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![Emphasis on Anti-Corruption
“As we’ve all seen – and as President Obama has said – “[t]he struggle against corruption is
one of the great struggles of our time.” Fortunately [...] corruption is no longer widely seen
as an accepted cost of doing business. It is no longer tolerated as an unavoidable aspect of
government. On the contrary – it is now generally understood that the consequences of
corruption are devastating – eroding trust in public and private institutions, undermining
confidence in the fairness of free and open markets, siphoning precious resources at a
time when they could hardly be more scarce, and all too often breeding contempt for the
rule of law [...] This is why, as Attorney General, I’ve consistently worked to ensure that
anticorruption remains a top priority for my colleagues at every level of the United States
Department of Justice – within as well as beyond our borders.”
– Attorney General Eric Holder at the Arab Forum on Asset Recovery in Morocco (Oct.
28, 2013)
I am acutely aware that we have many urgent law enforcement priorities –
fighting child exploitation, stemming the flow of narcotics from South
America and elsewhere, stopping gang violence. I am here to tell you that
fighting global corruption is just as urgent, and with the momentum of many
countries behind us, now is the time to redouble our anti-corruption efforts.
– Former Deputy Attorney General, Lanny Breuer, ACI Conferences on the
Foreign Corruption Practices Act (Nov. 16, 2012)
4](https://image.slidesharecdn.com/acfcswebinaramlmeetsabchr21914-140221173704-phpapp02/75/AML-Meets-ABC-Webinar-Deck-2-19-14-4-2048.jpg)
![Examples – Money Laundering
• Cash proceeds from drug trafficking are used to purchase chips at a
casino.
– Money launderer gambles for a while, cashes in the chips, and
receives a check payment
– Check is deposited into the bank
– Cash is later withdrawn to purchase consumer goods
• The deputy minister of mining [in the corruption example] deposits
the $100K from Company A’s third party agent into his local bank
account. He then transfers the $100K into his son’s account at a
U.S. financial institution. The son, who lives in the U.S., then uses
the $100K to purchase a fancy sports car.
10](https://image.slidesharecdn.com/acfcswebinaramlmeetsabchr21914-140221173704-phpapp02/75/AML-Meets-ABC-Webinar-Deck-2-19-14-10-2048.jpg)
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AML Meets ABC Webinar Deck 2-19-14
- 1. ACFCS Webinar February 19,2014 AML Meets ABC: Leveraging AML Tools for Strong Anti-Bribery and Corruption Programs Presented by Hillary Rosenberg Counsel, Lewis Baach Kaufmann Middlemiss 1
- 2. Hillary Rosenberg Counsel Lewis BaachKaufmann Middlemiss New York
- 3. Objectives • Convergence: Integration& Optimization of Operations, Systems, and Structures • ABC vs. AML Similarities and Differences • Leveraging and Expanding AML Controls for ABC Compliance • Growing importance of third party due diligence for both AML and ABC 3
- 4. Emphasis on Anti-Corruption “Aswe’ve all seen – and as President Obama has said – “[t]he struggle against corruption is one of the great struggles of our time.” Fortunately [...] corruption is no longer widely seen as an accepted cost of doing business. It is no longer tolerated as an unavoidable aspect of government. On the contrary – it is now generally understood that the consequences of corruption are devastating – eroding trust in public and private institutions, undermining confidence in the fairness of free and open markets, siphoning precious resources at a time when they could hardly be more scarce, and all too often breeding contempt for the rule of law [...] This is why, as Attorney General, I’ve consistently worked to ensure that anticorruption remains a top priority for my colleagues at every level of the United States Department of Justice – within as well as beyond our borders.” – Attorney General Eric Holder at the Arab Forum on Asset Recovery in Morocco (Oct. 28, 2013) I am acutely aware that we have many urgent law enforcement priorities – fighting child exploitation, stemming the flow of narcotics from South America and elsewhere, stopping gang violence. I am here to tell you that fighting global corruption is just as urgent, and with the momentum of many countries behind us, now is the time to redouble our anti-corruption efforts. – Former Deputy Attorney General, Lanny Breuer, ACI Conferences on the Foreign Corruption Practices Act (Nov. 16, 2012) 4
- 5. Emphasis on Anti-Corruption • • 2013:8 SEC and 19 DOJ Enforcement Actions 92 Pending Corporate Investigations as of January 2014 (FCPA Blog) Top Ten FCPA Monetary Settlements (corporations) Siemens (2008) KBR/Haliburton (2009)* BAE Systems (2010)* Total S.A. (2013)* ENI/Snamprogetti (2010)* Snamprogenti Netherlands BV (2010)* Settlements (in millions) Technip (2010)* JGC Corp. (2011)* Daimler AG (2010) Weatherford (2013)* Alcatel-Lucent (2010) 0 100 200 300 400 5 500 600 700 800 900
- 6. Overview Integration Optimization Model- Financial Crimes Compliance 6
- 7. General Definitions • Corruption/Bribery:The giving, offering, promising, soliciting of anything of value, to a foreign official, with the intent to improperly influence that official in order to obtain or retain business. • Money Laundering: The process by which criminals disguise the original source of the proceeds of criminal conduct by making such proceeds appear to have derived from a legitimate source. 7
- 8. • AML Risk AMLv. ABC Risk in a Financial Institution – Bad actor clients will use the bank to launder illicit funds • Where did the money come from? • ABC Risk – Bad actor employees/agents/other third party’s under the bank’s control will engage in bribery • Where is the money going? 8
- 9. Examples - Corruption •Company A needs to obtain a license to mine gold in an African country. – Only one license is available – Other companies are seeking to obtain the license – To secure the license, employees at Company A pay for the deputy minister of mining in the African country to fly to NY with his wife, stay at expensive hotels, eat at 5 star restaurants, and receive Broadway tickets. • Alternatively, Company A hires a third party agent to secure the mining license on Company A’s behalf. The deputy minister informs the third party agent that if $100K is wired into his personal bank account, he can guarantee Company A will receive the license. The agent wires $100K into the minister’s account. 9
- 10. Examples – MoneyLaundering • Cash proceeds from drug trafficking are used to purchase chips at a casino. – Money launderer gambles for a while, cashes in the chips, and receives a check payment – Check is deposited into the bank – Cash is later withdrawn to purchase consumer goods • The deputy minister of mining [in the corruption example] deposits the $100K from Company A’s third party agent into his local bank account. He then transfers the $100K into his son’s account at a U.S. financial institution. The son, who lives in the U.S., then uses the $100K to purchase a fancy sports car. 10
- 11. AML v. ABCRisk in a Financial Institution • 3rd Party/Client • • Account Opening Transaction Monitoring SAR Reporting AML Client’s Illicit Funds Flow Through the FI Financial Institution (FI) ABC FI’s Funds Used Illicitly to Bribe • 3rd Party/Client • • 11 Gifts & Entertainment 3rd Party Intermediaries Transactions
- 12. Law & Order Legislation: •The Foreign Corrupt Practices Act (FCPA) • Bank Secrecy Act (BSA) • Patriot Act • Sanctions Regimes & SDN List Enforceable by: • Department of Justice • Securities and Exchange Commission • Treasury Department (including OCC, the Fed, OFAC, FinCen) • State and Local Prosecutors • SROs, like FINRA
- 13. Convergence Integration & Optimizationof Operations, Systems, & Structures - Same Goal: Identify and Mitigate Risk - Leverage and Expand Existing Infrastructure - Financial and Human Resource Efficiency - Unified Approach - Increased Sharing of Information - Greater Understanding of Risk - Greater Consistency in Responding to Risk - Overall Increased Awareness, compliance and business 13
- 14. Key Overlapping RiskFactors 1. Geographic Risk 2. Industry/Customer Risk – E.g. Extractive Industry, Arms & Defense, Telecom, Construction, Public Works 3. Nexus with Government Officials/PEPs 4. Reputation 5. Third Party Involvement 14
- 15. Compliance Program Requirements BasicRequirements – 4 pillars: 1. Governance 2. Risk Based Policies and Procedures – – – – – – clear policy/code of conduct, stand alone or integrated commitment from senior management risk assessment due diligence monitoring confidential reporting, internal investigations, disciplinary measures 3. Training/Awareness program 4. Independent Testing and Updating of Controls 15
- 16. Compliance Program Requirements •Governance – High level commitment; Individual(s) responsible for oversight and accountability • Independence • Access to the board • Risk Control/Rep Risk – – – – Management Information (MI) Front-office engagement Proactive Attitude and Willingness to “Look Back” AML and ABC separate compliance groups? • • • • • • Resource Sharing Uniformity of Compliance Plan & Program Structure Information Sharing Overall Awareness Cross Training Priorities 16
- 17. Compliance Program Requirements •Risk Assessment – One Assessment, One Time, One Team, One Comprehensive Analysis – Collaborative engagement with front-line business personnel – Senior management sign-off and review – Sufficient engagement at board-level – Results Reported to Lines of Business 17
- 18. Compliance Program Requirements •Due diligence – One Questionnaire – Information Sharing – Technology Expansion and Repurposing • Negative News • Government Official/PEPs involvement & control – OFAC/PEP/GO lists – Client Databases • Contractual Representations and Warranties – Legal Team Leverage – Indemnification & Termination 18
- 19. Compliance Program Requirements •Monitoring – Who is Monitored? • Clients vs. Employees/Third Parties – What is Monitored? • Client Transactions vs. Employee/Bank Transactions with Third Parties (Payments, G&E, etc.) – Expand Existing Use of Alerts and Other AML Systems • Red Flags • Typologies 19
- 20. Compliance Program Requirements •Confidential reporting, internal investigations, and disciplinary measures – Centralized, specialized, aggregated investigative function – Policy Violation Accountability and Tracking – SAR Filings not just for AML 20
- 21. Compliance Program Requirements •Training/Awareness Program – Cross-Referential – Driven by Risk Assessment • Enhanced, Specialized Training For Higher Risk Groups – Documentation and Tracking 21
- 22. Compliance Program Requirements •Continual Independent Testing – Reported to senior management/board • Updating Controls • Gap Analysis 22
- 23. Third Party Relationships •Managing Third-Party Relationships is Critical • • • • • • Intermediaries/Finders/Agents Joint Ventures Subsidiaries Distributors Third Party Providers & Sub-Contractors Other Business Partners • Existing and Prospective Third Party Risk 23
- 24. Third Party Controls • • • • • • • • • • “Third-Party”Plan Who and Why this Third Party Third Party’s Risk Management Controls Contractual Terms – Reps, Warranties and Indemnifications Pay Commensurate with Work Performed • No discretionary bonuses or success fees Pre-Engagement Training On-Going Monitoring and Oversight • Periodic Due Diligence Refresh • Training • Audit rights • Annual Compliance Certifications Documentation Higher Level Sign Off for Higher Risk Parties Involvement of Reputational Risk Committee 24
- 25. AML & ABCShared Red Flags • Lack of cooperation or hesitancy in providing answers • Lack of compelling business rationale • Use of third party to perform tasks that require no special knowledge or skills • Activity inconsistent with stated purpose, including abnormal compensation arrangements • Third party’s use of multiple shell companies to conduct transactions 25
- 26. AML & ABCShared Red Flags • Use of or payments to offshore accounts • Sloppy book keeping and poor financial controls • Lack of transparency & documentation • “Informal” arrangements • Excessive use of cash; payments in cash • Close ties to or business associations with government officials 26
- 27. Challenges • “Big Data” •Data Quality • Aggregation of Data and Alerts • Communication Between & Integration of Technology Systems • Expanding Existing Technology Uses • Status Quo • Next Steps: Human Trafficking Compliance 27
- 28.