Europe to adopt money laundering rules

[FaGal]

Europe to adopt money laundering rules
www.accountancyage.com - Iain Martin, Accountancy Age - May 31, 2005

European accountants face new money laundering rules on 7 June


Continental European accountants will face the same difficulties experienced by their UK counterparts over the last year, if EU finance ministers adopt new money laundering rules on 7 June in Luxembourg.

European politicians backed EU laws to crackdown on money laundering and terrorist financing on 26 May. The European Parliament's adoption of the new rules will force accountants and other professions to check the identity of customers, and report suspicions of money laundering or terrorist financing.

Charlie McCreevy, the EU's internal market commissioner, said: 'the fight against money laundering and terrorist financing is a political priority for the EU. Not only will the fight against money laundering and terrorist financing benefit from this, but also the integrity and stability of the financial sector.'

John Davies, head of business law at the ACCA, said that the new rules on money laundering effectively bring the rest of the EU up to the standard imposed in the UK from March 2004, when fresh money laundering legislation was introduced.

Davies said that the EU directive would define the trust and company service providers captured by the regulations, although this will be 'a headache' for the UK government to monitor effectively. He said that the move to a more proportionate assessment of clients was a 'welcome move'.

Last year, a report by Transparency International warned that London was in danger of becoming a haven for money launderers. The anti-corruption campaign group criticised the British government's failure to regulate operators of shell companies. Official estimates indicate that £25bn is laundered through the UK every year.

[FaGal]

Russia approves concept of resisting money-laundering
www.interfax.ru - June 1, 2005


MOSCOW - The Russian government has approved the concept of resisting money-laundering and the funding of terrorism, Federal Financial Monitoring Service chief Viktor Zubkov said on Wednesday.

The concept, covering the period until 2010, provides for legislative and organizational measures that should be taken to resist money-laundering and the funding of terrorism, he said.

"The concept will be submitted to the president in a few days," he said.

[FaGal]

8 giugno 2005

La lotta al riciclaggio gioca la terza carta

Un altro pacchetto di regole per rendere più efficace il contrasto al crimine finanziario


LUSSEMBURGO • Ieri l'Ecofin ha definitivamente adottato la terza direttiva antiriciclaggio.
Il nuovo testo, varato dalla Commissione europea il 30 giugno 2004 e approvato dal Parlamento il mese scorso ( si veda « Il Sole 24 Ore » del 26 maggio), rappresenta un ulteriore giro di vite rispetto alla seconda direttiva, recepita in Italia dal Dlgs 56/ 2004 ma ancora non del tutto operativa per la mancanza di un regolamento attuativo per i professionisti. La terza direttiva consolida il diritto esistente, completandolo e adeguandolo alle indicazioni del Gafi, l'organismo mondiale di lotta al riciclaggio. Nel mirino, non a caso, c'è anche il finanziamento al terrorismo. Gli Stati membri hanno concordato di attuare la nuova direttiva entro due anni dalla pubblicazione, pervista per la fine del 2005, sulla « Gazzetta Ufficiale dell'Unione europea » . I soggetti. Viene ampliata la platea di soggetti coinvolti negli obblighi di vigilanza: la direttiva riguarda infatti banche, enti creditizi e finanziari, revisori dei conti, contabili esterni, consulenti tributari, notai, avvocati, ma anche intermediari assicurativi, agenti immobiliari, case da gioco. Più in generale, la vigilanza spetta alle persone fisiche e giuridiche che negoziano beni o prestano servizi se il pagamento è superiore a 15mila euro versati con un'operazione unica o con « diverse operazioni apparentemente collegate » .
L'obbligo di segnalazione.
La direttiva contempla la verifica dell'identità dei clienti, la segnalazione delle attività sospette, politiche di prevenzione e di formazione del personale interno. Nel testo è stato introdotto un emendamento che prevede l'obbligo per le istituzioni finanziarie di identificare non solo il direttore della società o della fondazione che effettua la transazione, ma anche le persone che possiedono o controllano, direttamente o indirettamente, il 25% delle azioni o dei diritti di voto di queste entità giuridiche. Naturalmente, saranno i singoli Stati a definire in quali circostanze un'operazione va segnalata perché a rischio riciclaggio o sospettata di finanziare il terrorismo.
Ed è proprio sul recepimento della normativa che si giocherà la delicata partita italiana. Gli Ordini professionali giuridicocontabili avevano manifestato perplessità soprattutto sugli " indici di sospetto" del decreto di recepimento della seconda direttiva: senza una griglia di valutazione specifica e omogenea, sottolineavano i professionisti, si rischia un'applicazione differenziata che entra in collisione sia con il regime di tutela della privacy che con il requisito del rapporto fiduciario cliente professionista.
In ambito legale, comunque, la nuova direttiva conferma l'esclusione dell'obbligo di segnalazione per i rapporti legati alla difesa o alla rappresentanza in giudizio.

http://www.assinews.it/rassegna/arti...080605ta2.html

[FaGal]

EU agrees rules to combat money laundering
www.rte.ie - June 7, 2005


Bankers, accountants and other professions will have to keep a closer eye on who they do business with to stamp out money laundering or bankrolling of terrorist activity, EU finance ministers agreed today.

The so-called money laundering directive also aims to stop the creation of trusts and other vehicles that recycle money by hiding the identity of its ultimate owner.

The rules will kick in whenever an individual alone, or through a company, completes a cash transaction worth €15,000 or more.

The European Parliament has already given the green light to update rules introduced over a decade ago, to take into account terrorist financing and toughen up the checks on clients that many professions will have to make.

Parliament voted to oblige the naming of every company shareholder whose stake tops 25%, while the Commission had wanted the obligation to be triggered by a 10% stake.

Finance ministers agreed to all of parliament's changes. The new rules incorporate recommendations on money laundering made by the Group of Seven rich nations.

[FaGal]

Current Anti-Money Laundering Compliance Issues in the Banking Industry
Richard Gibbons, IBM - 20 Jun 2005

In creating an effective AML program, financial institutions must install a variety of intervention and transformation layers to address money laundering issues. Banks must locate, extract, warehouse and assimilate specific data, to better understand and predict customer behaviour and discover suspect situations.

The US Patriot Act of 2001 substantially extends financial institutions' pre-existing due-diligence and anti-money laundering program responsibilities, to include the detection, choking-off (to the extent possible), and reporting of terrorists' financing schemes. The basic ingredients for the survival and success of any criminal organization are recruiting, motivation, funding and sanctuary. Like all criminal organizations, terrorists require financial support to establish and maintain effective financial infrastructures that include:

* sources of funding;
* a means of laundering these funds; and
* a way to ensure that these funds can be readily used.

Current counter-terrorism strategy continues to focus on depriving all criminal groups of as many of these ingredients, as possible. Given the global expansion of money laundering, international cooperation is seen as integral to success by regulatory regimes in the major and emerging capital markets countries. They constantly warn financial institutions, especially those doing business, in their respective jurisdictions, to conform to increasingly onerous international AML regulations, or face reprisal.
Issues with Achieving Regulatory Compliance

Criminals increasingly vacillate between cash-based money laundering activities and banking and the financial markets. With the ever-widening range of financial products and services offerings, new money laundering opportunities continue to rear their ugly heads. The derivatives and securities markets seem particularly attractive for recycling organized crime proceeds, because the audit trail is so easily blurred. A broker can launder a sum of money through a perfectly legal transaction, with no need to ever make a false entry.

Nevertheless, in order to further secure against the off-chance of discovery, money launderers have been known to sequester the help of insiders within the financial institutions - whether through coercion, bribery, or simply offering so much up-side potential, as to compel the financial institution to turn a "blind-eye". Such practices have become widespread, creating a fourth stage in the money laundering process called "paper-trail avoidance", which circumvents documentation, record-keeping, detection and reporting through non-collection, falsification, alteration, or destruction of data and records.

Once a preferred customer relationship is achieved - the "brass ring" to the criminal elements - they can then:

* engage in professional portfolio management and advisory services
* enter into international business and financial ventures
* execute complex transactional structures that efficiently complete the stages of the money laundering process.

Many a criminal bent on establishing a preferred customer relationship has first built or bought a cash-intensive "front" business - a business capable of running vast amounts of tainted cash through its till, without ever raising an eyebrow. Examples of cash intensive businesses run the gamut and can include restaurants, bars, travel agencies, construction companies, automobile dealerships and jewellery merchants. Such criminals employ techniques, such as false invoicing, ghost employees, and inflated expenses to create fictitious cashflows and transactional patterns (values and velocities) that appear to be normal and innocuous.

Financial industry regulations continue to stress the installation of the right people, processes and technology, to achieve compliance - namely, comprehensive and timely discovery, prevention and reporting of money laundering and terrorist financing events, pertinent to each financial institution's risk profile. Less-than-adequate commitment to meeting these mandates substantially increases enterprise and operational risks for financial institutions, often culminating in heavy fines, intrusive external oversight, even prison sentences for "aiding and abetting" and "willful blindness" convictions. Open-ended risk emanating from public disclosure under the Freedom of Information Act brings additional threats. In response, many financial institutions have taken the necessary steps to install know-your-customer and transaction monitoring solutions, but often fall short of the data requirements and rules-based logic needed to meet minimum requirements.
Recent High-profile Enforcement Actions

The combination of the progressive regulations, fast moving solutions and highly focused regulators has culminated with significant negative exposure across the financial services industry. Some examples of the monetary penalties assessed in this environment include:

* On November 30, 2004, Federal Regulators imposed a $24m penalty against Bank of New York for AML violations, and will also have to submit to independent monitoring of its AML compliance program.
* On October 12, 2004, Federal Regulators imposed a $10m penalty against AmSouth Bank of Birmingham, Ala., which they accused of violating rules that bar money laundering.
* On May 10, 2004, UBS was fined $100m by the U.S. Federal Reserve for illegally transferring dollars from a Fed deposit account at UBS to Cuba and other countries that were then under US trade embargo.
* In May 2004, in what appears to be the makings of a massive scandal, the US Federal Reserve fined Riggs Bank $25m for failing to implement effective programs against money laundering and for not reporting suspicious transactions executed on behalf of former Chilean Dictator Gen. Augusto Pinochet, and such governments as Saudi Arabia and Equatorial Guinea. Illustrating the speed and depth of disintegration, in July 2004, PNC Financial Services Group agreed to buy Riggs National Corp. for $779m. The sale is expected to become final in 2005.

If You Don't Build It,They Will Come

Every financial institution should expect its regulators to make AML program effectiveness a high priority. Generally, the regulators look at:

* Board and management oversight of AML risk and exceptions:
o Issuance of management directives related to program operation
* Policies and procedures effectiveness
o Delegation of duties across business, administrative and operational lines
o Expertise and skill-sets of its AML compliance organization
o Results from representative sample testing
* Division of duties/responsibilities among:
o Management and staff
o Management, staff and independent contractors
o Management, staff and outsourced service providers
* Remedial actions in response to regulators' deficiency letters
* Impact of the AML program effectiveness on an institution's UFIRS (Uniform Financial Institution Rating System) and URSIT (Uniform Rating System for Information Technology) ratings.
o These component factors (acronym: "CAMELS") assess Capital adequacy, Asset quality, Management capability, Earnings level and quality, Liquidity adequacy and maintenance, Sensitivity to risk and sufficiency of its information technology infrastructure.
o Composite and component ratings are assigned based on a 1 to 5 numerical scale. A 1 indicates the highest rating, strongest performance and risk management practices, and least degree of supervisory concern, while a five indicates the lowest rating, weakest performance, inadequate risk management practices and, therefore, the highest degree of supervisory concern.
o The composite rating is not derived by computing an arithmetic average of the component ratings. Each component rating is based on a qualitative analysis of the factors comprising that component and its interrelationship with the other components In general, assignment of a composite rating may incorporate any factor that bears significantly on the overall condition and soundness of the financial institution.
o URSIT dates back to 1978 and is the regulators' supervisory tool-of-choice for evaluating the condition of a financial institution's or vendor's information technology functions. Changes in information technology, as well as, in the banking agencies' supervisory policies and procedures have forced the regulators to re-think the original language, steadily adding more requirements, ever since.

AML Program Considerations

Evolving AML program considerations currently fall into four categories and consist of:

* Enterprise AML risk profiling and management: reviewing the enterprise's business and clients to determine areas for enhanced due-diligence (EDD), in the following categories:
o retail/individual clients
o institutional/corporate clients
o domestic and foreign correspondent banking relationships
o linked relationships ("householded", implicit/explicit, hidden [linked only by transaction])
o risk weighting and alert prioritization
* Applied Basel II / COSO risk measurement standards to each financial institution's risk categories:
o operational risk
o legal/regulatory risk
o strategic
* Customer and correspondent bank validation and categorization:
o KYC high-risk profiling and transactional-risk scoring
o peer group benchmarking
o service-level profiling
o existing
* Client/account behavior and new account behavior benchmarking:
o atypical behavior
o suspected terrorist financing schemes
o unsuitability and demographic anomalies
o exceeds historical benchmarks above thresholds
o exceeds PEER group benchmarks above thresholds
o suspicious transactions of logical entities
o fraud
* Transaction monitoring/applied detection scenario categories:
o follow-the-money transactions
o structuring/aggregation - count, value and frequency over varying look back periods, across products and services
o suspicious account stencil changes - e.g., add/delete a beneficial owner; hold mail; switch to a P.O. box address
o secured/unsecured debt default and manipulation
o behavioral anomalies
o anomalous investment activity
o correspondent bank validation and transaction monitoring
o other stored-value / value-transferable
o statistical analysis
* AML program administration:
o management policies and procedures
o reporting
o SAR/CTR reporting
o case generation and management
o program testing and validation
o audit trail record retention
o staff training

The AML Challenge

In creating an effective AML program, financial institutions must install a variety of intervention and transformation layers to address money-laundering issues. These include frontline staff trained to identify potential money laundering, coordination with government agencies to identify persons blocked from making transactions, identification of high-risk transactions, and advanced data analysis capabilities to identify unusual or abnormal patterns of activity.

Banks must locate, extract, warehouse and assimilate specific data, to better understand and predict customer behavior and discover suspect situations. Banks require solutions that can evaluate transactions in multiple dimensions, often at a granular level of detail, within the context of each customer's background, demographics, normal behavior patterns and peer groups.

To be effective, banks must be able to do all of this analysis across all business lines at the transaction, account, customer and household levels. Not only must data be collected and analyzed, this must occur across the enterprise. In most financial institutions, it is uncommon to have an aggregated "single view" of each customer's activity - although this continues to be a common industry goal.
Leveraging AML for Business Advantage

An AML solution essentially provides an enhanced customer resource management system, one that allows bank personnel to monitor, analyze and act - enterprise wide - on customer information in a timely manner. Often, much of the required information - such as the source of funds, how the customer uses these funds, basic account information and product preferences - has already been gathered in areas of the bank. The challenge is to aggregate this information into a more behaviorally oriented context to support broader mandates.

This is achievable with a robust automated AML solution - one that can perform analysis, detection, and advanced data mining, to provide a context and basis-in-facts to anomalous transaction patterns, whether over a selected time span or at a single point-in-time. Such an automated solution should, at a minimum, contain:

* sophisticated business rules that can analyze customers' transactional behavior in comparison to "normalized" activity and known money laundering techniques in batch and real time, providing KYC-based models that can learn about customers and their behavior (KYC), while alert detection scenarios can use domain knowledge and pattern detection to generate suspicious activity alerts.
* risk - scoring and prioritization of "alerts" in support of work flow and case management.
* linking of customer relationships, by transaction flows, whether "householded", explicit, implicit, or hidden, to maximize resource deployment and minimize "false positives".
* comprehensive drill-in/drill-out capability to complete investigations, in a timely and efficient manner.
* advanced work-flow and case management, covering a broad range of end-users, products and services, with a facility for tracking, follow-up, resolution, reporting, and audit trail documentation.
* accurate timely SARs/CTRs filing support, whether electronically of manually filed, within regulator-prescribed windows.
* adaptability and extensibility, to quickly adjust to new and changing regulatory requirements and rapidly deploy new detection capability.

This article was orinally published in IBM's "Building An Edge"