AML Presentation 2 - Nigeria.pptx

What Is Money Laundering?
Definitions:
 “… taking criminal proceeds and disguising their illegal sources in
order to use the funds to perform legal or further illegal activities.
Simply put, money laundering is the process of making dirty money
look clean.”; ACAMS – Association for Certified Financial Crime Specialists
 “The concealment of the origins of illegally obtained money, typically
by means of transfers involving foreign banks or legitimate
businesses.”; Oxford English Dictionary
 “ … involves disguising financial assets so they can be used without
detection of the illegal activity that produced them.” FINCEN

 “ … involves disguising financial assets so they can be used without
detection of the illegal activity that produced them.” FINCEN - The Financial
Crimes Enforcement Network
 “Money laundering is the illegal process of making large amounts of
money generated by criminal activity, such as drug trafficking or
terrorist funding, appear to have come from a legitimate source.
The money from the criminal activity is considered dirty, and the
process “launders” it to make it look clean.”; Investopedia
 “Money laundering is the process of “washing” illicitly earned money
into clean money to disguise its original source.”; Maura Laramie


 “… the process of concealing the existence, source or application of
income, or the disguising of its source to give it the appearance of
legitimacy.” ACFCS – Association for Certified Financial Crime
Specialists
 “Money laundering is the process of hiding the source of money
obtained from illegal sources and converting it to a clean source,
thereby avoiding prosecution, conviction, and confiscation of the
criminal funds. ” The Economic Times
 ‘Money Laundering’ covers all procedures which change the identity
of illegally obtained money so that it appears to have originated from
a legitimate source.’

… according to the UN 2000 convention Against Transnational Organized Crime
 conversion or transfer of property, knowing it is derived from a
criminal offense, for the purpose of concealing or disguising its illicit
origin or of assisting any person who is involved in the commission of
the crime to evade the legal consequences of his or her actions
 concealment or disguise of the true nature, source, location,
disposition, movement, rights with respect to or ownership of
property knowing that it is derived from a criminal offense;
 acquisition, possession or use of property, knowing at the time of its
receipt that it was derived from a criminal offense or from
participation in a crime.

Cash generation via
illicit activity e.g drug
trafficking,
prostitution, theft etc
Conversion of cash to
monetary instruments
or deposit with
Financial institutions
Movement to and
through other FI’s to
obscure origin of illicit
proceeds
Acquisition of
legitimate assets
including the funding
of further illicit
activity

Stages in the Money Laundering Cycle
… three Stages;
 Placement: injection of illicit proceeds/ funds obtained through
illegal activities into the financial system. - … entry point into the
financial system. E.g., account opening .i.e. movement of the funds
from its source e.g placement in off-shore accounts
 Layering: movement or spread of the injected funds through various
transactions in different accounts of the same country and other
countries where anti-money laundering laws are not so stringent,
thus, making it difficult to trace the source. E.g., … addition of
layers of financial transactions to impede the audit trail in order to
cut/obscure link with the original illegal activity.

 Integration: attempt to manipulate perceptions of apparent
legitimacy to illicit wealth through the re-entry of the funds into the
economy via normal business or personal transactions. (i.e. Creating
the perception of legitimacy)
E.g., might include the purchases of businesses or properties, luxury
items such as artwork, jewelry, or high-end cars. Can also include,
financial arrangements or other ventures where investments can be
made in business enterprises.
Stages in the Money Laundering Cycle

Familiar Terms:
Shell bank: Bank that exists on paper only and that has no physical
presence in the country where it is incorporated or licensed, and which
is unaffiliated with a regulated financial services group that is subject
to effective consolidated supervision.
Structuring: Illegal act of splitting cash deposits or withdrawals into
smaller amounts, or purchasing monetary instruments, to stay under a
currency reporting threshold. The practice might involve dividing a sum
of money into lesser quantities and making two or more deposits or
withdrawals that add up to the original amount.
Respondent bank: A bank for which another financial institution
establishes, maintains, administers or manages a correspondent
account

Red flag: A warning signal that should bring attention to a potentially
suspicious situation, transaction or activity.
Predicate crimes: Specified unlawful activities whose proceeds, if
involved in the subject transaction, can give rise to prosecution for
money laundering - sometimes defined as felonies or “all offenses in the
criminal code.”
Money order: A monetary instrument usually purchased with cash in
small (generally under 500 euros) denominations. It is commonly used
by people without checking accounts to pay bills or to pay for purchases
in which the vendor will not accept a personal check.
Familiar Terms:

Know your employee (KYE): Anti-money laundering policies and
procedures for acquiring a better knowledge and understanding of the
employees of an institution for the purpose of detecting conflicts of
interests, money laundering, past criminal activity and suspicious
activity.
Know your customer (KYC): Anti-money laundering policies and
procedures used to determine the true identity of a customer and the
type of activity that is normal and expected, and to detect activity that
is unusual for a particular customer.
Debit card: A card that permits an account holder to draw funds from
an existing account - used to pay obligations or make purchases.
Familiar Terms:

Criminal proceeds: Any property derived from or obtained, directly or
indirectly, through the commission of a crime.
Credit cards: A plastic card with a credit limit used to purchase goods
and services and to obtain cash advances on credit.
Corporate vehicles: Types of legal entities that may be subject to
misuse such as private limited companies and public limited companies
whose shares are not traded on a stock exchange, trusts, nonprofit
organizations, limited partnerships and limited liability partnerships
and private investment companies.
Familiar Terms:

Cash deposits: Sums of currency deposited in one or more accounts at a
financial institution.
Cash-intensive business: Any business in which customers usually pay
with cash for the products or services provided, such as restaurants,
pizza delivery services, taxi firms, coin-operated machines or car
washes.
Bearer shares: Negotiable instruments that accord ownership in a
corporation to the person who is in physical possession of the bearer
share certificate, a certificate made out to Bearer and not in the name
of an individual or organization.
Familiar Terms:

Effects Of Money Laundering
 Increased Exposure To Organized Crime And Corruption:
Success at laundering money enhances the profitable aspects of illegal
activity. Perception of a country as a haven for illicit/ illegal funds
serves to further attract criminals and the criminally minded.
Typically, ML & TF havens typically have:
limited numbers of predicate crimes for ML
limited types of institutions and persons covered by ML laws and
regulations
little to no enforcement of the laws and weak penalties or
provisions that make it difficult to confiscate or freeze assets
related to ML; and

inadequate regulatory capacity to effectively monitor and
supervise compliance to ML TF laws and regulations.
** Money Laundering and corruption seem to work ‘hand in hand’ -
corruption triggers and can be triggered by money laundering leading to
increases in the use of bribery in financial institutions, amongst lawyers
and accountants, in the legislature, in enforcement agencies, with
police and supervisory authorities, and even with courts and
prosecutors.

 Undermining the Legitimate Private Sector:
Launderers are known to use front companies i.e. businesses that
appear legitimate and engage in legitimate business but are in fact
controlled by criminals, commingling proceeds of illicit activity with
legitimate funds to conceal ill-gotten gains.
Such front companies have a competitive advantage over
legitimate firms because they have access to substantial illicit
funds, allowing them to sell at below-market rates.
money laundering proceeds can be used to control large portions
of industries, sectors including the economy promoting an unfair
advantage in favor of the launderer

increased potential for monetary and economic instability due to
the misallocation of resources due to artificial distortions in
demand and supply of assets and commodities
ML has been known to serve as a vehicle or facilitator of tax
evasion tactics by criminals
 Stability of Financial Institutions:
Negative impact on stability of country’s Financial Institution – e.g.,
securities firms, insurance companies, Money services business, etc.
Effective AML/CFT program is usually part of a financial institution’s
charter to operate; noncompliance can result not only in significant civil
money penalties but also in the loss of its charter.

 Dampening Effect On Foreign Investments:
When the sources of capital are fraudulent or of an illicit nature it
undermines or dampens the attraction of capital investment e.g., the
attraction of illicit funds to third world nations necessitating stringent
measures to investing from the developed world including a low grade
investment outlook.
 Loss of control of/mistakes with Public & Economic Policies:
In some emerging market / less developed nations, illicit proceeds may
dwarf government budgets. Thereby impacting formulation and
implementation of such policies and strategies

 Economic distortion and instability:
Money launderers are not primarily interested in profit generation from
their investments but more the protection/hiding of the source/origin of
proceeds/ funds.
 Risks to privatization:
Govt privatization efforts and reforms are often disrupted as money
launderers utilize such efforts to launder funds; buying-up ports, resorts,
casinos and other state properties to hide their illicit proceeds and to
further their criminal activities.

 Country Reputation Risk:
the damage that can occur to a country/business for failure to meet
expectations of its stakeholders and is thus negatively perceived. It
results in diminished legitimate global opportunities because foreign
financial institutions find the extra scrutiny involved in working with
institutions in money laundering havens quite expensive and
cumbersome.
 Risk Of International Sanctions:
various institutions and governmental bodies that have been set up
international to curb the growth and promulgation of money laundering.
E.g., the United States Office of Foreign Assets Control (OFAC), Financial
Action Task Force (FATF), Egmont Group Of Financial Intelligence Units,
Wolfsberg Group etc.

 Social costs:
The cost of govt expenses and budgets increase significantly due to a
need for increased law enforcement and other costs e.g. healthcare for
drug addiction, prisons, state legal prosecutions etc.
 Other adverse consequences of money laundering are Reputational,
Operational, Legal and Concentration Risks and include:
loss of profitable business;
liquidity problems through withdrawal of funds;
termination of correspondent banking facilities;
investigation costs and fines;
asset seizures;

loan losses; and
reduced stock value of financial institutions.
 Reputational risk:
The potential is that adverse publicity regarding an organization’s
business practices and associations, whether accurate or not, will cause
a loss of public confidence in the integrity of the organization.
E.g., reputational risk for a bank represents the potential that
borrowers, depositors and investors might stop doing business with the
bank because of a money laundering scandal.
A loss of high-quality borrowers reduces profitable loans and increases
the risk of the overall loan portfolio.

 Operational Risk:
potential for loss results from inadequate internal processes, personnel
or systems or from external events. can occur when institutions incur
reduced or terminated inter-bank or correspondent banking services or
an increased cost for these services.
Increased borrowing or funding costs are also a component of operational
risk.
 Legal Risk:
potential for lawsuits, adverse judgments, unenforceable contracts,
fines and penalties generating losses, increased expenses for an
organization, or even the closure of the organization. E.g., investigations
conducted by regulators and/or law enforcement authorities, resulting in
increased costs, as well as fines and other penalties.

 Concentration Risk:
… potential for loss results from too much credit or loan exposure to one
borrower or group of borrowers.
Lack of knowledge about a particular customer or who is behind the
customer, or what the customer’s relationship is to other borrowers, can
place a bank at risk in this regard i.e. Know Your Customer (KYC)
 Loss of tax revenue:
Money laundering diminishes government tax revenue, negatively
impacting honest taxpayers. usually end up paying more in taxes than
would normally be the case.

The Financial Institutions: Banks and Other Depository Institutions
 Electronic Transfers Of Funds: movement of funds between financial
institutions electronically.
 Remote Deposit Capture
 Correspondent Banking
 Payable Through Accounts: Transaction account opened at a
depository institution by a foreign financial institution through which
the foreign institution’s customers engage, either directly or through
subaccounts, in banking activities and transactions in such a manner
that the financial institution’s customers have direct control over the
funds in the account.

 Concentration Accounts: … also called an omnibus account.
Held by a financial institution in its name, a concentration account is
used primarily for internal administrative or bank-to-bank transactions
in which funds are transmitted and commingled without personally
identifying the originators.
 Private Banking
 Use Of Private Investment Companies In Private Banking
 Politically Exposed Persons (PEPs) –
Foreign Peps: & Domestic Peps
 Credit Unions And Building Societies

Nonbank Financial Institutions
 Credit Card Industry
 Third-party Payment Processors
 Money Services Businesses: A person (whether a natural or legal
person) engaged in any of the following activities where it exceeds
the applicable regulatory threshold, at which point the person is
generally deemed to be a financial institution subject to AML
obligations.
Dealing in foreign exchange
Check cashing
Issuing or selling traveler’s checks or money orders

 Providing or selling prepaid access
 Money transmission
 Dealers in foreign exchange:
 Check casher
 Issuer of traveler’s checks or money orders e.g., Thomas Cook, American
Express –
The parties to traveler's cheque transactions are:
The organization that produces a traveler's cheque is
the obligor or issuer.
The bank or other place that sells it is the agent of the issuer.
The natural person who buys the cheque is the purchaser.
The entity to whom the purchaser hands the cheque in payment for
goods or services is the payee or merchant.
For purposes of clearance, the obligor is both maker and drawee.

Money transmitters
Provider and seller of prepaid access:
 Open loop prepaid cards & Closed loop prepaid cards
 Postal Service: In certain countries the postal service is regarded as
an MSB because it sells its own money orders.
 Insurance Companies -
 Securities Broker-dealers - Broker-dealers are in the business of
buying and selling securities—stocks, bonds, mutual funds and certain
other investment products—on behalf of their customers (as broker),
for their own accounts (as dealer) or both.

 Casinos
 Dealers In High-value Items (Precious Metals, Jewelry, Art Etc.)
 Travel Agencies
 Vehicle Sellers / Auto Dealers
 Gatekeepers: Professionals, e.g. lawyers, notaries, accountants,
investment advisors and trust and company service providers, who
assist in transactions involving the movement of money and are
deemed to have a particular role in identifying, preventing and
reporting money laundering.
 Investment And Commodity Advisors
 Trust And Company Service Providers
Nonfinancial Businesses and Professions

 The Gatekeepers
 … Lawyers, Accountants, Auditors, Notaries And Other Gatekeepers
i.e. the facilitators/ professionals who move funds for clients, help
manage assets or interact with financial institutions, provide tax advice,
purchase real estate, or form trusts and legal entities – can help open
the door to the wider financial system.
 they can provide “access (knowingly or unwittingly) to various
functions that might help a criminal with funds to move or conceal

gatekeepers are expected to implement AML compliance control using a
risk-based approach.
This includes the following:
 Implementing customer identification measures
 Conducting due diligence on clients and transactions for AML and
financial crime risks
 Reporting on suspicious transactions or client activity to their
jurisdiction’s financial intelligence unit
 Maintaining records in the case they are needed for regulatory
compliance or law enforcement investigations.
The Gatekeepers: Regulatory Frameworks

 Real Estate
 Public Companies and Private Limited Companies (Corporate Vehicles –
Bearer Shares in Corporate formation, Personal Investment Companies -
PICs)
Shell and Shelf Companies
 Trusts, Partnerships & Estates
 Charities or Nonprofit Organizations (NPOs)
 Other Informal Value Transfer Systems – Hawala, P2P Currency Xchange

Structures used to Hide/
Obscure Beneficial
Ownership

Structures That Hide/ Obscure Beneficial
Ownership
 SHELL COMPANIES:
have no physical presence, normally have concealed owners, and
sometimes project the image of being a solid, normal business with funds
that are legitimate – i.e. exist only on paper but they can hold bank
accounts and conduct financial transactions while providing no signs that
they are a shell.
Though there are legitimate reasons to form a shell company e.g. make
it easier to invest overseas, help shield a company from liability, or
transfer profits to reduce taxes in a way that is completely legal, shell
companies are particularly attractive to money launderers due to the
ability to obscure the trail/ movement of money.

Ownership
 Shell Companies:
Shell companies are an anonymous, or at least concealed, vehicle to
access the international financial system.
Many financial criminals will operate through layers of shell companies,
which can make it very difficult to trace funds or assets back to the
ultimate owner.
Discerning beneficial owners behind shell corporations can be very
difficult when conducting due diligence or investigations especially when
it involves multiple[le layers of shell companies

 Shelf Companies: the shelf company is a corporation that has no
activity or business. Some shelf companies may be completely inactive
for years before being sold off to a buyer.
 Nominees: A nominee is a person, company or entity into whose name
assets, securities or property is transferred, while leaving another
person or entity as the real owner. … common among securities broker-
dealers, who can hold securities for their customers and trade them
much more easily.
 Fronts: … a front is a company or organization that is established and
controlled by another company or entity but that gives the impression
it is not affiliated or connected to the entity controlling it.
Ownership

 Trusts: are legal entities created by a “settlor” to manage property for
a beneficiary. The settlor transfers property that he owns to the trust.
This property is managed by a trustee according to the terms
described in the trust. Trusts can be misused for hiding money and
hiding the identity of the true beneficiary.
 Bearer Bonds And Securities: are used by money launderers because
they belong to the person who carries them, thus the name “bearer.”
Bearer shares are transferred by a physical delivery from one person to
another.
Ownership

 Hawala And Informal Value Transfer Systems: often called informal
value transfer systems (IVTS) e.g. unregistered currency dealers. … are
most popular with persons from Africa and Asia and involve the
transfer of value outside the regular banking system.
Informal mechanisms based on networks of trust used to remit monies.
Persons who wish to send funds to relatives in another country place
funds with a hawala banker. For a fee, the banker arranges for the funds
to be available from another “banker” in another country. Later, the
bankers settle their transactions.
Such entities are attractive to money launderers as they leave a slight
audit trails and the identities of the customers who receive the funds are
known only by the “bankers”.
Ownership

Ownership
 Corporate Registries: collect and store information pertaining to
corporations and other legal entities created within a given
jurisdiction.
They are typically maintained by a government agency or department.
Depending on the jurisdiction, there may be a single registry for an
entire nation, or multiple registries for different states, regions or cities.
Functions of Corporate registries include:
 record the creation or incorporation of a new legal entity,
 collect information on entities as required by the laws and regulations
 Typically make certain information about legal entities available publicly.
 identify entities for tax purposes

Ownership
 allow other companies and financial institutions to collect information on
the corporations and legal entities they are doing business with.
 key sources of information in investigations, enforcement actions and due
diligence.
 identify entities for tax purposes
 allow other companies and financial institutions to collect information on
the corporations and legal entities they are doing business with.
 key sources of information in investigations, enforcement actions and due
diligence.

Legislative guidelines:
 21.--{ I) Financial Institutions shall-
(a) understand the nature of the customer's business, its ownership and control
structure including board and senior management;
(b) identify and take reasonable steps to verify the identity of a beneficial owner,
using relevant information or data obtained from reliable sources to satisfy itself
that it knows who the beneficial owner is through methods including-
 (a) for legal persons-
(i) identifying and verifying the natural persons, where they exist, that have
ultimate controlling ownership interest in a legal person, taking into cognizance the
fact that ownership interests can be so diversified that there may be no natural
persons, whether acting alone or with others, exercising control of the legal person
or arrangement through ownership;…

Legislative guidelines: with respect to trusts …
 (b) for legal arrangements such as trust arrangement, Financial
Institutions shalI identify and verify the identity of the settlor,
the trustee, the protector where they exist, the beneficiaries or
class of beneficiaries, and any other natural person exercising
ultimate or effective control over the trust including through a
chain of control or ownership ; and
 (c) for other types of legal arrangements, the Financial
Institutions shall identify and verify persons in equivalent or
similar positions.

Ownership
 Gaming Activities: can be used to obscure the source of funds, for
example buying winning tickets from legitimate players, the usage of
casino chips as currency for criminal transactions and online gaming to
obscure the source of criminal proceeds.
 Deposit of gambling proceeds into a foreign bank account
 Frequently playing games with low returns but with higher chances of
winning
 Inserting funds into slot machines and immediately claiming those funds as
credits
 Leaving large amounts of cash with a bookmaker and requesting a cheque
in return
 Purchasing and cashing out casino chips with no gaming activity

Ownership
 Gaming Activities: cont’d
 Use of a third party to gamble proceeds through casinos
 New Payment and Financial Services Technologies:
emerging payment technologies for money laundering and
terrorist financing.
 Use of internet banking to frequently access foreign international
accounts
 Use of anonymity enhancing digital currencies
 Use of cryptocurrency exchanges with no KYC reporting, such as
decentralised exchanges

 “Terrorist” … a person who commits, or attempts to commit, a
terrorist act or who participates in or facilitates the commission of a
terrorist act
 “Terrorist Associate” - an entity owned or controlled, directly or
indirectly, by a terrorist
Familiar Terms:

“Terrorist Act”
… defined as the use or threat of action that would have the effect of:
 causing serious violence against a person
 causing serious damage to property
 endangering a person’s life
 creating a serious risk to the health or safety of the public or a
section of the public
 seriously interfering with or seriously disrupting an electronic
system or
 seriously interfering with or seriously disrupting an essential service,
facility or system, whether public or private

 the use or threat is:
intended to compel the Government or to intimidate the public
or a section of the public
made for the purpose of advancing a political, religious or
ideological cause
“Terrorist Act”

What is Terrorist Financing?
 “Terrorist financing provides funds for terrorist activity. … may
involve funds raised from legitimate sources such as personal donations
and profits from businesses and charitable organisations, as well as from
criminal sources such as, drug trafficking, fraud, smuggling of weapons
and other goods, kidnapping and extortion..” – Bailiwick of Gurnsey FIU
 “Terrorist financing involves the solicitation, collection or provision of
funds with the intention that they may be used to support terrorist acts
or organizations.” – International Monetary Fund
 ‘Terrorist Financing’ refers to the carrying out of transactions
involving funds or property that are owned or controlled by terrorists or
transactions that are linked to terrorist activities’

Terrorism financing is the act of providing financial support to
terrorists or terrorist organizations to enable them to carry out terrorist
acts or to benefit any terrorist or terrorist organization.” - Bank Negara
Malaysia
Funding sources for Terrorist organizations include:
 illegal activities:
 Funding by wealthy backers,
 through crime – e.g. trafficking in drugs, weapons or human
beings including in certain instances state sponsorship.

Funding sources for Terrorist organizations include: Contd
 Legitimate Sources:
 Members of the organization (usually the newcomers)
 Individual contributors
 Legitimate businesses
 Abuse of non-profit organizations - e.g., radicalized religious
organizations, charitable groups that act as fronts for terrorist funding
Section 5.( I) “Terrorism financing offences extend to any person or entity, within
or outside Nigeria, in any manner, who, directly or indirectly, and willingly provides,
solicits, acquires, collects, receives, possesses, or makes available property, funds
or other services, or attempts to provide, solicit, acquire, collect, receive, possess
or make available property, funds or other services with the intention or knowledge,
or having reasonable grounds to believe that it will be used, in full or in part to
finance a terrorist or terrorist group in line with relevant sections of TPPA.”

 Cash Couriers Or Mules – use of cash couriers/mules to move funds
 Money Services Businesses - include a wide range of businesses, such as
currency exchanges, check cashers and money transmitters.
 Banks and other financial institutions – banks, brokerages and credit unions,
can still be vulnerable to terrorist financing transactions despite strict
controls.
 Trade-based Money Laundering And Commodities Movement (Tbml) - offers
the ability to move large amounts of funds across borders,
 Prepaid And Stored-value Cards - they are highly portable and easy to
conceal, prepaid cards may be a viable funding method for some smaller-scale
terrorist attacks.
 Self-funding Through Criminal Activities - such as employment income, sale
of goods or possessions, government benefits or income of a spouse or family
member.
Terrorist Financing - Methods

 Low level crime, including petty theft, small scale fraud and drug dealing.
 Social Media, Online Crowdfunding And Fintech e.g., Facebook, Twitter and
Instagram - Use of social media as a straightforward fundraising tool, posting
calls for donations with wire transfer coordinates
 Fraud Schemes: sympathizers and members of terrorist organizations have
used fraudulent tax refund applications and government benefits to raise
funds including the use of credit cards obtained through stolen identities.
 Small-scale fundraising, usually limited to the attacker’s family, friends and
direct connections.
** List is inexhaustive
Terrorist Financing - Methods

Typologies, Red Flags & Predicate Offences
 Typologies: these are the known techniques used to launder money
 Red Flags are possible indicators that money laundering and/or
funding of terrorism (ML/FT) may be occurring.
… an indication of a typology or red flag, this does not automatically
mean that ML/FT is taking place i.e. common warning signs alerting
firms and law enforcement to a suspicious transaction that may involve
money laundering

 Crimes are predicate to a larger crime if, they have a similar purpose
to the larger crime.
E.g., using false identification is itself a crime; it may be a predicate
offense to larceny or fraud if, it is used to withdraw money from a bank
account.
Section 462.3(1) of the Criminal Code defines a designated offence,
often called a predicate offence, as any indictable offence under any
Act of Parliament other than offences established by regulations. i.e.
a predicate crime or offense is a crime which is a component of a
larger crime.
Typologies, Red Flags & Predicate Offences

Designated Categories of Predicate Offences categories of predicate offences
(a) participation in an organized criminal group and
racketeering (n) environmental crime
(b) terrorism, including terrorism financing (o) murder
(c) financing the proliferation of weapons of mass
destruction (p) grievous bodily injury
(d) trafficking in persons and migrant smugglings (q) kidnapping, illegal restraint and hostage-tak'ng
(e) sexual exploitation, including sexual exploitation of
children (r) robbery or theft
(f) illicit trafficking i,1 narcotic drugs and psychotropic
substances
(s) smuggling, including smuggling done in relation to customs and
excise duties and taxes
(g) illicit arms trafficking (t) tax crimes, related to direct taxes and indirect taxes
(h) illicit trafficking in stolen and other goods (u) extortion
(i) corruption (v) forgery
(j) bribery (w) piracy
(k) fraud (y) insider trading and market manipulation or
(I) currency counterfeiting
(z) any other predicate offence under the MLPPA, TPPA, other
relevant laws and regulations.
(m) counterfeiting and piracy of products
Source: Federal Republic of Nigeria Official Gazette, No. 94, Vol. 109 Lagos - 20th May,
2022

 Frequent domestic and international ATM activity
 Unusual cash activity in foreign bank accounts
 Multiple cash deposits in small amounts in an account followed by a
large wire transfer to another country
 Cash or ATM withdrawals in or near regions of conflict
 Use of multiple foreign bank accounts
 “Many-to-one” transaction clusters, or an account receiving many low-
value transactions from other accounts, which could indicate
fundraising activity
Terrorist Financing – The Red Flags

 Long periods of account inactivity, followed by account usage
(especially cash withdrawals) in other countries, which could
indicate individuals acting as foreign fighters
 Multiple cash deposits and withdrawals with suspicious references
 The parties to the transaction (owner, beneficiary, etc.) are from
countries known to support terrorist activities and organizations
 Use of false corporations, including shell-companies
 Inclusion of an individual involved in the transaction on the United
Nations 1267 Sanctions list

 Media reports that the account holder is linked to known terrorist
organizations or is engaged in terrorist activities
 Beneficial owner of the account not properly identified
 Use of nominees, trusts, family member or third-party accounts
 Use of false identification to open the account or conduct the
transaction
 Abuse of non-profit organizations

General Money Laundering and/or
Terrorist Financing indicators

ML/TF indicators – Identity related (person or entity)
 here is an inability to properly identify the client or there are
questions surrounding the client's identity.
 The client refuses or tries to avoid providing information required, or
provides information that is misleading, vague, or difficult to verify.
 The client refuses to provide information regarding the beneficial
owners, or provides information that is false, conflicting, misleading or
substantially incorrect.
 The identification document presented by the client cannot be
authenticated.

 There are inconsistencies in the identification documents or different
identifiers provided by the client, such as name, address, date of birth
or phone number.
 Client produces seemingly false information or identification that
appears to be counterfeited, altered or inaccurate.
 Client displays a pattern of name variations from one transaction to
another or uses aliases.
 Client alters the transaction after being asked for identity documents.

• The client provides only a non-civic address or disguises a post office
box as a civic address for the purpose of concealing their physical
residence.
• Common identifiers (e.g. addresses, phone numbers, etc.) are used by
multiple clients that do not appear to be related.
• Common identifiers (e.g. addresses, phone numbers, etc.) are used by
multiple clients conducting similar transactions.
• Use of the same hotel address by one or more clients.

• Transactions involve persons or entities identified by the media, law
enforcement and/or intelligence agencies as being linked to criminal
activities.
• Attempts to verify the information provided by a new or prospective
client are difficult.

ML/TF indicators - Client Behaviour
The contextual information acquired through the know your client
(KYC) requirements or the behavior of a client, particularly surrounding
a transaction or a pattern of transactions, may lead you to conduct an
assessment in order to determine if you are required to submit an STR to
FINTRAC. This may be considered in conjunction with the following:
 Client makes statements about involvement in criminal activities.
 Client conducts transactions at different physical locations, or
approaches different employees.
 Evidence of untruthfulness on behalf of the client (e.g. providing false
or misleading information).

 Client exhibits nervous behaviour.
 Client refuses to provide information when required, or is reluctant to
provide information.
 Client has a defensive stance to questioning.
 Client presents confusing details about the transaction or knows few
details about its purpose.
 Client avoids contact with reporting entity employees.

 Client refuses to identify a source for funds or provides information
that is false, misleading, or substantially incorrect.
 Client exhibits a lack of concern about higher than normal transaction
costs or fees.
 Client makes inquiries/statements indicating a desire to avoid
reporting or tries to persuade the reporting entity not to file/maintain
required reports.
 Insufficient explanation for the source of funds.

ML/TF Indicators: Financial Transactions Relating To The
Personal/Entity Profile
 The transactional activity far exceeds the projected activity at
beginning of the relationship.
 The transactional activity (level or volume) is inconsistent with
the client's apparent financial standing, their usual pattern of
activities or occupational information (e.g. student,
unemployed, social assistance, etc.).
 The transactional activity is inconsistent with what is expected
from a declared business
 The volume of transactional activity exceeds the norm for the
specific geographical area.
 Client appears to be living beyond their means.

ML/TF Indicators: Financial Transactions Relating To The
Personal/Entity Profile (2)
 Large and/or rapid movement of funds not commensurate with the client's
financial profile.
 Rounded sum transactions atypical of what would be expected from the
client.
 Size or type of transactions atypical of what is expected from the client.
 Conducting transactions when the client's address or employment address is
outside the local service area without a reasonable explanation.
 There is a sudden change in the client's financial profile, pattern of activity
or transactions.
 Client uses notes, monetary instruments, or products and/or services that
are unusual for such a client

ML/TF indicators - Atypical transactional activity (1)
 A series of complicated transfers of funds that seems to be an attempt
to hide the source and intended use of the funds.
 Transaction is unnecessarily complex for its stated purpose.
 Client presents notes or financial instruments that are packed,
transported or wrapped in an uncommon way.
 Client's transactions have no apparent business or economic purpose.
 Transaction is consistent with a publicly known trend in criminal activity.
 Client uses musty, odd smelling or extremely dirty bills.
 Transaction involves a suspected shell entity (an entity that does not
have an economical or logical reason to exist).
 Client frequently exchanges small bills for larger bills.

ML/TF indicators - Atypical transactional activity (2)
 Suspicious pattern emerges from a client's transactions (e.g.
transactions take place at the same time of day).
 Atypical transfers between the client's products.
 Atypical transfers by client on an in-and-out basis, or other methods of
moving funds quickly, such as a currency exchange followed
immediately by a wire transfer of the funds out.
 Funds transferred in and out on the same day or within a relatively short
period of time.
 Unusual amount of self-use by agent/owner.
 Transactions displaying financial connections between persons or
entities that are not usually connected (e.g. a food importer dealing with
an automobile parts exporter).

ML/TF indicators: Structuring below the Reporting
Requirements (1)
Structuring of transactions to avoid reporting or identification
requirements is a common method for committing or attempting to
commit an ML/TF offence.
E.g.
 You become aware of the structuring of wire transfers at multiple
locations.
 Client appears to be structuring amounts to avoid client identification
or reporting thresholds.
 Client appears to be collaborating with others to avoid client
identification or reporting thresholds.

 The structuring of wire transfers through multiple locations of the
same MSB or by groups of persons who enter a single location at the
same time.
 Multiple transactions conducted below the reporting threshold within a
short period.
 Client makes inquiries that would indicate a desire to avoid reporting.
 Client exhibits knowledge of reporting thresholds.
 Client conducts transactions at different physical locations or with
different representatives in an apparent attempt to avoid detection.
ML/TF indicators: Structuring below the Reporting
Requirements (2)

ML/TF indicators - Wire Transfers (incl. electronic funds trsfr)
Its’ become easier to move funds across multiple jurisdictions; both
national and international, in a rapid fashion. This further complicates/
increases the difficulty for reporting entities and law enforcement to
trace illicit funds.
Types of transactions that might require further assessment include:
 Client is unaware of details surrounding incoming wire transfers, such
as the ordering client details, amounts or reasons.
 Client does not appear to know the sender of the wire transfer from
whom the wire transfer was received, or the recipient to whom they
are sending the wire transfer.
 Client frequents multiple locations utilizing cash, prepaid credit cards
or money orders/cheques/drafts to send wire transfers overseas.

 Client frequents multiple locations utilizing cash, prepaid credit cards
or money orders/cheques/drafts to send wire transfers overseas.
 The client sends wire transfers or receives wire transfers to or from
multiple beneficiaries that do not correspond with the expected
activity of the client.
 Client is accompanied by persons who appear to be instructing the
sending or receiving of wire transfers on their behalf.
 Client sending to, or receiving wire transfers from, multiple clients.
 Large and/or frequent wire transfers between senders and receivers
with no apparent relationship.
 Client is accompanied by persons who appear to be instructing the
sending or receiving of wire transfers on their behalf.

 Multiple persons are sending wire transfers that are similar in amounts,
receiver names, security questions, addresses or destination country.
 Client conducts wire transfers that do not include theirs or the
beneficiary's requisite information.
 Client utilizes structured cash transactions to send wire transfers in an
effort to avoid record keeping requirements.
 Multiple clients have sent wire transfers over a short period of time to
the same recipient.
 Client attempts to specify the routing of an international wire transfer.
 The client sends wire transfers or receives wire transfers to or from
multiple beneficiaries that do not correspond with the expected
activity of the client.

ML/TF indicators - Transactions Involving Non-Canadian/
Foreign Jurisdictions
 Transactions with jurisdictions that are known to produce or transit
drugs or precursor chemicals, or are sources of other types of
criminality.
 Transaction/business activity involving locations of concern, which can
include jurisdictions where there are ongoing conflicts (and periphery
areas), countries with weak ML/TF controls, or countries with highly
secretive banking or other transactional laws such as transfer limits set
by a government.

ML/TF indicators - Transactions Involving Non-Canadian/
Foreign Jurisdictions
 Transactions involving any countries deemed high risk or non-
cooperative by the Financial Action Task Force.
 Client makes frequent overseas transfers, not in line with their
financial profile.
 Transactions with jurisdictions that are known to be at a higher risk of
ML/TF.

ML/TF indicators - use of other parties (1)
… there are a "normal" number of parties who engage in the
transactions, depending on the nature of the transaction at hand.
Transactions that involve parties not typically associated with a
transaction might present an elevated risk of ML and/or TF – such
additional parties might aid criminals to avoid being identified or being
linked to an asset.
Some examples of such other parties include the use of a third party,
nominee or ‘gatekeepers’.

ML/TF indicators related to the use of other parties (2)
Use of third party:
any person or entity that instructs another to act on their behalf
for a financial activity or transaction. a situation where the reason
for a person or entity acting on behalf of another person or entity
does not make sense based on what you know about the client or
the third party e.g.,
A client conducts transaction(s) while accompanied, overseen
or directed by another party.
Wire transfers to or from unrelated parties (foreign or
domestic).

Client appears to be or states they are acting on behalf of
another party.
Use of nominee: A nominee is a particular type of ‘other party’
that is authorized to conduct transactions on behalf of a person
or entity.
Such can be legitimate but it is a common method used by
criminals to distance themselves from the transactions that could
be linked to suspected ML/TF offences. E.g.
Client is involved in transactions that are suspicious but
refuses or is unable to answer questions related to the
transactions.

Use of gatekeepers: one who controls access to the financial
system and can act on behalf of a client. include lawyers,
accountants and other professions which can access the financial
system on behalf of a client. Examples of misuse of the
financial system access provided to gatekeepers.
Gatekeeper avoids identifying their client or disclosing their
client's identity when such identification would be normal
during the course of a transaction.
Gatekeeper is willing to pay higher fees and seeks to
conduct the transaction quickly when there is no apparent
need for such expediency.

Gatekeeper is processing transactions not typical of their
business (e.g. excessive amount of cash, payment to non-
clients or parties of transactions).

 Transactions involving certain high-risk jurisdictions such as locations
in the midst of or in proximity to, armed conflict where terrorist
groups operate or locations which are subject to weaker ML/TF
controls.
 Transactions in the name of an entity, a foundation or association,
which may be linked or involved with a suspected terrorist
organization.
 The use of funds by a non-profit organization is not consistent with
the purpose for which it was established.
 Indicators Specific to Terrorist Financing (1)

 Client identified by media or law enforcement as having travelled,
attempted or intended to travel to high-risk jurisdictions (including
cities or districts of concern), specifically countries (and adjacent
countries) under conflict and/or political instability or known to
support terrorist activities and organizations.
 Raising donations in an unofficial or unregistered manner.
 Transactions involve persons or entities identified by media and/or
sanctions lists as being linked to a terrorist organization or terrorist
activities.

 Law enforcement information provided which indicates persons or
entities may be linked to a terrorist organization or terrorist activities.
 Client conducted travel-related purchases (e.g. purchase of airline
tickets, travel visa, passport, etc.) linked to high-risk jurisdictions
(including cities or districts of concern), specifically countries (and
adjacent countries) under conflict and/or political instability or known
to support terrorist activities and organizations. Person or entity's
online presence supports violent extremism or radicalization.
 donation to a cause subject to derogatory information that is publicly
available (e.g. crowdfunding initiative, charity, NPO, NGO, etc.).

 ML/TF indicators specific to MSBs (1)
 Client requests a transaction at a foreign exchange rate that exceeds
the posted rate.
 Client wants to pay transaction fees that exceed the posted fees.
 Client exchanges currency and requests the largest possible
denomination bills in a foreign currency.
 Client knows little about address and contact details for the payee, is
reluctant to disclose this information, or requests a bearer
instrument.

 Client instructs that funds are to be picked up by another party on
behalf of the payee.
 Client makes large purchases of traveller's cheques not consistent
with known travel plans.
 Client makes purchases of money orders in large volumes.
 Client requests numerous cheques in small amounts and various
names, which total the amount of the exchange.

 ML/TF indicators specific to MSBs
 Client purchases a large volume of money orders and changes
payment type to avoid reporting requirements.
 Client wants to exchange cash for numerous postal money orders in
small amounts for numerous other parties.
 Client enters into transactions with counter parties in locations that
are unusual for the client.
 Client wants cash converted to a cheque and you are not normally
involved in issuing cheques.

 Client wants a cheque issued in the same currency to replace the one
being cashed.
 Client requests that a cheque or money order be made out to the
bearer.
 Client requests that a large amount of foreign currency be exchanged
to another foreign currency.

KYC – Know Your Customer
The process whereby the financial organization takes steps to verify the identity and suitability of an individual or
company that will form part of a business relationship.
The process involves assessing the risks that are involved with maintaining a business relationship with the customer
or client and ensuring their suitability is in line with the bank or financial organizations anti-money laundering
policies and procedures.
It is the process which entails verifying the identity of the customer by cross-referencing details like name address and date of birth against
the public information available.
Generally four initial steps to the KYC procedure.
A. A, Customer acceptance process where you identify the customer and verify their identity
B. B, The organization assesses the risk the customer/ client pisses to the organization.
C. C, Monitoring the customer and client transactions and carrying out an on-going due diligence procedures
D. D, Accurate and regular record keeping and monitoring of the client / customer moving forward


Definition: the processes used by financial institutions to collect and
evaluate relevant information about a customer or potential customer.
“… process or effort to collect and analyze information before making a
decision or conducting a transaction so a party is not held legally liable for
any loss or damage.” ~ Investopedia
 Aim: The process seeks to discover any potential risk to the financial
institution of doing business with a specific organization or individual
by analyzing information from a variety of sources. These include:
 The customer - who needs to provide certain information in order to do
business with the financial institution
 Sanctions lists published by governments or territories e.g. FATF, World
Bank,
Due Diligence

 Public data sources, such as company listings, google, Bing etc
 Private data sources from third parties
… the more the institution knows about its customers, the greater its chances
of preventing money laundering abuses and other financial crime.
Thus, the ‘Know-Your-Client’ principle is the initial step in formulating
relationships with the financial institution.
Due Diligence

PART IV of the Official Gazette government Vol.109 No. 94 of Federal Republic of
Nigeria 20th May, 2022 states:
19. (1) Financial Institutions shall undertake Customer Due Diligence ('CDD")
measures when-
(a) business relationships are established
(b) carrying out occasional transactions above the applicable and designated threshold
of US$ I .000 or its equivalent in other currencies or as maybe determined by the CBN
from time to time. including where the transaction is carried out in a single operation or
several operations that appear to be linked
(c) carrying out occasional transactions that are wire transfers , including cross-border
and domestic transfers between Financial Institutions and when credit or debit cards
are used as a payment method to effect money transfer …
20.-( I) Financial Institutions shall identify customers, whether permanent or occasional,
natural or legal persons, or legal arrangements, and verify the customers· identities
using reliable, independently sourced documents, data or information. …”
Due Diligence: The Law - Nigeria

The Know Your Client (KYC/CDD) program: … robust customer identification
and account-opening procedures, aid the institution in determining the true
identity of each customer and assess the risk or potential risk presented by
the customer. This assessment begins with the ‘on-boarding process’ and
includes:
 Gathering and verifying customer identification materials in hard copies and
electronic identity verification
 Verify and authenticate the customer’s identity e.g. License, bills that
reflect the address
 Screen the customer against national and international sanctions lists and
other watch lists, such as known or suspected fraud lists from internal and
external sources, including law enforcement sources i.e. open-source
information
Due Diligence Process: Client On-boarding

 Document the normal and expected business activity for each customer,
including occupation and business operations e.g source of funding, source
of wealth
 Document the customer’s relationship within the organization and its
subsidiaries, including the lines of business.
E.g. for Incorporated entities- company details (e.g. Articles of incorporation
& Company Registration documents), shareholders, beneficiaries, group
structure, and members of the board and their political links etc including
related official documents and contracts
Due Diligence Process: Client On-boarding

Enhanced Due Diligence
 This is the additional analysis and cautionary measures aimed at
identifying customers and confirming that their activities and funds are
legitimate.
Thus, it is an additional level if risk identified at the time of of performing
the customer due diligence checks and it is associated with high-risk
customers.
When is Enhanced Due Diligence Performed?
In high risk situations. This might include but not rectricted to –
 Customers linked to higher-ridsk Business sectors
 Customer with complex or opaque beneficial ownership structures

Enhanced Due Diligence
When is Enhanced Due Diligence Performed?
 Transactions that are un-usual, lack an obvious economic or lawful
purpose are complex ir might lend themselves to anonymity
 Customers identified to be Politically Exposed Persons (PEPs)
 Customers registered in high-risk third countries
 A country on the Financial Action Task Force list list of other monitored
jurisdictions (e.g. grey list)
 Once a relationship is established at the time of on-boarding, companies
are required to conduct on-going monitoring such as transaction monitoring
and periodic review on a more frequent basis normally on an annual basis

Summary - steps to follow when conducting customer due Diligence (CDD)
 1, verify the and address it its an indivisul or the business address for
legal entities
 2, Obtain verifiable photographic identification
 3, This is where I ascertain who is the Ultimate Beneficial person that
exercises control . There is a need to affirm their identity and and gain
an understanding of their relationship with the customer
 4, This is the process of determining the exact purpose of the intended
relationship. This involves an assessment of their planned transactions
and where their funds have originated from.
 5, confirmation of the customer or clients own AML policies – e.g if its a
government agency that is the customer, they would probably have their

Summary - steps to follow when conducting customer due Diligence (CDD)
 5, confirmation of the customer or clients own AML policies – e.g if its a
government agency that is the customer, they would probably have their
own ASML policies and procedure in place. If they do have a suitable and
robust policy in place, this might help reduce their risk profile.
 6, Assess any lists the customer may be included on that might increase
the risks the customer possess to the organization. This includes
Sanctions lists, Blacklists, politically exposed persons lists (PEPS)

What Is Transaction Monitoring?
… the process of monitoring a customer’s transactions such as transfers,
deposits and withdrawals.
A transaction monitoring system will seek to identify suspicious behavior
which could indicate money laundering or other financial crime occurring.
The transaction monitoring process involves :
… several ways financial organizations can conduct AML transaction
monitoring.
Depends on many factors and considerations unique to the business including
such as:
 Sector, size, complexity and geographic reach
 Customer profile, including any intermediaries
 Corporate culture
 Associated operational risk

Information Required For AML Checks?
The following type of customer information is typically integral to an
AML check:
• Name
• Photograph on an official document which confirms their identity,
such as a driving license or passport
• Proof of residential address
• Date of birth
Based on particular circumstances, other types of information may also
need to be checked, such as:
• Purpose and intended nature of the relationship

Information Required For AML Checks?
• Details of customer’s business/employment
• Source/origin of funds
• Relationships between signatories and any beneficial owners
• Expected type and level of activity
The beneficial owner may additionally need to be identified as part of
third party due diligence. A beneficial owner is a person who ultimately
owns/controls/is entitled to more than 25% of shares/voting rights.

References:
• Handbook of Anti-Money Laundering; by Dennis Cox
• ANTI-MONEY LAUNDERING AGAINST VIRTUAL CURRENCY IN CASE OF USING BITCOIN; By MR. PRATYA
APAIYANUKORN
• Certified Financial Crime Specialist Study Manual 6th Edition
• Certified Anti-Money Laundering Study Manual Sixth Edition
• Anti–Money Laundering in a Nutshell; Awareness and Compliance for Financial Personnel and Business
Managers; By Kevin Sullivan
• Official Gazette government Vol.109 No. 94 of Federal Republic of Nigeria 20th May, 2022
• https://financialcrimeacademy.org/predicate-offenses-in-money-laundering/
• https://en.wikipedia.org/wiki/Predicate_crime
• https://www.tookitaki.com/compliance_hub/6amld-predicate-offences/
• https://aml-cft.net/library/predicate-offence/
• https://www.fatf-gafi.org/en/the-fatf.html

Fortuna Favi et Fortus Ltd.,
118 Old Ewu Road, Aviation Estate, Lagos.
+234 703 253 0965 (Nigeria), +1 416 262 7271 (Canada)
www.ffavifortus.com info@ffavifortus.com
Sourced & Compiled by: Olufemi
Feyisitan

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