AML AWARNESS FOR SENIOR MANAGEMENT

Anti-money Laundering Awareness Program For Senior Management : 

1 Anti-money Laundering Awareness Program For Senior Management Hany Abou-El-Fotouh, CAMS FVP Corporate Governance & Compliance Group Head 13 January 2008

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2 What Is Money Laundering? The use of money from illegal activities by concealing the identity of the individuals who obtained the money or the means by which it was obtained and converting it into assets that appear to have come from a legitimate source

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3 Brief History Mafia using laundromats and legitimate cash businesses e.g. hotels, antiques galleries etc. Watergate scandal 1972

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4 “Money Laundering” - A Global Problem Money laundering is “one of the most serious issues facing the international financial community” IMF Worldwide money laundering estimates – US$ 800Bn – US$1.6 Tn Global Narcotics trade launders nearly US$ 200Bn a year- Enforcement agencies in the best of years recover in the range of only US$ 100–500 Mn 1 47% of the dirty money use Banks as a route for laundering money (5% credit cards, 8% Insurance firms & 25% investment firms) 2 1 www.int-comp.org , International Compliance Association 2 Celent Communications- AML market report 2003

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5 World wide Money Laundering Estimates… The third largest industry worldwide… Worldwide money laundering estimates – USD 856 Bn* All figures are in Billion US Dollars Asia Pac, $257.00, 30% Europe, $231.30, 27% Middle East, $42.80, 5% Americas, $325.50, 38%

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6 Global Money Laundering Business Mix Money laundering – by criminal sector All figures are in Billion US Dollars Source : Celent Communications- AML market report Smuggling, 162.64, 19% Terror groups, $1.72, 0.2% Others, $400, 47% Drugs, $291 34%

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7 Global AML Regulations USA Patriot Act – 50% of all global illegal funds pass through US at some point of time or other FATF (Financial Action Task Force) – Inter governmental AML policy making body – 31 countries presently part of it “If you do business with terrorists, if you support or succor them, you will not do business with the United States.” - George W Bush, US President, 7th Nov 2001 1 Celent Communications- AML market report 2003

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8 Terrorist financing now under money laundering umbrella!

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9 Why We Should Care? ABC Egypt is part of a leading regional financial group. The Group’s / Bank’s image may be affected Reputation is critical to the ABC Group Possible losses due to loss of business Penalties by law (Law No. 80/2003) Impact on economy: inflation, exchange rates etc Tight connection between narcotics, corruption, illegal arms and terrorism leading to economical and political destabilization

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10 Money Laundering Methodology PLACEMENT STAGE LAYERING STAGE INTEGRATION STAGE

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What Are The Requirements Of The Bank’s Policy? : 

12 What Are The Requirements Of The Bank’s Policy? To comply with the letter and spirit of applicable money laundering laws, the AML policy and operating procedures. To make reasonable efforts to determine a customer’s identity. To perform adequate due diligence. To maintain high ethical standards and avoid suspect transactions. If necessary, cooperate with law enforcement agencies, subject to customer confidentiality constraints. To remain alert to unusual or suspicious activities that may indicate laundering of illegal proceeds or other criminal conduct and report such activities to the compliance officer.

What Is The Bank’s Policy? : 

13 What Is The Bank’s Policy? The bank is committed to playing an active role in the war against money laundering and other criminal activity. The bank has established a robust anti-money laundering (AML) program based on head office AML manual and local laws and regulations. An effective AML program: Enables the bank to comply with money laundering laws and regulations by establishing standards that must be implemented. Prevents the bank network from being used as vehicles in money laundering schemes, and. Facilitates recognition and reporting of suspicious activity and transactions, which may be related to money laundering.

Our AML Risk-based Approach : 

14 Our AML Risk-based Approach Identification and assessment of the money laundering risks that the bank faces, given the particular customer, product, services, and geographic profile, and; Identification and applying measures to manage and mitigate these risks.

Elements Of Risk Based Approach : 

15 High Risk Factors Mitigating Factors Customers/Business type Geographical location Products/Services Governance Structure Policies & Procedures Training & Awareness Independent Testing Risk Based Approach Laws & Regulations Elements Of Risk Based Approach AML Program

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16 KYC Thermometer High Risk Medium Risk Low Risk

ABC Egypt Risk Rating System : 

17 ABC Egypt Risk Rating System High – Medium - Low Focus on medium and high risk accounts. Low risk accounts do not require profiling e.g. low balance accounts, low volume of activity, household, payroll/pension accounts Train all Customer Service staff how you assign risk rating to different customer types

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18 Company Delegated Authority Sole Trader Pep Company – Trading Etc….. Leather goods Legal service Real Estate Insurance Brokers Etc……

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19 Telecommunication Textile Transport – Air Trucking Etc…. High Risk > 71 points

What Does The Regulator Expect To See? : 

20 What Does The Regulator Expect To See? Is the AML policy applicable to all businesses, branches & subsidiaries (including overseas branches) ? Does the bank have clear customer acceptance policy? Does the bank have effective customer identification program? Has the bank been regularly updating customer information? If not, what are the circumstances that trigger updating customer information? Does the AML program cover all transaction types? (cash, wire transfers, ATMs, cards etc.) Has the bank carried out an AML risk assessment? Is the bank collecting transactions from all application platforms? What is the quality of AML training programs? Have all employees been trained? How often you re-train them?

What Does The Regulator Expect To See? Continued : 

21 What Does The Regulator Expect To See? Continued Is the bank monitoring for unusual /suspicious activities consistently? Is the bank reporting Suspicious Transaction Reports and maintaining proper documentation? Has the bank’s internal audit (or external auditors) assessed AML policy and practices at least annually?

ABC Egypt Compliance List Of Do’s & Don’ts : 

22 Do…maintain good relationship with the regulators Do…keep abreast with regulations and developments Do…update AML policy annually Do… keep all updated with the progress in our area Do…spread the compliance culture all over the organization Do.. adopt objective approach to check suspicious transactions ABC Egypt Compliance List Of Do’s & Don’ts

List Of Do’s & Don’ts Continued… : 

23 Don’t …compromise your independence Don’t…be detective! Don’t…over-report out of fear of criminal penalties for not reporting Don’t…ignore the warning signs Don't…request excessive/redundant information Don't…show unwillingness to cooperate during a regulatory examination List Of Do’s & Don’ts Continued…

What Everyone Has To Understand And Do? : 

24 What Everyone Has To Understand And Do? Understand and comply with the letter and spirit of applicable money laundering laws, the bank’s AML policy and operating procedures. Do business only with individuals and companies of sound character and good reputation. Understand what are “normal” and “expected” transactions of our customers. Identify and report unusual or suspicious activities to compliance officer. Avoid “willful blindness” at all costs i.e. Ignoring suspicion or the knowledge that a customer is involved in illegal activities. *Never* disclose to a customer that a suspicious transaction report has been filed.

Case Study: American Express Bank International : 

25 Case Study: American Express Bank International Facts A Private Banker recruited a foreign client as a customer even though he never met the individual. The client had no legitimate source of wealth and his occupation on the account opening form was listed as a gas station attendant. The client requested the Private Banker to open various accounts. Accommodating every request of the client, the accounts were opened in both domestic and international branches. Over the course of time, the client processed several large wire transfers -some as large as 7 figures. Results The customer turned out to be a Mexican drug trafficker, not a gas station attendant. The Private Banker received 10 years in jail for not reporting the unusual/suspicious activity of his client and falsifying bank records. The bank was fined $36 million. This was the first time a bank’s AML policy was used in money laundering prosecution. The prosecution confirmed with the bank that the Private Banker received annual AML training. Lesson The Private Banker was convicted because the court believed he was “willfully blind“ to the unusual/suspicious activity processed by the client.

The Office Of Foreign Assets Control (OFAC) Why Should You Care?) : 

26 The Office Of Foreign Assets Control (OFAC) Why Should You Care?) The office of foreign assets control administers and enforces economic sanctions programs primarily against countries and groups of individuals. Banks are required to comply with OFAC as a part of their AML program. Sanctions are imposed based on U.S. Foreign policy and national security concerns. They can involve prohibiting trade, blocking assets, prohibiting certain types of commercial and financial transactions. Sanctions also have been used frequently against dangerous groups, such as narcotics traffickers and terrorists. These sanctions apply to all individuals and entities that are subject to U.S. Jurisdiction regardless of their location as well as all U.S.-Based financial institutions, including their subsidiaries and foreign branches.

The Office Of Foreign Assets Control (OFAC) : 

27 The Office Of Foreign Assets Control (OFAC) What are the OFAC-Restricted Countries? Balkans Sanctions Belarus Sanctions Burma Sanctions Cuba Sanctions Democratic Republic of the Congo Sanctions Former Liberian Regime of Charles Taylor Sanctions Iran Sanctions Iraq Sanctions Ivory Coast) Sanctions North Korea Sanctions Sudan Sanctions Syria Sanctions Zimbabwe Sanctions Other Sanctions Programs Include: Narcotics – Non Proliferation – Weapons of Mass Destruction Trade Control Regulations Terrorists – Terrorism Sanctions Regulations

The Office Of Foreign Assets Control (OFAC) : 

28 The Office Of Foreign Assets Control (OFAC) Why should you care? Penalties for non-compliance (U.S banks) Failure to comply with OFAC regulations can expose employees and the bank to severe civil and criminal penalties, including jail. Additional risks include: Charter forfeiture Monetary losses resulting from asset forfeiture actions Substantial legal fees Penalties for non-compliance (non U.S banks) Blocking assets Closing the foreign bank’s correspondent account

What Directors And Senior Management Need To Do? : 

29 What Directors And Senior Management Need To Do? Be aware of the bank’s AML programs and activities. Support compliance group in AML efforts. Don’t ignore or downplay indications that bank customers (including friends) may be involved in illegal or illicit activities. Keep AML matters confidential. Remember! – The penalties for non-compliance can be costly to YOU and to the bank.

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30 Compliance is expensive.. but non-compliance could be very expensive!!! Q & A