1

The European Association of Airport and The European Association of Airport and Seaport Police Seaport Police

35th Annual Conference Gibraltar 21st to 35th Annual Conference Gibraltar 21st to 24th April 200824th April 2008

Anti Money LaunderingPresentation by

Marcus KillickChief Executive Officer

Financial Services Commission

2

The CommissionThe Commission

Established in 1989

Regulator of Financial Services in Gibraltar, covering:

Banking

Insurance

Investments (including mutual funds)

Company Management

Professional Trusteeship

Pension Trustees

Staff complement of 32

Budget of approx Euro’s 2.7m

3

FSC statutory objectivesFSC statutory objectives

To promote market confidence;

The reduction of systemic risk;

To promote public awareness;

To protect the reputation of Gibraltar;

The protection of consumers; and

The reduction of financial crime,

4

Other ActivitiesOther Activities

Patrolling the perimeter

Combating market abuse

International cooperation Secondments Training Information exchange

Depositors’ Guarantee Scheme - administration

Investor Compensation Scheme - administration

Auditors Registration Board – administration

Shortly to take on responsibility for Money Services Businesses

5

Commission StructureCommission Structure

Commission members (with exception of Chief Executive) appointed by Government of Gibraltar

Eight Commission members (including Chief Executive) with a mixture of local and international experience

Separate Chairman and Chief Executive

Chief Executive responsible for day to day work including licensing decisions

Operates in line with Principles of Good Governance. (including Audit, Nomination and Remuneration Committees)

6

Financial Sector in GibraltarFinancial Sector in Gibraltar(as at March 2008)(as at March 2008)

86 Company Managers Groups 426 Company Managers Licensees 45 Professional Trustees Groups 71 Professional Trustees Licensees 17 Authorised Banks 1 E-money Institutions 10 Collective Investment Scheme Administrators 10 Collective Investment Scheme Operators,

Trustees and Advisers 4 Collective Investment Schemes Authorised 46 Collective Investment Schemes Recognised 33 Collective Investment Schemes Experienced

Investor Funds 60 Insurance Companies 8 Insurance Managers 6 Investment Dealers 27 Investment Managers

7

Financial CrimeFinancial Crime

International finance centres are exposed to financial crime eg money emanating from: Corruption Sanction busting Proceeds of drugs Tax evasion Market abuse

In respect of cash placement is normally “onshore”.

Offshore role primarily layering using structures designed to disguise ownership

8

Scale – Global Estimates of Scale – Global Estimates of Laundered MoneyLaundered Money

IMF estimate: between 2%-5% of world’s GDP ($2.1trillion at today’s figures)

UN estimate: $1 trillion laundered annually (just under $2 million per minute)

Money laundering is the world’s third largest industry by turnover (after oil & agriculture)

FT Fraud Report 1997 - black economy:- Italy, Greece, Spain = 25% of GDP- Russia = 50% of GDP

Query: how rigorous and realistic are these estimates?

9

Scale – Costs of AML Compliance for Scale – Costs of AML Compliance for Financial ServicesFinancial Services

National – costs to US banks > $3 billion pa (2003)

Operational costs (source – KPMG AML Survey):- rose 58% over the period 2004-2007- European banks project costs to rise by 27% over the next three years- transaction monitoring & training are the main cost drivers (also sanctions compliance)

Fines- Riggs Bank = $41 million (2005)- ABN Amro Bank = $80 million (2005)

10

Other types of financial crimeOther types of financial crimeinclude:include:

Email fraud Pyramid schemes Boiler room operations Insider trading Share ramping Market manipulation

11

Emails this week (1)Emails this week (1)

Dear Beloved.

Happiness keeps you sweet, trials keeps you strong, sorrows keeps you human, failures keeps you humble, success keeps you glooming, and but only God keeps you going! You are so special!

My name is Mrs.Yolanda Mcdavis a British Merchant in Caribbean Island. I have been diagnosed with Esophageal Cancer, which was discovered very late, due to my laxity in caring for my health. This sickness has defiled all forms of medicine, and right now I have only about a few months to live, according to medical experts. I have since lost my power of speech and can only manage to write now; as that has been the only way I am able to communicate.

I have not particularly lived my life so well, as I never really cared for anyone not even myself but my business. Though I am very rich, I was never generous, I was always hostile to people and only focus on my business as that is the only thing I cared for. But now I regret all, as I now know that there is more to life than just wanting to have or make all the money in the world. I believe when the Almighty gives me a second chance to come to this world I would live my life a different way from how I have lived it.

Now that I know my time is near, I have willed and given most of my properties and assets to my immediate and extended family members and as well as a few close friends. I want nature and the Almighty God in Heaven to be merciful to me and accept my soul and so, I have decided to give the remains of my wealth to charity organizations, as I want this to be one of the last good deeds I did on earth.

So far, I have distributed money to some charity organizations in the Caribbean Island, London and Ireland. Now that my health has deteriorated so badly, I cannot do this myself any more. I once asked members of my family to close one of my accounts in Switzerland and donate the money in the account to the motherless/charity homes acrossAfrica, Europe and America organizations, they refused and kept the money to themselves. I do not trust them anymore, as they seem not to be contended with what I have left for them.

The last of my money which only few of them know of is the (US$13.7M) cash deposit that I have with a financial firm. I will want you to hel [it ended there]

12

Emails this week (2)Emails this week (2)

Kindest Attention:

I have just discovered your email contact on my email review this morning; please give me an opportunity to seek your interest in this beneficiary partnership with you.

My name is Mr. Alexandra Amilcar; I am from Portugal the owner of (LIQUEFIED NATURAL GAS COMPANY) one of the leading Companies here in London, I have lived and managed my company here in London for nine years.I has been diagnosed with esophageal cancer. It has defiled all forms of medical treatment, and right now I have only about a few months to live, according to medical experts. I have not particularly lived my life so well, as I never really cared for anyone (not even myself) but my business.

Though I am very rich, I was never generous, I was always hostile to people and only focused on my business as that was the only thing I cared for. But now I regret all this as I now know that there is more to life than just wanting to have or make all the money in the world. I believe when God gives me a second chance to come to this world I would live my life a different way from how I have lived it.

Now that God is about to called me, I have willed and given most of my property and assets to my immediate and extended family members as well as few close friends. I want God to be merciful to me and accept my soul, so I have decided to give alms to charity organizations, as I want this to be one of the last good deeds I do on earth. So far, I have distributed money to some charity organizations in theU.A.E, Somalia and Malaysia. Now that my health has deteriorated so badly, I cannot do this myself any more. I once asked members of my family to close one of my accounts and distribute the money which I have there to charity organization in Bulgaria and Pakistan; they refused and kept the money to themselves.

Hence, I do not trust them any more, as they seem not to be contended with what I have left for them. The last of my money which no one knows of is the huge cash deposit of nineteen Million, five hundred United States Dollars ($19, 500, 000. 00) that I have with an Asset Management Company Abroad.

Quoted fund belongs to my notable high-net worth raw Diamond industry from the kingdom of Saudi Arabia, My wishes before this critical condition of mine was to invest these funds substantially in Real Estate development in the United States of America. Now I will want you to help me collect this deposit and dispatch it to charity organizations.

N/B: Kindly note that 25% of this funds must go to the tsunami victims, 55% to other Charity Organization and 20% for your effort and time. Once I have established a partnership with you, I’ll feed you with more information on how you will go about transferring these funds to your account.

I cannot talk with you on the phone due to my health situation, as I am using my Lap Top Computer to communicate with you. You should respond to this e-mail if you are interested in carrying out this assignment on my behalf.

I appreciate your time and look forward to your response.

Urgent Reply Needed.God be with you.

Mr. Alex Amilcar

13

Lottery scamsLottery scams

On 17th April this year Spanish police arrested 87 Nigerians suspected of defrauding at least 1,500 people in a postal and internet lottery scam. The arrests were made in and around Madrid in an operation co-ordinated with the FBI.

Police said millions of euros were taken from the victims, most of them in the United States and European Union. Those targeted were wrongly told they had won a lottery and asked to send a payment before prize money could sent. Thousands of letters and e-mails, most in ungrammatical English, were sent out to prospective victims every day, police said. The faked documents asked them to make an initial payment of 900 euros ($1,400, £720) in taxes or administrative costs. The scam is estimated to have netted around 20 million euros, but the actual sum could be many times that, say police.

Police said the number of those defrauded could run into many thousands, as most of them probably failed to report the crime out of embarrassment. Police estimate that only one in 1,000 recipients of the letters needed to fall for the fraud for it to make a profit. An Anglican bishop was among those duped, according to Spanish officials.

The operation to track down the gang began in May 2007 when a huge number of identical letters destined for addresses in the US was discovered at Madrid's Barajas airport. Police confiscated hundreds of computers, mobile phones and 60,000 letters in a raid on more than 30 homes and businesses.

Law enforcement officers also seized a suitcase full of fake $100 notes which they say was used to convince some victims who came to Spain in person to collect their "prize money".

Source BBC

14

In case I was feeling left out!In case I was feeling left out!

Good day,

This is to inform you that your winnings dated 30th of August, 2007 under the NATIONAL LOTTERY promotional lottery draw Batch Number: NLP/4486321425 and pin numbers;051011263141 still remains unclaimed. The expiration date has drawn close. All unclaimed fund after the 180 days expiration date will be rolled over into future draws.

Your inability to attend the award presentation, has necessitated this reminder. As a matter of urgency you are required to contact the payment officer with the contact details stated below to be better informed on what is required to lay claims to your winnings.

Mr. Claudio Vicente,Blue-Sky Consulting U.K Tel: +44 703 194 8990 +44 704 019 7574Fax: +44 700 594 6838 Email: claudiovicente@excite.com

Sincerely yours,Kimberly White (Ms.)Results Coordinator

N.B. Should there be any changes in your details, do inform our agent as soon as possible. Do not send your response to this e-mail account. Anybody under the age of 18 is automatically disqualified.

15

There are victimsThere are victims

COMPLAINT AGAINST [X] LIMITED  [X] LIMITED OWES ME MILLIONS OF DOLLARS USD CURRENCY. THEY ARE ILLEGALLY HOLDING THE FUNDS. I SHOULD HAVE BEEN PAID MANY MONTHS AGO. I BELIEVE THIS FINANCIAL INSTITUTION FRAUDED MYSELF STILL HAVEN'T PAID ANYTHING LIKE THIS BUSINESS SUPPOSE HAVE. THEY RECENTLY AWARDED MONEY STILL HAVEN'T PAID ME ANYTHING WHICH THEY OWE MYSELF.  

16

Real or Fake?Real or Fake?

17

Fake or real?Fake or real?

18

Structures used for criminal Structures used for criminal activityactivity

and countermeasuresand countermeasures All are, but those most vulnerable are:

Companies Trusts Hawala Money transfer/Bureau de Change Client accounts of professional firms

Countermeasures: Licensing of service providers Requirements on Customer due

diligence/record keeping/training On site reviews Effective sanctions International Cooperation

19

Gibraltar current Threat matrixGibraltar current Threat matrix

Like

lihoo

d

Impact

Low

High

Low

High

v Methodology · Criminal Activity

v Placement of cash

v Cash conversion

v Layering

v HAWALA

v On-line Banking & Phishing

v Money Transmission

v Mis-use of Client Accounts

v Mis-use of Corporate Vehicles

v Mis-use of Trust Structure

v Integration

· Corruption/Bribes

· Financing of terrorist activity

· Fraud

· Tax Evasion

· ID Theft

· Sanction busting

· Organised Crime

· People Trafficking

· Smuggling

· Market Abuse

20

International standardsInternational standards

FSC seeks to comply with relevant international standards established in;

Insurance Banking Investments Anti Money laundering

We are members of; International Association of Insurance Supervisors Offshore Group of Insurance Supervisors International Organisation of Securities Commissions

The FSC is required by statute to advise the Minister if, at any time, it considers it to be unable to supervise and regulate financial services business carried on in or from Gibraltar to internationally accepted standards

Our adherence to these standards is independently verified

21

International StandardsInternational StandardsEU RequirementsEU Requirements

As an EU jurisdiction we are required to apply all Directives and Regulations made under the Financial Services Action Plan as well as those relating to AML and combating the proceeeds of terrorism

This gives us full passporting rights throughout the EU and, via the Gibraltar Order, the UK

In respect of EU legislation the FSC is required by statue to establish and implement standards and supervisory practices which match the standards and supervisory practices governing the provision of financial services within the United Kingdom.

22

Independent reviewsIndependent reviews The FSC is one of the most reviewed regulator on the

planet!

Reviews undertaken include:

First statutory review 1998

Second Statutory review 1999

IMF Assessment 2001

Assessment against FATF standards 2002

Third Statutory review 2004

Second IMF assessment 2006

23

2006 IMF Review2006 IMF Review

Covered; Banking

Insurance

AML/CFT

Designed to assess compliance with international standards

Gibraltar was the first jurisdiction to volunteer for the initial review

24

IMF FindingsIMF Findings

In the area of Banking Supervision Gibraltar was fully compliant with 27 and largely compliant with 3 out of the 30 applicable international standards.  This was matched with 24 observed and 3 largely observed out of 28 applicable standards for Insurance Supervision.

These levels of compliance are amongst the highest ever achieved in any IMF review by any country.

Gibraltar has a well-regulated financial sector

The assessment found a high standard of compliance with the Basel Core Principles and the Insurance Core Principles.

The reputation of Gibraltar as a financial centre will depend on maintaining the independence of the Financial Services Commission (FSC).

25

The EndThe End

Marcus Killickmkillick@fsc.gi+350 40283