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

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. Hillary Rosenberg
Counsel
Lewis Baach Kaufmann Middlemiss
New York

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
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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)
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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. Overview
Integration Optimization Model - Financial Crimes Compliance
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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.
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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?
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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.
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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.
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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
•
•
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Gifts &
Entertainment
3rd Party
Intermediaries
Transactions

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. 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
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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
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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
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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
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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
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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
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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
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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
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21. Compliance Program Requirements
• Training/Awareness Program
– Cross-Referential
– Driven by Risk Assessment
•
Enhanced, Specialized Training For Higher Risk Groups
– Documentation and Tracking
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22. Compliance Program Requirements
• Continual Independent Testing
– Reported to senior management/board
• Updating Controls
• Gap Analysis
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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
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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
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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
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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
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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
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28. Questions
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