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91 Cards in this Set
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Financial Action Task Force
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(FATF)
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Financial Action Task Force
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(FATF)
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Countries with FATF Observer Status
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n China
n Republic of Korea |
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To qualify for FATF membership, a country must:
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n Be strategically important;
n Be a full and active member of a relevant FATF-style regional body; n Provide a letter from an appropriate minister or person of equivalent political rank making a political commitment to implement FATF Recommendations within a reasonable time frame and to undergo the mutual evaluation process n Criminalize money laundering and terrorist financing; require financial institutions to identify their customers, to keep customer records and to report suspicious transactions; |
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The following organizations are FATF associate members (3):
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n The Asia/Pacific Group on Money Laundering (APG)
n The Council of Europe Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures (MONEYVAL) - formerly PC-R-EV n The Financial Action Task Force on Money Laundering in South America (GAFISUD) |
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The FATF focuses on several important tasks including (3):
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1. Spreading the anti-money laundering message
worldwide: 2. Monitoring implementation of the FATF Recommendations among FATF members. 3. Reviewing money laundering trends and countermeasures |
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1. Spreading the anti-money laundering message
worldwide: |
The group promotes establishment of a global
AML and anti-terrorist financing network based on expansion of its membership, the development of regional anti-money laundering bodies in various parts of the world, and cooperation with other international organizations. |
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2. Monitoring implementation of the FATF
Recommendations among FATF members. Implementation is monitored through a two-pronged approach: |
n an annual self-assessment exercise
where member countries are required to fill out detailed standard questionnaires on the status of their compliance with the Recommendations.n the more detailed mutual evaluation procedure. |
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3. Reviewing money laundering trends and countermeasures
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Faced with a financial system that has no geographic
horizons, operates around the clock in every time zone, and maintains the pace of the global electronic highway, criminals can constantly search for new points of vulnerability and adjust their laundering techniques to respond to counter-measures introduced by FATF members and other countries. |
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The 40 Recommendations provide a complete set of countermeasures
against money laundering, covering (3): |
n The criminal justice system and law enforcement
n The financial system and its regulation n International cooperation |
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The FATF focuses on several important tasks including:
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1. Spreading the anti-money laundering message
worldwide: 2. Monitoring implementation of the FATF 3. Reviewing money laundering trends and countermeasures Recommendations among FATF members. |
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1. Spreading the anti-money laundering message
worldwide: |
The group promotes establishment of a global
AML and anti-terrorist financing network based on expansion of its membership, the development of regional anti-money laundering bodies in various parts of the world, and cooperation with other international organizations. |
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2. Monitoring implementation of the FATF
Recommendations among FATF members. |
n an annual self-assessment exercise
where member countries are required to fill out detailed standard questionnaires on the status of their compliance with the Recommendations. n the more detailed mutual evaluation procedure. |
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The 40 Recommendations provide a complete set of countermeasures
against money laundering, covering: |
n The criminal justice system and law enforcement
n The financial system and its regulation n International cooperation |
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The most important changes made in 2003 were:
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n Expanded coverage to include terrorist financing.
n Widened the categories of business that should be covered by national laws n Specified compliance procedures on issues such as customer identification and due diligence, n Adopted a clearer definition of money laundering predicate offenses. n Encouraged prohibition of so-called “shell banks,” typically set up in offshore n Included stronger safeguards, notably regarding international cooperation in, for example, terrorist financing investigations. |
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Some highlights of the substance of the 40 Recommendations are:
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Designated Categories of Offenses:
Knowledge and Criminal Liability: Expanded Coverage of Industries: |
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Designated Categories of Offenses:
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Recommendations specify crimes, called “designated categories
of offenses,” that should serve as money laundering predicates |
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Knowledge and Criminal Liability:
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the concept that knowledge required for the offense
of money laundering may be inferred from objective factual circumstances. |
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Expanded Coverage of Industries:
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casinos, real estate agents, precious metals dealers, lawyers, notaries, and independent paralegals, trust and company service providers.
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Beneficial ownership:
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stress the need
for improved “transparency” concerning the beneficial ownership of companies and trusts. |
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“beneficial owner”
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the
natural person(s) who ultimately owns or controls a customer and/ or the person on whose behalf a transaction is being conducted. |
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Customer Due Diligence (CDD) measures: Covered institutions
must (4): |
n Identify the customer and verify that customer’s identity
using reliable, independent source documents, data or information. n Identify the beneficial owner, and take reasonable measures to verify the identity of n Obtain information on the purpose and intended nature of the business relationship. n Conduct ongoing due diligence on the business relationship and scrutinize transactions |
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Customer Due Diligence on PEPs and Correspondent
Accounts: |
seek tougher customer
due diligence checks on high-risk business areas such as correspondent banking or dealings with people who have questionable political histories. |
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Accounts in Anonymous or Fictitious Names:
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stress that financial institutions should not keep
accounts that are either anonymous or held in obviously fictitious names. They should undertake customer due diligence measures, including identifying and verifying the identity of their customers |
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Shell Banks:
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Countries should not approve the establishment or
accept the continued operation of shell banks. Financial institutions should refuse to enter into, or continue, a correspondent banking relationship with shell banks. |
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Currency Transaction Reporting:
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countries should consider setting up a currency transaction
reporting system. |
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International Cooperation:
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Countries should rapidly,
constructively and effectively provide the widest possible range of mutual legal assistance in money laundering and terrorist financing investigations |
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1 of 8 Special Recommendations:
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1. Take immediate steps to ratify and implement the
relevant United Nations instruments regarding terrorist financing, |
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2 of 8 special recommendations
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2. Criminalize the financing of terrorism, terrorist acts and
terrorist organizations and ensure that these offenses are designated as money laundering predicate offenses. |
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3 of 8 special recommendations
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3. Each country should implement measures to freeze
without delay funds or other assets of terrorists, those who finance terrorism and terrorist organizations. Each country should also implement measures that enable authorities to seize and confiscate property that either derives from or is to be used in the financing of terrorism. |
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4 of 8 special recommendations
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4. Report suspicious transactions linked to terrorism.
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5 of 8 special recommendations
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5. Provide the widest possible range of assistance to
other countries’ law enforcement and regulatory authorities for terrorist financing investigations. |
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6 of 8 special recommendations
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Impose anti-money laundering requirements on
alternative remittance systems. An alternative remittance system, or informal value transfer system (IVTS) refers to any network or mechanism that can be used to transfer funds or value from place to place either without leaving a formal paper-trail of the entire transaction or without going through regulated financial institutions. IVTS include various ethnic practices, such as hawala, |
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7 of 8 special recommendations
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Strengthen customer identification measures in
international and domestic electronic funds. |
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8 of 8 special recommendations
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Ensure that entities, in particular non-profit
organizations, cannot be used to finance terrorism. |
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The FATF
recommends that non-profit organizations: |
n Maintain and be able to present full program
budgets that account for all expenses n Conduct independent internal audits and external field audits, the latter to ensure funds are being used for intended purposes n Identify every member of the board of directors and formalize the process by which they are elected, appointed and terminated. |
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(NCCTs)
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“Non-Cooperative Countries and
Territories” |
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1. Loopholes in financial regulations
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n No or inadequate regulations and supervision
of financial institutions; n Inadequate rules for licensing and creation of financial institutions, including assessing the backgrounds of managers and beneficial owners; n Inadequate customer identification requirements for financial institutions; n Excessive secrecy provisions regarding financial institutions; n Lack of efficient suspicious transactions reporting. |
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2. Obstacles raised by other regulatory requirements
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n Inadequate commercial law requirements for
registration of business and legal entities; n Lack of identification of the beneficial owner(s) of legal and business entities. |
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3. Obstacles to international cooperation
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n Obstacles to co-operation from administrative
authorities; n Obstacles to co-operation from judicial authorities. |
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4. Inadequate resources for preventing and detecting
money laundering activities |
n Lack of resources in public and private
sectors; n Absence of a financial intelligence unit or equivalent mechanism. |
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The goal of the NCCT process
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is to reduce the vulnerability of the
financial system to money laundering by ensuring that all financial centers adopt and implement measures for prevention, detection and punishment of money laundering according to internationally recognized standards. |
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The Basel Committee on Banking Supervision,
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established
in 1974 by the central bank governors of the G-10 countries, promotes sound supervisory standards worldwide. |
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In 1988, the Basel Committee issued a Statement of Principles
called “Prevention of Criminal Use of the Banking System for the Purpose of Money Laundering” in recognition of the vulnerability of the financial sector to misuse by criminals. This was a step toward preventing the use of the banking sector for money laundering, and it set out principles with respect to (6): |
n Customer identification
n Compliance with laws n Conformity with high ethical standards and local laws and regulations n Full cooperation with national law enforcement to the extent permitted without breaching customer confidentiality n Staff training n Record keeping and audits. |
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(KYC)
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Know Your Customer
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A
number of specific sections in this paper offer recommendations for tougher standards of due diligence for higher risk areas within a bank. The paper has five sections: |
1. Introduction
2. Importance of KYC standards for supervisors and banks 3. Essential elements of KYC standards 4. The role of supervisors 5. Implementation of KYC standards in a cross-border context |
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The Committee discusses the following issues in the paper (12): 1 AND 2
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n Banks should not only establish the identity of their
customers but also monitor account activity to identify transactions that do not conform to the normal or expected transactions for that customer or type of account. n The paper does not prohibit numbered accounts. |
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The Committee discusses the following issues in the paper (12): 3
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n The paper has identified seven specific customer
identification issues: |
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n The paper has identified seven specific customer
identification issues: |
q Trust, nominee and fiduciary accounts;
q Corporate vehicles, particularly companies with nominee shareholders or entities with shares in bearer form; q Introduced business; q Client accounts opened by professional intermediaries, such as ‘pooled’ accounts managed by professional intermediaries on behalf of entities such as mutual funds, pension funds and money funds; q Politically exposed persons; q Non-face-to-face customers, i.e. Customers who do not present themselves for a personal interview; and q Correspondent Banking. |
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The Committee discusses the following issues in the paper (12): 4 AND 5
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n Banks should develop customer acceptance policies
and procedures describing the customer’s background, country of origin, business activities and other risk indicators, and develop clear and concise descriptions of who is an acceptable customer n Private banking accounts should “under no circumstances” be allowed to escape KYC policies |
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The Committee discusses the following issues in the paper (12): 6 AND 7
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n Banks should make every effort to know the identity
of corporations that operate accounts and, when professional intermediaries are involved, verify the exact relationship between the owners and intermediary, wherever the law permits n Banks should use standard identification procedures when dealing with “non-face-to-face” customers and never agree to open an account for persons who are adamant about anonymity |
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The Committee discusses the following issues in the paper (12): 8 AND 9
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n Bank-wide employee training should be provided that
explains the importance of the KYC policies, refresher courses on basic and new requirements n Internal auditors or compliance officials should regularly monitor staff performance and adherence to KYC procedures |
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The Committee discusses the following issues in the paper (12): 10 and 11
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n Continued monitoring of high-risk accounts by
compliance personnel should lead to a greater understanding of the customers’ “normal activities” and enable the updating of identification papers and detection of suspicious transaction patterns n Bank regulators should ensure that bank staff follows KYC procedures, review customer files and a sampling of accounts, and emphasize that they will take the “appropriate action” against officers who fail to follow KYC procedures |
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The Committee discusses the following issues in the paper (12):
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n The four key elements of KYC, according to this paper are:
q Customer identification q Risk management q Customer acceptance q Monitoring |
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The unique nature of the EU
as a “Community of States” makes it fundamentally different from other international organizations. how? |
The EU can adopt measures that
have force of law even without approval by national Parliaments of the various member states. Plus, European law prevails over national law in the case of directives. |
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Key features of the Second Directive are:
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n It extended the scope of the First Directive beyond
drug-related crimes. n It explicitly brought bureaux de change and money remittance offices under AML coverage. n The Directive says that knowledge of criminal conduct can be inferred from objective factual circumstances. n It provides a more precise definition of ml |
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n It provides a more precise definition of money
laundering to include: |
q The conversion or transfer of property with
knowledge that it is derived from criminal q Concealing or disguising the nature, source, location, disposition, movement, q The acquisition, possession or use of property, knowing, when it is received, q Participation in, association to commit, the attempt to commit, and the aiding, abetting, activity |
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Key features of the Second Directive are:
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n It extended the scope of the First Directive beyond
drug-related crimes. n It explicitly brought bureaux de change and money remittance offices under AML coverage. n The Directive says that knowledge of criminal conduct can be inferred from objective factual circumstances. n It provides a more precise definition of ml n It widens the businesses and professions that are subject to the obligations of the Directive. |
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n It provides a more precise definition of money
laundering to include: |
q The conversion or transfer of property with
knowledge that it is derived from criminal q Concealing or disguising the nature, source, location, disposition, movement, q The acquisition, possession or use of property, knowing, when it is received, q Participation in, association to commit, the attempt to commit, and the aiding, abetting, activity |
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the
Third EU Directive extended the scope of the directives by: |
n Defining “money laundering” and “terrorist financing”
as separate crimes. n Extending customer identification and suspicious activity reporting obligations n Detailing a risk-based approach to customer due diligence. n Protecting employees who report suspicions n Obliging member states to keep comprehensive statistics regarding the use of and results obtained from suspicious trans reports n Requiring all financial institutions to identify and verify the “beneficial owner” of all accounts |
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The Third Money Laundering Directive applies to: 7 of 11
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n Credit institutions
n Financial institutions n Auditors, external accountants and tax advisors n Legal professionals n Trust and company service providers n Estate agents n High value goods dealers who trade in cash over 15, 000 |
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The Third Money Laundering Directive applies to: 8 -11
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n Casinos
The scope of the Third Money Laundering Directive differs from the Second Money Laundering Directive in that: n It specifically includes the category of trust and company service providers; n It covers all dealers trading in goods who trade in cash over 15000 Euros; and n The definition of financial institution includes certain insurance intermediaries. |
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“comitology,”
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the EU system that oversees
implementation of acts proposed by the European Commission. |
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Asia/Pacific Group on Money Laundering (APG) (6 points):
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n Provides a focus for cooperative AML and anti-terrorist
financing efforts in the Asia/Pacific region; n Provides a forum in which: q Regional issues can be discussed and experiences shared q Operational co-operation among member jurisdictions is encouraged; n Facilitates the adoption and implementation by member jurisdictions of internationally accepted AML and anti-terrorist financing measures; n Enables regional and jurisdictional factors to be taken into account in the implementation of international AML and anti-terrorist financing measures; n Encourages jurisdictions to implement AML and antiterrorist financing initiatives including more effective mutual legal assistance; and n Co-ordinates and provides practical support, where possible, to member and |
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n Provides a focus for cooperative AML and anti-terrorist
financing efforts in the Asia/Pacific region; n Provides a forum in which: q Regional issues can be discussed and experiences shared q Operational co-operation among member jurisdictions is encouraged; n Facilitates the adoption and implementation by member jurisdictions of internationally accepted AML and anti-terrorist financing measures; n Enables regional and jurisdictional factors to be taken into account in the implementation of international AML and anti-terrorist financing measures; n Encourages jurisdictions to implement AML and antiterrorist financing initiatives including more effective mutual legal assistance; and n Co-ordinates and provides practical support, where possible, to member and |
n Recognizes the need for action to combat money
laundering and terrorist financing; n Recognizes the benefits to be obtained by sharing knowledge and experience; n Has taken or is actively taking steps to develop, pass and implement anti money laundering and anti-terrorist financing legislation and other measures based on accepted international standards; n Subject to its domestic laws, commits itself to implementing the decisions made by the APG; n Commits itself to participation in the mutual evaluation program; n Contributes to the APG budget in accordance with arrangements agreed by the APG. |
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Caribbean Financial Action Task Force
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N
o global solution to the world’s money laundering problem is possible without the active participation of Caribbean nations, since many are or have been premier laundering centers. |
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The declaration recommended laws of The Caribbean Financial Action Task
Force (CFATF): |
n Defining money laundering based on the model laws
issued by the Organization of American States n Concerning the seizure and forfeiture of drug proceeds and linked assets. They should enable identification, tracing and evaluation of property subject to seizure, and permit freezing orders. n Allowing judicial challenges to seizure orders by an administrative body n Permitting forfeiture in all cases following conviction n Permitting courts to decide that “all property obtained during a prescribed period of time by a person convicted of drug trafficking has been derived from such criminal activity.” |
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The declaration’s terms of CFATF:
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n Permit continuation of numbered accounts at financial
institutions with the understanding that account information would be made available to “competent authorities” upon request, and insist on strong legal requirements on customer identification n Insist that in large currency transactions, customer identification procedures and record keeping are “mandatory” n Amend bank secrecy laws to allow reporting of suspicious transactions by financial institutions, but leave it optional whether a statute is required |
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The CFATF monitors members’ implementation of the anti-money
laundering recommendations through the following activities: |
n Self-assessment of the implementation of the
recommendations n An ongoing program of mutual evaluation of members n Coordination of, and participation in, training and technical assistance programs n Biennial plenary meetings for technical representatives n Annual ministerial meetings |
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South American Financial Action
Task Force (GAFISUD) |
The South American Financial Action Task Force was created in
December 2000 in Cartagena, Colombia. It includes countries such as Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Paraguay, Peru and Uruguay, and its main objective is to implement antimoney laundering measures in South America. |
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Middle East and North Africa
Financial Action Task Force (MENAFATF) |
At an inaugural Ministerial Meeting held in Manama, Bahrain,
in November 2004, the governments of 14 countries decided to establish a Financial Action Task Force-style regional body for the Middle East and North Africa. |
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Eurasian Group on Combating Money
Laundering and Terrorist (EAG) |
formed in October 2004 in Moscow,
with China, Russia, Kazakhstan, Tajikistan, Kyrgyzstan and Belarus as the initial member countries. |
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Eastern and South African
Anti-Money Laundering Group. Its objectives were to: |
n Adopt and implement the 40 Recommendations of the
Financial Action Task Force; n Apply AML provisions to all serious crimes; and n Implement any other measures contained in multilateral agreements and initiatives to which member states subscribe pertaining to the prevention and control of the laundering of proceeds from all serious crimes. |
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Organization of American States –
Inter-American Drug Abuse Control Commission (CICAD) |
n Serves as the Western Hemisphere’s policy forum on
all aspects of the drug problem; n Fosters multilateral cooperation on drug issues in the Americas; n Executes action programs to strengthen the capacity of member states to prevent and treat drug abuse, combat production and trafficking of illicit drugs; and deny traffickers their ill-gotten gains; n Promotes drug-related research, information exchange, specialized training, and technical assistance; and n Develops and recommends minimum standards for drug-related legislation, treatment, the measurement of both drug consumption and the cost of drugs to society, and drug-control measures, among others. |
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Wolfsberg Group
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12 global banks that
aims to develop financial services industry standards and related products, for Know Your Customer, Anti-Money Laundering and Counter Terrorist Financing policies. to draft anti-money laundering guidelines for private banking that, if implemented by banks worldwide, would mark an unprecedented private-sector assault on the laundering of corruption proceeds. |
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The principles list several situations that require further due diligence, including activities that involve:
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n Public officials, including individuals who “have or have
had positions of public trust… and their families and close associates” n High-risk countries, including countries “identified by credible sources as having inadequate anti-money laundering standards or representing high-risk for crime and corruption” n High-risk activities, involving clients and beneficial owners whose source of wealth “emanates from activities known to be susceptible to money laundering” n Offshore jurisdictions, which the principles do not define |
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The principles also address:
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n Reporting to management of laundering control issues
n AML training n Retention of relevant documents n Deviation from policy n Creation of a laundering control department and a control policy |
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The Wolfsberg recommendations include:
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n Providing official lists of suspected terrorists on a
globally coordinated basis by relevant authorities n Including adequate information in the lists to help institutions search customer databases efficiently n Prompt feedback to institutions following circulation of the official lists n Information on manner, means and methods used by terrorists n Development of government guidelines for business sectors and activities identified as high-risk for terrorism financing n Development of uniform global formats for funds transfers that assist in detection of terrorism financing |
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Among the more notable recommendations:
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n Due diligence should be risk-based, depending on
the location, type of business, ownership, base, regulatory status and AML controls of the correspondent banking client or business n An institution should not offer its products or services to a shell bank n Generally, the new principles should not apply to central banks and monetary authorities of member countries of the FATF or multinational institutions such as the International Monetary Fund and World Bank n All correspondent banking client information should be reviewed and updated periodically based on risk factors n The principles should be part of a financial institution’s larger AML program |
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the IMF and World Bank have become more active in
combating money laundering by (4 points): |
n Concentrating on money laundering over other forms
of financial abuse; n Helping to strengthen “financial supervision and regulation” in countries; n More closely interacting with the OECD and the Basel Committee on Banking Supervision; and n Insisting on application of international AML standards in countries that ask for assistance. |
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Other international organizations with money laundering and
terrorist financing initiatives: |
n African Development Bank
n Asia Development Bank n The Commonwealth Secretariat n European Bank for Reconstruction and Development (EBRD) n European Central Bank (ECB) n Europol n Inter-American Development Bank (IDB) n Interpol n International Organization of Securities Commissions (IOSCO) n Offshore Group of Banking Supervisors (OGBS) n World Customs Organization (WCO) |
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Section 311 of USA Patriot Act: Special Measures for Primary Money Laundering
Concerns |
Provides the U.S. Treasury
Department to apply graduated, proportionate measures against a foreign jurisdiction, a foreign financial institution, a type of international transaction or a type of account that the Treasury secretary determines to be a “primary money laundering concern.” |
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Once identified,
the Treasury Department can then apply any of five special measures that require domestic financial institutions to (5 points): |
1. Keep records and file reports on particular
transactions, including the identities of the participants in the transaction and the beneficial owners of the funds involved; 2. Obtain information on the beneficial ownership of any account opened or maintained in the U.S. by a foreign person or a foreign person’s representative; 3. Identify and obtain information about customers who are permitted to use or whose transactions are routed through a foreign bank’s “payable-through” account; 4. Identify and obtain information about customers permitted to use, or whose transactions are routedthrough, a foreign bank’s “correspondent” account; or 5. Close certain payable-through or correspondent accounts. |
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Section 312 of USA Patriot Act: Correspondent and Private Banking Accounts
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Requires “enhanced due diligence” for foreign
correspondent (which includes virtually all account relationships that institutions can have with a foreign financial institution) and private banking accounts. |
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The due diligence program must include
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“appropriate, specific and
risk-based” enhanced policies, procedures and controls designed to report suspected money laundering in a correspondent account maintained in the United States. It must also be included in the institution’s anti-money laundering program. |
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To fall under the rule, a private banking account must maintain
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a minimum aggregate deposit of $1 million or more for one or
more non-U.S. persons and be assigned for liaison with the non- U.S. person to a bank employee. If the account does not have a minimum of $1 million, it is not covered by the rule but must still be subject to internal money laundering controls. |
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Section 313 USA Patriot Act:
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Prohibits U.S. banks and securities brokers and dealers
from maintaining correspondent accounts for foreign unregulated “shell” banks that have no physical presence anywhere |
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Section 319(b):
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Records relating to Correspondent Accounts
for Foreign Banks: Allows the Secretary of the Treasury or the Attorney General to issue a summons to, or to subpoena records of, a foreign bank that maintains a correspondent account in the U.S. |
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SUA
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“specified unlawful activity”
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(OFAC)
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Office of Foreign Assets Control.
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what OFAC does:
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administers and enforces economic and trade sanctions
based on U.S. foreign policy and national security goals against targeted foreign countries, terrorists, international narcotics traffickers, and those engaged in activities related to the proliferation of weapons of mass destruction. |