Money Laundering AND KYC
1. Firm Policy
It is the policy of CASHMAAL to prohibit and actively prevent money laundering and any activity that facilitates money laundering or the funding of terrorist or criminal activities by complying with all applicable requirements under the Money Laundering and Terrorism (Prevention) Act, Money Laundering and Terrorism (Prevention) Act Guidelines, Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) Guidelines , FATF recommendations and its implementing regulations.
Generally speaking, the money laundering process consists of three “stages”:
Placement: The introduction of illegally obtained monies or other valuables into financial or nonfinancial institutions.
Layering: Separating the proceeds of criminal activity from their source through the use of layers of complex financial transactions. These layers are designed to hamper the audit trail, disguise the origin of funds and provide anonymity.
Integration: Placing the laundered proceeds back into the economy in such a way that they reenter the financial system as apparently legitimate funds.
These “stages” are not static and overlap broadly. Financial institutions may be misused at any point in the money laundering process.
CASHMAAL is committed to the highest standards of anti-money laundering (AML) compliance and requires management and employees to adhere to these standards to prevent use of our products and services for money laundering purposes. CASHMAAL will examine its Anti Money Laundering strategies, goals and objectives on an ongoing basis and maintain an effective Anti-Money Laundering program for the Company’s business that reflects the best practices for a diversified, global financial company. Adherence to the CASHMAAL Anti-Money Laundering Program is the responsibility of all employees. The program includes client screening and monitoring requirements, “know your customer” policies (including the requirement to establish the identity of beneficial owners), Embargo policies, record keeping requirements, the reporting of suspicious circumstances in accordance with relevant laws, and training.
2. AML Compliance Person
CASHMAAL Limited has designated its Compliance Officer (CO) as its Anti-Money Laundering Program Compliance Person (AML Compliance Person), with full responsibility for the firm’s AML program. CO has a working knowledge of compliance requirements and its implementing regulations and is qualified by experience, knowledge and training. The duties of the AML Compliance Person will include monitoring the firm’s compliance with AML obligations, overseeing communication and training for employees. The AML Compliance Person will also ensure that the firm keeps and maintains all of the required AML records and will ensure that Suspicious transaction reports (STR) are filed with the Financial Intelligence Unit (FIU) when appropriate. The AML Compliance Person is vested with full responsibility and authority to enforce the firm’s AML program.
The firm will provide the Authorities with contact information for the AML Compliance Person, including: (1) name; (2) title; (3) mailing address; (4) email address; (5) telephone number; and (6) facsimile number. The firm will promptly notify the Authority of any change in this information and will review, and if necessary update, this information within 14 business days after the end of each calendar year. The annual review of FCS information will be conducted by CO and will be completed with all necessary updates being provided no later than 17 business days following the end of each calendar year. In addition, if there is any change to the information, CO will update the information promptly, but in any event not later than 30 days following the change.
3. Overview of potential Risks in Securities Markets
The wholesale markets comprise exchanges and dealing arrangements that facilitate the trading (buying and selling) of wholesale investment products and hedging instruments (“traded products”) including but not limited to:
- Securities: equities fixed income warrants and investment funds (Exchange Traded Funds — ETFs);
- Money market instruments: foreign exchange interest rate products term deposits;
- Financial derivatives: options futures swaps and warrants;
- Commodities: physical commodities and commodity derivatives* including exotic derivatives (e.g. weather derivatives); and
- Structured products (e.g. equity linked notes).
Traded products confer ‘rights’ or ‘obligations’; either between an investor and the issuer or between parties engaged in the trading of the instruments. Traded product instruments can be bought sold* borrowed or lent; as such they facilitate the transfer of property or assets and usually represent an intrinsic value which may be attractive to money launderers. Traded products can be bought or sold either on an exchange (“exchange traded products”) or between parties ‘over-the- counter’ (OTC).
Some traded products or instruments such as equities are issued in a ‘primary’ market and are traded in a ‘secondary’ market allowing investors in the primary market to realise their investment. Other traded products are created to enable investors to manage assets and liabilities exchange risks and exposure to particular assets commodities or securities.
Exchange-traded products are financial products that are traded on exchanges which have standardised terms (e.g. amounts delivery dates and terms) and settlement procedures and transparent pricing. Firms may deal in exchange-traded products as principal or as agent for their customers. In the financial and commodity derivatives markets firms will typically deal as principal and on certain exchanges may only do so when dealing as a clearing member in relation to their customers’ transactions. In the securities markets firms can deal as either principal (for their own account) or as agent for the firms’ underlying customers.
OTC products are bilateral agreements between two parties or multilateral depending on the settlement process that are not traded or executed on an exchange. The terms of the agreement are tailored to meet the needs of the parties* i.e. there are not necessarily standardised terms contract sizes or delivery dates. Where firms deal OTC they usually deal as principal. Some OTC dealing is facilitated by securities companies and while settlement is normally effected directly between the parties, it is becoming increasingly common for exchanges and clearing houses to provide OTC clearing facilities.
The products set out above are, largely, securities focused, but equally apply across the wholesale markets. The following sections look at particular products associated with other sub-sectors within the wholesale markets.
To the extent that firms dealing in foreign exchange (FX) in the wholesale market tend to be regulated financial institutions and large corporates, the money laundering risk may be viewed as generally lower. However, this risk may be increased by the nature of the customer, or where, for example:
- high risk clients (including PEPs) undertake speculative trading; and/or
- requests are made for payments to be made to third parties: for example, customers, particularly corporates, that need to make FX payments to suppliers and overseas affiliates.
FX (as well as many other traded products) is commonly traded on electronic trading systems. Such systems may be set up by securities companies or independent providers. When a firm executes a transaction on these systems the counterparty’s identity is not usually known until the transaction is executed. The counterparty could be any one of the members who have signed up to the system. Firms should examine the admission policy of the platform before signing up to the system to ensure, that the platform only admits regulated financial institutions as members, or that the rules of the electronic trading system mean that all members are subject to satisfactory AML checks.
Financial products are utilised for a wide range of reasons, and market participants can be located anywhere within the world; firms will need to consider these issues when developing an appropriate risk-based approach. The nature, volume and frequency of trading, and whether these make sense in the context of the customer’s and firm’s corporate and financial status, will be key relevant factors that a firm will need to consider when developing an appropriate approach.
Structured products are financial instruments specifically constructed to suit the needs of a particular customer or a group of customers. They are generally more complex than securities and are traded predominantly OTC, although some structured notes are also listed on exchanges (usually the Luxembourg or Irish Stock Exchanges).
There is a wide range of users of structured products. Typically they will include:
- Private banks,
- Government agencies,
- Financial institutions
Transactions are normally undertaken on a principal basis between the provider (normally a financial institution) and the customer. Some structured products are also sold through banks and third party distributors.
Because of the sometimes complex pricing structures of the products they may generally be more difficult to value than cash securities. The lack of transparency may make it easier for money launderers for example to disguise the true value of their investments.
The complexity of the structure can also obscure the actual cash flows in the transaction enabling customers to carry out circular transactions.
The cash movements associated with structured products may present an increased money laundering risk although this risk may be mitigated by the nature and status of the customer and the depth of the relationship the customer has with the firm. For example if the use of structured products is part of a wider business relationship and is compatible with other activity between the firm and the customer the risk may be reduced.
Traded products are usually traded on regulated markets or between regulated parties or with regulated parties involved acting as agent or principal.
However the characteristics of products that facilitate the rapid and sometimes opaque transfer of ownership the ability to change the nature of an asset and market mechanisms that potentially extend the audit trail together with a diverse international customer base have specific money laundering risks that need to be addressed and managed appropriately.
One of the most significant risks associated with the wholesale markets and traded products is where a transaction involves payment in cash and/or third party payments.
Firms dealing in traded products in the wholesale markets are not as likely to be used in the placement stage of money laundering as for example deposit takers. That said given the global flows of funds in the wholesale financial markets it is important to recognise that although customers may remit funds from credit institutions a firm could still be targeted with respect to the layering and integration stages of money laundering. Traded products might for example be used as a means of changing assets rapidly into different form possibly using multiple securities companies to disguise total wealth and ultimate origin of the funds or assets or as savings and investment vehicles for money launderers and other criminals.
Firms dealing in traded products in the wholesale markets do not generally accept cash deposits or provide personal accounts that facilitate money transmission and/or third party funding that is not related to specific underlying investment transactions. In the money markets however customers may request payments to third parties (e.g. FX payments to suppliers). There may also be third party funding of the transactions in the commodities markets. Also where a bank is lending funds to a customer to purchase a physical commodity and the customer hedges the risks associated with the transaction in the derivatives market through a securities company* the bank may guarantee the payment of margin to that securities company; this results in a flow of money between the securities company and bank on the customer’s behalf.
The extent to which certain products are subject to margin or option premium payment arrangements will affect the level of risk. The nature and form of any margin will need to be taken into account by the firm when identifying the customer and determining appropriate payment procedures.
OTC and exchange-based trading can also present very different money laundering risk profiles. Most exchanges are regulated transparent and cleared by a central counterparty and thus can largely be seen as carrying a lower generic money laundering risk. OTC business may generally be less well regulated and it is not possible to make the same generalisations concerning the money laundering risk as with exchange-traded products. When dealing in the OTC markets firms will therefore need to take a more considered and undertake more detailed assessment.
For example exchanges often impose specific requirements on position transfers which have the effect of reducing the level of money laundering risk. Exchanges also monitor prices of exchange traded securities and will frequently investigate pricing anomalies. These procedures will not apply in the OTC markets, where firms will need to consider the approach they would adopt in relation to any such requests in respect of customers dealing OTC.
The wholesale securities market includes private equity, corporate finance, wholesale markets, name passing securities companies in inter-professional markets and unregulated funds. The retail securities market includes wealth management, financial advisers, non-life providers of investment fund products, discretionary and advisory investment management and execution-only securities companies.
Retail Securities Markets
Overview of wealth management
Wealth management is the provision of banking and investment services in a closely managed relationship to high net worth clients who may be based in another country or may regularly travel between a number of countries. Such services will include bespoke product features tailored to a client’s particular needs and may be provided from a wide range of facilities available to the client including:
- current account banking
- high value transactions
- use of sophisticated products
- non-standard investment solutions
- business conducted across different jurisdictions
- off-shore and overseas companies, trusts or personal investment vehicles
Multiple and complex accounts — Clients often have many accounts in more than one jurisdiction, either within the same firm or group, or with different firms.
Cultures of confidentiality — Wealth management clients often seek reassurance that their need for confidential business will be conducted discreetly.
Concealment — The misuse of services such as offshore trusts and the availability of structures such as shell companies helps to maintain an element of secrecy about beneficial ownership of funds.
Countries with statutory banking secrecy — There is a culture of secrecy in certain jurisdictions, supported by local legislation, in which wealth management is available.
Movement of funds — The transmission of funds and other assets by private clients often involve high value transactions, requiring rapid transfers to be made across accounts in different countries and regions of the world.
The use of concentration accounts — i.e. multi-client pooled/omnibus type accounts - used to collect together funds from a variety of sources for onward transmission is seen as a potential major risk.
Credit — The extension of credit to clients who use their assets as collateral also poses a money laundering risk unless the lender is satisfied that the origin and source of the underlying asset is legitimate.
Commercial activity conducted through a personal account so as to deceive the banker.
Secured loans, where collateral is held in one jurisdiction and the loan is made from another, are common in wealth management. Such arrangements serve a legitimate business function and make possible certain transactions which may otherwise be unacceptable due to credit risk. Collateralised loans raise different legal issues depending on the jurisdiction of the loan. Foremost among these issues are the propriety and implications of guarantees from third parties (whose identity may not always be revealed) and other undisclosed security arrangements.
Overview of execution-only securities companies
Execution-only (ExO) securities companies carry out transactions in securities with regulated market counterparties as agent for individual customers. ExO transactions are carried out only on the instructions of the customer.
Money laundering risks in execution-only securities broking
Some ExO securities companies deal with high volumes of low value customers whereas others direct their services towards higher net worth customers and thus have fewer customers. Securities broking customers may adopt a variety of trading patterns; the firm is offering no advice and may have little or no knowledge of a particular customer's motives.
ExO customers are also free to spread their activities across a variety of securities companies for perfectly valid reasons and often do. Each securities company may therefore actually have little in terms of transaction history from which to identify unusual behaviour. Many firms provide ExO securities broking services on a non-face-to-face basis including via the internet.
In view of the above whilst securities broking might be regarded as being of lower risk compared to many financial products and services the risk is not as low as in providing investment management services to the same types of customer from similar jurisdictions.
The risk of money laundering arises from settlement in cash or from unusual trading or settlement patterns. Firms should seek to design systems to identify unusual dealing and settlement patterns.
Overview of bearer securities
Bearer securities available in certain jurisdictions represent a particularly useful instrument in the setting up of international money laundering schemes.
Securities instruments in bearer form consist of bearer bonds and bearer security certificates or “bearer shares”. As with registered securities both of these instruments are issued by a particular corporate entity in order to raise capital. The difference between registered securities and securities in bearer form among other things is the method of transfer. In the case of registered securities the instrument is issued to a particular individual and the “owner” is recorded in a register maintained by the issuing entity. In the case of securities in bearer form the instrument is issued; however the owner is not recorded in a register. When registered securities are transferred to a new owner the new owner must be recorded in order for the transfer to be valid. When bearer securities are transferred since there is no register of owners the transfer takes place by the physical handing over of the bond or share certificate.
Where registered securities are not in dematerialised form, transfer of title is normally effected by lodging with the registrar the securities together with a share transfer form, signed by the registered owner and purchaser, whereby a new share certificate, registered in the name of the new owner, will be issued. It is noted however, that where a share transfer is merely signed by the registered owner, but not by the new purchaser, this has the effect of transforming the registered share into a bearer share.
A number of countries have phased out the use of bearer shares and no longer permit corporate entities operating in their territories to issue such instruments. Nevertheless, as has been noted above, unless full dematerialisation of share certificates is introduced, blank share transfer can effectively transform registered shares into bearer shares.
Certain jurisdictions have rules that require ownership of a company to be declared when specified threshold percentages of ownership are reached, and some require bearer shares to be deposited in custodial or safekeeping accounts at financial institutions where anti- money laundering rules on customer identification would normally apply.
4. Preventive Measures
This section underlines that “Countries should ensure that Money Laundering and Terrorism (Prevention) Act do not inhibit implementation of the FATF Recommendations.
Financial institutions should be prohibited from keeping anonymous accounts or accounts in obviously fictitious names.
Financial institutions should be required to undertake customer due diligence (CDD) measures when:
(i) establishing business relations;
(ii) carrying out occasional transactions (i) above the applicable designated threshold (USD/EUR 15,000);
or (ii) that are wire transfers in the circumstances covered by the Interpretive Note to Recommendation 16;
(iii) there is a suspicion of money laundering or terrorist financing;
or (iv) the financial institution has doubts about the veracity or adequacy of previously obtained customer identification data. The principle that financial institutions should conduct CDD should be set out in law. Each country may determine how it imposes specific CDD obligations, either through law or enforceable means. The CDD measures to be taken are as follows:
(a) Identifying the customer and verifying that customer’s identity using reliable, independent source documents, data or information.
(b) Identifying the beneficial owner, and taking reasonable measures to verify the identity of the beneficial owner, such that the financial institution is satisfied that it knows who the beneficial owner is. For legal persons and arrangements this should include financial institutions understanding the ownership and control structure of the customer.
(c) Understanding and, as appropriate, obtaining information on the purpose and intended nature of the business relationship.
(d) Conducting ongoing due diligence on the business relationship and scrutiny of transactions undertaken throughout the course of that relationship to ensure that the transactions being conducted are consistent with the institution’s knowledge of the customer, their business and risk profile, including, where necessary, the source of funds.
(i) Above the applicable designated threshold (USD/EUR 15,000); or (ii) that are wire transfers in the circumstances covered by the Interpretive Note to Recommendation 16;
(iii) There is a suspicion of money laundering or terrorist financing; or (iv) the financial institution has doubts about the veracity or adequacy of previously obtained customer identification data. The principle that financial institutions should conduct CDD should be set out in law. Each country may determine how it imposes specific CDD obligations, either through law or enforceable means.
The CDD measures to be taken are as follows:
(a) Identifying the customer and verifying that customer’s identity using reliable, independent source documents, data or information.
(b) Identifying the beneficial owner, and taking reasonable measures to verify the identity of the beneficial owner, such that the financial institution is satisfied that it knows who the beneficial owner is. For legal persons and arrangements this should include financial institutions understanding the ownership Financial institutions should be required to apply each of the CDD measures under (a) to (d) above, but should determine the extent of such measures using a risk-based approach (RBA) in accordance with the Interpretive Notes to this Recommendation and to Recommendation 1. Financial institutions should be required to verify the identity of the customer and beneficial owner before or during the course of establishing a business relationship or conducting transactions for occasional customers. Countries may permit financial institutions to complete the verification as soon as reasonably practicable following the establishment of the relationship, where the money laundering and terrorist financing risks are effectively managed and where this is essential not to interrupt the normal conduct of business.
Where the financial institution is unable to comply with the applicable requirements under paragraphs (a) to (d) above (subject to appropriate modification of the extent of the measures on a risk-based approach), it should be required not to open the account, commence business relations or perform the transaction; or should be required to terminate the business relationship; and should consider making a suspicious transactions report in relation to the customer. These requirements should apply to all new customers, although financial institutions should also apply this recommendation to existing customers on the basis of materiality and risk, and should conduct due diligence on such existing relationships at appropriate times.
Financial institutions should be required to maintain, for at least seven years, all necessary records on transactions, both domestic and international, to enable them to comply swiftly with information requests from the competent authorities. Such records must be sufficient to permit reconstruction of individual transactions (including the amounts and types of currency involved, if any) so as to provide, if necessary, evidence for prosecution of criminal activity. Financial institutions should be required to keep all records obtained through CDD measures (e.g. copies or records of official identification documents like passports, identity cards, driving licences or similar documents), account files and business correspondence, including the results of any analysis undertaken (e.g. inquiries to establish the background and purpose of complex, unusual large transactions), for at least seven years after the business relationship is ended, or after the date of the occasional transaction. Financial institutions should be required by law to maintain records on transactions and information obtained through the CDD measures. The CDD information and the transaction records should be available to domestic competent authorities upon appropriate authority.
Financial institutions should be required to apply enhanced due diligence measures to business relationships and transactions with natural and legal persons, and financial institutions, from countries for which this is called for by the FATF. The type of enhanced due diligence measures applied should be effective and proportionate to the risks. Countries should be able to apply appropriate countermeasures when called upon to do so by the FATF. Countries should also be able to apply counter measures independently of any call by the FATF to do so. Such countermeasures should be effective and proportionate to the risks. The above mentioned measures can also be applied to our industry as per the section 22 of INTERNATIONAL STANDARDS ON COMBATING MONEY LAUNDERING AND THE FINANCING OF TERRORISM & PROLIFERATION, the FATF Recommendations (February 2012)
5. Checking the Office of Foreign Assets Control Listings
Before final approval of a client, and on an ongoing basis, CO will check to ensure that a customer does not appear on the SDN list or is not engaging in transactions that are prohibited by the economic sanctions and embargoes administered and enforced by OFAC. (See the OFAC Web site for the SDN list and listings of current sanctions and embargoes). Because the SDN list and listings of economic sanctions and embargoes are updated frequently, we will consult them on a regular basis and subscribe to receive any available updates when they occur. With respect to the SDN list, we may also access that list through various software programs to ensure speed and accuracy including FINRA’s OFAC Search Tool that screens names against the SDN list. CO will also review existing accounts against the SDN list and listings of current sanctions and embargoes when they are updated and [he or she] will document the review.
If we determine that a customer is on the SDN list or is engaging in transactions that are prohibited by the economic sanctions and embargoes administered and enforced by OFAC, we will reject the transaction and/or block the customer's assets and file a blocked assets and/or rejected transaction form with OFAC within 10 days. We will also call the OFAC Hotline at (800) 540-6322 immediately. Our review will include customer corporate documents,accounts, transactions involving customers (including activity that passes through the firm such as wires).
6. Customer Identification Program
In addition to the information we must collect under Anti-Money Laundering And Counter- Terrorism Financing Act No. 13 of 2014, Ministry of Finance; FINRA Rule 2010 (Standards of Commercial Honor and Principles of Trade) and Books and Records, we have established, documented and maintained a written Customer Identification Program (CIP). We will collect certain customer identification information from each customer who give us assets for management, utilize risk-based measures to verify the identity of each customer who opens an account; record customer identification information and the verification methods and results; provide the required adequate CIP notice to customers that we will seek identification information to verify their identities; and compare customer identification information with government-provided lists of suspected terrorists, once such lists have been issued by the government.
a. Required Customer Information
Prior to approving our services, CO will collect the following information for all customers, if applicable, for any person, entity or organization:
(1) the name;
(2) an address, which will be a residential or business street address (for an individual), an Army Post Office (APO) or Fleet Post Office (FPO) box number, or residential or business street address of next of kin or another contact individual (for an individual who does not have a residential or business street address), or a principal place of business, local office, or other physical location (for a person other than an individual);
b. Customers Who Refuse to Provide Information
If a potential or existing customer either refuses to provide the information described above when requested, or appears to have intentionally provided misleading information, our firm will not offer our services and, after considering the risks involved, consider closing any business with the client. In either case, our AML Compliance Person will be notified so that we can determine whether we should report the situation to FIU on a STR.
c. Verifying Information
Based on the risk, and to the extent reasonable and practicable, we will ensure that we have a reasonable belief that we know the true identity of our customers by using risk- based procedures to verify and document the accuracy of the information we get about our customers. CO will analyze the information we obtain to determine whether the information is sufficient to form a reasonable belief that we know the true identity of the customer (e.g., whether the information is logical or contains inconsistencies).
We will verify customer identity through documentary means collected by us. We will use documents to verify customer identity when appropriate documents are available. In light of the increased instances of identity fraud, we will supplement the use of documentary evidence by using the non-documentary means described below whenever necessary. We may also use non-documentary means, if we are still uncertain about whether we know the true identity of the customer. In verifying the information, we will consider whether the identifying information that we receive, such as the customer’s name, street address, zip code, telephone number (if provided), date of birth and Social Security number, allow us to determine that we have a reasonable belief that we know the true identity of the customer (e.g., whether the information is logical or contains inconsistencies).
Appropriate documents for verifying the identity of customers include the following:
- For an individual, an unexpired government-issued identification evidencing nationality or residence and bearing a photograph or similar safeguard, such as a driver’s license or passport;
- For a person other than an individual, documents showing the existence of the entity, such as certified articles of incorporation, a government-issued business license, a partnership agreement or a trust instrument.
We understand that we are not required to take steps to determine whether the document that the customer has provided to us for identity verification has been validly issued and that we may rely on a government-issued identification as verification of a customer’s identity. If, however, we note that the document shows some obvious form of fraud, we must consider that factor in determining whether we can form a reasonable belief that we know the customer’s true identity.
We will use the following non-documentary methods of verifying identity:
- Independently verifying the customer’s identity through the comparison of information provided by the customer with information obtained from a consumer reporting agency, public database or other;
- Checking references with other financial institutions; or
- Obtaining a financial statement.
We will use non-documentary methods of verification when:
(1) the customer is unable to present an unexpired government-issued identification document with a photograph or other similar safeguard;
(2) the firm is unfamiliar with the documents the customer presents for identification verification;
(3) the customer and firm do not have face-to-face contact; and
(4) there are other circumstances that increase the risk that the firm will be unable to verify the true identity of the customer through documentary means.
CASHMAAL follows established bookkeeping and documentation standards.
We will document our verification, including all identifying information provided by a customer, the methods used and results of verification, and the resolution of any discrepancies identified in the verification process. We will keep records containing a description of any document that we relied on to verify a customer’s identity, noting the type of document, any identification number contained in the document, the place of issuance, and if any, the date of issuance and expiration date. With respect to non- documentary verification, we will retain documents that describe the methods and the results of any measures we took to verify the identity of a customer. We will also keep records containing a description of the resolution of each substantive discrepancy discovered when verifying the identifying information obtained. We will retain records made about verification of the customer's identity for seven years after the record is made.
e. Comparison with Government-Provided Lists of Terrorists
At such time as we receive notice that a federal government agency has issued a list of known or suspected terrorists and identified the list as a list for CIP purposes, we will, within a reasonable period of time after entering into an agreement (or earlier, if required by another federal law or regulation or federal directive issued in connection with an applicable list), determine whether a customer appears on any such list of known or suspected terrorists or terrorist organizations issued by any federal government agency and designated as such by Treasury in consultation with the federal functional regulators. We will follow all directives issued in connection with such lists.
We will continue to comply separately with OFAC rules prohibiting transactions with certain foreign countries or their nationals.
f. Notice to Customers
We will provide notice to customers that the firm is requesting information from them to verify their identities, as required by law. We will use the following method to provide notice to customers: Email, Phone call or certified mail.
g. Reliance on another Financial Institution for Identity Verification
We may, under the following circumstances, rely on the performance by another financial institution (including an affiliate) of some or all of the elements of our CIP with respect to any customer that is entering into an agreement or similar business relationship with the other financial institution to provide or engage in services, dealings or other financial transactions:
- when such reliance is reasonable under the circumstances;
- when the other financial institution is subject to a rule implementing the anti-money laundering compliance program requirements, and is regulated by a federal functional regulator; and
- when the other financial institution has entered into a contract with our firm requiring it to certify annually to us that it has implemented its anti-money laundering program and that it will perform (or its agent will perform) specified requirements of the customer identification program.
7. High Risk Customer Due Diligence
For customers that we have deemed to be higher risk, we will obtain the following information:
- the source of fund;
- the beneficial owners information;
- the customer’s (or beneficial owner’s) occupation or type of business; financial statements;
- banking references;
- domicile (where the customer’s business is organized);
- description of customer’s primary trade area and whether international transactions are expected to be routine;
- description of the business operations and anticipated volume of trading.
We will also ensure that the customer information remains accurate by following the established procedures of CASHMAAL.
8. Acceptable Methods of Fund Transfers
Funds should only be accepted if they arrive by bank, or in case of cash the proof of cashing from the bank must be provided.
The amount of funds received should match exactly the amount invoiced to client;
The funds should come from a reputable bank;
The following issues should be given special attention and clarification obtained:
- Receipt of unexpected funds;
- Receipts of funds from a country on the non-compliant list;
- Receipts of funds which exceed the amount invoiced to the client;
- Receipt of funds from unknown sources;
If there is a case when a client insists on paying with cash or cash equivalent without providing any proof of cashing, the Compliance Officer has to be notified immediately prior to conducting any further transaction with such client.
9. Monitoring Clients for Suspicious Activity
We will monitor account activity for unusual size, volume, pattern or type of transactions, taking into account risk factors and red flags that are appropriate to our business. Monitoring will be conducted through the following methods: CO will be responsible for this monitoring, will review any activity that our monitoring system detects, will determine whether any additional steps are required, will document when and how this monitoring is carried out, and will report suspicious activities to the appropriate authorities.
We will conduct the following reviews of activity that our monitoring system detects: Complete Account Review. We will document our monitoring and reviews as follows: according to AML Compliance. The AML Compliance Person or his or her designee will conduct an appropriate investigation and review relevant information from internal or third- party sources before a STR is filed.
a. Emergency Notification to Law Enforcement by Telephone
In situations involving violations that require immediate attention, such as terrorist financing or ongoing money laundering schemes, we will immediately call an appropriate law enforcement authority. If we notify the appropriate law enforcement authority of any such activity, we must still file a timely STR.
Although we are not required to, in cases where we have filed a STR that may require immediate attention by the FIU, we may contact the FIU.
b. Red Flags
Red flags that signal possible money laundering or terrorist financing include, but are not limited to:
Customers – Insufficient or Suspicious Information
• Provides unusual or suspicious identification documents that cannot be readily verified.
• Reluctant to provide complete information about nature and purpose of business, prior banking relationships, anticipated account activity, officers and directors or business location.
• Refuses to identify a legitimate source for funds or information is false, misleading or substantially incorrect.
• Background is questionable or differs from expectations based on business activities.
• Customer with no discernable reason for using the firm’s service.
Efforts to Avoid Reporting and Recordkeeping
• Reluctant to provide information needed to file reports or fails to proceed with transaction.
• Tries to persuade an employee not to file required reports or not to maintain required records.
• “Structures” deposits, withdrawals or purchase of monetary instruments below a certain amount to avoid reporting or recordkeeping requirements.
• Unusual concern with the firm’s compliance with government reporting requirements and firm’s AML policies.
Certain Funds Transfer Activities
• Wire transfers to/from financial secrecy havens or high-risk geographic location without an apparent business reason.
• Many small, incoming wire transfers or deposits made using checks and money orders. Almost immediately withdrawn or wired out in manner inconsistent with customer’s business or history. May indicate a Ponzi scheme.
• Wire activity that is unexplained, repetitive, unusually large or shows unusual patterns or with no apparent business purpose.
Certain Deposits or Dispositions of Physical Certificates
• Physical certificate is titled differently than the account.
• Physical certificate does not bear a restrictive legend, but based on history of the stock and/or volume of shares trading, it should have such a legend.
• Customer’s explanation of how he or she acquired the certificate does not make sense or changes.
• Customer deposits the certificate with a request to journal the shares to multiple accounts, or to sell or otherwise transfer ownership of the shares.
Activity Inconsistent With Business
• Transactions patterns show a sudden change inconsistent with normal activities.
• Unusual transfers of funds or journal entries among accounts without any apparent business purpose.
• Maintains multiple accounts, or maintains accounts in the names of family members or corporate entities with no apparent business or other purpose.
• Appears to be acting as an agent for an undisclosed principal, but is reluctant to provide information.
Other Suspicious Customer Activity
• Unexplained high level of account activity with very low levels of securities transactions.
• Funds deposits for purchase of a long-term investment followed shortly by a request to liquidate the position and transfer the proceeds out of the account.
• Law enforcement subpoenas.
• Large numbers of securities transactions across a number of jurisdictions.
• Buying and selling securities with no purpose or in unusual circumstances (e.g., churning at customer’s request).
• Payment by third-party check or money transfer without an apparent connection to the customer.
• Payments to third-party without apparent connection to customer.
• No concern regarding the cost of transactions or fees (i.e., surrender fees, higher than necessary commissions, etc.).
c. Responding to Red Flags and Suspicious Activity
When an employee of the firm detects any red flag, or other activity that may be suspicious, he or she will notify. Under the direction of the AML Compliance Person, the firm will determine whether or not and how to further investigate the matter. This may include gathering additional information internally or from third-party sources, contacting the government, freezing the account and/or filing a STR.
10. Suspicious Transactions and BSA Reporting
a. Filing a STR
TEXT EXAMPLE: We will file STR with FIU for any transactions (including deposits and transfers) conducted or attempted by, at or through our firm involving $15,000 or more of funds or assets (either individually or in the aggregate) where we know, suspect or have reason to suspect:
(1) the transaction involves funds derived from illegal activity or is intended or conducted in order to hide or disguise funds or assets derived from illegal activity as part of a plan to violate or evade federal law or regulation or to avoid any transaction reporting requirement under federal law or regulation;
(2) the transaction is designed, whether through structuring or otherwise, to evade any requirements of the IFSC regulations;
(3) the transaction has no business or apparent lawful purpose or is not the sort in which the customer would normally be expected to engage, and after examining the background, possible purpose of the transaction and other facts, we know of no reasonable explanation for the transaction; or
(4) the transaction involves the use of the firm to facilitate criminal activity.
We will also file a STR and notify the appropriate law enforcement authority in situations involving violations that require immediate attention, such as terrorist financing or ongoing money laundering schemes.
We will report suspicious transactions by completing a STR, and we will collect and maintain supporting documentation as required by the IFSC and FIU regulations. We will file a STR no later than 30 calendar days after the date of the initial detection of the facts that constitute a basis for filing a STR. If no suspect is identified on the date of initial detection, we may delay filing the STR for an additional 30 calendar days pending identification of a suspect, but in no case will the reporting be delayed more than 60 calendar days after the date of initial detection. The phrase “initial detection” does not mean the moment a transaction is highlighted for review. A review must be initiated promptly upon identification of unusual activity that warrants investigation.
We will retain copies of any STR filed and the original or business record equivalent of any supporting documentation for five years from the date of filing the STR. We will identify and maintain supporting documentation and make such information available to FIU, any other appropriate law enforcement agencies, federal or state securities regulators.
We will not notify any person involved in the transaction that the transaction has been reported, except as permitted by the IFSC and FIU regulations. We understand that anyone who is subpoenaed or required to disclose a STR or the information contained in the STR will, except where disclosure is requested by FIU, or another appropriate law enforcement or regulatory agency, or to provide any information that would disclose that a STR was prepared or filed. We will notify IFSC or FIU, or of any such request and our response.
b. Currency Transaction Reports
Our firm prohibits transactions involving currency and has the following procedures to prevent such transactions: Paying from other peoples bank accounts or credit cards. If we discover such transactions have occurred, we will file with FIU for currency transactions that exceed $10,000. Also, we will treat multiple transactions involving currency as a single transaction for purposes of determining whether to file a STR if they total more than $10,000 and are made by or on behalf of the same person during any one business day.
11. AML Recordkeeping
a. Responsibility for Required AML Records and STR Filing
Our AML Compliance Person and his or her designee will be responsible for ensuring that AML records are maintained properly and that STR is filed as required.
In addition, as part of our AML program, our firm will create and maintain FIU, IFSC and relevant documentation on customer identity and verification and funds transmittals. We will maintain FIU and their accompanying documentation for at least seven years. We will keep other documents according to existing laws and other recordkeeping requirements.
b. SAR-SF Maintenance and Confidentiality
We will hold STR and any supporting documentation confidential. We will not inform anyone outside of FIU, or other appropriate law enforcement or regulatory agency about a STR. We will refuse any subpoena requests for FIU or for information that would disclose that a STR has been prepared or filed and immediately notify FIU, FinCEN of any such subpoena requests that we receive. We will segregate STR filings and copies of supporting documentation from other firm books and records to avoid disclosing STR filings. Our AML Compliance Person will handle all subpoenas or other requests for FIU. We may share information with another financial institution about suspicious transactions.
c. Additional Records
We shall retain either the original or a microfilm or other copy or reproduction of each of the following:
- A record of each extension of credit in an amount in excess of $10,000, except an extension of credit secured by an interest in real property. The record shall contain the name and address of the person to whom the extension of credit is made, the amount thereof, the nature or purpose thereof and the date thereof;
- A record of each advice, request or instruction received or given regarding any transaction resulting (or intended to result and later canceled if such a record is normally made) in the transfer of currency or other monetary instruments, funds, checks, investment securities or credit, of more than $10,000 to or from any person, account or place:
- A record of each advice, request or instruction given to another financial institution (which includes broker-dealers) or other person. Each document granting signature or trading authority over each customer's account;
- A record of each remittance or transfer of funds, or of currency, checks, other monetary instruments, investment securities or credit, of more than $10,000.
- A record of each receipt of currency, other monetary instruments, checks or investment securities and of each transfer of funds or credit, of more than $10,000 received on any one occasion directly and not through a domestic financial institution.
12. Training Programs
We will develop ongoing employee training under the leadership of the AML Compliance Person and senior management. Our training will occur on at least an annual basis. It will be based on our firm’s size, its customer base, and its resources and be updated as necessary to reflect any new developments in the law.
Our training will include, at a minimum: (1) how to identify red flags and signs of money laundering that arise during the course of the employees’ duties; (2) what to do once the risk is identified (including how, when and to whom to escalate unusual customer activity or other red flags for analysis and, where appropriate, the filing of FIU; (3) what employees' roles are in the firm's compliance efforts and how to perform them; (4) the firm's record retention policy; and (5) the disciplinary consequences (including civil and criminal penalties) for non-compliance with the FISC.
We will develop training in our firm, or contract for it. Delivery of the training may include educational pamphlets, videos, intranet systems, in-person lectures and explanatory memos. We will maintain records to show the persons trained, the dates of training and the subject matter of their training.
We will review our operations to see if certain employees, such as those in compliance, margin and corporate security, require specialized additional training. Our written procedures will be updated to reflect any such changes.
13. Confidential Reporting of AML Non-Compliance
Employees will promptly report any potential violations of the firm’s AML compliance program to the AML Compliance Person, unless the violations implicate the AML Compliance Person, in which case the employee shall report to CO. Such reports will be confidential, and the employee will suffer no retaliation for making them.
14. Additional Risk Areas
The firm has reviewed all areas of its business to identify potential money laundering risks that may not be covered in the procedures described above.
15. Senior Manager Approval
Senior management has approved this AML compliance program in writing as reasonably designed to achieve and monitor our firm’s ongoing compliance with the requirements of the BSA and the implementing regulations under it.
NB This Compliance Manual is to be strictly adhered to by all Employees. Non- compliance with this Compliance Manual by any Employee shall result in disciplinary actions. There are no exceptions to this Compliance Manual without the prior written approval of the Compliance Officer. Any questions, comments or concerns regarding the Firm’s anti-money laundering policies, procedures and controls should be directed to the Compliance Officer.