10312020 Money Laundering Copyright 2010 We Comply Inc

10/31/2020 Money Laundering Copyright© 2010 We. Comply, Inc. All rights reserved.

10/31/2020 Money Laundering Copyright© 2010 We. Comply, Inc. All rights reserved.

What Is Money Laundering? Money laundering: Process criminals use to disguise true origin and ownership of cash by funneling it through lawful enterprises • Lucrative and sophisticated business • Has significant impact on global economy • Furthers other serious crimes — e. g. , drug-smuggling and terrorism • It would severely undermine our organization's reputation to be implicated in money-laundering scheme • Individual employees could be subject to criminal/civil prosecution • Three basic steps are placement, layering and integration Copyright© 2010 We. Comply, Inc. All rights reserved. 3

Placement stage: "Dirty" money introduced into financial system or transported out of country Money launderers must circumvent financial system or violate reporting requirements Examples of placement: • Depositing funds into a bank • Transforming cash into other assets • Buying goods in one country and reselling them in another Copyright© 2010 We. Comply, Inc. All rights reserved. 4

Layering stage: Money launderer obscures criminal source of money further by creating web of complicated transactions Examples of layering techniques: • Buying big-ticket items in friend's name • Setting up "shell companies" in other countries and shuffling money among them • "Double invoicing" to move money in and out of U. S. Copyright© 2010 We. Comply, Inc. All rights reserved. 5

Integration stage: Money has been "cleaned" and is integrated into legitimate economic and financial system Usually involves an asset purchase Examples of integration: • Purchase of investments • Purchase of legitimate company with established track record Copyright© 2010 We. Comply, Inc. All rights reserved. 6

Money-Laundering Laws of the U. S. Money Laundering Control Act of 1986 • Makes it a crime to launder money or to help someone else do so • Amended in 2001 to target international activities and financing of terrorism • Covers foreign individuals and companies if any part of money-laundering offense occurs in U. S. • Carries stiff criminal penalties • Two central provisions: Sections 1956 and 1957 • Prohibits transactions intended to promote/conceal criminal activity • Prohibits transactions involving criminally derived property worth > $10, 000 Copyright© 2010 We. Comply, Inc. All rights reserved. 7

Money-Laundering Laws of the U. S. (cont’d) Money Laundering Control Act of 1986 • Makes it a crime to launder money or to help someone else do so • Amended in 2001 to target international activities and financing of terrorism • Covers foreign individuals and companies if any part of money-laundering offense occurs in U. S. • Carries stiff criminal penalties • Two central provisions: Sections 1956 and 1957 • Prohibits transactions intended to promote/conceal criminal activity • Prohibits transactions involving criminally derived property worth > $10, 000 Copyright© 2010 We. Comply, Inc. All rights reserved. 8

Section 1956 Prohibits knowing that property involved in financial transaction represents proceeds from specified unlawful activity and using transaction to — • Promote certain illegal activity • Circumvent IRS requirement • Conceal/disguise nature or origin of proceeds • Avoid reporting requirements "Specified unlawful activity" is broad in scope and includes — • Crimes involving drugs and violence • Bribery, copyright infringement, environmental offenses and tax evasion Copyright© 2010 We. Comply, Inc. All rights reserved. 9

Section 1956 (cont’d) Prohibits knowing that property involved in financial transaction represents proceeds from specified unlawful activity and using transaction to — • Promote certain illegal activity • Circumvent IRS requirement • Conceal/disguise nature or origin of proceeds • Avoid reporting requirements "Specified unlawful activity" is broad in scope and includes — • Crimes involving drugs and violence • Bribery, copyright infringement, environmental offenses and tax evasion Copyright© 2010 We. Comply, Inc. All rights reserved. 10

Pop Quiz! Which of the following crimes would not constitute "specified unlawful activity" that would be considered a "predicate" for money laundering? A. Foreign bribery. B. Copyright infringement. C. An environmental offense. D. Tax evasion. E. All of these would be considered predicate offenses. Copyright© 2010 We. Comply, Inc. All rights reserved. 11

Section 1957 Prohibits financial transactions involving proceeds of specified unlawful activity where proceeds are worth more than $10, 000 No requirement that illegal transaction be concealed if criminal proceeds are involved Person need not know exact nature of underlying criminal activity Purpose: • To discourage law-abiding citizens from doing business with criminals and profiting from ill-gotten gains • To make it more difficult for criminals to ply their trade Copyright© 2010 We. Comply, Inc. All rights reserved. 12

Section 1957 (cont’d) Prohibits financial transactions involving proceeds of specified unlawful activity where proceeds are worth more than $10, 000 No requirement that illegal transaction be concealed if criminal proceeds are involved Person need not know exact nature of underlying criminal activity Purpose: • To discourage law-abiding citizens from doing business with criminals and profiting from ill-gotten gains • To make it more difficult for criminals to ply their trade Copyright© 2010 We. Comply, Inc. All rights reserved. 13

Pop Quiz! Which of the following is one of the primary differences between Section 1956 and Section 1957: A. 1956 requires concealment; 1957 does not. B. 1956 has a $10, 000 threshold; 1957 does not. C. 1957 violations involve proceeds from "specified unlawful activity"; 1956 violations do not. Copyright© 2010 We. Comply, Inc. All rights reserved. 14

Reporting Requirements Other laws establish reporting requirements that government uses to flag suspicious transactions IRS Form 8300 • Required when we receive more than $10, 000 in cash in single or related transactions • Must be filed within 15 days after cash is received • Failure to file Form 8300 could result in fines and imprisonment Copyright© 2010 We. Comply, Inc. All rights reserved. 15

Reporting Requirements (cont’d) Other laws establish reporting requirements that government uses to flag suspicious transactions IRS Form 8300 • Required when we receive more than $10, 000 in cash in single or related transactions • Must be filed within 15 days after cash is received • Failure to file Form 8300 could result in fines and imprisonment Copyright© 2010 We. Comply, Inc. All rights reserved. 16

Anti-Money-Laundering Tools Other reporting requirements: • Currency transaction report o Must be filed by financial institution that receives/dispenses more than $10, 000 in currency • Currency and monetary instruments report o Must be filed by anyone entering or leaving U. S. with currency or monetary instruments > $10, 000 o Must be filed if someone mails, ships or otherwise transports currency • Foreign bank account form o Must be filed by U. S. persons controlling more than $10, 000 in bank account in another country Copyright© 2010 We. Comply, Inc. All rights reserved. 17

Structuring: Designing financial transaction so that it falls below $10, 000 threshold • Making two $8, 000 deposits instead of one $16, 000 deposit would constitute illegal structuring • Also unlawful to structure payment scheme for sale of goods or services • Structuring can also form basis of additional charge of money laundering under Money Laundering Control Act if person knows illegal nature of funds Copyright© 2010 We. Comply, Inc. All rights reserved. 18

Money-Laundering Targets Businesses that are particularly vulnerable to moneylaundering schemes include — • Banks • Brokerage firms • Check-cashing outlets • Foreign-currency exchanges • Restaurants and theaters • Dealers of "big ticket" items — art, automobiles, boats, real estate, etc. Copyright© 2010 We. Comply, Inc. All rights reserved. 19

Red Flags Report these "red flags" to your supervisor or the Legal Department: • A client who refuses to provide information or avoids personal meetings • Larger cash deposits or purchases than should be expected • Transactions that don't make sense or don't tie in with client's business • Large/frequent transactions involving foreign banks or shell corporations • Bank/credit information that is insufficient or suspicious • Unusual funds-transfer activities • Any attempt to avoid reporting requirements Copyright© 2010 We. Comply, Inc. All rights reserved. 20

In the news… Copyright© 2010 We. Comply, Inc. All rights reserved. 21

Co-Workers Activities that might indicate involvement with money laundering include — • Sudden changes in lifestyle • Preoccupation with outside business ventures • Vendor address that matches employee address • Employee who is unusually reluctant to take vacation • Non-payroll checks made out to employees Report these red flags to your supervisor or the Legal Department Copyright© 2010 We. Comply, Inc. All rights reserved. 22

Pop Quiz! Brian, XYZ Inc. 's HR manager, was reviewing personnel files and noticed that Dana hadn't taken a single day off for the past two years, in stark contrast to earlier years. She had also started driving a luxury car that belied her modest salary. What should Brian do? A. Congratulate Dana for perfect attendance. B. Speak to Dana's supervisor. C. Call the FBI. Copyright© 2010 We. Comply, Inc. All rights reserved. 23

Prevention Ways you can help prevent our organization from being used in money-laundering scheme: • Know your customers • Be alert for situations where person whose name is on account doesn't seem to control it • Keep records concerning a customer's identity • Scrutinize transactions that might lend themselves to money laundering — especially those in cash Be vigilant and take all possible measures to prevent and deter money laundering Copyright© 2010 We. Comply, Inc. All rights reserved. 24

10/31/2020 Final Quiz Copyright© 2010 We. Comply, Inc. All rights reserved.

10/31/2020 Questions? Copyright© 2010 We. Comply, Inc. All rights reserved.

10/31/2020 Thank you for participating! This course and the related materials were developed by We. Comply, Inc. and the Association of Corporate Counsel. Copyright© 2010 We. Comply, Inc. All rights reserved.