HERMES FORENSIC SOLUTIONS

Compliance Professional Day – Amsterdam October 2010

AML & KYC Intelligence! In this instance – Knowledge is Power For Law Enforcement – Today’s Intelligence is tomorrow’s evidence!

Why do we do it? Because the FATF said so!

Financial Action Task Force Objectives The FATF objective is to have a regime that prevents, detects and forestalls money laundering and terrorist financing. The FATF Website includes the following excerpts: “…a new comprehensive framework for combating money laundering and terrorist financing.” “…national systems for combating money laundering and terrorist financing” “…provide an enhanced, comprehensive and consistent framework of measures for combating money laundering and terrorist financing.” Governments, with reference to the FATF 40 Recommendations, translate this in to regimes of law and regulation.

The Increasing Risk!  SANCTIONS –  Does the firm know the customer?  Does KYC mean verifying who the customer is not or who the customer is?  Is sanctions screening alone sufficient?

 Differing requirements/risks  What is adequate?  Why do more?  Enhanced KYC - where to find it!  What to look for  How to find it  How to use it  FATF Forwards, backwards, sideways  Application to monitoring Contents

The Differing Risks!  LowSimplified  Medium Standard  HighEnhanced

Risk Criteria Country Product Delivery Channel Face-to-face Age of corporate customer Nature of customer’s business PEP Value

Simplified KYC  How far can ‘equivalence’ be applied in the KYC process?  Who undertakes more KYC, firms or regulators?  What about overseas regulators?  What about overseas regulated branches or headquarters?  Where can reliance be placed?

Adequate is? Subjective in an objective environment. EU regulated status – Original 15 or all 27 members? EEA? Publicly traded – where and how much? High profile private companies! Government owned entities! Diluted Ownership?

Why do more? Madoff? – He ticked all of the right boxes in all of the right places! Finite resources with increasing demands and reducing levels of resources and finance! Focussed, risk based AML!

Standard KYC  Full legal name – other names  Full registered address – others  Full list of directors/partners  Identification of 25%+ beneficial owners  Nature of business  Source of funds  Verification – what and who?

Enhanced KYC Standard + Identity of 10%+ beneficial owners? Verification of the identity of two directors? Additional electronic verification More?

What to look for and where? Links to good news and bad news Links to crime Links to existing clients Where – Internally – employees and systems Externally – WWW, subscription databases, Data providers

PEPs - A Risk? Is one PEP the same as another? Answer - No Therefore the risks are different and can be managed accordingly What about political movers, makers and shakers?

Critical data Name Address Numbers

Name Individuals – Conventions – Spelling Corporates – Ltd, LLP, LLC, S.A. N.V. – Accuracy required BEWARE Corporate impersonation Barclays Bank! BEWARE dual registration – Morgan & Chase

Address Full – Residential / Registered Trading Foreign PO Box Corporate Service Provider Accommodation Visit? Google Earth Logic?

Numbers Date of Birth / Incorporation Registration number Passport / Driving Licence number Telephone numbers

Nominees What is the legitimate use of a Nominee? Who are the nominees? Do they represent a change in risk profile?

Case study Flight AGW 731/732 Chartered by a New Zealand Reg Co. S P Trading Limited. Nothing wrong so far! Problem – The plane had 35 tonnes Of weapons, on board against a false manifest of pipes and engineering equipment. AND It had flown from N. Korea and was on its way to Iran. – Whoops!

SP Trading Ltd Address – C/O the GT Group,Level 5, 369, Queen Street, Auckland, New Zealand Owned by – VicAM also of same address – nominee shareholder Directors past and present – Lu Zhang and Stella Port Louis – nominee directors

GT Group Geoffrey Taylor Corporate Service Provider 99% owner of ViCam Addresses in NZ, NY, London and Australia Market services in Estonia, Latvia, Ukraine etc.

Stella Port-Louis A nominee in- NZ UK Delaware and many others Referenced by Barak Obama What does all of this mean to the banks that processed the USD payment to charter the plane?

How to find the links WWW plus connectors to: The name The address The numbers, including PO Box and telephone numbers The nominees against local and international company registers as well as negative words Check internal systems inc. SARs

How to use it Enhanced SAR Look back at existing clients against – common denominators – including addresses, numbers and nominees Use in the preparatory data set for transaction monitoring Ongoing and new KYC checks against the same data Training

Look! Backwards – Where did the customer originate from? Who was the RM? Who introduced the customer? Sideways – What other customers have come from the same source? Forwards – What new controls need to be put in place?

Application to monitoring SR VII = Originating party S P Trading Ltd. What or who lurks behind S P Trading Ltd? What lies within Level Queen Street, Auckland NZ. Remember what our role is – to prevent and forestall money Laundering Do the numbers match rather than add up?

Post KYC Does the telephone number on the application form match that on the identity document? Is the number functioning? Is the number already in your records?

There is a Way! Is there a will?

HERMES Forensic Solutions Limited 8, Grafton Street Mayfair London W1S 4EL T: +44 (0) E: W: Hermes Forensics Solutions Limited – Registered in England & Wales Company No: Martin Woods