2. Money Laundering
Money laundering is where criminals attempt to
hide the true origins of the proceeds of their
criminal activities by making them appear to
come from a legitimate source. These proceeds
are often referred to as 'dirty money'.
• Placement occurs when a criminal first 'places' the
proceeds of their crime into the legitimate system.
• For example, this might be when a criminal deposits
stolen money in a bank account.
• Layering consists of a series of transactions
designed to distance the money from its original
source and disguise its illegitimate origin.
• This makes the illegitimate source of the money
more difficult for the authorities to trace.
6. Example : a 4 step transaction
• Example : prudential’s probound
• A criminal deposits stolen cash in a bank account
• The criminal draws a cheque on this bank account
to purchase a Prubond
• The criminal surrenders the Prubond in a few days
and receives a cheque
• The criminal pays the Prudential cheque into a
different bank account
• Integration occurs when criminals, having been
through the previous parts of the process, use their
illegally obtained money as if it was legitimate. This
means the illegitimate money ends up being
integrated back into the legitimate economy.
• For example, a criminal could use the proceeds
from the Prubond surrender cheque as a deposit to
purchase a property.
8. FSA (UK)
• the FSA's objective in relation to money laundering is to help
reduce financial crime
• money laundering compliance for the financial services sector
is regulated by the FSA. The key pieces of legislation are the
Money Laundering Regulations 2003 and the Proceeds of
Crime Act 2002
• your own activities are also covered under the anti-money
• the penalties for non-compliance are severe, including
unlimited fines and sentences of up to 14 years imprisonment
9. • All employees are legally required to report where
they know, suspect or have "reasonable grounds to
suspect" that a customer is or may be laundering
the proceeds of any criminal conduct.
10. Suspicious activity reporting
• Suspicious Activity Reports made by employees
within financial services firms provide intelligence to
law enforcement agencies that genuinely makes a
difference. These reports have led to the successful
prosecution of criminals and the disruption of
• Therefore, making a Suspicious Activity Report
is not a box ticking exercise.
11. Acting on suspicion or knowledge
• You are legally required to make a Suspicious
Activity Report when you are suspicious about a
transaction, or when you know that a transaction
relates to money from a criminal source.
There are two things:
A customer asks to surrender a large investment
made only a few weeks earlier. He seems to be
financially astute but he tells you that he only
invested the money for a short time pending
completion of a property transaction and he now
needs the money. You are suspicious because the
customer has lost money on the surrender and in
your view, the reason for the quick surrender is not
a plausible one.
For example, If you were processing a policy
application for a significant sum of money and you
knew that customer's only source of money was
from drug dealing, you would be legally required to
make a report.
14. Reasonable Grounds to Suspect
• You are also legally required to make a Suspicious
Activity Report in a situation where there are
"reasonable grounds to suspect" that money
laundering is occurring.
• This legal requirement has been introduced to make
it easier to prosecute people who were not
suspicious about a transaction when they should
15. What to look for
• high value cancellations where it would appear that
the customer had no intention of taking up the
investment or assurance product
• high value withdrawals (individual transactions or a
number of withdrawals over a short period of time)
starting soon after the investment, from a long term
• unusual sources or destinations of funds (eg other
country, EU, Channel Islands and Isle of Man)
16. What to look for… contd.
• a customer notifying us of a change of address followed
shortly afterwards by the encashment of a large
investment where payment is to be made to a bank
outside of the country
• requests for business where the customer is more
interested in the surrender/cancellation arrangements
than the investment return (especially where there is a
• unusual requests eg dividing proceeds at maturity or
surrender into several smaller amounts to a number of
different people (possibly outside of the country), or a
request to pay initial contributions in cash
17. What to look for.. Contd.
• resistance to reasonable requests for evidence of ID where
the customer has or wishes to have significant business
with the company (but not where a long term customer with
a low value policy objects to a request for further
verification because they do not consider it necessary
unless you have other reasons to be suspicious)
• requests for business from an unknown intermediary
outside of the country.
18. What to look for
• where you would not expect the customer to be able
to afford the investment in question (perhaps
because of where he or she lives)
• where a corporate pension applicant does not
appear to be trading and does not appear to have
any 'real' employees
19. When suspicions are around prior
to the completion of transaction
• Where your suspicions are aroused prior to the
completion of a transaction (and regardless of whether
you have yet completed a suspicious activity report) eg:
• a large investment has been received and you do not
know whether or not to accept it
• you are suspicious about an imminent customer payment
Contact the MLRO or one of his team for advice before
completing the transaction
20. Tipping off
• Once you have made a Suspicious Activity Report,
you cannot be prosecuted for failing to report the
suspicious transaction or for assisting a money
launderer. However, you do need to remember that
once a suspicion has been reported you should
ensure that you do not alert the customer to your
suspicions during any subsequent dealings
21. • If I have concerns about a customer's transaction, can I
ask them any questions?
• Yes, this situation does not prevent you from asking the
customer the normal commercial questions to help you to
determine whether or not you should be suspicious. For
example, if a customer surrenders a high value bond a
short period of time after the original investment, you could
ask the customer why, as they may have other options
rather than surrendering. If you have any doubts about
what you can say, you should contact me or one or my
22. • If I make a suspicious activity report against a
customer, will they be able to claim against me in
respect of a breach of customer confidentiality?
• No, the money laundering legislation protects you from
any such claims when reporting suspicions and
knowledge, provided that you have made the report in
23. High Risk Countries
• Countries who do not establish strong anti-money
laundering regimes are considered to be particularly
high risk in terms of potential for money laundering.
These countries are described as Non-Co-operative
Countries and Territories or NCCTs.
• Guidance must be sought from the MLRO or one of
his team before completing a transaction for
individuals, intermediaries, companies and other
entities (including banks) in these
25. In the context of Suspicious Activity Reports, management
responsibilities consist of:
• ensuring employees are adequately trained
• keeping records to evidence that training
• advising employees where they have sought guidance on
• where appropriate, adding comments to the report form
• where a report has been made, ensuring that the customer
is not 'tipped off'
• Many people mistakenly believe that KYC is just
about client identity - it is not!
• The identity of a customer is, of course, very
important and it does form a major part of KYC, but
KYC extends beyond this and can include additional
28. KYC Process
Here are some of the key aspects of the verification of
identity process and the wider KYC process:
• Verification of identity -
• Can you positively identify who you are dealing with?
• can you identify the person actually making the
payment (if that person is someone else)?
• are they actually who they claim to be?
• do they live, or conduct business, at the address they
• do you understand why and how a customer wants to
transact a particular piece of business?
• what other business does the customer have?
• is the proposed business consistent with what we would
Verification of identity and the wider KYC helps us to
understand our customers' needs and potentially recognise
30. • Some of the verification of identity process and the
wider KYC is undertaken at the outset by an
intermediary (such as a financial adviser or one of
our key business partners). However, it is also up to
us to 'know our customer' throughout the term of the
policy and/or the duration of that customer's
business relationship with us.
31. • Personal customers are usually people who:
• use the services of a financial adviser
• approach us directly, for example, when they:
– apply for a stakeholder pension over the internet
– respond to a marketing campaign
– apply for other business or top-up an existing product
32. To verify the identity of personal customers, we need
• the customer's name
• the customer's address
33. Corporate Customers
• Corporate customers can come to us directly. For example:
• Limited Companies
• Partnerships (groups of individuals running a business)
• Sole traders (single individuals)
• regulated financial institutions
• Government Organisations eg Local authorities, government
34. • Due to their sometimes complex organisational
structures, and the potential difficulties of finding out
who really owns and controls them, corporate firms
can be ideal vehicles for money laundering.
• The type of information and documentary evidence
required to establish corporate identity varies
depending upon the type of organisation and the
nature of the product or service required.
35. • In addition, there are other circumstances where we
have to verify people other than the client, for
instance, some third parties making payments into
our customers' policies, trustees or a person acting
for our customer under a power of attorney.
• If this is the case we should try to establish and
document the reason behind the creation of the
power of attorney or trust.
36. Management Responsibilities
• Although the MLRO is an 'Approved Person' and
assumes personal responsibility for anti-money
laundering practices and procedures, all people in
line management roles play an important part in the
fight against financial crime.
• Managers, at all levels, are in a position to influence
how seriously employees treat money laundering
issues and can make a difference in helping to
prevent products and services from being used for
37. In the context of KYC, management responsibilities consist
• ensuring employees are adequately trained
• keeping records as evidence that training has been given
• keeping records to evidence that customer identity
verification has taken place
• ensuring that any suspicious activity is reported to the
39. Customer Records
• a certified copy of documents used to verify identity (the
copy can be held in paper or electronic form) or
• a record of where a copy of the evidence may be
obtained (eg document source reference numbers on
Intermediary Introduction Certificates (IIC's)
• transaction records, ie details of all types of payments
in/out including those made by third parties
• All of these records (with the exception of transaction
records) must be kept for a period of at least 5 years after
the policy has terminated, matured or been surrendered.
Transaction records must be retained for at least 5 years
from the date of the transaction.
40. Internal records
• staff suspicious activity reports, National Criminal
Intelligence Service (NCIS) disclosures and transaction
• compliance monitoring reports
• employee training records including: dates of training,
training content, attendees, test results, etc
• These records must all be kept for a period of 5 years.
Where it is known that a law enforcement investigation is
ongoing relating to a NCIS disclosure, case records should
be held beyond the 5 years until the MLRO approves their
42. What is Fraud?
Combating fraud is the responsibility of all of us.
You should be vigilant and report any suspicion of fraud. All types of fraud
need to be tackled, both internal and external. Here is a list of areas that
• improper withdrawal of funds / making a false claim
• cheque theft / manipulation
• abuse of position for personal or financial gain
• theft of money and all assets, tangible or intangible, belonging to the
company or another employee
• falsification / compromise of information or data for personal or financial gain
• corrupt payments, gifts, services or benefits from external bodies
• forgery resulting in personal or financial gain
• abuse of internal procedures / processes / equipment for personal or financial
43. • Fraud can be summarised as 'any deception or
dishonesty by which a person or organisation
gains, or intends to gain, an improper advantage