Optimizing Surveillance Programs to Spot Emerging ... AML 3 (Henry Yu).pdf · Spot Emerging...

Asia Full Day SeminarsAsia Pacific Region - 4th Annual Enhanced AML/CTF Tools and Techniques

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Asia Pacific Region –4th Annual Enhanced AML/CTF Tools and Techniques

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Optimizing Surveillance Programs to Spot Emerging Financial Crime Trends

Henry YUVice President, AML Compliance

Credit Suisse


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Agenda- Optimizing Surveillance Programs toSpot Emerging Financial Crime Trends

Part 1- Optimizing Surveillance Programs Revamping Surveillance Programs in accordance with

Regulatory Standards Updating your Overall Risk Assessment Program Based

on Country Risk and Other Relevant Factors

Part 2- To Spot Emerging Financial Crime Trends Identifying Emerging Financial Crime Trends Analyzing Recent Enforcement Actions to Strengthen

Surveillance Programs and Employee Training


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• Optimizing Surveillance Programs to Spot Emerging Financial Crime Trends

• Part 1- Optimizing Surveillance Programs


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Optimizing Surveillance Programs To fully consider the optimization of your program, one

needs to answer the following questions:

What are the new issues / typologies on the horizon which may lead to legal, regulatory or other types of risk?

How does country risk and other risk factors impact on your program?

How does one spot the new issues? What minimum elements should a robust surveillance

program contain? How can the program be revamped as required?


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Examples of New Issues with Potential Legal / Regulatory Impact 2012 FATF Recommendations covering domestic PEPs,

tax crimes, transparency over beneficial ownership, etc. FINMA Review of EDD documentation obligations Recent investigations involving HSBC and SCB New ML typologies, such as “cuckoo smurfing” FATCA


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Country Risk

Important to have jurisdictional risk as component in determining over-all client risk / categorization

Jurisdictional risk should be re-calculated / amended on regular basis – or where sudden changes in circumstances dictate, i.e.: material change to US Sanctions policy

Additions to FATF “Grey List”


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Country Risk Factors to determine geographic risk might include: Transparency International Corruption Perception Index (CPI) Global Press-Freedom Country Index (GPF) Freedom in the World Indices including:-

Political Rights (FIW PR) Civil Liberties (FIW CL)

The World Bank Governance Research Indicator Country Snapshot (GRICS) including:- Government Effectiveness (WB GRICS GE) Rule of Law (WB GRICS LAW)

Country Risk Classification (OECD CRC) United States Narcotics Control Strategy Report (INCSR) –Jurisdiction of Concern (INCSR Concern) Financial Action Task Force (FATF) Membership

Non-Cooperative Countries and Territories (NCCT) Member of the Egmont Group, Financial Intelligence Units (FIU)

United States Department of State International Narcotics Control Strategy Report (INCSR); Sanctions


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Other Risk Factors to Consider

Higher Risk Industries (arms, arts & antiques, precious metals, money / banknote traders, gemstone dealers, night clubs)

PEP Clients Materially Adverse News Walk-in /Non-Traditional Clients (charities, etc) Bearer Shares Companies


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Keeping updated on new issues of concern / changes to regulatory landscape critical, and can be achieved in a number of ways:- Monitoring of regulatory announcements Regular media surveillance Attending events organized by external vendors with mutual

interest in regulatory space Industry working groups / networking Attending conferences Information broadcasts from FIUs

Key to success is:- Implementing robust AML Program Conducting regular GAP Analysis between new requirements vs.

your current AML Program Making necessary adjustments in timely fashion

How to Spot New Issues / Requirements / Risk Factors Efficiently?


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Screening of new clients and beneficial owners against World-Check (PEP), sanctions

lists etc.

Client On-Boarding Ongoing Client Monitoring

Pre-Execution Trx Monitoring

Post-Execution Trx Monitoring

Established standard and best practice processes and tools

Ongoing screening of clients/ beneficial

owners against updates to World-

Check (PEP), sanctions lists etc.

Screening of transactions against sanctions lists and lists

of persons/entities connected with

terrorism (sanctions compliance, anti-

terrorism financing) before execution of

transaction

Detection of unusual transactions /

behavior and money laundering patterns. No

prevention, but investigation

(background reports)

Standardized IT solutions Harmonized tools, sources and processes

CS Global Check CL Search

CL Search Mantas Fircosoft

PEOPLE &TRAINING

Example of a Robust AML Program


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Revamping / Updating your AML Program Based on identified issues, amendments may be necessary

to:- Update Policy and Working Procedures Enhance KYC documentation Re-calibrate AML risk categorization / EDD triggers Adjust daily screening parameters Adjust focus and frequency of periodic client reviews Update / adjust sensitivity of payment screening filters Amend post-transaction monitoring scenarios and

thresholds Update and enhance training


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Optimizing Surveillance Programs to Spot Emerging Financial Crime Trends Part 2 -To Spot Emerging Financial Crime Trends

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Spotting Emerging Financial Crime Trends with a View to Strengthening Surveillance

To answer the question of how to spot emerging financial crime trends with a view to strengthening your surveillance program, one needs to look at the following:

What are the prevalent emerging financial crime trends? How to determine the trends (ie: recent enforcement actions) What minimum elements should a robust anti-fraud program

contain How to build on existing platform of controls to strengthen

surveillance – adopting financial crime relation ML indicators into RBA


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Emerging Financial Crime Trends APG Group Typologies Report on Money Laundering Associated with Large-Scale Transnational Frauds – 22 Jul 2011

Type ofFraud

ReportingJurisdiction

No. ofReport / Victim

Fraud VictimLocation

Nationality / Locationof Perpetrator

Reported Losses(USD)

Location of MoneyLaundering

LotteryFraud

Hong Kong 515 reports

(in 2009)

27 jurisdictions Overseas 9.21M Hong Kong

TelephoneDeception

Thailand 2 reports

(500 victims)

Overseas Overseas 65M Thailand

Malaysia 496 reports

(in 2009)

Malaysia Overseas 1M Malaysia

Hong Kong 1,495 reports

(in 2009)

Hong Kong Hong Kong andoverseas

3.78M Hong Kong andoverseas

Investment Fraud Philippines 1 report Philippines Philippines 250M Philippines andoverseas

Canada 130 victims Canada and overseas Canada andoverseas

10.3M Canada andoverseas

Advance Fee Fraud Canada 253 victims Canada and overseas Canada andoverseas

4.78M Canada andoverseas

Boiler RoomFraud

Macao 1 report

(22 victims)

Overseas Overseas 1.7M Macao andoverseas


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ML Trend in Taiwan ( APG 2012 Report)Usual methods Emerging Trend

Cash couriers New technological methods

Structuring Cross broader financial transactionand currency movement

Portable valuable goods Increase use of Mule A/Cs

Wire transfers

Alternative remittance system

Offshore shell Co, offshore banks

Family member of 3rd parties

Foreign Bank A/C

False ID


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Common ways of determining new financial crime trends:- Monitoring of regulatory announcements Recent enforcement actions Regular media surveillance Agency circulars (Kroll Report) Industry working groups / networking Attending conferences Legal circulars

Key to success is:- Implementing robust Anti-Fraud Program Conducting regular GAP Analysis between new trends /

requirements vs. your current program Making necessary adjustments in timely fashion

Determining the Trends


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Example-Typical Lottery Fraud 120 VTM from 14 Countries were defrauded for US2.7M in

14 Months


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Adopting Financial Crime Related Money Laundering Indicators into RBATransaction Pattern / Indicators Identified

SectorsInvolved

Instruments / ProductsInvolved

Type of Fraud*AFF BRF HYIP TD IF

1. Use of accounts of shell companies Banking · Wire transfer

· Cheque

· Money order / bank draft

· On-line banking services

· Cash deposit/withdrawal

· ATM withdrawal

X X X2. Use of stooge accounts X X X3. Multiple inward remittance from

different senders

X X X X X

4. Incoming funds transferred to overseas company or personal accounts within ashort period of time

X X X X X

5. Destination of transfer not commensurate with the customer profile

X X X X X

6. Structured remittances X X X

7. Temporary repository of funds X X X X X

8. No apparent business related activities X X X X

9. Payment of “consultancy fees” or multiple intercompany loan transactions

X X X

10. Lack of normal personal bankingactivities

X X X

11. Cash / ATM transaction X X XX X X X X12. Small balance left in account


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Strengthening Your Anti-Fraud Program

Understand new M.O. / typologies Adopt your understanding into risk based controls,

focusing on:- Policy Training Systems


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Finally – Why Does it Matter?

Legal Risk Reputational Risk Regulatory Risk Financial Loss / Damage to Shareholders’ Interests


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Questions


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Optimizing Surveillance Programs to Spot Emerging ... AML 3 (Henry Yu).pdf · Spot Emerging...

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