Treasury and Trade Solutions
April 10th, 2015
Compliance Best Practices
Gustavo Vidal
Regional Market Manager,
Citi LatAm Correspondent Banking
Agenda
AML Context for FCB
1
KYC for FCB
Size of Money Laundering
3
$mm
$bn
$tn
$qn
106
109
1012
1015
Fortune 100—by 2012 Revenue (US$ Billion)
447.0
127.2
108.2
82.6
70.4
69.9
66.5
48.1
25.9
15.7
Wal-Mart Stores
2
Hewlett-Packard
10
Apple
17
Procter and Gamble
27
6.4
3.9
Home Depot
35
Source: CNN Money: http://money.cnn.com/magazines/fortune/fortune500/2012/full_list/.
4
37.9
23.2
11.8
7.1
46.5
Microsoft
37
PepsiCo
41
0.6
Amazon.com
56
8.6
Coca-Cola
59
9.7
Google
73
GDP (PPP) LatAm (US$ Billion)
2011 GDP (PPP)
($ in Billions)
$1,904.2
$470.8
$373.3
$300.9
Mexico
Colombia
Venezuela
Peru
Source: The Wolrd Bank—DataBank—Economic Development Indicators: http://data.worldbank.org/
5
$55.7
$42.5
$36.1
$31.4
Panama
El Salvador
Paraguay
Honduras
Large Numbers
6
Size of 1 Trillion
$100
$1,000,000,000,000
$1,000,000,000
$100,000,000
$1,000,000
$10,000
Source: Pagetutor.Com.
7
1 Million—Seconds, Minutes, Hours
Source: http://www.clipartpanda.com/categories/clock-clip-art.
8
1 Million—Seconds, Minutes, Hours
F1Nobel
Prizes Work
Einstein
–Championship
1st Scientific
Oct
4 2014
1900
Nov
2012
Source: https://www.flickr.com/photos/ruthbleakley/3230668764/ | http://commons.wikimedia.org/wiki/File:Albert_Einstein_by_Gheorghe_Manu.png
http://commons.wikimedia.org/wiki/File:Formula_racecar_pictogram.png
9
1 Billion—Seconds, Minutes, Hours
Source: http://www.clipartpanda.com/categories/clock-clip-art.
10
1 Billion—Seconds, Minutes, Hours
Right
Jesus
Lotus
1-2-3
HomoAfter
Sapiens
85 AD IBM
Feb 1983
113K
BCE
Source: http://www.theinquirer.net/IMG/826/301826/lotus-123.png | https://openclipart.org/detail/192945/jesus-coloring-book | http://de.wikipedia.org/wiki/The_Evolution_of_Chaos
11
1 Trillion—Seconds, Minutes, Hours
Source: http://www.clipartpanda.com/categories/clock-clip-art.
12
1 Trillion—Seconds, Minutes, Hours
Paleolithic
– –Homo
Pleistocene
HomoSapiens
Erectus
Cretaceous
30k BCEBCE
1.9MM
BCE
115MM
Source: Source: http://de.wikipedia.org/wiki/The_Evolution_of_Chaos
http://commons.wikimedia.org/wiki/File:New-Mid-Cretaceous-(Latest-Albian)-Dinosaurs-from-Winton-Queensland-Australia-pone.0006190.g002.jpg
13
Size of Money Laundering
UNODC: 2011
2.7% = $1.9 Tn
$253.7mm (7x)
83.1
IMF: 1998
3.5% = $1.2 Tn
CA = $114.6mm (10x)
FATF: 1989
2.0% = $0.4 Tn
CA = $67.4mm (6x)
57.2
42.5
32.2
25.5
18.1
12.3
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
2.1
2.2
1.5
1.1
0.9
0.7
0.5
0.3
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
World ML (US$ Tn)
Source: The Wolrd Bank—DataBank—Economic Development Indicators | UNODC—Estimating Illicit Flows Research Report—2011.
14
Fortune 100—by 2012 Revenue (US$ Billion)
447.0
127.2
108.2
82.6
70.4
69.9
66.5
48.1
25.9
15.7
Wal-Mart Stores
1
Hewlett-Packard
2
Apple
3
Procter and Gamble
4
6.4
3.9
Home Depot
5
Source: CNN Money: http://money.cnn.com/magazines/fortune/fortune500/2012/full_list/.
15
37.9
23.2
11.8
7.1
46.5
Microsoft
6
PepsiCo
7
0.6
Amazon.com
8
8.6
Coca-Cola
9
9.7
Google
10
Fortune 100—by 2012 Revenue/Profit (US$ Billion) (Cont’d)
2,200.0
774.0
127.2
15.7
AML Size
0
108.2
7.1
Wal-Mart Stores Hewlett-Packard
2
10
82.6
25.9
Apple
17
70.4
11.8
Procter and Gamble Home Depot
27
35
Source: CNN Money: http://money.cnn.com/magazines/fortune/fortune500/2012/full_list/.
16
69.9
3.9
23.2
Microsoft
37
66.5
6.4
Microsoft
41
48.1
46.5
0.6
Amazon.com
56
8.6
Coca-Cola
59
37.9
9.7
Google
73
Fortune 100—by 2012 Profit (US$ Billion)
2,200.0
505.6
23%
AML Size
Source: CNN Money: http://money.cnn.com/magazines/fortune/fortune500/2012/full_list/.
17
Total Profits F-100
GDP (PPP) LatAm (US$ Billion)
2011 GDP (PPP)
($ in Billions)
$1,904.2
$470.8
$373.3
$300.9
Mexico
Colombia
Venezuela
Source: The Wolrd Bank—DataBank—Economic Development Indicators.
18
Peru
$55.7
$42.5
$36.1
$31.4
Panama
El Salvador
Paraguay
Honduras
GDP (PPP) LatAm (US$ Billion) (Cont’d)
2011 GDP (PPP)
($ in Billions)
$2,200.0
$1,904.2
$470.8
$373.3
$300.9
AML Size
Mexico
Colombia
Venezuela
Source: The Wolrd Bank—DataBank—Economic Development Indicators.
19
Peru
$55.7
$42.5
$36.1
$31.4
Panama
El Salvador
Paraguay
Honduras
GDP (PPP) LatAm (US$ Billions)
2011 GDP (PPP)
($ in Billions)
$3,214.9
$2,200.0
68%
AML Size
Source: The World Bank—DataBank—Economic Development Indicators.
20
Countries
Attractiveness to Money Launderers—Rank Order
ML Attractiveness Index
686
634
617
600
497
476
466
449
Luxembourg
US
Switzerland
Cayman Islands
Austria
Source: John Walker Crime Trends Analysis—Modeling Global Money Laundering Flows.
21
Netherlands
Liechtenstein
Vatican City
439
UK
429
Singapore
Top 20 Origins of Laundered Money—Rank Order
46%
Source: John Walker Crime Trends Analysis—Modeling Global Money Laundering Flows.
22
1%
1%
1%
1%
1%
1%
1%
1%
1%
Netherlands
Japan
Brazil
2%
Philippines
2%
Poland
2%
Austria
Canada
Romania
France
Germany
China
Russia
Italy
US
3%
Mexico
4%
South Korea
4%
Thailand
4%
11 Spain
5%
Hong Kong
5%
UK
5%
23
Source: John Walker Crime Trends Analysis—Modeling Global Money Laundering Flows.
1%
1%
1%
1%
1%
1%
1%
1%
Spain-->Spain
Thailand-->Thailand
Hong Kong-->Hong
Kong
Canada-->Canada
UK-->UK
US-->Luxembourg
Germany->Luxembourg
Hong Kong-->Taiwan
2%
US-->Bermuda
2%
Germany-->Germany
2%
Italy-->Vatican City
2%
France-->France
2%
US-->Bahamas
US-->Canada
3%
Romania-->Romania
3%
China-->China
Italy-->Italy
5%
Russia-->Russia
US-->Cayman Islands
US-->US
Top 20 Flows of Laundered Money—Rank Order
19%
4%
3%
2%
Top 20 Destinations of Laundered Money—Rank Order
19%
5%
Source: John Walker Crime Trends Analysis—Modeling Global Money Laundering Flows.
24
2%
1%
Spain
2%
UK
2%
Austria
2%
Liechtenstein
2%
Netherlands
2%
Bermuda
2%
Switzerland
2%
Germany
2%
Bahamas
2%
France
3%
Luxembourg
3%
Vatican City
3%
Canada
3%
Romania
3%
China
Italy
Russia
Cayman Islands
US
4%
Hong Kong
4%
Session Overview
AML Context for FCB
25
AML for FCB
The Cost of Non-Compliance is High
69%
$199bn
Source: The Banker—March 2014.
26
Key AML Program Components
Compliance Program Governance and Metrics
Periodic Training
Policies and Procedures
Independent Audit, Internal Controls and Testing
28
Transaction Monitoring
Periodic Transaction
Reviews
Sanctions Screening
Know Your Customer
Regulatory Oversight
Citi’s KYC Components
APF
PTR TRP
Appendix
Patriot Act
Certificate (PAC)
Business
Operations
SPF / PEP
Client
Ownership
Board of
Directors
and Senior
Management
Negative
News
Customer
Identification
Program (CIP)
AML Risk
Summary
AML Call
Report
Market
Reputation
AML Call
30
AML
Country
Regime
Wolfsberg
Questionnaire
Citi’s KYC Components
Transaction
Activity
Review
Customer
Identification
Program (CIP)
AML Risk
Summary
AML Call
Report
31
AML
Country
Regime
CIP—Customer Identification Program
Sample Question
• List any individuals who own 25% or more of the stake of your company
• If the entity is privately held and the owner is another legal entity, identify only the ultimate beneficial owners
(i.e. the individuals at the top of the chain of ownership of the entity)
Common Answer
• Banco XYZ SA is a privately held company. However, there are no individuals that, directly or indirectly, hold
25% or more of Banco XYZ SA
32
CIP—Customer Identification Program
Desired Answer
• As per the ownership structure attached, Nicaragua nationals, Pepe, Lucas, Ramon, and Luisa individually
hold 25% of Inverfin CR SA. At the same time Inverfin CR SA owns 80% of Banco XYZ
• As a result, all four, Pepe, Lucas, Ramon and Luisa, each indirectly hold 20% of the stake in Banco XYZ SA.
The remaining 20% is directly owned by a fifth investor: Hernan
Pepe
Lucas
Ramon
Luisa
25%
25%
25%
25%
INVERFIN
CR SA
Hernan
20%
80%
BANCO
XYZ SA
33
Citi’s KYC Components
Transaction
Activity
Review
Customer
Identification
Program (CIP)
AML Risk
Summary
AML Call
Report
34
AML
Country
Regime
Transaction Activity—Q&A No.1
Sample Question
• Please provide monthly anticipated volumes and values on the Citi NY correspondent account
Common Answer
• Anticipated activity differs from PTR numbers
• Activity on the Citi NY correspondent account is expected to pick up by 20% during 2013
35
Transaction Activity—Q&A No.1 (Cont’d)
Desired Answer
• BANK XYZ has calculated an increase of 20% in the transaction activity for 2013
• This a result of an aggressive marketing campaign to create local brand awareness mainly through the
sponsorship of the XI Central American games in Panama City, Panama
• Our client has also become the official bank of the games’ organization committee
• Transaction peaks will occur during the months that lead to the event as many international contracts with
builders, sports equipment providers, broadcasters, etc. need to be executed
36
Transaction Activity—Q&A No.2
Sample Question
Please provide detailed information pertaining to top beneficiaries and originators of transactions
(>5% volume or value)
• The nature of business of the entity and relationship between the counterparties
• The expected purpose of the transactions
• The reason the payments were made in this manner (i.e. round dollar, consecutive days, etc.)
• Is the activity expected to reoccur?
• Any AML concerns with the activity
Common Answer
Banco XYZ initiated commercial transactions on behalf of one top originator customer: Softsilk SA,
• Softsilk SA is a Salvadorian company dedicated to the production of fabrics
• Softsilk SA is a well regarded name at the local level and also a Citi client
• This transaction activity is expected to continue, no major AML issues have been raised.
37
Transaction Activity—Q&A No.2 (Cont’d)
Desired Answer
• Softsilk SA was identified as a top originator (more than 5% in volume) of transactions mainly to countries
located in the Middle East
• Softsilk LLC is an important Salvadorian textile producer. The client buys raw materials (threads) for the
production of fabrics to providers located in the Middle East
• Orders are placed monthly. Thus, the activity is recurrent
• Softsilk LLC has all export documentation that supports these transaction activity
• Softsilk LLC has been a client of BANK XYZ for more than 12 years
• Softsilk LLC is also subjected to Banco XYZ KYC process. Banco XYZ does not have any AML concerns with
this transaction activity. Furthermore, this is also an existing Citi client with an up to date file
38
Citi’s KYC Components
Transaction
Activity
Review
Customer
Identification
Program (CIP)
AML Risk
Summary
AML Call
Report
39
AML
Country
Regime
AML Call Report
AML Program
AML Examinations and Audits
AML Transaction Monitoring
AML Call Report
Information which is Known
to or Reasonably Available to Citi
about the Client’s AML Record
Customer Due Diligence
Comments and Conclusions
• Summarize findings and create Call Report
• Highlight any Red Flags
• Discuss any Issues with Compliance
• Raise issues to the client as may be necessary
40
Special Risks of Client
AML Call Report—Q&A No.1
Sample Question
• Describe the structure and staffing of the bank’s AML Department
• Please confirm the number of staff dedicated to AML related functions
Common Answer
• Banco XYZ compliance area is comprised of nine employees. Five of them are dedicated to AML
related activities
• The Compliance officer has a manager rank and reports directly to the board of directors
• The Compliance officer has more than 10 years of experience
41
AML Call Report—Q&A No.1 (Cont’d)
Desired Answer
• Banco XYZ compliance area is comprised of nine employees
• The compliance officer has a manager rank and reports directly to the board of directors
• She has more than 10 year of experience in Compliance and Controls areas. She has lead the Compliance
unit for the past four years
• The AML department is a subdivision of the Compliance Unit and has direct oversight from the
Compliance officer
• It is composed of one AML manager and four AML officers that are exclusively dedicated to the analysis of
alerts that emanate from the automated transaction monitoring systems
• The number of analysts is adequate for the number of daily alerts raised by the monitoring system (around
50 daily alerts)
• Furthermore, Banco XYZ has an adequate number of AML resources when compared to other local banks of
the same size
42
AML Call Report—Q&A No.2
Sample Question
• Has the bank filed large currency transaction reports or suspicious activity reports to its local regulator in the
current year?
Common Answer
• Banco XYZ filed seven suspicious activity reports during 2012
43
AML Call Report—Q&A No.2 (Cont’d)
Desired Answer
• Banco XYZ filed seven suspicious activity reports (SARs) during 2012
• This shows a diminishing trend when compared to 2011 filings (11 SARs) and 2010 filings (15 SARs)
• Diminishing trends can be explained by more hostile country environment for money launderers
• For example, the Central Bank has increased its requirements to justify recurrent and high value activity.
Tougher laws that punish criminal activity have also been enacted in the country in the past year years
44
Citi’s KYC Components
Transaction
Activity
Review
Customer
Identification
Program (CIP)
AML Risk
Summary
AML Call
Report
45
AML
Country
Regime
AML Country Regime—Country Reports
UK
“… Although narcotics are still a major source of illegal proceeds for money laundering, the proceeds
of other offenses, such as financial fraud and the smuggling of people and goods, have become
increasingly important. …”
Source: US Department of State—Bureau for International Narcotics and Law Enforcement Affairs—International Narcotics Control Strategy Report.
46
AML Country Regime—Country Reports (Cont’d)
Mexico
“… _______ is a major drug-producing and drug-transit country. Proceeds from the illicit drug trade leaving the
US are the principal source of funds laundered through the _______ financial system. Other significant sources
of laundered proceeds include corruption, kidnapping, and trafficking in firearms and persons …”
Source: US Department of State—Bureau for International Narcotics and Law Enforcement Affairs—International Narcotics Control Strategy Report.
47
AML Country Regime—Country Reports (Cont’d)
Paraguay
“… _______ is a major drug transit country and money laundering center. A multi-billion dollar contraband trade,
fed in part by endemic, institutional corruption, occurs in the border region shared with _______ and ________
and facilitates much of the money laundering. …”
Source: US Department of State—Bureau for International Narcotics and Law Enforcement Affairs—International Narcotics Control Strategy Report.
48
AML Country Regime—Country Reports (Cont’d)
Costa Rica
“… remains vulnerable to money laundering and other financial crimes, including various schemes that target
US-based victims. Money laundering activities are primarily related to the foreign proceeds of international
trafficking in cocaine. A sizeable internet gaming industry also launders millions of dollars in illicit proceeds
through ____ and offshore centers annually. …”
Source: US Department of State—Bureau for International Narcotics and Law Enforcement Affairs—International Narcotics Control Strategy Report.
51
AML Country Regime—Country Reports (Cont’d)
Colombia
“… is a regional leader in the fight against money laundering and terrorist financing. … has a forceful anti-money
laundering/counter-terrorist financing (AML / CFT) regime. …”
“… however, the laundering of money from Colombia’s illicit cocaine and heroin trade continues to penetrate its
economy and affect its financial institutions. Laundered funds also are derived from commercial smuggling for
tax and import duty evasion; kidnapping; arms trafficking; and terrorism connected to violent, illegally-armed
groups and guerrilla organizations, including US Government-designated terrorist organizations …”
Source: US Department of State—Bureau for International Narcotics and Law Enforcement Affairs—International Narcotics Control Strategy Report.
52
Citi’s KYC Components
Transaction
Activity
Review
Customer
Identification
Program (CIP)
AML Risk
Summary
AML Call
Report
55
AML
Country
Regime
There is Much More to Do…
<1%
• 2011: United Nations Office on Drugs and Crime (UNODC)
• 2011: Less than 1 percent of global illicit financial flows is currently being seized and frozen
• 2012: 3.6% of $83.1 trillion = $3.0 trillion, 1% = 30 billion
Source: UNODC—Estimating Illicit Flows Research Report—2011.
58
Question and Answer Session
Questions?
59
Appendix
Preguntas Video
1. Para qué están hechas las reglas?
2. No sólo importa el tamaño del negocio, también importa ____
3. Qué información omitió Calvin escalar a su jefe
4. Qué elemento de trabajo de Calvin no se cumplió de acuerdo con el investigador?
60
Appendix
Major Money Laundering Countries
Countries/Jurisdictions of Primary Concern (66)
Afghanistan
France
Liechtenstein
UAE
Antigua and Barbuda
Germany
Luxembourg
UK
Argentina
Greece
Macau
US
Australia
Guatemala
Mexico
Uruguay
Austria
Guernsey
Netherlands
Venezuela
Bahamas
Guinea
Nigeria
Zimbabwe
Belize
Haiti
Pakistan
Bolivia
Hong Kong
Panama
Brazil
India
Paraguay
British Virgin Islands
Indonesia
Philippines
Burma
Iran
Russia
Cambodia
Iraq
Singapore
Canada
Isle Of Man
Somalia
Cayman Islands
Israel
Spain
China, People Rep
Italy
St. Maarten
Colombia
Japan
Switzerland
Costa Rica
Jersey
Taiwan
Curacao
Kenya
Thailand
Cyprus
Latvia
Turkey
Dominican Republic
Lebanon
Ukraine
Source: US Department of State—Bureau for International Narcotics and Law Enforcement Affairs—International Narcotics Control Strategy Report.
61
Appendix
Major Money Laundering Countries (Cont’d)
Countries/Jurisdictions of Concern (68)
Albania
El Salvador
Monaco
Suriname
Algeria
Ghana
Mongolia
Syria
Angola
Gibraltar
Montenegro
Tanzania
Aruba
Grenada
Morocco
Trinidad and Tobago
Azerbaijan
Guyana
Nicaragua
Turks and Caicos
Bahrain
Holy See
Peru
Vanuatu
Bangladesh
Honduras
Poland
Vietnam
Barbados
Hungary
Portugal
Yemen
Belarus
Ireland
Qatar
Belgium
Jamaica
Romania
Bosnia and Herzegovina
Jordan
Saudi Arabia
Bulgaria
Kazakhstan
Senegal
Chile
Korea, North
Serbia
Comoros
Korea, South
Seychelles
Cook Islands
Kosovo
Sierra Leone
Cote d'Ivoire
Kuwait
Slovakia
Czech Republic
Laos
South Africa
Djibouti
Malaysia
St. Kitts and Nevis
Ecuador
Marshall Islands
St. Lucia
Egypt
Moldova
St. Vincent
Source: US Department of State—Bureau for International Narcotics and Law Enforcement Affairs—International Narcotics Control Strategy Report.
62
Appendix
Major Money Laundering Countries (Cont’d)
Other Countries/Jurisdictions Monitored (76)
Andorra
Eritrea
Malta
Slovenia
Anguilla
Estonia
Mauritania
Solomon Islands
Armenia
Ethiopia
Mauritius
South Sudan
Benin
Fiji
Micronesia FS
Sri Lanka
Bermuda
Finland
Montserrat
Sudan
Botswana
Gabon
Mozambique
Swaziland
Brunei
Gambia
Namibia
Sweden
Burkina Faso
Georgia
Nauru
Tajikistan
Burundi
Guinea
Nepal
Timor-Leste
Cameroon
Iceland
New Zealand
Togo
Cape Verde
Kyrgyz Republic
Niger
Tonga
Central African Republic
Lesotho
Niue
Tunisia
Chad
Liberia
Norway
Turkmenistan
Congo, Dem Rep Of
Libya
Oman
Uganda
Congo, Rep Of
Lithuania
Palau
Uzbekistan
Croatia
Macedonia
Papua New Guinea
Zambia
Cuba
Madagascar
Rwanda
Denmark
Malawi
Samoa
Dominica
Maldives
San Marino
Equatorial Guinea
Mali
Sao Tome and Principe
Source: US Department of State—Bureau for International Narcotics and Law Enforcement Affairs—International Narcotics Control Strategy Report.
63
Appendix
Debtris
64
Appendix
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Citi believes that sustainability is good business practice. We work closely with our clients, peer financial institutions, NGOs and other partners to finance solutions to climate change, develop industry standards, reduce our
own env ironmental f ootprint, and engage with stakeholders to adv ance shared learning and solutions. Highlights of Citi's unique role in promoting sustainability include: (a) releasing in 2007 a Climate Change Position
Statement, the f irst US f inancial institution to do so; (b) targeting $50 billion over 10 years to address global climate change: includes significant increases in investment and financing of renewable energy, clean technology,
and other carbon-emission reduction activities; (c) committing to an absolute reduction in GHG emissions of all Citi owned and leased properties around the world by 10% by 2011; (d) purchasing more than 234,000 MWh of
carbon neutral power f or our operations over the last three years; (e) establishing in 2008 the Carbon Principles; a f ramework f or banks and their U.S. power clients to ev aluate and address carbon risks in the financing of
electric power projects; (f) producing equity research related to climate issues that helps to inform investors on risks and opportunities associated with the issue; and (g) engaging with a broad range of stakeholders on the
issue of climate change to help advance understanding and solutions.
Citi works with its clients in greenhouse gas intensive industries to evaluate emerging risks from climate change and, where appropriate, to mitigate those risks.
efficiency, renewable energy and mitigation