Anti Money Laundering training [Autosaved].pptx

Anti Money Laundering training

1. M oney L aundering

2. Instructor Introduction 2 Professional Summary: With over 15 years of comprehensive experience in Environmental Safety and Health (HSE), Parabakaran Balasubramaniam is a seasoned professional with specialized expertise in delivering impactful training programs. He holds a Master's Degree in Environmental Safety and Health from the University Malaysia Pahang and has dedicated 5 years specifically to the field of HSE training and consultancy. Key Skills and Competencies: Extensive knowledge in environmental safety regulations and compliance standards. Proven track record in designing and delivering engaging and effective HSE training modules. Strong understanding of risk assessment methodologies and hazard control strategies. Skilled in conducting safety audits and implementing corrective measures. Excellent communication and interpersonal skills for effective training delivery

3. 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

4. “ … 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   What Is Money Laundering?

5. “… 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.’ What Is Money Laundering?

6. … 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. What Is Money Laundering?

7. The Money Laundering Cycle

8. 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

9. Stages in the Money Laundering Cycle … t hree 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. 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. 

10. Integration: attempt to manipulate perceptions of a pparent 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

11. 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

12. 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:

13. 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:

14. 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:

15. 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:

16. Effects Of Money Laundering

17. 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

18. Effects Of Money Laundering 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.

19. Effects Of Money Laundering 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

20. Effects Of Money Laundering 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 . E ffective 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.

21. Effects Of Money Laundering 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

22. Effects Of Money Laundering 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.

23. 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. Effects Of Money Laundering

24. 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; Effects Of Money Laundering

25. 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. Effects Of Money Laundering

26. 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. Effects Of Money Laundering

27. 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. Effects Of Money Laundering

28. The Financial Institutions

29. 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.

30. Concentration Accounts: … a lso 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 The Financial Institutions: Banks and Other Depository Institutions

31. 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 The Financial Institutions: Banks and Other Depository Institutions

32. 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 . The Financial Institutions: Banks and Other Depository Institutions

33. 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. The Financial Institutions: Banks and Other Depository Institutions

34. 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

35. 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 Nonfinancial Businesses and Professions

36. 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 Nonfinancial Businesses and Professions

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

38. Structures used to Hide/ Obscure Beneficial Ownership

39. 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. T hough 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.

40. Structures That Hide/ Obscure Beneficial Ownership Shell Companies: Shell companies are an anony­mous, or at least concealed, vehicle to access the international financial system. M any 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

41. 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. Structures That Hide/ Obscure Beneficial Ownership

42. 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. Structures That Hide/ Obscure Beneficial Ownership

43. 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”. Structures That Hide/ Obscure Beneficial Ownership

44. Structures That Hide/ Obscure Beneficial 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

45. Structures That Hide/ Obscure Beneficial 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.

46. 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;… Structures That Hide/ Obscure Beneficial

47. 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. Structures That Hide/ Obscure Beneficial

48. Structures That Hide/ Obscure Beneficial 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 Transfers from company accounts to private betting accounts Use of third parties to purchase gaming chips Use of a third party to gamble proceeds through casinos

49. Structures That Hide/ Obscure Beneficial 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

50. Terrorist Financing

51. “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:

52. “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

53. 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”

54. 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’

55. What is Terrorist Financing? 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.

56. What is Terrorist Financing? Funding sources for Terrorist organizations include: Contd Legitimate Sources: M embers of the organization (usually the newcomers) Individual contributors   Legitimate businesses A buse 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.”

57. 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. ** List inexhaustive Terrorist Financing - Methods

58. 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

59. 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

60. 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

61. 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

62. 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

63. 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 Terrorist Financing – The Red Flags

64. Terrorist Financing – The Red Flags 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

65. General Money Laundering and/or Terrorist Financing indicators

66. 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.

67. ML/TF indicators – Identity related (person or entity) 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.

68. ML/TF indicators – Identity related (person or entity) 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.

69. ML/TF indicators – Identity related (person or entity) 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.

70. 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).

71. ML/TF indicators - Client Behaviour 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.

72. ML/TF indicators - Client Behaviour 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.

73. 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.

74. 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

75. 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.

76. 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).

77. 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.

78. 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)

79. 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. T ypes 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.

80. ML/TF indicators - Wire Transfers (incl. electronic funds trsfr ) 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.

81. ML/TF indicators - Wire Transfers (incl. electronic funds trsfr ) 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.

82. ML/TF indicators - Transactions Involving Non- C anadian/ 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.

83. ML/TF indicators - Transactions Involving Non- C anadian/ 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.

84. 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’ .

85. 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).

86. ML/TF indicators related to the use of other parties (3) 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.

87. ML/TF indicators related to the use of other parties (4) Use of gatekeeper: 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.

88. ML/TF indicators related to the use of other parties (5) Gatekeeper is processing transactions not typical of their business (e.g. excessive amount of cash, payment to non-clients or parties of transactions).

89. 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)

90. 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. Indicators Specific to Terrorist Financing (2)

91. 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.). Indicators Specific to Terrorist Financing (3)

92. 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.

93. ML/TF indicators specific to MSBs (2) 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.

94. 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.

95. ML/TF indicators specific to MSBs (3) 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.

96. 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

97. Public data sources, such as company listings, google, Bing etc Private data sources from third parties … t he more the institution knows about its customers, the greater its chances of preventing money laundering abuses and other financial crime. Thus, t he ‘ Know-Your-Client’ principle is the initial step in formulating relationships with the financial institution. Due Diligence

98. 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 ma y be determined by the CBN f r om time to time. including where the transaction is carried out in a single operation or several operati ons that appear to be linked (c) carrying out occasional transactions that are wire transf ers , 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

99. 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

100. 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 o fficial documents and contracts Due Diligence Process: Client On-boarding

101. 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