Trade Finance AML Compliance Environment

© 2010- 2012

James H. Wistman, MBA, CAMS

Director, New York

ICS

INSTITUTE OF INTERNATIONAL BANKERS

2011 Annual Anti-Money Laundering Seminar

New York, NY

We’ve experienced increasing Regulatory Burdens

1980’s

1990’s

2000’s

Regulatory Reporting Burdens

1980’s

1990’s

2000’s 2010’s =

The Dodd-Frank

Decade,

plus CISADA & FCPA

Regulatory Reporting Burdens

1980’s

1990’s

2000’s 2010’s =

The Dodd-Frank

Decade,

plus CISADA & FCPA

How does this impact Trade Finance?

What has triggered Regulatory Burdens?

2010’s =

“Risk-based

Transparency”

1980’s

S&L Crisis Bailouts & FIRREA

1990’s FBSEA- 1991

Risk-Based Supervision begins

GLBA- deregulation

2000’s

Sarbanes Oxley

The Patriot

Act Decade

Wall Street Bailout

What are our Regulatory Reporting Burdens?

Compliance

e.g., SARs & OFAC

Financials

e.g., CALL

Reports, Asset

Pledge

Markets

e.g., Liquidity &

Systemically

Significant,

Basle III

Stress Tests

Regulatory Reporting Burdens

“Risk-based

Transparency

”

1980’s

1990’s

2000’s

Cost vector for regulatory reporting.

$$

How have AML/Patriot Act’s Burdens Evolved

2001 – anti-terrorism; EDD for private clients, cash-intensive commerce, PEPs, cross-border wire transfers, embassies.

2001 - private clients; cash-intensive; PEPs; cross-border wire transfers; anti-terrorism

2005 – nonbanks; broker-dealers, casinos, plus better AML software.

Patriot Act’s Reporting Burdens (continued)

Patriot Act momentum has not abated.

2001 - anti-terrorism; EDD for private clients, cash-intensive commerce, PEPs;cross-border wire transfers., embassies.

2005 – nonbanks; casinos, plus better AML software.

2010-2011 Trade finance, CISADA & “corruption and fraud”

SAR Reporting OFAC

Reporting

Other

{Subpoenas,

314a,

Correspondent

Bank

Certifications}

Trade Finance: AML Compliance Reporting Burdens

Tightening Focus on Iran

Sanctions Guidance – see OFAC website

Designated IRGC Affiliates and Designated Iran-Linked Financial Institutions

Imposition of Sanctions on Belarusneft

Guidance on Sponsorship of Conferences

Are U-Turn payments for Iran still permitted? http://www.treasury.gov/resource-center/faqs/Sanctions/Pages/answer.aspx#36

Guidance on Transshipments to Iran http://www.treasury.gov/resource-center/Documents/iranship.pdf

Except as otherwise authorized, the Iranian Transactions Regulations, 31 C.F.R. Part 560, broadly prohibit the exportation, directly or indirectly, from the United States, or by a United States person, wherever located, of any goods, technology, or services to Iran or the Government of Iran. It is important to note that the prohibited sales to Iran through a non-U.S. person in a third country are not limited to those situations where the seller has explicit knowledge that the goods were specifically intended for Iran, but includes those situations where the seller had reason to know that the goods were specifically intended for Iran, including when the third party deals exclusively or predominately with Iran or the Government of Iran.

“Reason to know” that the seller’s goods are intended for Iran can be established through a variety of circumstantial evidence, such as: course of dealing, general knowledge of the industry or customer preferences, working relationships between the parties, or other criteria far too numerous to enumerate. Minority ownership by the seller in the third party distributor may also be relevant to the seller’s knowledge of the goods intended destination, but is not controlling.

A violation involving indirect sales to Iran may be based upon the actual knowledge of the U.S. supplier at the time of its sale, or upon determination that the U.S. supplier had reason to know at the time of sale that the goods were specifically intended for Iran. OFAC would consider all the relevant facts and circumstances in order to determine the actual or imputed knowledge on the part of the U.S. supplier. Date 07/22/2002 Ref: 020722-IR-01.

On July 1, 2010, President Obama signed

into law the Comprehensive Iran Sanctions,

Accountability and Divestment Act of 2010,

imposing significant new sanctions on Iran

and firms and individuals doing business

with Iran.

(Public Law 111-195 – “CISADA”

Comprehensive Iranian Sanctions {CISADA}

Comprehensive Iranian Sanctions {CISADA}

Proposal – Open for Comment - Implications

The proposal would provide US Treasury, through US correspondent banks, with information

about entirely non-US banking and payments activity involving non-US correspondent banks and

their IFSR and IRGC clients and counterparties, if any.

OFAC would then have a mandate to investigate the activities of non-US banks that have

disclosed such transactions, or that have refused to respond to the Certification request from their

US correspondent bank.

In addition, the US correspondent bank, upon reviewing the contents of a Certification, may

decide to take various actions in accordance with its anti-money laundering and sanctions

compliance programs.

The proposal indicates that such actions may include, for instance, "restricting or terminating a

correspondent account relationship with a foreign bank, or filing a suspicious activity report, based

on the bank's risk-based assessment of the facts and bank policy."

Moreover, any non-US bank that intentionally submits misleading or incorrect Certifications to

their US correspondent banks for onward transmission to US Treasury risks liability under US

criminal law.

Comment Period

Comments on the proposal are due by June 1, 2011.

SOURCE: Clifford Chance, May 2011 Client Memorandum

SAR Reporting

Anti-Terrorism

Anti-Narcotics

Anti-Fraud

Anti-Corruption

OFAC

Reporting

Other

government

reporting

Trade Finance: AML Compliance Reporting Burdens

Trade Finance

SAR Reporting

Anti-Terrorism

Anti-Narcotics

Anti-Fraud

Anti-Corruption

OFAC

Reporting

Other

government

reporting

“Spoils of War”

“Conflict Diamonds/Minerals”

“Foreign Corrupt Practices”

Spoils of War

Insert headlines -- looting of national treasures – Egypt

NY Times -- February 21, 2011, 2:26 pm

Egypt Reopens Museums and Historical Sites

“…18 valuable artifacts were missing from the museum after a

break-in on Jan. 28. Among the most important items were a

gilded wooden statue of Tutankhamen and a limestone statue

of the god Akhenaten, which Mr. Hawass said was later

discovered near a trash bin outside the museum. He also

announced that tombs at Saqqara and Abusir and storage

buildings at Saqqara and at Cairo University, among other

sites, had been broken into.”

Copy page from INTERPOL

Conflict Minerals – Extraction Industries Dodd Frank -- Congo Conflict Minerals

Section 1502 of the Act regulates the exploitation and trade of columbitetantalite, cassiterite, gold, and wolframite (“conflict minerals”)

originating in the

Democratic Republic of Congo. The regulation requires disclosure by any reporting companies under the 1934 Act for which a conflict mineral is

“necessary to the functionality or production of a product manufactured by that company.”

Within 270 days of the passing of the Act, the SEC will be required to promulgate rules requiring regulated companies to report annually if any of

the conflict minerals used in their products originated in the Democratic Republic of Congo or an adjoining country. Such companies must also

disclose measures, such as due diligence and chain-of-custody reports, to ensure that their actives involving the conflict minerals did not directly

or indirectly finance or benefit armed groups in the Democratic Republic of Congo or an adjoining country. The Act also sets out standards for

independent third party audits which reporting companies will be required to undertake. A product that is determined not to contain conflict

minerals that directly or indirectly benefit or finance armed groups in the Democratic Republic of Congo or an adjoining country may be labeled

“DRC conflict free”. These reporting requirements will terminate on the later of certification by the President that no armed groups continue to be

directly involved and benefitting from commercial activity involving conflict minerals or the day after the fifth anniversary of the enactment of the

Act.

Section 1502 also requires the State Department to submit to appropriate Congressional committees a strategy to address the linkages between

human rights abuses, armed groups, mining of conflict minerals, and commercial products within 180 days of enactment of the Act. The State

Department will also be required, within the same timeframe, to produce and publish a map of mineral-rich zones, trade routes, and areas under

the control of armed groups in the Democratic Republic of the Congo and adjoining countries based on data from multiple sources, including the

United Nations, the Congolese government and nongovernmental organizations. The State Department will be required to update the map every

180 days, for so long as the conflict mineral reporting requirements referred to above are in effect. The GAO of the United States will submit

periodic reports to Congress assessing the effectiveness of this system.

Disclosure of Payments by Resource Extraction Issuers

Section 1504 of the Act requires the SEC within 270 days of enactment of the Act to promulgate rules requiring each resource extraction

issuer to include in its annual report information relating to any payment made by the resource extraction issuer, a subsidiary of the

resource extraction issuer, or an entity under the control of the resource extraction issuer to a foreign government or the Federal

Government for the purpose of the commercial development of oil, natural gas, or minerals, including the type and total amount of such

payments made for each project of the resource extraction issuer relating to the commercial development of oil, natural gas, or minerals

and the type and total amount of such payments made to each government.

Correspondent Banks

Definitions Correspondent Bank - an account established by a bank for a foreign bank to receive deposits from, or to make payments or other disbursements on behalf of the foreign bank, or to handle other financial transactions related to the foreign bank. Account - formal banking or business relationship established to provide regular services, dealings, and other financial transactions. It includes a demand deposit, savings deposit, or other transaction or asset account and a credit account or other extension of credit.

FCPA Cases

Compliance Areas

SAR Reporting

Anti-Terrorism

Anti-Narcotics

Anti-Fraud

Anti-Corruption

“Spoils of War”

Other

government

reporting –

Certifications

under USA

Patriot Act

OFAC

Reporting

Compliance Areas

SAR Reporting

Anti-Terrorism

Anti-Narcotics

Anti-Fraud

Anti-Corruption

“Spoils of War”

Other

government

reporting –

Certifications

under USA

Patriot Act

CISADA –

more

certifications

OFAC

Reporting

Questions?

If you have questions specific to your Institution,

feel free to e-mail them to: jwistman@ICScompliance.com

Burdens are increasing. Please don’t shoot

the messenger.

James H. Wistman, MBA,

CAMS

Director, New York

ICS Compliance

About ICS

As compliance specialists, ICS focuses only on regulatory issues for banking

institutions.

Our seasoned professionals, with previous experience as Compliance Officers

and/or Federal Regulatory Examiners, provide banks with invaluable expertise

and insight. This competency, along with our tailored approach and strong

regulatory awareness, provides clients with the confidence that comes from

hiring experts in compliance.

Serving institutions nationally from 17 offices,

we provide customized compliance programs,

remediation projects, and consultation.

For more information, please call: 646.241.5333

Thank you for participating

in today’s IIB seminar.

Trade Finance

AML Compliance Environment

© 2010- 2012

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