Update - As of President Trump's announcement two weeks ago, the business side of this has all changed. I'll post an update once the final changes are posted.
I thought this would be a good time to cover a simple “Know your AML/CFT Transaction” scenario.
So let’s get started. For those of you who work in the AML/CFS environment, the acronym, the department and what it represents is part of your daily grind. Keeping your OFAC lists up to date and ensuring they are checked and rechecked has become a niche business in both the banking and finance industries, (sorry, non-bank financial institutions also) but now OFAC has gone mainstream. OFAC, the Office of Foreign Assets Control of the US Department of the Treasury enforces economic and trade sanctions based on US foreign policy and national security goals against targeted foreign countries and regimes, terrorists, international narcotics traffickers, those engaged in activities related to the proliferation of weapons of mass destruction, and other threats to the national security… has become a marketing tool.
Here's a small blurb from CruiseCritic.com
Norwegian gives them (passengers) the option of fulfilling their OFAC requirements through our diverse selection of Havana shore excursions.
Benefits to pre-booking Havana excursions through Norwegian:
All tours are OFAC compliant
Priority disembarkation in Havana
Space confirmed prior to sailing
So, as many of you in AML/CFT spend the majority of your day combing through alerts, looking for PEP’s and dreading the next audit, I thought you would enjoy seeing how far the bounds of a simple rule can be pushed. In 2015 and 2016, OFAC amended the Regulations, to implement policy measures announced by President Obama to further engage and empower the Cuban people, but how does this affect your AML/CFT policy, reporting and its relationship with the CACR?
Here are the highlights from the latest update as of 03/16/2016
U-turn payments through the U.S. financial system.
OFAC is amending section 515.584(d) to authorize U-turn transactions in which Cuba or a Cuban national has an interest to be conducted through the U.S. financial system. This provision authorizes funds transfers from a bank outside the United States that pass through one or more U.S. financial institutions before being transferred to a bank outside the United States where neither the originator nor the beneficiary is a person subject to U.S. jurisdiction. Transactions through the U.S. financial system that do not meet these criteria, including all transactions where the originator or beneficiary is a person subject to U.S. jurisdiction, remain prohibited unless otherwise authorized or exempt under the Regulations. OFAC is also making conforming edits to section 515.584(e), regarding unblocking of certain previously blocked funds transfers.
Processing of U.S. dollar monetary instruments.
OFAC is adding new section 515.584(g) to authorize U.S. banking institutions to process U.S. dollar monetary instruments presented indirectly by Cuban financial institutions. Correspondent accounts used for transactions authorized pursuant to this section may be denominated in U.S. dollars. This section does not authorize banking institutions subject to U.S. jurisdiction to open correspondent accounts for banking institutions that are nationals of Cuba.
Certain bank accounts on behalf of a Cuban national.
OFAC is adding new section 515.584(h) to authorize banking institutions to open and maintain accounts solely in the name of a Cuban national located in Cuba for the purposes only of receiving payments in the United States in connection with transactions authorized pursuant to or exempt from the prohibitions of this part and remitting such payments to Cuba. This provision would allow, for example, a Cuban national author located in Cuba to open an account with a bank or online payment platform in the United States to receive payments for sales of her book. This provision is in addition to the two existing authorizations for banking institutions to operate certain accounts on behalf of certain Cuban nationals. See Note to paragraph (a) of section 515.571(a)(5) and section 515.585(b). To avoid confusion, OFAC also is making conforming edits to the Note to section 515.571(a)(5) to clarify that all three account authorizations extend to banking institutions.
Additionally, OFAC amended sections 515.542 and 515.578 to authorize persons subject to U.S. jurisdiction to establish and maintain a business presence in Cuba, including through subsidiaries, branches, offices, joint ventures, franchises, and agency or other business relationships with any Cuban individual or entity, to facilitate the provision of authorized telecommunications and internet-based services.
So as you can see, it has opened up but there are some obvious and quite a few not so obvious caveats.
When teaching our AML/CFT Foundations Course, I ask this question - If your institution elects to do business with a US based company or person that does business with Cuba or hires Cuban nationals in Cuba, should you rate those transaction at a higher level than any other transaction? I look around the class and I always get a resounding “Yes” but with different reasons why. Some say yes, country is a strong factor in the transaction, which will eventually roll up into the suspicious activity calculation. Others say yes, but suspicious activity should not be defined by country but by the transaction, which will eventually roll up into transaction type, person, branch, country, region and then into a suspicious activity calculation. Both “Yes” answers are correct, the only difference being one answer was from a senior manager and another from an analyst. So “Yes”, anytime a new market comes into play, you should and will need to implement additional screening. This means all transactions and linked transactions should be given a higher value when rated against all universal transactions and other transaction within the same region and any "Fuzzy Lookup" analysis should be updated and weighted to include words that may relate to the market. But that brings up another question, how do we handle cruise passengers spending money in Cuba that suddenly pop up on our Red Flag list? There are still very heavy restrictions in-place and some regulations that are still in-flight. These in-flight changes can come back to bite us and we definitely don’t want them to come up on an audit later. From experience, I can tell you that most business in Cuba is still based on cash. If cruise passengers travel to Cuba on a “people-to-people exchange” and/or can do business as provided by the new regulation, yet pull out large sums of cash prior to the cruise, what typology scenario do we now update and place in our analysis calculations. More importantly, when hundreds of people start getting flagged, where does that leave our SAR value for Cuban transactions? Yes, another question for the AML/CFT Manager.
During our AML/CFS courses, we cover and answer these questions and many more related to typologies, standards, methods and regulatory bodies. We’ve updated our “Deep-Dive Anti-Money Laundering Training for Banking, Finance and Non-bank Financial institution employees” course to align with the flood of changes that have come through the industry and we cover each of the topics in-depth.
Kent Stern is the Director and Lead Data Mining Security Architect for CodeCenters International, for the last 30 years his work has focused on data architecture, pre and post incident/attack reconciliation, AML auditing and advanced training.
For more course information on this course and others, please visit https://www.codecenters.com/amltraining for a complete syllabus, or contact us at Sales@CodeCenters.com