Guide to US Anti-Money Laundering Requirements FAQ, 6th Ed.

698 Pages·2014·6.34 MB·English

Guide to U.S.
Anti-Money Laundering Requirements
Frequently Asked Questions

Sixth Edition
PREFACE
“Recent record fines imposed on major financial institutions once again affirm that banks face unprecedented
pressure to comply with financial crime regulations. … Regulators have levied more than $10 billion in fines and
settlements on banks over the last 18 months, demonstrating the determination and ability of regulators to use civil
and criminal law to enforce financial sanctions on a global level.”1
− Luc Meurant, head of banking markets and compliance services, Society for Worldwide Interbank Financial Telecommunication
We are pleased to publish this sixth version of Protiviti’s Guide to U.S. Anti-Money Laundering Requirements. When
we published the first edition of the Guide, our intent was to provide clear and concise answers to basic questions
that surfaced in our discussions with clients, attorneys, regulators and others, both in the United States and other
jurisdictions. Thirteen years after the enactment of the USA PATRIOT Act and 11 years since we published the first
Guide, the financial services industry in the United States, and elsewhere, continues to struggle to meet continually
evolving regulatory expectations for anti-money laundering and sanctions compliance, and there seems to be no end
to the questions. This version of the Guide has expanded to more than 600 pages, covering thousands of questions.
It includes new and expanded information on a range of topics, such as human trafficking and smuggling, virtual
currency, the conflict between federal and state laws affecting marijuana-related businesses, the selection and use of
U.S. anti-money laundering and countering the financing of terrorism (AML/CFT) technology, risk assessments,
sanctions compliance, and more in-depth information about how U.S. AML/CFT standards compare to those issued
by the Financial Action Task Force (FATF).
The Guide begins by summarizing the basic principles of money laundering and terrorist financing in The
Fundamentals section, and ensuing chapters address specific requirements of the Bank Secrecy Act (BSA), the USA
PATRIOT Act and the Office of Foreign Assets Control (OFAC). These are followed by sections that delve into many
of the practical considerations of maintaining effective AML/CFT Compliance Programs, such as Risk Assessments,
Know Your Customer, and Transaction Monitoring and Investigations, including the selection and use of enabling
technology. The next sections of the Guide discuss specific considerations for nonbank financial institutions and
nonfinancial businesses, as well as the convergence of AML/CFT with fraud and other regulatory requirements. The
final section of the Guide offers some international perspectives and related initiatives.
It is important to note that this Guide is provided for general information only and focuses primarily on federal
AML/CFT requirements; it is not intended to be legal analysis or advice, nor does it purport to address, except in a
few instances, state or international money laundering requirements that may affect U.S. companies. The responses
to the questions have been drawn from myriad regulatory publications, issuances and guidance from other
governmental agencies and law enforcement, industry publications, media reports, and Protiviti’s own work with a
wide range of companies. Companies should seek the advice of legal counsel or other appropriate advisers on
specific questions and practices as they relate to their unique circumstances.
We hope that you find the Guide a useful resource for AML/CFT and sanctions compliance. Given how dynamic the
compliance environment is, we invite you to visit www.protiviti.com/AML for compliance updates and news.

Protiviti
November 2014

1 ”Financial Crime Compliance: The Case for an Industrywide Approach,” by Luc Meurant, American Banker, August 18, 2014:
http://www.americanbanker.com/bankthink/financial-crime-compliance-the-case-for-an-industrywide-approach-1069406-1.html.
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Acknowledgements
This update was researched and developed by our former Protiviti colleague, Karen L. Wilkes, with contributions by
Luis Canelon and other members of Protiviti’s AML Team. Special thanks are also extended to Deborah Thoren-
Peden, Christopher Wall and Elsa Broeker of Pillsbury Winthrop Shaw Pittman LLP, who served as reviewers of
select sections of the Guide.
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CONTENTS AT A GLANCE

PREFACE ..................................................................................................................................................... 1
THE FUNDAMENTALS .............................................................................................................................. 12
BANK SECRECY ACT ............................................................................................................................... 51
USA PATRIOT ACT ................................................................................................................................. 132
OFFICE OF FOREIGN ASSETS CONTROL AND INTERNATIONAL SANCTIONS PROGRAMS ....... 193
RISK ASSESSMENTS ............................................................................................................................. 263
KNOW YOUR CUSTOMER, CUSTOMER DUE DILIGENCE AND ENHANCED DUE DILIGENCE ...... 284
TRANSACTION MONITORING, INVESTIGATIONS AND RED FLAGS ................................................ 387
AML/CFT TECHNOLOGY ........................................................................................................................ 409
NONBANK FINANCIAL INSTITUTIONS AND NONFINANCIAL BUSINESSES ................................... 431
CONVERGENCE OF AML/CFT WITH FRAUD AND OTHER REGULATORY TOPICS ........................ 525
INTERNATIONAL PERSPECTIVES AND INITIATIVES ......................................................................... 585
RESOURCES ........................................................................................................................................... 643
ABOUT PROTIVITI ................................................................................................................................... 695

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TABLE OF CONTENTS
PREFACE ..................................................................................................................................................... 1
Acknowledgements ................................................................................................................................... 2
THE FUNDAMENTALS .............................................................................................................................. 12
Key Principles ......................................................................................................................................... 12
Overview of U.S. AML/CFT Laws ........................................................................................................... 18
Overview of the U.S. Regulatory Framework ......................................................................................... 25
Key U.S. Regulatory Authorities and Law Enforcement Agencies ..................................................... 25
Financial Crimes Enforcement Network ............................................................................................. 30
National and International Cooperation .............................................................................................. 32
Enforcement Actions .......................................................................................................................... 33
AML/CFT Compliance Program.............................................................................................................. 40
BANK SECRECY ACT ............................................................................................................................... 51
Overview of the BSA ............................................................................................................................... 51
BSA Reporting Requirements ................................................................................................................. 54
Currency Transaction Reports ........................................................................................................... 54
CTR Basics .................................................................................................................................... 54
CTR Threshold and Aggregation ................................................................................................... 58
Completion of a CTR ...................................................................................................................... 60
Armored Car Service Exception for CTRs ..................................................................................... 62
Filing of CTRs ................................................................................................................................ 63
CTR Exemptions and the Designation of Exempt Persons Form .................................................. 64
Filing of DOEPs .............................................................................................................................. 69
CTR Evasion .................................................................................................................................. 70
Form 8300 .......................................................................................................................................... 71
Form 8300 Basics .......................................................................................................................... 71
Annual Notification ......................................................................................................................... 75
Completing and Filing of Form 8300 .............................................................................................. 76
Reporting Suspicious Activity on Form 8300 ................................................................................. 77
Suspicious Activity Reports ................................................................................................................ 77
SAR Basics .................................................................................................................................... 77
SAR Filing Time Frame and Date of Initial Detection .................................................................... 83
Completion of a SAR ...................................................................................................................... 84
Filing SARs .................................................................................................................................... 86
Confidentiality ................................................................................................................................. 88
Third-Party and Joint Filings of SARs ............................................................................................ 90
Safe Harbor .................................................................................................................................... 90
Monitoring and Terminating Relationships with SAR Subjects ...................................................... 91
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Law Enforcement ........................................................................................................................... 92
SAR Statistics and Trends ............................................................................................................. 95
Report of Foreign Bank and Financial Accounts ................................................................................ 99
FBAR Basics .................................................................................................................................. 99
Completing the FBAR and Third-Party Authorization .................................................................. 102
Filing of FBARs ............................................................................................................................ 103
Recent Tax Scandals ................................................................................................................... 104
Report of International Transportation of Currency or Monetary Instruments ................................. 105
CMIR Basics ................................................................................................................................ 105
CMIR Exceptions ......................................................................................................................... 108
Cross-Border Bulk Shipments of Currency .................................................................................. 109
CMIR Filing .................................................................................................................................. 110
Registration of Money Services Businesses .................................................................................... 110
RMSB Basics ............................................................................................................................... 110
MSB Registrant Search Web Page .............................................................................................. 113
Completing the RMSB .................................................................................................................. 114
Filing of RMSBs ........................................................................................................................... 114
BSA Recordkeeping Requirements ...................................................................................................... 115
Overview ........................................................................................................................................... 115
Funds Transfer Recordkeeping Requirement and the Travel Rule ................................................. 117
Basics ........................................................................................................................................... 117
Addresses and Abbreviations ...................................................................................................... 122
Verification of Identity ................................................................................................................... 122
Joint Party Transmittals and Aggregation .................................................................................... 122
Retrievability ................................................................................................................................. 123
Cover Payments and SWIFT ....................................................................................................... 123
Cross-Border Electronic Transmittal of Funds ................................................................................. 126
Recordkeeping Requirement for the Purchase and Sale of Monetary Instruments ......................... 128
USA PATRIOT ACT ................................................................................................................................. 132
Overview of the USA PATRIOT Act...................................................................................................... 132
USA PATRIOT Act – Analysis of Key Sections .................................................................................... 138
Section 311 – Special Measures ...................................................................................................... 138
Section 312 – Special Due Diligence for Correspondent Accounts and
Private Banking Accounts ................................................................................................................ 141
Overview ...................................................................................................................................... 141
Due Diligence for Correspondent Accounts ................................................................................. 146
Enhanced Due Diligence for Correspondent Accounts ............................................................... 148
Due Diligence for Private Banking Accounts ............................................................................... 149
Senior Foreign Political Figure................................................................................................. 152
Section 313 – Prohibition on U.S. Correspondent Accounts with Foreign Shell Banks ................... 155
Section 314 – Cooperative Efforts to Deter Money Laundering ....................................................... 157
Section 314(a) – Cooperation among Financial Institutions, Regulatory Authorities and Law
Enforcement Authorities ............................................................................................................... 158
Section 314(b) – Cooperation Among Financial Institutions ........................................................ 161
Section 319 − Forfeiture of Funds in United States Interbank Accounts ......................................... 163
Section 319(a) − Forfeiture of Funds in United States Interbank Accounts ................................. 163
Section 319(b) – Bank Records ................................................................................................... 164
120-Hour Rule ......................................................................................................................... 164
Foreign Bank Records ............................................................................................................. 164
Foreign Bank Certifications...................................................................................................... 165
Section 325 – Concentration Accounts at Financial Institutions ...................................................... 167
Section 326 – Verification of Identification ....................................................................................... 168
Overview ...................................................................................................................................... 168
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Customer Defined ........................................................................................................................ 169
Account Defined ........................................................................................................................... 171
Verification ................................................................................................................................... 171
Updating CIP for Existing Customers .......................................................................................... 174
Record Retention ......................................................................................................................... 174
List Matching ................................................................................................................................ 175
Customer Notice .......................................................................................................................... 175
Third-Party Reliance .................................................................................................................... 175
Section 352 – AML Program ............................................................................................................ 176
Overview ...................................................................................................................................... 176
Policies and Procedures .............................................................................................................. 181
Designation of AML Compliance Officer and the AML/CFT Compliance Organization ............... 182
Independent Testing .................................................................................................................... 187
Section 505 – Miscellaneous National Security Authorities ............................................................. 192
OFFICE OF FOREIGN ASSETS CONTROL AND INTERNATIONAL SANCTIONS PROGRAMS ....... 193
OFAC Basics ........................................................................................................................................ 193
OFAC Sanctions Listings ...................................................................................................................... 202
Specially Designated Nationals and Blocked Persons List.......................................................... 204
Non-Specially Designated Nationals Palestinian Legislative Council List ................................... 205
Foreign Sanctions Evaders List ................................................................................................... 206
Sectoral Sanctions Identifications List ......................................................................................... 206
List of Foreign Financial Institutions Subject to Part 561 ............................................................. 208
OFAC Sanctions Programs .................................................................................................................. 208
Counter Terrorism Sanctions Program ........................................................................................ 208
Counter Narcotics Trafficking Sanctions Program ....................................................................... 210
Transnational Criminal Organizations Sanctions Program .......................................................... 211
Non-Proliferation Sanctions Program .......................................................................................... 212
Rough Diamond Trade Controls Sanctions Program .................................................................. 214
Country- and Regime-Based Sanctions Programs ...................................................................... 216
Iranian and Syrian Sanctions Overview ................................................................................... 217
Comprehensive Iran Sanctions, Accountability and Divestment Act of 2010
and the Iran Threat Reduction and Syria Human Rights Act of 2012 ................................. 222
National Defense Authorization Act .................................................................................... 232
NDAA for Fiscal Year 2012 ................................................................................................. 232
NDAA for Fiscal Year 2013 ................................................................................................. 235
Other Executive Orders ....................................................................................................... 238
Other U.S. and International Sanctions Programs ............................................................................... 241
Screening Customers and Transactions .............................................................................................. 242
Basics ........................................................................................................................................... 242
Cover Payments ........................................................................................................................... 245
U-Turn Payments ......................................................................................................................... 246
Automated Clearing House Transactions and IATs ..................................................................... 247
Trade Finance Transactions ........................................................................................................ 249
Investigating Potential Matches ............................................................................................................ 249
Blocking and Rejecting Transactions ................................................................................................... 250
OFAC Reporting Requirements ............................................................................................................ 252
Blocked/Rejected Transaction Reports ........................................................................................ 252
Annual Report of Blocked Property .............................................................................................. 253
OFAC Licensing .................................................................................................................................... 254
602 Letter and Prepenalty Notice ......................................................................................................... 256
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Voluntary Disclosure ............................................................................................................................. 257
Independent Testing ............................................................................................................................. 257
Consequences of Noncompliance ........................................................................................................ 258
Common Gaps and Challenges............................................................................................................ 261
RISK ASSESSMENTS ............................................................................................................................. 263
Overview ............................................................................................................................................... 263
Enterprisewide Risk Assessment ......................................................................................................... 269
Horizontal Risk Assessment ................................................................................................................. 270
Line of Business/Legal Entity Risk Assessment ................................................................................... 270
Geographic Risk Assessment ............................................................................................................... 271
Product/Service Risk Assessment ........................................................................................................ 275
Customer Risk Assessment .................................................................................................................. 276
Office of Foreign Assets Control/Sanctions Risk Assessment ............................................................. 282
KNOW YOUR CUSTOMER, CUSTOMER DUE DILIGENCE AND ENHANCED DUE DILIGENCE ...... 284
Overview ............................................................................................................................................... 284
CDD vs. EDD ........................................................................................................................................ 286
KYC Challenges.................................................................................................................................... 290
Beneficial Owners ................................................................................................................................. 291
Know Your Customer Types ................................................................................................................. 296
Nonresident Aliens and Foreign Persons .................................................................................... 296
Private Banking ............................................................................................................................ 299
Politically Exposed Persons ......................................................................................................... 300
Foreign Embassy and Consulates ............................................................................................... 303
Charitable Organizations and Nongovernmental Organizations ................................................. 304
Marijuana-Related Businesses .................................................................................................... 308
Nonbank Financial Institutions ..................................................................................................... 313
Correspondent Banking ............................................................................................................... 315
Third-Party Payment Processors ................................................................................................. 319
Owners/Operators of Privately Owned Automated Teller Machines (ATMs) .............................. 322
Common Carriers of Currency and Armored Car Services ......................................................... 325
Deposit Brokers ............................................................................................................................ 327
Professional Service Providers .................................................................................................... 328
Business Entities: Shell Companies, Private Investment Companies ......................................... 329
Know Your Customer’s Activities: Product Considerations .................................................................. 332
Currency Transactions ................................................................................................................. 332
Bulk Shipments of Currency and Bulk Cash Smuggling ......................................................... 334
Restrictions on U.S. Currency Transactions with Mexican Financial Institutions .................... 338
Funds Transfers ........................................................................................................................... 340
Monetary Instruments .................................................................................................................. 342
Payable-Through Accounts .......................................................................................................... 344
Concentration Accounts ............................................................................................................... 346
Pouch Activity ............................................................................................................................... 346
U.S. Dollar Drafts ......................................................................................................................... 348
Trade Finance Activities ............................................................................................................... 350
Electronic Banking and Digital Value ........................................................................................... 358
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Online and Mobile Banking ...................................................................................................... 359
Automated Teller Machines ..................................................................................................... 360
Remote Deposit Capture ......................................................................................................... 361
Prepaid Access and Stored-Value ........................................................................................... 363
Virtual Currencies .................................................................................................................... 366
Automated Clearing House Transactions .................................................................................... 370
Trust and Asset Management Services ....................................................................................... 374
Interest on Lawyers Trust Account .............................................................................................. 377
Nondeposit Investment Products ................................................................................................. 377
Lending Activities ......................................................................................................................... 379
Insurance Products ...................................................................................................................... 381
Know Your Customer’s Customer ........................................................................................................ 383
Know Your Employees ......................................................................................................................... 383
Know Your Third Parties ....................................................................................................................... 384
TRANSACTION MONITORING, INVESTIGATIONS AND RED FLAGS ................................................ 387
Monitoring Process ............................................................................................................................... 387
Investigation Process ............................................................................................................................ 392
Suspicious Activity Red Flags ............................................................................................................... 397
Account Opening Red Flags ........................................................................................................ 397
Account Activity and Transaction Execution Red Flags .............................................................. 398
Currency Red Flags ..................................................................................................................... 398
ATM Transactions and Owner/Operators of Privately Owned ATM Red Flags........................... 399
Bulk Shipments of Currency Red Flags ....................................................................................... 399
Branch and Vault Shipments Red Flags ...................................................................................... 399
Monetary Instrument Red Flags ................................................................................................... 400
U.S. Dollar Draft Red Flags ......................................................................................................... 400
Wire Transfer Red Flags .............................................................................................................. 400
Virtual Currency Red Flags .......................................................................................................... 401
Certificate of Deposit Red Flags .................................................................................................. 401
Safe Deposit Box Red Flags ........................................................................................................ 401
Lending Red Flags ....................................................................................................................... 402
Mortgage and Real Estate Red Flags .......................................................................................... 402
Credit Card Red Flags ................................................................................................................. 402
Trade Finance Red Flags............................................................................................................. 402
Capital Market Products Red Flags ............................................................................................. 403
Insurance Products Red Flags ..................................................................................................... 404
Casino Red Flags ......................................................................................................................... 404
Retail Red Flags ........................................................................................................................... 404
Consumer Products Red Flags .................................................................................................... 405
Terrorist Financing Red Flags ...................................................................................................... 405
Drug Trafficking and Marijuana-Related Businesses Red Flags ................................................. 405
Human Trafficking and Migrant Smuggling Red Flags ................................................................ 406
Elder Financial Abuse Red Flags ................................................................................................. 407
Informal Value Transfer System (IVTS) Red Flags ..................................................................... 408
Employee/Insider Abuse Red Flags ............................................................................................. 408
AML/CFT TECHNOLOGY ........................................................................................................................ 409
Overview ............................................................................................................................................... 409
Suspicious Transaction Monitoring and Suspicious Activity Report Filing Software ............................ 414
Overview ...................................................................................................................................... 414
Threshold and Tuning Methodology ............................................................................................ 416
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Model Validation ........................................................................................................................... 420
Data Analytics .............................................................................................................................. 421
Case Management Software ................................................................................................................ 423
Large Currency Transaction Monitoring and Currency Transaction Report Filing Software ................ 423
Customer Information Database and Customer Risk Assessment Software ....................................... 424
Customer Verification Software ............................................................................................................ 425
List Providers ........................................................................................................................................ 426
Interdiction Software ............................................................................................................................. 427
Training Software .................................................................................................................................. 429
NONBANK FINANCIAL INSTITUTIONS AND NONFINANCIAL BUSINESSES ................................... 431
Nonbank Financial Institutions .............................................................................................................. 431
Overview ........................................................................................................................................... 431
Money Services Businesses ............................................................................................................ 434
Definitions .................................................................................................................................... 434
Issuers and Sellers of Money Orders and Traveler’s Checks ................................................. 436
Check Cashers ........................................................................................................................ 437
Dealers in Foreign Exchange .................................................................................................. 437
Providers and Sellers of Prepaid Access ................................................................................ 437
Money Transmitters ................................................................................................................. 438
Guidance on the Applicability of the Definition of Money Services Businesses ...................... 439
Key AML/CFT and Sanctions Requirements ............................................................................... 442
Registration Requirements of MSBs ............................................................................................ 447
Agents of MSBs ........................................................................................................................... 448
Informal Value Transfer Systems ................................................................................................. 449
Definitions ................................................................................................................................ 449
Black Market Peso Exchange .................................................................................................. 451
Reintegro ................................................................................................................................. 452
Virtual Currency Systems and Participants.................................................................................. 453
Definitions ................................................................................................................................ 453
Current and Pending AML/CFT and Sanctions Requirements ................................................ 457
Providers and Sellers of Prepaid Access ......................................................................................... 459
Definitions .................................................................................................................................... 459
Key AML/CFT and Sanctions Requirements ............................................................................... 465
Broker-Dealers in Securities ............................................................................................................. 469
Definitions .................................................................................................................................... 469
Key AML/CFT and Sanctions Requirements ............................................................................... 471
Futures Commission Merchants and Introducing Brokers in Commodities ..................................... 481
Definitions .................................................................................................................................... 481
Key AML/CFT and Sanctions Requirements ............................................................................... 482
Commodity Trading Advisers and Commodity Pool Operators........................................................ 486
Definitions .................................................................................................................................... 486
Key AML/CFT and Sanctions Requirements ............................................................................... 486
Mutual Funds .................................................................................................................................... 487
Definitions .................................................................................................................................... 487
Key AML/CFT and Sanctions Requirements ............................................................................... 488
Investment Advisers and Unregistered Investment Companies ...................................................... 490
Definitions .................................................................................................................................... 490
Key AML/CFT and Sanctions Requirements ............................................................................... 492
Insurance Companies ...................................................................................................................... 493
Definitions .................................................................................................................................... 493
Key AML/CFT and Sanctions Requirements ............................................................................... 494
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