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HOW WELL DO YOU REALLY
“KNOW YOUR
CUSTOMERS”?
Two Day Course
MODULE I
May 26th – 27th, 2011
Presented by: Caribbean Association of Indigenous Banks &
Compliance Aid
© Compliance Aid 2011
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Introduction
• The purpose of this training course is to make
all participants aware of their responsibility
and the role that they play in the Anti-Money
Laundering, Know your Customers regulations
that govern your respective financial
institutions.
• Financial Institution are the front-line
gatekeepers who are required to take
reasonable actions to identify, detect and
manage any risks that illegal financial activity
may pose to an institution.
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Instructor
Michelle N. Martin, CAMS, ACA
• Ms. Michelle Martin is the President of Compliance Aid and a Partner at Compliance
Solutions Consultants with over seventeen years of experience in banking, insurance,
regulatory compliance, public and private accounting. She is a Certified Anti-Money
Laundering Specialists (CAMS) and founding co-chair of the ACAMS South Florida
Chapter.
• Born and raised in Antigua, she attended the Christ the King High School and Antigua
State College. Ms. Martin started her financial career in Antigua with Canadian Imperial
Bank of Commerce (CIBC). In 1996, Ms. Martin moved to Miami to pursue a higher
education. She obtained a Bachelor in Accounting and a Master in Accounting
Information Systems at Florida International University (FIU) in 2002.
•
•
Ms. Martin professional experience in the United States (US) began in public
accounting as an Auditor with KPMG, LLP for two years then moved on to Ernst &
Young LLP. In 2004, she transitioned to the private sector as a Franchise Auditor within
the Internal Audit department at Burger King Corporation then moved into the
insurance industry by joining Assurant, Inc as an Internal Audit Manager in mid 2005. In
2007, Ms. Martin worked as an Assistant Vice President & AML/BSA Project Manager
at Ocean Bank headquarter, and in 2008 worked as a Compliance/OFAC Officer with
Banco Do Brasil where she was responsible for implementing a Compliance Program
for their New York, Orlando and Miami Offices in addition to coordinating other
regulatory efforts for the Bank.
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Course Overview
Day one
During today’s course we will cover:
 Role of Financial Institutions (FI’s) in Combating Money
Laundering
 History of Anti-Money Laundering (AML)
 Overview of Anti-Money Laundering & Essentials of an effective
AML Program
 Know your Customer (KYC)
 Applying a Risk Based Approach to Due Diligence
 High-Risk Customers and Enhanced Due Diligence (EDD)
 AML Challenge
© Compliance Aid 2011
Course Overview
Day two
During tomorrow’s course we will cover:
 AML Suspicious Activity
 AML Red Flags
 Keys to Writing effective SAR Narrative
 Questions & Course Wrap-up
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Role of Financial Institutions (FI’s)
in Anti - Money Laundering
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Role of Financial Institutions (FI’s) in
Anti - Money Laundering
 Financial Institutions have the
information and the expertise to detect
money laundering and terrorist
financing.
 Law Enforcement agencies rely on
Suspicious Activity Reports (SARs)
filed by Financial Institutions to aid in
terrorist and other criminal
investigations.
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Why should you care?
 Reputation Risk – Negative Publicity
 Individual, Corporate Civil and Criminal
liability.
 Fines and Imprisonment
 Suspension of License
“It take twenty years to build a reputation and five minutes
to ruin it. If you think about that, you’ll do things differently”.
Warren Buffett
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History of Anti-Money Laundering
(AML)
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Anti - Money Laundering Legislation
 Bank Secrecy Act (1970) Implemented reporting system for
large financial transactions (over $10,000) - Created a
“paper trail”
 Money Laundering Control Act (1986):
•
Criminalized money laundering and structuring.
• Introduce civil and criminal forfeitures for AML violations.
 Annunzio -Wylie Anti-Money Laundering Act 1992 Death
Penalty for Financial institutions
 USA PATRIOT Act - Post September 11th
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THE USA PATRIOT ACT
Uniting & Strengthening America by Providing Appropriate Tools
to Restrict, Intercept & Obstruct Terrorism Act
The USA PATRIOT Act was enacted by the Congress after the 9/11
terrorist attack and requires:
• Verification of Customer Identification
• Enhanced Due Diligence Program; and
• Establishment of AML Programs across the Financial service industry,
which must be in writing and must include at a minimum the following:
-
Development of internal policies, procedures, & controls;
The designation of a compliance officer;
An ongoing employee training program; and
An independent audit function to test programs.
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THE USA PATRIOT ACT
Title III - International Money Laundering Abatement &
Anti-Terrorist Financing Act of 2001
• Enhanced Due Diligence on Correspondent Banks,
Private Banking, Non-Cooperative Countries and
Territories (NCCTs), Politically Exposed Persons (PEPs).
• Shell Bank Prohibition.
• Maintenance of Certain Information for Correspondent
Banks.
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International
Anti-Money Laundering Efforts
Financial Action Task
Force
FATF
FATA is an intergovernmental organization
founded in 1989 on the initiative of the G7. The
purpose of the FATF is to develop policies to
combat money laundering and terrorist
financing.
Issued 40 recommendation to combat money
laundering
Issued 9 Special Recommendations (SR) on
Terrorist Financing
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Financial Action Task Force
FATF)
The Financial Action Task Force (FATF) can be seen as the
international standard-setter in the fight against terrorist financing
and money laundering. It was established in 1989, by a Group of
Seven (G-7) Summit held in Paris.
The summit recognised the growing threat posed by money
laundering to the banking system and financial institutions and set
up the FATF to develop and promote national and international
policies, globally, to help eliminate this threat.
In 2001, the FATF took over responsibility for the development of
standards in the fight against terrorist financing
http://www.anti-moneylaundering.org/FATF.aspx
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Caribbean Financial Action Task Force
The Caribbean Financial Action Task Force
(CFATF) was designed to encourage the coordination of and the participation in antimoney laundering and terrorist financing
training programmes. It is aimed at
assessing the degree to which its members
have implemented the recommendations of
the FATF and CFATF.
http://www.anti-moneylaundering.org/FATF.aspx
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Caribbean AML/CTF Principles
1. PREAMBLE
The Caribbean Association of Indigenous Banks
(CAIB) has agreed that these Principles constitute
global guidance on the establishment and
maintenance of internationally accepted banking
standards to prevent money laundering and
the financing of terrorism, and the application of
these Principles will serve to enhance the integrity of
Correspondent Banking relationships.
www.caribbean-principles.com
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Caribbean AML/CTF Principles
4. RISK-BASED DUE DILIGENCE
By this Declaration, CAIB member banks will ensure that
they cooperate fully with the risk-based approach and the
requirements arising from their Correspondent Banking
relationships. Caribbean institutions recognize the
necessity to meet all international banking standards as
defined by their Correspondent Banks and understand that
under a risk-based review they may be subjected to a
higher level of due diligence.
www.caribbean-principles.com
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Caribbean AML/CTF Principles
5. DUE DILIGENCE STANDARDS
CAIB member banks will operate in accordance with local and
international AML/CTF standards and subject their account
holders to appropriate due diligence that will seek to assure
that the institution is comfortable conducting business with all
its clients and be able to assess each client’s risk profile. It is
appropriate for a Caribbean institution to consider the fact that
a Correspondent Banking relationship will wish to assess that
its Caribbean client operates in a regulator y environment that
is internationally recognized as adequate in the fight against
money laundering.
www.caribbean-principles.com
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Overview of Anti-Money Laundering
&
Essentials of an effective
AML Program
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ANTI-MONEY LAUNDERING (AML)
Money Laundering is the process criminals use to
exchange their dirty money (funds they made through
illegal activity) for clean money (funds that can’t be
traced back to the crime or the criminals).
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Stages of Money Laundering?
It usually involves three stages:
 Placement is the initial stage of the
process, when the money launderer
introduces the illegal proceeds into the
financial system;
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Stages of Money Laundering?
 Layering is the stage that involves converting
the proceeds into another form and creating
complex financial transactions to disguise the
audit trail and the source and ownership of
funds. The layering can involve such
transactions as wire transfer of deposited cash
from one account to another, the conversion of
deposited cash into monetary instruments (e.g.
travelers checks);
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Stages of Money Laundering?
Integration: This involves placing the
laundered proceeds back into the
economy to create the perception of
legitimacy.
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Money Laundering Stages
How Money Laundering is Done.
Cash is generated
by Illicit Activity i.e.
drug trafficking
1 - Placement Cash is converted to
monetary instruments or deposited
into financial institution accounts
2 – Layering Funds are moved to other
financial institutions to obscure origins
3 - Integration – Funds are used to
acquire legitimate assets or to fund
further illicit activities
© Compliance Aid 2011
How is money laundered?
 Structuring
 Smurfing
 Interbank wire transfers
 Misinvoicing
 Smuggling
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Your AML Program must:
Be in writing and must include:
• The development of internal policies, procedures, and
controls;
• The designation of a compliance officer;
• An ongoing employee training program; and
• An independent audit function to test AML program.
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Internal Controls
 Risk-focused approach
 Board and management oversight
 Written policies and procedures
 Monitoring and due diligence
 Management succession (common mistake not including
the AML Officer)
 Strong management information system
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AML Officer
 Has policy/decision making authority
 Has sufficient resources
 Qualifications, knowledge, and training
 Communication line to Board of Directors
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Training
 For directors, senior management, and all staff
 Conducted at least annually by qualified source
 New employees should be trained ASAP
 Should include regulatory requirements and
policies/procedures
 Example of teller selling monetary instrument to non-
customer – job specific
 Document attendance (track those that have not attended
and perform make up training)* important
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Independent Testing
 Performed by individuals independent from the
compliance function
 Auditor should have sufficient knowledge of AML laws and
regulations
 Risk-based audit program
 Transaction testing
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AML Penalties for Non-Compliance
Failure to comply with the AML Act can have serious
consequences for you and your institution.
CIVIL:
Any financial institution, Officer, or employee who
willfully violates the AML provisions, is liable for
fines. For example, the penalty could be imposed if
the institutions consistently fail to file reports and/or
file incorrect reports.
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AML Penalties for Non-Compliance
CRIMINAL:
Any person who willfully violates the AML Act through
illegal activity is liable to fines; imprisonment; or both.
Willful Blindness:
You cannot ignore when you suspect about the
legitimacy of the funds. Ignoring RED FLAGS can
constitute “Willful Blindness”, and as such may be
grounds for prosecution.
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BREAK
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Know your Customer
(KYC)
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Know your Customer (KYC)
 In an effort to prevent money laundering financial
institutions are required to establish Know your customer
Program that meet certain requirements.
 Before opening an account for any entity (individual or
business), you must:
• Record identifying information;
• Verify that information is valid by using documentary or
non/documentary methods;
• Check all new customers against sanction list.
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KYC GUIDELINES
 Identifying the customer and verifying that customer’s
identity (Individual / Commercial)
 Determine the source of funds and purpose of account
 Commercial entities: Identifying the beneficial owner, and
taking reasonable measures to verify the identity of the
beneficial owner
 Conduct on-going review to determine that activity is
consistent with profile
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Client Acceptance
 The financial institutions must make a strong effort
to accept only those clients whose Source of
Wealth and Funds that can be reasonably
established to be legitimate.
 The primary responsibility for this function lies with
the front-line staff who has the contact with the
customer and introduces the client for acceptance.
 Simply fulfilling the internal procedures or
providing basic information, does not relieve the
front-line staff his/her responsibilities.
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Client Acceptance
 Financial institutions must identify whether the
client is acting on his/her own behalf.
 Beneficial ownership must be established for all
accounts.
 Identify and inform your Compliance Department
of customers that may pose a higher risk to the
bank. (e.g. Politically Exposed Persons “PEP”).
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What is a Politically Exposed Persons
– PEP’s
A person identified as a senior foreign
political figure, any member of their
immediate family and any close associate.
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Due Diligence
Due diligence is designed to detect and report any
known or suspect money laundering or suspicious
activity.
It is the financial institution staff responsibility to
provide accurate information as well as to maintain the
Profile up to date.
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Due Diligence
Customer due diligence is essential when
establishing any customer relationship and it is
critical for high profile customers. For example,
private banking clients.
In order to identify an unusual or suspicious
activity, it is essential to Know Your Customer
(KYC).
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Know Your Customer
 Essential information to collect and record:
 Customer Background
 Purpose of the account
 Expected activity
 Source of Funds
 Source of Wealth
KYC
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Customer Background
 Relevant information includes:
 Employer,
 Occupation,
 Type/Nature of Business,
 Position/Title,
 Years in the Area of Business,
 Salary
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Customer Background
 Others Source of Income,
 Referred by,
 Nationality,
 Achievements,
 Products or Services of Interest and
 Any other Appropriate Information
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Customer Background
Identify/mention if the customer is related to
any other account in the financial institution.
Identify/mention very clearly if the customer is
a Politically Exposed Person (PEP).
Remember to assign a HIGH RISK for
customers classified as (PEP).
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Purpose of the Account
 Is the intention/objective for opening the
account including (but not limited to):
 Salary account,
 Investment account or
 Checking account
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Expected Activity
Information about the expected activity in
the account is an important and essential
tool to monitor the customer’s account
activity in order to identify any unusual
activity.
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Source of Funds
 For funds that are coming from US, mention the
amount in USD, the exchange rate at the time
the profile is being written, and the approximate
amount in E.C Dollars.
 Expected initial deposit amount must be
mentioned.
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Source of Funds
 Source of funds include (but are not limited to):
 Business / Employment (specify)
 Rental Income (specify)
 Investments (specify)
 Foreign Investments (specify)
 Sale of property (specify)
 Other (specify)
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Source of Wealth
Documentation supporting the customer’s
Source of Wealth, serves to prove that the
wealth is compatible with the alleged deposits
or investments that the customer plans to have
with the financial institution.
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Source of Wealth
Cases must be analyzed on a case-by-case
basis, though some cases may have some
similarities but each case is by nature different
and must be treated separately.
“Common sense” is the answer to most of
the questions as to whether the document
provided supports or not the customer’s
wealth.
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Source of Wealth
Although several documents can be
presented to support the source of
wealth and confirm other information; the
income tax is the most comprehensive
document and is therefore mostly
recommended (note: it is
recommended, not mandatory).
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Source of Wealth
 Advantages of the Income Tax:
 Proof of employment,
 Proof of residence,
 Overall list of assets,
 Occupation,
 Tax Identification number,
 Possible Sources of Funds,
 Earnings.
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Know your Customer
• Collect minimum information (All Accounts):
Name
Address
Date of Birth-if individual
Identification Number
• Verify customer information timely
Documentary
Non-Documentary
Additional Verification
• Maintain appropriate records
• Records Retention (x years after account closed)
• Consult government sanction terrorist lists
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Know your Customer
Customer Due Diligence (CDD)
 CDD begins with verifying the customer’s identity
and assessing the risks associated with that
customer;
 Obtain information at account opening sufficient
to develop an understanding of normal and
expected activity for the customer’s occupation or
business operations;
 Common exceptions include incomplete forms
(transaction activity)
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KYC INDIVIDUALS
 Name
 Date of Birth
 Street Address
 Tax ID Number
 Identification type and Identification Form (unexpired
government issued photo-identification)
 Place of employment & occupation are helpful for knowing new
customers.
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KYC Commercial Entities
 Name of Business
 Street Address
 Tax ID Number
 Must obtain documentation to verify Information Provided
by Commercial Customer
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KYC Sole Proprietorships
A type of business entity that legally has no separate
existence from its owner.
Most proprietorships will register a trade name or
operate as “Doing Business As”.
 Obtain information about the business in the same
manner in which you would obtain information from
individual.
 Also need specific information regarding source of
funding, line of business and expected activity.
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KYC Partnerships
Partnership refers to an association of persons or an
unincorporated company with the following major main features:
 Formed by two or more persons
 The owners are all liable for legal actions and debts the
company may face personally
 Created by agreement as proof of existence
 Obtain information about the partnership in the same
manner in which you would obtain information from
individuals. Obtain partnership agreement. Identify all
partners. Also need specific information regarding source
of funding, line of business and expected activity.
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KYC Corporations
A corporation is a legal entity which has a separate legal
personality from its members.
The defining legal rights and obligations of the corporation are:
 The ability to sue and be sued;
 The ability to hold assets in its own name;
 The ability to hire agents;
 The ability to sign contracts; and
 The ability to make by-laws, which govern its internal affairs
 Obtain information to verify the existence of company;
Governing Documents, Beneficial Owners, Government Issued
Identification Number, Identify of Directors/Signors; Source of
Funds and Nature of Activity.
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KYC
=
AML COMPLIANCE
KNOW YOUR CUSTOMERS
IDENTIFY SUSPICIOUS ACTIVITY
REPORT TO COMPLIANCE DEPARTMENT
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KYC Tips
 Search Public Web-site for Filings
 Obtain Financial Statements is available on line
 Conduct Media Searches
 Obtain Parent Information if company not firmly
established
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LUNCH
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Applying a Risk Based Approach to
Due Diligence
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Applying a Risk Based Approach to
Due Diligence
 Two step process
 Identification
 Analysis
 Products/Services
 Customers/Entities
 Geographic location
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Risk Mitigation
 Monitoring of transactions
 Client contacts (meetings, discussions, in-
country visits etc.)
 Third party information (e.g. newspaper,
internet etc…)
 Financial institution internal knowledge of the
client’s environment (e.g. political situation in
his/her country).
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Risk Mitigation
 If you are in doubt about a specific
transaction/case, contact your immediate
supervisor or Compliance Department.
 Compliance is not only a responsibility of the
Compliance Department, it evolves all the
Departments in the Financial institution, and it
is a shared responsibility.
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Risk Approach Common problems
Incomplete list of products and
services
Failure to update annually or when
things change
No explanation for the risk ratings
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High-Risk Customers and
Enhanced Due Diligence (EDD)
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High-Risk Customers and
Enhanced Due Diligence (EDD)
Policies, procedures, and processes
should be developed for EDD
Understand anticipated transactions
Implement monitoring system
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High-Risk Customers and
Enhanced Due Diligence (EDD)
 File SARs if applicable
 Common exceptions include:
• Infrequent/inconsistent monitoring
• Lack of documentation of monitoring
• Not obtaining complete and accurate information at
account opening (transaction activity)
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HIGH RISK CATEGORIES

High Risk Products / Services
 Private Banking, Correspondent Banking, Cash Services.
 High Risk Geographies
 FATF Countries, International Narcotics Control Strategy Report
(INSCR) “Countries of primary concern”, OFAC SDN Countries,
Designated by Secretary of State, EU Blacklist.
 High Risk Customers
 Non-Bank Financial Institutions (MSB’s), Non-governmental
obligations, cash-intensive businesses, Politically Exposed
Persons, Foreign Correspondent Banks, Private Investment
Legal Vehicles (PILVs) such as Int’l business Companies, Private
Investment companies –PICs ( Bearer Shares, Power of
Attorney), Trusts and Foundations.
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Products & Services to Monitor
Products:
Services:
• Non-interest Bearing
Checking Account
(DDA)
• Time Deposits, Fix
Deposits (CDs)
• Loans
• Mutual Funds
• Securities
• Debit/Credit Card
• Funds Transfers (Wires)
• Pouch Services
• Negotiable Instruments:
Official Checks
• Internet Banking
• Investment Banking
• Bill Payment
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High-Risk Products/Services
Electronic funds payment services:
 Stored value cards,
 Wires,
 Third-party payment processors,
 Automated clearing house transactions,
 Automated teller machines
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High-Risk Products/Services
 Electronic banking
 Private banking (domestic and international)
 Trust and asset management services
• Monetary instruments
• Foreign correspondent accounts
• Trade finance (letters of credit)
• Loans secured by cash collateral
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Enhanced Due Diligence Information
 Purpose of the account
 Source of funds and wealth
 Beneficial owners of the accounts
 Customer’s (or beneficial owner’s) occupation or type of
business
 Financial statements/banking references
 Domicile (where the business is organized)
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Enhanced Due Diligence Information
 Proximity of customer’s residence, place of employment,
or place of business to the bank
 Description of the customer’s primary trade area and
whether international transactions are expected to be
routine
 Description of the business operations, the anticipated
volume of currency and total sales, and a list of major
customers and suppliers
 Explanations for changes in account activity (Implies
ongoing monitoring)
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High Risk Corporations
OFFSHORE CORPORATIONS
Incorporated in Offshore / Haven Jurisdictions. Not
legally able to operate in the haven, and normally have
secrecy provisions to protect identity. Very easy to
create corporation in offshore havens, with very little
documentation.
BEARER SHARE CORPORATIONS
Bearer shares are corporation stock certificates which
are owned simply by the person who holds them, the
"Bearer".
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High Risk Corporations
U.S. HAVEN JURISDICTIONS
States such as Delaware, Florida and Nevada are known tax
havens, which operate similar to Offshore Jurisdictions.
SHELL CORPORATIONS
A shell corporation is as "a company that is incorporated, but has
no significant assets or operations." Shell corporations are not in
themselves illegal and they may have legitimate business
purposes. However, they are a main component of underground
economy specially those based in tax havens. They may also be
known as International Business Corporations (IBCs), Personal
Investment Companies (PICs), Front Companies, or "mailbox"
companies.
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AML Challenge
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AML Challenge
DESIGN AND DEVELOP A MONEY
LAUNDERING SCHEME.
ENSURE THAT IT CONTAINS EACH
ELEMENT OF MONEY LAUNDERING
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Questions ????
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DAY TWO
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Course Overview
Day two
During today’s course we will cover:
 AML Suspicious Activity
 AML Red Flags
 Keys to Writing effective SAR Narrative
 Ethics
 AML/Ethics Challenge
 Questions & Course Wrap-up
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AML Suspicious Activity
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Introduction
• In today’s constant changing Financial environment, it is
important to be aware of latest guidelines on money
laundering and suspicious activities.
• We will illustrate common red flags based on product
types.
• It is important to note that one cannot replace constant
vigilance in protecting the interests of the institution. In
doing so, it is just as important to rely on your instinct
when conducting your daily tasks.
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What is a Suspicious Activity?
 Any transaction involving funds derived from illegal activities
and/or any attempt to hide or disguise funds from illegal
activities, as part of a plan to violate or evade any law.
 Any attempt to evade requirements under the Anti-Money
Laundering Act.
 Transaction has no business or apparent lawful purpose, or is
inconsistent and unexplained for the “normal” activity of a
customer.
 Any attempt to access financial institution's computer system to
customer funds, information or to damage information.
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Suspicious Activity
 Customer has an unusual or excessively
nervous demeanor.
 Customer is reluctant to proceed with a
transaction after being told it must be reported.
 Customer threatens an employee attempting
to deter a record keeping or reporting duty.
 Customer makes large cash deposit without
counting the cash.
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Suspicious Activity
 Customer deposits checks and/or money orders that
are not consistent with the intent of the account or
nature of business.
 Customer attempts to take back a portion of a cash
deposits that exceeds the reporting threshold after
learning that the currency transaction report will be
filed on the transaction.
 Customer makes frequent purchases of monetary
instruments for cash in amounts less than the
reporting threshold.
Suspicious Activity Detected?
Contact Your AML Officer Immediately!
© Compliance Aid 2011
AML Red Flags
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© Compliance Aid 2011
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What are Red Flags?
Indicators as to which
customers may warrant
additional attention based on
entity type , geography,
product usage, activity or other
factors.
© Compliance Aid 2011
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AML Red Flags
 There is a list of money laundering red flags
(warning signs) all financial institutions
employees should watch for.
 If you were to encounter any of the following
behaviors or activities, you should notify your
designated supervisor immediately and provide
as much detail as possible.
© Compliance Aid 2011
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AML Red Flags
 Structuring at multiple branches or at the same branch with
multiple individuals
 Corporate Layering between bank accounts and charitable
organizations
 Wire transfers by charitable organizations
 Lack of apparent funds raising activity
 Cash debiting schemes / attempts (ATMs)
© Compliance Aid 2011
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AML RED FLAGS
• Structuring at multiple branches or at the same branch
with multiple individuals.
• Corporate Layering between bank accounts and
charitable organizations.
• Wire transfers by charitable organizations.
• Illegitimate fund raising activity.
• Cash debiting schemes / attempts (ATMs).
• Movement of funds through FATF designated NCCTs.
© Compliance Aid 2011
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AML RED FLAGS
•
Inconsistent activity for client profile.
•
Activity not commensurate with occupation.
•
Use of multiple account for no legitimate purpose.
•
Structuring of deposits to avoid AML requirements.
•
Refusal to provide identification.
•
Use of personal accounts for business purposes.
•
Abrupt change in account activity.
•
Deposit maintained for short period, and wired out.
© Compliance Aid 2011
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AML Red Flags

Refusal or reluctance to proceed with a
transaction, or abruptly withdrawing a transaction.
 Customer reluctance to provide information or
identification.
 Structured or recurring, non-reportable
transactions.
 Multiple third parties conducting separate, but
related, non-reportable transactions.
© Compliance Aid 2011
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AML Red Flags

Multiple even dollar amount transactions.
 Transactions structured to lose the paper trail.
 Significant increases in the number or amount of
transactions.
 Transactions which are not consistent with the
customer’s business or income level.
 Transactions by non-account holders.
© Compliance Aid 2011
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Deposit Accounts Red Flags
 Lack of references or identification and/or minimal, vague
or fictitious information provided.
 Customer with multiple accounts.
 Frequent deposits or withdrawals with no apparent
business source.
 Multiple accounts with numerous deposits under
$10,000.00
 Numerous deposits under $10,000.00 in a short period
of time.
 Accounts with high volume of activity and low balances.
© Compliance Aid 2011
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Deposit Accounts Red Flags
 Large deposits and balances.
 Deposits and immediate requests for wire transfers.
 Numerous deposits of small incoming wires or monetary
instruments, followed by a large wire
 debits

 Accounts used as a temporary repository for funds.
 Funds deposited into several accounts, transferred to
another account, and transferred outside of your
territories.
© Compliance Aid 2011
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Deposit Accounts Red Flags
 Disbursement of certificates of deposit by multiple bank
checks.
 Early redemption of certificates of deposits.
 Sudden, unexplained increase in activity or balance.
 Inconsistent deposit and withdrawal activity.
 Strapped currency -frequent deposits of large amounts
of currency, wrapped in currency straps that have been
stamped by other banks.
 Client, Trust, and Escrow accounts - large cash
deposits in these types of account.
© Compliance Aid 2011
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Wire Transfers Red Flags
 Frequent wire transfers with no apparent
business reason.
 High volume of wire transfers with low account
balances.
 Incoming and outgoing wires in similar dollar
amounts.
 Large wire by customers operating cash
business.
 Cash or bearer instruments used to fund wire
transfers.

© Compliance Aid 2011
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Wire Transfers Red Flags
•.
 Outgoing wire transfers requested by non-account holders.
 International funds transfer which are not consistent with
customer’s business.
 International transfers funded by multiple monetary
instruments.
 Other unusual domestic or international transfers.
 No change in form of currency - proceeds of cash deposit
may be wired to another country without changing the form
of currency.
© Compliance Aid 2011
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Monetary Instruments Red Flags
 Structured purchases of monetary instruments -
purchases of monetary instruments with currency in
amounts below the $3,000.00 reporting threshold.
 Replacement of monetary instruments - the use of
one or more monetary instruments to purchase
another monetary instruments.
 Frequent purchase of monetary instruments without
apparent legitimate reason – repeatedly buying a
number of official checks or traveler’s checks with no
apparent legitimate reason.
© Compliance Aid 2011
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Monetary Instruments Red Flags
 Deposit or use of multiple monetary instruments.
 Incomplete or fictitious information -- customer may
conduct transactions involving monetary instruments
that are incomplete or contain fictitious payees,
remitter, etc.
 Large cash amounts - the customer may purchase
cashier’s checks, money orders, etc. with large
amounts of cash.
© Compliance Aid 2011
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Lending Red Flags
 Certificates of deposits used as collateral - customer purchases
certificate of deposit and then uses them as loan collateral.


Sudden/unexpected payment on loans.
Reluctance to provide purpose of loan, or the stated purpose is
ambiguous.

Inconsistent or inappropriate use of loan proceeds.

Overnight loans.

Loan payments by third parties.

Loan proceeds used to purchase property in the name of a third
party, or collateral pledge by a third party.
© Compliance Aid 2011
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Lending Red Flags
 Permanent mortgage financing with an unusually short
maturity.
 Attempt to sever paper trail.
 Wire transfer of loan proceeds.
 Disbursement of loan proceeds by multiple bank
checks.
 Financial statement inconsistent with those of similar
business.
© Compliance Aid 2011
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Credit/Debit Cards Red Flags
 High balances paid off within short time.
 Over payment of balances.
 Credit received from third parties, not related to account.
 Multiple requests for credit refunds.
 Multiple cash withdrawals from different ATMs.
 Identify theft indications: such as multiple pay phone calls,
multiple daily purchases not exceeding $2000, various internet
transactions etc.
 Activities not consistent with customer general profile.
© Compliance Aid 2011
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Internet Banking Red Flags
 Large volume of activity with equal amount of debits and
credits.
 Suspicious movement of funds. Movement of funds from
one institution, into another institution, and back into the
first institution can be indicative of money laundering.
 Unusual transfer of funds among related accounts, or
accounts that involve the same or related principals.
 Payments or receipts with no apparent links to legitimate
contracts, goods or services.
•
© Compliance Aid 2011
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Internet Banking Red Flags
 Large volume of wire transfers deposited into, or
purchased through, an account when the nature of the
account holder’s business would not appear to justify
such activity.
 Large incoming wire transfers on behalf of a foreign
client with little or no explicit reason.
 Activity that is unexplained, repetitive, or shows
unusual patterns.
 Transfers that are unexplained, repetitive or shows
unusual patterns.
© Compliance Aid 2011
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Customer and/or Bank Employee
Red Flags
 Questions or discussions on how to avoid reporting/record-
keeping.
 Customer attempt to influence a institution employee not to file a
report.

Lavish lifestyles of customers or bank employees.

Short-term or no vacations.

Circumvention of internal control procedures.

Multiple incorrect or incomplete Currency Transactions Reports.
© Compliance Aid 2011
BREAK
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© Compliance Aid 2011
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Keys to Writing effective SAR
Narrative
© Compliance Aid 2011
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SUSPICIOUS ACTIVITY REPORT (SAR)
 Each employee at a financial institution should
be on the lookout for suspicious activity.
 If you get a feeling something’s “just not right
about a customer’s behavior, a transaction, or a
pattern of transactions, tell your designated
supervisor, and Compliance Department
immediately
 (Do not tell anyone else besides your
designated supervisor and Compliance
Department).
SUSPICIOUS ACTIVITY REPORT (SAR)
Confidentiality
 In order not to breech your institution’s safe harbor
protection, it is essential that suspicions and Suspicious
Activity Reports (SARs) be kept confidential.
 Discuss these matters with no one but your designated
supervisor and Compliance Department.
 Neither the banks or its employees are permitted to
notify any person involved in the transaction that an
SAR has been filed, except where such request has
been made by your FIU/ONDCP.
© Compliance Aid 2011
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The Importance of Filing a SAR

Identifies potential & actual illegal activity:



Money Laundering
Terrorist Financing
Other Financial Fraud & Abuse

Detects & prevents flow of illicit funds.

Establishes emerging threats through analysis of
patterns & trends.

It’s Required By LAW!
© Compliance Aid 2011
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Writing effective Suspicious Activity
Report (SAR)
Do not assume the reader is familiar
with your institution’s internal
terminology, acronyms, operational
processes, or has other knowledge
related to the reported violation.
© Compliance Aid 2011
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Writing effective Suspicious Activity
Report (SAR)
The Narrative should:
 Be concise & clear
 Provide a detailed description of the known or
suspected criminal violation or suspicious activity
 Identify the essential elements of information (the
5 W’s)
 Be chronological & complete
120
© Compliance Aid 2011
Essential SAR Elements
SARs narratives should contain the “5 Ws and
the How" of the transaction being reported in
a SAR:
Who?
What?
When?
Where?
Why?
How?
© Compliance Aid 2011
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Writing effective Suspicious Activity Report
(SAR)
Who is conducting the criminal or suspicious activity?
Describe additional details about the suspect(s) :
 Employer & occupation information
 Relationship between the suspect & the filing institution
 Length of the financial relationship
© Compliance Aid 2011
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Writing effective Suspicious Activity Report
(SAR)
What instruments or mechanisms facilitate the suspect
activity/transactions?
Identify & describe the transactions raising the suspicions
of the financial institution. Examples include:
 Cash deposits and/or withdrawals
 Checks & other monetary instruments (money orders;
traveler’s checks; cashiers or bank checks)
© Compliance Aid 2011
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Writing effective Suspicious Activity Report
(SAR)
Additional types of transactions raising the
suspicions of the financial institution:
 Wire or other electronic transfers (ATM, ACH)
 Foreign currency
© Compliance Aid 2011
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Writing effective Suspicious Activity Report
(SAR)
When did the criminal or suspicious activity occur?
 If a one-time occurrence, identify the date
 If a pattern of activity occurred over a span of
time, state when the activity first initiated and
then describe the activity during the duration
 Identify when the activity was detected
© Compliance Aid 2011
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Writing effective Suspicious Activity Report
(SAR)
Where did the suspicious activity take place?
 Identify the branch/department location or locations within the
institution where the activity occurred (name of branch, office or
department and the street address for each)

Identify all account numbers & types of accounts affected by the
transactions/activity

Indicate if suspect transactions involve other domestic or
international banks & identify the banks, their locations, account
numbers, etc.
© Compliance Aid 2011
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Writing effective Suspicious Activity Report
(SAR)
Why does the institution think the activity is
suspicious?
 First, describe the filer’s type of institution
© Compliance Aid 2011
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Writing effective Suspicious Activity Report
(SAR)
Why does the institution think the activity or
transaction is suspicious (cont.)?
 Next, describe concisely but fully, why the
institution considers the activity as suspicious

Be sure to include any relevant
information about suspicious customer
activity that the institution has in its files at
the time the SAR is filed
© Compliance Aid 2011
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Writing effective Suspicious Activity Report
(SAR)
How did the suspicious activity occur?
 In a concise, accurate and logical manner, describe
how the suspect transaction or pattern of transactions
were completed
 For account activity, provide as completely as possible
an explanation of the cycle of funds including the
source of the funds in the account & application of
those funds
© Compliance Aid 2011
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Writing effective Suspicious Activity Report
(SAR)
Suggested structure of the narrative



Introduction
Body
Conclusion
© Compliance Aid 2011
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Writing effective Suspicious Activity Report
(SAR)
The Introduction

Provide a brief statement of the SAR’s purpose

Generally describe the known or suspected violation

Identify the date of any SARs previously filed on the
subject & the purpose of that SAR

Indicate any internal investigative numbers used by the
filing institution to maintain records of the SAR
© Compliance Aid 2011
Writing effective Suspicious Activity Report
(SAR)
The Body
 Provide the relevant facts about all
parties facilitating the suspect
activity or transactions
Answers Who?
131
© Compliance Aid 2011
Writing effective Suspicious Activity Report
(SAR)
The Body (cont.)
 Identify all involved accounts and transactions in
chronological order by date and amount – do not
use or insert tabular objects, tables, or
pre-formatted spread sheets
Answers What? Where? When?
132
© Compliance Aid 2011
Writing effective Suspicious Activity Report
(SAR)
The Body (cont.)
 Explain in detail the filer’s position that
the activity or transaction is illegal
or suspicious
Answers Why?
133
© Compliance Aid 2011
Writing effective Suspicious Activity Report
(SAR)
The Body (cont.)
Describe the method of operation of the subject:
 Manner in which the activity and/or transactions
were completed;
 Any relationship to other transactions, accounts,
conductors, etc.; and
 Subsequent results of the activity
Answers How?
134
© Compliance Aid 2011
Writing effective Suspicious Activity Report
(SAR)
The Conclusion
Summarize the report & include:
 Any planned or completed follow-up actions by the
institution
 Names & telephone numbers of persons with additional
information about the reported activity
 Location within the institution where all SAR-related
records are maintained
135
© Compliance Aid 2011
136
SAR - Penalties
 Failure to file a report.
 Filing report containing material
omission or misstatement.
 Failure to maintain required records.
 Failure to secure identifying
information.
© Compliance Aid 2011
Your Responsibility
 Be familiar with your institution AML program
 Comply with KYC procedures
 Conduct enhanced Due Diligence
 When in doubt . . . Ask and look it up
 Identify and report any suspicious activity or
transactions to your Compliance Officer
 Review new customers against the sanction List
“KNOW YOUR CLIENT”
137
What is Ethics
 Ethics describes a system of moral
principles, rules or standards that govern
the conduct of members of a group.
 Ethics deals with right and wrong – and the
moral consequences of what we do.
 Ethics also is indelibly linked with trust –
and, in our industry, trust is everything.
WHY HAVE AN ETHICS POLICY
Reason # 1: People are diverse.
An Ethics policy establishes a common
understanding – among all employees – as
to what is ethical behavior.
WHY HAVE AN ETHICS
POLICY
Reason # 2:
An Ethics Policy Sets Clear Expectations.
An official code of Ethics tells you exactly
what is expected in terms of ethical behavior
and the consequences should you fail to live
up to those expectations.
WHY HAVE AN ETHICS POLICY
Reason # 3:
An Ethics Policy Can Provide Legal
Protection.
An Ethics policy may
protect an institution in potential action
against a rogue employee.
WHY HAVE AN ETHICS POLICY
Reason # 4:
Ethics & Compliance go Hand-In-Hand.
Your Compliance with your ethics policy will
support your institution’s compliance with
consumer protection laws.
WHY HAVE AN ETHICS POLICY
Reason # 5:
Good Ethics are Good Business
In an ethical organization, the best interests of
employees and customers always win out. This
result in increased loyalty from both.
What Should An Ethics Policy Say
It should be a workable guide for all employees.
It should be unique to the institution’s organization and
business practices.
It should spell out rare situations in which the policy may be
waived.
It should contain a special “whistleblower” clause to protect
from fear of reprisal employees who report those engaged in
suspected illegal or unethical conduct.
What Should An Ethics Policy Say
Every Ethics Policy should address:
Conflicts of interest
Gifts and gratuities, including dollar limits, if
applicable and
Privacy of records and information
© Compliance Aid 2011
AML/Ethics Challenge
146
© Compliance Aid 2011
Questions ????
147
© Compliance Aid 2011
Compliance
Aid
Michelle N Martin, CAMS, ACA
President
E-mail Michelle@ComplianceAid.pro
Telephone:
Miami, Florida, U.S.A. +1 (305) 772-9712
St. John's Antigua, W.I. +1 (268) 784-9423
148
Compliance
Solutions
Consultants
Michelle N Martin, CAMS, ACA
Partner
Website http://compliancesolutionsconsultants.com
E-mail Michelle@compliancesolutionsconsultants.com
Telephone:
Miami, Florida, U.S.A. +1 (305) 772-9712
St. John's Antigua, W.I. +1 (268) 784-9423
© Compliance Aid 2011
AML KYC Training
If you have any questions,
do not hesitate to contact us!
CAIB & Compliance Aid
149