Money Laundering & Terrorist

Financing

Current and Evolving Standards

KIEV: AML/CFT & International Sanctions Seminar

KIEV 24-27 MAY 2016 Adriana Consultancy Consortium

money-laundering
 Session Objectives:

- Brief overview of International Standards

- Changes made to FATF Recommendations

- New EU 4th AML Directive

- Key Issues to retain

- Importance of Effectiveness

KIEV 24-27 MAY 2016 - Adriana Consultancy Consortium

 International Standards

Basel (BCBS): NEW GUIDELINES

Sound management of risks related to money laundering
and financing of terrorism
February 2016

UN – Conventions Vienna 1988, Palermo 2000,

Suppressing FT 2001

FATF – 40 Recommendations and their interpretative

notes !

KIEV 24-27 MAY 2016 - Adriana Consultancy Consortium

International Standards

Regional Bodies:
 
 FSRBs like EAG, Menafatf, Moneyval, etc

 EU – Regulations, Directives and Council

Decisions
 
 CoE – 2005 Warsaw Convention

 Private initiatives: Wolfsberg Group

 
KIEV 24-27 MAY 2016 - Adriana Consultancy Consortium
 Reporting Institutions

Financial/Credit institutions
and
Designated Non-Financial Businesses and Professionals
(DNFBP)
-Auditors, accountants, tax advisers
-Casinos
-Real estate agents
-Dealers in high value items
-Trusts, company service providers
-Lawyers, notaries, independent legal professionals

KIEV 24-27 MAY 2016 - Adriana Consultancy Consortium

Financing of Terrorism
How to prevent terrorists from access to funds?

TF offence to be designated as a ML predicate offence

• Ensure application of existing instruments to fight against

financing of terrorism
• In conformity with international standards including UN
Convention:
Note how Rec 5 criminalised TF on basis of Art 2 of the
Terrorist Financing Convention

KIEV 24-27 MAY 2016 - Adriana Consultancy Consortium

TF vs ML

Unlike money laundering investigations that are

predominantly enforcement-led and are focused by a
predicate offense, terrorism financing investigations are
intelligence-led.

SO: since TF investigations are not focused on a

predicate offense, analysts must rely on a larger set of
indicators to make sense of terrorist financing activity.

Risk of Terrorist Abuse in NPOs – FATF June 2014

KIEV 24-27 MAY 2016 - Adriana Consultancy Consortium

 FATF 40 Recommendations

Review undertaken in context of preparation for 4 th

Round of mutual evaluations

Completed in February 2012

Complementary FATF Methodology published in

February 2013 to help evaluate compliance with the
new Recommendations

KIEV 24-27 MAY 2016 - Adriana Consultancy Consortium

 Key Issues

• Integration of risk-based approach

• Customer due diligence (beneficial ownership)
• Politically-exposed persons
• Intra-group referrals
• Financial institution systems and controls
• Electronic funds transfers
• Tax offences as predicate offences
• Transparency of beneficial ownership of legal persons
and arrangements
• Role of the Financial Intelligence Unit
• Law enforcement powers and procedures
• International cooperation measures

KIEV 24-27 MAY 2016 - Adriana Consultancy Consortium

 Risk Based Approach = RBA

New introductory statement on the RBA

• Countries to assess and understand risk

• Require EDD for higher risk
• May permit SDD for lower risk
• Exemptions (unspecified) possible in cases of “proven”
low risk
• Supervisors to understand financial institutions’ approach
to risk (give more guidance)
• Financial institutions and DNFBPs to have procedures to
assess and mitigate risk
High level principles feed through into individual
Recommendations
KIEV 24-27 MAY 2016 - Adriana Consultancy Consortium
 Recommendation 10 = CDD

Greater clarity on establishing beneficial ownership of legal

persons (companies, etc.)
• Identify and verify identity through core information on structure and
management *
• Identify beneficial owners and take reasonable measures to verify, in
sequence,
‒ Natural persons who have ultimate control through ownership; or, where
none exists,
‒ Natural persons who control through other means; or, where none exists,
‒ Senior managing official(s)

Measures to identify beneficial owner of insurance beneficiaries in

high risk cases
Risk-based approach: procedures and examples

KIEV 24-27 MAY 2016 - Adriana Consultancy Consortium

 Recommendation 12 = PEPs

No substantive changes on foreign PEPs

• Mandatory to take enhanced CDD measures
BUT requirement to take reasonable measures to
identify (and treat on risk-based approach)
• domestic PEPs – but based on RBA
• persons entrusted with prominent functions in
international organisations *
Requirements extended to
• family members and close associates
• beneficiaries of life insurance policies

KIEV 24-27 MAY 2016 - Adriana Consultancy Consortium

 Recommendation 17 = 3rd Parties

Range of acceptable third-parties extended to all

entities subject to AML/CFT measures
• Previously just financial institutions now also DNFPBs
Much-simplified procedures for intra-group reliance
when
• Group-wide AML/CFT systems and controls exist
• Supervision for AML/CFT compliance takes place at group
level.
KEY element: global risk management procedures
for AML/CFT are now accepted

KIEV 24-27 MAY 2016 - Adriana Consultancy Consortium

 Rec 19 = Higher Risk Countries

Apply EDD to business 5

relationships etc if FATF says
so 4

3
Apply countermeasures with
or without FATF saying so 2

1
The Central Bank should
advise FIs of concerns about 0
AML/CFT weaknesses in
1

4
y

y
y

y
other countries – and give

or

or
or

or
eg

eg

eg

eg
guidance. Series 1 Series 2 Series 3
at

at

at

at
C

C
KIEV 24-27 MAY 2016 - Adriana Consultancy Consortium
 Rec 16 = Wire Transfers

Specific measures to be applied to all electronic funds

transfers of USD/EUR 1000 or more
• Previously limited to wire transfers
Full originator and beneficiary information to be included
in messaging
Intermediary institutions to screen for listed (terrorist)
names (screening mechanism)
Recipient institutions to apply appropriate measures
where full originator or beneficiary information is missing
Plus: implement targeted financial sanctions to take
freezing actions as per UNSCR 1267 and 1373

KIEV 24-27 MAY 2016 - Adriana Consultancy Consortium

EU new Regulation on Funds Transfers

The Funds Transfers Regulation complements

existing (FATF) measures by ensuring that
basic information on the payer of transfers of
funds is immediately available to appropriate
law enforcement and/or prosecutorial
authorities to assist them in detecting,
investigating, prosecuting terrorists or other
criminals and tracing the assets of terrorists.

KIEV 24-27 MAY 2016 - Adriana Consultancy Consortium

 Transparency and Beneficial Ownership
of Legal Persons

Intention to clarify expectations under Recs 24/25:

Focus on improving transparency of corporate
vehicles
• Requirements for legal persons to hold certain basic
information
• Range of mechanisms to establish beneficial ownership
for both legal persons and arrangements
• Obligations on trustees to disclose status to financial
institutions

KIEV 24-27 MAY 2016 - Adriana Consultancy Consortium

 What is coming?
Click to edit Master text styles ‒ Third level
New 4 AMLD in the European Union:
th
• Second level
Adopted on 16 Dec. 2014 – Must be transposed this summer
Main points:
Implements the new FATF Recs
And
Lowers threshold for high value goods to EUR 7500
Tax crimes as predicate offence
Identification of beneficial owners
Improve effectiveness by ensuring that risk
assessments are carried out.

KIEV 24-27 MAY 2016 - Adriana Consultancy Consortium

4th EU AML Directive
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• Second level

KIEV 24-27 MAY 2016 - Adriana Consultancy Consortium

BO – Art 29 4th AML Dir.
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• Second level

KIEV 24-27 MAY 2016 - Adriana Consultancy Consortium

Pleas for Open Registers BO
Beneficial
Click to editOwnership
Master textinformation
styles ‒ Third level
will:
• Second level

-allow businesses to know who are behind their partners

- support banks in their due diligence efforts
-allow for immediate access by law enforcement (also in
developing countries)
-allow the public to scrutinise the data and weed out false
information
-be more cost-effective for governments than a closed system
according to two studies (UK and European Commission
reports)

KIEV 24-27 MAY 2016 - Adriana Consultancy Consortium

To improve ?
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• Second level

Communication and Cooperation

And

National and International Exchange

of Information

KIEV 24-27 MAY 2016 - Adriana Consultancy Consortium

Effectiveness of the system?
Clicktotomeasure
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• Second level
Measure the extent to which the defined outcomes are
achieved.
Does this imply more monitoring, more mutual
evaluations, more supervision, more implementing
rules,
More micro management?
BENEFIT ANALYSIS FORM = BAF
Your homework !!!

KIEV 24-27 MAY 2016 - Adriana Consultancy Consortium

THANK YOU
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Thank
• Second levelyou

Adriana Holtslag-Alvarez

Consultant to the EBRD, London;

Project Leader

adrianaholtslag@gmail.com
KIEV 24-27 MAY 2016 - Adriana Consultancy Consortium