CISI Financial Products Markets Services Topic Financial Services

CISI – Financial Products, Markets & Services Topic – Financial Services Regulation and Professional Integrity Lesson: 8. 2 Financial Crime cisi. org

What is Money Laundering? “The goal of a large number of criminal acts is to generate a profit for the individual or group that carries out the act. Money laundering is the processing of these criminal proceeds to disguise their illegal origin. This process is of critical importance, as it enables the criminal to enjoy these profits without jeopardising their source. ” Financial Action Task Force (FATF), 2016 During the prohibition era, notorious gangster, Al Capone allegedly bought ‘Laundromats’ to mix proceeds from criminal activity with legitimate business sales cisi. org

The Three Stages of Money Laundering 3 Stages of money laundering dirty money Cash generated through crime e. g. drugs, arms, stolen goods The cash gained through illegitimate needs to be ‘laundered’ from ‘dirty’ to ‘clean’ money - as large transactions are not normally made using cash clean money Money which appears to have been legitimately required – more easily invested and spent Placement Placing dirty money into a bank or building society account Layering Moving money around so that authorities cannot trace it e. g. buying and selling currency, shares or bonds Integration Dirty money is now clean – the ultimate beneficiary is holding legitimate funds that can be integrated back into the financial system. cisi. org

The Legal and Regulatory Framework The cross-border nature of money laundering has led to international co-ordination to combat money laundering Financial Action Task Force (FATF) http: //www. fatf-gafi. org/home/ Issued recommended minimum standards for countries: Inter-governmental body , based at the OECD in Paris, developing and promoting international policies to combat money laundering. § Expect staff and firms to be able to identify suspicions of money laundering and report them. § Reporting made to a central point in the firm – Money Laundering reporting Officer cisi. org (MLRO)

The Legal and Regulatory Framework - UK Main laws and regulations relating to money laundering in the UK THE PROCEEDS OF CRIME ACT Extended UK legislation – main offences: 1. Knowingly assisting in concealing, or arranging for the acquisition, use or possession of criminal property. 2. Failing to report knowledge or suspicions of possible money laundering. 3. Tipping off another person that a money laundering report has been made. 4. Impeding an investigation e. g. Destroying documents. These regulations were brought in to implement the EU directive on money laundering. They specify the arrangements a firm must have in place to cover areas such as: § Record-keeping § Internal Controls § Reporting requirements § Up to 14 -years for the offence § Up to 5 -years for failing to report or destroying relevant documents § 2 -years for tipping off POCA and the Money Laundering Regulations require a court to take account of industry guidance when considering whether a person has committed an offence. This guidance is provided by the Joint Money Laundering Steering Group cisi. org (JMLSG – 17 financial sector trade bodies. )

The Joint Money Laundering Steering Group (JMLSG) JMLSG provides guidance to UK firms on the following Internal Controls Money Laundering Reporting Officer (MLRO) Risk-Based Approach Customer Due Diligence (CDD) Establish and maintain riskbased policies (appropriate to the firm) and procedures to prevent money laundering Director or Senior Manager oversees the firm’s compliance with the regulator’s rules. They report to the National Crime Agency (NCA). Controls and systems must be in place to manage risk. Must assess and decide how to manage the risks. Firms must confirm and verify information about their customers depending on their level of risk. http: //www. jmlsg. org. uk/ Staff Awareness/ Training Money laundering training needs to be provided for staff in the causes, issues, laws, regulations and procedures. Record-Keeping Firms must have the right systems and keep the appropriate records – 5 -years of customer identity evidence, transactions, actions and information. cisi. org

What is Bribery? “Bribery is the giving or receiving of a financial or other advantage in connection with the "improper performance" of a position of trust, or a function that is expected to be performed impartially or in good faith. ” The Bribery Act 2010 Bribery does not have to involve cash or an actual payment exchanging hands and can take many forms such as a gift, lavish treatment during a business trip or tickets to an event. cisi. org

Bribery Offences Offering , promising or giving an advantage Came into force July 2011 A firm must have adequate procedures in place…. Requesting , agreeing to receive or accepting an advantage Top-level commitment with the board and senior management committing to conducting business in a fair, honest and ethical manner. Bribery of a foreign public official to obtain or retain business or an advantage Failure by a commercial organisation to prevent a bribe being paid for or on its behalf. (Makes it easier for the Serious Fraud Office to prosecute companies when bribery has occurred) Only defence for a corporate entity is that they can show adequate procedures were put in place to prevent bribery Develop well-designed policies, procedures and controls to ensure compliance. Bribery risks should be monitored, evaluated and reassessed regularly along with undertaking staff surveys. Penalties Include: § Max 10 -Years in prison § Unlimited fines § Confiscation of proceeds § Debarment from public sector contracts § Director disqualification http: //www. thebriberyact 2010. co. uk/ Ongoing risk assessments carried out (external and internal risks) Policies and Procedures communicated internally along with training (Code of conduct) Due Diligence undertaken on suppliers carrying out services on behalf of the company. cisi. org

Identity Fraud All firms may find themselves targeted by criminals. Staff working in financial services firms need to be aware that of theft of customer data to facilitate identity fraud Identity Theft § Impersonation fraud § Using the identity of an other person without their knowledge or consent to obtain goods and services in that person’s name § Could be use of a person’s date of birth, current or previous addresses Identity Fraud § Use of a misappropriated identity in criminal activity. § Obtaining goods or services by deception § Using forged identity documents e. g. Passport or driving licence Firms need… Robust Customer Due Diligence (CDD) procedures To verify the identity of a person applying for credit/Investment services/a new account/access to an existing account cisi. org