csi compliance awareness training

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CSI COMPLIANCE AWARENESS TRAINING

ANTI MONEY LAUNDERING

July 2004

This is confidential proprietary and trade secret information of American Express Travel Related Services Company, Inc.

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Objectives of today’s session

• What money laundering is

• How the card & merchant business could be used

• The obligations on American Express and you personally

• The ‘red flags’ for the business

To raise your understanding of…

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Question

•What is Money Laundering?

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Money Laundering is….

• “The process by which the proceeds of criminal activity are moved through the financial system in order to hide all traces of their criminal origin”.

Definition from American Express General Management Policy 23 July 2002

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Question•How much money do you think is laundered each year worldwide?

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The United Nations Office of Drug Control and Crime Prevention estimate

• World-wide more than $500 billion is laundered annually.

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Question

•What crimes do you think are covered by money laundering laws?

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Crimes covered by Money Laundering laws include…..

• Terrorism

• Drug related crimes

• Public Corruption

• Extortion

• Fraud

• Robbery

• Smuggling

• Tax Evasion • Prostitution

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Money Laundering and Terrorist Financing

• Terrorist financing shares most of the fundamental attributes of money laundering (e.g. fundraising & funds transfer) but the primary motivation for terrorism is not financial.

• The source of the funds may be legal but the objective is criminal.

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The three stages of the Money Laundering process

• Placement– The physical placement of cash into the

financial system.

• Layering– Creating complex layers of financial

transactions in order to hide the true source.• Integration

– Putting the laundered funds back into the economy in such a way that they re-enter the financial system as legitimate funds.

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A Typical Money Laundering Cycle

Collection of Dirty Money

PLACEMENT

Dirty Money placed into thefinancial system

LAYERING

Transfer to the bankaccount of Company "X"

Wire Transfer

Offshore Bank

Loan to Company "Y"

Payment by Company"Y" of false invoice to

Company "X"

INTEGRATION

Purchase of luxery assests,financial investments or

commercial/indistrial investments

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Anti Money Laundering Laws and Regulations

• Internationally, money laundering legislation has been enacted and is in place.

• Since events of September 11 2001, money laundering has an increased focus.• Evolving legislation continues to place additional regulatory and legal requirements upon us.

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USA PATRIOT ACT

• This is comprehensive U.S Anti-Terrorism Legislation.

• For the first time, “Operators of Credit Card Systems” are included.

• American Express is applying similar standards of the USA Patriot Act to the proprietary business.

• We are likely to see the expansion of AML Laws to meet or exceed the requirements of the USA Patriot Act.

USA Patriot Act

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Anti money Laundering Laws and Regulations

• Financial Institutions are required by law to establish an anti-money laundering program that includes, at a minimum;

– The development of internal policies, procedures and controls, including a Customer Identification Program

– The designation of a Compliance Officer

– An ongoing employee training program

– An independent audit function to test programs

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Importance of compliance with the laws and regulations

• To guard against the possibility of our products being used for money laundering purposes.

• To guard ourselves and the business against the possibility of legal or regulatory action including fines and/or imprisonment.

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What the Law Requires

• You must….

– Know Your Customer

- Monitor Transactions

– Report Suspicious Transactions

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What the Law Requires

• You must not….

– Assist anyone you know or suspect of money laundering

– Tip Off anyone who is under suspicion of money laundering

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• The primary risk lies within the movement of money.

Where is the Risk for Credit Card Operators?

• The fundamental purpose of a credit card system is to effect payment from one person (The Cardmember) to another (The Merchant). In other

words…our job is to move money.

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• Do you know the value of the Brand?

Reputational Risk – Why is it so important to protect our business?

• Amex ranked 15th in the top 100 Brands

• Estimated value - $16.8bn

Source: Business Week/Interbrand Annual rating

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• Do we really know our Customers?

Where is the Risk for the Card Business?

• Do we really know our Merchants?

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What do we in CSI need to do?

• Know Your Customer (KYC)

– The identity of all our cardmembers andmerchants must be verified (as appropriate)at the time of entering into a business relationship, i.e. when the account is opened.

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What do we in CSI need to do?• Monitor/Report Suspicious Transactions

- Robust monitoring programs must be in place to identify suspicious transactions. Examples: Transaction Monitoring, Credit Balance Refund and Reporting, Limit Cash Payments etc.

- Procedures must be followed. Report suspicions to your Market Compliance Officer or CSI Compliance Officer.

If in doubt – report it!

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Some examples of how Amex could be used to facilitate Money Laundering

• Buying goods on the Card, paying the Card in cash then returning goods to the Merchant for a refund. This creates a credit balance on the Card Account for which the C/M could request a refund.

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Examples of how a Merchant account could be used to facilitate Money Laundering

• Merchant submitting rocs through another Merchant account – i.e. a charge incurred at one Merchant but submitted through another.

Do we really know where charges are coming from?

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LayeringMONEY LAUNDERER

Multiple Amex cards inmultiple names are

obtained by Cardmembers The owner sets up one or morelegally formed and registered

companys and becomes aMerchant

Amex collects the balancedue from the Cardmember

The Merchant will submit theCardmember charges to Amex

Amex will pay theMerchant

The only charges made bythe Cardmembers is to

these selected Merchants

Clean Funds are thencollected by the Money

Launderer

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Integration

Legitimate business, e.g. restaurant

Legitimate revenuerecieved by the business

Money from illegal activity, i.e.dealing of illegal drugs, is added tothe legitimately earned revenue of

the business

Do we really know who runs the business?

MONEY LAUNDERER

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How a Card or Merchant account could be used to facilitate Terrorist Financing• A customer may request a donation to

be made to a charitable organisation. Do we really know the true identity of the organisation?

• Purchase of small goods with high intrinsic value can be used to transfer wealth – e.g. gold bullion melted down and disguised as everyday objects.

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Red Flags for the CSI Business• Reluctance to provide requested

documentation at account opening.

• Identification documents that cannot be readily verified.

• Out of Pattern Account Activity – transaction inconsistent with customer or industry type.• Transactions that are financially illogical.

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Red Flags for the CSI Business

• High concentration of charges made by one Cardmember at one Merchant.

• Factoring.

• High volume of disputes and chargebacks.

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You should now know…..

• The money laundering process.

• How the Card & GES Business could be used.

• The obligations on American Express and you personally.

• The ‘red flags’ for the business.

Make sure you are alert to the red flags

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Anti Money Laundering – Key Contacts

• Vacant – Regional AML Compliance Officer

• Thomas George– CSI Compliance Manager J/APA (612) 9271 8825

• Market AML Compliance Officer