8. FATF (Financial Action Task Force)
Founded in 1989 by the G7
40 + 9 recommendations = international norms
8
9. Wolfsberg Questionnaire
The Wolfsberg questionnaire related to the prevention of money
laundering and the financing of terrorism – level playing field
(October 2000 / revised in June 2012)
9
10. 1. Policy, guidelines and procedures
2. Risk analysis
3. Customer knowledge, Due diligence
4. Transactions analysis
5. Transactions monitoring
6. Training re: KYC/AML
Wolfsberg Questionnaire
10
17. 1. A brief reminder of the laws
2. The 2015/849 Directive
3. Cases
4. Reputational risk management
The structure of the presentation
17
18. •1993
The professionals of the
financial sector (PFS)
•2012
(PFS)
Notaries
Casinos
External auditors
Lawyers
Merchants of luxury
goods
Consultants
Accountants
UCITS
The laws in Luxembourg
18
19. •1993
1.The obligation of due
diligence related to the
customers
2.Obligation of an
adequate internal
organisation
3.Obligation to cooperate
with the authorities
•2012
1.Risk based approach
Know your customer
Verification
Origin of the funds
Transaction analysis
Coherence between
transaction and
customer profile
Actions in case of
suspicion
2.Compliance function
(2004)
3.Cooperation
The laws in Luxembourg
19
20. Image – risk of loss of reputation
The reputation of a financial institution - the
same goes for a country - is its most important
asset.
Legal
Money Laundering is a criminal offence in many
countries, punished by imprisonment and fines.
Money Laundering is considered a severe
regulatory breach in many countries
Economical:
Earnings shortfall
Related risks
22. • Money laundering
entails a predicate
offence of which
revenues can lead to
the offence of money
laundering
The offence
22
23. The predicate crimes:
• A) Drug trade
• B) Terrorism, including its financing
– Criminal organisations
– Trade of people and traffic of illegal migrants
– Sexual exploitation (children)
– Misuse of subventions, indemnities or allocation
of funds
– Corruption
The predicate crimes
23
24. The predicate crimes:
• B)
– Trade of arms and ammunitions
– Forgery, counterfeit money, disclosure of
business secrets
– Fraudulent bankruptcies
– Breach of trust, exploitation of minor of age,
– Swindle
– Illicit traffic of stolen goods and properties
The predicate crimes
24
25. • B)
– Imitation and the hacking of products
– Crimes and offences against the environment
– Murders and infliction of grave physical wounds
– Kidnapping
– Smuggling
– Extortion
– Piracy
– Insider trading and market manipulation
The predicate crimes
25
26. • B)
– Theft of substances of human origin
– Trade of human beings
– Malpractices on copyright
– Environmental damage
– Damage to buildings of historical value
– Water pollution
– Waste mismanagement
– Non respect of customs and excises
The predicate crimes
26
27. • B)
– Any other crime or malpractice sanctioned
with an imprisonment sentence of a minimum
of six months or more
– for example: the forgery of balance sheets,
falsification of statements
• C)
– Misuse of corporate assets
The predicate crimes
27
28. The material element
• Money laundering entails an act or an object that
provides an economic advantage, as a result of a
predicate crime.
The material component
28
29. The intentional element
• The intentional and deliberate element is an
essential feature of the money laundering
process.
The intentional component
29
30. The concept of the prevention of the financing of
terrorism is different from the AML concept as licit money
may be at the origin of the criminal activity
In reality it boils down to name checking
30
33. The predicate offence
Numerous offences are no longer linked to
serious criminal activities but are interwoven
with the economic activities !
33
34. The obligation to co-operate with the authorities
1. General obligation to co-operate with authorities
in charge of the enforcement of the law (art. 40
law 1993)
2. Obligation to co-operate with the responsible
Luxemburg authority
1. Obligation to provide information to the prosecutor on
his demand
2. Obligation to inform the prosecutor on the PFS’s
own initiative of any suspicion or certainty
34
35. • Indices & suspicion (different per profession)
• A suspicion / intuition as a result of:
The behaviour of an individual
The evolution of the business relationship
The origin of the funds
The nature of the operation
The ultimate goal of the operation
The specificities related to an operation
The unusual
The obligation to co-operate with the
authorities
35
37. • The business relationship starts before the opening
of an account or the signature of a contract
• Does not need to be translated into a contractual
relationship, the identification of a counter party
is to be assimilated to a relationship in this context
• A business relationship needs to be in line with well
defined objectives for both the bank and the
customer.
The definition of a business relationship
37
38. The business relationship: consequences
• Requires a good understanding of the customer’s
business very early on.
• Providing a service already qualifies for the group’s
definition
The definition of a business relationship
38
39. In this context a customer means
• The individual who opened an account or
signed and account in his name or on behalf of
an organisation but also all the co-signatories
or individuals holding a mandate related to the
account
The definition of a business relationship
39
40. The concept
1. Identification & verification
2. The origin of the funds
3. The goals of the business relationship
4. The ultimate beneficiary
5. Documentation
A risk based approach
A risk based approach
40
41. Customer
KYC
Goals of the relationship
A risk based approach
41
Risk assessment
Sen./Non-sensitive
Enhanced Due Diligence
Simplified Due Diligence
Standard Due Diligence
43. The obligation to know the customer
Customer Identification
Beneficial Owner / Economical beneficiary:
1°Is identified through a “declaration of beneficial
ownership” on which the client declares whether he is
acting or not on its own behalf.
2°If the Beneficial owner is different form the client, the
latter will have to sign the declaration and provide its
identification documentation + mandate holders.
3°In the case of a company, the main shareholders will
have to be identified, even more so the “meaningful
mind”.
43
44. « Know your customer »
Client acceptance policy
44
47. LONG TERM
SHORT TERM
NET WORTH
Assets – Liabilities to
third parties
LONG TERM
LIABILITIES
SHORT TERM
LIABILITIES
Deductive segmentation
47
48. • Pascale, owner of a
dealership of a well
known car brand. The
company sells about 450
cars per year.
• She would like to make
an investment with a
portion of the retained
earnings of the company.
Deductive segmentation
48
49. The balance sheet
EURO
Start period
End period
01/01/N-1
31/12/N-1
01/01/N
31/12/N
ASSETS
Fixed (net)
Stocks
Debtors
Cash
399
1.516
890
975
10,6 %
40,1 %
23,5 %
25,8 %
397
1.364
1.136
561
13,4 %
46,1 %
38,4 %
2,1 %
TOTAL ASSETS 3.780 100 % 3.458 100 %
LIABILITIES
Equity & Reserves
LT Debt
ST Debt
ST Bank Debt
592
660
2.528
0
15,7 %
17,5 %
66,9 %
0 %
673
441
2,166
178
22,8 %
14,9 %
56,3 %
6,0 %
TOTAL LIABILITIES 3.780 100 % 3.458 100 %
49
51. 1. A brief reminder of the laws
2. The 2015/849 Directive
3. Cases
4. Reputational risk management
The structure of the presentation
51
52. • Points of attention
– Aim = Integrity, stability and reputation of the
financial sector
– Complete integration of the FATF
recommendations
– 10,000 Euro limit for cash transactions
– AML law applicable to rental offices
The 2015/849 Directive
52
53. • Points of attention
– Predicate crimes include fiscal fraud subject to
penal sanctions with a minimum of six months
– Moral persons the 25% benchmark is only
indicative
– Improved access to FIU data base
– 2,000 Euro for games
The 2015/849 Directive
53
54. • Points of attention
– Classification of countries , esp. non cooperative
– PEP requires a special procedure, not exclusion
– Responsibility in case of outsourcing
The 2015/849 Directive
54
55. • Points of attention
– Execution of transactions should be possible before mentioning
– No commercial use of information
– Honourability of persons in exchange bureaus, service providers,
trusts
– FIU.NET European platform
The 2015/849 Directive
55
56. • Points of attention
– Effective administrative sanctions
– Harmonisation of deposit insurance schemes
– Exchange of information on persons subject to penal sanctions
– More detailed definitions
– Introduction of various limits (art.11 & 12)
– Insurance linked to investments – economic beneficiary
– Effective beneficiary
The 2015/849 Directive
56
57. 1. A brief reminder of the laws
2. The 2015/849 Directive
3. Cases
4. Reputational risk management
The structure of the presentation
57
58. A CASE from the FIU – The facts (1/3)
• Existing business relationship
– Opening of a numbered account in order to
transfer money from an account held by a
company with another bank in Luxemburg.
– The spouse of the account holder, pretends that
her husband has disappeared. Therefore, a
transfer is required to make sure money is in a
safe place.
58
59. The facts (2/3)
– A new account is opened with an offshore
company as account holder.
– The money is transferred from one account to
the other by means of transfers and of cash
withdrawals.
59
60. The facts (3/3)
– Subsequently, the money was transferred to a
third bank in Luxembourg held by an offshore
company.
– A few weeks later, it became clear that the
husband had been arrested abroad and convicted
for fraud related to subventions of a foreign state.
60
61. Analysis
• The customer’s assets are the result of a crime, i.e.
the misuse of subventions (= a predicate crime of
ML), and fake invoices (= a predicate crime of ML)
• Holding stolen assets: possessing goods
whereby one knows the fact they were stolen
61
62. •The bankers’ responsibilities:
– Absence of due diligence related to the
customer’s activities, despite the fact he was
classified by the bank as a customer with a risk
profile.
– Absence of verification of the origin of the funds
62
63. •The bankers’ responsibilities:
– Cooperation in allowing the opening of accounts
for the sole purpose of transfers between
companies, incorporated with the sole purpose
to allow for these transfers, i.e. absence of an
underlying economic transaction
– The unusual and secret nature of the
transactions, aiming at preventing the clear
identification of the origin of the funds, and this
despite the clear objection of the bank’s
operations 'officer.
63
64. •The lawyer’s responsibilities
– The set up of a sophisticated structure with off-
shore screen companies in the British Virgin
Islands (companies created for various purposes
whereas there is no underlying economic activity)
– Various accounts opened with several financial
institutions in Luxembourg of which the economic
beneficiaries were different people.
64
65. •The lawyer’s responsibilities (continued)
– Providing assistance, in his capacity as a
business lawyer, to the author of a fraud, the
assistance with the opening of various accounts
and the transfer of the moneys ;
– The unusual and secret nature of these
operations.
65
66. Sanctions
•The bankers (the account manager as well as his
supervisor):
– Cooperation to disguise the origin of the
funds
– Use of false documents
– An administrative sanction due to the fact
the transactions were mentioned to the
FIU far too late after the facts, whereas
it was clear, that the transactions were
due for immediate reporting as suspicious.
66
67. WHY? WHY? WHY?
An investor was introduced by a well known
distributor in Austria.
• The latter is subject to the same professional
obligations as we are in Luxembourg.
• The investor is a resident in a Baltic state.
• He has a liberal profession and invests in shares
of a UCIT.
• The « application form » has been completed.
67
68. WHY? WHY? WHY?
• The investors transfers 100.000 € at the
occasion of the subscription via the agent, in
2012
• Subsequently, he transfers 500.000 € to be
invested in shares
• Requests the transfer of the securities to an
institution in Liechtenstein
• New subscription of 850.000 €
• Follows two subscriptions, one of 89.879 €
and one in the tune of 42.800 €
68
69. WHY? WHY? WHY?
• New demand to transfer 450.000 € to Liechtenstein
• Thanks to the vigilance of a compliance officer, who
noticed the sequence of transfers and above all the
transfers to Liechtenstein, the case was analysed.
• Why these transfers? Why through Luxembourg?
What might be the origin of funds be?
• A request for additional information was sent to the
intermediary. No reaction. A request was sent to the
investor (as can be done on the ground of the legal
documentation). No reaction.
• Reported to the Prosecutor with a copy to the CSSF
69
70. Conclusion
•In the field of analysis three
components are essential:
1. The people
2. The documents
3. The story
70
79. The 2013 report of the CRF mentions following
points of attention:
- Information contained in press releases related
to penal issues or legal cases abroad,
- Intra group information related to suspicious
transactions
- fraud, use of fake documents and counter fake
money
79
80. The 2013 report of the CRF mention(continued)
• Operations not in line with customers’
profile, without economic justification, with
a lack of transparency
• Fraudulent transactions by means of
electronic trade
• Unusual customer behaviour (for instance,
lack of cooperation, lack of credibility
related to presented documents, false
statements
80
81. Cash
• Remember the 10,000
European Directive on trans-
border transportation of
cash
• The limit of cash for
commercial transactions in
certain countries – not yet the
case in Luxembourg
81
82. A situation may be
quite different
from the one
perceived at first
glance!
KYC/AML
82
83. 1. A brief reminder of the laws
2. The 2015/849 Directive
3. Cases
4. Reputational risk management
The structure of the presentation
83
84. The major asset of a financial organisation is
its REPUTATION
Reputation: management & risks
84
85. • « The risk of loss of reputation, means the
decrease or loss of confidence by the stakeholders,
i.e. customers, suppliers, counterparties,
shareholders, regulators or any other third party, in
the organisation, putting thus into question the long
term survival of the organisation…»
Reputation: management & risks
85
86. 0
2000
4000
6000
8000
10000
1992 1994 1996 1998 2000 2002
The consequences of Arthur Andersen’s loss of
reputation (auditors of ENRON)
Reputation: management & risks
Revenues in
‘000,000
86
87. What objectives need to be reached in order to be
recognised as a great BRAND with a great
REPUTATION?
Reputation: management & risks
87
88. A culture of MOTIVATION
Reputation: management & risks
88
89. A Culture of listening
Reputation: management & risks
89
90. The PC is the result of a
constant process of questions
related to performance
improvement and a search for
excellence:
BETTER PERFORMANCE
FASTER
CHEAPER
SMALLER
MORE SIMPLE
A Culture of excellence
Reputation: management & risks
90
91. A Culture of trust
Reputation: management & risks
91
93. Companies with a strong brand
have a DNA
It is a way of doing things that
differentiates them from the
others.
(Acide DésoxyriboNucléique)
Reputation: management & risks
93
95. • Lloyds Banking Group PLC settled to pay
$ 350,000,000 in 2009
• Crédit Suisse Group AG $ 536,000,000 the
same year.
• Barclays PLC paid $ 298,000,000 in 2010
• ABN Amro: $ 500,000,000
• JPMorgan Chase paid two years
$ 88,000,000
Reputation: management & risks
95
96. What should I remember
from this presentation?.
Conclusions
96
97. Never transmit information directly to the authorities. It
is the responsibility of compliance.
KYC & a strict follow up on transactions are
certainly the most appropriate tools to protect the
organisation.
In case of suspicion, report it immediately to
compliance after a meeting with the
hierarchy.
Conclusions
97
98. • In the final analysis,
prevention of money
laundering is a matter of your
personal reputation, the
reputation of the organisation
you are working for and the
financial centre.
• Films to see ENRON, INSIDE JOB,
ROGUE TRADER,TOO BIG TO
FAIL, MARGIN CALL
Conclusion
98