AML Risks and Compliance for Non-Financial Institutions

By Michael Volkov

Consider yourself lucky if you work at a company that does not fall within the Title 31 of the US Code definition of a “financial institution.” I am being somewhat dramatic but it is important for every company to have an anti-money laundering compliance program.

My suggestion is not designed to promote business or even “scare” companies into addressing this issue – it makes sense from an objective assessment of enterprise risks.

The definition of a ”financial institution” is very broad and covers a range of bank and non-bank institutions, including: depository institutions (e.g. insured banks, private banks, credit unions), broker-dealers registered with the U.S. Securities and Exchange Commission, securities or commodities broker-dealers, future commission merchants, casinos, money service businesses, commodity pool operators, commodity trading advisors, investment bankers or investment companies, operators of credit card systems, insurance companies, pawnbrokers, dealers in precious metals, stones or jewels, travel agencies, businesses engaged in vehicle sales, and persons involved in real estate closings and settlements.

If your company does not fall on this list, then your company is subject to two important basic AML criminal statutes, 18 United States Code Sections 1956 and 1957. The Department of Justice can initiate criminal and/or civil actions under 18 USC §1956.

Under Section 1956, it is unlawful to “conduct[] or attempt[] to conduct” a financial transaction with proceeds known to be derived from illegal activity. The statute sets forth a variety of predicate illegal acts for purposes of the money laundering statute, including FCPA violations. Under Section 1957, it is illegal to conduct a monetary transaction in an amount greater than $10,000 with property known to be derived from criminal activity. Violations of Section 1956 are punishable by imprisonment for not more than 20 years; Section 1957 carries a maximum penalty of imprisonment for 10 years.

These two money-laundering statutes have broad application and can apply to companies and individuals who knowingly, or with “willful blindness,” conduct a prohibited financial transaction. It is not necessary for the person tor entity to know the specific unlawful activity that generated the illegal proceeds or was involved in the illegal activity.

Companies have to conduct a basic risk assessment when considering potential AML risks. Most companies face AML risks in conducting financial transactions in the distribution and sale of its products. Companies provide materials and goods and/or services and receive money from the distributor or customer.

Similar to its sales activities, global companies should examine their relationships with major vendors and suppliers and enlist the support of the vendors and suppliers to mitigate AML risks further down the supply chain.

Companies have to be aware of two significant risks: (1) trade-based money laundering, where criminals utilize cross-border transactions to obfuscate the source or destination of funds, and (2) third-party payments, where money is given to or received from a different entity than the services were received from or provided to in order to transfer funds without utilizing traditional banking routes subject to tighter financial controls.

Companies should address these risks through design of proper controls and processes in the due diligence and procurement functions, and ensure that there is effective communications and coordination between due diligence and procurement managers.

http://blog.volkovlaw.com/2015/07/aml-risks-and-compliance-for-non-financial-institutions-2/