miller &chevalier
Chartered
Anti-Money Laundering
Compliance Overview
Michael L. Burton
James G. Tillen
Miller & Chevalier Chartered
May 18, 2005
WHAT IS MONEY LAUNDERING?
 “Process by which one
conceals the existence, illegal
source, or illegal application
of incomes, and disguises that
income to make it appear
legitimate”
 Money laundering represents
between 2 and 5 percent of
global gross domestic product
($800 billion to $2 trillion
annually)
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THE U.S. ANTI-MONEY
LAUNDERING FRAMEWORK
Money Laundering Control Act
Bank Secrecy Act
USA PATRIOT Act
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MONEY LAUNDERING
CONTROL ACT (“MLCA”)
Transfers of money derived from
specified (“predicate”) offenses
Transactions with proceeds of
specified offenses
Similar to mail fraud and wire fraud
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PREDICATE OFFENSES
 Literally hundreds of predicate offenses
 Traditional organized crime offenses: murder, arson,
robbery, extortion, drug trafficking, RICO, etc.
 White collar crimes: fraud and other financial crimes
 Violations of international regulatory regimes: FCPA,
export control violations, customs violations, foreign
law (e.g., currency controls) (note: PATRIOT Act
additions)
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MLCA: PENALTIES
Criminal penalties = imprisonment up
to 20 years and/or fines totaling the
greater of $500,000 or twice the value
of the property involved in the
transaction
Civil penalties = greater of $10,000 or
the value of the property involved in
the transaction
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BANK SECRECY ACT (“BSA”)
 Reporting and record-keeping
obligations for “financial
institutions”
 Pre-PATRIOT Act generally
targeted only activities of banks
 PATRIOT Act expanded
definition of “financial
institutions”
 Suspicious transaction
reporting requirements for
certain financial institutions
 Cash reporting (>10K) for nonfinancial trades and business
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BSA: PENALTIES
Criminal penalties = up to 10 years
imprisonment and/or $1 million fines
Civil penalties = the greater of amount
involved in transaction (not to exceed
$100,000) or $25,000
 $500
for negligent violations ($50,000 for
pattern of negligence)
 up to $1 million in cases of international
counter money laundering violations
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BSA: FINANCIAL INSTITUTIONS
Financial institutions (including PATRIOT Act additions)
 an insured bank (as defined in the Federal Deposit Insurance
Act)
 a commercial bank or trust company
 a private banker
 an agency or branch of a foreign bank in the U.S.
 any credit union
 a thrift institution
 an SEC-registered broker/dealer
 a securities or commodities broker/dealer (including
introducing brokers)
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BSA: FINANCIAL INSTITUTIONS
(cont’d)
 an investment banker or investment company
 a currency exchange
 an issuer, redeemer, or cashier of traveler’s checks,
checks, money orders, or similar instruments
 an operator of a credit card system
 an insurance company
 a pawnbroker
 a loan or finance company
 a travel agency
 a licensed money-sender or others that engage in the
business of transferring money
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BSA FINANCIAL INSTITUTIONS
(cont’d)
 a telegraph company
 a business engaged in vehicle sales
 a real estate broker
 a casino
 the U.S. Postal Service and other U.S. government
agencies carrying out similar functions
 any futures commission merchant, commodity trading
advisor, or commodity pool operator registered, or
required to register under the Commodity Exchange Act
(added by the PATRIOT Act)
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BSA FINANCIAL INSTITUTIONS
(cont’d)
a dealer in precious metals, stones, or
jewels
others designated by regulation
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RECENT U.S. ANTI-MONEY LAUNDERING
DEVELOPMENTS: USA PATRIOT ACT
Passed on October 26, 2001
Expanded BSA requirements to many
more financial institutions
Expanded predicate offenses to include
violations of international regulatory
regimes
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PATRIOT ACT AMENDMENTS
TO BSA
 Prohibits and regulates certain types of accounts
relationships with financial institutions
 Expanded suspicious activity reporting
requirements
 Expanded requirements for anti-money
laundering compliance programs
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PATRIOT ACT AMENDMENTS
TO BSA (cont’d)
 Anti-money laundering (“AML”) compliance
program – 4 required elements:
Internal policies, procedures, and controls
 Designated compliance officer
 Ongoing training program for employees
 Independent audit function to test the program

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PROPOSED AML COMPLIANCE
PROGRAM FOR DEALERS
 On February 21, 2003, Treasury issued a notice
of proposed rulemaking, which would require
dealers in precious metals, stones, or jewels to
implement an AML compliance program
 Sought public comment on rules
 No action by Treasury for past two years
 In March 2005, FinCEN issued its 2004 Annual
Report; noted that it planned to finalize rules
this year
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PROPOSED AML COMPLIANCE
PROGRAM FOR DEALERS (cont’d)
 Applies to “dealers”: person engaged in
business of purchasing and selling jewels,
precious metals, or precious stones who, during
the prior year:
Purchased more than $50,000 jewels, metals, or
stones; or
 Received more than $50,000 in gross proceeds
from transactions in jewels, metals, or stones

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PROPOSED AML COMPLIANCE
PROGRAM FOR DEALERS (cont’d)
 Exceptions to definition of dealer:
 Retailer, i.e., a person engaged in sales to the
public other than a retailer who, during the
prior year, purchases more than $50,000 in
jewels, metals or stones from non dealers
 Persons who engage in transactions for
purposes of fabricating finished goods that
contain minor amounts of jewels, metals, or
stones
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PROPOSED AML COMPLIANCE
PROGRAM FOR DEALERS (cont’d)
 Jewel includes organic substances that have marketrecognized gem level of quality, beauty, or rarity
 Precious metal:


Gold, iridium, osmium, palladium, platinum, rhodium,
ruthenium or silver, having a level of purity over 500 or
more parts per thousand; and
An alloy containing 500 or more parts per thousand, in
the aggregate, of two or more metals listed above
 “Precious stone” includes inorganic substances that
have a market-recognized gem level of quality, beauty,
or rarity
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PROPOSED AML COMPLIANCE
PROGRAM FOR DEALERS (cont’d)
 Program requirements:
Approved by Senior Management and in writing
 Incorporate policies that address the entity’s risk
 Incorporate policies to identify transactions that
may involve use of the dealer to facilitate money
laundering an terrorist financing
 Reflect BSA requirements (noted that only
reporting of cash transactions currently apply to
dealers)

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KEYS TO MONEY
LAUNDERING PREVENTION
 “Know-your-customer” (KYC) principles



Customer and counterpart identification
Customer and counterpart due diligence
Screening against government lists (i.e., OFAC)
 Transactional alertness

Screen transactions for red flags
 Payment restrictions

Limit or prohibit cash transactions
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KEYS TO MONEY LAUNDERING
PREVENTION: RED FLAGS
 Purchases or sales that are unusual for customer or
supplier
 Unusual payment methods, such as large cash
transactions or payments from third parties
 Attempts by customer or supplier to maintain high
degree of secrecy
 Purchases or sales that are not in conformity with
standard industry practice
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RED FLAGS (cont’d)
 Counterpart is reluctant to provide adequate
identification information when making a
purchase
 Counterpart provides inaccurate identification
information
 Transactions that appear to be structured to
evade reporting requirements (e.g., a series of
transactions under $10,000)
 Counterpart presence in NCCT or country that is the
subject of advisories issued by FinCEN
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COMPLIANCE BASICS
 Make the commitment
 Identify the risks
 Develop compliance systems to manage risks
 Implement compliance processes
 Designate compliance “gatekeepers”
 Train personnel
 Monitor compliance – people, paper, process
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CONTACT INFORMATION
Michael L. Burton
James G. Tillen
Miller & Chevalier Chartered
202-626-5800 (main)
mburton@milchev.com
jtillen@milchev.com
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