Anti-Money Laundering and OFAC Compliance for Transfer Agents

							Anti-Money Laundering and
OFAC Compliance for
Transfer Agents


  SSA Annual Conference
  July 25, 2008
The Securities and Exchange Commission, as a
matter of policy, disclaims responsibility for any
private publication or statement by any of its
employees. The views expressed herein are those
of the author and do not necessarily reflect the
views of the Commission or of the author’s
colleagues upon the staff of the Commission.
Three Types of Transfer Agents in
AML Examinations
 Bank-registered transfer agents: transfer
  agents that register with bank ARAs are
  considered subsidiaries of financial institutions
  with BSA/AML requirements (31 USC
  5312(a)(2), a “financial institution”)
 Mutual fund transfer agents: investment
  companies usually delegate their AML
  responsibilities to their transfer agents
 All other transfer agents: no organic AML
  regulations (i.e., not financial institutions),
  but still examined under the 1934 Act
Statutory/Regulatory Overview
 Bank Secrecy Act / USA Patriot Act –
  general “AML”
 U.S. Economic and Trade Sanctions
  Administered by the Office of Foreign
  Assets Control – “OFAC”
 FinCEN/IRS Form 8300
 Criminal Anti-Money Laundering Laws
BSA – Patriot Act
 Currency and the Foreign Transactions
  Reporting Act of 1970 (the “BSA”) and USA
  PATRIOT Act of 2001 – the foundation of most
  U.S. anti-money laundering and recordkeeping
  requirements (31 USC 5311-5355; 31 CFR
  103)
 Requires “financial institutions” (generally
  banks, broker-dealers, and mutual funds) to
  create written AML programs designed to:
   prevent money laundering and terrorist financing
   keep records of customer accounts and transactions
   report certain transactions to the government
SEC Examination for AML
 SEC has delegated authority from
  Treasury’s Financial Crimes Enforcement
  Network (FinCEN) to examine BDs and
  mutual funds for AML (31 C.F.R. 103.56
  31 C.F.R. 103.130)
 Preamble to Fund AML rules permits
  delegation of day-to-day implementation
  of fund’s AML program to service
  providers (e.g., transfer agents)(67 FR
  21117 (2002))
General AML Requirements
 Board Approved Written Policies,
  Procedures and Controls
 AML Compliance Officers
 Independent Review and Testing
 AML Training
 Customer Identification Programs (“CIP”)
 Suspicious Activity Reporting (“SAR”)
 Due Diligence for US-based Correspondent
  Accounts, Foreign Correspondent Accounts,
  and Private Banking Accounts
 Information Sharing Regulation
Office of Foreign Assets Control -
OFAC
 OFAC, an office within the Treasury Department,
  administers and enforces economic and trade
  sanctions based on U.S. foreign policy and national
  security goals against:
      targeted foreign countries
      terrorists
      international narcotics traffickers
      those engaged in activities related to the proliferation of
       weapons of mass destruction
 Not a Securities Regulator: OFAC cannot mandate
  compliance and does not examine entities, but works
  with other regulators (i.e., SEC) in their role of
  ensuring compliance by financial institutions
 OFAC may (and will) impose penalties for violations;
  strict liability for any violation
OFAC Overview
   Five main underlying statutes in the creation of OFAC
       top two are Trading with the Enemy Act and International
        Emergency Economic Powers Act (“IEEPA”)
   All trade or financial dealings with the following blocked
    entities are generally prohibited transactions:
       designated foreign countries
       specially designated nationals
       specific blocked persons
   Who must comply – any individual, regardless of
    citizenship, who is physically located in the U.S. and
    American citizens anywhere in the world
   Penalties: IEEPA civil – maximum $250,000 or twice the
    value of the transaction of the violation; criminal –
    maximum $1 million and up to 20 years
OFAC Compliance
 The OFAC list: OFAC maintains and
  regularly updates a list of approximately
  3,500 SDNs and blocked persons at
  http://www.treas.gov/ofac
 Transfer agent compliance:
   Monitor transactions to ensure that prohibited
    transactions are “blocked” – use of software or
    outside vendor
   Block required transactions
   Notify OFAC within ten days of blocking
 Examinations look to what type of policies
  are in place regarding OFAC compliance?
FinCEN - IRS Form 8300
 Since 1985, Section 60501 of the Internal
  Revenue Code (26 USC 60501) has
  required persons engaged in non-financial
  businesses (non financial institutions) to
  report receipt of cash or cash equivalent in
  excess of $10,000 in one transaction, or
  two or more related transactions, to file
  Form IRS/FinCEN 8300 within 15 days of
  receipt of the reportable funds. Aggregation
  period is one year
 http://www.irs.gov/pub/irs-pdf/f8300.pdf
 http://www.irs.gov/pub/irs-pdf/p1544.pdf
Criminal Anti-Money Laundering
Laws
 18 U.S.C. §§ 1956 and 1957
 Unlawful to “knowingly” conduct or attempt
  to conduct financial transactions with funds
  “known” to involve the proceeds of
  specified unlawful activity
 Unlawful to transfer funds to or from the
  U.S. from or to a place outside the U.S.
  “knowing” that the funds involve the
  proceeds of unlawful activity, and that the
  transaction is designed to conceal the funds
  or avoid reporting requirements
Questions?

  Eric B. Garvey
  Senior Counsel
  (215) 861-9329
  garveye@sec.gov