How do Banks Combat Money Laundering? January 30, 2015 Lester Joseph, Manager Global Financial Crimes Intelligence Group 2015 Border Law Conference

Banks Under Attack! Insider Fraud Cybercrime Money Laundering Terrorism Credit Card Fraud Mortgage Fraud Phishing Hacking

Role of FCRM FCRM works with the lines of business to manage the financial crimes risk at Wells Fargo by:  Drafting and Issuing Policy  Conducting Due Diligence  Monitoring activity  Generating Alerts  Investigating Cases resulting from Alerts  Investigating Referrals from Lines of Business  Reporting Suspicious Activity  Providing Intelligence  Establishing Risk Ratings  Implementing Global Sanctions

Sources of Investigations  Monitoring  Law Enforcement Information  Referrals from LOBs (UARs)

Financial Crimes Investigations 4

Intelligence Reporting 5 File a SAR Intelligence Analysts review the SARs to look for trends or patterns of money laundering activity Intelligence Analysts review the SARs to look for trends or patterns of money laundering activity Intelligence Team writes reports and analyses based on their review of the SARs as well as other analytical information Intelligence Team writes reports and analyses based on their review of the SARs as well as other analytical information Information is passed on to Compliance Team and Lines of Business This continuous exchange and sharing of information is critical for an effective AML program.

Correspondent Banking Risks  Correspondent banking relationships involve the provision of banking services by one financial institution to another.  Foreign financial institutions maintain correspondent accounts at U.S. banks to gain access to the U.S. financial system.  Correspondent banking relationships are vulnerable to money laundering and terrorist financing because they involve a bank carrying out transactions on behalf of another bank’s customers where information on those customers is very limited.

ORIGINATOR Germany TELEX or SWIFT CHIPS TELEX or SWIFT Wells Fargo USA Bank Bank of Germany’s U.S. Correspondent Bank of Colombia’s U.S. Correspondent BENEFICIARY Colombia Bank of Germany Bank of Colombia Correspondent Banking Not a WF Customer

Monitoring Challenges  The parties sending wires or checks through the correspondent customers are not always the FI’s own customers – so we don’t always know them. 8 The Solution  We have programs to review the wire transfers and checks clearing through the foreign correspondent accounts to identify high-risk parties or transactions for investigation.

Investigation Challenges  The parties sending wires or checks through our correspondent customers are not always our customers – so sometimes we are not able to find out much information about them. 9

Investigation challenges  We can send a Request for Information (RFI) to our foreign correspondent customer. 10  We can make a request under § 314(b) of the USA PATRIOT ACT. Customer is outside of the US Customer is in the US

Correspondent Banking – Window to the World 11

Activity of Concern  Terrorism Financing  Trade-Based Money Laundering  Funnel Accounts  MSB Activity  Shell Companies  Sanctions Evasion  Tax Evasion  Used car cases (LCB Case)  Precious Metals  Southwest Border  Foreign Political Corruption  Virtual Currency 12

Terrorism Financing 13

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Trade-Based Money Laundering Trade-based money laundering is a method of transferring value across international borders through the trade of goods instead of cash. TBML originally involved trade between the US and Colombia. Now it has expanded to include trade all over the world. It can be challenging for banks to identify TBML transactions.

Toy Factory Stuffed Animals Angel Toy Company Case Toys sold – Pesos go to traffickers 16

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Sanchez-Paredes Civil Forfeiture Complaint (SDNY October 9, 2013) 62.ITALPREZIOSI ACCOUNT #1 is held in the name of ITALPREZIOSI SPA at Unicredit AKA Hypovereins (New York Branch). ITALPREZIOSI ACCOUNT #2 is held in the name of ITALPREZIOSI SPA at Banca Intesa (New York Branch). 64.Financial sources indicate that ITALPREZIOSI made approximately $3,269,319 in wire transfers to a company known as Future Options NV ("Future Options"). These wires were generally for round amounts, which were multiples of $10,000 with the majority being amounts greater than $300, The transactions conducted by ITALPREZIOSI with COMARSA and Future Options appear to have been geared towards trade based money laundering activity,...

SOUTHWEST BORDER

Mexican Currency Restrictions

Funnel Accounts  Funnel Account: An individual or business account in one geographic area that receives multiple cash deposits, often in amounts below the cash reporting threshold, and from which the funds are withdrawn in a different geographic area with little time elapsing between the deposits and withdrawals.

Funnel Accounts

South Florida Initiative Threat Assessment 2013 Finding #1: Precious Metals Companies According to a news source, the Miami port was third in gold exports and received more gold shipments than any other U.S. Customs district last year. The common countries involved in the trading were Colombia, Mexico, Bolivia, Peru, Curacao, Switzerland, United Arab Emirates and the Dominican Republic. Finding #2: Trade Based Activity involving Bulk Cell Phone trafficking and Auto Export Fraud Bulk cell phone trafficking poses unique threats across the country, but have been surfacing more and more in the South Florida area.

Cell Phone Trafficking Network  Cell phones that are stolen or obtained via fraud are shipped to countries where they can be sold at a higher price.  Wire transfers from the Middle East, Asia, and South America disclose a movement of funds to various cell phone and electronic wholesalers to middle-man distributors to smaller distributors to retailers, where the funds are ultimately withdrawn as cash, many in amounts indicative of structuring.

Virtual world Real world exchangers Visible to banksNot visible to banks Virtual Currency

How do Banks Combat Money Laundering? January 30, 2015 Lester Joseph, Manager Global Financial Crimes Intelligence Group Phone: 703/ Border Law Conference