Money Transmitter Receiving and Paying Agent Risks: Are Both

John Bishop John Bishop –– ModeratorModerator

Paul S. Dwyer, Jr. Paul S. Dwyer, Jr. ––CEO , Viamericas CorpCEO , Viamericas Corp

Juan LlanosJuan Llanos--Director of Compliance, Unidos Director of Compliance, Unidos

Financial Services, Inc.Financial Services, Inc.

Money Transmitter Receiving Money Transmitter Receiving and Paying Agent Risks:and Paying Agent Risks: Are Are

Both Regulators and Operators Both Regulators and Operators Missing the Mark ?Missing the Mark ?

PRESENTERSPRESENTERS

Juan Llanos Juan Llanos –– Receiving AgentsReceiving Agents

Paul Dwyer, Jr.Paul Dwyer, Jr.-- Foreign AgentsForeign Agents

RISKSRISKS

COMPANY EXPOSURECOMPANY EXPOSURE

REGULATORY FOCUSREGULATORY FOCUS

A Typical Money Transmitter Agent© 2007 Juan Llanos – All Rights Reserved

© 2007 Juan Llanos – All Rights Reserved




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AgendaAgenda1. Risk identification and assessment: Have we

identified all the risks?2. Risk mitigation: Are we doing everything we can

to mitigate the risks? How are we executing our programs?

3. Conflicting views and paradoxes• competitiveness vs. control• business vs. compliance• low price vs. high costs• federal vs. state, etc.

4. What are we trying to accomplish?


Money Transmitter Risk Fronts



Non-Compliance vs. Money Laundering

• Report termination of employees

• File personal history statements

• Maintain records to demonstrate compliance

• Display notices

• Include language in contracts

• File duplicate SARs with AZ Attorney General’s Office

• Keep records of customers’identities, occupations, and signatures

• Update manuals

• Remitters created false documentation to conceal the drug source of the funds

• Undercover agents told the remitter which names on a list would be used, and the remitter typically made up the sender information.

• Undercover agents and confidential informants, posing as drug traffickers, brought more than $1.5 million in currency to money remitter stores.

• Operation Pinpoint (2005-06): storefronts operating as networks –the remitter took some money and recommended other locations. All shared in the profits.

NON-COMPLIANCE MONEY LAUNDERING

2006 AZ Cases 2006-07 NY Sting


1. Risk of under performance

2. Risk of non compliance

3. Risk of ML, TF, fraud, default and breakdowns

Regulatory

Operational

Agent Risk Fronts


Commercial

RISKSRISKS MITIGATORSMITIGATORS•• Assistance in structuringAssistance in structuring•• Complicity with sender or Complicity with sender or

beneficiary beneficiary •• Commingling of funds (front)Commingling of funds (front)•• Credit riskCredit risk•• Identity theft, privacy and Identity theft, privacy and

security.security.•• NonNon--compliance with state compliance with state

regulationsregulations•• NonNon--compliance with Section 352 compliance with Section 352

of PATRIOT Actof PATRIOT Act

•• Agent acceptance, Agent acceptance, monitoring and termination monitoring and termination protocolsprotocols

•• POS training POS training •• Transaction monitoringTransaction monitoring•• Zero tolerance policyZero tolerance policy•• Secret shopping and Secret shopping and

stress testingstress testing•• OFAC screeningOFAC screening

Agent Risks and Mitigators


FocusFocus1. Agent acceptance, monitoring and

termination (Life-Cycle Management)

2. POS training3. Transaction monitoring


LifeLife--CycleCycle ManagementManagement


1. “Traditional” contents• ML Risks and Methods• Rules and Regulations• KYC, reporting and record-keeping• Suspicious activity

2. The real knowledge gap: ORGANIZATION3. Most of AML Compliance is about behavior

and attitude, rather than knowledge.

POS POS TrainingTraining


“What you dospeaks so loudly

that I cannot hear what you’re

saying.”(Paraphrasing Ralph Waldo Emerson)


IsIs Learning Learning Taking Place?Taking Place?

““Said Said is not yetis not yet heardheardHeardHeard is not yetis not yet understoodunderstood

Understood Understood is not yetis not yet approvedapprovedApproved Approved is not yetis not yet appliedapplied””

KonradKonrad LorenzLorenz

Ultimate testUltimate test behavior change behavior change andand deliverablesdeliverables


Front Office

AA

A

A© 2007 Juan Llanos – All Rights Reserved

Archives =Secure and Accessible

B-

B-

C


Back Office

MOTIVATIONMOTIVATION

SATISFACTION

PERFORMANCE

Why Do Things Go Wrong?


KEY Employee Program Elements• Written Acceptance, Monitoring and

Termination Protocols• Zero tolerance policy• Employee Code of Conduct• Background verifications• Whistleblower program• IT security (access and monitoring)• Training and development


Creating a Culture for ComplianceDRIVERS

• Values of founders• Selection practices• Management actions• Socialization• Learning vehicles:

• Stories• Rituals• Symbols• Language

• Make values explicit• Start with mini-cultures:

• Documentation• Transparency• Respect• Ethical execution• Accountability

• Role model behavior• Get involved in the people process

ACTIONS


Assisting a sender instructuring = structuring

• CAUTION: undercover ops! • CAUTION: “professional” informants!

Be Unequivocal!

If you fall, zero tolerance!


ConspicuousSurveillance


The Risk-Based Approach: Separating the Wheat from the Chaff

• Measure, measure, measure.• Treat different segments differently.



Sample Risk Segmentation

Detecting Suspicion throughMonitoring and Analysis

Detection tools and techniques:• pattern recognition• contrasting legitimate vs. illegitimate behavior• looking for outliers and changes in normal behavior• link analysis (entity and event associations)• ratio and score tracking over time

The goal is to detect abnormal shifts in volume, frequency and size of transactions. To achieve these goals, we

- Track the transactional behavior of all participating entities- Track specific patterns such as:

• Aggregations in excess of predetermined thresholds• Overactive and dormant accounts• Dollar or unit volume inconsistent with a class or profile


Sample Entity Pair Concentration

Analysis



Sample Geographical Concentration

Map

1. Money laundering (e.g., Operation Pinpoint)2. Fraud and credit (against the company and also, facilitating

fraud-induced MTs)3. Identity theft (identity document copies) (terrorist magnet?) 4. State and federal compliance (e.g., AZ)5. Money remitter agents = multiple remitters, multiple

products, larger amounts (in aggregate)6. Industry-specific risks = “impersonation” & structuring7. General risks = fake IDs, incompetence & internal

corruption8. Life-cycle management and the right mix of detective and

deterrent techniques, including effective training, are key.9. Most agents are good and will react positively to fair and

consistently executed risk controls and actions.10. What to do with the minority who aren’t, and won’t?

Agent (POS) Risks - (Summary)


Will biometrics be the solution?


1. Business vs. Compliance2. Low price vs. High Cost3. Agents vs. Branch4. Federal vs. State5. Centralization vs. Decentralization6. Competitiveness vs. Control7. Form vs. Substance...

Tugs and Contradictions


OPERATORS…………………………………………

INDUSTRY …………………………………………

REGULATORS …………………………………………

GOVERNMENT …………………………………………

CONSULTANTS …………………………………………

What are we trying to Accomplish?



Juan LlanosDirector of ComplianceUnidos Financial Services, Inc.1250 Broadway – 30th FloorNew York, NY 10001Direct: (646) 485-2264Mobile: (646) [email protected]

Thank you!

FOREIGN AGENT AS FOREIGN AGENT AS RECEIVE AGENTSRECEIVE AGENTS

Financial RiskFinancial Risk

Counterparty Risk Counterparty Risk –– Who has Who has the exposure?the exposure?Danger of false order Danger of false order confirmationsconfirmations

FOREIGN AGENT AS FOREIGN AGENT AS RECEIVE AGENTSRECEIVE AGENTS

Regulatory Compliance RiskRegulatory Compliance Risk

US Law US Law –– Illegal payers are illegal Illegal payers are illegal for US companiesfor US companiesThe Brazilian Doleiro MarketThe Brazilian Doleiro Market: : Danger to the IndustryDanger to the IndustryNew tactic: Doleiro operators New tactic: Doleiro operators leaving the US; sends going to leaving the US; sends going to Brazil indirectlyBrazil indirectlyNeed for international cooperation at Need for international cooperation at the regulatory levelthe regulatory level

FOREIGN AGENT ASFOREIGN AGENT ASRECEIVE AGENTSRECEIVE AGENTS

AML RiskAML Risk

How good is their program; How good is their program; What is their CIP?What is their CIP?Risk of smurfingRisk of smurfingRisk of corrupt firms?Risk of corrupt firms?

FOREIGN AGENT ASFOREIGN AGENT ASSEND AGENTSSEND AGENTS

Financial Risk Financial Risk –– in this context, they are like a in this context, they are like a US agentUS agent

Regulatory Compliance RiskRegulatory Compliance RiskTAKE GREAT CARE: regulations on send TAKE GREAT CARE: regulations on send agents much tighter than regulations on agents much tighter than regulations on receive agentsreceive agents

FOREIGN AGENT ASFOREIGN AGENT ASSEND AGENTSSEND AGENTS

AML / Terrorist Finance RiskAML / Terrorist Finance Risk

Here the funds are INCOMING: Here the funds are INCOMING: More direct terrorist finance More direct terrorist finance danger; make sure OFAC filters danger; make sure OFAC filters are well tunedare well tuned

Foreign Agent ComplianceForeign Agent Compliance

CustomerIdentification

Program

Aggregation

SARsType

Reports

Paul S. Dwyer, Jr.Paul S. Dwyer, Jr.CEO, CEO, ViamericasViamericas CorporationCorporation4641 Montgomery Avenue, Suite 4004641 Montgomery Avenue, Suite 400Bethesda, MDBethesda, MD [email protected]@viamericas.comTel: (301) 215Tel: (301) 215--9294 ext 1029294 ext 102www.viamericas.comwww.viamericas.com

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Money Transmitter Receiving and Paying Agent Risks: Are Both

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