Guide to U.S. Anti-Money Laundering Requirements

474 Pages·2012·5.81 MB·English

Guide to U.S.
Anti-Money Laundering Requirements
Frequently Asked Questions
Fifth Edition
PREFACE
“The World Bank and International Monetary Fund estimate that global money laundering
linked to corruption, criminal activity, and tax evasion constitutes about 3 to 5 percent of the
world’s gross domestic product — or between roughly $2.17 and $3.61 trillion a year.”
Source: Malcolm Beith, July 19, 2012, THE DAILY BEAST
Protiviti is pleased to publish this fifth version of its Guide to U.S. Anti-Money Laundering Requirements. As with the
previous editions of the Guide, this 2012 edition contains questions that have surfaced in our discussions with clients,
attorneys, regulators and others, both in the United States and other markets. Over the years, the number of
questions and answers included in the Guide has expanded from 140 in the initial version to more than 1,700 in this
edition. This reflects both the complexity of the topic as well as the continuing evolution of regulatory expectations
and industry-leading practices. Among the new and expanded information included in this version are questions and
answers related to the intersection between anti-money laundering (AML) and the Foreign Account Tax Compliance
Act (FATCA), expanded discussion of human trafficking, new and proposed regulations affecting nonbank mortgage
lenders and housing government-sponsored enterprises (GSEs), recent changes to currency transaction reports
(CTRs) and suspicious activity reports (SARs), updated Financial Action Task Force (FATF) recommendations and
other international developments.
The Guide begins by addressing the major AML and sanction compliance requirements in the United States, namely
the Bank Secrecy Act (BSA), the USA PATRIOT Act and the Office of Foreign Assets Control (OFAC) requirements.
This is followed by sections on Know Your Customer (KYC), Risk Assessments (including an expanded discussion of
high-risk customers), Transaction Monitoring and Investigations, Third-Party Reliance, AML Technology, Nonbank
Financial Institutions and Nonfinancial Businesses, and International Perspectives and Initiatives. Also included in the
resource sections at the back of the Guide are a glossary of useful acronyms and terms, a listing of key AML laws
and regulations, and website addresses for some of the sources used to develop the questions and answers.
Although the focus of the Guide is on U.S. requirements, we have included some highlights of international
requirements and believe the Guide is instructive to companies outside of the United States because of the
convergence of AML requirements and industry-leading practices across the globe.
It is important to note that this Guide is provided for general information only and focuses primarily on federal AML
requirements; it is not intended to be legal analysis or advice, nor does it purport to address, except in a few
instances, state or international money laundering requirements that may affect U.S. companies. Companies should
seek the advice of legal counsel or other appropriate advisers on specific questions as they relate to their unique
circumstances.
The development and maintenance of effective AML Compliance Programs remain dynamic. Accordingly, we expect
many of the responses included in this booklet to continue to evolve.
Protiviti Inc.
November 2012
Acknowledgements
This booklet was developed through the collaborative effort of Protiviti’s AML team, working under the direction of our
colleague and former associate Karen L. Wilkes and Kaitlin Lemmo. The Protiviti AML team extends special thanks to
Deborah Thoren-Peden and Christopher Wall of Pillsbury Winthrop Shaw Pittman LLP, who served as reviewers.
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CONTENTS AT A GLANCE

TABLE OF CONTENTS ............................................................................................................................... 3
ANTI-MONEY LAUNDERING FUNDAMENTALS ..................................................................................... 10
BANK SECRECY ACT ............................................................................................................................... 26
USA PATRIOT ACT ................................................................................................................................... 77
OFFICE OF FOREIGN ASSETS CONTROL AND INTERNATIONAL GOVERNMENT SANCTIONS
PROGRAMS ............................................................................................................................................. 126
KNOW YOUR CUSTOMER, CUSTOMER DUE DILIGENCE AND ENHANCED DUE DILIGENCE ...... 171
RISK ASSESSMENTS ............................................................................................................................. 183
TRANSACTION MONITORING, INVESTIGATIONS AND RED FLAGS ................................................ 258
AML TECHNOLOGY ................................................................................................................................ 274
NONBANK FINANCIAL INSTITUTIONS AND NONFINANCIAL BUSINESSES ................................... 288
CONVERGENCE OF AML WITH FRAUD AND OTHER REGULATORY TOPICS ................................ 356
INTERNATIONAL PERSPECTIVES AND INITIATIVES ......................................................................... 403
ACRONYMS AND GLOSSARY ............................................................................................................... 442
KEY U.S. AML LAWS AND REGULATIONS AND USEFUL WEBSITES .............................................. 462
ABOUT PROTIVITI ................................................................................................................................... 471

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TABLE OF CONTENTS
ANTI-MONEY LAUNDERING FUNDAMENTALS ..................................................................................... 10
Key Definitions ........................................................................................................................................ 10
Overview of U.S. AML Laws and Regulations ........................................................................................ 11
Overview of the U.S. Regulatory Framework ......................................................................................... 13
Key U.S. Regulatory Authorities and Law Enforcement Agencies ..................................................... 13
Financial Crimes Enforcement Network ............................................................................................. 18
Enforcement Actions .......................................................................................................................... 20
AML Compliance Program ...................................................................................................................... 24
BANK SECRECY ACT ............................................................................................................................... 26
Overview of BSA ..................................................................................................................................... 26
Reporting Requirements ......................................................................................................................... 27
Currency Transaction Reports ........................................................................................................... 27
CTR Basics .................................................................................................................................... 27
CTR Threshold and Aggregation ................................................................................................... 30
Completion of a CTR Form ............................................................................................................ 32
CTR Exemptions ............................................................................................................................ 32
CTR Evasion .................................................................................................................................. 36
Form 8300 .......................................................................................................................................... 37
Form 8300 Basics .......................................................................................................................... 37
Annual Notification ......................................................................................................................... 40
Filing of Form 8300 ........................................................................................................................ 41
Reporting Suspicious Activity on Form 8300 ................................................................................. 42
Suspicious Activity Reports ................................................................................................................ 42
SAR Basics .................................................................................................................................... 43
SAR Filing Time Frame and Date of Initial Detection .................................................................... 47
Completion of a SAR ...................................................................................................................... 49
Confidentiality ................................................................................................................................. 51
Joint Filings of SARs ...................................................................................................................... 53
Safe Harbor .................................................................................................................................... 53
Monitoring and Terminating Relationships with SAR Subjects ...................................................... 54
Law Enforcement ........................................................................................................................... 55
SAR Trends .................................................................................................................................... 57
Report of Foreign Bank and Financial Accounts ................................................................................ 59
FBAR Basics .................................................................................................................................. 59
FBAR Filing .................................................................................................................................... 62
Recent Tax Scandals ..................................................................................................................... 63
Report of International Transportation of Currency or Monetary Instruments ................................... 63
CMIR Basics .................................................................................................................................. 63
CMIR Filing .................................................................................................................................... 65
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Recordkeeping Requirements ................................................................................................................ 66
Funds Transfer Recordkeeping Requirement and the Travel Rule ................................................... 67
Funds Transfer Recordkeeping Requirement and the Travel Rule Basics ................................... 67
Addresses and Abbreviations ........................................................................................................ 70
Verification of Identity ..................................................................................................................... 71
Joint Party Transmittals and Aggregation ...................................................................................... 71
Retrievability ................................................................................................................................... 72
Cross-Border Electronic Transmittal of Funds ................................................................................... 72
Recordkeeping Requirements for the Purchase and Sale of Monetary Instruments ......................... 73
USA PATRIOT ACT ................................................................................................................................... 77
Overview of the USA PATRIOT Act........................................................................................................ 77
USA PATRIOT Act – Analysis of Key Sections ...................................................................................... 82
Section 311 – Special Measures ........................................................................................................ 82
Section 312 – Special Due Diligence for Correspondent Accounts and Private Banking Accounts .. 84
Overview ........................................................................................................................................ 84
Due Diligence for Correspondent Accounts ................................................................................... 87
Enhanced Due Diligence for Correspondent Accounts ................................................................. 89
Due Diligence for Private Banking Accounts ................................................................................. 90
Enhanced Due Diligence for Private Banking Accounts ................................................................ 92
Senior Foreign Political Figure................................................................................................... 92
Section 313 – Prohibition on U.S. Correspondent Accounts with Foreign Shell Banks ..................... 94
Section 314 – Cooperative Efforts to Deter Money Laundering ......................................................... 95
Section 314(a) – Cooperation among Financial Institutions, Regulatory Authorities and Law
Enforcement Authorities ................................................................................................................. 95
Section 314(b) – Cooperation among Financial Institutions .......................................................... 98
Section 319 - Forfeiture of Funds in U.S. Interbank Accounts ......................................................... 100
Section 319(a) Requirements – Forfeiture from U.S. Interbank Accounts .................................. 100
Section 319(b) Requirements – Bank Records ........................................................................... 101
Domestic Financial Institution Records (“120-Hour Rule”) ...................................................... 101
Foreign Bank Records ............................................................................................................. 101
Foreign Bank Certifications...................................................................................................... 101
Section 325 – Concentration Accounts at Financial Institutions ...................................................... 103
Section 326 – Verification of Identification ....................................................................................... 104
Overview ...................................................................................................................................... 104
Customer Defined ........................................................................................................................ 105
Account Defined ........................................................................................................................... 107
Verification ................................................................................................................................... 107
Updating CIP for Existing Customers .......................................................................................... 110
Record Retention ......................................................................................................................... 110
List Matching ................................................................................................................................ 111
Customer Notice .......................................................................................................................... 111
Third-Party Reliance .................................................................................................................... 111
Section 352 – AML Program ............................................................................................................ 112
Overview ...................................................................................................................................... 112
Policies and Procedures .............................................................................................................. 114
Designation of AML Compliance Officer and the AML Compliance Organization ....................... 115
AML Training ................................................................................................................................ 118
Independent Testing .................................................................................................................... 120
Section 505 – Miscellaneous National Security Authorities ............................................................. 124
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OFFICE OF FOREIGN ASSETS CONTROL AND INTERNATIONAL GOVERNMENT SANCTIONS
PROGRAMS ............................................................................................................................................. 126
OFAC Basics ........................................................................................................................................ 126
Specially Designated Nationals and Blocked Persons List .................................................................. 130
Country- and Regime-Based Sanctions Programs............................................................................... 132
Non-Specially Designated Nationals Palestinian Council List .............................................................. 132
U-Turn Payments .................................................................................................................................. 132
Iranian Sanctions Overview .................................................................................................................. 133
Overview ........................................................................................................................................... 133
Comprehensive Iran Sanctions, Accountability and Divestment Act (CISADA) in 2010 and the Iran
Threat Reduction and Syria Human Rights Act in 2012................................................................... 137
Impact on Financial Institutions .................................................................................................... 140
National Defense Authorization Act for Fiscal Year 2012 ................................................................ 147
Executive Orders and Other Sanctions ............................................................................................ 150
Screening Customers and Transactions .............................................................................................. 152
Automated Clearing House Transactions and IATs ......................................................................... 155
Trade Finance Transactions ............................................................................................................. 157
Blocking and Rejecting Transactions ................................................................................................... 158
Investigating Potential Matches ............................................................................................................ 159
Reporting Requirements ....................................................................................................................... 160
Blocked/Rejected Transaction Reports ............................................................................................ 160
Licensing .......................................................................................................................................... 161
602 Letter and Prepenalty Notice ..................................................................................................... 164
Voluntary Disclosure ............................................................................................................................. 164
Independent Testing ............................................................................................................................. 165
Consequences of Noncompliance ........................................................................................................ 166
Common Gaps and Challenges............................................................................................................ 167
Other U.S. and International Government Sanctions Programs .......................................................... 168
KNOW YOUR CUSTOMER, CUSTOMER DUE DILIGENCE AND ENHANCED DUE DILIGENCE ...... 171
Overview ............................................................................................................................................... 171
Beneficial Owners ................................................................................................................................. 177
Know Your Employee ........................................................................................................................... 180
Know Your Third Parties ....................................................................................................................... 180
RISK ASSESSMENTS ............................................................................................................................. 183
Overview ............................................................................................................................................... 183
Enterprise-wide Risk Assessment ........................................................................................................ 185
Business Line Risk Assessment ........................................................................................................... 186
Customer Risk Assessment .................................................................................................................. 187
High-Risk Geographies .................................................................................................................... 190
High-Risk Customers........................................................................................................................ 192
Nonresident Aliens and Foreign Persons .................................................................................... 194
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Professional Service Providers .................................................................................................... 196
Trust and Asset Management Services ....................................................................................... 197
Deposit Broker ............................................................................................................................. 200
Private Banking ............................................................................................................................ 201
Politically Exposed Persons ......................................................................................................... 202
Foreign Embassy and Consulates ............................................................................................... 204
Business Entities: Shell Companies, Private Investment Companies ......................................... 206
Correspondent Banking ............................................................................................................... 208
Nonbank Financial Institutions ..................................................................................................... 210
Charitable Organizations and Nongovernmental Organizations ................................................. 211
Third-Party Payment Processors ................................................................................................. 212
Privately Owned Automated Teller Machines (ATMs) ................................................................. 216
High-Risk Products, Services and Transactions .............................................................................. 217
Currency Transactions ................................................................................................................. 217
Bulk Shipments of Currency .................................................................................................... 219
Funds Transfers ........................................................................................................................... 221
Automated Clearing House Transactions .................................................................................... 223
Monetary Instruments .................................................................................................................. 227
U.S. Dollar Drafts ......................................................................................................................... 228
Pouch Activity ............................................................................................................................... 229
Payable Through Accounts .......................................................................................................... 231
Concentration Accounts ............................................................................................................... 232
Electronic Banking ....................................................................................................................... 233
Online Banking ........................................................................................................................ 234
Automated Teller Machines ..................................................................................................... 235
Remote Deposit Capture ......................................................................................................... 235
Prepaid Access, Stored-Value and E-Cash ................................................................................. 238
Trade Finance Activities ............................................................................................................... 242
Lending Activities ......................................................................................................................... 249
Nondeposit Investment Products ................................................................................................. 251
Insurance Products ...................................................................................................................... 253
Administration of Customer Risk Assessment ................................................................................. 254
Office of Foreign Assets Control Risk Assessment .............................................................................. 255
TRANSACTION MONITORING, INVESTIGATIONS AND RED FLAGS ................................................ 258
Monitoring Process ............................................................................................................................... 258
Roles and Responsibilities .................................................................................................................... 260
Investigation Process ............................................................................................................................ 261
Suspicious Activity Red Flags ............................................................................................................... 263
Account Opening Red Flags ........................................................................................................ 264
Account Activity and Transaction Execution Red Flags .............................................................. 264
Currency Red Flags ..................................................................................................................... 265
Privately Owned ATM Red Flags ................................................................................................. 265
Bulk Shipments of Currency Red Flags ....................................................................................... 266
Branch and Vault Shipments Red Flags ...................................................................................... 266
Monetary Instrument Red Flags ................................................................................................... 266
U.S. Dollar Draft Red Flags ......................................................................................................... 267
Wire Transfer Red Flags .............................................................................................................. 267
Certificate of Deposit Red Flags .................................................................................................. 268
Safe Deposit Box Red Flags ........................................................................................................ 268
Lending Red Flags ....................................................................................................................... 268
Mortgage and Real Estate Red Flags .......................................................................................... 268
Credit Card Red Flags ................................................................................................................. 268
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Trade Finance Red Flags............................................................................................................. 269
Capital Market Products Red Flags ............................................................................................. 269
Insurance Products Red Flags ..................................................................................................... 270
Casino Red Flags ......................................................................................................................... 270
Retail Red Flags ........................................................................................................................... 270
Consumer Products Red Flags .................................................................................................... 271
Human Trafficking ........................................................................................................................ 271
Elder Financial Abuse .................................................................................................................. 272
Informal Value Transfer System (IVTS) Red Flags ..................................................................... 272
Terrorist Financing Red Flags ...................................................................................................... 273
Employee Red Flags .................................................................................................................... 273
AML TECHNOLOGY ................................................................................................................................ 274
Overview ............................................................................................................................................... 274
Suspicious Transaction Monitoring and Suspicious Activity Report Filing Software ............................ 276
Case Management Software ................................................................................................................ 282
Large Currency Transaction Monitoring and Currency Transaction Report Filing Software ................ 283
Customer Information Database and Customer Risk Assessment Software ....................................... 283
Customer Verification Software ............................................................................................................ 284
List Providers ........................................................................................................................................ 285
Interdiction Software ............................................................................................................................. 286
Training Software .................................................................................................................................. 287
NONBANK FINANCIAL INSTITUTIONS AND NONFINANCIAL BUSINESSES ................................... 288
Nonbank Financial Institutions .............................................................................................................. 288
Money Services Businesses ............................................................................................................ 290
Definition ...................................................................................................................................... 290
Issuers and Sellers of Money Orders and Traveler’s Checks ................................................. 291
Check Cashers ........................................................................................................................ 291
Dealer in Foreign Exchange .................................................................................................... 292
Providers or Sellers of Prepaid Access ................................................................................... 292
Money Transmitters ................................................................................................................. 293
Guidance on the Applicability of the Definition of Money Services Businesses ...................... 294
Key AML and Sanction Requirements ......................................................................................... 295
Registration .................................................................................................................................. 299
Agents .......................................................................................................................................... 301
Informal Value Transfer Systems ................................................................................................. 303
Definition .................................................................................................................................. 303
Black Market Peso Exchange .................................................................................................. 304
Reintegro ................................................................................................................................. 305
Providers and Sellers of Prepaid Access ......................................................................................... 305
Definitions .................................................................................................................................... 305
Key AML and Sanction Requirements ......................................................................................... 311
Broker-Dealers ................................................................................................................................. 314
Definition ...................................................................................................................................... 314
Key AML and Sanction Requirements ......................................................................................... 316
Futures Commission Merchants and Introducing Brokers ............................................................... 320
Definition ...................................................................................................................................... 320
Key AML and Sanction Requirements ......................................................................................... 321
Commodity Trading Advisers ........................................................................................................... 323
Definition ...................................................................................................................................... 323
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Key AML and Sanction Requirements ......................................................................................... 323
Mutual Funds .................................................................................................................................... 324
Definition ...................................................................................................................................... 324
Key AML and Sanction Requirements ......................................................................................... 325
Insurance Companies ...................................................................................................................... 326
Definition ...................................................................................................................................... 326
Key AML and Sanction Requirements ......................................................................................... 327
Casinos or Card Clubs ..................................................................................................................... 329
Definition ...................................................................................................................................... 329
Key AML and Sanction Requirements ......................................................................................... 330
Operators of Credit Card Systems ................................................................................................... 335
Definition ...................................................................................................................................... 335
Key AML and Sanction Requirements ......................................................................................... 336
Dealers in Precious Metals, Stones or Jewels ................................................................................. 337
Definition ...................................................................................................................................... 337
Key AML and Sanction Requirements ......................................................................................... 338
Investment Advisers and Unregistered Investment Companies ...................................................... 339
Definition ...................................................................................................................................... 339
Key AML and Sanction Requirements ......................................................................................... 340
Persons Involved in Real Estate Settlements and Closings ............................................................ 342
Definition ...................................................................................................................................... 342
Key AML and Sanction Requirements ......................................................................................... 343
Nonbank Residential Mortgage Lenders and Originators ................................................................ 344
Definition ...................................................................................................................................... 344
Key AML and Sanction Requirements ......................................................................................... 346
Housing Government Sponsored Enterprises .................................................................................. 349
Definition ...................................................................................................................................... 349
Key AML and Sanction Requirements ......................................................................................... 350
Nonfinancial Businesses ....................................................................................................................... 353
Definition ...................................................................................................................................... 353
Key AML and Sanction Requirements ......................................................................................... 354
CONVERGENCE OF AML WITH FRAUD AND OTHER REGULATORY TOPICS ................................ 356
AML and Anti-Fraud Programs ............................................................................................................. 356
CIP vs. Identity Theft Prevention Program ........................................................................................... 358
Mortgage Fraud .................................................................................................................................... 362
Unlawful Internet Gambling Enforcement Act ....................................................................................... 367
Human Trafficking ................................................................................................................................. 374
Elder Financial Abuse ........................................................................................................................... 386
Foreign Account Tax Compliance Act .................................................................................................. 391
FATCA Basics .................................................................................................................................. 391
Participating Foreign Financial Institutions ....................................................................................... 395
FFI Agreement .................................................................................................................................. 395
Registration ...................................................................................................................................... 396
Due Diligence ................................................................................................................................... 397
Identification of U.S. Account holders .......................................................................................... 397
Pre-Existing Individual Accounts .................................................................................................. 397
New Individual Accounts .............................................................................................................. 398
Pre-Existing Entity Accounts ........................................................................................................ 398
Pre-Existing New Entity Accounts ................................................................................................ 399
Recalcitrant Account holders ....................................................................................................... 399
Withholding ....................................................................................................................................... 400
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Certification ....................................................................................................................................... 401
Reporting .......................................................................................................................................... 401
U.S. Financial Institutions/Withholding Agents ................................................................................. 402
INTERNATIONAL PERSPECTIVES AND INITIATIVES ......................................................................... 403
International Perspectives .................................................................................................................... 403
Key International Groups and Initiatives........................................................................................... 404
Financial Action Task Force ................................................................................................................. 416
FATF Basics ..................................................................................................................................... 416
FATF Recommendations ................................................................................................................. 422
Definitions .................................................................................................................................... 425
High-Risk and Non-Cooperative Jurisdictions .................................................................................. 427
Members and Observers .................................................................................................................. 431
Mutual Evaluations ........................................................................................................................... 434
ACRONYMS AND GLOSSARY ............................................................................................................... 442
KEY U.S. AML LAWS AND REGULATIONS AND USEFUL WEBSITES .............................................. 462
ABOUT PROTIVITI ................................................................................................................................... 471

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