“Enforcing Anti-Money Laundering Compliance – Getting Serious with Penalties and Sanctions”

1. “Enforcing Anti-Money Laundering Compliance – Getting Serious with Penalties and Sanctions” Presented by The Bahamas Association of Compliance Officers (BACO)

2. Understanding Sanctions Yolanda M. HiltonCompliance Director/MLROIntertrust (Bahamas) Limited

3. Enforcing AML Compliance with sanctions Sanctions are: • measures to inspire a change in behavior of country/jurisdiction, individuals, entities, or activities; • apply pressure on a country/jurisdiction, individuals or entities to comply with set objectives set by the international community; • used as an enforcement tool when diplomatic efforts have failed to bring about international peace; and, • used to prevent and suppress the financing of terrorists and terrorist acts.

4. Enforcing AML Compliance with sanctions Who monitors Sanctions: • For Compliance Officers, the prevention of breaches of sanctions is a very important and one of the most demanding part of the job. • It requires Compliance Officers to be vigilant with their monitoring and to ‘Know Your Customer’. • As it is a regulatory requirement for entities to combat money laundering and terrorist financing, being able to identify blacklisted countries and individuals is key to avoiding sanctions breaches.

5. Enforcing AML Compliance with sanctions • An organization must have a robust anti-money laundering and terrorist financing regime along with a robust sanctions compliance control framework. • To ensure that your sanctions compliance control framework is robust, compliance officers must understand their products and services offered to their clients/ customer. • Compliance officer must be able to identify areas that may be vulnerable to sanction breaches and set controls in place to mitigate against sanctions risks.

6. Enforcing AML Compliance with sanctions What are the tools: • OFAC sanctions program specifically comprise: • Specially Designated Nations List • Counterterrorism sanctions • Counter narcotics-trafficking sanctions • Non-proliferation sanctions • Cuba sanctions • Iran sanctions

7. Enforcing AML Compliance with sanctions • For a Compliance Officer, adherence to OFAC is one of the most important tasks, as banks have to either (i) clear US dollars or (ii) transact business in US dollars, or with US subsidiaries, branches or operations each day; • Compliance with OFAC is required by all US persons, all persons and entities physically present in the US, all US incorporated entities and their foreign branches, all US-origin goods, all US –origin trans-shipments.

8. Sanctions ViolationsFareda Sands Senior Compliance Officer, UBS (Bahamas) Limited

9. Enforcing AML Compliance with sanctions Who enforces Sanctions: • United Nations Sanctions • US Office of Foreign Asset Control (OFAC) Regime • UK HM Treasury regime • Local sanctions laws

10. Enforcing AML Compliance with sanctions • The use of the US Dollar automatically engages OFAC regulations. • Therefore, banks must implement strict policies which incorporate OFAC’s sanctions regime as OFAC imposes aggressive financial penalties for breaches. • Failure to comply with OFAC sanctions regime opens up banks and individuals to legal action.

11. Enforcing AML Compliance with sanctions OFAC Fines: • Banks and individuals can be hit with criminal and civil penalties for non-compliance with OFAC regulations. • Civil penalties: from $250,000 (or twice the amount of the underlying violating transaction) to $1,075,000 per violation. • Criminal fines from $50,000 to $10,000 • E.g. Violating the Cuban embargo can cost a financial institution the following: Criminal: $1,000,000 in fines for companies $250,000 for individuals Civil: up to $65,000 fine per violation • Violating the guidelines can also lead to prison time for executives. • Sentences vary based on the program, but willful violations may lead to 10 to 30 years of imprisonment.

12. Enforcing AML Compliance with sanctions • 20 August, 2014, the Scotsman published that Standard Chartered Bank had agreed to pay NY regulator a penalty of $300 million for failing to improve its money laundering controls. • What went wrong? • It was established under the settlement that the bank had failed to detect many potentially high-risk transactions originating from Hong Kong and the United Arab Emirates. It was alleged that they had worked with the Iranian government to launder $250 billion from 2001-2007

13. Enforcing AML Compliance with sanctions • June 30, 2014, authorities imposed a fine of $9bn on BNP Paribas for transferring dollars on behalf of countries subject to sanctions. • This was based on $30bn of transactions processed between 2002 and 2009 to Sudan, Iran and Cuba. The man offences appear to be transactions processed for Sudanese oil exports.

14. Enforcing AML Compliance with sanctions • May 2014 – Credit Suisse was fined $2.6bn for helping US citizens evade tax, which they pleaded guilt • December 2012 – HSBC’s penalty for sanctions was $1.9bn for money laundering offences largely involving Mexican drug barons. • US banks have also faced a number of heavy penalties, including JP Morgan, which reached $13 bn. settlement over the sale of home loan bonds.

15. AML Compliance Program to avoid Sanction EnforcementChristine ArcherRegulatory Compliance ManagerScotiabank (Bahamas) Limited

16. Enforcing AML Compliance with sanctions • To prevent money laundering, terrorist financing and human smuggling, a company must have a compliance unit/department which is adequately resourced, skilled and competent. • Downside to all of this compliance - is that the monetary and administrative costs are high, however, the cost of not getting it right is even higher.

17. Enforcing AML Compliance with sanctions

18. Enforcing AML Compliance with sanctions • a robust anti-money laundering and sanctions regime is key to mitigate against penalties and fines. • Similarly to conducting a money laundering risk assessment, firms may wish to conduct OFAC risk assessments to understand their level of vulnerability to non compliance with OFAC.

19. Enforcing AML Compliance with sanctions • Should identify the customer which poses a higher money laundering/terrorist financing /sanctions risk along with the types of products and services which also pose such high risks • A risk based approach should be applied to all considerations when evaluating money laundering/terrorist financing and sanctions risk • Identify High Risk Transactions • Establish an effective investigative process • As part of the annual Money Laundering/terrorist financing/ sanctions training this should be carried out based on the level of the staff and their responsibilities

20. Enforcing AML Compliance with sanctions • As part of the annual Money Laundering/terrorist financing/ sanctions training should be carried out based on the level of the staff and their responsibilities • Select staff for the investigative unit with different skills and experiences that are useful to AML/ATF/sanctions monitoring: • relevant industry/product knowledge • Understanding of applicable Anti-money laundering/terrorist financing/sanctions risks

21. Enforcing AML Compliance with sanctions • Monitor non-finance sectors which are susceptible to money laundering, terrorist financing, human smuggling activities. • Communicate new and emerging threats or changes to sanctions policy via the appropriate channels to ensure that all staff are kept up to date. • Must have strong internal controls – compliance starts from the top as in BNP Paribas “senior executives at the bank knew of the activities”. • Shareholders must be active . At the same time, boards must set the tone for creating a compliance culture. • Laws have to remain up to date, possess sufficient deterrence and facilitate international cooperation if we are to prevent criminal activities taking part in our financial sector.

22. Enforcing AML Compliance with sanctions • Recently in Singapore (July 7, 2014) Parliament passed amendments to laws allowing the Government to deal more swiftly with criminal operations and derive perpetrators of their illicit gains – as a means to dampen transnational money laundering activities. • Some of the changes included increasing the maximum penalty for money laundering from 7 to 10 years in jail and lowering the threshold for cross-border cash reporting by a third.

23. Enforcing AML Compliance with sanctions • Let me conclude by saying that the key to compliance is that it should be reasonable for all licensees to preserve the integrity of the Bahamian financial sector. • From the words of James Cole, US Deputy Attorney General, referring to BNP Paribas and the role of shareholders: • “ the $9bn that’s walking out of the door today is your money. Until shareholders demand from their boards that those boards choose leaders that create a healthy culture of compliance, the money will keep walking out of the door”.

24. “Enforcing Anti-Money Laundering Compliance – Getting Serious with Penalties and Sanctions?” QUESTIONS

25. THANK YOU