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ACFCS Webinar
February 19, 2014

AML Meets ABC:
Leveraging AML Tools for
Strong Anti-Bribery and Corruption
Programs
Prese...
Hillary Rosenberg
Counsel
Lewis Baach Kaufmann Middlemiss
New York
Objectives
• Convergence: Integration & Optimization of
Operations, Systems, and Structures
• ABC vs. AML Similarities and...
Emphasis on Anti-Corruption
“As we’ve all seen – and as President Obama has said – “[t]he struggle against corruption is
o...
Emphasis on Anti-Corruption
•
•

2013: 8 SEC and 19 DOJ Enforcement Actions
92 Pending Corporate Investigations as of Janu...
Overview
Integration Optimization Model - Financial Crimes Compliance

6
General Definitions
• Corruption/Bribery: The
giving, offering, promising, soliciting of anything
of value, to a foreign o...
• AML Risk

AML v. ABC Risk in a
Financial Institution

– Bad actor clients will use the bank to launder illicit
funds
• W...
Examples - Corruption
• Company A needs to obtain a license to mine gold in an African
country.
– Only one license is avai...
Examples – Money Laundering
• Cash proceeds from drug trafficking are used to purchase chips at a
casino.
– Money laundere...
AML v. ABC Risk in a
Financial Institution
•

3rd
Party/Client

•
•

Account
Opening
Transaction
Monitoring
SAR Reporting
...
Law & Order
Legislation:
• The Foreign Corrupt Practices Act (FCPA)
• Bank Secrecy Act (BSA)
• Patriot Act
• Sanctions Reg...
Convergence
Integration & Optimization of Operations, Systems, & Structures
- Same Goal: Identify and Mitigate Risk
- Leve...
Key Overlapping Risk Factors
1. Geographic Risk
2. Industry/Customer Risk
–

E.g. Extractive Industry, Arms &
Defense, Tel...
Compliance Program Requirements
Basic Requirements – 4 pillars:
1. Governance
2. Risk Based Policies and Procedures
–
–
–
...
Compliance Program Requirements
• Governance
– High level commitment; Individual(s) responsible for oversight and
accounta...
Compliance Program Requirements
• Risk Assessment
– One Assessment, One Time, One Team, One
Comprehensive Analysis
– Colla...
Compliance Program Requirements
• Due diligence
– One Questionnaire
– Information Sharing
– Technology Expansion and Repur...
Compliance Program Requirements
• Monitoring
– Who is Monitored?
• Clients vs. Employees/Third Parties

– What is Monitore...
Compliance Program Requirements
• Confidential reporting, internal
investigations, and disciplinary measures
– Centralized...
Compliance Program Requirements
• Training/Awareness Program
– Cross-Referential
– Driven by Risk Assessment
•

Enhanced, ...
Compliance Program Requirements
• Continual Independent Testing
– Reported to senior management/board

• Updating Controls...
Third Party Relationships
• Managing Third-Party Relationships is Critical
•
•
•
•
•
•

Intermediaries/Finders/Agents
Join...
Third Party Controls
•
•
•
•
•
•
•

•
•
•

“Third-Party” Plan
Who and Why this Third Party
Third Party’s Risk Management C...
AML & ABC Shared Red Flags
• Lack of cooperation or hesitancy in providing answers
• Lack of compelling business rationale...
AML & ABC Shared Red Flags
•

Use of or payments to offshore accounts

•

Sloppy book keeping and poor financial controls
...
Challenges
• “Big Data”
• Data Quality
• Aggregation of Data and Alerts
• Communication Between & Integration of Technolog...
Questions

28
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AML Meets ABC Webinar Deck 2-19-14

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Slide deck used in webinar on leveraging AML controls for anti-bribery and corruption compliance. Presented by ACFCS and Hillary Rosenberg.

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AML Meets ABC Webinar Deck 2-19-14

  1. 1. ACFCS Webinar February 19, 2014 AML Meets ABC: Leveraging AML Tools for Strong Anti-Bribery and Corruption Programs Presented by Hillary Rosenberg Counsel, Lewis Baach Kaufmann Middlemiss 1
  2. 2. Hillary Rosenberg Counsel Lewis Baach Kaufmann Middlemiss New York
  3. 3. Objectives • Convergence: Integration & Optimization of Operations, Systems, and Structures • ABC vs. AML Similarities and Differences • Leveraging and Expanding AML Controls for ABC Compliance • Growing importance of third party due diligence for both AML and ABC 3
  4. 4. Emphasis on Anti-Corruption “As we’ve all seen – and as President Obama has said – “[t]he struggle against corruption is one of the great struggles of our time.” Fortunately [...] corruption is no longer widely seen as an accepted cost of doing business. It is no longer tolerated as an unavoidable aspect of government. On the contrary – it is now generally understood that the consequences of corruption are devastating – eroding trust in public and private institutions, undermining confidence in the fairness of free and open markets, siphoning precious resources at a time when they could hardly be more scarce, and all too often breeding contempt for the rule of law [...] This is why, as Attorney General, I’ve consistently worked to ensure that anticorruption remains a top priority for my colleagues at every level of the United States Department of Justice – within as well as beyond our borders.” – Attorney General Eric Holder at the Arab Forum on Asset Recovery in Morocco (Oct. 28, 2013) I am acutely aware that we have many urgent law enforcement priorities – fighting child exploitation, stemming the flow of narcotics from South America and elsewhere, stopping gang violence. I am here to tell you that fighting global corruption is just as urgent, and with the momentum of many countries behind us, now is the time to redouble our anti-corruption efforts. – Former Deputy Attorney General, Lanny Breuer, ACI Conferences on the Foreign Corruption Practices Act (Nov. 16, 2012) 4
  5. 5. Emphasis on Anti-Corruption • • 2013: 8 SEC and 19 DOJ Enforcement Actions 92 Pending Corporate Investigations as of January 2014 (FCPA Blog) Top Ten FCPA Monetary Settlements (corporations) Siemens (2008) KBR/Haliburton (2009)* BAE Systems (2010)* Total S.A. (2013)* ENI/Snamprogetti (2010)* Snamprogenti Netherlands BV (2010)* Settlements (in millions) Technip (2010)* JGC Corp. (2011)* Daimler AG (2010) Weatherford (2013)* Alcatel-Lucent (2010) 0 100 200 300 400 5 500 600 700 800 900
  6. 6. Overview Integration Optimization Model - Financial Crimes Compliance 6
  7. 7. General Definitions • Corruption/Bribery: The giving, offering, promising, soliciting of anything of value, to a foreign official, with the intent to improperly influence that official in order to obtain or retain business. • Money Laundering: The process by which criminals disguise the original source of the proceeds of criminal conduct by making such proceeds appear to have derived from a legitimate source. 7
  8. 8. • AML Risk AML v. ABC Risk in a Financial Institution – Bad actor clients will use the bank to launder illicit funds • Where did the money come from? • ABC Risk – Bad actor employees/agents/other third party’s under the bank’s control will engage in bribery • Where is the money going? 8
  9. 9. Examples - Corruption • Company A needs to obtain a license to mine gold in an African country. – Only one license is available – Other companies are seeking to obtain the license – To secure the license, employees at Company A pay for the deputy minister of mining in the African country to fly to NY with his wife, stay at expensive hotels, eat at 5 star restaurants, and receive Broadway tickets. • Alternatively, Company A hires a third party agent to secure the mining license on Company A’s behalf. The deputy minister informs the third party agent that if $100K is wired into his personal bank account, he can guarantee Company A will receive the license. The agent wires $100K into the minister’s account. 9
  10. 10. Examples – Money Laundering • Cash proceeds from drug trafficking are used to purchase chips at a casino. – Money launderer gambles for a while, cashes in the chips, and receives a check payment – Check is deposited into the bank – Cash is later withdrawn to purchase consumer goods • The deputy minister of mining [in the corruption example] deposits the $100K from Company A’s third party agent into his local bank account. He then transfers the $100K into his son’s account at a U.S. financial institution. The son, who lives in the U.S., then uses the $100K to purchase a fancy sports car. 10
  11. 11. AML v. ABC Risk in a Financial Institution • 3rd Party/Client • • Account Opening Transaction Monitoring SAR Reporting AML Client’s Illicit Funds Flow Through the FI Financial Institution (FI) ABC FI’s Funds Used Illicitly to Bribe • 3rd Party/Client • • 11 Gifts & Entertainment 3rd Party Intermediaries Transactions
  12. 12. Law & Order Legislation: • The Foreign Corrupt Practices Act (FCPA) • Bank Secrecy Act (BSA) • Patriot Act • Sanctions Regimes & SDN List Enforceable by: • Department of Justice • Securities and Exchange Commission • Treasury Department (including OCC, the Fed, OFAC, FinCen) • State and Local Prosecutors • SROs, like FINRA
  13. 13. Convergence Integration & Optimization of Operations, Systems, & Structures - Same Goal: Identify and Mitigate Risk - Leverage and Expand Existing Infrastructure - Financial and Human Resource Efficiency - Unified Approach - Increased Sharing of Information - Greater Understanding of Risk - Greater Consistency in Responding to Risk - Overall Increased Awareness, compliance and business 13
  14. 14. Key Overlapping Risk Factors 1. Geographic Risk 2. Industry/Customer Risk – E.g. Extractive Industry, Arms & Defense, Telecom, Construction, Public Works 3. Nexus with Government Officials/PEPs 4. Reputation 5. Third Party Involvement 14
  15. 15. Compliance Program Requirements Basic Requirements – 4 pillars: 1. Governance 2. Risk Based Policies and Procedures – – – – – – clear policy/code of conduct, stand alone or integrated commitment from senior management risk assessment due diligence monitoring confidential reporting, internal investigations, disciplinary measures 3. Training/Awareness program 4. Independent Testing and Updating of Controls 15
  16. 16. Compliance Program Requirements • Governance – High level commitment; Individual(s) responsible for oversight and accountability • Independence • Access to the board • Risk Control/Rep Risk – – – – Management Information (MI) Front-office engagement Proactive Attitude and Willingness to “Look Back” AML and ABC separate compliance groups? • • • • • • Resource Sharing Uniformity of Compliance Plan & Program Structure Information Sharing Overall Awareness Cross Training Priorities 16
  17. 17. Compliance Program Requirements • Risk Assessment – One Assessment, One Time, One Team, One Comprehensive Analysis – Collaborative engagement with front-line business personnel – Senior management sign-off and review – Sufficient engagement at board-level – Results Reported to Lines of Business 17
  18. 18. Compliance Program Requirements • Due diligence – One Questionnaire – Information Sharing – Technology Expansion and Repurposing • Negative News • Government Official/PEPs involvement & control – OFAC/PEP/GO lists – Client Databases • Contractual Representations and Warranties – Legal Team Leverage – Indemnification & Termination 18
  19. 19. Compliance Program Requirements • Monitoring – Who is Monitored? • Clients vs. Employees/Third Parties – What is Monitored? • Client Transactions vs. Employee/Bank Transactions with Third Parties (Payments, G&E, etc.) – Expand Existing Use of Alerts and Other AML Systems • Red Flags • Typologies 19
  20. 20. Compliance Program Requirements • Confidential reporting, internal investigations, and disciplinary measures – Centralized, specialized, aggregated investigative function – Policy Violation Accountability and Tracking – SAR Filings  not just for AML 20
  21. 21. Compliance Program Requirements • Training/Awareness Program – Cross-Referential – Driven by Risk Assessment • Enhanced, Specialized Training For Higher Risk Groups – Documentation and Tracking 21
  22. 22. Compliance Program Requirements • Continual Independent Testing – Reported to senior management/board • Updating Controls • Gap Analysis 22
  23. 23. Third Party Relationships • Managing Third-Party Relationships is Critical • • • • • • Intermediaries/Finders/Agents Joint Ventures Subsidiaries Distributors Third Party Providers & Sub-Contractors Other Business Partners • Existing and Prospective Third Party Risk 23
  24. 24. Third Party Controls • • • • • • • • • • “Third-Party” Plan Who and Why this Third Party Third Party’s Risk Management Controls Contractual Terms – Reps, Warranties and Indemnifications Pay Commensurate with Work Performed • No discretionary bonuses or success fees Pre-Engagement Training On-Going Monitoring and Oversight • Periodic Due Diligence Refresh • Training • Audit rights • Annual Compliance Certifications Documentation Higher Level Sign Off for Higher Risk Parties Involvement of Reputational Risk Committee 24
  25. 25. AML & ABC Shared Red Flags • Lack of cooperation or hesitancy in providing answers • Lack of compelling business rationale • Use of third party to perform tasks that require no special knowledge or skills • Activity inconsistent with stated purpose, including abnormal compensation arrangements • Third party’s use of multiple shell companies to conduct transactions 25
  26. 26. AML & ABC Shared Red Flags • Use of or payments to offshore accounts • Sloppy book keeping and poor financial controls • Lack of transparency & documentation • “Informal” arrangements • Excessive use of cash; payments in cash • Close ties to or business associations with government officials 26
  27. 27. Challenges • “Big Data” • Data Quality • Aggregation of Data and Alerts • Communication Between & Integration of Technology Systems • Expanding Existing Technology Uses • Status Quo • Next Steps: Human Trafficking Compliance 27
  28. 28. Questions 28

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