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A.M.L. & K.Y.C. Compliance Lawyers

The lawyers at Whale.Law assist businesses in compliance with AML and KYC regulatory compliance.  We help businesses avoid and survive audits.  We help avoid criminal charges against you and your business.

(A.M.L.) Anti Money Laundering Laws

These are laws designed to detect and prosecute  those who seek to take illegally obtained money (or other items of value) and convert them into seemingly legally obtained money and property.

(K.Y.C.) Know Your Customer Rules???

Know Your Customer regulations apply to many types of businesses.  KYC requires businesses to apply due diligence to (1) identify each customer, and (2) categorize each customer as to level of risk.  Components of Know Your Customer programs include:

  • CIP(customer identification programs),

  • CDD(customer due diligence), and

  • EDD (enhanced due diligence).

The Most Common Components of a Know Your Customer Program.

Twelve components typically entail a Know Your Customer process. KYC factors, combined, are called the “Customer Profile.”   These include:

  • Identification / Verification.

    This is simply verifying whether the prospective customer is who they claim to be. Corporate Entity name, date of incorporation become important in this regard. This also includes differentiating the person or business from other similarly spelled, advertised, or sounding persons or entities. This includes trade names, doing business as, and prior names.

  • Registration Number.

    This is a legal identifier in the business’ location of incorporation or principal place of business. It verifies the legal existence of the business. This includes whether the business is still considered active or not. Has the business been liquidated? Has it been inactive for a significant period of time?

  • Customer Address / Location.

    The address is important. This allows the financial institutions to identify customers with suspicious locations, or those from “red flag” jurisdictions.

  • Beneficiaries.

    Who is the beneficial owner? These are situations where the customer is acting on behalf of a third party. These can be situations where the customer is a lawyer, an accountant, a chartered person, a Trustee, or agent. Regulators require the beneficial owner to be identified. The customer themselves may not be high risk, but one or more beneficial owners may be high risk.

  • Customer Business.

    What is the nature of the customer’s business? This is gaining an understanding of the products, services, and jurisdictions of business interaction

  • Nature of Relationship. .

    What is the nature of the relationship the customer wishes to have with the financial institution? Credit card accounts differ from trade finance businesses.

  • Source of Income.

    What is the source of the funds the customer wishes to deposit? A customer may not show risk, but the legitimacy of the source of funds may cause a red flag.

  • Source of Wealth.

    What is the source of the customer’s net worth? This deals with the origin of the total value of the customer’s wealth, rather than the customer’s present income. This can be used to determine whether the customer is an accredited investor for SEC investment disclosures. This can be used in situations where a SAR has been created and the customer is undergoing additional scrutiny.

  • Associated parties.

    Discover who they are. Who are the principals? Who are the related parties? These include beneficial owners, key individuals/principals (executives and members of the board of directors), intermediate holding companies, guarantors, and collateral providers.

  • Screening.

    The screening process typically takes six months to a year. This includes PEP, Sanctions/Watchlist, Adverse Media.

  • Risk assessment

    What are the risks associated with each party. The categories of risk are typically delineated into High, Medium, and Low. The risk assessment category impact the frequency and thoroughness of periodic KYC reviews.

  • Documentation.

    Each customer should have their own folder or computer file. Clear Description (or type and purpose of each document type), Translation (if translated from a different language, the methodology should be documented), and Naming Conventions (consistency of indexing of customer files).

Cryptocurrency K.Y.C.

Government KYC enforcement entities have targeted cryptocurrency for its lack of transparency compared to legacy industries.  Cryptocurrency platforms face increased scrutiny from government agencies seeking to implement KYC programs.

FinCEN on December 23, 2020 released a Notice of Proposed Rulemaking.  It proposes that cryptocurrency platforms classify many crypto currencies as money, so that full KYC compliance would become mandatory.

Entities that Enforce AML and KYC Laws

Certain governmental agencies monitor businesses and their AML/KYC efforts.  These include:

  • FATF(Financial Action Task Force)

  • FinCEN(United States Financial Crimes Enforcement Network)

  • SEC(The Securities and Exchange Commission)

  • IRS(Internal Revenue Service)

  • FRB(Board of Governors of the Federal Reserve System)

  • DHS(Department of Homeland Security)

  • FBI(Federal Bureau of Investigation)

  • FDIC(Federal Depository Insurance Corporation)

  • GAO(Government Accountability Office)

  • FINRA(Financial Industry Regulatory Authority)

  • AUSTRAC(The Australian Transaction Reports Centre)

  • FINTRAC(The Financial Transactions & Reports Analysis Centre of Canada)

  • RBI(The Reserve Bank of India)

  • BI(Banca d’Italia)

  • JMLSG(The European Joint Money Laundering Steering Group)

  • AMLD(Anti-Money Laundering and Combating the Financing of Terrorism Supervision Department)

  • FINMASA(Swiss Financial Market Supervisory Authority)

What is a S.A.R.?

S.A.R., aka a Suspicious Activity Report is a document produced by a financial institution and filed with FinCEN.  A “SAR,” as it is know in the industry, indicates that the financial services provider has identified activity that meets certain requirements relating to money laundering, or fraud.  A SAR triggers enhanced monitoring and investigation, at the least.

Historically, the SAR started out as the “criminal referral form following 1970s Bank Secrecy Act.  The SAR has been expanded by all the laws following the Bank Secrecy Act and is not the standard AML industry form.

There is no standard criteria of what must or even should trigger a SAR.  Each SAR is kept for a minimum of five years.  Standards vary by both country, and institution.  Activities include:

  • Insider trading

  • Fraud

  • Computer hacking

  • Money laundering

  • Unlicensed financial business activity

It is unlikely you will be informed if you are the subject of a SAR.  These reports are kept highly confidential.  There are SAR protections against legal discovery, libel, and even slander (if contained in the SAR).  SARs are filed through FinCEN’s BSA e-file system.  SARs contain

  • Names

  • Addresses

  • Social Security numbers

  • Birth Dates

  • Driver’s License information

  • Passport information

  • Occupation

  • Telephone Numbers

  • Incident Dates

  • A written description of the suspicious activity

The Crypto Lawyers at Whale.law work with businesses to comply with AML / KYC laws, and avoid the negative ramifications of a breach.

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