Life Assurance Association Cork 27 th April Financial Services Compliance & Training Ltd 1

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1 Life Assurance Association Cork 27 th April 2010 Financial Services Compliance & Training Ltd 1

2 What does it feel like to work in Financial Services in 2010? Financial Services Compliance & Training Ltd 2

3 A bit like this. Financial Services Compliance & Training Ltd 3

4 SMILES. GO MILES! Financial Services Compliance & Training Ltd 4

5 Financial Services in 2010 Financial Services Compliance & Training Ltd 5

6 The New Central Bank of Ireland Financial Services Compliance & Training Ltd 6

7 The New Central Bank of Ireland Governor of the Central Bank, Mr Patrick Honohan Head of Financial Regulation, Mr Matthew Elderfield Financial Services Compliance & Training Ltd 7 *

8 Who is this.? Financial Services Compliance & Training Ltd 8

9 The Financial Services Ombudsman Mr Bill Prasifka Financial Services Compliance & Training Ltd 9

10 Anti Money Laundering Training Why? Financial Services Compliance & Training Ltd 10

11 Financial Regulator Requirement Application Process: Part 6. Question 6 Have all officers and employees of the applicant firm been made aware of their obligations under the IIA 1995 and the Criminal Justice Act 1994? Yes/No How did you answer this question? Financial Services Compliance & Training Ltd 11

12 Anti Money Laundering YES, otherwise you would not have been authorised! With YES comes responsibilities. Anti Money Laundering Staff Training is an Annual Requirement and This must be recorded on staff personnel records Financial Services Compliance & Training Ltd 12

13 What will I cover. Recent cases: Ireland & UK New Anti Money Laundering Legislation Changing role of the Financial Regulator Know Your Client: Customer Due Diligence The offence of Money Laundering Identification Exemptions Enforcement Offences and the Consequences Financial Services Compliance & Training Ltd 13

14 Ireland Northern Bank cases Indictable case attracting huge media attention Cunningham case: 2.3 million, sale of gravel pit to Bulgarian business man Financial Services Compliance & Training Ltd 14

15 Ireland Northern Bank cases Don Bulman (Dazman) Case: only concluded March 07found in possession of 94,000 (Feb 05), convicted IRA membership but not ML Connection not made to Northern Bank as cash in Euro s not stg Financial Services Compliance & Training Ltd 15

16 UK case Controls failures 29 October 2008 The Financial Services Authority (FSA) fined Sindicatum Holdings Limited (SHL) 49,000 and its money laundering reporting officer (MLRO), Michael Wheelhouse, 17,500 for not having adequate anti-money laundering systems and controls in place for verifying and recording clients identities. This is the first time the FSA has fined a money laundering reporting officer; he failed to implement adequate procedures for controlling money laundering risk Financial Services Compliance & Training Ltd 16

17 UK case continued No ML offence had been committed the firm failed to: implement adequate procedures for verifying the identity of its clients, this was reflected in client files keep adequate records of those identified "It is vital to the integrity of the UK s financial markets that regulated firms are not used by criminals to launder money. Senior management must implement and follow procedures that meet our requirements so that the risks their firms face are properly managed. Financial Services Compliance & Training Ltd 17

18 Criminal Justice Act... Anti Money Laundering What has all this to do with our business? Financial Services Compliance & Training Ltd 18

19 The Legislation Criminal Justice Act, 1994 Criminal Justice (Terrorist Offences) Act, 2005 Criminal Justice (Money Laundering) Bill 2008 will give effect to the 3 rd EU Anti Money Laundering Directive. Draft Guidance Notes March 2010 Financial Services Compliance & Training Ltd 19

20 Financial Regulator s current role Financial Regulator has been limited to making suspicious transaction reports to Fraud Intelligence Unit (FIU). Up until now AML has not been part of Financial Regulator s core mandate. Financial Regulator would have made reports to the Garda Síochána and Revenue Commissioners where suspicions arose of offences being committed under the CJA 94. Financial Services Compliance & Training Ltd 20

21 Reports to the Revenue Over 65,000 Reports received since May facilitated criminal prosecutions (Tax) 25 facilitated criminal investigations (Customs) Financial Services Compliance & Training Ltd 21

22 Reports to the Revenue 400 referred to CAB and Special Investigations 2,000 used in Audit and Compliance enquiries 300 cases settled with the Revenue 35m Financial Services Compliance & Training Ltd 22

23 Industry overview Fraud Intelligence Unit FIU FIUNet FIU FIUNet Competent Authority Competent Authority Credit institution s MiFID Firms Insurance companies Insurance Brokers Money transmitters Legal and accounts Advisors Cash dealers 15,000 Financial Services Compliance & Training Ltd 23

24 Financial Regulator s new role The new law will require the Regulator to use administrative sanctions to ensure credit and financial institutions establish AML infrastructures appropriate to combat the money laundering or terrorist financing risks posed by their businesses. Financial Services Compliance & Training Ltd 24

25 Financial Regulator s new powers Directive 37: gives the Regulator the power to Fine & Sanction firms and individuals where it observes a lack of: Customer Due Diligence Maintenance of Records Clear reporting lines Staff training: Continue Annual Training Requirement Financial Services Compliance & Training Ltd 25

26 3 rd EU Directive AML What will change for you? Customer Due Diligence (CDD) Risk Based Analysis: your professional instinct! Financial Services Compliance & Training Ltd 26

27 KNOW YOUR CLIENT (KYC) Financial Services Compliance & Training Ltd 27

28 Customer Due Diligence (CDD) What should I be doing now? CDD Risk Based Identify your customer and verify his/her/its identity using reliable, independent source documents, data or information Determine whether the he/she/it is acting on behalf of another person, and then taking reasonable steps to obtain sufficient identification data to verify the identity of that other person Identify the (ultimate) beneficial owner: understand the ownership and control structure of corporate customers. Financial Services Compliance & Training Ltd 28

29 Customer Due Diligence cont Consider whether you need to conduct enhanced due diligence with respect to higher risk categories. Decisions taken on establishing relationships with higher risk customers should be taken by senior management. Subject to national legal requirements insurers may apply reduced or simplified measures in the case of low risk categories. Be clear on the purpose and intended nature of new business relationships Financial Services Compliance & Training Ltd 29

30 Customer Due Diligence cont Conduct ongoing due diligence on customers and scrutinise transactions throughout the course of that relationship so as to check they are consistent with the your knowledge of the customer and his her its business and risk profile. This applies across the business lines: General & Life That firms keep transaction records secure for five years (Financial Regulator documents 6 years) Electronic Storage now provided for (55(4) wholly or partly in an electronic, mechanical or other non-written form only if they are capable of being reproduced in a written form. Financial Services Compliance & Training Ltd 30

31 Day to day impact MLRO in place AML Procedure in Office Procedures Manual Annual training requirement Staff members know what to watch out for? Staff know the risk profile of your customers? Is simplified due diligence or enhanced due diligence possible / required in some instances? Financial Services Compliance & Training Ltd 31

32 The Offence of Money Laundering Process by which criminals attempt to conceal the true origin and ownership of the proceeds of their criminal activities. If undertaken successfully, money laundering enables criminals to legitimise dirty money by mingling it with clean money, ultimately providing a legitimate cover for the source of income Financial Services Compliance & Training Ltd 32

33 Stages and Methods of Laundering Money Placing Layering Integration Tax Evasion Financial Services Compliance & Training Ltd 33

34 Stages and Methods of Laundering Money Placement - illegitimate funds (normally cash) find their way into the financial system via payment into legitimate accounts Layering - used to disguise the audit trail between the funds and the original point of entry into the system by using numerous transactions to move the funds globally through various financial products and institutions in an effort to disguise their origins Financial Services Compliance & Training Ltd 34

35 Stages and Methods of Laundering Money Integration - where funds are reintroduced as legitimate wealth to fund further activities or the acquisition of assets Tax evasion Deposit Accounts & Single Premium Policies Financial Services Compliance & Training Ltd 35

36 Issues to Focus On Client more interested in encashment penalties than potential returns Why? Requesting the return of funds that have been held in suspense pending receipt of adequate documentation, like ID, they have changed their mind! Product Producers monitor instances where termination of policies by clients in the cooling off period: this could impact on you risk based analysis. Payments for insurance products by cheque with a typo in name on cheque account and/or proposer Bank Holiday urgency of new business, manipulation of staff Customers who will only deal with a specific member of staff Clients moving funds in and out of a policy at the cost of early withdrawal penalties Financial Services Compliance & Training Ltd 36

37 Client Identification Procedures Each Firm must determine and implement its own policy Original* or certified copy of ID documents (passport/ driver s licence) should be obtained. The new Bill has an extensive list of alternative acceptable identification documents. Certified by a member of the Gardai, a certified/ chartered accountant, a practising solicitor, public notary or embassy/ consular staff Financial Services Compliance & Training Ltd 37

38 Client Identification Procedures When meeting the customer face to face the copies of identity documents and supporting evidence should be retained and marked originals sighted, signed and dated. It is unacceptable to certify a photocopy of the above without sight of the original Financial Services Compliance & Training Ltd 38

39 Verify Address Original or certified copy of one of the following must be obtained (full list is more extensive): Utility Bill (gas, electricity, telephone, etc) Bank, Building Society, Credit Card Statement Recent original Mortgage Statement Tax Notices from Revenue Social Welfare Documents House/Motor Insurance Certificates Financial Services Compliance & Training Ltd 39

40 Company Verification Original or certified copy of one of the following must be obtained for an Irish Registered Company: Certificate of Incorporation Memorandum & Articles of Association AND/OR Document giving named individual authority to act on the company's behalf AND Recent Report & Accounts Financial Services Compliance & Training Ltd 40

41 Partnership Verification Original or certified copy of one of the following must be obtained for an Irish Registered Partnership: Certificate of Registration of Business Name Partnership Agreement AND/OR Document giving named individual authority to act on the partnerships behalf AND Recent Report & Accounts Financial Services Compliance & Training Ltd 41

42 Record Keeping Originals or copies admissible in legal proceedings. Evidence of identity = 5 years after relationship ends. Transaction records = 5 years after date of execution of the last transaction. Capable of retrieval without delay: Certificate of Identification signed on proposal, where is the ID, cannot locate General FR requirement to keep records for 6 years (Statute of Limitations period). Financial Services Compliance & Training Ltd 42

43 EXEMPTIONS Deminimis Amounts Layering Method of Payment Exemptions A Pensions Policy Financial Services Compliance & Training Ltd 43

44 When is Identification required? Identification need only be sought where: The annual premium exceeds 900 or in the case of single premium business, the relevant amount is 2,300 and The premium is not being paid by means of a cheque or a direct debiting mandate or other transfer from an account held in the name of the policyholder with another designated body in a Member State of the EU or a state or country prescribed by the Minister The policy in question is other than a pension s policy taken out by virtue of a contract of employment or the occupation of the person to be insured under the policy provided that the policy does not contain a surrender clause and may not be used as collateral for a loan. This will apply to Revenue approved pensions. Financial Services Compliance & Training Ltd 44

45 Reporting Suspicious Transactions Report suspicions of money laundering to MLRO: Do not discuss any suspicion with colleagues, as this information may filter back to the customer and constitute the offence of tipping off. Once you have made a report to the MLRO, and this report has been acknowledged, then the employee has fulfilled their duty. Reporting of suspicion to the Garda Siochána and the Revenue Commissioners at discretion of MLRO. Employees should familiarise themselves with Examples of Suspicious Transactions in Appendix B2 of Guidance Notes. Financial Services Compliance & Training Ltd 45

46 FRAUD ENFORCEMENT When in doubt make the report to Garda/Revenue 11,145 Money Laundering reports received by the Garda Bureau of Fraud Investigation in 2008 Profile of a Fraudster: 85% Male 70% aged between % of cases investigated were occasions where the employee had visited the fraud on their employer Source: Eugene Gallagher, Detective Superintendent, Garda Bureau of Fraud Investigation. Financial Services Compliance & Training Ltd 46

47 ENFORCEMENT The Financial Regulator will report to the Garda Siochana and the Revenue Commissioners where it suspects that firms are not adhering to the Money Laundering Guidance Notes Financial Services Providers which become involved in a money laundering scandal risk prosecution and loss of their market reputation Financial Services Compliance & Training Ltd 47

48 Offences and Penalties BOTH THE FIRM AND THE EMPLOYEE CAN FACE CRIMINAL PENALTIES FOR FAILURE TO COMPLY WITH THE LAW Financial Services Compliance & Training Ltd 48

49 Key Offences Criminal Penalties (Directive 37 Fines & Sanctions) Money Laundering Assistance 14 Years Imprisonment Reporting Procedures 5 Years Imprisonment Tipping off Training Financial Services Compliance & Training Ltd 49

50 In Summary Educate yourself Customer Due Diligence Do not compromise your integrity Monitor activities Report suspicions Retain records 3 rd EU AML Directive Financial Services Compliance & Training Ltd 50

51 THANK YOU for your kind attention Evelyn Hanrahan Financial Services Compliance & Training Ltd 51