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									           The Use of Business Information to
              Help Combat Financial Crime
                             By
                        Rick Russell




17/02/06
CIG
The Challenge:

     Constantly Changing Regulatory Landscape
           –   ML Regulations 2003, FSMA, PoCA, Terrorism Acts – UK focus
           –   Third EU Money Laundering Directive – EU focus
           –   UN Security Council Resolutions (1999, 2001, 2002)
           –   USA Patriot Act – US focus
           –   Wolfsberg Principles, Basel CDD, IOSCO Principles, FATF 40
               Principles plus 9 specialist terrorism recommendations (2003/04) –
               Global focus

           – Plus a whole host of other local regulations to support the KYC
             challenge – the regulation compels action
           – A global issue in an ever more complex regulatory world

17/02/06
CIG
The Business Challenge:


     Follow the regulatory changes
     Adapt internal business processes
     Ensure compliance
     Protect the organisation
     Manage the level of risk
     Avoid at all costs reputational damage



17/02/06
CIG
 Due Diligence Process:

           Step One: Is the client who they say they are?
               Increasingly an electronic process for high speed checks through
               electronic ID verification and validation
           incorporating:-
                Passport No.
                Electoral Roll
                Recent Utility Bills
                SSN
                Driving Licence Information
                Mobile Phone Number
                Postcode/Tel No.

17/02/06
CIG
 Due Diligence Process:

           Step Two: Is the client/intermediary someone we want to do business
             with or not?
             Need to initially check:
                       - Authorised status if a counterparty
                       - Sanctions and Enforcement Actions
                       - Politically Exposed Status
                       - Any relevant additional information - media
                       - Company registration details and financials

           Need to retrospectively check client list and perform ongoing due
             diligence for changes in status


17/02/06
CIG
 Due Diligence Process:

           Authorised status if a counterparty

           • Is the firm authorised to sell products that are being traded?
             Are the individuals in the firm licensed appropriately?

           • Need to check every regulator site or work through a local office for
             local information

           • Databases exist that collate this information for single search or
             batch checks of authorised entities saving hours of research time,
             removing language barriers and creating ease of access


17/02/06
CIG
 Due Diligence Process:

           Sanctions and Enforcement Actions

           – KYC/CIP regulation
           – Global check not just local
           – Ensure accuracy of content – needs validating as regulators can
             provide incorrect information
           – Don’t rely on technical solutions, content must be checked by
             experts
           – Don’t rely on consolidated lists – can be out of date and out of kilter
             with individual releases/notifications
           – Ensure provider offers ability to use fuzzy searching logic for
             improved management of ‘false’ matches – it’s all in the algorithm


17/02/06
CIG
 Due Diligence Process:

           Politically Exposed Status

           –   Who is politically exposed?
           –   Many definitions but none definitive
           –   What level of family member – direct or indirect?
           –   How are associates identified?
           –   Where are you at risk?
           –   Is this just a database or media service or both? What is the
               provenance of the content? Does this matter?



17/02/06
CIG
          Due Diligence Process:

           Any relevant additional information – media?

           –   Need to check for other relevant information using media sources
           –   Need depth of archive to ensure coverage
           –   Search technology needs to identify fraud, financial crime, money
               laundering, PEP or general crime
           –   General search for positive information




17/02/06
CIG
          Due Diligence Process:

           Company registration details and financials

           –   Verify registration as a legal entity, and legal form
           –   Investigation of financial health
               •   financial statements
               •   ratio analyses
           –   Directors, principals, nominal and beneficial owners
           –   Filing history
           –   Unusual company structure?




17/02/06
CIG
          Due Diligence: Emerging Strategies

           A Risk-based Approach

           –   Regulatory climate moving towards more risk-based approaches
           –   Individual companies need to adopt appropriate position on risk depending
               on:
                   Company size and nature of business
                   Composition of client base, region/jurisdiction
                   Product and transaction characteristics
           –   Integration of additional risk data to assist in risk assessment for due
               diligence purposes, e.g. corruption perception index




17/02/06
CIG
          Ongoing Due Diligence

           Ongoing Obligations

           –   Due diligence is not a one-off activity; obligation is ongoing
           –   How frequently should you revisit or repeat the process?
                  Depends on how dynamic the content is, e.g. financial information vs.
                   company registration vs. enforcement actions
                  Variability of client base
                  Company activities
                  Internal policies and procedures
           –   Being aware of and keeping up to date with regulatory changes




17/02/06
CIG
          Due Diligence:

           Implementing an Integrated Solution

           –   Understand company’s compliance and risk tolerance: ‘know thyself’
           –   Define the stages of company workflow
           –   Develop processes to accommodate all due diligence obligations
           –   Manage due diligence tasks with best use of technology
                       Reduce reliance on manual intervention
                       Simplify audit process
                       Improve efficiency and free up resources




17/02/06
CIG
           The Use of Business Information to
              Help Combat Financial Crime
                             By
                        Rick Russell




17/02/06
CIG

								
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