Anti-Money Laundering This presentation designed for: Polar Investment Counsel, Inc. Firm Element Continuing Education Program Created By: Sherry’s Web Services LLC Copyright © 2005

Money Laundering Overview Money laundering is the process by which one conceals the existence, illegal source, or illegal application of income Not only a crime to participate, but also to be “willfully blind” U.S. vs. Heyman Current legislation- USA PATRIOT Act 11/28/2018

Detecting Money Laundering Be aware of “red flags” Types of red flags: Customer Clues Investing Strategy Money Movement 11/28/2018

Customer Clues Exhibits unusual concern about government reporting requirements Provides false or misleading information about source of funds Questionable background Seems unconcerned about risks or costs Agent for another customer, but reluctant to provide information 11/28/2018

Customer Clues… Continued Lacks knowledge of their industry Is from a non-cooperative country Requests transactions to be processed to avoid tax reporting Maintains multiple accounts for no apparent reason Inflow of funds well beyond known income 11/28/2018

Investing Activity Clues Transactions lack business sense Purchases long-term investment, then immediately liquidates position and transfers funds Engages in transactions involving certain types of securities (penny stocks, Reg S stocks, bearer bonds) High level of account activity, yet very few securities transactions 11/28/2018

Cash Activity Clues Insists on dealing in cash equivalents Transactions are structured to avoid $10,000 government reporting requirement Multiple accounts with a large number of inter-account or third party transfers Unexplained or sudden extensive wires Numerous cashiers check transactions Large number of wires to unrelated third parties 11/28/2018

Cash Activity Clues... Continued Wires to or from a country identified as a money laundering risk Large or frequent wires immediately withdrawn by check or debit card Deposit immediately followed by wiring funds to a third party Excessive journal entries between unrelated accounts without an apparent purpose 11/28/2018

Preventing Money Laundering-Your Role You are expected to make a reasonable effort to prevent and detect money laundering Identify customers using Customer Identification Procedures Know your customer Review Anti-Money Laundering reports Be aware of red flags 11/28/2018

Know Your Customer Consider the following factors when assessing the risk posed by a customer: Type of customer (Ex: individual, corporation) How long the customer has been with your firm How the client became a customer of your firm The type of business the customer has The customer’s home country, current residence, or country the customer is incorporated in 11/28/2018

Know Your Customer… Continued Depending on the risk imposed, additional due diligence may be required: Source of the customer’s assets and income Customer’s likely trading pattern Owners of accounts and their respective citizenship Require street addresses for all accounts Periodically contact businesses to verify the accuracy of addresses 11/28/2018

Anti-Money Laundering Reports CSS Report Distribution Anti-Money Laundering Reports by Entity Anti-Money Laundering No Physical Address Anti-Money Laundering High Risk Jurisdiction 11/28/2018