Annual Anti-Money Laundering (“AML”) / Counter Terrorism Financing (“CTF”)

Training2012

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Objectives

By the end of this training, you will be able to:

Recognize the (3) stages of money laundering

Understand SS&C GlobeOp’s role in combating money laundering and terrorist financing

Increase awareness of SS&C GlobeOp’s regulatory requirements

Recognize your role in fighting money laundering and terrorist financing

Identify potential suspicious activity and how to escalate your suspicions

Understand the offenses which relate to money laundering and terrorist financing

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A Brief History of

Money Laundering

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What is Money Laundering & Terrorist Financing?Money Laundering: The process of changing the identity of money gained from illegal activities into

“clean” money, thus concealing the true origin and ownership of the money.

Terrorist Financing: The process by which terrorists fund their operations in order to perform terrorist acts; usually involves money laundering.

While illegal activities such as these have undoubtedly been going on for hundreds if not thousands of years, it’s only in the 20th century that money laundering as a crime has really attracted interest.

‘Money laundering’ as an expression is one of fairly recent origin. The original sighting was in newspapers reporting the Watergate scandal in the United States in 1973.

Let’s take a look at two of the most infamous money launderers!

Al Capone

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One of America’s best known

mobster’s was also the

inventor of “modern” money

laundering. In fact, many

of his first businesses were

laundromats and thus

extremely cash intensive.

Some will say that Capone’s

use of laundromats was the

origin of the phrase money

“laundering!”

Capone was prosecuted and

convicted in October, 1931

not for money laundering,

but for tax evasion.

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It has been said that he was the m

ost

successful criminal known.

Escobar, a notorious leader of a

Colombian drug cartel, at one

time controlled 80% of the worlds

cocaine trade. So how did he do

it?

Escobar used money laundering in o

rder

to effectively deposit billions

of dollars gained from the sale

of narcotics in the U.S. and

offshore banking havens such as

the Bahamas, Aruba and the Cayman

Islands.

Known at one point as the seventh

richest man in the world by

Forbes, Escobar used his

criminally derived wealth to live

an extravagant lifestyle filled

with luxurious real estate, cars,

helicopters, airplanes and even a

private zoo with imported exotic

animals!

The growing suspicions of the U.S.

government over Escobar’s wealth

and the increase in conflict over

the American and Colombia trade

treaty eventually lead to

Escobar’s death in a gunfight by

Colombian authorities in his

hometown of Medellin, Colombia.

Pablo Escobar

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Stages of Money Laundering

Typically, a money laundering operation will have 3 key stages……

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Placement•Money initially placed into the financial system •Example: Drug traffickers proceeds are broken up into smaller sums and deposited into a bank account over a period of time

Layering•Money is converted or moved through the financial system, in multiple transactions, in order to break the audit trail of the money’s original source

•Proceeds are used to purchase an investment instrument or may be wired to multiple bank accounts across several jurisdictions

Integration•Money is no longer distinguishable from it’s original source and has re-entered the legitimate economy

•Proceeds are re-invested into legitimate business ventures, used to purchase luxury items, real estate, etc.

The Three Stages of Money Laundering

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Placement•Money initially placed into the financial system •Example: Drug traffickers proceeds are broken up into smaller sums and deposited into a bank account over a period of time

Layering•Money is converted or moved through the financial system, in multiple transactions, in order to break the audit trail of the money’s original source

•Example: Proceeds are used to purchase an investment instrument or may be wired to multiple bank accounts across several jurisdictions

Integration•Money is no longer distinguishable from it’s original source and has re-entered the legitimate economy

•Proceeds are re-invested into legitimate business ventures, used to purchase luxury items, real estate, etc.

The Three Stages of Money Laundering

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Placement•Money initially placed into the financial system •Example: Drug traffickers proceeds are broken up into smaller sums and deposited into a bank account over a period of time

Layering•Money is converted or moved through the financial system, in multiple transactions, in order to break the audit trail of the money’s original source

•Example: Proceeds are used to purchase an investment instrument or may be wired to multiple bank accounts across several jurisdictions

Integration•Money is no longer distinguishable from its original source and has re-entered the legitimate economy

•Example: Proceeds are re-invested into legitimate business ventures, used to purchase luxury items, real estate, etc.

The Three Stages of Money Laundering

Former military dictator of Panama, General Noriega, misappropriated approximately $23 million of funds from the Panama National Guard.

The funds were deposited into various accounts he opened with the Bank of Credit and Commerce International in Luxembourg and London. From there, $11.5 million of the funds were transferred to an account in the name of “Finlay International” at the Union Bank of Switzerland in Zurich.

The whole of the funds were then transferred to the Middle Eastern Bank in London. Finlay International instructed the Middle Eastern Bank to transfer the funds to several brokerage accounts opened at a commodities brokerage firm. Multiple transactions took place through the Finlay accounts set up at the brokerage firm, involving trades on the Chicago and London commodities markets.

Gradually, the money was withdrawn from the brokerage accounts and used to buy luxury items in Paris, e.g. yacht, apartment in Europe, etc.

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Can you see the various stages of money laundering in this scenario?

Case Study – General Noriega Placement: the money is

introduced to the financial system

Layering: the money is moved through the financial

system

Integration: the money is unrecognizable from its original source

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SS&C GlobeOp’s Role

SS&C GlobeOp’s Role SS&C GlobeOp

Fund Clients

Investment Managers &

Fund Counterparties

As part of its administrative services, SS&C GlobeOp conducts certain AML reviews on behalf of Fund clients, as designated in their Services Agreement

Our clients and their counterparties rely on SS&C GlobeOp to conduct the appropriate AML/Know Your Customer Checks on the money which is used to fund trading accounts

SS&C GlobeOp is licensed in Ireland under the Investment Intermediaries Act, 1995

SS&C GlobeOp is licensed in the Cayman Islands under the Mutual Funds Law

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What does it mean to “Know Your Customer?” Also known as ‘KYC’ Involves conducting a due diligence review on clients Verification of true identity, address, source of funds, nature of business

etc Often involves risk assessment - source of wealth, type of client, location

of client Required identity verification documents may include:-

Passport or other government issued identification Official formation documents or other governing agreements Documents which verify the nature of the client’s business

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SS&C GlobeOp’s Regulatory Requirements

SS&C GlobeOp must ensure sufficient AML/CTF procedures and controls are in place in order to maintain its good standing with each of our regulators

In Ireland, our regulator is the Central Bank of Ireland (“Central Bank”) and the relevant AML/CTF legislation is the Criminal Justice (Money Laundering & Terrorist Financing) Act 2010

In the Cayman Islands, our regulator is the Cayman Islands Monetary Authority (“CIMA”) and the relevant AML legislation is The Proceeds of Crime Law, The Money Laundering Regulations, the Terrorism Law, and The Guidance Notes on the Prevention and Detection of Money Laundering and Terrorist Financing

The U.S. Patriot ActIn response to the September 11, 2001 terrorist

attacks on the United States the Patriot Act was written to strengthen U.S. measures to prevent, detect, and prosecute international money laundering.

Firms such as SS&C GlobeOp are required to establish AML programs to prevent money laundering.

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Office of Foreign Assets ControlOFAC is an agency of the U.S. Department of Treasury.

OFAC publishes the list of “Specially Designated Nationals” or “SDNs.” The list includes terrorists and narcotics traffickers and organizations.

Assets of an SDN are blocked and U.S. persons are prohibited from dealing with them.

SS&C GlobeOp uses this list to assist in AML controls.

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AML/CTF Procedures at a GlanceFinancial Services providers such as SS&C GlobeOp must implement certain procedures

in order to effectively combat money laundering, terrorist financing, and other financial crimes. These procedures include:

Client identification procedures, including where appropriate, identification of beneficial owners, and the nature of the client’s business

Recognition of “suspicious activity” and reporting of such activity to the appropriate person(s)

Staff training procedures regarding applicable AML/CTF regulations and company policies

On-going monitoring of business arrangements

Retention of documents for not less than 5 years Internal Audit procedures

Designation of a Money Laundering Reporting Officer (“MLRO”) and Money Laundering Compliance Officer

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Why is all of this important to you?Under the laws in the Cayman Islands and Ireland, it is a criminal offense of money laundering if a person possesses, conceals, disguises, transfers, converts, removes, acquires, or, in any way, handles the proceeds of criminal conduct

A person commits a criminal offense if he or she knows or suspects, or has reasonable grounds for knowing or suspecting, that another person is engaged in criminal conduct, and he or she does not make the required disclosure to the Money Laundering Reporting Officer in their company.

Only the Money Laundering Reporting Officer should make a report to SS&C GlobeOp’s regulator if they suspect or know about suspicious activity or money laundering.

It is important to ensure you do not discuss any suspicions of money laundering or other criminal conduct or any reporting of such conduct with anyone but your direct line manager and the firm’s Money Laundering Reporting Officer (“MLRO”).

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Tipping Off

In the event that you make a report of suspicious activity to the MLRO, you will be given specific instructions on how to proceed.

It is a criminal offense if a person knows or suspects a disclosure of money laundering is about to take place, is taking place, or has taken place, and he or she makes a disclosure which is likely to prejudice an investigation.

Knowledge CheckA prospective corporate investor wishes to subscribe into ABC Fund Limited, however

they reside in a country not recognized by our regulators. In order to conduct the appropriate KYC checks, SS&C GlobeOp Investor Services requests documentation in order to identify the investor and its shareholders.

The investor is reluctant to provide data relating to its shareholders and after many weeks, the Investor Services representative instructs the investor that they cannot process the subscription without this documentation. The investor states on a call, “this is ridiculous, I have invested in many funds and none of them have given me a hard time. I am going to withdraw my subscription immediately!”

Keeping in mind the “tipping off” offense, which one of the below actions would be best practice to pursue?

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A. Tell the Fund Manager of your suspicions. Let them deal with the investor. Hey, maybe they’ll have better luck?

B. Say nothing. No harm no foul. The investor didn’t provide the documentation, so you couldn’t process. Simple as that.

C. Discuss the situation with your direct line manager. Coordinate a discussion to speak with the company MLRO.

If you said “C” you are correct!

Although it is best practice to discuss the matter directly with your company MLRO, it is often acceptable to discuss the situation with your direct line manager, who may be able to guide you through the process, along with the MLRO. Remember, the tighter the loop of people involved, the better! By no means should any of your suspicions be discussed with the investor, client or co-worker (other than your direct line manager).

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Suspicious Activity

What is Suspicious Activity?

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Refers to types of activity that can be construed as questionable or suspect

Important to “Know Your Customer” so you are better able to identify activity which is unusual or not in the normal range of activity for that client

All SS&C GlobeOp personnel must monitor activity in client or investor accounts and always be alert to unusual or inconsistent transactions

Types of Suspicious ActivitySome examples of Suspicious Activity may include:

Reluctance for a client to provide additional information or documentation

Requests from a client to remain anonymous

Swaps or other transactions with a non traditional counterparty, e.g. other than a recognized bank or brokerage house

Excessive frequency of contributions and withdrawals by a client or investor, especially where there is no financial gain or other benefit

Unusually high volume transactions

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Let’s take a look at a scenario to test your recognition of suspicious activity!

Knowledge Check An Operations employee at SS&C GlobeOp is requested to send out a wire for a Fund expense by one of

the Operations Managers at the Fund who he speaks to everyday and has a great working relationship with.

The Operations Manager at the Fund says the expenses occurred during a business trip and he’d really appreciate a prompt turnaround. When the employee requests documentation to substantiate the wire, the Manager jokes around, saying how foolish he is because he accidentally threw out the receipts.

The employee tells him that it’s no problem, he’ll just need the Director’s sign off on the expenses. The Manager immediately

withdraws the requests to submit the expenses and tells the SS&C GlobeOp employee not to worry about it, he’ll just have his boss pay him directly.

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Could this situation be construed as ‘suspicious activity’?

YES!

Although the Operations Manager at the Fund may really have legitimately misplaced the receipts to support the expense wire and didn’t want to create trouble or make things difficult for the Operations employee, it is worth the Operations employee checking into further to ensure the expense would have been legitimate and approved by the Fund’s Director.

Each employee is responsible for being the first line in defense against money laundering and terrorist financing. It is your responsibility to report any activity which isn’t the norm and could be construed as “suspicious!”

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How to Report Suspicious ActivitySuspicious Activity should be reported to the SS&C

GlobeOp MLRO or Deputy MLRO John Zinger, AML Compliance Officer & MLRO

x.4817 Eugene Charon, Assistant MLRO x.4681

Suspicious Activity should be reported using the form available from your MLRO or AMLRO.

An MLRO and/or AMLRO will provide the employee with further instructions on how to proceed

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Case Study - The Black Market Peso Exchange

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The majority of drug traffickers in Colombia don’t want the U.S. dollars they earn from drug sales because they rarely leave Colombia. They need their local currency to live their lives, purchase homes and other luxuries and pay for the operations of their drug trafficking business. So instead they have found a method to convert their ill gotten gains back to their native currency, the peso, through a series of transactions with a black market broker.

Known as “The Black Market Peso Exchange,” this process involves a money broker who will purchase U.S. dollars derived from drug sales, negotiate an exchange rate of Colombian pesos for the U.S. dollars (usually 40% below the official exchange rate) and deliver those pesos to the drug traffickers in the Colombian bank accounts. This very successful and prevalent process of money laundering is even used by legitimate successful businessmen in Colombia who have pesos but want to buy cheap U.S. dollars to purchase goods in the U.S.

The U.S. dollars from traffickers are often swapped with the pesos the legitimate businessmen want to convert and the money broker then receives the commissions from the difference in the exchange. It is estimated that the “black peso exchange” launders $5 billion dollars of drug money per year!

Ever wondered how drug traffickers could possibly deposit tremendous amounts of illegal proceeds into U.S. bank accounts without arising suspicion by banks and regulators? The truth is, they don’t! Lets take a look at this common scenario.

Case Study - The Black Market Peso Exchange

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The majority of drug traffickers in Colombia don’t want the U.S. dollars they earn from drug sales because they rarely leave Colombia. They need their local currency to live their lives, purchase homes and other luxuries and pay for the operations of their drug trafficking business. So instead they have found a method to convert their ill gotten gains back to their native currency, the peso, through a series of transactions with a black market broker.

Known as “The Black Market Peso Exchange,” this process involves a money broker who will purchase U.S. dollars derived from drug sales, negotiate an exchange rate of Colombian pesos for the U.S. dollars (usually 40% below the official exchange rate) and deliver those pesos to the drug traffickers in the Colombian bank accounts. This very successful and prevalent process of money laundering is even used by legitimate successful businessmen in Colombia who have pesos but want to buy cheap U.S. dollars to purchase goods in the U.S.

The U.S. dollars from traffickers are often swapped with the pesos the legitimate businessmen want to convert and the money broker then receives the commissions from the difference in the exchange. It is estimated that the “black peso exchange” launders $5 billion dollars of drug money per year!

Drug Proceeds in

USD

Brokers sell USD to businessmen in Colombia who want $ for goods

Goods are paid for by peso broker, using purchased drug proceeds

Ever wondered how drug traffickers could possibly deposit tremendous amounts of illegal proceeds into U.S. bank accounts without arising suspicion by banks and regulators? The truth is, they don’t! Lets take a look at this common scenario.

Summary There are (3) distinct phases of money laundering to be aware of; placement, layering &

integration

SS&C GlobeOp has a regulatory obligation to adhere to certain AML/CTF standards, which include the process of knowing your customer (“KYC”)

The better you know your customer, the better equipped you will be to identify suspicious activity should it occur

Money laundering is a serious offense but not reporting money laundering or suspicious activity is just as serious

It is also an offense to “tip off” any outside parties to suspected or known money laundering activity by sharing your suspicions

There are different types of suspicious activity and every employee must share in the responsibility for the firm to identify suspicious activity and report it to the company MLRO

Money laundering is and has been an abundant problem in society and requires vigilance from everyone to protect the integrity of the financial system

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You have now completed SS&C GlobeOp’s Annual Anti-Money Laundering & Counter Terrorism Financing Training

THANK YOU!