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Prepared and presented by: Lauren L. Pickett Director of Global AML Training Citigroup Global Anti-Money Laundering Citi

International Seminar on Anti-Money Laundering Anti-Money Laundering Compliance Program - Banking March 30, 2005. Prepared and presented by: Lauren L. Pickett Director of Global AML Training Citigroup Global Anti-Money Laundering Citigroup 425 Park Avenue, 4th Floor, Zone 5

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Prepared and presented by: Lauren L. Pickett Director of Global AML Training Citigroup Global Anti-Money Laundering Citi

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  1. International Seminar onAnti-Money Laundering Anti-Money Laundering Compliance Program - BankingMarch 30, 2005 Prepared and presented by:Lauren L. Pickett Director of Global AML Training Citigroup Global Anti-Money Laundering Citigroup 425 Park Avenue, 4th Floor, Zone 5 New York, NY 10022 Tel: 212-559-2440 / e-mail: pickettl@citigroup.com ©2005 Citigroup, Inc. External

  2. Anti-Money Laundering Goal • Effective, comprehensive anti-money laundering program that is tailored to the business and responsive to the external environment

  3. What are the Overall Anti-Money Laundering Risks? • Reputation • Negative Press Reports • Legal • Criminal/Civil Fines • Restriction and/or revocation of authority to do business • Forfeitures of money/property • Seizure of Customer Assets • Imprisonment of Individual Employees • Supervisory • Enforcement Actions • Civil Money Penalties

  4. Financial Institutions Fined for Violations of U.S. Anti-Money Laundering Regulations (Forfeiture of assets)

  5. Managing Money Laundering Risks • Accountability • Senior level support • Culture of integrity and compliance • Designated oversight responsibility (with proper authority) • Individual employee responsibility

  6. Managing Money Laundering Risks • Training • Directors and senior management • All staff • Conduct regularly • Document

  7. What Is Money Laundering ? • Money Laundering is the Process of Integrating the Proceeds of Crime into the Legitimate Stream of Financial Commerce by Masking its Origin • A process to make Illegitimate Funds Appear Legitimate

  8. What Is Money Laundering ? • Concealing the existence or source of income from a crime • Disguising income from a crime so that it appears legitimate • Knowingly assisting a criminal in moving money or other property that constitutes the proceeds of criminal activity • In the U.S. Money Laundering is the Proceeds Related to Many Illicit Activities, Not Just Drug Trafficking

  9. Some Examples of Proceeds of Activities Which Constitute Money Laundering in the U.S. are: • Drug Trafficking • Foreign Official Corruption • Embezzlement • Securities, Wire and Mail Fraud • Bribery • Terrorist Financing • Trafficking in Human Cargo • Illegal Gambling • Racketeering • Arson • Certain Foreign Smuggling & Export Control Violations • Money Derived From Nearly 200 Predicate Crimes Money Laundering is separate from the charges of the underlying crime(s)

  10. U.S. Requirement for Identifying Suspicious Activity Transaction conducted or attempted by, at, or through a business and the business Knows, Suspects or has Reason to Suspect the Transaction: • involves funds from illegal activities • hides or disguises funds or assets from illegal activities; • is designed to evade a money laundering recordkeeping or reporting requirement; or • has no business or apparent lawful purpose • is not the sort in which the particular customer would normally be expected to engage

  11. Definition of “Knowing” Under U.S. Law • Actual Knowledge • Willful Blindness – “Deliberate Indifference,” “Conscious Avoidance” • Collective Knowledge of Information Regarding the Source and Nature of Proceeds • Knowledge is a Key Element of an Offense under U.S. Money Laundering Criminal Statutes

  12. Anti-Money Laundering Compliance Program

  13. Financial Institutions Can Protect Themselves By Establishing an Anti-Money Laundering Program At Citigroup each business shall be covered by a written Anti-Money Laundering Program that includes: • Designation of an Anti-Money Laundering Compliance Officer responsible for coordinating and monitoring compliance • Verification of the identity of each customer that opens an account • Evaluation of potential risks associated with the customers’ and their transactions • Business/Entity • Country • Product • Performance of appropriate due diligence at account opening and monitoring of transactions based upon the assessments of risk • Procedures to detect and report suspicious transactions to government authorities and in accordance wit the Global Anti-Money Laundering Policy • Development of a training plan that sets for the the frequency of training and personnel to be trained • Assessments by the business of its adherence to its Anti-Money Laundering procedures

  14. The Anti-Money Laundering Program should be Based Upon a Risk-Based Approach • Key Factors to be considered in assessing and developing appropriate controls to manage Money Laundering Risk: • Different categories of customers • Localities of the businesses and customers • Nature of the products and services provided • Expected use by customers of products and services • Determines where enhanced due diligence measures should be taken in obtaining customer information and in monitoring suspicious activity

  15. The Enhanced Due Diligence Program • Criteria for determining product lines and customers that pose a “heightened risk or concern,” for example, but not all inclusive: • Private banking • Onshore vs. Offshore client • Correspondent banking (foreign vs. domestic) • Foreign political figures/foreign corrupt officials • Accounts with frequent or excessive use of funds transfers (in and out or frequent purchase of bank drafts under reporting limits)

  16. CitigroupRisk Based Approach to Money LaunderingAnd Terror Financing Risk 

  17. Risk Based Approach To Money Laundering And Terror Financing Risk • Identify as early as possible suspicious activity that may represent money laundering and terror financing risk • Prioritize customer and transaction for review and investigation based upon risk; • Ensure that resources are deployed commensurate with perceived risks, and to • Establish a corporate baseline to ensure that money laundering and terror financing risk are given appropriate weight and addressed in a consistent and quality manner across Citigroup globally.

  18. Risk Based Approach To Money Laundering And Terror Financing Risk • Key considerations in the development of the model: • objective • verifiable • previously published material • where possible, international sources

  19. Citigroup Risk Models • Risk Models for Three Principal Money Laundering/Terror Financing Factors • Geography and Country Risk – 244 Countries • Under Development • Business and Entity Risk – 2,500 Types • Product and Transaction Risk – 130 Types

  20. Risk Model Convergence Country Risk Product Risk H M L Business & Entity Risk

  21. Geography and Country Risk • Principal factors are those that in and of themselves are so significant that they will result in a high risk score; • Scoring factors, that can increase or decrease a risk score on the margin – • Scoring factors are not prime determinants of the risk score.

  22. Geography and Country Risk   Principal Factors Financial Action Task Force (FATF) Non-cooperative Countries and USA Patriot Act Section 311 Designated Countries Perceived Terrorist Finance Risk Country Drug Source or Transit Country – International Narcotics Control Strategy Report (“INCSR”) Tax Problem Country - Organization of Economic Cooperation and Development (OECD) Offshore Banking Location - INCSR Citigroup’s Global Market Risk Management Rating

  23. Geography and Country Risk   • Scoring Factors • INCSR Primary Money Laundering Concern • INCSR Money Laundering Concern • INCSR Precursor Chemical • Transparency International: Corruption Index • INCSR: Money Laundering Crime Laws/Drug Crime Laws • Heritage Foundation: Economic Freedom Index • Member of FATF

  24. Geography and CountriesRisk Distributions H-M-L

  25. Business and Entity Risk Model • Uses North American Industry Classification System (“NAICS”) as source of identifying 2,500 Business and Entities • Permits a high level of specificity in describing businesses - activities

  26. Business and Entity Risk Model • Categorize Business or Entity as either High or Low risk based on U.S. and International Regulatory Sources • U.S. Comptroller’s Handbook • Bank Secrecy Exam Handbook • FATF Money Laundering Typologies • EU Directive • Egmont Group • Wolfsberg Principles

  27. Business and Entity Risk Scoring Chart Citigroup Draft

  28. Citigroup Draft

  29. Risk Businesses and Entities • Approximately 130 Businesses and Entities have been identified as High Risk • Retail Stores • Wholesale Stores • Electronics • High Value / Luxury Goods • Communication • Transportation • Services • Financial Institutions • Entertainment

  30. High Risk Businesses and Entities Retail Stores Citigroup Draft

  31. High Risk Businesses and Entities Wholesale Stores Citigroup Draft

  32. High Risk Businesses and Entities Electronics Citigroup Draft

  33. High Risk Businesses and Entities High Value Luxury Goods Citigroup Draft

  34. High Risk Businesses and Entities Communications Citigroup Draft

  35. High Risk Businesses and Entities Transportation Citigroup Draft

  36. High Risk Businesses and Entities Services Citigroup Draft

  37. High Risk Businesses and Entities Services Citigroup Draft

  38. High Risk Businesses and Entities Services Citigroup Draft

  39. High Risk Businesses and Entities Services Citigroup Draft

  40. High Risk Businesses and Entities Financial Institutions Citigroup Draft

  41. High Risk Businesses and Entities Financial Institutions Citigroup Draft

  42. High Risk Businesses and Entities Entertainment Citigroup Draft

  43. Product Risk Model • Evaluate 130 types of products as high, medium, or low risk based upon the following scoring factors • Offering targeted as high risk by regulators or evaluated as high risk by business unit • Favors anonymity and/or involves 3rd parties • Involves cash and/or cash-based instruments • Involves cross-border transactions that may involve high risk geographies • Funds in – i.e. customer's money • May support high speed of funds movement • May support high volume Citigroup Draft

  44. Product Risk Scoring Model Citigroup Draft

  45. Product Risk Citigroup Draft

  46. High Risk Products Citigroup Draft

  47. Medium Risk Products Citigroup Draft

  48. Low Risk Product Citigroup Draft

  49. Risk Model Convergence Country Risk Product Risk H M L Business & Entity Risk

  50. How to Use the Rating Models • Assists in amount of KYC due diligence at account opening and for ongoing updates • Assists in decision on monitoring efforts to identify suspicious activity • Escalates the account opening approval process

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