Compliance & AML
AML: The realities of the risk-based approach
Peter Drake, EMEA Head, AML Compliance Risk Management, Treasury & Trade Solutions, Citi
Citi Transaction Banking Academy for Financial Institutions Professionals | 4 - 5 April 2017
EMEA COMPLIANCE SUMMIT 2017
Hot topics
AML: The realities of the risk-based approach
• Panama Papers & Offshore Entities
• UBO KYC
• Source of Wealth
• Tax evasion
• Foreign Correspondent Banks
• De-risking
• Financial Inclusion
• KYC requirements (RMA key exchanges; Trade Finance)
• Payment Service Providers
• MSBs, Exchange Houses, Bureaux de Change
• Acquiring, Payment Intermediaries, eCommerce
• FinTech
Global Governance and Risk
Provides strategic direction and
drives execution of the AML Program
in the businesses
Business Level
Ensures AML program requirements are properly executed and AML risks are
monitored and controlled
Geographic risk – more RED than GREEN
Current and Emerging AML Risks in EMEA Ukraine/Russia (Political Crisis): The events in Ukraine
during the course of the past year have changed the
political landscape in Europe by inducing economic
sanctions against Russia, including a new model of sectoral
sanctions. Although designed to target Russian interests
with limited impact on the West, they have also increased
the complexity of compliance. In response, Russia has
imposed certain counter-measures against the West and
drafted others, stressing the ‘protective’ nature of Russia’s
actions, aimed at safeguarding the country’s infrastructure.
Iraq/Syria (Political Crisis): The Islamic
State’s (IS) expanding presence across
Syria and Iraq and recent acts of
brutality have pushed the West to
intervene militarily in Iraq. IS is receiving
considerable revenues from a range of
sources, leading to the development of a
self-sustaining economy across seized
territory and creating the possibility that
the surrounding region’s financial
systems could be exposed to terrorist
financing activity.
Turkey (Drug transit): The vast majority of
heroin in the EU transits through Turkey; 80% of
heroin trafficked to Europe is transited through
the country and originates from Afghanistan.
Recent assessments demonstrate the amount of
drugs transiting through Turkey is increasing.
Turkey & UAE (Gold Scandal): The rapid
growth of Turkey’s gold sector and government
backed monetisation of the commodity in the
context of weak AML and sanctions controls. A
continuously evolving Iranian-Turkish
partnership with expected involvement of the
UAE represent an increased risk of exposure to
money laundering and sanctions evasion of the
Turkish and UAE financial sector.
Africa (Illicit Pharmaceutical
Trade): Nearly 200 tonnes of fake
or illicit medicines worth approx.
$25m were seized in West Africa,
leading to a call for greater
collaboration of the private sector
and law enforcement to address the
crime.
UK (Moldovan Organized Crime
Syndicate): A Moldova-based crime
syndicate is alleged to have
laundered $20bn of criminal
proceeds with the use of UK-based
front companies, leading to
increased criticism of the strength of
UK corporate regulation.
Citi’s Global AML Program and Lifecycle
Governance and Enterprise-wide Controls
Policies
Policies & Standards
Procedures
Processes
Governance & Management
Issues Management
Risk Assessment
Metrics / Analytics
Personnel
Staff / Talent
Training & Communications
Roles and Responsibilities
Controls
Program Management
Compliance Testing
Independent Testing
AML Lifecycle
AML Screening
(Name Screening, Red Flag, Senior Public
Figure)
Customer Risk Scoring
Customer
On-boarding
Prevention
Know Your Customer
Customer
Maintenance
Transaction
Monitoring/
Alerts
Detection
Monitoring & Investigations
Case
Review
Global Investigations
(Inputs from internal and external sources)
Investigations
Escalations Suspicious Activity Reporting (SARs)
Currency Transaction Reporting
(CTRs)
Reporting
Account Restrictions and Closures
Feedback Loop
AM
L C
om
plia
nce R
isk M
anagem
ent
Panama Papers: The importance of establishing beneficial ownership
Detection Prevention Reporting
140 politicians and public
officials
Thirty-three sanctioned people and companies
Brink-Mat robbery
11.5 million leaked records 214,000 offshore entities
US$2 trillion
FIFA-related alleged corruption
Lava Jato Medellin cartel
$60 million investment fraud
Russian bribery
Prolific use of nominee shareholders and directors
200 countries & territories
High Risk Clients: Correspondent Banking
Detection Prevention Reporting
Where a respondent bank is offering correspondent banking services to other downstream financial
institutions.
This adds another layer and means the correspondent bank is even further removed from knowing the
identities or business activity of these sub-respondents, or even the types of financial services provided.
Detection Prevention Reporting
Money Service Businesses Key Risks
• May lack ongoing customer relationships, require minimal/no KYC or maintain limited/inconsistent records of customers or transactions;
• May engage in frequent currency transactions, and operate in cash and cash equivalent (e.g. money orders, travellers cheques) obscuring origin of funds;
• Inconsistent levels of regulatory requirements and oversight globally;
• Can quickly change their product mix and location, quickly enter or exit an operation and agents may be unevenly trained and/or supervised; and
• May conduct bulk transactions accumulating numerous individual transactions from many sources, hiding the ultimate originators.
PEPs/Embassies Key Risks
• By definition, embassies are run by PEPs;
• Position may make PEPs vulnerable to corruption or put PEPs in a position to embezzle public funds;
• Risk extends to PEPs families and close associates;
• Embassy accounts may be used for PEP-driven money movements (risks as above); and
• Diplomatic immunity and “diplomatic bag” movements of cash may be used for money laundering and/or to fund terrorist activity.
Correspondent Banking Key Risks
• Transactions on behalf of customers of another institution;
• Correspondent bank has neither verified identities nor obtained any first-hand knowledge of instructing parties;
• Process large volumes of transactions for their customers’ customer – potentially including nested relationships; and
• More difficult to identify whether transactions are normal or suspect.
Respondent Bank
Correspondent Bank
Clients of the Respondent Bank
Risk mitigation
• Specific AML Standards
• Compliance calls/visits
• Periodic Transaction Review (PTR)
• Correspondent Banking Oversight Committee (CBOC)
• Quality Assurance
Risk mitigation
• Specific AML Standards
• Compliance calls/visits
• Periodic Transaction Review (PTR)
• Money Service Business Oversight Committee (MSBOC)
• Quality Assurance
Risk mitigation
• Specific AML Standards
• Periodic Transaction Review (PTR)
• Embassy Banking Oversight Committee (EBOC)
• Quality Assurance
To be effective, an AML and sanctions screening and compliance programme requires more
than just minimal data, existing policies and an regular solution. Instead, a truly effective
programme requires developing a comprehensive, risk-based approach, powered by:
• the right data
• technology solutions, and
• trained experts
to maximise AML and sanctions compliance, and to minimise risk.
The institution should be able to demonstrate to its regulators that:
• It fully understands the AML risks presented by their business, products & clients;
and
• It is comfortable that existing controls are sufficient to manage AML risk.
Wrap-up
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