AML\KYC

USA PATRIOT ACT – uniting and strengthening America by Providing Appropriate Tools
Required to Intercept and Obstruct Terrorism.

IMPLEMENT FATF – FINANCIAL ACTION TASK FORCE Inter govt body

SAR – SUSPECIOUS ACIVITY REPORT
CTF – COUNTER TERRORIST FINANCE
CDD - CUSTOMER DUE DILIGENCE
EDD - ENHANCE DUE DILIGENCE
OFAC - OFFICE OF FOREIGN ASSET CONTROL financial agency
FATCA - FOREIGN ACCOUNT TAX COMPLIANCE ACT
What is sanctions
AML 3 stages:

 PLACEMENT
 LAYERING
 INTEGRATION

TRANSACTION PROCESSING MONITOR:

A transaction processing monitor (TPM) is a program that monitors transactions from one
stage to the next, ensuring that each one completes successfully; if not, or if an error occurs, the
TM Monitor takes the appropriate action. A transaction processing monitor’s main
purpose/objective is to allow resource sharing and assure optimal use of the resources by applications.

The basic purpose of having a strong AML transaction monitoring system is to identify and
protect the institution from any transactions that may lead to money laundering and terrorist
financing and result in the institution filing relevant Suspicious Activity Reports (SARs).

Most financial institutions rely on AML technology software to cull the transactions and pick out the
potentially suspect transactions. Some smaller institutions use manually designed systems.
Automated AML solutions include sanctions/black list screenings, customer profiling, and
comprehensive transaction monitoring with reports/alerts.

Transactions should be monitored based on a customer profile and specific details relating to that
customer. The monitoring rules can reflect a number of factors relating to that customer (e.g.
aggregate transactions, type, amount, frequency, business).

When a transaction is flagged, a notice has to be generated and a procedure for resolving the
red flag has to be defined and enforced. If the transaction warrants additional investigation, it
should be escalated to appropriate officials in the company.

For flagged transactions, AML staffs have to investigate the specific circumstances surrounding
the transaction. High-risk products, areas of operation, business lines and basic customer
information can influence the amount of transaction testing. An initial risk profile can only be
based on customer self-reported information (e.g. expected volume, type of account, amount of
business) but can be updated with information as the customer conducts banking transactions.

Financial institutions need to create a centralized investigative unit to follow-up on flagged

transactions. A centralized unit can develop standard protocols for investigations and develop data
bases which consolidate information learned during each investigation.
An investigation can lead to the filing of a SAR, an important source of information for law
enforcement agencies to initiate enforcement actions. Investigators should collect all relevant
information, prepare a report and submit the report to a manager for review on the conclusion whether
or not to file a SAR.

https://blog.volkovlaw.com/2013/06/aml-transaction-monitoring/

What is AML Transaction Monitoring

Anti-money laundering (AML) transaction monitoring software allows banks and other financial
institutions to monitor customer transactions on a daily basis or in real-time. By combining this
information with analysis of customers’ historical information and account profile, the software can
provide financial institutions with a “whole picture” analysis of a customer’s profile, risk levels, and
predicted future activity, and can also generate reports and create alerts to suspicious activity. The
transactions monitored can include cash deposits and withdrawals, wire transfers, and ACH activity.

AML transaction monitoring solutions can also include sanctions screening, blacklist screenings, and
customer profiling features.

The analysis is obtained primarily for the purpose of meeting various anti-money laundering (AML)
and counter-terrorist financing (CFT) requirements, filing Suspicious Activity Reports (SARs), and
fulfilling other reporting obligations.

What is the 'USA Patriot Act'

The USA Patriot Act is a law passed shortly after the Sept. 11, 2001, terrorist attacks in the United
States giving law enforcement agencies increased, broad powers to bring terrorists to justice. The
USA Patriot Act is an acronym for Uniting and Strengthening America by Providing Appropriate
Tools Required to Intercept and Obstruct Terrorism.

The law gave new powers to the U.S. Department of Justice, the National Security Agency and
other federal agencies on domestic and international surveillance of electronic communications;
it also removed legal barriers that had blocked law enforcement, intelligence and defense agencies
from sharing information about potential terrorist threats and coordinating efforts to respond to them.
But the Patriot Act raised concerns among civil liberties groups and other critics surrounding the data
privacy rights of U.S. citizens -- concerns that were heightened significantly in 2013, when NSA
contractor Edward Snowden leaked information showing that the agency was using the law to justify
the bulk collection of data about millions of phone calls.

the PATRIOT ACT also impacts the broader U.S. community of financial professionals and
banking institutions engaging in cross-border transactions with its Title III provision, entitled
"International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001.”

The main Title III mandate imposes tighter bookkeeping requirements, forcing financial
institutions to record aggregate amounts of transactions involving countries where laundering is
a known problem for the United States. Such institutions must install methodologies of tracking
and identifying beneficiaries of such accounts, as well as individuals authorized to route funds
through payable- THROUGH ACCOUNT

Officially known as the Uniting and Strengthening America Act by Providing Appropriate Tools
Required to Intercept and Obstruct Terrorism Act of 2001 -- or "USA Patriot Act" -- the law is
intended to help government agencies detect and prevent possible acts of terrorism, or
sponsorship of terrorist groups. The act comprises 10 categories, called "titles," including:

Title I: Enhancing domestic security against terrorism

Title II: Enhanced surveillance procedures
Title III: Anti-money-laundering to prevent terrorism
Title IV: Border security
Title V: Removing obstacles to investigating terrorism
Title VI: Victims and families of victims of terrorism
Title VII: Increased information sharing for critical infrastructure protection
Title VIII: Terrorism criminal law
Title IX: Improved intelligence
Title X: Miscellaneous

CUSTOMER DUE DILIGENCE

Customer Due Diligence (CDD) or Know Your Customer (KYC) policies are the cornerstones of an
effective AML/CTF program. Put simply, they are the act of performing background checks on the
customer to ensure that they are properly risk assessed before being onboarded.

Many organisations have set forth guidelines on proper CDD policies, such as the United States’
Federal Financial Institutions Examinations Council on Customer Due Diligence (FFEIC) or the
Financial Action Task Force’s (FATF) guidelines on KYC/CDD.

CDD information comprises the facts about a customer that should enable an organisation to
assess the extent to which the customer exposes it to a range of risks. These risks include
money laundering and terrorist financing. Organisations need to ‘know their customers’ for a
number of reasons:

FATF
The FATF is an inter-governmental body which was established by the G7 group of countries in 1989.
The FATF is a policy-making body, whose objectives include setting standards to combat money
laundering and the financing of terrorism (AML/CFT), and supporting the implementation of these
standards.

Since 1989, the FATF has produced a comprehensive set of international standards against money
laundering and terrorist financing. The core documents of the FATF include:

 The 2012 revised FATF 40 Recommendations on Money Laundering , Terrorist Financing and
Proliferation Financing (“the standards”), which includes interpretative notes;
 Methodology for assessing compliance with the standards; and
 Best Practice Guidelines for implementation of the standards.

http://dbafsd.org/articles/fin_task_force.pdf
 Anti-Money Laundering Policy

HSBC (all wholly owned or controlled HSBC Group of companies) is committed to implementing single
global standards shaped by the most effective anti-money laundering standards available in any location
where HSBC operates.

HSBC has established a Global Anti-Money Laundering Programme (“AML Programme”) for this purpose.
The objective of the AML Programme is to ensure that money laundering risks identified by HSBC are
appropriately mitigated. This is achieved by establishing Board-approved, minimum governing policies,
principles, and standards and implementing appropriate controls, to protect HSBC, its employees;
shareholders and customers from money laundering. The AML Programme provides guidance to all HSBC
employees, requiring them to conduct business in accordance with applicable AML laws, rules, and
regulations.

The AML Programme is based upon various laws, regulations and regulatory guidance from the United
Kingdom, the European Union, Hong Kong, the United States of America, and, as applicable, local
jurisdictions in which HSBC does business.

The Programme includes but is not limited to:

 The appointment of a Global and Country Money Laundering Reporting Officer (“MLRO”) or alternative
position as required by local regulation

 A Customer Due Diligence (“CDD”) Programme, which incorporates Customer Identification and
Verification (“ID&V”) and Know Your Customer (“KYC”) principles, and the implementing of programmes
designed to appropriately remediate CDD of our existing customers

 Conducting enhanced due diligence (“EDD”) on customers assessed as higher risk, such as Politically
Exposed Persons (“PEPs”) in senior positions, their relatives and close associates

 Establishing processes and systems designed to monitor customer transactions for the purpose of
identifying suspicious activity

 The investigation and subsequent reporting of suspicious activity to the appropriate regulatory bodies

 Mandated regular independent testing and regular AML training of its employees and contractors

 The prohibition of the following products, services and customer types:

o Anonymous accounts or numbered accounts or customers seeking to maintain an account in an obviously

fictitious name

o Shell banks, i.e. banks with no physical presence or staff

o Hold Mail, i.e. where the customer has instructed all documentation related to the account are to be held on
their behalf until collection

o Payable-through-accounts, i.e. HSBC does not allow domestic or foreign bank customers to provide
payable-through-accounts to their customers on their HSBC accounts; and
 Any relevant additional local requirements.

OFAC

The Office of Foreign Assets Control (OFAC) is a financial intelligence and enforcement agency of
the U.S. Treasury Department which Control administers and enforces economic sanctions programs
primarily against countries and groups of individuals, such as terrorists and narcotics traffickers. The
sanctions can be either comprehensive or selective, using the blocking of assets and trade restrictions
to accomplish foreign policy and national security goals. [09-10-02]

- Financial intelligence and enforcement agency

- U s treasury department
- Ctrls and enforce economic sanction programs against countries (terrorist, narcotic
traffickers)
- Blocking of assets and trade restrictions

FATCA

is a 2010 United States federal law to enforce the requirement for United States persons including
those living outside the U.S. to file yearly reports on their non-U.S. financial accounts to the Financial
Crimes Enforcement Network (FinCEN). It requires all non-US ('foreign') financial institutions (FFIs)
to search their records for indicia indicating 'US-person' status, such as a US birthplace, and to report
the assets and identities of such persons to the US Department of the Treasury.