Office of Corporate and Regulatory Compliance ACSDA Leadership Forum (ALF) October 8, 2007

1. Office of Corporate and Regulatory ComplianceACSDA Leadership Forum (ALF)October 8, 2007

2. Presentation today • Background • Definition of Money Laundering • Role of Compliance in the Industry • The four Pillars of a Strong Anti-Money Laundering Program • Structure of The Office of Corporate and Regulatory Compliance • Questions

3. Background Brief History of USA AML Law

4. Brief History of USA AML Law (continued)

5. Anti- Money Laundering Regulations • Office of Foreign Assets Control Regulations • USA PATRIOT Act

6. Office of Foreign Asset Control (OFAC) Regulations • Financial institution must identify and freeze the assets of targeted countries, terrorists, drug cartels and other specially designated persons • Periodically issued as Specially Designated Nationals and Blocked Entities List (SDN List)

7. USA PATRIOT Act October 25, 2001 • P Providing • A Appropriate • T Tools • R Required to • I Intercept and • O Obstruct • T Terrorism • U Uniting and • S Strengthening • A America by

8. The USA PATRIOT Act “Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism” • Signed into law October 2001 • Title III addresses implications for financial institutions • Implemented through changes and additions to the Bank Secrecy Act

9. Title III of the USA PATRIOT Act International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001 • Most comprehensive anti-money laundering legislation since the 1970 Bank Secrecy Act. • Far reaching in scope and contains provisions for combating international money laundering and blocking terrorists’ access to the U.S. financial system. • Relates to U.S. financial institutions’ relationshipswith foreign banks and with persons who are residents outside the U.S.

10. AML compliance after the USA PATRIOT Act • Requirements to understand, assess and monitor customer base • Increased role of financial institutions in reporting suspicious activities

11. Know Your Customer (KYC)/Enhanced Due Diligence (EDD) The objective of a KYC policy and procedures is to: • Help detect suspicious activity in a timely manner; • Comply with applicable laws and regulations; • Minimize the risk that financial Institutions will be used for illegitimate activities; and • Protect the financial institution’s reputation.

12. What is Suspicious Activity? Examples: • Sudden/Unexplained transaction volume or type; • Lack of concern about risks/transaction costs; • Transactions with money changers or off-shore banking centers; or • No reason for maintaining relationship or apparent business purpose. • Important for employees to understand the “red flags” inherent in their particular product area. Willful Blindness • Where there are prominent “red flags” that signal that criminal activity is afoot, a jury may infer that a defendant deliberately ignored facts which would have otherwise been obvious to a reasonable person.

13. Financial Crimes Enforcement Network (FinCEN) • Created in 1990 as part of the US Treasury Department. • Supports and cooperates with global law enforcement and similar agencies (e.g.. FATF) to combat international financial crimes. • Provides strategic analysis. • Enforces USA Patriot Act (e.g.. Section 314). • Reviews Non-Cooperative Countries and Territories (NCCTs).

14. What is Money Laundering? Patriot Act Expanded Definition: • Flow of legitimately derived funds for illicit purposes, usually cross border.

15. Three Stages Of Money Laundering? • Layering : Crossing borders, ownership, custody. • Integration: Buying securities, apartment houses, annuities • Placement: Going from the money bag to the bank.

16. Key Role of Depositories • Depository financial institutions (which include banks, savings & loan associations or thrifts, and credit unions) form the financial backbone of the United States. • In almost every money laundering typology, a bank is employed domestically or abroad to hold or move funds.

17. Correspondent Banking • Seen as a money laundering gateway to the U.S. financial markets. • Vulnerable to “nesting”.

18. Role of Compliance to the industry • To promote compliance of industry laws and regulations. • To emphasize interest in contributing to investor protection and the integrity of the financial industry. • Effective compliance is good business. When scandal follows in the wake of compliance failure, customers question the integrity of their financial service provider. The question does not require a conclusive answer from the customers’ perspective. When clients begin to question the firm’s integrity, they walk and the value of the company leaves with them.

19. The Anti-Money Laundering Program Four Requirements for the Program: • Designation of a BSA/AML Officer • System of policies, procedures and internal controls • Training • Independent Testing

20. The BSA/Anti-money Laundering Program The program must be tailored to the risk of the bank • Customer base • Geographies • Products and services Documented Risk Assessment

21. Compliance Department - Governance Governance, Controls and Oversight Board of Directors AML Steering Committee Internal Compliance Committee SAR Sub-Committee Internal Risk Management Committee Compliance & OP Risk Committee Audit Committee Framework Pre-Cursers Support / Interface Compliance Program Framework Training Operations Donald F. Donahue Chairman and Chief Executive Officer Monitoring, Testing and Reporting Membership Services Larry Thompson Executive Managing Director Policies and Procedures Credit & Market Risk COMPLIANCE DEPARTMENT Relationship Management Risk Assessment and Mitigation

22. Department Mission • To protect DTCC from regulatory and reputational damage and harm. • Provides enterprise-wide oversight and support to DTCC’s subsidiaries and business areas in the establishment and implementation of procedures to ensure compliance with the applicable laws and regulations, including all AML laws and regulations.

23. OCRC Organizational Structure

24. OCRC General Responsibilities • Training/Awareness • Monitoring/Testing • SAR/Other Reporting • Policies and Procedures • Self-Assessments/Participant Assessments • OFAC Screening/Reporting • Ongoing Assessment of Products/Services/Enhancements/Business Areas

25. OCRC General Responsibilities • Ongoing Guidance to Business Areas • Research and Investigation of Reported Incidents and Inquiries • Monitoring of Employee Gift Reports

26. Key Internal Partners • Internal Audit - Identify gaps and deficiencies in compliance program before the regulators do • Relationship Management - have the most contact with participants. They “Know our Customers” (KYC). • Account Administration - perform DTCC on-boarding function. Verify the identify of Participants (CIP). • Credit and Market Risk - prepare an AML risk assessment of prospective participants at the on-boarding stage • Operations - help perform OFAC screening and are our eyes and ears on the field

27. Key Internal Customers • Operations • Relationship Management • Credit and Market Risk • Account Administration • We advise on applicability of regulations and help provide internal controls to ensure compliance

28. Key External Customers • The Financial Industry as a whole • ALL of our regulatory bodies • Federal Reserve Bank • New York State Banking Authorities • The Securities and Exchange Commission • Financial Services Authority (EuroCCP Only)

29. Questions and Answers