Financial Reporting Authority 21 March 2018 DISCLAIMER Agenda - - PowerPoint PPT Presentation

RJ Berry Financial Reporting Authority 21 March 2018

DISCLAIMER

Agenda



Role of the Financial Reporting Authority and overview of recent activity



Role of FSPs in combatting ML / TF / PF



Filing of Suspicious Activity Reports (SARs)



Obligations regarding targeted financial sanctions relating to terrorist financing and proliferation financing

What is the Role of the FRA?

• Established as the Financial Intelligence Unit pursuant to

Section 3 of the Proceeds of Crime Law (2017 Revision) (PCL)

• Administrative FIU
• Responsible for receiving, analysing and disseminating

disclosures of information regarding proceeds of criminal conduct or suspected proceeds of criminal conduct

The FRA and its Functions

What is the Role of the FRA?

• In 2017 assumed responsibility for ensuring the

implementation of targeted financial sanctions with respect to terrorism, terrorism financing, proliferation, proliferation financing, and other restrictive measures related to anti-money laundering, and combatting the financing of terrorism and proliferation from and within the Cayman Islands.

The FRA and its Functions

FRA Staff

Director: RJ Berry Legal Advisor: Adam Roberts Sanctions Coordinator: Kim France Senior Accountant: Roman Reyes Senior Financial Analyst: Elena Jacob Senior Financial Analyst: Delroy Dyer Financial Analyst: Cassandra Connolly Financial Analyst: Gabriela Gibson Financial Analyst: Danielle DeRocco Administrative Manager: Sharon Dhamalie

Annual Report Excerpts

Number of Suspicious Activity Reports

employed in the public service

100 200 300 400 500 600 700 2013-2014 2014-2015 2015-2016 2016-2017 1 Jul - 31 Dec 17

558 568 620 601 563

Six Months Ended 31 December 2017

Number of Suspicious Activity Reports

employed in the public service

50 100 150 200 250 July August September October November December Jul-Dec 2014 Jul-Dec 2015 Jul-Dec 2016 Jul-Dec 2017

Annual Report Excerpts (16/17) Top 5 Sources of Reports

0% FIUs 13% Trust Businesses 13%

Company Managers 9% Money Transmitters 7%

20%

100% Banks 35% 80% 60% 40%

 Banks – 35%  FIUs – 13%  Trust Businesses – 13%  Company Managers – 9%  Money Transmitters – 7%

Six Months Ended 31 December 2017 Top 5 Sources of Reports

 Banks – 55%  Money Transmitters – 11%  FIUs – 7%  Company Managers – 6%  Trust Businesses – 6%

0% 20%

Company Managers 6% Mutual Fund Administrators 4% Law Practitioners 3%

Others 5%

100% 80% 60% 40%

Trust Businesses 5%

Banks 55%

Money Transmitters 11% FIUs 7%

Annual Report Excerpts (16/17)

Top 5 Reasons for Filing a SAR

 Suspicious Activity - 181  Fraud - 147  Tax Evasion - 83  Corruption - 77  Money Laundering - 33

Annual Report Excerpts (16/17)

Suspicious Activity Reports

 Inadequate and / or inconsistent information: 55  High volume transactions: 49  Unusual conditions or circumstances: 39  Transactions inconsistent with client profile: 19  Lacking economic purpose: 10  Structured to avoid reporting thresholds: 9

Six Months Ended 31 December 2017

Top 5 Reasons for Filing a SAR

 Tax Evasion - 185  Suspicious Activity - 153  Fraud - 102  Corruption - 39  Money Laundering - 28

Penal Code Amendment

Intent to Defraud the Government:

 Section 247A

 A person who, with intent to defraud the Government,-

 (a) wilfully makes, delivers or causes false or fraudulent information to be

made to a person employed in the public service relating to the collection of money for the purposes of general revenue;

 (b) wilfully omits information required to be provided to a person employed

in the public service relating to the collection of money for the purposes of general revenue, where required by law; or

 (c) wilfully obstructs, hinders, intimidates or resists a person employed in the

public service in the collection of money for the purposes of general revenue, Commits an offence.

Six Months Ended 31 December 2017

Suspicious Activity Reports

 Unusual conditions or circumstances: 38  Inadequate and / or inconsistent information: 27  High volume transactions: 26  Transactions inconsistent with client profile: 25  Structured to avoid reporting thresholds: 22  Lacking economic purpose: 15

The Role of the Private Sector

 The private sector plays a crucial role in preventing the abuse of

the financial system for the purposes of money laundering, terrorist financing or proliferation financing. The private sector is the first line of defence in detecting and helping to prevent such activity, particularly through their implementation of customer due diligence, record keeping measures, ongoing monitoring and filing of SARs.

 Just over 40% of the FATF Recommendations apply to the

private sector

 Preventive measures: R.9-23  Targeted financial sanctions: R.6-7

Domestic Legislation to Combat ML / TF / PF

 The Proceeds of Crime Law (2017 Revision)  The Anti-Money Laundering Regulations, 2017  The Terrorism Law (2017 Revision)

 Plus relevant Overseas Orders in Council

 The Proliferation Financing (Prohibition) Law (2017

Revision)

 Plus relevant Overseas Orders in Council

 The Anti-Corruption Law (2016 Revision)  The Misuse of Drugs law (2017 Revision)

Section 136 (PCL)

A person commits an offence if – (a) he knows of suspects or has reasonable grounds for knowing or suspecting that another person is engaged in criminal conduct; (b) the information or other matter on which his knowledge or suspicion is based, or which gives reasonable grounds for such knowledge or suspicion, came to him in the course of a business in the regulated sector or other trade, profession, business or employment; (c) he does not make the required disclosure to a nominated

• fficer, or the Financial Reporting Authority, as soon as is

practicable after the information or other matter mentioned in paragraph (b) comes to him; and

Obligation to Report

Section 136 (PCL)

(d)the required disclosure is a disclosure of – (i) the identity of the person who may be involved in money laundering, if he knows it; (ii) information or other matter in the form and manner prescribed by regulations to this Law or the prior Law; (iii) the whereabouts of the property with respect to which the criminal conduct is committed, so far as he knows it; and (iv) the information or other matter mentioned in paragraph (b), or prescribed under section 201 for purposes of this section.

Obligation to Report

Criminal Conduct

Section 144 of PCL

Criminal conduct is conduct which – (a) constitutes an offence in any part of the Islands; or (b) would constitute an offence in any part of the Islands if it occurred there.

Tipping Off

Section 139 of PCL A person commits an offence if – (a) he knows or suspects that an activity in relation to which a disclosure is required to be made under this Law is about to take place, is taking place or has taken place (whether or not a disclosure has been or is likely to be made in relation thereto); and (b) he makes a disclosure which is likely to prejudice any investigation which might be conducted following the disclosure referred to in paragraph (a).

Internal Reporting / Red Flags

 What is Unusual activity?

 Out of the ordinary  Possible one-off transactions  May raise eyebrows  Not all unusual activity is suspicious

 What is Suspicious activity?

 Pattern of unusual activity  PCL gives no definition of “suspicious activity”  S.136….. knows or suspects or has reasonable grounds for

knowing or suspecting that person is engaged in criminal conduct

 Objective test

(a) Make Enquiries

• avoid tipping off

(b) Do background checks (c) Check customer profile and review recent activity (d) Flag account for internal monitoring

Before filing a SAR

• “form and manner prescribed by regulations to this Law”
• The Proceeds of Crime (Disclosure) Order 2010
• Completed SAR form
• All available information to be provided

How to Report

• SARs are the primary source of financial intelligence for the FRA and local

law enforcement agencies

• SAR narrative should be clear and informative:
• Answer the ‘five Ws and How’ – “who, what, where, when, why, and

how.”

• What specifically led to filing the SAR?
• Any connections to previous SARs?
• All available information to be provided:
• Nationality / Jurisdiction of establishment
• Beneficial Ownership / Control
• Transactions and assets
• Repercussions for poor quality and tardy SARs

Importance of Filing a Quality SAR

SANCTIONS 101

Targeted financial sanctions related to terrorism

and terrorist financing

Targeted

financial sanctions related to proliferation

Other financial sanctions by Country

SANCTIONS 101

FATF Recommendation 6 – Targeted financial sanctions related to terrorism and terrorist financing

 Countries should implement targeted financial sanctions

regimes relating to the prevention and suppression of terrorism and terrorist financing

 The resolutions require countries to freeze without delay the

funds or other assets of, and to ensure that no funds or other assets are made available, directly or indirectly, to or for the benefit of, any person or entity either designated by:

 Resolution 1267 (1999) and its successor resolutions; or  That country pursuant to resolution 1373 (2001)

SANCTIONS 101

What are the relevant laws in respect of Terrorism and Terrorist Financing?

 Isil (Da'esh) and Al-Qaida Regime

 UNSCR 1267 (1989)  Relevant Overseas Order in Council



The Isil (Da'esh) and Al-Qaida (Sanctions) (Overseas Territories) Order 2016, (SI 2016/1218)

 Taliban and Associates Regime

 UNSCR 1267 (1988)  Relevant Overseas Order in Council



The Afghanistan (United Nations Measures) (Overseas Territories) Order 2012, (SI 2012/1758)

 Relevant Domestic Legislation

 Terrorism Law (2017 Revision)

SANCTIONS 101

Your Obligations Under the Relevant OOICs:

 Prohibited from:

 Dealing in funds or economic resources belonging to, or owned, held or

controlled by a designated person

 Making funds or economic resources available (directly or indirectly) to

a designated person

 Making funds or economic resources available (directly or indirectly) to

a any person for the benefit of a designated person

 Reporting obligations to the Governor (delegated to the FRA):

 Knows or suspects that a customer is a designated person  Reportable credits to a frozen account  You have failed to refrain from dealing in funds or economic resources

• f a designated person, or made funds or economic resources available

to designated person (directly or indirectly)

SANCTIONS 101

Your Obligations Under the TL:

 Freeze without delay:

 Funds or economic resources owned, held or controlled by a

designated person

 Prohibited from:

 Making funds, financial services or economic resources

available, directly or indirectly, to a designated person

 Making funds, financial services or economic resources

available, directly or indirectly, to any person for the benefit

• f a designated person

SANCTIONS 101

Your Obligations Under the TL:

 Reporting obligations to the Governor (delegated to the

FRA:

 Knows or suspects that a customer is a designated person  Reportable credits to a frozen account  You have failed to freeze funds or economic resources owned,

held or controlled by a designated person, or failed to refrain from making funds, financial services or economic resources available, directly or indirectly, to a designated person or to any person for the benefit of a designated person

 Criminal Penalties for failing to freeze without delay, or report

SANCTIONS 101

FATF Recommendation 7 – Targeted financial sanctions related to proliferation

 Countries should implement targeted financial sanctions to

comply with United Nations Security Council resolutions relating to the prevention, suppression and disruption of proliferation of weapons of mass destruction and its financing.

 UNSCR 1718 – North Korea  UNSCR 2231 - Iran

 These resolutions require countries to freeze without delay the

funds or other assets of, and to ensure that no funds and other assets are made available, directly or indirectly, to or for the benefit of, any designated person or entity.

SANCTIONS 101

What are the relevant Laws in respect of Proliferation and its financing?

 Democratic People’s Republic of Korea (DPRK) Regime

 UNSCR 1718 (2006) and Successors  Relevant Overseas Order in Council



The Democratic People's Republic of Korea (Sanctions) (Overseas Territories) Order 2012, SI 2012 No. 3066 and Amendments

 Islamic Republic of Iran (Iran) Regime

 UNSCR 2231 (2015)  Relevant Overseas Order in Council



The Iran (Sanctions) (Overseas Territories) Order 2016, SI 2016 No. 371 and Amendments .

 Relevant Domestic Legislation

 Proliferation Financing (Prohibition) Law (2017 Revision)

SANCTIONS 101

Your Obligations Under the Relevant OOICs:

 Prohibited from:

 Dealing in funds or economic resources belonging to, or owned, held or

controlled by a designated person

 Making funds or economic resources available (directly or indirectly) to

a designated person

 Making funds or economic resources available (directly or indirectly) to

a any person for the benefit of a designated person

 Reporting obligations to the Governor (delegated to the FRA):

 Knows or suspects that a customer is a designated person  Reportable credits to a frozen account  You have failed to refrain from dealing in funds or economic resources

• f a designated person, or made funds or economic resources available

to designated person (directly or indirectly)

SANCTIONS 101

Your Obligations Under PFPL:

 Freeze Without Delay:

 Funds or economic resources wholly or jointly owned or

controlled, directly or indirectly, by a designated person; includes

 Any entity owned or controlled, directly or indirectly, by a designated

person

 Any individual or entity who acts on behalf of or under the direction of a

designated person

 Reporting obligations to FRA:

 Freezing of funds or economic resources  Any actions taken in complying with the prohibition

requirements, including attempted transactions

 Civil and Criminal Penalties for failing to freeze without delay,

• r report

SANCTIONS 101

License Granted by the Governor:

 The Governor may grant a licence authorising an activity that would

• therwise be prohibited by the OOIC or domestic legislation:

 Must obtain the consent of the UK Secretary of State under an OOIC;

consult with the UK Secretary of State for local legislation

 The licence will specify the authorised acts  May include reporting requirements to the Governor  The Governor my vary or revoke a licence at any time in

consultation with the UK Secretary of State

SANCTIONS 101

Guidance Issued by the FRA:

 In December 2017, the FRA published comprehensive industry guidance regarding

targeted financial sanctions with respect to terrorism, terrorist financing, proliferation and proliferation financing within the Cayman Islands. Available at:

 http://www.fra.gov.ky/app/webroot/files/2017-12-

15%20FRA%20Guidance%20Targeted%20Financial%20Sanctions.pdf  A TF / PF Asset Freeze Form template is available at Annex 2 of the Guidance.  A Licence Application Form template is available at Annex 3 of the Guidance.  The FRA now publishing Financial Sanctions Notices regarding updates to sanction

regimes on its website; also circulating to relevant competent authorities and local law enforcement

SANCTIONS 101

Other useful resources:

 The Office of Financial Sanctions Implementation HM

Treasury is also a very useful resource for financial sanctions guidance:

 https://www.gov.uk/government/organisations/office-of-

financial-sanctions-implementation

 OFSI also has a email alert subscription for real time

updates of Financial Sanctions

Conclusions

Understand your obligations regarding:

 SAR Reporting:

 Reporting obligation to the FRA  Appointment of a Money Laundering Reporting Officer  Robust procedures for internal and external SAR reporting  Training for staff

 Targeted Financial Sanctions:

 Freeze without delay  Prohibit making funds, financial services or economic resources

available

 Reporting requirements to the FRA  Robust procedures for implementing targeted financial sanctions  Training for staff