Susan Paola RojasVice Presidente AML y Compliance

Tatiana CalzadaAML Compliance Officer for Panama & Central America Cluster Head

Las Expectativas de los Bancos Corresponsales, sobre losProgramas de Cumplimiento de sus Clientes.

Table of Contents 1. Crimes and the Banking Industry

2. Current and Emerging AML Risks—LATAM

3. AML Fines imposed by Regulators Worldwide

4. Background - Citi’s Global Correspondent Bank AML Program

Key Components & Number of relationships in LATAM

5. High Risk Clients: Correspondent Banking & Nesting

6. Citi’s expectations for FCB’s

7. Correspondent Banking AML Oversight Committee (CBOC)

8. Periodic Transaction Review Report (PTR)

9. Global Investigations Unit (GIU)

Crimes and the Banking industryRabobank complicit in Mexican drug cartels' crimes:(Feb. 2017)

“Criminal lawyer Goran Sluiter filed charges againstRabobank … accusing the bank's executives ofcomplicity in murder and other crimes committed byMexican drug cartels. This follows an investigation bythe United States judiciary into a Rabobanksubsidiary suspected of laundering Mexican drugprofits”

French Bank BNP Paribas accused of genocide complicity (Sept. 2017)

“The investigation will look into the role of the bank in being complicit in the 1994 Rwandan genocide, which left 800,000 dead…the bank was used to transfer the funds from the Rwandan national bank to a Swiss bank account belonging to a South African arms dealer”

https://www.npr.org/sections/thetwo-way/2017/06/29/534865238/french-bank-bnp-paribas-accused-of-complicity-in-rwandan-genocidehttps://nltimes.nl/2018/02/08/rabobank-pay-369-settlement-mexican-drug-money-laundering-charges

Additional references: http://money.cnn.com/2016/05/11/news/economy/latin-america-brazil-corruption

VE

EC

CL

BR

PY

PE

PA

AR

Guatemala

Illegal campaign Funding

Accusations Involving

Current President, ex-

President and ex-VP

El Salvador

Corruption Investigations

on 2 ex-Presidents

Panama

Panama Papers / Balboa Bank

and Trust/Waked MLO / Blue

Apple /

Corruption-espionage case

against ex President

Honduras

Banco Continental/Rosenthal

/ Anti-corruption investigations

Venezuela

Deteriorating Economic Crisis /

FINCEN Advisory on Public

Corruption

Peru

President resigned ties with

Odebrecht / Corruption

Scandals reach judiciary

Brazil

Lavajato / Petrobras /

Odebrecht

President’s Impeachment

Paraguay

Corruption scandals in the

Tri-border area

Chile

President’s Inner Circle

Accused of Bribery /

Cyber Attacks

Argentina

Former President Investigated

/ Corruption Investigations on

Former Government Officials

Current and Emerging AML Risks—LATAM

Ecuador

Vice- President resigned

& imprisoned ties with

Odebrecht

GT

SV HN

Global banks have paid $321bn in fines and legal settlements

with US regulators since the financial crisis...

• Boston Consulting Group (BCG 2017)

AML Fines imposed by Regulators Worldwide

Office of the Comptroller of the Currency (OCC)

JP Morgan Chase

• On January 2014 the OCC announced a $350 million civil money penalty against JPMorgan Chase,N.A.; JPMorgan Bank and Trust Company, N.A.; and Chase Bank USA, N.A., for Bank Secrecy Act(BSA) violations.

US Authorities (Department of Justice, OCC, and Federal Reserve)

HSBC Holdings and HSBC Bank USA

• On December 2012 HSBC Holdings Plc. and HSBC Bank USA N.A. admit to pay to US authorities1.9 billion in fines [$1.256 billion to the Department of Justice, $665 million in civil penalties($500 million to the OCC and $165 million to the Federal Reserve)] for its AML program violationsto the BSA by failing to maintain an effective AML program and to conduct appropriate duediligence on its foreign correspondent account holders.

UK Financial Conduct Authority (FCA)

Deutsche Bank

• On January 2017, the FCA Deutsche Bank was fined £163 million GBP for serious failings in Anti-Money Laundering controls.

Background of One Correspondent

Global Correspondent Bank AML Program Key ComponentsGlobal Presence:

• Citi maintains physical presence in approximately 100 countries. This presence includes Compliance and AML staff, and provides local knowledge of the AML regime, local political environment, customer contact and knowledge that generally does not exist from NY, London or other major financial centers.

Global Policies:

• All Citibank units, domestic and foreign fall under Citi’s Global AML Program including polices and standards. The Correspondent Bank Standard applies to all Citi correspondent banks, domestic and foreign.

Client Breakdown:

• As of August 2018, there were approximately 1,430 Foreign Correspondent Banking (FCB) clients globally in the major currency centers of New York, London/Frankfurt, and Hong Kong

• Of these, 217 or 15% clients were domiciled in Latin America.

• Central America

• Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama.

• Caribbean

• Aruba, Bahamas, Barbados, Cayman Islands, Curacao, Dominican Republic, Haiti, Jamaica, Puerto Rico and Trinidad and Tobago.

• Andean

• Colombia, Ecuador and Peru.

• South

• Argentina, Brazil, Chile, Paraguay and Uruguay.

Correspondent banking is the provision of banking services by one bank (the “correspondent bank”) to another bank (the “respondent bank’”)

By establishing multiple correspondent relationships globally, banks can undertake international financial transactions for themselves and for their customers in jurisdictions where they have no physical presence

Definition Risks

Respondent Bank

Correspondent Bank

Clients of the Respondent Bank

Correspondent banking is vulnerable to money laundering for two main reasons:

– By their nature, correspondent banking relationships create a situation in which a financial institution carries out financial transactions on behalf of customers of another institution. This indirect relationship means that the correspondent bank provides services for individuals or entities for which it has neither verified the identities nor obtained any first-hand knowledge

– The amount of money that flows through correspondent accounts can pose a significant threat to financial institutions, as they process large volumes of transactions for their customers’ customer. This makes it more difficult to identify the suspect transactions, as the financial institution generally does not have the information on the actual parties conducting the transaction to know whether they are unusual

Additional risks incurred by the correspondent bank include the following issues:

– Determining the degree and effectiveness of the supervisory regime to which the respondent is subject may difficult

– Determining the effectiveness of the respondent bank's AML controls can also be a challenge

– Some banks offering correspondent facilities may not ask their respondents about the extent to which they offer such facilities to other institutions (“nesting”)

Where a respondent bank is offering correspondent banking services to other downstream financial institutions

This adds another layer and means the correspondent bank is even further removed from knowing the identities or business activity of these sub-respondents, or even the types of financial services provided

High Risk Clients: Correspondent Banking

Nesting

High Risk Business: Correspondent Banking: Nesting Where a respondent bank is offering correspondent banking services to other downstream financial institutions

This adds another layer and means the correspondent bank is even further removed from knowing the identities or business activity of these sub-respondents, or even the types of financial services provided

Expectations for Foreign Correspondent Bank ’sFCB’s are considered high risk clients and all receive enhanced due diligence based on customer’s risk ratings. They are updated annually through aprocess of periodic risk evaluation designed to gather detailed information with respect to their AML Programs.

The objective of these periodic reviews is to perform an analysis of the key components of their AML Programs and evaluate if the risks to which eachclient is exposed to are adequately mitigated in accordance to Citigroup standards for correspondent banks and international best practices.

General Information

A general overview of the bank to understand its size, risks, number of clients, % of corporateclients vs. individuals, number of branches, number of employees, products offered and anyother information that is useful to assess the risk.

Compliance Unit Structure

Organizational chart, number of employees in the Compliance unit, their responsibilities,educational background and experience of the AML Compliance Officer, in order to evaluatewhether the AML Department has sufficient staff based on the size of the bank and its risks.

AML Program, Policies and Procedures

Information that demonstrates that the client has a robust and updated AML and SanctionsProgram (OFAC, United Nations, etc.) approved by the Board of Directors.

Training PlanCompliance and AML training programs provided for new hires and also for existingemployees (at least on annual basis) with tests to be passed upon specific scoresand consequences for failures.

KYC: Know your Customer

Robust KYC and CIP (Customer Identification Program)processes, with an assignment of a risk rating for clients upononboarding and regular updates and periodic reviews based on riskratings.

Expectations for FCB’sEnhanced Due Diligence

Enhanced due diligence for high risk customers (Public Figures, Money Service Businesses,Financial Institutions, Embassies, Non-profit Organizations)

Control Environment

Results of internal, external and regulatory AML audits, including list of issues andrecommendations and confirmation that action plans were raised accordingly with timelycompletion of target dates.

Fines and sanctions Fines and Sanctions imposed by regulators regarding AML and Prevention of Terrorist Financingprograms.

Public Negative Information

Confirmation that they have a process to review negative media and what actions are taken whentheir clients are identified within AML negative news.

TransactionMonitoring

Detailed description of the monitoring process (manual/automated) with pre-establishedparameters and scenarios.Detailed description of alert review and unusual transaction investigation processes.Number of AML analysts vs. number of alerts generated monthly, and information regardingbacklogs.

Suspicious Transactions

Description of the determination and reporting of suspicious activityreports, including post-report processes (account closures, morerestrictive monitoring processes, etc.)

Expectations for FCB’s

Sanction Screening

Description of the screening process (manual/automated) against local and international lists.Including: lists used for screening and moments where screening is performed (onboarding,creation of new products, previous to any transaction, etc.), processes involving lists updatedand actions taken when a positive hit is found. Confirmation that the client does not haverelations with sanctioned countries like: Iran, Cuba, Syria, etc.

High Risk business lines, products, services and

clients.

Information of high risk lines of business such as nested relationships, remittance services,embassies, bearer shares, virtual currency operators, casinos, internet gambling, etc. Andcontrols that are implemented to mitigate the related risks.

Negative Information Inform and clarify any negative news found on media.

Periodic Transaction Review Report (PTR)

Executive SummaryHighlight areas of significance within the PTR report which will require actionsduring the AML call, or responses to clarify activity.

Negative News

Details material negative news identified for the Client, Significant Parties, orHigh Risk Entities.

Breakdown of Activity

Consolidated Activity

Details the combined volumes and values of commercial and treasury debitsand credits, and compares them to the anticipated product usage profilefigures.

Geographic Analysis

Identifies anticipated jurisdictions and the activity flowingthrough the top 5 countries and top 5 high risk countries. Alsothe top 5 originators and beneficiaries.

Details the volumes and values, per currency, of the client’s Commercial andTreasury, debit and credit activity.

In addition to standard transaction monitoring processes, performs periodic transaction reviews (PTR) which is a deep dive into the FCB’sactivity to ensure:

• Actual activity is in line with expectations, to identify primary transaction jurisdictions and flow of funds,• Review to identify and assess transactions of identified PEPs within the entity,• Identification and analysis of nested correspondents and analysis to identify unusual activity.

These reviews are performed for FCBs, Development Banks, Central Banks and Payment Intermediaries (including Money ServiceBusinesses –MSB´s) in major financial centers. PTR’s are divided in the following 11 sections:

Periodic Transaction Review Report (PTR)Transaction Analysis Details nested relationships, outlier transactions and spikes in activity.

Transaction Monitoring Details any patterns of concern identified in automated monitoring alerts.

Sanctions Reporting

Details high-risk Sanction transactions associated to the client one montharrear the month of PTR production, which end date coincides with the end ofthe three month period under review.

High Risk Party Type Activity

Details high risk activity and industry types including but not limited to nestingred flags, PI’s (including MSB´s), Virtual Currency, Embassies and Casinos.

Year on Year Comparison

A Year on Year comparison between the current year and previous year’sPTR. This will compare Volumes and Values, Anticipated Jurisdictions, TopOriginators and High Risk Activity to identify any anomalies or significantvariances within the relationship.

Recommendations Summarizes all recommended actions as a result of the review.

Global Investigations Unit (GIU)

• The core objective of the GIU is to perform holistic investigations of complex or global customers with AML concerns; ensure consistent treatment of clients across all regions and business lines; and mitigate the risk of money laundering, terrorist financing and other illicit activities in all of the countries where Citi maintains a presence.

• One of its key functions includes conducting enterprise wide investigations, globally, of Citi’s highest risk clients, which include Correspondent Banks, Senior Public Figures, Payment Intermediaries (including Money Service Businesses), Embassies, Citi Private Banking and International Personal Banking.

• In connection with FCB relationships, GIU is able to provide valuable feedback to other units within Citi. Due to the global scope and nature of its investigations, GIU may be able to detect typologies / patterns of non-Citi customers involving a specific correspondent bank.

• Once this is detected, a dialogue can be established with the correspondent banking institutions in order to establish appropriate mitigation measures.

The GIU conducts complex investigations that can encompass customers that have accounts in a single jurisdiction, accounts in more than one jurisdiction, or may have account activity with a substantial multi-jurisdictional nexus. In addition to multi-jurisdictional characteristics, whether a matter is considered complex is influenced by the risk rating of customers, the presence of high risk products and material negative news, and similar elements.

Thank you

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