Laws & Regulation Trade Based Money Laundering (TBML) & AML Bahrain Region: • Central Bank of Bahrain has issued instructions regarding AML / CFT covering the TBML aspect as well in following manner: Legislative Decree no. (4) of 2001 Concerning the Prohibition of and Combating Money Laundering guide regarding Nature of Money Laundering Crime (Article No. 2) Penalties (Article No.3) Requirements for institutions (Article No.5) Investigation Procurers (Article No.6) 2 FCC Transformation Plan Implementation: • Transfer of sanction screening function to First Line of Defence (FLOD) in accordance with approved Target Operating Model (TOM) for FCC • Aligning Fraud Monitoring Function within First Line of Defence (FLOD) • Establishment of Business Conformity Testing Function under BCT standards in line with the HO Structure • Implementation of CMAT based compliance review plan. •Enhanced scope of Role Based FCC trainings - Cash Dealing Staff - Customer Onboarding Staff - Branch Operation Staff - Credit Personnel - Trade Finance Personnel - Controlling Offices & HR Personnel 3 What is Money Laundering? The conversion or transfer of property, knowing that such property is derived from any offence or offences or from an act of participation in such offence or offences, for the purpose of concealing or disguising the illicit origin of the property or of assisting any person who is involved in the commission of such an offence or offences to evade the legal consequences of his actions. “In simple terms, ‘Money laundering’ is the name given to the process by which illegally obtained funds are given the appearance of having been legitimately obtained.” Single Statement: Making dirty money clean 4 What is Money Laundering? : Fraud Kidnapping Tax Evasion Counterfeiting Gambling ML/TF Terrorism Drug Trafficking Predicate Crimes Human Trafficking Extortion Bribery/Corrupt ion Organized Crime Smuggling/Pro hibitions 5 Examples of Money Laundering methods Cash Structuring — “Smurfing” The practice of executing financial transactions in a specific pattern calculated to avoid the creation of records and reports Trade Based Money Laundering Techniques of trade-based money laundering include: over-valuing/ under-valuing goods, multiple invoicing of goods and services, phantom shipping Cross-Border Bulk Cash Smuggling Hawala (Alternative Remittance Systems) Rapid Movement of Funds Commingling of Illicit and Legitimate Funds Physical transportation of cash and cash equivalents out of the country Unregulated remittance system where money is transferred without the physical movement of money With no other purpose but to move funds away from origin Commingle the proceeds of illicit activity with legitimate funds to hide the ill-gotten gains 6 Key Indicators of Money Laundering & Terrorist Financing (Red Flags!!!) Use of Letter of Credit (Trade): Use of letters of credit and other methods of trade finance to move money between countries, where such trade is not consistent with the customer's usual business. In this connection, banks should strictly adhere to the following:• To exercise prudence in case the beneficiaries of the letters of credit or the shipping companies are owned by the bank customer who opens these letters. • Amounts on letters of credit submitted by the customer to the bank and to the Customs / Port / Airport authorities should match the original. • Checking of documents should be on selective and regular basis with the shipping companies and Customs / Port / Airport authorities. • Also, the size of the facilities should be in line with the securities on hand, nature of business and net worth of the customer. AML / CFT Laws and Regulations • Decree Federal Law No. (20) of 2018 on Anti-Money Laundering and Combating the Financing of Terrorism and Illegal Organizations • Executive Regulations-Cabinet Decision No. (10) of 2019 Concerning the Implementing Regulation of Decree Federal Law No. (20) of 2018 • CB Guidelines on Anti-Money Laundering and Combating the Financing of Terrorism and Illegal Organisations for Financial Institutions • Federal law No. 07 OF 2014 On Combating Terrorism Offences • Cabinet Decision No. (20) of 2019 Regarding Terrorism Lists Regulation and Implementation of UN Security Council Resolutions On the Suppression and Combating of Terrorism, Terrorists Financing & Proliferation of Weapons of Mass Destruction, and Related Resolutions 8 Key AML / CFT Pointers for Trade Staff Following key consideration taken by Trade Staff and the same is also part of Training Session of Compliance during role based training session as required under FCC Transformation. E-KYC to combat trade based money laundering (Circular No. 458 dated 26 April 2018) TBML Techniques • Over or Under invoicing: misrepresenting the price of the goods • Multiple Invoicing: Invoicing one shipment several times • Short or Over Shipping: Shipping more or less goods than invoiced • Obfuscation: Shipping something other than what is invoiced • Phantom Shipping: shipping nothing at all with false invoices Customer Profiling: e-KYC form is required to be filled by business at the time of • On boarding new customer • Ongoing review of customer profile • Review of Credit Proposal • Signiant Change in Customer profile or conduct noted by Business / TROPS/ Regulator/ Compliance Key AML / CFT Pointers for Trade Staff (Cont.) Unusual Activity Indicative Of Trade-Based Money Laundering [CAMS Guide] • Payment made via virtually any method (cash, wire, Cheques, bank drafts, etc.) by a third party with no connection to the underlying transaction. • Discrepancies in the description of goods or commodity in the invoice or of the actual goods shipped • Amended letters of credit without justification. • No apparent business relationship between the parties and transactions. • Frequent transactions in round or whole dollars. • Companies operating in jurisdictions where their business purpose is not fully understood and there are difficulties in determining ownership. • Lack of appropriate documentation to support transactions. Key AML / CFT Pointers for Trade Staff (Cont.) Unusual Trade Financing Transaction • Customer seeks trade financing on the export or import of commodities whose stated prices are substantially more or less than those in a similar market situation or environment. • Customer requests payment of proceeds to an unrelated third party. • Significantly amended letters of credit without reasonable justification or changes to location of payment or the beneficiary just before payment is made. • Customer changes the place of payment in a letter of credit to an account in a country other than the beneficiary’s stated location. • Letter of Credit is inconsistent with customer’s business. • Letter of Credit covers goods that have little demand in importer’s country. • Letter of Credit covers goods that are rarely if ever produced in the exporter’s country. • Documents arrive without title documents. • Letter of Credit is received from countries with a high risk for money laundering. • Obvious over-or underpricing of goods and services. • Transaction’s structure appears unnecessarily complex and deigned to obscure the true nature of the transaction. • Commodities are shipped through one or more jurisdictions for no apparent economic or logistical reason. • Size of the shipment appears inconsistent with Transaction involves the use of repeatedly amended or frequently extended letters of credit.
