Part 1: Financial Crime Commonalities Money Laundering Fraud Ethics CFCS Examination Preparation Series February 5, 2014 Presented By Beth Berenbaum, Ken Barden, Charles Intriago, Brian Kindle, Hillary Rosenberg, and Jeff Sklar
1. CFCS Examination Preparation Series February 5, 2014 Part 1:
Financial Crime Commonalities Money Laundering Fraud Ethics
Presented By Beth Berenbaum, Ken Barden, Charles Intriago, Brian
Kindle, Hillary Rosenberg, and Jeff Sklar
2. Brian Kindle Editorial and Training Advisor Association of
Certified Financial Crime Specialists Miami, FL
3. Charles A. Intriago President and Founder Association of
Certified Financial Crime Specialists Miami, FL
4. Kenneth Barden Senior Anti-Corruption Advisor US Agency for
International Development Washington, DC
5. Beth Berenbaum VP, Program Management AML Partners Franklin,
NH
6. Hillary Rosenberg Counsel Lewis Baach New York
7. Jeff Sklar Managing Partner Sklar Heyman Hirschfield &
Kantor Bellmore, NY
9. CFCS Certification The Credential That Shows Your Knowledge
and Skill Across the Financial Crime Spectrum
10. What the CFCS Certification is Universal and not based on
the laws or regulations of any country Allows diverse professionals
to demonstrate skill and knowledge across multiple fields Designed
for private and public sector specialists Promotes career growth,
better jobs and pay, confidence
11. Construction of CFCS Certification Eight month process
Identification of Job Tasks Worldwide survey Writing of exam items
based on job task and survey findings Detailed review and selection
of items by 60 experts and psychometricians Experienced ACFCS staff
that has built 3 prior certifications
12. Demand for CFCS Certification Over 1,000 professionals in
64 countries have registered for CFCS certification Eleven global
financial institutions have purchased certifications in bulk for
their staffs
13. CFCS Exam Study Aids An extensive 330-page Exam Study
Manual, regularly revised and updated This Live Online Exam
Training Course, as well as prerecorded versions on the website
Topic specific online training courses now available or in
development on crucial subjects, like The US Foreign Corrupt
Practices Act The Foreign Account Tax Compliance Act (FATCA)
14. About the Exam There are 145 scenario based, four choice,
multiple choice questions 125 scored questions and 20 unscored
questions Four hour exam session with no breaks, at one of over 700
testing centers or online proctored Passing score is 63% Results
given immediately
15. Preparation Suggestions Recommended three weeks of study,
if you commit 6 8 hours a week Review manual in detail, including
referenced materials in appendix Prepare based on your own
strengths and weaknesses Exam based on best practices, not what you
might do at your organization
16. CFCS Examination Preparation Series February 5, 2014
Financial Crime Commonalities
17. Defining Financial Crime and its Permutations Crimes that
have money or economic advantage as goal Non-violent action
resulting in unlawful taking, moving or disguising of money or
other value by artifice, corruption or deception for benefit of
perpetrator or another ACFCS does not include profit-motivated
crimes, like drug and human trafficking at their source But, nearly
all criminals become financial criminal when they possess or
control the criminal proceeds
19. Globalization of Financial Crime FCPA, UK Bribery Act, GAC
crackdown FATCA, IGAs, multinational tax enforcement FATFs changing
standards pointing to convergence Shrinking world, cross-border
activity Secrecy havens, beneficial ownership G20 call for greater
financial transparency, cooperation
20. Technology and Financial Crime Identity theft, data
breaches, other cybercrimes Compliance and enforcement
technology-driven Data analytics in transaction monitoring,
investigations, customer due diligence Data security grows in
importance for public, private sectors
21. Commonalities of All Financial Crimes Require money
laundering Require a financial institution Result in tax evasion
Have interface with a government agency Create necessity to recover
assets Often involve multiple countries Often involve public or
private corruption
22. Benefits of Convergence Regulatory expectations, emerging
best practice Government agencies doing it Leveraging data,
systems, tools to access and study data Common case management
system Helps manage stakeholder interests, expectations Can produce
better SARs All financial crime cases have AML component Many cases
involve complicit employees; security, HR Broader career choices
for staffs of converged units 22
23. Practical Considerations on Convergence A single financial
crime job family Sharing best practices Merge organizations or just
work together? History and culture clash Skills some units have
skills others lack Managing internal stakeholders expectations
Managing external stakeholders expectations 23
24. CFCS Examination Preparation Series February 5, 2014 Money
Laundering
25. Overview and Definition Actions or conduct designed to
conceal source, movement, control or ownership of money illegally
derived Movement of money derived through legitimate means, but
which is intended or destined to further a crime Common element of
all financial crimes 25
26. Stages of Money Laundering Placement First step in the
process Infusion of criminal proceeds into traditional or
nontraditional financial institutions Typically most vulnerable to
detection at this point Moving assets away from their source
Structured deposits Changing currency into other financial
instruments Using non-bank institutions, like casinos Complicity of
banks, brokers or other institutions 26
27. Stages of Money Laundering Layering Separates criminal
proceeds from source through layers of transactions Often involves
multiple participants and entities, like shell corporations,
cross-border transactions More layers, more difficult it is to
trace funds to perpetrator Wire transfers Asset movement among
entities perpetrator controls Purchasing multiple financial
instruments 27
28. Stages of Money Laundering Integration Puts laundered
proceeds into legitimate economy to appear legitimately derived,
allowing funds to return to financial criminal Makes it difficult
to distinguish legitimate, illegitimate funds Detecting integration
often requires informant, undercover agent, forensic accounting.
Examples: Real estate investments Trade-based money laundering
Loans, business arrangements among complicit entities 28
29. AML Compliance Programs Obviously better to prevent illicit
funds from entering financial system than chasing them after the
fact Key is robust anti-money laundering programs: Customer due
diligence measures, including ongoing due diligence Customer
profiling and risk assessment Automated transaction monitoring
systems Customer screening Investigation of suspicious or atypical
customer transactions and behavior Enhanced due diligence
procedures for higher-risk customers Will be described in more
detail in later section 29
30. Characteristics and Indicators of Money Laundering Red
flags are situation-specific, depend on type of organization,
customer and scenario Key is to understand customers behavior,
source of funds to establish normal behavior Create customer
profile, compare activity, transactions against expectations and
peer group Good KYC and customer due diligence programs, monitoring
essential for detecting laundering 30
31. Characteristics and Indicators of Money Laundering
Potential red flags Account activity inconsistent with customer
profile Account operated by third party Funds transfers from/to tax
haven Funds transfers to offshore jurisdictions with no rationale
Large cash transactions over short period Multiple deposits to
account by different people Multiple transactions on same day from
different geographic locations Many large deposits by ATM Same home
address for funds transfers by different people Structuring of
transactions Variations in spelling of names, addresses Withdrawing
all or most funds in short period 31
32. Money Laundering Methods and Vehicles Financial
Institutions, Intermediaries and Other Entities Correspondent
Accounts Private Banking Securities Brokers Insurance Real Estate
Agents Precious Metal Dealers Casinos Gatekeepers: Lawyers,
Accountants, Auditors, Notaries, Others 32
33. Money Laundering Methods and Vehicles Financial Vehicles
and Value Transfer Systems International Trade Price Manipulation
Prepaid Cards Mobile Money Credit Facilities and Lending Black
Market Peso Exchange Hawala 33
34. Money Laundering Methods and Vehicles Structures to Conceal
Beneficial Ownership Shell Companies Shelf Companies Trusts Bearer
Bonds and Securities Nonprofits, Charities and Foundations Fronts
and Nominees 34
35. Money Laundering and Beneficial Ownership Determining
ultimate beneficial ownership is persistent issue in AML field
Corporate registries are one key source Business data providers,
open source intelligence can also be useful Increasing regulatory
scrutiny, attention being focused on the issue 35
36. Money Laundering Trends and Technologies Money laundering
risks in new technologies Mobile payments Digital currencies
Virtual worlds Online banking and securities trading Money
laundering schemes becoming more complex Facilitated by many
institutions and intermediaries, including company formation agents
36
37. Key Lessons Money laundering a constant element of all
financial crimes; each has money laundering nexus Unraveling
complex corporate structures, determining beneficial ownership is
key to due diligence, investigations AML compliance relies heavily
on customer profile, risk assessment, expected transactions and
activity Three stages are useful way to frame, analyze suspicious
activity 37
38. Practice Question A compliance officer at a major insurance
company has recently noticed a pattern of potentially suspicious
transactions from a longtime customer. The customer is employed in
a consulting position that requires her to travel internationally
on an unpredictable schedule and she often resides overseas for
extended periods. The customer has several properties insured with
the company for large amounts. In the past three years, she has
overpaid her premiums numerous times and then requested a refund be
issued. Concerned that the customer may be laundering funds through
the overpayment of premiums, the officer is investigating the
transactions. Which fact would BEST indicate money laundering may
be taking place? 38
39. Practice Question A. The customer often requests that
refunds be made by wire transfer to banks outside of the country.
B. The customer makes the overpayments at different times of the
year and in varying amounts. C. The customer has recently taken out
a sizeable new insurance policy on a commercial property with your
company. D. The customer has requested that refunds on excess
premiums be made to an offshore corporation 39
40. Review Question You are an AML officer at a local bank,
which holds accounts for a variety of businesses in your region.
Most businesses are tied to the tourism and hospitality industry,
as the region is a major vacation destination during the summer
months. Many accountholders are small businesses that deal
primarily in cash. You are investigating an alert produced by your
transaction monitoring system on an account held by a local,
family-owned restaurant located near one of the largest tourist
resorts in the area. After reviewing KYC information on the
account, you determine the family lives in a neighboring country.
Upon reviewing the accounts activity, you learn the following
information. Which fact best supports the possibility that the
restaurant account may be used for money laundering? 40
41. Practice Question A. The restaurant makes large cash
deposits into its account biweekly from June until early September.
B. The account shows a pattern of funds transfers each month to an
account held at a bank in a neighboring country. C. The restaurants
account shows consistent deposit activity throughout the calendar
year. D. The restaurants cash deposits were made through a
combination of counter and ATM deposits. 41
42. CFCS Examination Preparation Series February 5, 2014
Ethics
43. Overview There is no one accepted international standard
Ethical standards for different professions and organizations
compliance, regulation, enforcement, law, investigation, etc.
Financial crime professionals confront numerous ethical risks If
you have to ask about it, its probably wrong. 43
44. Duties to Client Financial crime specialist owes highest
duty of honesty, transparency and professionalism to constituents,
client, organization, colleagues Identifying who is your client in
broad terms, acting in their best interests is key to ethical
behavior Does not permit unethical or illegal behavior to further
best interests of client 44
45. Conflicts of Interest Take variety of forms personal
interests, current and past clients, multiple clients Maintaining
ethical standards relies on finding fair and equitable resolution
to conflicts In most cases, one clients interests should not be
privileged over another 45
46. Conflicts of Interest Organizations should screen for
conflicts of interest at the start of relationships: Assess
services, activities, types of employees to identify areas where
conflicts of interest may arise Implement written disclosure
policies Designate conflict of interest officer or committee Create
conflicts of interest database Training programs for employees on
conflicts of interest and their ethical resolution 46
47. Conflicts of Interest Conflicts should be recognized early
in relationship If not, timely response is required, which can
include: Promptly disclosing to past or present colleagues, clients
or organizations the nature of a potential conflict of interest
Asking these persons and organizations to waive conflicts of
interest that may exist, if it is appropriate Creating an
information wall or other safeguards to assure that persons who
were involved with a prior matter will not see or have access to
files from the new matter, and will not participate in the new
matter Declining to accept the prospective matter or case 47
48. Data and Privacy Concerns Financial sector professionals
often have access to sensitive financial, personal information
Organizations need policies and procedures to ensure information of
customers, clients, and other parties is managed ethically
Information barriers to separate sensitive data and reduce
potential for conflicts of interest Multi-tiered access systems to
limit information to essential staff Processes to end relationships
and purge or delete information 48
49. Ethics Policies and Procedures Code of ethics Employee
training, ethics policies Confidential reporting, escalation
policies Commitment, communication from top leadership 49
50. Key Lessons Acting in clients best interests guides ethical
behavior Information barriers are essential safeguard at financial
institutions Conflicts of interest are common ethical dilemma;
understanding how to resolve them is critical 50
51. Review Question What should be one element of an
organizations ethics policies? A. Senior management approval for
all new customer relationships B. Dismissal of any employees with
conflicts of interest C. Reporting of ethical violations through
business lines D. Regular communication on ethics from senior
management 51
52. CFCS Examination Preparation Series February 5, 2014 Fraud
Detection and Prevention
53. Overview and Definition Intentional misrepresentation,
concealment or deception in pursuit of financial gain or to further
a financial crime Recent fraud trends Greater professionalization,
smarter attacks Increased sharing of fraud practices More frauds
perpetrated from offshore locations Technical fraud or cybercrime
combined with traditional skills More collusion between merchants,
fraudsters and organization insiders 53
54. Understanding and recognizing types of fraud Ponzi schemes
Despite recent exposure, remain widespread type of fraud Some red
flags Investment returns too good to be true Investment statements
show growth or performance contrary to market trends Unusual or no
fee structure Lack of information or substance behind investment
54
55. Understanding and recognizing types of fraud Securities
fraud Misrepresentation around a security, which can be virtually
any tradable asset or financial instrument Inaccurate or misleading
information to encourage investment Selling a security that is
illegal or nonexistent Insider trading Now facilitated by online
communications, social networks, other tools 55
56. Understanding and recognizing types of fraud Common types
of securities fraud include Microcap or penny stock frauds, like
pump and dump schemes Insider trading Hidden terms and agreements
Fraud tied to falsified reporting or accounting In US alone,
securities fraud estimated to total $10 40 billion annually 56
57. Understanding and recognizing types of fraud Fraud in loans
and mortgages Intentional, material misrepresentation or omission
to obtain loan or larger loan than lender typically grants May also
be perpetrated by lenders: loans with hidden or predatory terms,
unlicensed lenders Common schemes Income and employment fraud
Occupancy fraud Appraisal fraud Shot-gunning fraud Cash-back fraud
Foreclosure scams 57
58. Understanding and recognizing types of fraud Credit and
debit card fraud Need not involve physical fraud; increasingly
common to steal numbers, personal information online Tampering with
card readers at ATM and other pointof-sale locations through
skimmers Online theft of numbers through compromise of online
security or data breaches Gathering personal information by sending
fake applications for cards to targets Physical theft of card
59
59. Understanding and recognizing types of fraud Other types of
fraud include: Insurance Health care Government benefits Can be
perpetrated by an entity against a customer or by customer against
an entity 60
60. Identity Theft and Fraud Fastest growing types of consumer
fraud A leading threat to accounts at banks and other institutions
Common ways to steal identities Social engineering Creating fake
online identities Technological tools skimmers, phishing, malware
Internal fraud and data theft 61
61. Red Flags of Identity Theft Common signs indicating a
stolen or compromised identity Alerts and warnings from a credit
reporting company Suspicious documents, including forged or altered
IDs Inconsistent personal identifying information New credit or
debit card request immediately after notification of change of
address Identity theft furthers many other fraud schemes Using
stolen identities to obtain government benefits, tax refunds
Obtaining loans or mortgages with false identities Opening accounts
with stolen or false identities 62
62. Preventing Fraud Similar measures as other compliance
programs, but training, awareness are even more important in fraud
prevention Starts with comprehensive fraud risk assessment Create a
team with necessary expertise Identify organizations universe of
fraud risks Fraudulent financial reporting Misappropriation of
assets Expenditures, liabilities for improper purpose Revenue and
assets obtained by fraud Costs, expenses avoided by fraud Financial
misconduct by management 63
63. Preventing Fraud Assess likelihood of fraud schemes or
scenarios Assess materiality of risks: which schemes would have
greatest impact Assess preexisting fraud controls, compare them
against risks Consider how controls may be over-ridden or
manipulated by employees and others Employee collusion is serious
fraud risk 64
64. Key Lessons Preventing fraud is heavily reliant on
awareness, training, and internal controls Financial crime
professionals should be prepared to identify many types of fraud
Fraud schemes are frequently linked one element feeds into larger
operation 65
65. Review Question Your institution has recently been dealing
with a large number of identity theft cases, in which thieves have
stolen sensitive customer data and used it to fraudulently apply
for credit cards. After an initial investigation, you suspect that
an employee is participating in the identity theft scheme. What
would be the most effective first step you could take to prevent
further theft of customer information? A. Immediately notify
customers whose data has been compromised B. Restrict access to
sensitive customer data, and monitor employee access on an ongoing
basis C. Impose strict alert thresholds in the automated monitoring
system for all credit cards D. Conduct a mandatory ethics seminar
with all institution employees 66
66. Review Question A mortgage administrator has been dealing
with a buyer attempting to obtain a large mortgage on a home from
your institution. According to the buyer, he is seeking to purchase
the home as an investment property. The buyer has been behaving
erratically and has been difficult to contact at times. Concerned
about a potential fraud, the administrator has asked you to examine
the mortgage application and accompanying documents. You note the
following information. Which is the best indicator that the buyer
may be committing mortgage fraud? A. B. C. D. A real estate agent
from a nearby city is helping to broker the sale The seller is not
currently listed as the occupant of the property The buyer
currently has a large mortgage outstanding on his own property The
buyer has no previous history of obtaining mortgages from your
institution 67