GCC Regulators Summit – Sophisticated MoneyLaundering: An Asian Perspective Sharon Craggs Feb 2010

1. GCC Regulators Summit – Sophisticated MoneyLaundering: An Asian Perspective Sharon Craggs Feb 2010

2. Contents • Challenges with Asian Names • PEPs Challenges in Asia • Complying with Foreign Sanctions Programs • Between a Rock and a Hard Place

3. Challenges with Asian Names

4. Challenges with Asian Names • IN 1990 a Pakistani named Mir Aimal Kansi used an alternative transliteration of his Urdu family name, Kasi, to obtain a visa at the American consulate in Karachi. • He entered America, overstayed his one-month visa and then went to the Pakistani embassy in Washington, DC, and obtained a new Pakistani passport, this time with the “n” reinserted in his surname. • Using this new identity, he obtained working papers and a driving licence, bought a gun and went on to shoot five CIA employees, killing two, outside the agency's headquarters. • (Kansi spent four years on the Federal Bureau of Investigation's Ten Most Wanted list before being captured, and was executed in 2002.) • … According to the FBI, Kansi also used the names Mir Aimal Kanci, Mir Aman Qazi, Amial Khan and Mohammed Alam Kasi. That last name introduces a further twist: there are more than 15 accepted ways to transliterate “Mohammed” from Arabic into English, • Transliteration of names from one language into another is an inexact science. ~ The Economist

5. Challenges with Asian Names

6. PEPs Challenges Asia

7. Challenges in PEP Definition • Who are PEPs? • The term "politically exposed persons" ("PEP") applies to persons who perform important public functions for a state. The definition used by regulators or in guidance is usually very general and leaves room for interpretation. For example the Swiss Federal Banking Commission in its guidelines on money laundering uses the term "person occupying an important public function", the US interagency guidance uses "senior foreign political figure" and the BIS paper Customer due diligence for banks says "potentates". • The term should be understood to include persons whose current or former (Rule of thumb: 1 year after giving up any political function) position can attract publicity beyond the borders of the country concerned and whose financial circumstances may be the subject of additional public interest. In specific cases, local factors in the country concerned, such as the political and social environment, should be considered when deciding whether a person falls within the definition. ~ Wolfsberg

8. The Scope of the Problem: Defining PEPs within the Chinese Public Sector Source: National Bureau of Statistics (2003)

9. Complying with Foreign Sanctions Programs

10. Complying with Foreign Sanctions Programs • Thin awareness of Sanctions Requirements and legal reach of Sanctions Legislation among Non-U.S. Banks • i.e., implications on transactions that have to be cleared through the US regardless of where they originated. ANZ cops $7 million fine Herald Sun (Australia) August 26, 2009 Wednesday ANZ's governance record has taken a hit after the bank was fined $US5.75 million ($A7 million) for violating US regulations relating to financial transactions with Sudan and Cuba. More than 40 international banks have been fined under the sanctions regime which was tightened by the Bush Administration after the 2001 terrorist attacks on New York. OFAC, which operates within the US Department of Treasury, alleged in 2006 that data manipulation by ANZ concealed the identities of the Sudanese parties who were the targets of US sanctions. OFAC could have levied a penalty of up to $US56 million against ANZ for the Sudanese transactions, but reduced the fine because the bank co-operated with its investigation.

11. Many foreign banks, including those in Asia, lack awareness ~ New Enforcement Action Highlights Potential OFAC Risks for Non-U.S. Financial Institutions

12. Shah v HSBC

13. Shah V HSBC • Jan 2010, the English Court of Appeal granted trial to a private client claiming $330m from HSBC in respect of its decision to file a suspicious activity report (SAR) • In 2006, Shah attempted to transfer $28m from HSBC to one of his accounts in Geneva. HSBC declined to do so, and filed a report with Serious Organised Crimes Agency (SOCA). He was told the transfer was suspended while the bank “complied with it statutory obligations”. This led to Reserve Bank of Zimbabwe also freezing Shah's account which he said caused him to lose substantial interest on his cash. 10 days after the SAR, SOCA gave permission for HSBC to carry out the transaction, which it did • Court ruled that the case should go to full trial, to establish whether HSBC acted in good faith when it reported Shah to SOCA. An individual has the right to ask his bank for proof about the grounds for suspicions against him.

14. Shah V HSBC • Implications of ruling are that bank's AML procedures are subject to judicial scrutiny. Civil liability is a possibility for a bank that is complying with its statutory duties • Banks try to design systems to reduce risk and discretion in situations, particularly when conducting cross border/global business. They will now have to consider the implications of each SAR filed, and the likelihood of legal challenge • MLROs can be called as witnesses in court to explain the basis of their decision to file. Additional training advisable for MLROs. The SAR filing process must be more than a “check the box” decision