Company Law Assignment Sample: Anti-Money Laundering

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Introduction

As per the mentioned case, I was appointed as Country Head of Anti-Money Laundering. This firm aims to regulate international financial services. The head office of that firm is located in my vicinity and under my jurisdiction. My job is to report all the issues within the firm directly to the global head of AML. The role of my job is to complete a thorough review of the ongoing AML/CFT policies, procedures, systems, and controls within the firm or organisation. Many deficiencies in this firm’s AML/CFT area must be addressed to avoid future consequences for the Company.

This report highlights the key factors that need to be addressed on the immediate effect, the risk to the Company caused by the deficiencies, and the suggestion or the steps to sort out these deficiencies with the help of international best practices.

The primary jurisdiction applied throughout the report is the pecuniary jurisdiction. Because it is the only jurisdiction that will address the monetary factors, it is related to the court’s ability to hear disputes based on the monetary damages sought.

(A)

Deficiencies found within the organisation

Many deficiencies are found within the organisation. The deficiencies are discussed below briefly,

• Customer risk rating

The customer risk rating is one of the primary methods to identify money laundering by any AML organisation. When any AML firm conducts customer due diligence, the first and foremost step an organisation should take is to do the risk rating for the customer. It is the pre-request of the procedure.The AML compliance officer should set the rules and standards for the risk rating methodology. An overview of the various variables analysed as part of a CDD AML risk assessment is provided below.

Figure Source: Risk Assessed Variables – Customer Due Diligence

Based on the evaluation of the client and account characteristics listed below, an overall rating will be assigned..The rationale for each of the following elements must be documented. If a risk rating platform is used to calculate the rating, the platform can be relied on as long as the criteria meet the requirements outlined herein.

• The customer’s name
• Customer’s mailing address and country
• Customer Type (Domestic, foreign, LLC, Corp, regulated, high-cash business, etc.)
• The customer’s industry of operation
• Expected account activities
• The customer’s asset/wealth source
• Customer reputation (Cigarette Company? Weapons dealer, for example.)
• Beneficial owners of the account (individuals or corporations that benefit from or have controlling rights over the account)
• The account’s purpose

Customer risk rating tool and methodology

The first important thing that should be analysed in this process is about to Know Your Customer (KYC). KYC is the process in which the Company should collect information about their customer and verify their identity based on gathered data or information related to the customer. So the financial bodies carried out the information to prevent financial crimes. The AML measures all this information to carry out relevant information about their clients. Before opening an account for the customer, the customer risk rating should be done. The process of risk rating should be done throughout the life of the customer. Once the risk rating methodology can be applied, both parties need approval on this risk rating, namely, the firm’s compliance and senior business management.

The firm usually categorises the customer’s risk rating into Low, Medium and High. Some firms only use Low and High categories without the Medium rating.. Once the ratings are finalised, the AML Compliance Officer will send a notification for approval. The approval may be in the form of writing, or it may be electronically generated.

Each customer should be designated in the low, medium or high-risk ratings. If a customer has a domicile in the US, they should be marked as a low-risk country; if a customer has a domicile in countries like Columbia or Cuba, they will be marked or rated as a high-risk country. Furthermore, if a customer is involved in suspicious acts like gambling etc., they will be rated as high risk because the possibility of money laundering will be higher. This type would all lie in the category of customer type.. The primary aim of the firm behind all this customer risk rating is to evaluate the risk assessment that is based or can be judged on the variables mentioned above, which will vary from customer to customer.

So as per the mentioned case, the AML firm has an incorrect data risk rating of several clients regarding the requirements for due diligence at account opening, which is the most severe issue that needs to be addressed immediately. Otherwise, it would harm the liability of the firm.

• Document Verification

Document verification of the customer is another tool for accessing financial terrorism. The customer’s identity verification should be based on face-to-face verification of the client or customer. All the documents of the customer are certified by a trusted organisation. An electronic system should verify the customer’s name, date of birth and address. Verification is the process in which the customer’s data will be analysed to complete the customer risk rating process. This process involves reliable information about customer information, documents etc. because of the strict laws of the AML, all the procedures, risk rating or document verification must be done to fulfil the requirements of the AML.

After knowing the importance of document verification, checking and verifying all the customer documents according to the AML firm’s policy is essential. But as per the mentioned case, no check balance on the verification can be noticed during the investigation. In reviewing the clients’ files, it has been observed that the clients’ documents are missing, and there is also no check and balance maintained in verifying the present files.

The check and balances over the clients are of great importance. Keeping an eye on the customer’s activities will help to identify whether the customer is involved in money laundering or not. Any suspicious activity, like if the customer deposits a considerable amount in their account or if they are frequently transferring their money into different accounts without having any solid reason, So are some signs that the customer is involved in the laundering of money. So if any suspicious signs are found in the customer, the AML firm should communicate this to higher authorities to further investigate the case.

• Training of AML Rules

The AML staff should be trained to prevent their customers’ criminal activities. The identification of the money laundering customer is quite a difficult task. The statics shows that about 90% of money laundering cannot be identified by the government, as per the statistics of the UN. So it is quite a complex process, and the AML force must face many challenges during the identification process. The money used in Money Laundering ranges from 800 to 2 trillion dollars, a large amount that can be spent on illegal activities like prevailing terrorism worldwide and much more. The AML/CFT rules vary from country to country.. These rules are implemented in the business to keep the money launderers away from the business. These rules and regulations are changing from time to time to prevent new ways of criminal activities. The business firms conduct the proper training sessions for their staff and employees to give them awareness about the ways and signs of money laundering. So the anti-money laundering rules are elaborated to the staff to give them complete knowledge about the money laundering process. These rules help them to identify financial fraud or crimes. For this purpose, the organisation was established in 1989, called Financial Action Task Force (FATF).

The aim of forming this organisation is to design the policies and procedures and to conduct AML training that must be provided to the employees. The AML training given to employees of any firm should cover all the aspects of the AML process, policies and rules etc., for the business. The choice of the AML module is of great importance. The best module of AML selected by the Company can help adequately train employees.

The best module of AML can make them so efficient that they can easily detect money laundering through their customers or client transactions. After the proper training of employees, they can verify their customers’ documents, analyse risk ratings associated with the customer, etc. Participants in the AML training will understand how AML laws and regulations work. They will become acquainted with the AML framework and better prepared to deal with financial crimes.

Now the criminals are multi-talented. They are not only following the same path for committing illegal activities. But they are changing techniques day by day. So to combat these types of criminals, the employees should be proactive. The training should be mandatory for employees of banks’ compliance officers, exchange officers, audit, foreign trade, and investment banks.. Fund managers, precious metals exporters, and foreign exchange traders should all receive AML training because all position holders or officers are directly or indirectly constantly dealings with the clients or customers. If anyone breaks any rule of AML, they will be suffered terms of imprisonment. The charges will charge against that person, and it may be in the form of heavy fines, penalties or imprisonment.

Money laundering not only happened in the 21st century but back in the 1920s; an American gangster first did this in the form of smurfing. Smurfing is used when a large amount of money will split into smaller fractions and can be transferred to different bank accounts. This technique is used to dodge the investigators. Thus untrained employees cannot detect such kind of Money laundering. That’s why it is better to educate or train the employees that are part of any financial authorities. As time passes, this illegal activity prevails all over the world. The online system of banking makes it more difficult to track money launderers. Online systems allow money launderers to quickly transfer their money through an online facility. About $ 300 billion is being laundered annually.

But as per the mentioned case, the AML/CDD training at all levels of staff was optional and not recorded. This behaviour is hazardous because it provides room to the money launderers. The customer can do money laundering in that case without providing the knowledge to the officers of AML. The untrained AML officers are not even noticed any suspicious activity that the money launderer can be done for money laundering.

• Suspicious Activity Reports

The SAR is the document that the bank or any financial organisation submits to the higher financial authorities to evaluate illegal transactions. The individual could submit this report if they noticed some suspicious activity in monetary terms. SAR is not only limited to the AML, but it has a wide range of usages, such as in identifying the murderers or persons taking illegal footage. For example, if a person is involved in porn, they will be identified with the help of SAR. With the help of SAR, the concerned authorities can prevent illegal activities by arresting such persons involved in some suspicious activity or the person that causes justice to society.

In the UK, the information the SAR provides, like any suspicious person’s contact details and bank account details, can open new doors to the investigation.SARs provide intelligence about criminal methods, contribute to the UK’s understanding of crime, and inform crime-reduction strategies.

SARs can also be used in the analysis of suspicious activity before and after a specific event, such as a terrorist incident, to help establish a geographical picture or pattern of the vulnerability of a specific sector or product. The SAR will protect the Company from emerging crimes within the Company. The UK Financial Intelligent Unit (UKFIU) is the unit known for SAR analysis. It annually receives approximately 460,000 SARs. It saves all their SARs in its central database, chooses the most sensitive SARs from them, and then sends the selected SARs to the appropriate organisation for investigation.

The SAR may be submitted through an online system. This online facility is the easiest way to submit SAR. The advantage of SAR online submission over manual submission is that the online service may be available 24/7. It is a quicker procedure than the manual submission system. The SAR would be considered best, as much as it contains the information. In other words, the more information contained by SAR, the more it will help the investigation process.

As per the mentioned case, the internal suspicious activity reporting procedures were vague and lacked clarity. Few internal reports resulted in external SAR/STR reports to law enforcement. This behaviour is irresponsible behaviour shown by the staff of the AML firm, that only a few SAR reports were found within the AML firm. This deficiency of the AML firm also gives advantages to the money launderers in providing the way to criminals for criminal activity like financial terrorism etc.

• AML Management

The application of the AML/CFT might seem more straightforward, but it is not as accessible as seen. The Company having all the rules of AML cannot be justified until and unless the Company assures the proper application of AML and management of the AML. This problem of managing the AML in the Company would be multiplied if the Company is gigantic and it is challenging to manage all the affairs of the Company. If the rules of AML are not appropriately implemented, the Company will lose its reputation in the market, and heavy fines should be paid to the Company. To combat all these conditions, the Company should empower their employees as much as possible, like the employees feel free to consult with their top management.

The employees should feel confident when they see any suspicious activity within the Company’s boundaries and report it immediately to the concerned authorities. The Company should also reward their employees for reporting the correct information within the time and to the concerned authorities.

To avoid the higher risk factor for the Company, the time and sharing of the information with the concerned person are of great importance. Because the information provided timely and shared with the appropriate person can significantly reduce the Company’s risk, while conducting interviews, the Company should prefer candidates who are skilful and familiar with the AML rules and regulations.

As per the mentioned case, the quality of management information produced by the AML/CFT compliance teams for review by Senior Management lacked significant detail. Senior management seemed unconcerned and appeared to focus more on sales performance.

This irresponsible behaviour of the Company would create disaster for the Company. Because due to the negligence of the top authorities, if one case can be detected or found within the Company, the Company would pay the hefty penalties in monetary terms, and the liability of the Company would also be in danger. So it is better to manage the AML rules within the Company before the Company faces any consequences.

(B)

Risk Identification Due To Deficiencies

Several risks are arising due to the deficiencies mentioned above. The risks are indicated below:

• Risk related to Customer Risk Rating

If the customer risk rating should not be performed correctly. There is a chance that the client’s engagement in illegal activities increases due to insufficient investigation of the customer. Know Your Customer is one of the most basic requirements of the AML rule. It is essential to know your customer to save the Company from penalties or to ensure that the information that the customer provides is reliable or not. So to avoid any misunderstanding between the Company and their customer, it is better to conduct due diligence on the customer before starting any deal.

• Document Verification

The document verification also lies in the category of KYC. If the Company does not do the proper client documentation, the Company would be accountable for that in front of AML forces.. So it is better to do the proper documentation. After receiving the proper documents of the customer, it should be verified electronically that weather the required documents of the client is fake or authentic. Otherwise, the risk rating of the Company will be high.

• AML Training

If the workers are not trained fully, in terms of that, they do not know about the rules of the AML. So they cannot help the authorities identify any suspicious activity. Because the AML authorities are not aware of the money launderers until and unless the Company’s trained employees provide some information about any suspicious activity, the concerned authorities will start the proper investigation against the money launderers.

• Suspicious Activity Reports

These reports are also beneficial in identifying the money launderers. Suppose the information provided in these reports is not proper or irrelevant. In that case, it will cause difficulties for the AML forces or authorities in identifying the person involved in illegal activities..

• AML Management

It is also one of the essential tools to control the AML regulations within the Company. Check from time to time whether all the requirements of the AML regulations are fulfilled or not. Otherwise, the improper management of AML will damage the reputation and liability of the Company.

(C)

Anti-Money Laundering Measures

The following measures should be taken to avoid any money laundering within the firm:

• Risk Rating By Knowing Your Customer

The risk rating is done to minimise the risk of the Company. This minimisation requires the proper due diligence of the customer. This process can be done through the customer’s passport or the driver’s license when the customer is opening an account or doing some transaction within their accounts. The progress of the business is directly related to the reliability of the customer. If the customer is reliable, it will automatically benefit the Company.

• Document Verification

The documents required for account opening or according to the rules of AML must be verified to check the customer’s reliability. All the documents of the customer are certified by a trusted organisation.. An electronic system should verify the customer’s name, date of birth and address. Verification is the process in which the customer’s data will be analysed to complete the customer risk rating process.

• AML Training

The training of the customers is also another strategy that is used to ease the process of identification of the money launderers.AML training should be comprehensive, including rules and regulations for CDD (Customer Due Diligence), KYC (Know Your Customer), KYE (Know Your Employee), and identifying PEP (Politically Exposed Persons). It also includes the Suspicious Transactions Rating Scale, the Risky Customer Rating Scale, AML/OFAC risk assessments, PEP measures, and current regulations.

• Suspicious Activity Reports (SARs)

The SARs is one of the critical factors in measuring the AML rules implemented within the Company. Identifying money laundering may be an expensive process, but it is the primary tool to combat it. The SARs helps the AML forces to sort out the money launderers and give them punishment according to the situation of the crime in which they are involved.

• Management of AML Rules

Another essential requirement is that businesses have internal controls to prevent and detect money laundering. This control includes implementing policies and procedures to ensure compliance with anti-money laundering laws..Employees are also trained on how to detect and report suspicious activity. Businesses should also set up systems to monitor transactions and flag any that appear suspicious.

CONCLUSION

Since money Laundering refers to hiding the origins from which the money is generated. It is one of the most disgusting criminal acts, and it is rising day by day in the 21st century. The money, most probably, in the case of money laundering, can be obtained from gambling, corruption, drugs etc., so it can be described as illegal money that can be earned through illegal ways. So to prevent this criminal activity, the Anti-Money Laundering firms are active and working day and night against the money laundering activities.

They control these kinds of illegal activities by applying strict laws and regulations over the customer to ensure that their customer is reliable or not. It can all be done through SARs, by Knowing Your Customer (KYC) and by hiring trained employees within the Company that must be aware of the AML rules and regulations.

References

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