Presentation on AML & KYC

1. Anti Money Laundering

2. Session Topics
• What is Money Laundering
• Money Laundering in Practice
• Corporate Vehicles in Money Laundering
• Understanding Terrorist Financing
• Fighting Money Laundering with AML Regulations – U.S.
• Fighting Money Laundering with AML Regulations – EU
• Money Laundering prevention measures in Organization
• Screening
-Risk Rating
-RED Flags
-Sanctions

3. What is Money Laundering
• Bringing illegally acquired funds into the financial system and making their source difficult to trace and making them appear
legal so that money can be freely used.
• Stages of Money Laundering
Placement - Credit card repayments, Smurfs, Gambling, Bank deposits
Layering - Shell companies, Offshore banks, Complex transactions, Stock dealing, Buying Art
Integration - Real Estate, Luxury cars, Boats & Jets
• Money laundering have negative business, economic, and social consequences
Economic - Undermines integrity
Business - Increase unfair competition
Social - Weakens society & democracy

4. Money Laundering in Practice
Money Laundering using Financial Businesses
Complex wire transfers, Money services business, Private
banking, Credit cards
Money Laundering using Non Financial Business
Real estate, Art dealers, Casinos, Car Dealerships used as
methods for laundering larger amounts
Money Laundering using Unconventional Methods
Online marketplaces, crypto currencies, peer to peer payments
and messaging apps, Gift and prepaid cards
Money Laundering using Black market Peso Exchange Example
Drug cartel makes $1m by selling drugs in U.S.
Money broker purchases $1m at discount price.
Money broker contacts money exchangers and sells 4 X $250k of $1m.
Money exchangers sell USD for local currency to local importer of US goods.
US exporter gets USD and ships goods.
South America drug cartel gets local currency.

5. Corporate Vehicles in Money Laundering
Shell, shelf and front companies
• Shell Company – There is no physical presence and independent economic value
• Shelf Company – Incorporated and put on a shelf and sold eventually
• Front Company – Associated to a larger brand or group with limited or no operations
Misuse of corporate vehicles for money laundering techniques include
• Multi jurisdictional structures of corporate entities and trusts
• Specialized financial intermediaries / professionals
• Offshore - A location outside of one’s national boundaries
• OFC - A country or jurisdiction that provides financial services to nonresidents
• Tax Haven - Has laws and other measures that can be used to evade or avoid the tax laws or regulations of other
jurisdictions

6. Understanding Terrorist Financing
• What is Terrorist Financing
Financing to terrorists, terrorist acts and terrorist organizations
Terrorist organizations have a significant need of financial and economical resources
Legal source examples - Donations, Operating business with complex structure
Illegal source examples - Drug trade and Human trafficking
• Stages of Terrorist Financing
Collecting funds intended for use in supporting the terrorist organization from different sources
Storing the funds, while determining and planning for their use
Moving funds as and when required
Using the funds as needed to further the organization goals
• Money laundering vs. Terrorist Financing
Both are financial crimes with severe consequences and damages
Exploit the same vulnerabilities for their purposes

7. Fighting Money Laundering with AML Regulations – U.S.
Bank Secrecy Act 1970
Administered by Financial Crimes
Enforcement Network (FinCEN)
BSA demands financial institutions to
maintain detailed records of all transactions
Currency exchanges & certain monetary
instruments more than $10,000 dollars to be
filed
Money Laundering Control Act 1986
MLCA makes it a crime knowingly engaged in a
financial transactions with proceeds to unlawful
activity
Intent to promote or carrying on unlawful activity
by concealing nature, location, source, ownership
or control of the illicit proceeds
USA Patriot Act
To strengthen measures to prevent use of U.S.
financial system
Section 312 of this act requires U.S. financial
institutions to perform due diligence
For foreign financial institutions & private banking
accounts established or maintained for non-U.S.
persons

8. Fighting Money Laundering with AML Regulations - EU
4th AML Directive
Emphasis on ultimate beneficial ownership
& enhanced customer due diligence
Expanded to include entire gambling sector
beyond casinos
Enhanced risk based approach, requiring
evidence based measure
Cash payment threshold lowered to
€10,000 (US$11,250)
5th AML Directive
Scope is extended to include
Virtual currency exchange
Estate agents & rental intermediaries
People who are applying for citizenship or
residency by investment & more
Art dealers
6th AML Directive
Defined & standardized predicate offences in
money laundering
Cyber crime
Insider trading & market manipulation
Tax crime related to direct & indirect taxes
Human trafficking & migrant smuggling
Environmental crime
Murder & grievous bodily harm (GBH)

9. Money Laundering prevention measures in Organization
Customer Due Diligence is one of main operational AML toolkit
Customer Due Diligence program originated from FATF – (Financial Action Task Force)
FATF highlights in recommendation 10 financial institutions are required to take enough measure to determine they are comfortable and satisfied
that they know who the client is before entering into business relationship
Customer Due Diligence is carried out to protect the financial institution entering new relationship being used directly or indirectly for money
laundering & terrorist financing purposes
Steps in Customer Due Diligence
• Prospecting
• Onboarding
• Ongoing
• Offboarding

10. Money Laundering prevention measures in Organization
Prospecting - Finding and closing a target customer
Background checks
Criminal charges
Sanctions list, watch list
PEP status
Onboarding – Entering into customer relationship
Identification
Verification
Additional Information
Nature of Relationship
Documentation & AML Risk Scoring
Ongoing – Serving customer with products & services
On going screening for customers should be monitored
Adverse news
Political person
Sanctioned screening
Transaction monitoring
Periodic review
Offboarding
End of customer relationship

11. Screening - Risk Rating
Low Risk
Default rating for clients, where there are no
factors which could result in level of risk
Information in most cases being publicly
available
Periodic review for every 36 months
Medium Risk
These factors present increased level of risk
Requires more due diligence & effective mitigating
factors to confirm the risk of customer as low risk
Periodic review for every 24 months
High Risk
Enhanced due diligence is required
Detailed review of the account is required on an
ongoing basis
To Assess ongoing level of risk
Periodic review for every 12 months
Customer risk rating is performed at different stages of onboarding process and during the life cycle of client by Customer Due
Diligence (CDD) team or Know Your Customer (KYC) Team
Periodic review can be conducted any time if found any suspicious activity

12. Screening -RED Flags
Red flag is generally used as warning or cause for concern that there is a problem with certain situation.
In banking term Red flag is used to highlight something that is not right & needs further investigation
Red flag is not always what someone does it can also be what some one does not do
RED Flag Indicators to be aware
• Uses an email address from a domain such as Hotmail, Gmail, Yahoo etc., with an explanation that their business email is not
working
• The person actually directing the operation is not the one of formal parties to the transaction or their representative
• Unreasonable complex ownership structure with multiple layers across different jurisdictions
• Provides false or counterfeited documentation
• The ownership structure is overly complicated when there is no legitimate or economic reason
• Business transactions involve countries where there is a high risk of money laundering and / or funding terrorism
• Customers who are evasive, nervous or hostile at the time of being asked normal due diligence questions
• Constant change of business addresses with no valid reason
• Unjustified large cash deposits followed by large amount withdraws

13. Screening - Sanctions
International community can use sanctions to change the behavior of a country or regime involved in
• Violating human rights,
• Involved in terrorist activities,
• Endangering international peace & security
Sanctions compliance for financial institutions
• Before financial institutions start doing business with new customer or engaging in certain transactions, financial institution
should review various sanction program requirements
• Businesses must detect if their client is subject to any sanctions to apply needed restrictions.
• Businesses face legal measures such as criminal and civil penalties for not taking enough steps to comply with AML
regulations

14. Types of Sanctions
Comprehensive Sanctions
Prohibits all direct or indirect import / export, financing,
technology & services
Practically no transactions can be undertaken
Sectoral Sanctions
Sanctions pertain to restrictions related to certain activities or
sectors
Targeted Sanctions
Generally focused on individual people or organizations, such as
key leaders of a country, drug traffickers, terrorists etc.
Sanctions can also be targeted at a particular industry such as
banning petroleum & related products
Financial Sanctions
Prohibiting the transfer of funds to sanctioned country & freezing assets of
government, corporate entities & residents of targeted country
Certain sanctions may also prohibit providing or performing other financial services
like Insurance to designated individuals & governments

15. The main Sanction regimes in world are
OFAC – Office of Foreign Affairs
OFAC is part the U.S. department of treasury.
Their job is to target foreign countries regimes, terrorists,
international narcotics traffickers.
Who engages proliferation of weapons of mass destruction & other
threats to national security foreign policy or economy of united
states
UN – United Nations Security Council
The United Nations (UN) is an intergovernmental organization whose
purpose is to maintain international peace and security, develop
friendly relations among nations, achieve international cooperation,
and be a center for harmonizing the actions of nations
EU – European Union
It is a political and economic union comprising of member states
in Europe
HM Treasury – Her Majesty’s Treasury
It is a governments economic and finance ministry maintaining control
over public spendings, setting direction of UK’s economic policy
Works towards achieving strong & sustainable economic growth

16. Summary