG and AML/CTF program, please contact us.