1. What Is Money Laundering?
Money Laundering is the process by which, criminals attempt to make the proceeds of crime appear legitimate with no obvious links to their criminal origins. This is achieved by three processes:
Placement – Placing of the proceeds of crime
Layering – Hiding of the proceeds from their criminal origin by ‘layers’ of transactions
Integration – Creating a legitimate explanation for the proceeds
2. Who Needs To Perform Anti-money Laundering Checks?
Solicitors, accountants, tax advisors, insolvency practitioners, financial institutions, credit institutions, estate agents, chartered surveyors, trust/service providers, gaming companies and high value dealers with the potential for a business relationship worth over 15,000 Euros, such as automotive dealers and jewellers.
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3. Why Do I Need To Perform Anti-money Laundering Checks?
The Anti-Money Laundering regulations are governed by 4 Acts: The Proceeds of Crime Act, The Serious Organised Crime and Police Act, The Terrorist Act and the Money Laundering Regulations. . Failure to report suspicious activity can carry a criminal sentence and lead to substantial fines from the relevant regulatory body.
4. I Have Dealt With My Clients For Many Years , Do I Still Need To Carry Out Customer Due Diligence?
You need to keep CDD up-to-date for all your clients. You may have sufficient documentary ID details on your files but if there has been any subsequent change to their circumstances or risk profile, you should update your CDD. It is advised to review clients’ CDD on a regular basis.
5. Who Enforces The Anti-money Laundering Regulations?
The AML regulations are enforced by a range of regulatory bodies. Guidelines are set by the JMLSG (Joint Money Laundering Steering Group) and enforced by the FCA/PRA (Financial Conduct Authority/ Prudential Regulation Authority), the SRA (Solicitors Regulation Authority in England), OFT (Office of Fair Trading), HMRC (HM Revenue & Customs), ICAEW (Institute of Chartered Accountants in England & Wales, plus other Accountancy bodies), RICS (Royal Institute of Chartered Surveyors) and more.
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6. What Is Electronic Verification?
In order to prevent fraud and money laundering it is important to verify individuals carrying out financial transactions. Previously documentary evidence was relied on to verify an individual. These may not always be available and they can also be easily forged or altered therefore electronic verification provides extra security and reduces risk against money laundering and fraud.
Electronic verification removes the need for the customer to be present, this saves time and helps support customer relationship building. The risk of money laundering is reduced as several data sources are called upon to verify the customer rather than just relying on documentary evidence.
7. If I Collect Passports And Driving Licences, Why Do I Need To Check Anything Else?
EV can check a wider range of information, thus providing a more thorough knowledge of your client (KYC – Know Your Customer). In addition, it can also enable you to check other data sets such as PEPS and Sanctions lists, which is advisable and specified by the 3rd European Money Laundering Directive.
With fraudulent documentation on the rise, there is a need to refocus efforts on identifying them. Electronic verification is designed to remove the risk of receiving potentially fraudulent documents; therefore you can have a greater level of confidence in their authenticity. Various checks are carried out on the documents to confirm as much as possible, therefore reducing the risk of ID fraud.
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8. Online Systems Are Too Expensive, What If I Cannot Afford It?
There are often hidden costs associated with taking paper documents, which are not always immediately recognisable. For example, if dealing with a client at distance, the posting through of important documents by recorded delivery in order to ensure they do not get lost carries a charge, which is often more than the cost of an electronic search. If the documents are then lost, there is then the cost of replacing the documents for your potential client. This may also be more time-consuming as a process, but by performing a quick electronic search, could this then allow for more searches to be performed and in turn, increase the number of clients taken onboard?
9. Why Are You Allowing Me To See Sensitive Information?
The information held in electronic systems is consented for use in these systems. For an AML check, the Full Electoral Roll is allowed for this purpose and this is covered in the Representation of the People Act (2002). When a Credit Reference Agency (CRA) utilises financial records in an AML check, it does not show any financial details, apart from the information necessary to ID someone.
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10. What Are Politically Exposed Persons, Specially Designated Nationals And Financial Sanctions And Why Do I Need To Check Them?
It is recommended by the 3rd European Money Laundering Directive to have a procedure in place to check PEPs, SDNs and the HMT Financial Sanctions. A PEP is a Politically Exposed Person, and is someone who holds a prominent public position, or an individual linked to them. An SDN is a Specially Designated National , on a list which specifies that US Citizens are not permitted to conduct business with them. The HM Treasury Financial Sanctions list specifies individuals with whom it is prohibited to transfer or make funds available to.
11. What Are Money Laundering And Financial Terrorism?
Money laundering refers to conversion of money illegally obtained to make it appear as if it originated from a legitimate source. Money laundering is being employed by launderers worldwide to conceal criminal activity associated with it such as drugs /arms trafficking, terrorism and extortion.
Financial Terrorism means financial support to, in any form of terrorism or to those who encourage, plan or engage in terrorism.
Money launderers send illicit funds through legal channels in order to conceal their criminal origin while those who finance terrorism transfer funds that may be legal or illicit in original in such a way as to conceal their source and ultimate use, which is to support Financial Terrorism.
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12. What Is Kyc?
KYC is an acronym for “Know your Customer” a term used for Customer identification process. It involves making reasonable efforts to determine, the true identity and beneficial ownership of accounts, source of funds, the nature of customer’s business, reasonableness of operations in the account in relation to the customer’s business, etc which in turn helps the banks to manage their risks prudently.
The objective of the KYC guidelines is to prevent banks being used, intentionally or unintentionally by criminal elements for money laundering.
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13. What Is Kyc Policy?
As per RBI guidelines issued vide their circular dated 29/11/2004, all banks are required to formulate a KYC Policy with the approval of their respective boards. The KYC Policy consists of the following four key elements.
Customer Acceptance Policy
Customer Identification Procedures
Monitoring of Transactions
14. Who Is A Customer?
For the purpose of KYC policy a ‘customer” may be defined as:
A person or entity that maintains an account and/or has a business relationship with the bank;
One on whose behalf the account is maintained (i.e. the beneficial owner);
Beneficiaries of transactions conducted by professional intermediaries, such as Stock Brokers, Chartered Accountants, Solicitors etc as permitted under the law, and
Any person or entity connected with a financial transaction which can pose significant reputational or other risks to the bank, say a wire transfer or issue of high value demand draft as a single transaction.
15. What Is A Customer Acceptance Policy?
Customer Acceptance Policy refers to the general guidelines followed by banks in allowing customers to open accounts with them. Generally the guidelines stipulate that no accounts shall be opened in anonymous or fictitious names or when the identity of the customer matches with any person with known criminal background or banned entities. Similarly accounts should not be opened when the bank is unable to verify the identity and/or obtain documents required as per the bank’s policy.
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16. What Is The Customer Identification Procedure?
Customer identification means identifying the customer and verifying his/her identity through reliable and independent documents, data and information. Banks would need to satisfy to the competent authorities that due diligence was observed in accordance with the requirements of existing laws and regulations.
17. When Does Kyc Apply?
KYC will be carried out for the following but is not limited to:
Opening a new account.(deposit/ borrowal )
Opening a subsequent account where documents as per current KYC standards not submitted while opening the initial account.
Opening a locker facility where these documents are not available with the bank for all locker facility holders.
When the bank feels it is necessary to obtain additional information from existing customers based on the conduct of the account.
After periodic intervals based on instructions received from RBI.
When there are changes to signatories, mandate holders, beneficial owners, etc.
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18. What Are The Aml/cft Supervisors Looking For?
The AML/CFT supervisors are focusing on whether the reporting entity has an appropriate and reasonable risk assessment, and an AML/CFT programme that reflects and controls those risks. The AML/CFT supervisors take a risk-based approach to supervision – selecting from the supervision and enforcement tools available to us. Supervision will take into account the nature of the business and the risks that each reporting entity is managing. Read our Bulletin article or speech for more information on the Reserve Bank’s approach to AML/CFT supervision.
Auditing Interview Questions
19. What Are Peps?
“Politically-Exposed Persons” (PEPs) are individuals who, by virtue of their position in public life, may be vulnerable to corruption. The New Zealand legislation currently limits this concept to foreign PEPs, and does not include domestic (New Zealand-based) PEPs. Reporting entities are required to give specific consideration to the risks involved with PEPs and so should:
have procedures in place to determine whether a customer, or a beneficial owner of a customer, is a PEP or a close associate of a PEP;
obtain senior management approval for establishing or maintaining business relationships with PEPs;
take reasonable measures to establish the source of wealth and source of funds of PEPs; and
conduct enhanced, ongoing monitoring of the business relationship.
20. What Is Ongoing Customer Due Diligence?
Ongoing Customer Due Diligence means regularly reviewing customer information and having systems to conduct account monitoring. This is required for all customers, including existing customers.