CHAPTER 4: CONDUCTING AND RESPONDING TO INVESTIGATIONS

1. Chapter 4: Part 1

Chapter Four: Conducting and Responding to Investigations: This chapter deals with how to investigate suspicious transactions and report them to the Financial Intelligence Unit and how to respond to an investigation. An investigation launched by regulators into your organization Sources of Investigation So there are different sources of investigation. The first one is your regulator's recommendation. When regulators request information for some investigation, you need to provide the documents within the time frame. If the situation is serious enough to affect your organization, you need to inform the senior manager. Transaction Monitoring: We have discussed this earlier. Transaction monitoring should reflect organisation risk assessment. There should be a system in place to handle todeal alerts generated by transition monitoring software. One way is to have an input er and authorise mechanism so that transitions reviewed by one stop will be revised by others. To have proper documentation, you should have a workflow mechanism built into your transition monitoring software. Referrals from customers facing There should be a mechanism for suspicious transaction reporting by your frontline staff. It is better to develop a specific format in which they will report the suspicious transaction. This mechanism should be properly communicated in training internal hotlines. This is mainly used for the whistleblower.That is, you should develop an anti-brivarycorruption policy where you should clearly explain to whom staff can report about employee fraud, harassment, and discrimination. Violations of the code of conduct, theft of companyproperty with complete anonymity Negative media information This is one of the reasons why we need a customer screening system which will screen the names of customers against the sanction list daily. For example, it was due to the customer screening system within our bank that we found one customer was listed in the inred corner notice issued by the Nepal Police Authority. We gathered immediately required information and filed strings that customer receipt of governmental subpoena or search warrant subpoena, which are typically issued by grand juries or courts that empower or law enforcement to compel the production of documents. This is different from the law enforcement asking for the customer's information. These are issued when your organisation is under legal investigation. Therefore, you should take legal counsel and inform senior management immediately. Further, you should provide the information on time, but it is better to review the document to verify its accuracy, authenticity, and completeness before submitting it. Search Warrant I hope you never see this. A search warrant empowers a law enforcement agency to search certain designated premises and to search for specific categories of items or documents. The agency could establish that probable cause exists and that evidence of crime will be located. So when you are being solved, remain calm. Your legal counsel or head of risk management should review it. You may want to ask for an affidavit that provides the reason for the search. Keep track of all the records or property taken by the agent and ask for a copy of the same, including the name of those agents. Some documents are protected by attorney-client and other legal privileges and should not be provided unless there is a court order. Accounts or assets can be frozen. If you receive an order to freeze any assets of a customer, then that organisation should comply. The format of such an order may be different from one country to another. In Nepal, we don't need to ask for separate affidavits. The reason for the freeze is usually mentioned in that single letter. Internal Investigation Whenever you get information regarding any suspicious transaction, you should collect all the information first and then write your report in a specific format. In any case, your conclusion should be backed by the evidence. The Flow of Money always tries to determine the full picture of the transition, where it started and where it ended. If you cannot determine the flow, the transition is suspicious. But if you could determine the flow and find it suspicious, that is even better. This is why it is rightly said that blood and money leave a trace. You should have collected the KYCdocuments for that customer already. You should check if the customer's profile matches the transaction. You need to find out if the counterparty's transaction is related to the customer or not. Then you have to further dig in and try to collect the information about them. After that, you will have a complete picture. If there is any confusion, you should try to contact the customer for the information. Next time, try this. I will guarantee you will have interesting stories to tell your friends and family. Of course, you should not reveal the name.

2. Chapter 4: Final Part

Searching the Internet This is a very useful tool that people don't use quite often. There was a single transaction where the beneficiary party was from some high-risk countries as designated by FA TF. The payment was for the import of avocados. My staff raised an issue regarding this, so we decided to do some googling. Then we found out that Beneficiary was an allowed exporter of the avocado, as listed on the Agriculture Ministry's official website of that country.We let the payment through as the price ofavocado was reasonable in terms of the price in Nepal. Therefore, the internet can be very useful. The following is a list of commands that may be useful to you when searching for anything in Google. Searching earlier, we talked about machine learning. It can also be a useful tool to investigate suspicious transactions. Let's look at the slide. You can track a customer's transition to which account he or she may transfer to. Then what transactions were made from that account? In this way, we can identify related parties to that transaction. This also helps in identifying hidden and beneficialowners who may have a malicious agenda. I think within a five-year frame, many financial institutions will adopt this technology. As discussed earlier, you may need to file HDR in a specified format to FIU. Always make sure that you only file quality STRs. Otherwise, you may get a call from FIUregarding whether this STR is appropriate or not. There may be a requirement for filing of STR within certain days that you need to consider. In Nepal, we have three days to report after the identification of suspicious transactions. Also, we have a provision to report suspicious activity reports, or SAR, which is used when we have some adverse news about the customer before onboarding them. In the case of working customers, you may be required to notify your management or bod about several strikes, such as the STR trend, the amount involved, and so on. Sometimes you may have to decide whether to close the account for which you have filed an STR. From my experience, if you are getting repeated STR from that account or if that account may lead to future legal or reputation risk,it is better to close that account. Law Enforcement Investigation: The law enforcement agency, while performing an investigation, follows a similar mechanism. They identify the origination and ultimate destination of subjects found. They have the power to ask for customer due diligence information from any financial institution. They also have access to government and commercial databases and public records like registration and licencing records. Based on this information, they will try to tie those transactions to some predicate offense. If the transition is related to cross-border, they will seek international assistance. When can financial institutions be prosecuted for money laundering violations? We have heard a lot of cases where financial institutions are penalised for money laundering. Regulatory bodies will look at different factors, like how cooperative was the institution? Does it have an effective MS safety programme or not? Nepal Lustrobing The Central Bank of Nepal has listed out fines for noncompliance. For example, if the banks do not have a mechanism to identify beneficial owners, they can charge bank penalties of up to 10 million. Responding to Law Enforcement Investigations Against Financial Institutions. This is very important if your organisation is still being investigated. The first thing to do is to inform your senior management and the legal team to appoint a point of contact or licence officer. This is a person who will provide all the documents and information requested by law enforcement. It is also good practise to provide the information that is related to the case and that is not specifically stated in the subpoena or warrant. This will have two-fold benefits. One is that tickets will be completed on time, and the other is that your organisation will be free of future negative consequences. since you are very cooperative. It is a common trend to abide by regulators. But I have found that the more you have a good relationship with regulators, the more they will support you. We should not think of regulators as policemen but as a guardian.Further, it is also advisable that you keep your legal counsel close. If by any chance this investigation leads to any criminal investigation or indictment, the employee should not produce the documents inside. They have to provide those documents through the licence officer. If some employees are to be interviewed by a law enforcement agency, it is recommended that legalcounsel or senior management should first interview them and prepare them for the final interview. The organisation should also consider the adverse publicity brought by this kind of regulatory investigation. Therefore, a spokesperson who specialises in this matter should provide information to the media to reassure the general public to maintain confidence in that organization. In doing so, make sure they don't provide any misleading information. Ms. Safety Cooperation between Countries: International MoneyLaundering Information Network One of the important features is the provision of an international database on anti-money laundering, which includes the analysis of different national AML laws and regulations. These treaties provide the legal basis for transmitting evidence that can be used for prosecution and judicial proceedings. These treaties also help in the location of offenders' searches and seizure of assets. They are mandatory nationalagencies that handle financial intelligence by receiving reports of suspicious transactions from financial institutions and other people and entities, analysing them, and disseminating the resulting intelligence to local law enforcement agencies and foreign financial intelligence units to combat money laundering. This summarises the three basic functions of receiving, analysis, and dissemination. There are some important documents concerning FIU that you need to consider. First, articles 30 and 31 of the FA TF recommendations give the authority to conduct any investigation, such as collecting necessary documents and initiating action to freeze and seize property using various investigative techniques. The second one is the Principles of InformationExchange between the Financial Intelligence Unit. This document focuses on cooperation between FISto freely exchange information regarding all kinds of predicate offences related to money lending as well as terrorist financing. These principles are based on principles for information exchange set out by the Egmont group. Also, the information should be securely exchanged by FIU. To that extent, the Egmont Group has developed the Egmont secure wave. With this, we have come to the end of Chapter Four of the Kansas Study Guide.

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