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Anti-money laundering/ Countering of Terrorist Financing AML/CTF AML : is the process whereby criminals attempt to hide and disguise the true origin and ownership of the process of their criminals activities thereby avoiding prosecution, conviction and confiscation of the criminal fund When a criminal activity generates substantial profits, the individual or group involved must find a way to use the funds without drawing attention to the underlying activity or persons involved in generating such profits. Criminals do this by disguising the sources, changing the form or moving the money to a place where it is less to attract attention. United Nations 2000 convention against transnational organized crime, also known as the “Palermo convention “ defines money laundering as: 1. The convention or transfer of property, knowing it is derived from criminal offense, for the purpose of concealing or disguising its illicit origin or of assisting any person who is involved in the commission of the crime to evade the legal consequences of his actions. 2. The concealment or disguising of the true nature, source, location, disposition, movement, rights with respect to, or ownership of property knowing that it is derived from a criminal offense. 3. The acquisition, possession or use of property, knowing at the time of its receipt that it was derived from a criminal offense or from participation in a crime.

Last week, HM Treasury (HMT) published their 11th Annual Report of the UK’s anti-money laundering (AML) and counter-terrorist financing (CTF) supervisory regime in 2022-2023. Gain valuable insights from K2 Integrity's Joanne M. on key findings and what's next 👇 #AML #CTF #FinancialCrime

Last week, HM Treasury (HMT) published their 11th Annual Report of the UK’s anti-money laundering (AML) and counter-terrorist financing (CTF) supervisory regime in 2022-2023. Key statistics include: 🔸 5k+ remote reviews/onsite visits were held (5% of AML/CTF regulated firms) 🔸 10% of firms were identified as high risk (versus 11% in 2021-2022) The Financial Conduct Authority (FCA) 🔹 Conducted 231 remote reviews and 7 on-site visits 🔹 Retail banking (including payments), wholesale banking, wealth management and crypto-asset firms remain highly vulnerable to Financial Crime (FC) 🔹 4% of firms reviewed remotely, and 14% reviewed on-site, were rated as “non-compliant” (full MI is unavailable as many reviews were on-going) 🔹 The FCA also opened 375 cases for FC/Sanctions concerns + 95 for crypto-assets. Key findings: 🔴 Inadequate client and/or firm-wide risk assessments and poor enhanced due diligence (EDD) processes 🔴 Insufficient compliance monitoring/testing programmes 🔴 Inadequate resources/training UK Gambling Commission 🔸 Assessed 25 firms remotely, rating 48% of firms as non-compliant 🔸 8 out of 9 firms (89%) visited were rated as non-compliant Key findings: 🔴 AML risks are sometimes outweighed by commercial and/or reputational concerns 🔴 Firms rely on monetary thresholds, instead of a risk-based approach HM Revenue & Customs (HMRC) 🔹 Conducted 1741 remote/onsite reviews 🔹 28% of firms were found as non-compliant overall Key findings: 🔴 Money Service Businesses (MSBs), Art Market Participants and the Trust and Company Service Provider sectors remain as high risk for AML 🔴 MSBs also have the highest inherent risk of CTF 🔴 HMRC noted a trend of supervised activity occurring before registration Office for Professional Body Anti-Money Laundering Supervision (OPBAS) 🔸 3,220 remote and onsite visits took place across the 22 legal and accountancy supervisory bodies within OPBAS 🔸 17% of accountancy firms assessed remotely were non-compliant, versus 20% of those reviewed onsite 🔸 16% of legal firms assessed remotely were non-compliant, versus 25% of those reviewed onsite Key findings: 🔴 OPBAS identified a limited awareness of the AML/CTF regime and a strong industry view that the regime is “disproportionate”. What’s Next? 🔹 The UK supervisory ecosystem remains somewhat fragmented and its restructure has been deemed a priority by HMT (2022 annual review) and was highlighted by the Financial Action Task Force (in their 2018 Mutual Evaluation of the UK), thereby forming part of the UK’s second Economic Crime Plan for 2023-2026. 🔸 In the meantime, firms should be mindful of their supervisors increasing outreach, ahead of FATF’s 5th round of Mutual Evaluation Reports in 2027. K2 Integrity can support firms subject to regulatory scrutiny, please reach out for a confidential discussion.

From the FSA: NEWS RELEASE 20 August 2024  Authority publishes findings of proliferation questionnaire  The Isle of Man Financial Services Authority has published the findings of a questionnaire issued to supervised entities relating to proliferation financing (PF). Responses provided by a total of 586 firms will help to inform the Island’s next National Risk Assessment, as well as raise awareness of evolving PF risks. The Proliferation Financing Questionnaire Report, https://lnkd.in/ev2ghnqH which is available to view on the Publications section of the Authority’s website, highlights examples of good practice and areas for improvement. The project forms a key part of the work being carried out to understand the procedures and controls put in place by Island firms to support the effective prevention of proliferation of weapons of mass destruction. Analysis of the data will assist the Authority, in conjunction with other Government agencies, to determine the steps needed to help firms meet their PF obligations in respect of the Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) Code 2019. The Authority issued the PF questionnaire through its AML/CFT software system in January 2024 and achieved a 98% response rate. Information submitted by industry provides an insight into the level of understanding of PF among firms and the training provided to members of staff. It is considered vital for the Isle of Man to remain alert and ready to respond to emerging threats in all aspects of international financial crime, part of which includes conducting the National Action Plan. Firms are encouraged to read the PF Questionnaire Report and consider any action necessary to ensure their own compliance regimes are effective, up-to-date and properly documented. David Baker, Senior Manager, AML/CFT Supervision Division, said: ‘The response to the questionnaire was excellent and we’d like to thank all the firms that took part. The financial services industry has an important role to play in countering PF and businesses must be aware of the risks of their services being used to provide funding for proliferation activity. It is important for firms to know their customers and understand their customers’ activities, as well as any parties linked to them. Along with other Government agencies, the Authority will be conducting further outreach and engagement with industry to raise awareness of PF-related matters.

Anti-Money Laundering (AML) refers to a set of laws, regulations, and procedures designed to prevent and detect the illegal conversion of funds obtained through criminal activities into legitimate assets. At its core, AML aims to disrupt the financial aspects of fraudulent and criminal enterprises, thereby reducing the incentive for illegal activities such as drug trafficking, terrorism financing, corruption, and fraud. Key components of AML include Customer Due Diligence (CDD), Know Your Customer (KYC), transaction monitoring, suspicious activity reporting, and record-keeping requirements. Financial institutions, including banks, credit unions, brokerages, and money service businesses, are mandated to implement robust AML programs to identify and mitigate the risks associated with money laundering and terrorist financing. 𝐊𝐞𝐲 𝐓𝐚𝐤𝐞𝐚𝐰𝐚𝐲𝐬 Anti-money laundering (AML) laws, regulations, and procedures are attempts to reduce the ease of hiding criminal profits. Financial institutions combat money laundering with Know Your Customer (KYC) and customer due diligence (CDD) measures. Banks are tasked with monitoring financial transactions and reporting suspicious activity, which is where criminal financial activity tracking begins.

Improving the effectiveness of the Money Laundering Regulations HM Treasury has published a consultation on improving the effectiveness of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (the ‘MLRs’), which place requirements onto a range of businesses to identify and prevent money laundering and terrorist financing. HM Treasury committed to consulting on changes to the MLRs as part of a wider programme of work aimed at reducing money laundering, which was set out in the Economic Crime Plan 2023-26. This consultation principally covers issues with the MLRs already identified by HM Treasury, for example in the 2022 Review of the UK’s anti-money laundering and counter-terrorist financing regulatory and supervisory regime. This review found that, while the core requirements of the regulations were mostly fit for purpose, there were potentially a number of technical changes that could be made to increase effectiveness and ensure proportionality for both regulated firms and customers. The consultation also includes issues put forward by key stakeholders, such as the anti-money laundering/counter terrorist financing supervisors, the regulated industries and their representative bodies, which could reduce burdens and make the regulations more effective at tackling economic crime. The consultation covers four core themes: 1. Making customer due diligence more proportionate and effective. 2. Strengthening system coordination. 3. Providing clarity on scope of the MLRs. 4. Reforming registration requirements for the Trust Registration Service. HM Treasury is keen to hear from a wide range of stakeholders in response to the consultation, including regulated businesses and their customers, supervisory bodies, law enforcement agencies, civil society organisations and members of the public. The consultation document sets out a number of ways to respond to the consultation. This includes answering the questions via the online ‘Improving the Effectiveness of the Money Laundering Regulations’ form. Cost of Compliance Survey In parallel with this consultation, HM Treasury is running a survey on the cost of compliance with the MLRs. This will help them to understand better how regulated businesses comply with the regulations and to assess the impact of future changes to the MLRs. They are keen to receive responses from a wide range of regulated businesses, including large firms, SMEs and sole traders. You can see and respond to the survey at the Cost of compliance with the Money Laundering Regulations - survey for regulated businesses. https://lnkd.in/ex842nEn

Understanding AML-CFT 1. AML (Anti-Money Laundering): AML refers to measures and controls put in place to prevent criminals from disguising illegally obtained funds as legitimate income. The money laundering process typically involves three stages: Placement: Introducing illegal money into the financial system. Layering: Moving the funds through complex transactions to obscure their origin. Integration: Returning the "cleaned" money back into the economy as legitimate funds. AML Measures: Customer Due Diligence (CDD): Verifying the identity of customers and understanding their transactions. Suspicious Activity Reports (SARs): Monitoring and reporting unusual or suspicious transactions to authorities. Know Your Customer (KYC): Procedures to identify and verify clients’ identities. Transaction Monitoring: Continuously monitoring customer activities for signs of money laundering. 2. CFT (Countering the Financing of Terrorism): CFT focuses on detecting and disrupting financial flows intended to support terrorist activities. Unlike money laundering, terrorist financing often involves legitimate funds but is used for illegal purposes. CFT Measures: Sanctions Screening: Identifying and blocking transactions with individuals or entities on government or international watchlists. Enhanced Due Diligence (EDD): Additional scrutiny for high-risk clients or regions with known links to terrorism. Monitoring Financial Flows: Identifying patterns associated with terrorist financing, such as small but frequent transfers to high-risk areas. Key Goals of AML/CFT: Protect financial systems from abuse. Enhance transparency and accountability. Prevent financial crimes and support international security efforts. Key Players in AML/CFT: Financial Institutions: Banks, insurance companies, and money service businesses. Regulatory Authorities: Organizations like FATF (Financial Action Task Force), FinCEN (Financial Crimes Enforcement Network), and local regulators. Law Enforcement Agencies: Tasked with investigating and prosecuting financial crimes.

BREAKING DOWN BARRIERS: TIM PARKMAN ON MASTERING ANTI-MONEY LAUNDERING AND COUNTER-TERRORIST FINANCING Mike interviews Tim Parkman. In a riveting episode, we sat down with Tim Parkman, the brilliant mind behind the book “Mastering Anti-Money Laundering and Counter-Terrorist Financing: A Compliance Guide for Proactive Practitioners.” Tim’s insights into the complex and often murky world of financial crime were nothing short of eye-opening. With a blend of expertise, passion, and a no-nonsense approach, Tim laid out the challenges and solutions in the fight against money laundering and terrorist financing. SUMMARY One of the standout points in our conversation was the emphasis on collaboration and cooperation between financial institutions. Tim highlighted the importance of the automatic exchange of information. Imagine this: You’re a compliance officer at a bank, and you notice that a business customer’s revenue is steadily increasing. Not suspiciously, but just enough to raise an eyebrow. Two of its biggest customers, let’s call them A Limited and B Limited, are vital contributors to this growth. Traditionally, getting more information about these customers would require involving the police and wading through a mountain of red tape. However, as Tim sees it, the future lies in banks being able to directly contact each other to share relevant information. This proactive communication can nip potential financial crimes before they spiral out of control. Tim didn’t hesitate to discuss the difficulties in police cooperation across borders. Law enforcement agencies often guard their investigations closely, fearing that sharing information could compromise years of work if it leaks, especially in countries known for corruption. This “turf war” mentality, as Tim described it, is a significant barrier to tackling international financial crime. The fear of leaks and the potential for corrupt practices in certain countries make it hard for law enforcement agencies to trust each other. Yet, the fight against financial crime remains stymied without overcoming these hurdles. @milliondollarbookman @thedreamstarter https://lnkd.in/dbKMkp8T

FATF/GAFI: "India’s main money laundering risks originate from illegal activities within the country, these risks relate primarily to fraud, including cyber-enabled fraud, corruption and drug trafficking. India pursues money laundering related to fraud and forgery in line with predicate crime risks to a large extent, but less so with some other offences such as human trafficking and drug trafficking. The country needs to address the backlog of money laundering cases pending conclusion of court processes. India faces serious terrorism and terrorist financing threats, including related to ISIL or Al Qaeda. India as a strong emphasis on disruption and prevention and has demonstrated its ability to conduct complex financial investigations. However, India needs to focus on concluding the prosecutions and convict and appropriately sanction terrorist financiers. The country needs to ensure that measures aimed at preventing the non-profit sector from being abused for terrorist financing are implemented in line with the risk-based approach, including by conducting outreach to non-profit organisations on their terrorist financing risks. India has made significant steps in financial inclusion, more than doubling the proportion of the population with bank accounts, encouraging greater reliance on digital payment systems, and making use of simplified due diligence for small accounts. These efforts have supported financial transparency, which in turn contribute to AML/CFT efforts. Despite the size and institutional complexity of the Indian system, Indian authorities cooperate and coordinate effectively on matters dealing with illicit financial flows, including the use of financial intelligence. India also achieved positive results in international co-operation, asset recovery and implementing targeted financial sanctions for proliferation financing. Indian authorities also have a comprehensive understanding of the money laundering, terrorism and proliferation financing risks but need to do more to share insights on these risk across all relevant stakeholders. There is a good understanding of risk and application of preventative measures in the financial sector, especially by commercial banks, although less so by some other smaller financial institutions. Financial Institutions are taking steps to apply enhanced measures to PEPs, however, India needs to address the issue of lack of coverage of domestic PEPs from a technical compliance perspective and ensure reporting entities fully implement these requirements. Implementation of preventative measures by the non-financial sector and virtual asset service providers, and supervision of those sectors, is at an early stage. India needs to improve implementation of cash restrictions by dealers in precious metals and stones as a priority given the materiality of the sector."

BREAKING DOWN BARRIERS: TIM PARKMAN ON MASTERING ANTI-MONEY LAUNDERING AND COUNTER-TERRORIST FINANCING Mike interviews Tim Parkman. In a riveting episode, we sat down with Tim Parkman, the brilliant mind behind the book “Mastering Anti-Money Laundering and Counter-Terrorist Financing: A Compliance Guide for Proactive Practitioners.” Tim’s insights into the complex and often murky world of financial crime were nothing short of eye-opening. With a blend of expertise, passion, and a no-nonsense approach, Tim laid out the challenges and solutions in the fight against money laundering and terrorist financing. SUMMARY One of the standout points in our conversation was the emphasis on collaboration and cooperation between financial institutions. Tim highlighted the importance of the automatic exchange of information. Imagine this: You’re a compliance officer at a bank, and you notice that a business customer’s revenue is steadily increasing. Not suspiciously, but just enough to raise an eyebrow. Two of its biggest customers, let’s call them A Limited and B Limited, are vital contributors to this growth. Traditionally, getting more information about these customers would require involving the police and wading through a mountain of red tape. However, as Tim sees it, the future lies in banks being able to directly contact each other to share relevant information. This proactive communication can nip potential financial crimes before they spiral out of control. Tim didn’t hesitate to discuss the difficulties in police cooperation across borders. Law enforcement agencies often guard their investigations closely, fearing that sharing information could compromise years of work if it leaks, especially in countries known for corruption. This “turf war” mentality, as Tim described it, is a significant barrier to tackling international financial crime. The fear of leaks and the potential for corrupt practices in certain countries make it hard for law enforcement agencies to trust each other. Yet, the fight against financial crime remains stymied without overcoming these hurdles. @milliondollarbookman @thedreamstarter https://lnkd.in/dG7ZCDim