Preventing Money Laundering and Terrorism Financing: A Practical Guide for Bank Supervisors Book

Foreword xi

Acknowledgments xiii

About the Authors xv

Acronyms and Abbreviations xix

Introduction xxiii

Chapter 1 Designing an Effective AML/CFT Supervisory Framework 1

1 Overview 3

2 The Importance of AML/CFT to Policy Makers and Supervisors 5

3 Demonstrated Political Will Is the Key to Success 8

4 Importance of Collaboration and Cooperation 9

5 Organizational Approaches for Effective AML/CFT Supervision 11

6 Principles for an Effective AML/CFT Supervisory Framework 15

Notes 21

Chapter 2 Risk Management in Combating Money Laundering and Terrorist Financing 23

1 Overview 25

2 Introduction to Money Laundering/Terrorist Financing Risk Management 27

3 Overview of the Risks Associated with Money Laundering, Terrorist Financing, and Related Compliance Issues 28

4 The ML/FT Risk Assessment Process from the Bank Perspective 31

5 Expected Outcomes of the ML/FT Risk Assessment 37

Notes 41

Chapter 3 The Licensing Process and AML/CFT Due Diligence 43

1 Overview 45

2 Summary of the Licensing Requirements for Banks 46

3 Considerations for an Effective Licensing Process 50

Notes 55

Chapter 4 AML/CFT Off-Site Supervision 57

1 Overview 59

2 Main Features of the Off-Site Supervision System 60

3 Key Tasks to Be Performed by Off-Site Examiners 63

4 Other Responsibilities of Ongoing Supervision 69

Notes 76

Chapter 5 The On-Site Supervisory Process 79

1 Overview 81

2 Examination Issues and Approaches 82

3 Planning and Preparing for the AML/CFT On-Site Examination 89

4 Overview of the Key Areas to Be Assessed 97

5 Preparing the Examination Report 109

Notes 112

Chapter 6 Sanctions and Corrective Measures to Be Taken by CompetentAuthorities 115

1 Overview 117

2 General 118

3 Summary of Possible Rulings and Remedial Measures 121

4 Examples of Enforcement and Sanctions Applied in Several Countries 126

5 General Overview of the Basic Requirements for Effective Sanction Proceedings 136

Notes 143

Chapter 7 National and International Cooperation 145

1 Overview 147

2 The Importance of Cooperation 148

3 National Cooperation 149

4 International Cooperation 160

Notes 166

Annex 1 Designing an Effective AML/CFT Framework That Supports Initiatives to Broaden and Deepen Financial Access by the Poor 171

Annex 2 Managing ML/FT Risks of Low-Risk Products: The Example of Branchless Banking 179

Annex 3 Risk Management Principles for Low-Risk Products: Some Guidelines 183

Annex 4 Preparing and Conducting an On-Site Examination for AML/CFT 187

Annex 5 Key Documents to Obtain at the Outset of the Inspection 221

Annex 6 List of Areas That Pose Higher Risks 223

Annex 7 Example of an AML/CFT Questionnaire Used by the French Banking Commission 227

Annex 8 Example of Sanctions Applied by the French Banking Commission 237

Annex 9 FATF 40+9 Recommendations 263

Index 263

Boxes

1.1 Examples of Supervisory "Business Models" 11

1.2 Example of Shared Supervision 13

1.3 The Use of External Auditors 19

1.4 Example from Canada 20

2.1 Reputational Damage: The Case of Riggs Bank 29

2.2 Example of the U.S. Guidance for High-Risk Geographic Locations 34

3.1 Two Examples of Money Laundering Schemes in Banks Controlled by Criminals 46

3.2 The United Kingdom Regime for Controlled Persons 51

3.3 The U.S. Approach to Assessing Information Provided by Natural Persons-the OCC Management Review Guideline 52

3.4 Essential Criteria (EC) Regarding the Transfer of Significant Ownership Interests 54

4.1 Collection of Quantitative AML/CFT Information: Recordkeeping and Reporting Requirements in Italy 63

4.2 Example of Qualification Used by Dutch Examiners 71

4.3 Guidance and Outreach to Banks in the United States 73