1. Anti-Money Laundering Compliance Training October 2014

2. Overview of Material Overview and Purpose Regulatory Framework
Recent Developments
Compliance Program
Compliance Officer
Internal Controls
Risk Assessment
Client Identification Program
Monitoring
OFAC
Reporting & Recordkeeping
Suspicious Activity Reports (SARs)
Independent Testing
Training
Penalties for Non-Compliance
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3. Overview and Purpose
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4. Money Laundering Overview
What is Money Laundering?
Essentially, money laundering is any legitimate financial transaction involving the proceeds of an unlawful activity that is made with the intention of erasing or disguising their unlawful origins
For example: 
Wire transfers of funds to pay for an unlawful activity
Deposits and transfers of stolen funds
Transmission of illicit funds through legitimate enterprises to disguise or “wash” them
Charge of excessive fees by lawyers, which in turn are used for illegal purposes
Anti-money laundering guidelines came into prominence globally after the 9/11 attacks and the subsequent enactment of the USA Patriot Act.
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5. Why BSA/AML Compliance?
Purpose:
To prevent the Trust Company from being used as a conduit for money laundering or to finance terrorism
To help identify the source, volume, and movement of currency and other monetary instruments transported or transmitted into or out of the U.S. or deposited into financial institutions
To aid in the investigation of money laundering, tax evasion, international terrorism, and other criminal activity into or out of the U.S.
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6. Regulatory Framework
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7. Regulatory Framework Bank Secrecy Act
To combat money laundering and international terrorism, the BSA requires the board of directors of the Trust Company to:
Provide for a system of internal controls reasonably designed to detect and report evidence of money laundering or other suspicious activity
Train all relevant employees
Appoint a BSA Officer, who will oversee these efforts
Provide for independent testing of the internal controls to ensure they are effective and, if not, to make improvements
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8. Regulatory Framework Bank Secrecy Act (continued)
Suspicious Activity Report (SAR)
A SAR filing is required for any suspicious transactions:
Involving insider abuse regardless of the dollar amount;
Where there is an identifiable suspect and the transaction involves $5,000 or more; and
Where there is no identifiable suspect and the transaction involves $25,000 or more.
A SAR filing is also required when there is a known violation of the BSA involving $5,000 or more.
A SAR should also be filed if there is reason to believe a transaction is tied to illegal activity, regardless of the dollar amount.
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9. Regulatory Framework USA PATRIOT Act of 2001
The PATRIOT Act requires trust companies to adopt a Client Identification Program (“CIP”) as part of its BSA compliance program.
All trust companies must meet certain minimum CIP requirements under Section 326 of the PATRIOT ACT, which include:
Client information;
Client verification;
Comparison with government lists;
Notice to clients; and
Record retention
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10. Recent Developments
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11. Key 2012-2013 Developments ING Bank Settlement
Dutch bank agreed to pay a $619 million penalty for moving billions of dollars through the U.S. financial system at the behest of clients, acts that violated economic sanctions.
Authorities say ING moved money from Cuban and Iranian clients through New York banks, while deliberately shielding the transactions through the use of opaque payment methods and shell companies.
ING also admitted to falsifying the records of New York financial institutions.
The countries involved were Iran and Cuba.
Takeaway: Firms must manage the potential risks associated with providing financial services to shell companies, and they must be knowledgeable about sanctions imposed on other countries.
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12. Key 2012-2013 Developments First Bank of Delaware Settlement
The bank received concurrent civil money penalties of $15 million, for violations of the BSA and AML laws and regulations. The bank also settled civil charges on related activities brought by the Justice Department.
The FDIC and FinCEN determined that the bank failed to implement an effective BSA/AML Compliance Program with internal controls reasonably designed to detect and report evidence of money laundering and other suspicious activity.
Specifically, the bank failed to adequately oversee third-party payment processor relationships and related products and services in a manner commensurate with associated risks.
Takeaway: Firms must assess their risk and then align and implement an effective BSA compliance program that addresses that risk.
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13. Compliance Program
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14. BSA Compliance Officer
Compliance Program
Every BSA/AML Compliance Program must have four pillars:
BSA/AML Program
BSA Compliance Officer
Internal Controls
Training
Independent Testing
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15. Compliance Program BSA Compliance Officer
Must be appointed by the Board
Must be responsible for management of the Trust Company’s BSA compliance program
Must have the sufficient authority and resources to administer the compliance program
Must regularly apprise the board and senior management of ongoing BSA compliance
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16. Compliance Program Internal Controls Consist of the Trust Company’s
Risk Assessment
Policies, Procedures, and Processes
Client Identification Program (CIP)
OFAC Compliance Program
Transaction Monitoring and other Means of Detecting Suspicious Activity
Filing Necessary Suspicious Activity Reports (SARs)
Recordkeeping and Record Retention
These internal controls must be designed to limit and control risks, and to achieve compliance with the BSA.
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17. Identification and Reporting of Suspicious Activity
Compliance Program
Risk Assessment and Compliance Program
Establish:
BSA Officer
Policies and Procedures
Information Systems
Training
Independent Testing
Identification and Reporting of Suspicious Activity
Risk Assessment
Compliance Program
Identify & Measure
Risk:
Products
Services
Clients
Geographies
Results:
Regular process of identifying and reporting suspicious activity
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18. Compliance Program
BSA/AML Risk Assessment To assess risk, the BSA requires analysis of the following areas:
Products and Services
Trusts increase risks in the absence of transparency and knowing the true owner and source of funds
Clients
Screening of new accounts’ principal signatories is a key to compliance program integrity
Politically exposed persons increase risk
Client due diligence reduces risk
Monitoring accounts helps identify potentially suspicious activity
Appropriate staff training empowers employees
Geographic locations
Location or citizenship of the trustee/beneficiary may subject the account to greater scrutiny
Foreign Trusts
Foreign Signatories and Beneficiaries
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19. Compliance Program Internal Controls
Client Identification Program (CIP)
Must be written, approved by the board and incorporated in the compliance program
Must include:
Account opening procedures that specify the identifying information obtained from each client; and
Reasonable and practical risk-based procedures for verifying the identity of each member
Comparison of identity with government lists (OFAC)
Must retain the identifying information for 5 years after the year in which account is closed
Not required to make and retain copies of photocopies, but if this is done, security must be ensured
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20. Compliance Program Internal Controls - OFAC Screening
OFAC operates in various countries throughout the world with the goal of protecting the U.S. monetary system from bad actors. It also acts as a liaison with foreign governments on financial intelligence information sharing on counter- terrorist financing and counter-narcotics trafficking matters. In particular, OFAC
Maintains a watch list of over 5,000 individuals and entities with which no U.S. persons or entities can do business
Administers and enforces targeted country- and regime-based sanctions programs against hostile countries
Compliance with OFAC is not mandatory within OFAC regulations; however, both federal and state banking examiners will mandate compliance.
OFAC is not a regulator, rather an enforcement agency.
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21. Compliance Program Internal Controls - OFAC
Requirements are separate and distinct from the BSA, but they share a common national security goal
OFAC regulations require the following:
Block accounts and other property of specified countries, entities, and individuals
Prohibit or reject unlicensed trade and financial transactions with specified countries, entities, and individuals
Reporting blocked and prohibited transactions to OFAC
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22. Compliance Program Internal Controls - OFAC
The following program components are recommended:
Risk assessment
Internal controls
Flagging files for review if appear suspicious in any way
Defining criteria for comparing names to OFAC list
Determining which hits are valid or false (investigation)
Reassessment of OFAC filtering system
Prevention of transactions until comparisons are made
Maintaining the OFAC list of Sanctioned Countries and Jurisdictions of Concern
Managing blocked accounts
Reporting transactions, blocked accounts and prohibited transactions
Maintaining clients’ OFAC licensing information, if applicable
Independent testing (at least annually)
Responsible individual
Training
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23. Compliance Program Internal Controls - Monitoring
Ongoing Know Your Client (“KYC”) Procedures
Begins with CIP and assessing the risks associated with each client
Provides knowledge of usual and customary transactions in which a client is likely to engage
Assists in determining when transactions are not usual and customary, and therefore, potentially suspicious
Should include an enhanced client due diligence (CDD) for high-risk clients
Keep current client information
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24. Compliance Program Internal Controls - Transaction Monitoring
The Trust Company must monitor transactions to identify any that are suspicious because they are:
Outside of what is usual and customary for the client
Reveal a pattern that is unusual or suspicious
To or from high risk individuals, entities, or countries
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25. Compliance Program Internal Controls – Reporting - SARs
The Trust Company is required to file a SAR with respect to:
Criminal violations involving insider abuse in any amount
Criminal violations aggregating $5,000 or more when a suspect can be identified
Criminal violations aggregating $25,000 or more regardless of a potential suspect
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26. Compliance Program Internal Controls – Reporting - SARs
Identification of Unusual Activity
Employee Identification
Transaction Monitoring Reports
Law Enforcement Inquiries
Other Referrals
Alert BSA Officer
SAR Decision Making
SAR Completion & Filing
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27. Compliance Program Internal Controls – Reporting - SARs – Red Flags
The Trust Company should consider the following to
identify and research suspicious activity:
Client engages in transactions having no apparent business purpose
Information provided by the client is false, inconsistent, or misleading
Client engages in wire transfers with high risk jurisdictions having no apparent business purpose
Investor difficulty in describing the reasons for frequent wire transfers to unfamiliar bank accounts or jurisdictions other than the investor’s home country
Transfers into accounts in jurisdictions where drug trafficking and/or terrorist financing is known to occur, or to other high risk countries
Client identification appears suspect
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28. Compliance Program Internal Controls – Reporting - SARs
SARS must be filed no later than 30 calendar days from the date of the initial detection of the suspicious activity
60 calendar days if no suspect can be identified
Board must be notified that a SAR has been filed
Must begin filing electronically on November 28, 2014
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29. Compliance Program Internal Controls – Reporting - SARs
Must retain copies of SARs and supporting documentation for 5 years from the date of the report
NO disclosure to anyone involved in the transaction that a SAR has been filed
May inform FinCEN, law enforcement or federal banking agencies
May share the SAR, or any information that would reveal the existence of the SAR, with an affiliate, provided the affiliate is subject to a SAR regulation
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30. Compliance Program Training
All staff whose duties require knowledge of the BSA, tailored to their specific responsibilities
Should be ongoing, as regulations and staff change
Should include regulatory requirements and the trust company’s internal policies, procedures, processes, and penalties for non-compliance
Inform board and senior management of changes to the BSA and the implementing regulations
Document training program
Materials, dates and attendance/completion records
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31. Compliance Program Independent Testing
Should be conducted by the internal audit department, outside auditors, or other qualified independent parties
Conducted every 12 – 18 months
Results reported to the Board
Risk-based, covering all of the Trust Company’s activities
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32. Penalties for BSA Violations
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33. Penalties for BSA Violations
Trust Company(ies)
Cease and Desist Order
Order of Supervision, Removal, or Prohibition
Criminal money penalties
Civil money penalties
Individuals
Removal from the Trust Company
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34. Takeaway Points
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35. Takeaway Points Strong internal controls
The Board of Directors of Eleutherian Trust Company plays a pivotal role in ensuring the Trust Company’s BSA/AML Compliance Program not only meets established regulatory requirements, but also protects the integrity of the firm and its clients.
Strong internal controls
Extensive due diligence procedures
Know Your Client
Monitoring and review of client relationships
Accurate recordkeeping and reporting
Ongoing training
Notifying the AML officer of any concerns.
The elements above all contribute to the Trust Company’s ability to effectively detect and report suspicious activity, and provide helpful information on such activity.
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36. Questions? If you have questions or comments about the training presentation, please contact Matthew Maurer at
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