AML Training Docs

By Varsha Bansal
 What is AML(Anti-Money Laundering)?

• Money Laundering refers to the process of taking illegally obtained money and
making it appear to have come from a legitimate source. It involves putting the
money through a series of commercial transactions in order to “clean” the money.
• Anti Money Laundering is the set of procedures, laws, policies & other regulatory
principles that banks & Financial Institutions must apply & enforce to detect, stop &
prevent Money laundering.
• 3 stages of Money Laundering:-
Placement
Layering
Integration
 Stages of Money Laundering

1. Placement :
It is the first stage where the illicitly obtained proceeds enter the financial system.
A typical measure focusing on this phase is the reporting requirements for cash
deposits of over a threshold amount. Here are a few typical tactics used during
the placement stage:
 Creating false invoices
 Putting money into cash-based businesses
 Opening foreign bank accounts
 Creating offshore companies
 Moving small amounts of money at a time
2. Layering :
It is the second stage which is also referred as obfuscation: the activity whereby funds are
transferred across multiple accounts and/or multiple Financial Institutions, potentially spread
across multiple countries or jurisdictions, and through different paths, to obfuscate the relation
between these funds, their ultimate beneficial owner(s) and its illicit origin.
Tactics might include:
 Trading in international markets
 Purchasing foreign money orders
 Trading in foreign currencies
 Purchasing and selling luxury assets

3. Integration:
It is the last phase and pertains to the further absorption by the financial system of these
funds as legally obtained means and the further use of the funds through the financial system. They
might also use tactics like:
 Putting fake employees on the payroll
 Paying out loans to directors of a shell company
 Paying dividends to shareholders of criminal-controlled companies
Who launders Money?

• Drug Barons
• Traffickers
• Corrupt Officials
• Fraudsters
• Lawyers
• Real Estate Tycoons
• Countries
 Compliance
Compliance is now an industry by itself and covers a range of Unwanted activities:

• Money Laundering
• Terrorist Financing
• Tax Evasion
• Bribery Corruption
• Sanction Blacklists

It’s Scope is still increasing, meaning Financial Institutions', whilst most of these are
private sector profit driven companies, are increasingly drawn into the public sector
realm of law enforcement and have a legal obligation to support the fight against illicit
behaviors through active transaction monitoring and customer due diligence(CDD).
• Most regulated FI‘s operation in the private sector have a Compliance Department which
manages AML operations and run a transaction monitoring system.

• They monitor transactions of customers and receive alerts on unusual behavior.

• In some cases this will lead to an internal investigation. Alerts and investigations can extend to
employees too.
 REGULATORY FRAMEWORK

• Statutory Law & Regulations (local per country / jurisdiction)

• Federal Acts (e.g. US) and/or Treaties + Directives (UN, EU)
• FATF 40+9 AML+CTF Recommendations

Examples

• GL UN Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances

• GL UN Convention against Transnational Organized Crime.
• GL FATF 40 Anti‐Money Laundering Directives
• GL FATF 11 Anti‐Terrorist Financing Directives
• GL FATF List of Non‐Cooperative Countries and Territories
• US Bank Secrecy Act (BSA), US Patriot Act
• EU Anti‐Money Laundering Directives ( I, II, II and IV )
• UK Proceeds of Crime Act 2002 , Anti‐Money Laundering Regulations
• NL Wet MOT (Melding Ongebruikelijke Transacties)
CHALLENGES

Industry Evolution
From TO
Rule based Regulator decides Risk bsed Financial Institution
decides
Simple logic Heuristic rules Complex models Hybrid Analytics

More False Positives Less False Positives

Less False Negatives More False Negatives

Demonstrating to the regulator Explaining to the Regulator

 Regulatory Trends
• Regulatory Demand:
Changing Regulations, with an ever increasing scope, Increase of areas to be covered (AML
TM, Terrorist Financing, Sanction Screening, Corruption, Tax Avoidance) and Increasingly
complex demand in terms of risk based approach.
• Data :
Increase in the volumes of data to be processed, we have entered the era of Big Data,
Changes in the nature of the data to be assessed, Increasing look‐back periods exacerbate
data volume problems and an increase in demand of real time or on‐demand processing.
• 360o :
Regulators will not allow for compartmentalized view of a multitude of customer relations
across the organization, All data on one and the same entity must be aggregated assessed
holistically and as a result, Entity Resolution becomes more and more important
• Sophistication:
• from simple rules to analytical models
• Dynamic velocity analysis
• Outlier detection
• Profiling

• Transparency:
Risk based AML systems have become more complex and new capabilities have
also educated regulators, Regulators have matured in assessing the robustness of
the risk based models, increasing appetite with regulators for the details of the AML
approach and methodologies
 STACKS ARE HIGH

• US 2011 • France 2014

 $2.01 billion  $2.05 billion

 Jp Morgan chase  BNP Paribas
 Section violations  AML Deficiencies

• UK 2012 • Hong Kong 2012

 $1.9 billion  $ 340 Million

 HSBC  Standard Chartered
 AML Deficiencies  Sanctions Violations
 BUSINESS CHALLENGES

• Emerging Threats:
Money launderers finding new ways to abuse the system, with increasing
sophistication to circumvent detection

• Monitoring Effectiveness

• Resourcing:
The demand for resources to triage alerts and conduct investigations increases as
alerts volumes continue to grow.

• Operational Cost:
associated with investment in anti‐fraud is more likely to earn itself back due to the
direct prevention of losses impacting the bottom line, this is much less clear for AML.
BUSINESS DEMANDS

• 360O
• WhiteBox
• Visualization
• Delivery
• Cutomization
• Real Time
REGULATORY RISK OBJECTIVES

• Data
• Analytics
• Proven
• Enterprise
• White-Box
• Real-time
How does SAS AML deliver the 360 degree
customer view?
• Historical:
customer/account against his/her/its own history (e.g. profiling scenarios,look back
period, outlier detection)
• Customer base comparison:
were behavior on the accounts is compared against thresholds set on the basis of analysis
of the entire customer population
• Demography perspective:
transactions can be aggregated at household level, customer can be compared against
other customers in same segment or peer group, the funds tracker visualizes recurring
• Entity resolution capabilities, although not out of the box, can help mapping Customer
relations across the organization: this brings us back to holistic view of a customer.
• Multi tenancy will separate data and entity related data cannot be rolled up within the UI
across multiple tenants … but VA views can be created that can overcome these barriers
between tenants.
 UI DEMO

• AML 7.1 is a anti money laundering transaction monitor solution with an alert
triage and investigation UI for end users in the compliance department, such as
alert analysts and AML case investigators. It allows for the analysis of
customers and other entities who have alerts raised against them and make a
decision on the basis of the rich alert and customer data.
• Entity Triage Screen
• Object Details Screen
• Funds Tracker
• Regulatory Report Screen
• Scenario Admin
• System Admin
 Key Concepts
• Entity : It is an actionable agent to which alerts can be allocated and aggregated.
 Account
 Customer
 Household
 External party
 Associate
 Bank
• Alert : An event or pattern of events that might be suspicious and for which the scenario threshold has been
exceeded, making the scenario trigger an alert.
• Triage : Initial assessment of alerts in order to determine whether the alert can immediately discarded as a
false positive can be suppressed, i.e. (temporarily) ignored or requires further investigation in the context
of a case.
• Case : A collection of alerts and/or subjects that are investigated together.
• Report : Regulatory reports such as a Suspicious Activity Report (SAR). Depending on local reporting
requirements and procedures, reports can be submitted by: E‐file, as xml / csv ,e‐mail or webform.
• E-file : An electronic submission of one or more reports to a regulatory agency.
 Roles

• Analyst : triage alerts to determine what to do with it or promotes alerts that

require additional investigation to cases.
• Investigator : performs moderately complex investigations with the primary focus on
money Laundering.
• Manager : Can assign and reassign alerts to analysts and cases to investigators,
Reviews final case disposition and the Regulatory Reports before tagging
these as ready for submission.
• E-file Manager : Can Access and handle E‐Files and is responsible for submission and
handling the response. Scenario Admin and Manages scenarios &
headers.
• Scenario Admin
• Solution Admin
Thank You