Financial Crime & Money Laundering

Types
1. Money Laundering
  1. Jewel Thief
  2. Royal Bank of Scotland - 2002
  3. EFG Private Bank
2. Fraud
  1. Jyoti De-Laurey - Goldman Sachs
  2. Jagmeet Channa - HSBC
  3. Types
    1. Advance fee
    2. mortgage
    3. fiduciary
    4. credit card
    5. cheque
    6. lending
    7. securities and investment
    8. insurance
    9. internet
    10. benefits
    11. employee
  4. 2006 Capita Financial Administrators Ltd
3. False Accounting
  1. Enron & Arthur Anderson
4. Market Abuse
  1. Peter Bracken
  2. forms
    1. misuse of info
    2. giving false/misleading impressions
    3. market distortion
  3. civil wrong - balance of probabilities
  4. Principle 5 Market Conduct
5. Tax Evasion
  1. Celebrity tax evasion examples
6. Corruption
  1. JLT 2013
7. Insider Dealing
  1. Martha Stewart
  2. John Shevlin 2007
8. Terrorist Financing
Risks of Handling Proceeds of Crime
1. Reputational
  1. Arthur Anderson
2. Legal
3. Regulatory
  1. FCA operational objective - integrity
    1. SYSC 3.2.6R
    2. Enforcement Action
      1. Norwich Union
      2. Coutts & Co
      3. EFG Private Bank
Money Laundering
1. Traditional Process
  1. 1. Placement
    1. 25,000 Euros in cigarette packet in 500 Euro
    2. disguised deposits
    3. Monetary instruments
      1. Postal Orders
      2. Travellers cheques
    4. Intermingling with legitimate cash
  2. 2. Layering
    1. complex transactions to hide origins
  3. 3. Integration
    1. more layers
      1. loan agreements
      2. redemption of investments e.g. life policies
  4. Limitations
    1. assumption of cash generation
      1. intangible benefits
        market manipulation - increase share value - a proceed of crime
    2. layers indistinguishable
      1. layering & integration
    3. Offence only requires person to contribute to part of the process
2. Cash & Property too
Legislation
1. AML Framework
  1. Primary legislation - Acts or Laws
    1. Proceeds of Crime Act (2002) as amended
    2. USA PaATRIOT Act 2001
    3. Terrorism Act 2000
  2. secondary legislation Regulations or Orders
    1. Money Laundering Regulations 2007 - EU 3rd ML directive
      1. Appt of MLRO
      2. CDD/KYC
      3. Internal SAR reporting
      4. risk assessment & management
        risk based approach
      5. compliance mgmt
      6. SAR reporting
      7. record keeping
      8. staff training
      9. Offence to not comply with requirements
        RBS 2002
        FCA AML Report 2013 - investigating 3 banks
      10. Dont apply to intermediaries but SYSC still requires sys & ctrls
    2. Proceeds of Crime Act Order 2007
    3. Terrorism Act 2000 Order 2007
    4. Changes 2003-2007
      1. Move from tick box to risk based in line with EU 3rd Money Laundering Directive 2007
        ML sourcebook removed 2006 replaced by SYSC 3.2.6
        Firms stuck too rigidly to rules
        RBS 2002
        Abbey National 2002
      2. Extend supervision to most financial businesses
  3. Tertiary guidance
    1. Joint Money Laundering Steering Group (JMLSG)
    2. Law Society money laundering rules
    3. regulators and trade assocs
  4. Rules and Supervision
    1. FCA: FC (Financial Crime:A Guide for Firms)
      1. EFG Private Bank 2013
      2. Habib Bank Ag 2013
      3. SYSC 3.2.6R (FCA only) - express obligation on firms to set sys & ctrls for countering fin crime risks
        2006 Capita Financial Administrators
        2007 Nationwide
        Norwich Union
        Merchant Securities
    2. Money Laundering sourcebook removed 2006 replaced by SYSC 3.2.6
2. Fraud
  1. Fraud Act 2006
    1. Offence of Fraud - 10 years max sentence
      1. False representation
      2. Failing to disclose info
      3. abuse of position
  2. Theft Act 1978
    1. False Accounting
3. Insider Dealing
  1. EU Market Abuse Directive (MAD)- 1 Jul 2005
    1. x-border market abuse
    2. narrower than FSMA so UK imposed it over top of own rules
  2. Criminal Justice Act 1993
4. Market Abuse
  1. new civil offence - s.118 FSMA
  2. FCA Code of Market Conduct (MAR 1)
    1. applies to everyone whether authorised or not
5. Tax Evasion
  1. Value Added Tax Act 1994
    1. VAT evasion
6. Corruption
  1. Bribery Act 2010
  2. PEPs
    1. Third Money Laundering Directive
7. Terrorist Financing
  1. FATF 40 Recommendations
  2. Third Money Laundering Directive
  3. Proceeds of Crime Act 2002
  4. Terrorism Act 2000
  5. OFAC Sanctions List & UK Treasury Sanctions list
  6. USA PATRIOT ACT 2001
Knowledge & Suspicion in Law
1. Knowledge
  1. Subjective
  2. Willful Blindness
  3. Wilfully/Recklessly fail to make enquiries
  4. Criminal court - beyond all reasonable doubt
2. Suspicion
  1. event - concern
  2. courts have defined
  3. reasonable grounds
    1. objective test of suspicion
      1. tort of negligence
    2. Shah v HSBC
3. legal obligation to report
  1. SAR to MLRO
    1. NCA
  2. Tipping off
  3. client confidentiality
    1. exemption in Data Protection Act - 'safe harbour' clause
KYC/CDD Info
1. Money Laundering Regulations 2007 - obligations & consequences
  1. CDD
    1. id customer/verify id
    2. id beneficial owner and id
    3. info on purpose/nature of business relationship
  2. Risk based
    1. enhanced DD
    2. Simplified DD
Terrorist Financing v Money Laundering
1. Similarities
  1. Destination of funds is disguised
    1. same methods used to disguise
  2. Require assistance of financial sector
  3. Terrorist grps have links to criminal groups
  4. FATF guidance on both
  5. Criminal offences under 3rd Money Laundering Directive
2. Differences
  1. Money Laundering - crime already occurred
Definition - FSMA: "fraud, dishonesty, misconduct in, or misuse of information relating to a financial market or handling the proceeds of crime

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Financial Crime & Money Laundering

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	Created by her5000 over 10 years ago