Financial Institutions continue to face heightened fines and regulatory scrutiny over their AML/CFT Programs. This e-book helps you to manage AML/CFT Programs.

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E-book: AML/CFT Programs
Overview of managing Anti-Money Laundering/Counter Financing of Terrorism (AML/CFT) Programs
December 2015
Double Effect

2. What is money laundering?
› Money laundering is the process used to legitimize illegal funds by concealing
the true source and ownership of the funding.
What is terrorist financing?
› Terrorist financing involves the solicitation, collection or provision of funds with
the intention that they may be used to support terrorist acts or organizations.
What are the stages in Money Laundering and Terrorist Financing?
1. Placement - Placing the illegal or “dirty” funds or assets into the financial
system.
2. Layering - Converting the unlawfully gained assets into other
forms and creating complex layers with the intent of breaking
the audit trail and hiding the amount of money involved .
This stage makes it difficult to trace the true source and
ownership of the assets.
3. Integration – Investing the funds into legal businesses or
investments, the money can no longer be traced to its
criminal origin. Money is now “clean.”
.
Banks continue to face heightened fines and regulatory scrutiny over their AML/CFT Programs
Liberty Reserve bank shut down
in US$6 billion AML/CFT case
www.thetelegraph.co.uk
May, 2013
BNP Paribas sentenced US $8.9
billion over sanctions violations
The New York Times
May, 2015
J.P. Morgan to pay a high price of
US2.6 billion for Bernard Madoff's
crimes
The Wall Street Journal
January 2014
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AML/CFT
Overview of Anti-Money Laundering and Counter-Financing of Terrorism

3. Why are AML/CFT Programs important?
AML/CFT presents significant risks to financial service institutions: 3 Factors
Individual Factors Organizational Factors Economic Factors
1 2 3
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4. Why are AML/CFT Programs important?
AML/CFT presents significant risks to financial service institutions: Individual Factors
Individual Factors
› Liabilities extend from front line staff up the board and
senior executives including back office and
compliance functions. Penalties include fines and
imprisonment.
› Penalties can also apply for negligence, “turning a
blind eye” or tipping off the customer.
› Individuals can face significant reputation damage
being associated with money laundering and terrorist
financing.
Risks Mitigated/Benefits
1
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5. Why are AML/CFT Programs important?
Organizational Factors2
› Increased understanding of the customer through
know your customer requirements and understanding
customers behavior and patterns.
› Significant financial penalties, regulator scrutiny or
revocation of banking license.
› Loss of revenue through business partners due to
ineffective AML/CFT Programs.
Risks Mitigated/Benefits
AML/CFT presents significant risks to financial service institutions: Organizational Factors
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6. Why are AML/CFT Programs important?
Economic Factors3
› Increased financial stability and reduced volatility of
international capital flows.
› Terrorist attacks are becoming increasingly
sophisticated and resulting in increasing number of
casualties (CIA and world terrorism index report).
› Economic efficiency – IMF and Worldbank estimate
between $590bn and $3.61tr is laundered annually (3-
5% of Global GDP).
Risks Mitigated/Benefits
AML/CFT presents significant risks to financial service institutions: Economic Factors
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7. › Regulations continue to
be revamped globally.
› The EU have issued the
4th directive effective
June 2015
› Regulators are
enforcing more stringent
AML/CFT requirements
retrospectively for
transactions dating back
to 2002
› The UN, OFAC and EU
expanded their
sanctions programs and
counter terrorism
activities
› FATF expanded their
role to govern counter
terrorist financing and
issued 9 special
recommendations
› Basel Committee on
Banking Supervision
founded in 1974
› Financial Action Task
Force (FATF) on Money
Laundering was
founded in 1989
Regulators are prosecuting Banks for
inadequate AML/CFT Programs.
Enforcement actions can include removal
of senior management, compensating
victims, financial penalties, retrieval of staff
bonuses, mandatory AML/CFT Program
reform and orders to cease criminal
activity.
AML/CFT regulations and
governance were in
developmental stages. There
was limited focus on terrorist
financing. AML/CFT was not
regarded as a top priority.
9/11/2001
Pre - 9/11/2001 Post- 9/11/2001
The 9/11 commission report
revealed that AML/CFT controls
were insufficient to prevent and
detect money laundering and
specifically counter terrorist
financing. Subsequently, the US
Patriot Act was created.
AML/CFT became a top priority
for banks and regulators.
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Anti-Money Laundering & Counter Terrorist Financing
9/11 was the catalyst to revamp AML/CFT legislation and requirements globally

8. Key Regulatory Requirements
Summary of key requirements (actual requirements differ by country)
SanctionsGovernance
Risk-Based
Approach
Frameworks
Customer Due
Diligence
Suspicious
Transaction Reporting
Ongoing Monitoring Record Keeping Independent Review
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9. Key Regulatory Requirements
Governance
Governance
› FIs must ensure adequate roles and responsibilities
across the three lines of defence.
› AML/CFT Program must be headed by Senior
Management (typically C-suite).
› FIs must have oversight of Group-wide AML/CFT risks
and compliance program.
Regulatory Requirements
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10. Key Regulatory Requirements
Risk-Based Approach
Risk-Based Approach
› AML/CFT Program should be commensurate with the
size nature and complexity of the business and the
corresponding AML/CFT risks.
› Risk assessment should incorporate geographical,
product/service, channel, customer, institutional and
third party risk.
Regulatory Requirements
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11. Key Regulatory Requirements
Frameworks
Frameworks
› Frameworks must meet minimum requirements of
local jurisdiction or jurisdiction of Group headquarters,
whichever is more stringent.
› The framework should cover all aspects of the value
chain and include management of third parties who
execute AML/CFT activities on behalf of the Bank.
Regulatory Requirements
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12. Key Regulatory Requirements
Customer Due Diligence
Customer Due Diligence
› All customers and connected parties (beneficial owners,
controllers, persons acting on behalf), occasional transactors
and potential customers must be identified and verified via
reliable sources.
› The purpose and nature of the relationship should be
understood and verified as appropriate for each customer.
› Each customer and connected parties should be screened to
identify any Politically Exposed Persons (PEPs).
› Each customer must be risk rated to identify high risk
customers. For high risk and politically exposed persons,
enhanced due diligence (EDD) should be performed.
› EDD includes establishing a transaction profile, identification
and corroboration of the source of wealth and source of funds,
and obtaining approval from senior management to establish
the relationship.
Regulatory Requirements
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13. Key Regulatory Requirements
Sanctions
Sanctions
› FIs must screen all potential and existing customers
(and connected parties) against established sanctions
lists (Typically OFAC, UN, EU, HMT and on a per
country of operations basis) at onboarding and on a
regular basis.
› For any matches, funds must be blocked and
suspicions transaction reports should be filed.
Regulatory Requirements
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14. Key Regulatory Requirements
Ongoing Monitoring
Ongoing Monitoring
› FIs must monitor business relationships with
customers and identify any unusual behavior.
› FIs should also monitor red flags and common
AML/CFT typologies.
› FIs must detect suspicious, complex, large or unusual
transactions with no apparently economical or lawful
purpose.
Regulatory Requirements
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15. Key Regulatory Requirements
Suspicious Transaction Reporting
Suspicious Transaction Reporting
› FIs must report suspicious transactions as soon as
possible after forming the suspicion (typically 1-3
business days) to the authorities and transactions
above a specific cash threshold.
› It is prohibited “tip off” the customer and alert them
that they are under suspicion of ML/FT.
› FIs must have processes to enable asset seizing if the
authorities issue instructions.
Regulatory Requirements
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16. Key Regulatory Requirements
Record Keeping
Record Keeping
› Records must be kept to enable recreation of
transactions, all account opening documentation and
evidence of AML/CFT Program operation must be kept
for at least 5 years.
› Records must be accessible and readily retrievable.
Regulatory Requirements
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17. Key Regulatory Requirements
Independent Review
Independent Review
› FIs must have regular independent review of AML/CFT
Program.
› Independent review must be performed by
experienced and independent personnel (i.e. internal
audit or experienced consultant).
Regulatory Requirements
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18. 1. Strategy & Operating Model
› Alignment to business architecture
› Long range and short range planning
› Links to organizational change
2. Governance
› Decision Making
› Three lines of defence
› Performance Management
3. Risk Management
› Risk based approach
› Risk remediation
› Risk culture
4. People & Culture
› Organizational Structure
› Risk Culture
› Change Management
8. Regulatory Management
› Regulatory Liaison
› Audit Management
› Cross – border regulation
7. Third Party Management
› Service Level Agreements
› Inter-group management
› Use of utility providers
6. Systems and Data
› Financial Crime Solutions
› Risk & Compliance solutions
› Analytics & intelligent data
5. Polices & Processes
› Research & trends
› Policy Setting
› Integration to BAU
AML/CFT
Program
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AML/CFT Program
The key elements of an AML/CFT Program are outlined below

19. Regulatory Management
› Risk-based regulatory remediation
› Assurance activities underway to
support regulatory attestation
› Creation of new line 1 roles to
address regulatory concerns
Customer Experience
Management
› Impact on customer experience e.g.
onboarding time
› Can we use data gained to improve
the customer experience?
Cross-Border Considerations
› Managing cross-border risk and
compliance
› Standardization/ centralization of
processes
› Reliance on third parties
Risk/Compliance Culture
› Measuring risk culture
› Balancing risk and reward
› Risk appetite
› Exiting undesirable clients, products,
channels and markets
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Technology & Data
› Financial crime systems
› Integration of financial crime & core
banking systems
› Use of GRC solutions
› Data analytics strategies
Three Lines of Defence
Management
› First line of defence capability
› Procuring specialist resources
› Coordination across the 3LOD
› Integration of Financial Crime
Client Profitability
› Optimizing client value
› How to measure client profitability
and cost to serve?
› Customer segmentation strategies
› Exiting unprofitable segments
KYC/Utilities Vendors
› KYC data as a services - public and
private customer data
› Benefits and risks of early adoption
› Managing third party risks
Trends in AML/CFT
We observe the following trends in AML/CFT Program management

20. Balancing Risk and
Reward
› Find the balance between risk mitigation and cost effectiveness
of the AML/CFT Program.
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› Find the right balance between a sales driven versus compliance
driven culture.
› Build the right culture so that policies are followed as intended.
Compliance Culture
› Approach AML/CFT compliance in a strategic and intelligent
manner across the group.
Compliance
Transformation
1
2
3
Key considerations for AML/CFT Programs
The key challenges in managing your bank’s AML/CFT programs

21. The Netherlands
Hullenbergweg 361
1101 CP Amsterdam
phone +31 (0)20 697 19 59
Singapore
20 Collyer Quay #23-01
Singapore 049319
phone +65 6323 9266
Germany
Mainzer Landstraße 49
60329 Frankfurt am Main
phone +49 (0)69 3085 5067
United Kingdom
99 Bishopgate, Levl 15
EC2M 3XD, London
phone +44 (0)20 3693 7815
United Stated
212 South Tryon Street, Suite 980
Charlotte, NC 28281
phone +1 704 323 7133
Phil Sturmer
Financial Crime Practice Lead
London
Phil.Sturmer@crossbridge.com
+44 203 397 3700
Jeroen Bos
Financial Crime Practice Lead
London
Jeroen.bos@doubleeffect.com
+44 20 3693 7816
Miranda Robinson
Financial Crime Practice Lead
Singapore
Miranda.Robinson@doubleeffect.com
+65 9232 7349
AML/CFT Programs (c) double effect 2015
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22. Disclaimer
This document has been prepared by Double Effect and is solely intended to provide general information about AML/CFT. The
information in the document is strictly proprietary, unless otherwise stated and is being supplied to you solely for your
information. The document is informative in nature and does not constitute legal, regulatory or other advice nor does it express
any recommendations and may not be used for such purposes. Everyone using this document should acquaint themselves
with and adhere to the applicable legislation. No reliance may be placed for any purposes whatsoever on the information,
opinions, forecasts and assumptions contained in the document or on its completeness, accuracy or fairness. No
representation or warranty, express or implied, is given by or on behalf of Double Effect, or any of its directors, officers,
affiliates or employees as to the accuracy or completeness of the information contained in this document. No liability is
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