OFAC: Office Foreign Assets Control- Financial Intelligence and
Enforcement agency in US – They hold the responsibility of administrating
and enforcing economic and trade sanctions on behalf of US Govt.
Sanctions are penalties or measures imposed by one country or group of
countries against another country or group of countries to influence or
change their behaviour.
human rights violations, non-compliance with international law, or the pursuit of
nuclear weapons.
Types of Sanctions:
Economic/Diplomatic/military Sanctions: These involve the restriction
of trade, investment, or other economic activity with the targeted country
or group.
Political Sanctions: Political sanctions may also include restrictions on
cultural or educational exchanges or the suspension of membership in
international organizations.
Targeted Sanction: These are measures that aim to affect specific
individuals or entities, such as freezing their assets or banning them from
travel. Targeted sanctions may also include restrictions on access to
technology or other resources.
Sports sanctions
e.g.
North Korea: Political and economic sanctions
Russia: Targeted Sanction
Iran/Iraq: Political and economic sanctions
An Embargo is a commercial barrier that prevents commerce or trade
with a single nation or a group of countries in a certain way.
Legislative restrictions, an embargo prohibits a country from dealing with
another country for a certain product, sector, or even all items, implying
that it would not import or export any products from that country.
Trade Embargo: These involve the prohibition or restriction of trade with
the targeted country or group.
restrictions on imports or exports or the complete cessation of trade
between the countries.
Military Embargos: these involve the prohibition or restriction of military
aid or weapons sales to the targeted country or group
Financial Embargos: These involve the restriction or prohibition of
financial transactions with the targeted country or group. Financial
embargoes may include the freezing of assets or the prohibition of access
to international banking systems.
e.g. US against Cuba, UN arms embargo against north Korea, US against
iraq.
Sanctions: UN security council can impose sanctions under chapter VII of
the UN chapter
Embargo: Governed by international trade law, can be subject to WTO
(world trade organisation)
AML/CFT red flags in the insurance industry
Adverse Media:1. Financial Crime 2. Non-financial Crime
For adverse media we need to screen:
1. The client ( individual or entity)
2. Directors of the client (entity)
3. Client representative
4. UBOs.
5. Ultimate parent company.
In ECDD, additional searched might be performed.
1. Directors of the Client’s parent company.
2. Significant shareholders not exceeding the UBO threshold. (UBO
<25%)
3. Executive management of the client
4. Main subsidiaries of the client.
5. If the ultimate parent is the Trust all the parties e.g. Trustees,
settlors, beneficiaries etc.
Where can we find?
chamber of commerce, financial statements, ownership structure
chart)
Analysis of adverse media:
Nature:
1. Financial Crime
2. Non-financial Crime
Time frame: Recent, past
Source: Reliable or independent
Predicate Offenses:
A predicate offence is an unlawful act that forms a part of a more severe criminal act or
organization, A predicate offence is a fundamental criminal act that serves as a building
block for the commission of another offense, often related to money laundering or
organized crime. These offences are the source of illegal profits that are later concealed
through money laundering. They may involve a range of illegal actions, such as drug
trafficking, fraud, bribery, human trafficking, or terrorism.
Obfuscate: disguise
Money Mule:
Transfers money acquired illegally, such as by theft or fraud, on behalf of others 1.
Helps launder proceeds derived from online scams, frauds, or other criminal
activities2345.
Receives and moves money that came from victims of fraud3.
Smurfing/structuring : Depositing money just below threshold.
The following is a list of indicators ('red flags') identified within the case studies provided
in the AUSTRAC Typologies and Case Studies Report 2007. Indicators by themselves may
not always be immediately indicative of suspect financial or criminal activity but may
give rise to further monitoring and due diligence.
the transaction was inconsistent with the customer's profile
associations with multiple accounts under multiple names
drafts cashed for foreign currency e.g. euros, US$
cash deposited domestically with the funds subsequently withdrawn from ATMs
offshore
cheques issued to a family member(s) at arm’s length from person
cash used to purchase large amounts of gold
cheques made out regularly to companies and individuals not linked to the
account.
deposit of gambling proceeds into a foreign bank account
depositing multiple large amounts of cash and receiving multiple cheques drawn
on that account
early surrender of insurance policy incurring substantial loss
elaborate movement of funds through different accounts
frequent early repayments of loans
frequent deposits of winning gambling cheques followed by immediate withdrawal
of funds in cash
frequently playing games with low returns but with higher chances of winning
frequent transfers indicated as loans sent from relatives
frequent remittance of bearer negotiable instruments e.g. bank drafts, offshore
funds transferred to a charity fund
gold transported by the individual but purchased with funds drawn from a
company account
high level of funds placed on stored value cards
high volume of transactions within a short period
investment cheques issued to a family member
insurance policy being closed with request of the payment to be made to a third
party
accounts
investment funds sent to 'interesting' countries
inserting funds into slot machines and immediately claiming those funds as
credits
insurance policy cashed outside the jurisdiction of purchase
large amount of cash used to purchase insurance policy
large sums credited into accounts from 'interesting' countries
large cash deposits used for investment
large cash deposits into company accounts
large amounts of currency exchanged for traveller's cheques
large purchases of gold with transportation of the gold conducted by the
individual
leaving large amounts of cash with a bookmaker and requesting a cheque in
return
large amounts of cash from unexplained sources
multiple individuals sending funds to one beneficiary
multiple chip cash-outs on the same day
multiple cheques cashed into one bank account
multiple loans obtained over a short period of time with repayments made in cash
multiple issue of stored value cards and debit cards accessed offshore
multiple transactions of a similar nature on the same day in different locations
numerous bank drafts purchased domestically and subsequently deposited
internationally
obtained loan and repaid balance in cash
purchasing high value assets (e.g. motor vehicles) followed by immediate resale
with payment requested via cheque
purchase of high-value assets e.g. diamond ring, bullion, motor vehicle, property
purchase of an insurance policy followed by immediate surrender
purchasing and cashing out casino chips with no gaming activity
physical carriage of cash and/or bearer negotiable instrument out of Australia
regular sale of large amounts of precious metals and jewellery
regular sale of large amounts of gold with payment received in cash
purchase of multiple money orders
regular use of stored value card to withdraw funds overseas
regular claims made less than the premium payments
sale of large amounts of gold from an individual
structuring cash to purchase traveller's cheques
structuring the placement of betting transactions
structuring the purchase of bank drafts
structuring cash deposits/withdrawals
structuring chip cash-outs
structuring wire transfers
transfers from company accounts to private betting accounts
third party present for all transactions but does not participate in the actual
transaction
transferring funds into third-party accounts
using third parties to undertake wire transfers
use of an intermediary to make large cash deposits
use of intermediary to make insurance policy payments
unusually large transfer of money from a individual to a business
use of gatekeepers e.g. accountant and lawyer, to undertake transactions
use of internet banking to transfer illicit funds into 'mule' accounts
use of multiple names to conduct similar activity
use of an offshore company to pay the premiums for a insurance policy taken out
privately by individuals
use of safety deposit box to store large amounts of cash
use of third parties to undertake structuring of deposits and wire transfers
unexplained income inconsistent with economic situation
'u-turn' transactions occurring with funds being transferred out of Australia and
then portions of those funds being returned
use of internet banking to frequently access Australian-based accounts
internationally
use of a remittance dealer to send a large amount of cash
use of a remittance dealer to send large cash amounts overseas
use of third parties to purchase gaming chips
use of gatekeeper (e.g. accountant) to structure deposits and purchase real estate
use of a third party to gamble proceeds through casinos
use of companies to move funds under the guise of legitimate transactions
use of non-resident accounts
use of false and stolen identities to open and operate bank accounts
withdrawal of a large amount of funds in cash
wire transfers to tax haven countries e.g. British Virgin Islands
wire transfers from third parties located in tax haven countries
wire transfers used to purchase insurance policies
Fraud: External fraud, Internal fraud
Types of Fraud:
Application Fraud, Scams, identity takeover, digital fraud, Card fraud,
employee fraud,
Transaction Monitoring
CDD Basics:
[Link] identification: Name, Address, DOB, PHOTO ID.
2. Beneficial Ownership: who is account really being used by (UBO)
3. Business Relationship: What is the nature and purpose between financial services
and customers.
When do you do CDD?
1. In case of new customer
2. Transactional activity (value or non-value transactions)
3. Transactional monitoring services
4. Unreliable documentation.
Tipping off: An employee discloses to another person (customer): information which is
in prejudice to AML/CTF investigation.
CDD LEVELS:
SDD (simplified due diligence): Financial crime activity is low
Nature of business
Customer name
Identity
Address
Business name
Beneficial owner
EDD (enhanced due diligence): financial crime risk is higher
Cash intensive business
PEPs
Complex business structure
High risk jurisdictions
Non residents
High risk businesses (Casino)
Product e.g. private banking, non-face to face relationships.
EDD involves:
Additional customer identification
Determining the beneficial owner
Establishing source of funds and verifying it
Applying closest scrutiny to understand the nature and purpose of business relationships.
As per Patriotic act 2001 (section 326)
Customer identification procedure involves six steps:
1. Written program: CIP processes should be documented.
2. Identifying information (name, DOB, address, identification no)
3. Identity verification procedures.
4. Record keeping (customer onboarding event logs, identification documentation,
retention, customer data retention)
5. Comparison with government lists (sanction list and PEPs list)
6. Customer notice (processes used, why the processes are used, data is used and
retained)
Ultimate Beneficial Owner
Individual who ultimately owns or control an entity.
Ownership here means more than 25% of the entity (directly through shareholding
or indirectly through another company ownership or through a bank or a broker.
Control in this case means having the power to make the decisions about the
entity’s finances and operations.
Perform CDD/EDD:
Conduct CIP (gather and verify client information- Performing Sanction
Screening Conduct Risk Assessment Apply Risk rating- Approve and
open account
High risk accounts EDD (Additional
Documents required)
PEPs and Processes
Data- Detection- Alerts- Case Management
Types of PEPs:
Domestic PEPs, Foreign PEPs, international organization PEPs. (WTO)
PEPs Technology:
Refinitiv- world check risk intelligence service.
LexisNexis- Due Diligence solution
Comply advantage and Equifax vendors- Manually search for the PEPs (Exact
match or a Fuzzy Match)
Watchlist Filtering:
1. Sanctions
2. PEPs
3. Adverse Media
4. Integration with third party data\
PEPs Alert Scoring (proximity)
Fuzzy Matching Algorithm:
1. Character variation: Lee Anne or leeane
2. Spelling variation: Gary or Garry
3. Phonetic variation: Rajeev or Rajiv
Most used Fuzzy match algorithm is:
Levenshtein distance :
- how different are two strings, the higher the difference, the higher the distance metrics
EX: Bitten and sitting (B to s, E to I, N to G)
Jaro Winkler Distance: Determined on the range of 0 and 1
Sanctions and warning (in lexis-nexis) includes hundreds of watchlist and
blacklist, sanctions such as OFAC, ZETCO, BUSH, Info4, Fincen and more.
Free Trade Zone:
SDN List: (specialised designated nationals)- it contains
Aliases
Addresses
Entity details
Target type