Module 1: Anti-Money Laundering & Countering Terrorist Financing

At the end of this course you should have awareness and general understanding of Anti Money Laundering (AML) and Countering of Terrorist Financing (CFT). It explains Money laundering, Terrorist Financing, and provides an overview of the legislative requirements that must be adhered to by Massy United Insurance Limited (Massy United). The course also identifies possible money laundering risks and red flags. It also highlights your personal responsibility in the MASSY UNITED’s AML & CFT function.

Money Laundering

Overview of Money Laundering

MONEY LAUNDERING EXPLAINED:  https://www.youtube.com/watch?v=1ObJPaSZxCs

As highlighted by the preceding video, Money laundering is the process by which criminals attempt to hide and disguise the true origin and ownership of the proceeds of their criminal activities.  These proceeds includes illegal funds (cash) & other assets.

Criminal Activity includes:

  1.  Kidnapping
  2. Drug trafficking
  3. Bribery/Corruption/Tax Evasion
  4. Extortion
  5. Counterfeiting & Forgery
  6. Embezzlement
  7. Manipulation of records
  8. Fraud
  9. Robbery
  10. White Collar Crimes (e.g. Insider Trading)

To be able to prevent money laundering, you need to understand how people launder money.

How Money Laundering Works

Stages of Money Laundering

Placement

The Placement stage is the most challenging stage of the laundering process, at this stage the launderer can be caught trying to get rid of their illicit proceeds.  Some methods used are loan repayment, currency exchange and gambling. An example of the placement stage is Smurfing.

  • Smurfing/Structuring: This is the process of breaking up the transaction into smaller amounts. A Source of Funds Declaration Form must be completed for all transactions over the threshold ($90,000TTD). The launderer will try to circumvent this process by breaking up the transaction into smaller amounts and finding persons who would assist in this process.

 

Layering

The Layering stage is most complex, the launderer attempts to confuse the original source of the funds. In many instances money service businesses are used to transfer these funds to other countries in an attempt to confuse the money trail.

 

Integration

The Integration stage is when the funds are being converted to what appears to be a legitimate business.  After the launderer is successful in placing the money into the financial system and confusing the process by layering, they can now do what appears to be everyday business.

Examples of Money Laundering

EXAMPLES OF MONEY LAUNDERING

 

Example 1:

Courtesy the Trinidad Guardian Online (2015) (Full Report: http://www.guardian.co.tt/news/2015-06-07/fifa-corruption-documents-show-details-jack-warner-bribes )

A BBC investigation has seen evidence that details what happened to the $10m sent from Fifa to accounts controlled by former vice-president Jack Warner. The money, sent on behalf of South Africa, was meant to be used for its Caribbean diaspora legacy programme.

But documents suggest Mr Warner used the payment for cash withdrawals, personal loans and to launder money. In the three transactions - on 4 January, 1 February and 10 March 2008 - funds totalling $10m (£6.5m) from Fifa accounts were received into Concacaf accounts controlled by Jack Warner.

Reports revealed that JTA Supermarkets, a large chain in Trinidad, received $4,860,000 from the accounts. The money was paid in instalments from January 2008 to March 2009. The largest payment was $1,350,000 paid in February 2008. US prosecutors say the money was mostly paid back to Mr Warner in local currency.

Example 2:

Courtesy Stabroeknews Online-Pilot held with US$620,000 has private hangar at Timehri (2014) (Full Report: http://www.stabroeknews.com/2014/news/stories/11/27/pilot-held-us620000-private-hangar-timehri/)​

The aircraft on which US$620,000 was found in Puerto Rico last week was registered in the United States but it was based in a private hangar at the Cheddi Jagan International Airport (CJIA), Timehri owned by businessman/pilot implicated in the haul, Kem Khamraj Lall.

Lall, who is also a businessman and owns a gas station in Guyana, is now detained in a Puerto Rican jail following his initial court appearance before Magistrate Judge Marcos E. Lopez. During the hearing he was provided with a copy of the complaint and another hearing was set for December 1st where it would be determined whether Lall, a US citizen, was to remain in custody. The charge against Lall read that he knowingly concealed more than US$10, 000 in currency; to wit over US$600,000 and other monetary instruments in a plastic trash bag covered with a blanket under an exit seat of the plane and in an article of luggage, and attempted to transport and transfer such currency and monetary instruments from San Juan, Puerto Rico, a place within the US, to Guyana.

Example 3:

In 1996, Harvard educated Franklin Jurado pleaded guilty to laundering $36 million on behalf of Colombian drug lord José Santacruz-Londoño. Using his economic smarts, Jurado moved the cocaine profits far and wide in an effort to make them seem like legitimate earnings. After being funnelled through various European banks and companies, the funds would eventually make their way back to Santacruz-Londoño’s businesses in Colombia. Eventually, a bank collapse in Monaco highlighted Jurado’s connection to several accounts. An extremely noisy bank counting machine at his house in Luxembourg did not help his cause, either. He was sentenced to seven-and-a-half years in jail.

Example 4:

A money launderer purchased marine property and casualty insurance for a phantom ocean-going vessel. He paid large premiums on the policy and suborned the intermediaries so that regular claims were made and paid. However, he was very careful to ensure that the claims were less than the premium payments, so that the insurer enjoyed a reasonable profit on the policy. In this way, the money launderer was able to receive claims cheques which could be used to launder funds. The funds appeared to come from a reputable insurance company, and few questioned the source of the funds having seen the name of the company on the cheque or wire transfer.

Example 5:

The best known of America’s mobsters was at the forefront of the birth of modern money laundering schemes. It is estimated that he laundered $1 billion through various businesses. His first businesses were in fact laundromats, which, being cash operated, were very helpful in hiding and disguising illegal gains. The fact that Capone made use of the laundry trade is frequently given as the origin for the phrase “laundering” — however this is still subject to debate. Capone was eventually indicted in 1931 for a different financial crime: tax evasion.

Note

 

 

NOTE 1:

 

NOTE 2:

Place the stages of Money laundering in the correct order

  • STAGE 1
    PLACEMENT
  • STAGE 2
    LAYERING
  • STAGE 3
    INTEGRATION

Terrorist Financing

Definitions & Examples

Definition Terrorist Financing

Terrorist financing is the provision of financing for terrorist activity. This may involve legitimate funds, such as personal donations, subscriptions and profits from businesses and charitable organizations, as well as funds from criminal sources, such as the drug trade, the smuggling of weapons and other goods, fraud, kidnapping and extortion.

Terrorist activity involves acts that use or threatened use of violence (terror) in order to achieve a political, religious, or ideological aim.

 

Examples of terrorist activity

  1. Bombings
    Bombings are the most common type of terrorist act. Typically, improvised explosive devices are inexpensive and easy to make. Modern devices are smaller and are harder to detect. They contain very destructive capabilities; for example, on August 7, 1998, two American embassies in Africa were bombed. The bombings claimed the lives of over 200 people, including 12 innocent American citizens, and injured over 5,000 civilians.
  2. Kidnappings and Hostage-Takings 
  3. Armed Attacks and Assassinations
  4. Hijackings and Skyjackings 
  5. Cyberterrorism is a new form of terrorism which allows terrorists to conduct their operations with little or no risk to themselves.

With the spate of terrorist attacks around the world, CFT or countering terrorism financing has become a major focus of governments, regulators and financial entities- like Massy United. It encompasses all efforts put in place to stop the financing of terrorism. It also provides terrorists an opportunity to disrupt or destroy networks and computers. The result is interruption of key government or business-related activities. This type of terrorism isn’t as high profile as other types of terrorist attacks, but its impact can be very destructive. 

Unlike money laundering which is always preceded by an unlawful activity, terrorism may be financed from the proceeds of legal activities (humanitarian organisations, various associations, donations).

This makes detection of terrorist financing very difficult, even more so if we bear in mind the fact that transaction amounts involved in terrorist financing often tend to be smaller than the amounts that under law have to be reported under money laundering. As the measures taken to prevent money laundering are not sufficient in the fight against terrorist financing, they have to be supplemented by special measures prescribed by competent international bodies.

How Terrorist Financing Works

Terrorist Financing Process

 

Terrorist Financing can only come from a legitimate source

  • False
  • True

Difference Between Money Laundering & Terrorist Financing

Differences

 

Money Laundering & Terrorist Financing are linked:

However, the major differences to ML & TF are:

MONEY LAUNDERING

TERRORISM FINANCING

The source of funds tends to be illicit

The source of funds may be licit or illicit

Its purpose is not to increase profit or maintain it but rather to hide and disguise the source.

It has an ideological purpose

It’s used to hide the illicit source of funds

It’s used to finance illicit activities

SOURCE of funds must be verified

The DESTINATION of the funds must be verified

PREVENTION: KNOW YOUR CUSTOMER

PREVENTION: KNOW YOUR CUSTOMER

NOTE

 

The difference between Money Laundering & Terrorist Financing is that ML seek to increase profits and maintain it, while on the other hand TF seeks to fight for some ideological purpose.

  • True
  • False

Legislation

History of AML & AML/CFT Regulations

Brief History of Money Laundering: https://www.youtube.com/watch?v=-8OWQdTfLcw

Terrorist Financing and Anti-Money Laundering Regulations: https://www.youtube.com/watch?v=7Ldx2EVYnJI

 

Trinidad & Tobago Legislation

As a result of historical actions in ML & TF, the Financial Action Task Force (FATF) was established in 1989 by the Ministers of its Member jurisdictions to set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system. 

The FATF issued 40 Recommendations which are recognized as the standards for AML/CFT legislations internationally.

These forty (40) recommendations are used by countries all around to world to develop their AML/CFT framework.  This is the reason why AML/CFT laws from different jurisdictions are similar.

This serves to ensure that the world speaks with one voice in response to the scourge of money laundering and terrorism.

In Trinidad and Tobago, there are various legislation that provide the necessary guidance and set rules to deal with AML & CFT. These legislations (and their subsequent amendments) include:

  1. Proceeds of Crime Act (POCA)
  2. Anti-Terrorism Act (ATA)
  3. Financial Obligations Regulations (FOR)
  4. Financial Intelligence Unit of Trinidad and Tobago Act

The legislation also outlines the penalties and fines that companies and individuals are subject to once prosecuted. For example:

 BRIEF DESCRIPTION OF THE OFFENCE       

RELEVANT LAW

 PENALTY        

Money Laundering ‐ the offence includes concealing, disguising, transferring, receiving, bringing into or removing from T&T money or other property knowing or suspecting that the money or other property was obtained from a specified offence

 S. 29, POCA‐A

 25 Million & 15 years imprisonment on indictment

Tipping Off – disclosing information to any other person knowing that the matter is subject of investigation or proposed investigation

S. 29, POCA‐A   

 5 Million & 5 years imprisonment on summary conviction

Failure to report complex, unusual large transactions to the FIU

 S. 57 (1), POCA                

 500K and 2 years imprisonment on summary conviction; 3 Million & 7 years imprisonment on indictment

Failure to make a suspicious transaction or suspicious activity report to the FIU

 S. 57 (1), POCA                

 500K and 2 years imprisonment on summary conviction; 3 Million & 7 years imprisonment on indictment

 

Choose the applicable AML/CFT Laws that Massy United must comply with:

  • Financial Ocular Regulations
  • Financial Obligations Regulations
  • Proceed of Crime Act
  • Companies Registry Act

AML/CFT Regulators & Massy's Responsibility

FIU & CBTT

The Regulatory bodies that ensure Massy United complies with the applicable legislation are:

1.Financial Intelligence Unit (FIU)

The FIU is the primary institution that collects financial intelligence information, analysis, dissemination, and exchange on all money laundering and terrorist financing activities. They maintain comprehensive statistics on-

  1. Suspicious transaction or suspicious activity reports within 14 days of the date of the activity.
  2. Money laundering investigation and convictions;
  3. Property frozen, seized and confiscated; and
  4. International request for mutual legal assistance or other co-operation

A suspicious transaction (mentioned above) is a

  • A transaction which gives rise to a reasonable suspicion that it may involve the laundering of money or the proceeds of any crime; or funds linked or related to, or to be used for, terrorism or acts of terrorism, whether or not the funds represent the proceeds of a crime:
  • An unusually large and complex transaction, whether completed or not;
  • A transaction which is made by or on behalf of a person whose identity has not been established to the satisfaction of the person with whom the transaction is made;
  • A transaction which gives rise to reasonable suspicion; and
  • Unusual patterns of transactions and insignificant but periodic transactions which have no apparent economic or visible lawful purpose.

 

Red Flags that may give rise to a suspicious activity include:

(a) Customers who are reluctant to provide identifying information when purchasing a product, or who provide minimal or seemingly fictitious information and/or suspicious or fraudulent documents or ID.

(b) Delay in providing or failure to provide information to enable verification to be completed.

(c) Clients who avoid direct contacts with employees, collaborates or the intermediary entity through frequent unjustified issue of mandates or powers of attorney.

(d) Applicant provides information that is difficult or expensive for the institution to verify.

(e) The applicant for insurance business uses a mailing address outside the jurisdiction and where during the verification process it is discovered that the home telephone has been disconnected.

(f) Media reports of illegal activity.

(g) Abnormal business requests.

(h) Any transaction involving an undisclosed party.

(i) Customers who show little concern for the investment performance of a product, but a great deal of concern about the early termination features of the product, including “free look” provisions.

 

2. Central Bank of Trinidad and Tobago (CBTT)

The Financial Obligations Regulations 2010 (FOR) names the CBTT as a Supervisory Authority for the financial institutions that it regulates. The CBTT regulates Massy United.  As such, the CBTT is responsible for ensuring that Massy United complies with the applicable legislation listed above. Part of its regulatory function, the Central Bank issues Guidelines and Circular letters which provide guidance to the industry in respect of anti-money laundering and combating the financing of terrorism on processes, systems and other practices to ensure compliance with the legislation.

 

 

Massy United & your AML/CFT Responsibility

MASSY UNITED does not, and will never knowingly participate in money-laundering and terrorist financing activities with any individual or business.

In Massy United, the Compliance Officer-CO (and/or the Alternate Compliance Officer-ACO) acts as the liaison between Massy United and its Regulators.

It is the CO/ACO who reports to, and receives all requests from the CBTT and the FIU. Due to this the identity of the CO & ACO must remain in strictest confidence and never shared with individuals outside of Massy United.

Massy United (via the Compliance Officer) is required to:

  1. Report quarterly to the FIU on the terrorist assets that may have resulted from an insurance transaction
  2. Be audited annually for compliance with AML/CFT legislation, guidelines and best practices. These  reports are provided to the CBTT for assessment.
  3. Report ML/TF activities to ensure that, in the event of a suspicious activity being discovered, all staff are aware of the reporting chain and the procedures to follow.
  4. Provide suspicious activity reports to the FIU within 14 days of the date of the transaction.
  5. Maintain records for all customer transactions for a period of 6 years after the relationship has ended.

MASSY UNITED employees are required to adhere to all legislation, guidelines and the requirements outlined in MASSY UNITED’s Compliance Programme (CP). The CP is Massy United’s policy and procedures for all things on AML & CFT. It is maintained on the Global server & updated regularly by the CO & ACO. [ GLOBAL SERVER LINK: N:\COMPLIANCE ]

 

 

Suspicious Activity Reporting

As a Massy United Employee suspicious activities must be reported to the CO/ACO within 3 days of the suspicious activity. Failure to report is a breach of POCA and can result in fines for you and Massy United. The steps that must be followed by ALL staff is as follows:

1. Any member of staff who suspects or has reasonable grounds to suspect  that funds are the proceeds of criminal activity including but not limited to illegally obtained funds from fraud, theft, tax evasion, bribery, corruption or terrorist activity, the member of staff has a duty to report this to the CO/ACO. 

2.Once a transaction has been identified as ‘suspicious’, the Member of Staff concerned must file an Internal Suspicious Activity Report with the Compliance Officer within three (3) business days under confidential cover following discussions with their direct Supervisor. The Form is found on the global server. Copies are also available from the CO/ACO.

3.The Compliance Officer shall consider any such report and commence investigation of the report in the light of all other relevant information, for the purpose of determining whether or not the information or other matter contained in the report gives rise to a suspicion of money laundering or criminal activity within five (5) business days of receipt of the report.

4.Where staff continues to encounter suspicious activities on a policyholder account which they have previously reported to the Compliance Officer, they should continue to make reports to the Compliance Officer with any further suspicious transactions.

5. Staff should NEVER tip off customers who have had transactions that are deemed suspicious. Tipping off occurs where the staff member knows or suspects that a disclosure has been made to the CO/ACO, a police officer or the FIU and he discloses to this to the customer, or another person which is likely to prejudice any investigation which may be conducted or is ongoing.  Section 51 of the POCA strictly prohibits Tipping off.

 

Process Flow Chart for Reporting Suspicious Activity

Internal Suspicious Reporting Form (iSAR)

The iSAR Form can be found in the Global server and within the Compliance Programme.

iSAR Form

NOTE

  1. THE IDENTITY OF THE COMPLIANCE OFFICER & ALTERNATE OFFICER MUST REMAIN IN STRICTEST CONFIDENCE AND NEVER SHARED WITH INDIVIDUALS OUTSIDE OF MASSY UNITED.
  2. Report suspicious Activity:
  3. You have 3 days (from the date of the suspicious transaction) to complete the iSAR Form.

 

 

How long must Massy United retain customer records?

  • Six (6) years after the relationship has ended.
  • Six (6) years
  • Seven (7) years after the relationship has ended.
  • Five (5) years

USEFUL LINKS

Global server

All things Compliance can be found in the Global Server: N:\COMPLIANCE. The folder contains:

  1. Compliance Programme & Training  (N:\COMPLIANCE\Compliance Programme & Training)
  2. Applicable Legislation  (N:\COMPLIANCE\Legislation)
  3. Compliance Forms   (N:\COMPLIANCE\FORMS)
  4. Memos & Newsletters (N:\COMPLIANCE\Newsletters & Memo

NOTE: The Compliance Newsletter on Suspicious Activity Reporting can also found on the server N:\COMPLIANCE\Newsletters & Memo.

CBTT & FIU

The Central Bank of Trinidad & Tobago's website contains guidance on AML/CFT. This can be found using the link: http://www.central-bank.org.tt/content/amlctf-legislation-and-regulations.

Similarly the Financial Intelligence Unit's website contains the all applicable AML/CFT guidance similar to the CBTT. This can be found using the link: http://www.fiu.gov.tt/.