August 2018 JD Supra
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Gatekeepers are under a lot of Stress! was published by JD Supra on 8/22/18.

The FATF is an independent inter-governmental entity that develops policies for protection of our global financial system from money laundering (AML), terrorist financing and financing of weapons of mass destruction. 

Its Recommendations (a total of 40) are considered to be a gold “Standard” for AML and Crime Terrorist Financing (CTF). Professional Service Providers (PSPs) – Lawyers, Bankers, Brokers, Realtors, Casino Managers, Trust Fund Managers, Money Managers, etc., – are known as “gatekeepers”, as they all carry a level of responsibility and share financial intelligence according to the FATF.    

While no specific AML requirements exist for PSPs, FATF Recommendation #22 (d) indicates that PSPs ought to have AML/CTF responsibilities if engaged in:

  •    buying and selling of real estate;
  •    managing of client money, securities or other assets;
  •    management of bank, savings or securities accounts;
  •    organization of contributions for the creation, operation or management of companies;
  •    creation, operation or management of legal persons or arrangements, and
  •    buying and selling of business entities,

in which case, a PSP ought to follow the customer due diligence and record keeping, policies and procedures outlined in FATF Recommendations 10, 11, 12, 15, and 17.  PSPs should perform the same duties as Financial Institutions in the areas of: Customer Due Diligence (CDD), Record Keeping, Politically Exposed Persons (PEPS), New Technologies used for Money Laundering and Applying CDD when relying on a Third Party.

On July 2018, the Financial Action Task Force (FATF) issued a Report on Professional Money Launderers (PML).  PMLs enable “organized crime groups” (OCGs) to navigate the legal system, by-pass Anti Money Laundering and Bank Secrecy Act (AML/BSA) requirements, assist the OCGs to evade taxes and obtain profits from illegal activities.  The report states that “the main characteristic that makes PML unique is the provision of Money Laundering (ML) services in exchange for a commission, fee or other type of profit. While the specialisation in providing ML services is a key feature of PMLs, this does not mean that PMLs are not also involved in other activities (including legal businesses)”.  This means that PMLs may act in professional capacity such as an attorney or an accountant or a financial representative serving the needs of legitimate clients.

Gatekeepers – PSPs

They often can:

⦁    act as intermediaries between a financial institution and a client,

⦁    act as financial liaisons for their clients,

⦁    conduct financial dealings for their clients such as real estate transactions, asset transfers, money management, investment services, trust arrangements

BSA and AML procedures describe how certain PSP entities (Such as CPA firms and Law Firms) may be vulnerable to corrupting influences or have been historically misused by money launderers and criminals. The FATF perception is that a PSP may camouflage the identity of a client when conducting financial services on the client’s behalf.  In cases when a Financial Institution does not have any information on a PSP client because its banking relationship is with the PSP, the Financial Institution has to rely on a PSP’s client due diligence if it wants the involved banking business. According to the Financial Crimes Enforcement Network (FinCEN): “transactions involving professional service providers present third-party risks that can raise a depository institution’s vulnerability to money laundering, structuring, or hiding beneficial ownership of an account holder”.  

In the United States, Accountant and Attorney PSPs have no suspicious activity reporting requirements of their own. A Financial Institution holding accounts for both may detect financial activities and transactions that the Financial Institution knows, or suspects may require reporting to FinCEN; placing them in a situation of filing Suspicious Activity Reports (SARS) based on the type of bank activity related to PSPs.  FinCEN states that the “risk factors filers most frequently cited included transactions with high-risk jurisdictions, apparent shell company activities, multiple international transactions, including those through foreign correspondent banks, and clients involved with high-risk professions”.   

Gatekeepers ought to KYC

The FATF July report reiterates what is already known.  OCGs seek the assistance of PSPs in order to disguise criminal activity, movements of funds and set up corporate structures that disguise ultimate beneficial ownership.

Don’t be a victim of your own making

Clients seeking the assistance or help of a PSP ought to know who they are dealing with.  Know who you are doing business with before engaging with a PSP.