MER United States 2016

Transcript

1 Anti-money laundering and counter-terrorist financing measures United States Mutual Evaluation Report December 2016

2 The Financial Action Task Force (FATF) is an independent inter-governmental body that develops and promotes policies to protect the global financial system against money laundering, terrorist financing and the financing of proliferation of weapons of mass destruction. The FATF Recommendations are recognised as the global anti-money laundering (AML) and counter-terrorist financing (CTF) standard. For more information about the FATF, please visit the website: www.fatf-gafi.org The Asia/Pacific Group on Money Laundering (APG) is an autonomous and collaborative international organisation, whose members and observers are committed to the effective implementation and enforcement of internationally accepted standards against money laundering and the financing of terrorism, in particular the FATF Recommendations. www.apgml.org For more information about the APG, please visit the website: This document and/or any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. This assessment was adopted by the FATF at its October 2016 Plenary meeting. Citing reference: Anti-money laundering and counter-terrorist financing measures - United States, FATF (2016), Fourth Round Mutual Evaluation Report, FATF, Paris www.fatf-gafi.org/publications/mutualevaluations/documents/mer-united-states-2016.html © 2016 FATF and APG. All rights reserved. No reproduction or translation of this publication may be made without prior written permission. Applications for such permission, for all or part of this publication, should be made to the FATF Secretariat, 2 rue André Pascal 75775 Paris Cedex 16, France . ) [email protected] (fax: +33 1 44 30 61 37 or e-mail: Photocredits coverphoto: © Joe Mabel

3 CONTENTS ... 3 EXECUTIVE SUMMARY ... 3 Key Findings A. B. ... 5 Risks and General Situation ... 6 C. Overall Level of Effectiveness and Technical Compliance ... 11 Priority Actions D. ... 13 Compliance and Effectiveness Ratings E. ... 15 MUTUAL EVALUATION REPORT ... 15 Preface EXT ML/TF RISKS AND CONT ... 17 CHAPTER 1. ... 17 ML/TF risks and Scoping of Higher Risk Issues ... 22 Materiality ... 22 Structural Elements Background and other Contextual Factors ... 23 CHAPTER 2. NATIONAL AML/CFT POLICIES AND COORDINATION ... 37 Key Findings and Recommended Actions ... 37 Immediate Outcome 1 (Risk, Policy and Coordination) ... 39 ... 49 RATIONAL ISSUES LEGAL SYSTEM AND OPE CHAPTER 3. Key Findings and Recommended Actions ... 49 ... 52 Immediate Outcome 6 (Financial intelligence ML/TF) Immediate Outcome 7 (ML investigation and prosecu tion) ... 63 Immediate Outcome 8 (Confiscation) ... 75 TERRORIST FINANCING AND FINANCING OF PROLIFERATION CHAPTER 4. ... 87 Key Findings and Recommended Actions ... 87 Immediate Outcome 9 (TF investigation and prosecution)... 89 ... 99 Immediate Outcome 10 (TF preventive measures and financial sanctions) ... 107 Immediate Outcome 11 (PF financial sanctions) PREVENTIVE MEASURES ... 117 CHAPTER 5. Key Findings and Recommendations ... 117 Immediate Outcome 4 (Preventive Measures) ... 118 SUPERVISION CHAPTER 6. ... 135 y Findings and Recommended Actions ... 135 Ke iate Outcome 3 (Supervision) Immed ... 136 LEGAL PERSONS AND ARRANGEMENTS CHAPTER 7. ... 153 Key Findings and Recommended Actions ... 153 ... 155 Immediate Outcome 5 (Legal Persons and Arrangements) CHAPTER 8. INTERNATIONAL COOPERATION ... 163 Key Findings and Recommended Actions ... 163 ... 163 Immediate Outcome 2 (International Cooperation) – - money laundering and counter - FATF and APG 2016 © 2016 terrorist financing measur tates S nited es in the U Anti 1

4 TECHNICAL COMPLIANCE ANNEX ... 176 -Based Approach ... 176 - Assessing Risks and applying a Risk Recommendation 1 Recommendation 2 - National Cooperation and Coordination ... 179 Recommendation 3 - Money laundering offense ... 180 - Confiscation and provisional measures ... 183 Recommendation 4 Recommendation 5 - Terrorist financing offense ... 186 - Targeted financial sanctions related to terrorism and terrorist financing Recommendation 6 ... 188 Recommendation 7 ... 192 – Targeted financial sanctions related to Proliferation -profit organizations (NPOs) ... 194 – Non Recommendation 8 – Financial institution secrecy laws ... 196 Recommendation 9 Recommendation 10 – Customer due diligence ... 197 – Record -keeping ... 205 Recommendation 11 – Politically exposed persons ... 207 Recommendation 12 ... 208 – Correspondent banking Recommendation 13 ... 209 – Money or value transfer services Recommendation 14 – New technologies ... 210 Recommendation 15 Recommendation 16 – Wire transfers ... 211 Recommendation 17 – Reliance on third parties ... 214 Recommendation 18 – Internal controls and foreign branches and subsidiaries ... 215 Recommendation 19 – Higher -risk countries ... 216 – Reporting of suspicious transaction ... 218 Recommendation 20 ... 219 – Tipping- Recommendation 21 off and confidentiality Recommendation 22 – DNFBPs: Customer due diligence ... 220 ... 221 – DNFBPs: Other measures Recommendation 23 Recommendation 24 ... 222 – Transparency and beneficial ownership of legal persons Recommendation 25 – Transparency and beneficial ownership of legal arrangements ... 226 – Regulation and supervision of financial institutions Recommendation 26 ... 229 Re – Powers of supervisors ... 231 commendation 27 – Regulation and supervision of DNFBPs Recommendation 28 ... 233 Recommendation 29 - Financial intelligence units ... 235 Recommendation 30 – Responsibilities of law enforcement and investigative authorities ... 237 ... 238 - Powers of law enforcement and investigative authorities Recommendation 31 – Cash couriers... 239 Recommendation 32 Recommendation 33 ... 241 - Statistics Recommendation 34 ... 242 – Guidance and feedback – Sanctions ... 243 Recommendation 35 ... 245 – International instruments Recommendation 36 ... 246 – Mutual legal assistance Recommendation 37 Recommendation 38 – Mutual legal assistance: Freezing and Confiscation ... 248 - Extradition ... 249 Recommendation 39 Recommendation 40 – Other forms of international cooperation ... 250 ... 255 Key Deficiencies Summary of Technical Compliance – Anti FATF and APG 2016 © 2016 – tates S nited terrorist financing measures in the U - money laundering and counter - 2

5 y Executive Summar EXECUTIVE SUMMARY This report provides a summary of the anti e financing of -money laundering and combating th 1. e date of the on terrorism (AML/CFT) measures in place in the United States at th -site visit FATF February 2016). It analyses the level of compliance with the 5 January 2016 to (18 Recommendations 40 recommendations makes system, and AML/CFT its the level of effectiveness of , on how the system could be strengthened. Key Findings A. omestic coordination  D The AML/CFT framework in the U.S. is well developed and robust. and cooperation on AML/CFT issues is sophisticated and has matured since th e previous ML ) and terrorist financing evaluation in 2006. The understanding of money laundering ( -supported by a variety of ongoing and complementary risk assessment ) risks is well (TF National Money Laundering Risk Assessment processes, including the 2015 (NMLRA) and (NTFRA), National Terrorist Financing Risk Assessment which were both published. The , key priorities and efforts of law enforcement and other national AML/CFT strategies agencies seem to be driven by these processes and are coordinated at the Federal level across a vast spectrum of agencies in a number of areas.  The financial sectors bear most of the burden in respect of required measures under the Bank Secrecy Act ( BSA). Financial institutions (FIs), in general, have an evolved understanding of ML/TF risks and obligations, and have systems and processes for -boarding customers, transaction implementing preventive measures, including for on monitoring and reporting suspicious transactions. However, the regulatory framework has some significant g coverage  aps, including minimal lawyers, accountants, real (IAs), of certain institutions and businesses (investment advisers ). Minimal estate agents, trust and company service providers (other than trust companies s), measures are imposed on designated non -fi nancial businesses and professions ( DNFBP casinos other than , and consist of the general and dealers in precious metals and stones obligation applying to all trades and businesses to report transactions (or a series of more than 000 in cash 10 USD , and targeted financial sanctions transactions) involving obligations do not apply comprehensive AML/CFT ther O (TFS) requirements. to these Anti – money laundering and counter - terror ist financing measures in the United States - 2016 © FATF and APG 2016 3

6 EXECUTIVE SUMMARY s covered DNFBP sector minimally se context the vulnerability of the S . In the U sectors. . is significant , considering the m any examples identified by the national risk assessment process.  Law enforcement efforts rest on a well -established task force environment which enables the pooling of expertise from a wide range of law enforcement agencies (LEAs), including o support quality ML/TF investigation and prosecution outcomes. Overall, prosecutors, t LEAs have access to a wide range of financial intelligence, capabilities and expertise allowing them to trace assets, identify targets and undertake expert financial ML/TF investigations. There is a strong focus on following the money in predicate offence investigations at the Federal level. A similar focus on identifying terrorist financiers in terrorism- related investigations applies. The U.S. investigates and prosecutes TF networks aggressively in line with its risk profile. International cooperation in these areas is generally effective though improvements are underway to further improve the timely handling of (a large volume) of mutual legal assistance (MLA) and extradition request s.  Lack of timely access to adequate, accurate and current beneficial ownership (BO) information remains one of the fundamental gaps in the U.S. context. The NMLRA identifies examples of legal persons being abused for ML f complex , in particular, through the use o structures to hide ownership. While authorities did provide case examples of successful y access timel challenges in ensuring investigations in these areas, to and availability of BO bearing information in mind risk and context. more generally raises significant concerns, At the Federal level, the U.S. achieves over 1 200 ML convictions a year. Many of these cases  . Federal are large, complex, white collar crime cases, in line with the country’s risk profile authorities have the lead role in all large and/or international investigations. There is no uniform approach to State- and it is not clear that all States level AML efforts however give ML due priority. The AML system would benefit from ensuring that a range of tax crimes are predicate offenses for ML.  -value confiscation in large and complex The Federal authorities aggressively pursue high cases, in respect of assets located both domestically and abroad. The authorities effectively . At State and local levels, resort to criminal, civil and administrative tools to forfeit as sets civil forfeiture is vigorously there is little available information, though it appears that pursued by some States. The U.S. authorities effectively implement targeted financial sanctions for both terrorism  and proliferat ion financing purposes, though not all U.N designations have resulted in domestic designations (mainly on the basis of insufficient identifiers). Most designations take place without delay, and are effectively communicated to the private sector. The U.S. thousands of Specially Designated Nationals and Blocked Persons List (SDN List) is used by FIs in line effect across the U.S. and beyond which gives the U.S sanctions regime a global with The U.S has stem. the size, complexity and international reach of the U.S. financial sy had significant success in identifying the funds/other assets of designated persons/entities, S Anti FATF and APG 2016 - money laundering and counter - terrorist financing measures in the U nited tates – 2016 © 4

7 EXECUTIVE SUMMARY terrorism and preventing them from operating or executing financial transactions related to proliferation. Only minor improvements are neede is d in th and area. AML/CFT supervision of ,  the banking and securities sector s appears to be robust as a whole ) through greater coordination at the and is evolving for money services businesses ( MSBs nd does impose on FIs as well State level. The U.S. has a range of sanctions that it can a as an actions. These remedial measures, including informal supervisory array of dissuasive desired impact on achieving the supervisory objectives. The measures seem to have the supervisory processes supervisory gap is lack of compr ehensive AML/CFT most significant s, other than casinos DNFBP for the . Risks and General Situation B. The global dominance of the U.S. dollar generates trillions of dollars of daily transaction 2. volume throug h U.S. banks, which creates significant exposure to potential ML activity (generated border illicit flows. The U.S. out of both domestic and foreign predicate offen ses) and risks of cross- also faces significant risks from TF and is vulnerable to such abuse because of the unique scope, openness and reach of its financial system globally, and the direct threat posed by terrorist groups to U.S. interests. roceeds from all forms of 3. The United Nations office on Drugs and Crime ( UNODC ) estimated p USD financial crime in the U.S., excluding tax evasion, was billion in 2010 (about 2% of the U.S. 300 economy). Fraud (including healthcare fraud, identity theft, tax fraud, mortgage fraud, retail and consumer fraud and securities fraud) generates the largest volume of illicit proceeds, particularly healthcare fraud against the Federal government which accounts for approximately USD 80 billion 64 b annually. Other major sources of proceeds are drug trafficking (generating about USD illion annually), transnational organized crime, human smuggling and public corruption (both domestic and foreign). 4. The main ML vulnerabilities assessed by the U.S. were in the cash, banking, MSB, casino and ties sectors, and were characterized as: use of cash and monetary instruments in amounts securi -keeping and reporting thresholds; opening bank and brokerage accounts under regulatory record using nominees to disguise the identity of the individuals who control th e accounts; creating legal entities without accurate information about the identity of the beneficial owner; misuse of products and services resulting from deficient compliance with AML obligations; and merchants and FIs : raising funds wittingly facilitating illegal activity. The main TF threats and vulnerabilities include through criminal activity, individuals raising funds under the auspices of charitable giving but -funding; moving and placing outside of any charitable organization , individual contributions and self funds through banks, licensed MSBs, unlicensed money transmitters and cash smuggling; and cybercrime and identity theft, and new potential emerging threats from global terrorist activities, payment systems. tates money laundering and counter - terrorist financing measur es in the U nited S - Anti – 2016 © FATF and APG 2016 5

8 EXECUTIVE SUMMARY C. Overall Level of Effectiveness an d Technical Compliance 5. assessment in The AML/CFT regime has undergone significant progress since the previous 2006. The U.S. has a strong legal and institutional framework for combating ML/TF and proliferation ncing (PF). The technical compliance framework is particularly strong regarding law fina enforcement, confiscation, TFS, and international cooperation, but significantly less so regarding preventive transparency of legal persons and arrangements. There is a lack of compre hensive measures by DNFBPs (other than casinos and dealers in precious metals and stones), including those exposed to higher risks. Additionally, not all IAs are subject to comprehensive AML/CFT requirements. 6. In terms of effectiveness, the U.S. achieves high results in prevention, investigation, prosecution and sanctions for TF and PF, for preventing the abuse of the NPO sector , and confiscation. The U.S. also achieves substantial outcomes in understandin g ML/TF threats, domestic coordination and international cooperation, using financial intelligence and other information, and and investigating es, such that only moderate improvements are needed in sanctioning ML offens these areas. The U.S. needs to make fundamental improvements in order to protect legal persons, and to a lesser extent legal arrangements, from ML/TF abuse, and ensure that the competent authorities have timely access to BO information. Major improvements are needed to apply , and to appropriate prev entive measures to all FIs and DNFBPs, in particular to high risk situations undertake effective supervision of all sectors. C.1 Assessment of risk, coordination and policy setting (Chapter 2 ; IO.1, R.1 -2 & 33) Overall, the U.S. has attained a significant level of understanding of its ML/TF threats which it 7. develops through comprehensive and ongoing risk assessment process es . National AML/CFT strategies, and law enforcement priorities and efforts, are broad ly in line with the country’s main risks as identified in the 2015 NMLRA and NTFRA. A wide array of other national risk assessments have also been undertaken and are used to 8. support the U.S. strategies to combat terrorism, major proceeds generating predicate offenses, and related ML/TF. These risk assessments are not public, but they underpin national strategies that are published and contain useful information on related ML/TF risks. This process is led, at the hi ghest level of government, by two agencies within the Executive Office of the President: the National Security Council (NSC) and the Office of National Drug Control Policy (ONDCP), with effective participation and involvement of other agencies. National coordination and cooperation on AML/CFT issues has improved significantly in the 9. U.S. since the last evaluation . Policy and operational coordination are particularly well -developed on feration and related financing issues which are the government’s counter -terrorism, counter- proli top national security priorities. The authorities have also leveraged this experience into better inter - ML. agency cooperation and collaboration on combating However, mitigation of the identified vulnerabilities is less well developed. The BSA AML/CFT 10. regulatory framework has a number of exemptions, gaps and thresholds which do not appear to be justified or in line with the vulnerabilities identified through the risk assessment process. Further, S FATF and APG 2016 Anti - money laundering and counter - terrorist financing measures in the U nited tates – 2016 © 6

9 EXECUTIVE SUMMARY the NMLRA did not address the systemic vulnerabilities in the DNFBP sector. For example, there is no requirement to collect BO information (as defined by the FATF) in all cases and there are suspicious transaction reporting thresholds. In addition, most DNFBP sectors are not subject to and company service AML/CFT measures (for example, lawyers, accountants, trust comprehensive es), and real estate agents) compani (except trust providers nvestment advisers in th . I e securities sector are only indirectly subject to AML/CFT requirements when they are affiliated to a financial group or are acting for a covered f inancial institution in the framework of outsourcing arrangements . In addition , the extent to which ML is pur sued, and risks are mitigated, at the State level is not clear. C.2 Financial intelligence, and ML investigations, prosecutions and confiscation (Chapter 3; IO.6, 7, 8; R.3, 4, 29 –32) he Federal, State and local levels regularly use a wide range of Competent authorities at t 11. financial intelligence to support ML/TF investigation, trace assets, develop operational and strategic analysis, and identify risks. This is primarily achieved through direct access to and use of the data held by the financial intelligence unit (FIU), FinCEN. FinCEN’s extensive financial intelligence includes Suspicious Activity Reports (SARs) and a range of other mandatory reports. FinCEN has -based approach (RBA) to analysing the large amount of data received annually, and adopted a risk uses sophisticated and evolving automatic business rules to identify priority reports and SARs. A large number of SARs are also analysed independently by LEAs and other agencies with direct access to FinCEN’s database, in line with their operational needs. Such analysis is supplemented by FinCEN’s increasingly pro -active dissemination of intelligence, although there is scope for further improvement in this area. the financial intelligence system is broadly robust, its effectiveness is somewhat While 12. impaired by technical gaps that limit the information available to competent authorities at any given point in time. These include the application of reporting thresholds for SARs, and the lack of reporting requirements for most of DNFBPs (see section C.4 below). In addition, there is scope for enhance its recent practice to use its information collection powers to FinCEN to continue and support operational intelligence analysis and spontaneous dissemination . These gaps are somewhat mitigated by FinCEN’s extensive outreach programs and products, as well as by directing covered institutions to report activities requiring immediate attention without regard for the reporting thresholds, particularly for TF. se 13. On ML, Federal LEAs have adopted a “follow the money” approach to predicate offen ancial investigation and have extensive capabilities, resources and tools for undertaking specialist fin investigations. The U.S. conducts a large number of financial investigations, resulting in over 1200 ML convictions, on average at the Federal level, each year. A wide variety of ML activity is pursued -dollar value criminal and there seems to be a strong focus on serious, complex and high offenses . -specific expertise and resources Inter -agency task forces bring together complementary agency which facilitates the pursuit of complex financial investigations. Federal prosecutors have the gotiate and potentially drop ML charges against lower level offenders if the defendant authority to ne -conspirators and higher level criminals in furtherance cooperates with law enforcement against co of national strategies developed and implemented by Federal authorities. State law enforcement tates Anti - terrorist financing measur es in the U nited S money laundering and counter - – 2016 © FATF and APG 2016 7

10 EXECUTIVE SUMMARY level law enforcement authorities can complement Federal efforts, but more typically pursue State- priorities. Among the States, there is no uniform approach and little data is available. Where suggest that ML is not prioritised by the State authorities. information was provided, it tended to 14. -risk areas. These are in line with the National (Federal) strategies are in place to target higher NMLRA, and resources are allocated accordingly to relevant task forces/Federal agencies. There is se type. While overall scope for all Federal agencies to pursue ML more regularly as a discrete offen -tools approach to pursue ML predicate offen ses, they would U.S. authorities effectively use an all benefit from ensuring that serious tax crimes are predicates for ML. 15. value of assets confiscation (e.g. over USD 4.4 billion in 2014) The U.S achieves a considerable and is able to do so effectively using administrative forfeiture, non -conviction based forfeiture and criminal confiscation tools. The U.S. Federal authorities aggressively pursue high -value confiscation. They are able to do so in the context of large and complex cases, and in respect of assets located both domestically and abroad. Effectiveness in this area would be further enhanced by legislating to introduce a general power to seize/freeze property of corresponding/equivalent value which may become subject to a value- based forfeiture order, and to ensure th at all predicate offen ses include the power to forfeit instrumentalities. Terrorist and proliferation financing (Chapter 4; IO.9, 10, 11; R.5 –8) C.3 16. The U.S. has a robust legal framework to combat TF, and a clear and comprehensive understanding of its terrorism and TF risks. Its CFT efforts are fully integrated into its wider counterterrorism strategy, and any terrorism -related investigation is accompanied by a parallel investigation to identify potential sources of financial support. Specialized financial investigation units are fully integrated into departments responsible for investigating terrorism. The U.S. has also adopted a strong multi -agency approach with 104 Joint Terrorism Task Forces (JTTFs) operating nation- wide and pooling together a wide range of LEA capabilities. 17. The U.S. proactively and aggressively investigates, prosecutes and convicts individuals involved in a wide range of TF schemes using its broad TF statutes which capture any form of material support. Where a TF charge is not possible, the U.S employs an ‘all tools’ approach to prosecute and convict be terrorists. The U.S. continually adjusts its efforts by setting up specialist un terrorists or would- its and/or operations to respond to emerging threats. CFT is further supported by comprehensive two- way intelligence exchange mechanisms between field offices and policy analysis units. U.S. authorities also engage extensively with the private sector enabling constructive information sharing on TF and terrorism -related threats. Both proliferation financing (PF) and TF are considered a high priority. The U.S. has 18. hout delay. Designations are communicated mostly wit implemented both TF and PF -related TFS - proactively and widely to FIs/DNFBPs via several communication channels. The U.S. SDN List is used by thousands of FIs across the U.S. and around the world to screen real- time transactions and accounts. U.S. regulators are able to enforce requirements imposed on U.S. and correspondent FIs wishing to do business in or through the U.S., or in U.S. dollar -denominated transactions. This global reach of the U.S. sanctions regime reflects the size, complexity and internat ional reach of the U.S. S FATF and APG 2016 Anti - money laundering and counter - terrorist financing measures in the U nited tates – 2016 © 8

11 EXECUTIVE SUMMARY financial system. The U.S. has established a targeted RBA to NPO outreach, oversight, investigations and enforcement actions which are largely based on regular engagement with NPOs and intelligence. The U.S has had significant success in identifying the funds/other assets of designated 19. persons/entities, and preventing them from operating or executing financial transactions related to proliferation. However, deficiencies in the country’s imp lementation of BO requirements impacts the ability of FIs and DNFBPs to identify the funds/assets of designated individuals/entities, as does the fact that the U.S. has not domestically designated all of the individuals/entities designated by the UN. -agency approach These deficiencies are, however, significantly mitigated by the coordinated inter taken by the U.S. authorities to the sharing of information and intelligence in relation to both TF and PF. Preventive measures (Chapter 5; IO.4; R.9 C.4 –23) 20. The U.S. has extremely large and diverse financial and DNFBP sectors. The vulnerabilities to ML/TF of individual FIs and DNFBPs vary greatly. Overall, the financial sector bears most of the burden of preventive meas ures and reporting, with the domestic banking sector playing a predominant role in the domestic and international financial sectors, along with the securities sector. MSBs are large in number , diverse and also an important part of the financial architecture. Among in the NMLRA as DNFBPs, the casino sector is large and has been identified vulnerable to money to the process of company or legal arrangement laundering. In practice, while not essential , lawyers, company formation agents and to a lesser extent, accountants are often involved formation sactions (lawyers and company service providers are (with varying degrees) and with related tran involved in the formation of close to 50% of legal persons). Lawyers and real estate agents also have roles in relation to buying and selling of high -end real estate. The remaining DNFBP sectors are of (see less relative importance in the U.S. given its risks and context, as noted in the Scoping Note . Chapter 1) FIs, in general, demonstrate a fair understanding of ML/TF risks and obligations, though the 21. quality of understanding varies across and within sectors, and between institutions. The level of understanding is highest in the banking sector. The Residential Mortgage Lenders and Originators - FIs considered by the U.S. as an important intersection with the real estate sector and hence (RMLOs subject to AML/CFT obligations) do not seem to have a good understanding of ML vulnerabilities in their sector or the importance of their role in addressing them. Furthermore, there are TC gaps, -coverage of all IAs, which specifically certain exemptions and thresholds in the BSA regime, non collectively soften the deterrent value of preventive measures being applied by FIs in general, as well . as negatively impacting intelligence gathering As regards DNFBPs, only casinos and dealers in precious metals and stones are subject to 22. reciation of ML/TF comprehensive AML/CFT requirements. Of late, there appears to be greater app vulnerabilities and implementation of preventive measures by casinos; and some professional guidance exists for other sectors (in particular, lawyers) on AML/CFT issues. However, DNFBPs other than casinos and dealers in precious metals a nd stones have limited preventive measures -end real estate sector and those applied leaving vulnerabilities particularly in respect of the high sectors involved in the formation of legal persons. Furthermore, apart from casinos, there is no tates money laundering and counter - terrorist financing measur es in the U nited S - Anti – 2016 © FATF and APG 2016 9

12 EXECUTIVE SUMMARY evidence that DNFBPs as a whole have an adequate understanding of ML/TF vulnerabilities and the -end real estate accountants, high need to implement appropriate controls to mitigate them. Lawyers, ( other than trust companies agents and trust and company service providers ) who establish or otherwise facilitate access to financial services for legal persons and arrangements are not subject to are not systematically applying basic or enhanced due comprehensive AML/CFT requirements, and diligence processes and other preventive measures, as needed; and this is further exacerbated by the deficiencies in the BO requirements. Supervision (Chapter 6; IO.3; R.26 C.5 –28, 34, 35) The U.S. supervisory framework for Covered FIs and DNFBPs is very complex with AML/CFT 23. supervision being undertaken by multiple regulators at the Federal and State levels, using different Federal Financial Institutions Examination supervisory approaches. In the banking sector, the -to-date reference document, both Manual is a good, up C/BSA) l’s Banking Secrecy Act (FFIE Counci for banks and supervisors, and constitutes a robust baseline for the implementation of the AML/CFT for BSA AML/CFT requirements requirements and their controls. The insurance sector is supervised although, BSA AML/CFT enforcement authority resides with the tate by S primarily authorities are Federal government. IAs However some IAs are indirectly not covered by BSA obligations. ker -dealers, when they covered through affiliations with banks, bank holding companies and bro implement group wide AML rules or in case of outsourcing arrangements. s are subject to varying AML/CFT requirements. While there has been a 24. The DNFBP sector , due to the identified vulnerabilities e casino sector in recent years strong supervisory focus on th and the , other for BSA compliance dealers in precious metals and stones fact that the IRS examines DNFBPs are subject to less as they are not subject to comprehensive AML/CFT supervision for lawyers and accountants who have strong mitigated somewhat This is preventive measures. , though these do not adequately address entry and continuing ethical requirements professional require of reporting . ML/TF vulnerabilities or authorities activity to suspicious Transparency and beneficial ownership (Chapter 7; IO.5; R.24, 25) C.6 25. The ML/TF risks of legal persons and arrangements are very well understood by Federal competent authorities and are reflected a s case examples in the 2015 NMLRA. However, overall, the measures to prevent the misuse of legal persons are inadequate. The U.S. legal framework has serious gaps that impede effectiveness in this area. 26. MLRA sets out numerous instances of legal persons and, to a lesser extent, The 2015 N arrangements being abused for ML. It also highlights the use of complex structures, shell or shelf corporations, other forms of legal entities, and trusts, to obfuscate the source, ownership, and control of illegal proceeds. some are able to obtain The authorities provided case examples to 27. demonstrate that LEAs information about the BO arrangements that are created in the U.S. In of legal persons and legal certain instances the information eventually obtained has been shown to be adequate and accurate. information BO record However, as there are no legal requirements to (as defined by the FATF) S FATF and APG 2016 Anti - money laundering and counter - terrorist financing measures in the U nited tates – 2016 © 10

13 EXECUTIVE SUMMARY systematically, LEAs must often resort to resou rce -intensive and time -consuming investigative and surveillance techniques. As a result, concerns remain about the ability of competent authorities to accurate BO access information in a timely manner. –40) C.7 International cooperation (Chapter 8; IO.2; R.36 an effective system for international cooperation. As one of the largest economies The U.S. has 28. and financial systems in the world, large number of requests for financial it is the recipient of a very - elated MLA. Feedback received from other countries did not highlight any systematic crime r concerns and supported the view that the U.S. provides good quality and constructive MLA and extradition across the range of international cooperation requests, including i n relation to ML, TF and asset forfeiture. As part of a modernisation plan, the U.S is currently significantly increasing the number of staff to improve the timely processing of MLA requests , and improving its IT system to on how long the MLA/extradition process takes. systematically collect statistics 29. The lack of readily accessible BO information means that U.S. authorities are unlikely to -intensive investigation to uncover BO information on behalf of a foreign undertake a resource counterpart unless the case is of a significantly high priority. Even if relevant resources are devoted may not be guaranteed. to the case, timely access to the information D. Priority Actions 30. The prioritised recommended actions for the United States, based on these findings, are: 1. Take steps to ensure that adequate, accurate and current BO information of U.S. legal persons is available to competent authorities in a timely manner, by requiring that such information is obtained at the Federal level. Implement BO requirements under the BSA (scheduled to come into force in 2018) and apply 2. . these to the sectors discussed in point 3 below Apply appropriate AML/CFT obligat 3. ions as follows: a) To investment advisers. Even if some investment advisers are already indirectly covered through their association with banks, bank holding companies and security broker dealers, the direct application of AML/CFT rules to all investment adv isers will address a vulnerability identified by the U.S. authorities themselves; b) On the basis of a specific vulnerability analysis, to lawyers, accountants, trust and ; and company service providers (other than trust companies which are already covered) After the outcomes of the recent GTO have been analysed, take appropriate action to c) address the ML risks in relation to high -end real estate. Issue guidance to clarify the scope of the immediate SAR reporting requirement, in order to 4. it ; and applies below the otherwise applicable thresholds requirement the clear that make a focused risk review of the existing SAR reporting thresholds and the 60/30 day conduct reporting deadlines. tates money laundering and counter - terrorist financing measur es in the U nited S Anti - – 2016 © FATF and APG 2016 11

14 EXECUTIVE SUMMARY Improve the visibility of AML and State level activities and statistics, inclu ding via improved 5. -wide picture of the adequacy of AML efforts at data collection and sharing, for a clearer nation all levels. 6. FinCEN should continue to expand its use of tools such as the GTO and 314a requests, and -active dissemination of further its pro strategic and operational intelligence products to law enforcement. - - terrorist financing measures in the U nited S tates – 2016 © FATF and APG 2016 Anti money laundering and counter 12

15 EXECUTIVE SUMMARY E. Compliance and Effectiveness Ratings Effectiveness Ratings (High, Substantial, Moderate, Low) Financial - IO.6 IO.1 - R isk, policy Legal IO.2 - International - IO.5 Preventive - IO.4 n - IO.3 Supervisio and coordination persons and intelligence measures cooperation arrangements Moderate Moderate Substantial Low Substantial Substantial IO. IO.11 TF PF financial IO.7 - ML - - 10 TF - IO.9 Confiscation - IO.8 sanctions investigation & preventive measures investigation & prosecution prosecution & financial sanctions High High High High Substantial Technical Compliance Ratings partially compliant, NC – (C - compliant, LC – largely compliant, PC – non compliant) targeted R.6 - - assessing risk terrorist R.2 - national - R.5 R.3 - money R.4 - confiscation & R.1 pplying risk - financial sanctions financing offence laundering offence – cooperation and provisional measures & a coordination based approach terrorism & terrorist financing C LC PC C LC LC – R.12 Customer Record – R.11 R.7 - Politically – R.10 financial – R.8 - non - profit R.9 targeted exposed persons institution secrecy due diligence organisations financial sanctions keeping - laws proliferation LC PC LC PC C LC R.16 R.17 Internal – R.18 R.14 – Money or Reliance on – R.15 – New R.13 Wire – – technologies controls and foreign Corresponden value transfer third parties transfers t banking services branches and subsidiaries LC LC LC PC LC LC Higher R.24 DNFBPs: R.19 – - risk – R.23 R.20 – Reporting of DNFBPs: - R.21 – Tipping - off R.22 – Other measures suspicious Customer due Transparency & BO countries and confidentiality diligence transactions of legal persons C PC LC NC NC NC R.25 Regulation – R.29 – Financial R.28 R.27 lation R.30 – – - Regu – Powers of R.26 supervision Transparency & BO and supervision of intelligence units and supervision of Responsibilities of law enforcement and financial institutions DNFBPs of legal arrangements investigative authorities NC C LC PC C C – Cash – Guidance R.36 R.31 R.34 P owers of – R.32 – – R.35 – R.33 Sanctions Statistics couriers and feedback law enforcement and International investigative instruments authorities LC LC LC C LC LC Mutual legal R.38 Mutual legal R.40 – Other forms – R.37 – Extradition R.39 – assistance: f reezing of international assistance and confiscation cooperation LC LC LC C . tates money laundering and counter - terrorist financing measur es in the U nited S - Anti – 2016 © FATF and APG 2016 13

16 EXECUTIVE SUMMARY 2016 money laundering and counter terrorist financing measures in the U nited S tates Anti - © FATF and APG 2016 - – 14

17 MUTUAL EVALUATION REPORT Preface the United States (U.S.) This report summarises the AML/CFT measures in place in as at the date of Preface -site v the on and the level isit. It analyses the level of compliance with the FATF 40 Recommendations AML/CFT -terrorist financing ( -money laundering/counter of effectiveness of the U.S’s anti ) system, and recommends how the system could be strengthened. , and was prepared using the was based on the This evaluation 2012 FATF Recommendations 2013 . The evaluation was based on information provided by the U.S., and information Methodology obtained by the evaluation team during its on- site visit to the U.S . from 18 January to 2016. 5 February The evaluation was conducted by an assessment team consisting of: , Australian Transaction Reports & Analysis Centre ( ), AUSTRAC Liz Ms  , PSM Atkins Australia (financial expert) Mr. Nicolas Burbidge, Office of the Superintendent of Financial Institutions  , (OSFI) Canada (financial expert) Ms Violaine Clerc, Banque de France, France (  financial expert)  Mr. Bill Peoples, Legal Services, New Zealand Police (law enforcement expert) Mr. Jeremy Rawlins, Financial Conduct Authority  , U.K. (legal expert) (FCA) Mr. Jesús Santiago Fernández García, Guardia Civil, Servicio Ejecutivo de  Comisión de ), Spain (law Prevención de Blanqueo de Capitales e Infracciones Monetarias ( SEPBLAC enforcement expert) on Ando and Mr. Ashish Kumar,  enior Policy Analyst, and Ms Mari Ms Valerie Schilling, S , and ecretariat Analysts, FATF S Policy  Mr. Eliot Kennedy, Deputy Executive Secretary, Asia/Pacific Group on Money Laundering (APG) Secretariat partment of Mr. Jean Denis Pesme, World Bank; Mr. Sanjeev Singh, De The report was reviewed by: Income Tax, Government of India; and Mr. Andrew Theo Strijker, European Commission Secretariat General. The U.S. , conducted according to previously underwent a FATF Mutual Evaluation in 2006 the 2004 FATF Methodology s have been published -up report . The 2006 evaluation and th e subsequent follow . the FATF website and are available at was compliant with 15 U.S’s 2006 Mutual Evaluation concluded that t he Recommendations; U.S. compliant with largely compliant with 28; partially compliant with 2; and non- 4. The U.S. was rated compliant or largely compliant with 15 of the 16 Core and Key Recommendations (with PC rating for ndation 5). The U.S. was placed under the regular follow key recomme -up process immediately after Anti – money laundering and counter - terror ist financing measures in the United States - 2016 © FATF and APG 2016 15

18 PREFACE rd Due to its failure to address deficiencies round Mutual Evaluation Report. the adoption of its 3 , the U 2003 FATF Recommendations 5 of the .S. remains in the mutual related to old Recommendation -up process evaluation follow . Preface tates – FATF and APG 2016 Anti © 2016 S nited terrorist financing measures in the U - money laundering and counter - 16

19 EXT ML/TF RISKS AND CONT CHAPTER 1. 1 The U.S. is the third largest country in the world both by area (9.8 million square kilometres) 31. . The U.S. comprises 50 States, the District and population (321 million people): CIA World Fact Book of Columbia, and 16 territories of which five are inhabited: American Samoa, Guam, Northern Canada to the Marianas, Puerto Rico, and the U.S. Virgin Islands. The continental U.S. is bordered by north and Mexico to the south. The U.S. population is generally well- educated with over 81% living in urban areas. The U.S. has one of the largest immigrant populations in the world (over 14% of the Education at a Glanc national population): e 2015 (OECD). Among OECD nations, the U.S. has one of the highest average household and employee income, with an average GDP of USD 54 800 per capita. The U.S.’s GDP was estimated to be USD 17.91 trillion as of June 2015. 32. The U.S. has a Federal system of government comprised of legislative, executive and judicial branches whose respective powers are determined by the U.S. Constitution. Congress is the legislative branch (comprised of the House of Representatives and the Senate), the executive branch is headed by the President, and the Federal courts (including the Supreme Court) comprise the judicial branch. The approval of both chambers of Congress and the President are required to e Federal and State levels of government have criminal law powers. approve any legislation. Both th effectively Federal criminal law supersedes State criminal law. The Federal government has full jurisdiction over the District of Columbia and the U.S. territories. The States have historically exercised “police powers” to make laws relating to public safety 33. and welfare, including criminal laws; however, there are certain areas in which the Congress is constitutionally permitted to legislate, such as on matters affecting interstate or foreign commerce. Due to the international nature of both the financial system and serious crime and terrorism, the Federal Government has taken the primary role in law making and enforcement in the areas of money laundering (ML) and terrorist financing (TF). State laws can be pre -empted when Congress -emption clause, when a State law conflicts with a Federal law, and when the explicitly includes a pre has determined must be States are precluded from regulating conduct in a field that Congress regulated exclusively by Federal authorities. ML/TF risks and Scoping of Higher Risk Issues Overview of ML/TF Risks (a) ors’ 34. und erstanding of the ML and This section of the report presents a summary of the assess TF risks in the U.S. Overall, the U.S. faces significant risks from TF and is vulnerable to such abuse because of the unique scope, openness and reach of its financial system globally, and the direct .S. interests 2015 National Terrorist Financing Risk Assessment to U s threat posed by terrorist : , p.11- (NTFRA) 14. The global dominance of the U.S. dollar generates trillions of dollars of daily transaction volume through U.S. banks which also creates significant exposure to potential ML National Money Laundering Risk Assessment : The widespread use of U.S. ( NMLRA) , p.34. activity currency abroad and the important role that the U.S. financial sector plays in the global financial -borde system leave it significantly exposed to risks of cross r illicit flows, including bulk cash Anti – money laundering and counter - terror ist financing measures in the United States - 2016 © FATF and APG 2016 17

20 CHAPTER 1. ML/TF RISKS AND CONTEXT smuggling, and the placement, layering or integration of illicit proceeds generated out of domestic 1 : NMLRA, p.32 ses and foreign predicate offen -35. 35. The United Nations Office on Drugs and Crime (UNODC) estimated proceeds from all forms of .S. financial crime in the U billion in 2010 (about 2% of the U.S. 300 USD , excluding tax evasion, was 1 ail and . Fraud (including healthcare fraud, identity theft, tax fraud, mortgage fraud, ret economy) consumer fraud and securities fraud) generates the largest volume of illicit proceeds, particularly billion healthcare fraud against the F 80 ederal government which accounts for approximately USD billion 64 annually. Other major sources of proceeds are drug t rafficking (generating about USD annually) and transnational organized crime: NMLRA, p.3 -4. 36. The U.S. is an attractive destination for domestic and foreign proceeds at the integration stage . o erious gaps in the legal framework (in particular, n U.S legal pe rsons are vulnerable due to s beneficial ownership information requirement to systematically make (either through the 2 and for these ) available to law enforcement agencies (LEAs) incorporation or the banking processes vulnerability this reasons e risk s are magnified by the fact that certain very significant is . Th (aside lawyers, accountants, company formation agents, most trustees - businesses and professions -end real estate agents and other st notably, high real estate agents (mo and from trust companies) requirements. AML/CFT market actors) are not subject to comprehensive The vulnerabilities are further amplified by contextual factors (the enormous size of the U.S. economy and the large number companies are established in most . Although, as in many countries, formed in the U.S.) of companies the U.S. for legitimate purposes, there are numerous examples of legal persons misused in complex ML and TF schemes. To a much lesser extent, trusts have been identified in complex ML schemes, but of U.S. trusts as these are not , size and/or activity there is currently no estimate of the number implementing not all investment advisers are created by governments . Another vulnerability is t hat ments. comprehensive AML/CFT require (b) risk assessment Country’s : the 37. NMLRA 2005 National Money which follows up from the 2015 In 2015, the U.S. published Laundering Threat Assessment (the 2005 NMLTA) and a series of national ML strategies produced by 3 5 ; and the 201 the Treasury and DOJ (at the direction of Congress) from 1999 to 2003 and in 2007 NTFRA which is the country’s first publicly available TF risk assessment. Both were prepared by the Treasury’s Office of Terrorist Financing and Financial Crimes (TFFC) in consultation with a wide range of other relevant competent authorities (including intelligence, law enforcement and regulatory agencies), using terminology and a methodology based on the 2013 FATF Guidance o n National Money Laundering and Terrorist Financing Risk Assessment: NMLRA, p.6 -9, NTFRA, 6 -10. The residual risk NMLRA and NTFRA identify (but do not quantify) particular areas of — by which the U.S. authorities mean whatever ML/TF risk remains once mitiga tion measures have been applied to 1 Estimating Illicit Financial Flows Resulting From Drug Trafficking and other Transnational Organized Crimes , UNODC, October 20 _2011_web.pdf _ financial _ Illicit and.../ .org/documents/data- s unodc www. 11, flow 2 Since the on -site, the Final CDD Rule on BO was issued on 5 May 2016. The implementation period for the Rule is two years, -releases/Pages/jl0451.aspx www.treasury.gov/press -center/ press ) 3 from 1999, 2000, 2001, 2002, 2003 and 2007. National ML Strategies for the FinCEN website See the S FATF and APG 2016 Anti - money laundering and counter - terrorist financing measures in the U nited tates – 2016 © 18

21 CHAPTER 1. ML/TF RISKS AND CONTEXT address inherent risks. Both NMLRA and NTFRA define terms ‘threat’, ‘vulnerability’, ‘consequence’ 1 .’ The NMLRA does not examine, systemically, the vulnerabilities of the DNFBP sectors, apart and ‘risk from casinos. 38. The NMLRA identifies serious ML threats in five categories of predicate crime: fraud (particularly healthcare fraud, identity theft, tax fraud, mortgage fraud, retail and consumer fraud, ficking, human smuggling, organized crime, and public corruption and securities fraud), drug traf (both domestic and foreign). The report also identifies ML vulnerabilities and cites case examples and of trade- based ML ); the misuse involving the use of: cash (particularly bulk cash smuggling account holder s; money services businesses (MSBs), and correspondent accounts and nominee and the (IAs) including investment advisers unlicensed MSBs; casinos and the securities sector, misuse of legal entities. The NMLRA concludes that the underlying ML vulnerabilities remain largely the NMLRA does not the same as those identified in the 2005 NMLTA (p.3). However, as noted above assess DNFBP sector vulnerabilities aside from casinos. specifically identifies serious TF The NTFRA vulnerabilities and risks from: raising funds through criminal activity, individuals raising funds , individual under the auspices of charitable giving but outside of any charitable organization unlicensed -funding; moving and placing funds through banks, licensed MSBs, contributions and self global terrorist money transmitters and cash smuggling; and potential emerging threats from activities, cybercrime and identity theft, and new payment systems. 39. A wide array of other national risk asses sments have also been undertaken and used to support strategies to combat terrorism, major proceeds generating predicate offen ses, and related ML/TF. These risk assessments are not public, but underpin published national strategies and contain useful infor mation on related ML/TF risks. This process is led at the highest level of government by two agencies within the Executive Office of the President: the National Security Council (NSC) and the Office of National Drug Control Policy (ONDCP), with participation of other agencies. For example, see National Drug Control Strategy 2014, National Security Strategy 2010, National Strategy to Combat Transnational Organized Crime 2011, and National Strategy for Counter , and Terrorism 2011 prepared by NSC. See also Southwest Counternarcotics Strategy 2013 National National Northern Border Counternarcotics Strategy prepared by ONDCP. Although the 2014 assessors did not have access to these confidential risk assessments, they did have the opportunity es extensively with the authorities. to discuss these issu Overall, the conclusions of the NMLRA and NTFRA are generally reasonable, and appear to be 40. -noted national strategies, which themselves are consistent with those reflected in the above reasonable and supported by confidential national risk assessments that specifically address related ML/TF risks. risk issues Scoping of higher- (c) for increased foc , the assessors reviewed material 41. In deciding what issues to prioritize us provided by the ), and information from reliable third U.S. on national ML/TF risks (as outlined above tates money laundering and counter - terrorist financing measur es in the U nited S - Anti – 2016 © FATF and APG 2016 19

22 CHAPTER 1. ML/TF RISKS AND CONTEXT 4 . The following party sources ( reports of other international organizations) e.g. list of priority issues 1 is broadly c onsistent with the issues identified in the national risk assessments: a) Terrorism financing represents a significant threat to the U.S. given the unique reach of who have successfully its financial system and the direct threat posed by terrorists attacked U : NTFRA p.11 and abroad both at home .S. interests The assessors focused -14. on the effectiveness of the U.S. approach to combat TF, including ability to effectively its s, swiftly apply targeted financial sanctions, monitor MSBs, prevent the misuse of NPO he impact of measures to minimize the use of unlicensed MSBs and cash couriers. and t b) Beneficial ownership: The lack of beneficial ownership (BO) requirements was identified in the previous mutual evaluation as a serious deficiency . T he NMLRA identifies the misuse of legal entities in complex ML schemes: NMLRA p.41 -43. The : the extent to which gaps in the legal framework affect competent assessors focused on authorities’ ability to access adequate and accurate BO information in a timely manner, international requests related to BO and respond to ; the extent to which the volume and and the perceived credibility of companies relative ease of company formation in the U.S., and legal arrangements incorporated in the U.S. impacts the risk of them being abused for M L/TF ; and measures that may compensate for lack of access to BO information by and DNFBPs. competent authorities, FIs Fraud: According to the NMLRA (p.10 -13), fraud encompasses a number of distinct c) crimes, including healthcare fraud against the Federal government, tax fraud and securities fraud, which together generate the largest volume of illicit proceeds in the U.S of any predicate crime type. The assessors focused on the extent to which the laundering of the proceeds of such fraud is being successfully investigated, prosecuted, and confiscated. The assessors also went beyond simple tax fraud to examine the handling of tax crime predicates overall both at domestic and foreign level. important Illegal Drug Trade: The NMLRA (p.13 -16) identifies drug trafficking as an d) -west border being a major transit point of drugs into the predicate for ML, with the south U.S. market and a route of profits back to drug trafficking organizations with subsequent repatriation of U.S. currency. As a lucrative business, the drug trade has also been exploited by terrorist groups to raise finances. The assessors focused on the extent to ses is being successfully investigated, which the laundering of the proceeds of drug offen to combat ML/TF related to prosecuted and confiscated and on the measures undertaken drug trafficking. Particular attention was given to bulk cash smuggling, including the identification and detection of illegal cash couriers, and the monitoring of commercial cash couriers. 4 - Financial System Stability Assessment of the United States Financial Sector Assessment Program Including the Phase 3 Report on Implementing the ; the (IMF, 2015) , www.imf.org/external/pubs/ft/scr/2015/cr15170.pdf (OECD, 2010); OECD Anti The Globalization of Crime: A Transnational -Bribery Convention in the United States (UNODC, 2013); The Puppet -Masters: How the Corrupt Use Legal Structures Organized Crime Threat Assessment , (World Bank and UNODC Stolen Asset Recovery Initiative, 2011) to Hide Stolen Assets and What to Do About It Estimating Illicit Financial Flows ; and 1.pdf https://star.worldbank.org/star/sites/star/files/puppetmastersv Resulting from Drug Trafficking and Other Transnational Organized Crimes (UNODC, 2011), www.unodc.org/documents/data- -analysis/Studies/Illicit_financial_flows_2011_web.pdf and S FATF and APG 2016 Anti - money laundering and counter - terrorist financing measures in the U nited tates – 2016 © 20

23 CHAPTER 1. ML/TF RISKS AND CONTEXT e) The NMLRA (p.17 -20) acknowledges that transnational organized Organized crime: 1 crime groups from all over the world operate in the U.S. and generate vast amounts of illegal proceeds from a wide range of criminal activities including extortion, illegal gambling, kidnapping, loan sharking, murder, prostitution, fraud, racketeering and the illegal drug trade . The assessors focused on the extent to which the laundering of the ses related to organized crime is being successfully investigated, proceeds of offen prosecuted and confiscated and on the effectiveness of measures to combat ML related to the activity of transnational organized crime groups . Financial Sector As noted in the IMF’s Role of the U.S. in the global financial system: f) -Financial System Stability Assessment of the U.S. (2015), Assessment Program the “interconnectedness of the U.S. system with the rest of the world remains key for global ) The U.S. financial sector is one of four jurisdictions at the core of the world’s (... stability bank networks, as well as at the core of the equity market, debt market, and price correlation networks”. The size, complexity and international reach of the U.S. financial system, and its innovative environment for new products, services and delivery vulnerabilities . mechanisms to facilitate the free flow of capital create sig nificant ML/TF placement, In particular, the U.S. financial system faces significant risks of abuse for the layering or integration of illicit proceeds generated out of domestic and foreign predicate gn corruption, as is documented in the NMLRA. The ses, including tax crime and forei offen assessors focused on how effectively the U.S. is able to mitigate these risks through the domestic AML/CFT legal and regulatory framework, with particular attention to the coverage of foreign predicates. ML DNFBPs g) are Many /TF risks of the minimally covered DNFBP sectors: not covered . The NMLRA exempted from) comprehensive AML/CFT preventive measures by (or are notes that some DNFBP s have been abused for ML. The assessors focused on the ML/TF with DNFBPs not subject to comprehensive AML/CFT preventive risks associated whether and to what extent the U.S. is able to effectively measures , and considered . Particular focus was placed on the roles of vulnerabilities through LEA activity mitigate and the facilitating role and accountants, s of lawyers (CFAs) ents company formation ag coupled with the vulnerability of the high -end real estate agent sector and the role played . in the mass real estate financing market by RMLOs h) Effectiveness of operational coordination and cooperation : Given the challenges posed by the complexity and sheer size of the U.S., the assessors focused on how effectively Federal and State authorities coordinate and cooperate at the operational financial intelligence analysis and level. This approach touched upon : the effectiveness of ; financial crime task forces; -S tate supervision of MSBs and the inter flows at all levels effective coordination and sharing of information amongst banking supervisors; and the extent to which enforcement and supervisor y processes work together to achieve supervisory and enforcement outcomes. Through the scoping exercise, the assessors identified the following areas for lesser focus: 42. They are appointed by S a) Notaries have a very limited role in the U.S. tate governments to witness the signing of important documents (verifying the identity of the signer, but not the role of the individual) and to administer oaths. They conduct none of the activities tates money laundering and counter - terrorist financing measur es in the U nited S - Anti – 2016 © FATF and APG 2016 21

24 CHAPTER 1. ML/TF RISKS AND CONTEXT 23, and are not covered under the domestic AML/CFT 22 and listed in Recommendations 1 framework. b) Technical compliance of DNFBPs not subject to comprehensive AML/CFT do perform activities listed in A number of DNFBPs that measures: 22 and Recommendations pany service providers, 23 (real estate agents, trust and com lawyers and accountants) are not subject to comprehensive AML/CFT measures. the assessors did not focus on technical compliance issues associated Consequently, with tatives of these sectors these sectors during the on -site visit , but did meet with represen to examine the extent to which they understand their ML/TF risks and what risk mitigation measures may be in place. Materiality 43. The U.S. has the world’s largest economy with an annual gros s domestic product (GDP) of 5 . It has a developed, industrialized, free -market economy with the world’s USD around 17.9 trillion largest consumer market (consumer spending comprises over 70% of the U.S. economy). The U.S. is one of the world’s largest tradi ng nations, and is the world’s second largest manufacturer representing about one fifth of global output. It is also rich in natural resources, and the world’s largest producer of oil and natural gas. nancial system is large and highly diversified. Before the global financial crisis, total The U.S. fi 44. U.S. financial assets amounted to almost four and a half times the size of GDP, less than a quarter of Since the 2008 crisis, the shape of the which was accounted for by traditional depository institutions. U.S. financial system has radically changed. The top investment banks were reconfigured as bank -banks were severely weakened, the Government -sponsored housing holding companies, non 6 . are now in government enterprises conservatorship, and private securitization remains dormant Despite these changes, the U.S. financial sector remains the largest in the world and very diverse. The wealth management sectors (investments, securities, insurance) are very large. The U.S. b egan recovering from the global financial crisis in late 2009, and in 2015 showed a real growth rate of 7 trillion worth of goods including machinery, 1.5 : In 2015, the U.S. exported over USD 2.6% of GDP electronic equipment, aircraft and spacecraft, vehicles and oil. Its largest trading partners (in order of importance) are Canada, China, Mexico, Japan, Germany, South Korea, United Kingdom and France. Structural Elements 45. ents for an effective AML/CFT system including The U.S. has all of the key structural elem accountability, rule of law, and a professional and political and institutional stability, governmental bar and judiciary at both the Federal and State levels. Corruption is identified as a independent in the NMLRA and combating it is a high priority of U.S. law enforcement authorities. threat 5 , unless stated othe (USD) rwise. All references to currency in this report are in U.S. dollars 6 United States Financial Stability Assessment Program Report on Standards and Codes (IMF 2010), p.5, www.imf.org/external/np/fsap/fsap.aspx 7 -world www.cia.gov/library/publications/the CIA World Fact Book. 2015, / -factbook/ S FATF and APG 2016 Anti - money laundering and counter - terrorist financing measures in the U nited tates – 2016 © 22

25 CHAPTER 1. ML/TF RISKS AND CONTEXT Background and other Contextual Factors 1 46. , and has a The U.S. was one of the first countries in the world to place a significant focus on ML mature and highly developed AML/CFT system. Relatively speaking, financial exclusion is not a FIs s at serious issue. As of 2014, almost 94% of the U.S. population over the age of 15 had account tion had debit card Global Findex 2014 (World (up from 88% in 2011), and over 75% of the popula s: Bank). The U.S. is a significant source of outgoing remittances, primarily due to its large immigrant almost population ( USD 56.3 b illion outgoing remittances, and over USD 6. 9 b illion incoming in 2014) (World Bank). : remittances Migration and remittances data strategy CFT AML/ (a) The U.S. considers AML/CFT to be a pillar of its national security strategy and of a strong 47. financial system. The government’s top priority is to disrupt terrorism and its financing before it touches the U.S. and its financial system. Combating ML is another top priority, with the authorities aggressively pursuing a “follow the money” approach aimed at disrupting and dismantling organized crime groups and their financing networks. The U.S. AML/CFT strategy focuses on three major goals: to more effectively cut off access to the international financial system by money launderers and (1) to enhance the Federal government’s ability to target major TF and ML terrorist financiers; (2) organizations and systems; and (3) to strengthen and refine the AML/CFT regime for financial services providers to improve the effectiveness of compliance and enforcement efforts and to prevent and deter abuses. Combating the proliferation of weapons of mass destruction (WMD) and its financing is also a priority. (b) Legal & institutional framework 48. islation. The The legal framework of AML/CFT preventive measures is set out in Federal leg Bank Secrecy Act (BSA), as amended by the USA PATRIOT Act sets out the main AML/CFT requirements which apply to covered FIs and DNFBPs, regardless of their Federal or State registration/status. ML and TF are criminalised at the Federal level and some States have separately criminalized ML/TF. Only the State of New York has its own TF legislation. However, ML and TF are pursued at the Federal level. primarily s complex, multi The institutional framework for AML/CFT i 49. -faceted and involves a significant Department of Treasury (Treasury) number of authorities from a range of ministries. is the lead AML/CFT agency, and is the executive agency responsible for promoting economic prosperity and is the principal government Department of Justice (DOJ) ensuring the f inancial security of the U.S. entity responsible for investigating and prosecuting ML/FT offenses. Department of Homeland L and the prevention of Security (DHS) is responsible for national security, including investigating M is responsible for U.S. foreign policy. terrorism. Department of Health and Department of State is responsible for enhancing and protecting the health of Americans, and Human Services (DHHS) is involved in Department of Commerce d and related ML. plays a role in combating healthcare frau export control and plays a role in countering the financing of proliferation of weapons of mass destruction (WMD). – - money laundering and counter - FATF and APG 2016 © 2016 terrorist financing measur tates S nited es in the U Anti 23

26 CHAPTER 1. ML/TF RISKS AND CONTEXT -making bodies in the area of bove, the main policy In addition to the key ministries noted a 50. 1 AML/CFT and counter -proliferation are: National Security Council (NSC) (within the Executive Office of the President) comprised a) of the President’s senior national security advisors and cabinet officials. I ts staff coordinate the national security strategy development process which includes considering relevant illicit finance risks as they pertain to transnational organized crime, terrorism, and WMD proliferation: 50 U.S. Code §402. Office of National Drug b) Control Policy (ONDCP) (within the Executive Office of the President) which develops the National Drug Control Strategy and related strategies, and 8. evaluates the effectiveness of the strategies’ implementation nce (TFI) (within Treasury) responsible for c) Office of Terrorism and Financial Intellige developing/implementing national AML/CFT strategies, and overseeing implementation of the nation’s economic sanctions laws/programs developed by Treasury’s Office of nt of State’s Bureau of Foreign Assets Control (OFAC) and the Departme Counterterrorism. Office of Terrorist Financing and Financial Crime (TFFC) (within Treasury TFI) which is d) responsible for AML/CFT policy and strategy functions, and heads the U.S. delegation to the FATF and FATF- es (FSRBs). style regional bodi 51. At the operational level, there are numerous agencies handling intelligence analysis, Specialised units/initiatives are described investigations, prosecutions, regulation and supervision. report where relevant to the analysis of later in the effectiveness in particular areas. The following See also the description of . SAR Review Teams, Financial Crime are the key intelligence agencies 6.1 and 6.4): Task Forces, and Fusion Centres described in IO.1 (Core Issue 1.4) and IO.6 (Core Issue (within Treasury Financial Crimes Enforcement Network (FinCEN) a) ) is the financial TFI intelligence unit (FIU) and is also the administrator of the BSA. Treasury’s b) is Treasury’s (within Treasury TFI) Office of Intelligence and Analysis (OIA) intelligence analysis branch. Its priorities are to identify and attack the financial infrastructure of terrorist groups, and the vulnerabilities that terrorists/criminals may exploit in domestic/international financial systems. OIA is also tasked with identifying and , org , groups crime anized networks attacking the financial infrastructure of proliferation drug and trafficking organizations. By creating OIA, Treasury became the world’s first -house intelligence and analytical expertise to develop sanctions finance ministry with in designations, and support other preventative and enforcement actions to combat ML/TF and WMD proliferation. c) National Counter Terrorism Center (NCTC) integrates and analy ses all intelligence pertaining to terrorism possessed or acquired by the U.S. government (except purely 8 Office of National Drug Control Poli See the cy Re authorization Act of 2006, ; Government Performance and Results Act the -109publ469.pdf www.congress.gov/109/plaws/publ469/PLAW -act Modernization Act of 2010 ONDCP FY 2015 Budget ; and the www.whitehouse.gov/omb/performance/gprm . and Performance Summary S FATF and APG 2016 Anti - money laundering and counter - terrorist financing measures in the U nited tates – 2016 © 24

27 CHAPTER 1. ML/TF RISKS AND CONTEXT -wide -source intelligence support to government domestic terrorism), and provides all 1 counterterrorism activities. is Department of Homeland Security Office of Intelligence and Analysis (DHS I&A) d) wide intelligence through managing the collection, responsible for: developing DHS- analysis and fusion of intelligence throughout DHS; disseminating intelligence throughout tribal DHS, the U.S. Intelligence Community, and first responders at the State, local, and level; tracking terrorists and their networks; and assessing threats to critical American infrastructures, biological and nuclear terrorism, pandemic diseases, the U.S. borders (air, land, and sea), and radicalization within American society. -agency coordination center e) Speci al Operations Division (SOD) (within DEA) is a multi designed to identify significant international and domestic drug trafficking and ML -jurisdiction/ It supports multi organizations. agency wire intercept -nation and /- s investigat ions, and work jointly with Federal, State and local agencies to coordinate overlapping investigations, ensuring that tactical and strategic intelligence is de -conflicted and shared between LEAs. f) has the authority to designate Foreign , Bureau of Counterterrorism Department of State Immigration and Nationality Ac nder section 219 of the Terrorist Organizations u and t, shares authorities with the Treasury to designate individuals and entities under E.O. 13224. hin (wit roliferation Center (NCPC) P National Counter g) the Office of the Director of National Intelligence -ODNI) centralizes the work and collaboration of 17 U.S. intelligence agencies regarding proliferation intelligence. It also works closely with the NCTC on cluding by helping the intelligence combating WMD proliferation and terrorism, in community understand counter -proliferation financing. 52. The main Federal LEAs and investigative bodies with AML/CFT responsibilities are: a) Federal Bureau of Investigation (FBI) (w ithin DOJ) is the primary agency responsible for investigating over 200 Federal crimes including terrorism and ML. -Terrorist FBI (within FBI’s wider counterterrorism division) -TFOS) Financing Operations Section (FBI investigates attempts by terrorists and terrorist organizations to raise, move, and use financial provid funds in the U.S., and es investigative support to FBI counterterrorism investigations. b) Drug Enforcement Administration (DEA) (within DOJ ) investigates illicit drug trafficking and associated ML. c) (within DOJ) operates nation Organized Crime Drug Enforcement Task Force (OCDETF) - 9 and multi -jurisdictional investigations targeting the agency wide and coordinates multi- pporting most serious drug trafficking including the financial infrastructures su threats, 9 The partici pants involved include: 94 U.S. Attorneys’ Offices; Bureau of Alcohol, Tobacco, Firearms and Explosives; DEA; FBI; IRS -CI; U.S. Coast Guard; ICE; U.S. Marshals Service; Criminal and Tax Divisions of DOJ; and numerous State & local agencies. tates money laundering and counter - terrorist financing measur es in the U nited S - Anti – 2016 © FATF and APG 2016 25

28 CHAPTER 1. ML/TF RISKS AND CONTEXT OCDETF allocates resources partly on the basis of how . The these organizations 1 successfully participants focus their efforts on the Consolidated Priority Organization Targets (CPOTs) and Regional Priority Organization Targets (RPOTs): ragency FY 2015 Inte Crime and Drug Enforcement Congressional Budget Submission. d) (within Treasury) is the -CI) Internal Revenue Service Criminal Investigation (IRS enforcement arm of the Internal Revenue Service, the U.S. federal tax authority. In addition -CI ing criminal violations of the tax code, IRS to investigat - complex, high investigates profile financial crimes including corporate fraud, FI fraud, ML , public corruption, and TF . enforcing (within DHS) is responsible for Immigration and Customs Enforcement (ICE) e) governing border control, customs, trade and immigration Federal laws related to . Within investigates all types of ICE, the Homeland Security Investigations division (ICE -HSI) ggling. -border criminal activity, including cross financial crimes, ML and bulk cash smu (within DHS) is responsible for controlling the U.S. Customs and Border Protection (CBP) border at/between official ports of entry, has authority to search outbound/ inbound struments. shipments, and works with ICE to seize contraband, currency and monetary in f) target El Dorado Task Force (EDTF) s financial crime and ML in the New York and New and brings together 250 staff and 13 Jersey metropolitan area. It is ICE -HSI -led d local , and prosecutors from 44 Federal, State, an investigative teams of analysts, LEAs LEAs. g) Bureau of Alcohol, Tobacco, Firearms & Explosives (ATF) (within DOJ) investigates violations of Federal laws on firearms, explosives, arson, and alcohol and tobacco diversion. s and control (within DHS) patrol U.S. Coast Guard h) s access to the U.S. coast. U.S. Secret Service (USSS) (within DHS) is responsible for preventing and investigating i) counterfeiting of U.S. currency and U.S. Treasury securities, and investigating cybercrimes. j) U.S. Postal Inspection Service law enforcement arm of the U.S. Postal (USPIS) is the Service (USPS) with jurisdiction over crimes that may adversely affect or fraudulently use the U.S. mail. Postal Service money orders are a payment method used by money launderers and international criminal organizations. 53. The main Federal authorities responsible for AML/CFT prosecutions and related activity are: a) United States Attorney’s Offices (USAO) (within DOJ) prosecute criminal cases and bring lawsuits on behalf of the U .S. They are comp lemented by a relatively smaller number of trial attorneys, based at Main DOJ in Washington, DC. There are 94 USAOs, and 93 presidentially appointed U.S. Attorneys, who act as the chief Federal law enforcement officer in their districts, and oversee roughl y 6,075 Assistant U.S. Attorneys, about 4,800 of whom do criminal prosecution. Asset Forfeiture and Money Laundering Section, Criminal Division (AFMLS) b) ( within DOJ) prosecutes and coordinates complex, sensitive and multi- district and international S FATF and APG 2016 Anti - money laundering and counter - terrorist financing measures in the U nited tates – 2016 © 26

29 CHAPTER 1. ML/TF RISKS AND CONTEXT ML and asset forfeiture investigations and cases. It also provides legal and policy 1 assistance and training to Federal, State and local prosecutors and law enforcement personnel, as well as to foreign governments and in multilateral forums, and manages ts Forfeiture Fund. DOJ’s Asse (CTS) (within DOJ) Counterterrorism Section, National Security Division c) supports investigations and prosecutions of international and domestic terrorism. seized assets are: 54. targeted Main authorities for managing financial sanctions and Office of Foreign Assets Control (OFAC) (within Treasury TFI) administers and enforces a) targeted financial sanctions against both terrorism and proliferation, and other economic /trade sanctions based on U.S. forei gn policy/national security goals. b) Treasury Executive Office for Asset Forfeiture (TEOAF) (within Treasury TFI) administers the Treasury Forfeiture Fund (TFF). c) and the sale of seized assets (within DOJ) manages U.S. Marshals Services (USMS) forfeiture of assets for the Asset Forfeiture Fund (DOJ -AFF). . The 55. The U .S. financial sectors are regulated by several Federal and State regulatory bodies main authorities responsible for supervising AML/CFT compliance in the banking sector are: FinCEN is the primary AML/CFT regulator responsible for developing, issuing, a) administering and civilly enforcing regulations implementing the BSA (in addition to its FIU role). b) Board of Governors of the Federal Reserve System (BGFRS -the U.S. central bank) and its 12 Federal Reserve Banks -chartered supervises and examines State (Federal Reserve) banks that elect to become members of the Federal Reserve System (State member banks), nd Agreement corporations, and uninsured U.S. bank holding companies (BHCs), Edge a -chartered branches and agencies of foreign banking organizations. State is the deposit insurer for all depository c) Federal Deposit Insurance Corporation (FDIC) (about 6,200) other than credit unions, and the primary Federal supervisor for institutions savings institutions not members of the Federal Reserve System. State -chartered banks & is an independent bureau within Office of the Comptroller of the Currency (OCC) d) Treasury that charters, regulates, and supervi ses national banks, Federal savings associations and the U.S. Federal branches and agencies of foreign banking organizations. e) National Credit Union Administration (NCUA) charters, supervises, and regulates Federally -chartered credit unions. It operates and manages the National Credit Union Share Insurance Fund, insuring the deposits in all Federal credit unions and the majority of State -chartered credit unions (about 6,021 in total). are collectively defined for the purposes of this report f) Federal Banking Agencies (FBAs) as including the BGFRS, the OCC, the FDIC, and the NCUA. The BGFRS, OCC, and FDIC have (FDI Act) to supervise for and enforce Federal Deposit Insurance Act authority under the tates money laundering and counter - terrorist financing measur es in the U nited S - Anti – 2016 © FATF and APG 2016 27

30 CHAPTER 1. ML/TF RISKS AND CONTEXT he NCUA has the same compliance with the BSA within their supervised institutions. T 1 authority under the Federal Credit Union Act (FCUA). State Banking Regulators g) : Each State charters banks and shares supervisory responsibility over some banks, where required, through Joint Supervisory Agreements with the Federal Reser FDIC. Most States also charter and examine credit unions and ve and share supervision with the NCUA. 56. The main authorities responsible for supervising AML/CFT compliance in the securities and futures and derivative s sectors are: a) Securities and Exchange Commission (SEC) is the Federal regulator of the securities markets. It regulates and oversees key participants in the securities industry, including - -dealers, IAs, investment companies and the Self securities exchanges, securities broker (SROs) compliance with their statutory obligations under the Organizations’ Regulatory Federal securities laws. U.S. is the Federal regulator for derivatives, Commodity Futures Trading Commission (CFTC) b) commodity futures, options on futures, commodity options and swaps. It also oversees the operations of the National Futures Association. National Futures Association (NFA) c) is the SRO for the futures market. Membership in the NFA is mandatory for anyone conducting business with the publi c on the U.S. futures 000 associates are members of the NFA. The exchanges. Approximately 4,200 firms and 55 CFTC has delegated some regulatory responsibilities to the NFA. is an SRO for broker- Financial Industry Regulatory Authority (FINRA) d) dealers and re gulates both the firms and professionals that sell securities in the U.S and the U.S. securities markets. FINRA oversees more than 3,964 brokerage firms, 161,510 branch offices and 641,144 registered securities representatives. FINRA registers and examines brokerage firm, and enforces its rules and the Federal securities laws. Other authorities have responsibilities for supervising the financial sectors without a Federal 57. profit organizations (NPOs): functional regulator (FFR), casinos, and non- IRS Small Business and Self a) -SBSE) (within Treasury) has -Employment Division (IRS been delegated examination authority for civil compliance with the BSA for all FIs without a FFR as defined in the BSA, including MSBs (as broadly defined), credit card companies, -tribal) and dealers in precious Federally insured credit unions, casinos (tribal and non non- metals and stones. It also has responsibility for auditing compliance with Form 8300 cash reporting requirements . is an independent Federal regulatory an Gaming Commission (NIGC) National Indi b) agency created by Congress whose primary mission is to regulate gaming activities on Indian lands for the purposes of ensuring that Indian tribes are the primary beneficiaries of gaming revenues, and gaming is conducted fairly and honestly by operators and players. -level regulators In general, the primary regulators for these activities are the tribal themselves. S FATF and APG 2016 Anti - money laundering and counter - terrorist financing measures in the U nited tates – 2016 © 28

31 CHAPTER 1. ML/TF RISKS AND CONTEXT Tribal c) : There are tribal gaming commissions established by the tribes to -level regulators 1 oversee tribal gaming. Tribal nations have primary regulatory authority over Class II gaming Class III gaming (casino style gaming) is only (bingo and similar games of chance). lawful on Indian lands if the relevant State permits such gaming, if t he tribe’s governing body authorises it in an ordinance or resolution approved by the NIGC Chairman, and such agreement between -State compact (i.e. an gaming is conducted in conformity with a Tribal the conduct of a State and a tribe, approved by the Secretary of the Interior, govern ing Class III gaming). Although the terms of Tribal -State compacts vary by S tate, in most instances the tribes remain the primary regulator for Class III gaming. nsurance State -level regulators regulate i d) companies, MSBs and non- tribal casinos for: consumer protection and (in the case of insurance companies) for safety and soundness ; and examine for compliance with BSA AML/CFT obligations in coordination with FinCEN, IRS -SBSE, and the FFRs. -TEGE) IRS Tax Exempt and Government Entities Division (IRS e) (within Treasury) provides Federal oversight to NPOs in the U.S. through reviewing applications for tax exempt status and subsequent examinations. It ensures that NPOs are filing returns and may use the information from returns to help determine if NPOs are facilitating TF. 58. Competent authorities relevant to combating WMD proliferation and its financing: coordinates U.S. government interdiction efforts across the policy, a) Department of State enfor -agency chaired inter cement and intelligence communities through four State- working groups focused on (i) nuclear; (ii) ballistic missile; (iii) chemical and biological weapons; and (iv) conventional arms interdictions; and a counterproliferation finance team. When engaging countries on shipments of proliferation concern, the groups consider financial aspects ( including bank accounts and payments ) as appropriate. administers and Department of Commerce Bureau of Industry and Security (BIS) b) -use and certain munitions items through the Export ntrols on dual enforces export co Administration Regulations (EAR) under authority of the International Emergency Economic Powers Act (IEEPA), works with the exporting community to prevent ions to gather evidence supporting criminal and violations, and conducts investigat It also develops several lists that FIs can use to identify administrative sanctions. transactions that may involve proliferation financing. manages all FBI counterproli FBI Counterproliferation Center (CPC) feration c) investigations, identifies critical intelligence gaps and emerging proliferation threats, and develops counterproliferation strategies, in collaboration with Federal partners and the private sector. CounterProliferation Investigations Program hin DHS ICE (wit -HSI) is responsible for d) overseeing a broad range of investigative activities related to export violations and enforces U.S. export laws involving military items and controlled dual -use goods, as well countries. as products going to sanctioned or embargoed e) Export Enforcement Coordination Center (E2C2) (within DHS) is the enforcement and intelligence coordination hub for all U.S. agencies with a role in export enforcement, including the LEAs and export control authorities. tates money laundering and counter - terrorist financing measur es in the U nited S - Anti – 2016 © FATF and APG 2016 29

32 CHAPTER 1. ML/TF RISKS AND CONTEXT of NSD supports the investigation Counterintelligence and Export Control Section (CES) f) 1 and prosecution of individuals and entities for violations of U.S. laws and regulations intended to combat WMD proliferation, including various CounterProliferation Task s’ Offices across the country. in U.S. Attorney Forces (c) Financial sector and DNFBPs . up of the financial and DNFBP sectors: General information on the size and make- 59. ng size About 13 Banking sector: varyi s. About half a) 000 depository institutions of widely are banks (the six largest U.S. banks hold over 40% of total domestic deposits) . T he other and hold slightly less than 10% of total ing half are credit unions (mutually owned domestic deposits). b) Lending: Banks offer extensive lending products at the commercial and retail level. Insurance companies offer commercial loans . RMLOs of varying size provide mortgage lending in the retail mass market. In addition, a number of other lenders operate in the lated commercial lenders U.S. such as pawn shops and other unregu . There is no estimate of the aggregate size of these operations. - broker 4 100 About : Securities and Investment Advisers , Mutual Funds Dealers c) SEC dealers, 8 100 mutual funds with over USD 15 trillion in assets, nearly 12 100 - IAs ered regist - tate S 000 trillion in assets, in addition to 17 67 managing over USD registered IAs and over 325 000 S tate -registered investment adviser representatives . d) 000 istered with FinCEN of which 25 788 MSBs reg 41 Money services businesses : agents. Of these, 170 were responsible for more than 230 000 agents, reported having ranging from under 10 agents to tens of thousands of agents per MSB principal. Individuals in the U.S. send about billion annually to households abroad. The 37 USD average remittance value of a transaction from the U.S. to Latin America and Mexico is estimated to be between USD 400 respectively. 290 and USD Life Insurance e) 895 life insurance companies employing or otherwise using : Companies 1 007 600 agents, brokers and service employees. Life insurance companies provide life insurance services and frequently provide related investment savings services, including annuities. f) Over 1,300 casinos and card rooms across the 42 States that allow some form of Casinos: . The 246 tribes with gaming operations casino gambling: American Gaming Association accounting for more than 70% of 27 billion , in 2012 had revenues of approximately USD at all licensed gaming facilities in the U.S. While tribal gaming the gross gambling revenue operations dominate ove rall U.S. gaming revenue, Las Vegas and Atlantic City top the list billion and USD 3 6.2 billion respectively. USD of casino markets with annual revenues of g) 000 are members of the Lawyers: 1 million lawyers of whom about 400 Approximately ciation (ABA), the country’s largest bar association. Lawyers are American Bar Asso licensed by the State bar associations and are bound by professional codes of ethics. client for maintain bank accounts in their own name Some use (mostly escrow accounts unds are held in which clients’ f ). for future transactions S FATF and APG 2016 Anti - money laundering and counter - terrorist financing measures in the U nited tates – 2016 © 30

33 CHAPTER 1. ML/TF RISKS AND CONTEXT and auditors (including s accountant million 1.17 Approximately Accountants: h) 1 000 of ), with the sectors Certified Public Accountants (CPAs) approximately 660 accounting, tax preparation and payroll services generating USD about 137 billion but typically do not als Like lawyers, accountants are licensed profession annually. . maintain bank accounts for client funds i) : About 400 real estate agents. There are also significant numbers Real estate 394 agents ciations and cooperative real estate associations which can impose of condominium asso on the purchase and sale of attractive higher (including financial conditions) conditions value real estate and which act as gatekeepers. 000 (FinCEN, 2006). 200 Approximately : j) Dealers in precious metals & stones k) Trustees: The exact number of trustees in the U.S. cannot be known as trusteed legal arrangements are not registered or subject to supervisory oversight. Any natural person may act as a trustee. In the U.S. the only identifiable gro up of professional trustees is trust companies, which are FIs with fiduciary (trust) powers to act as trustee. However, the BSA does not impose explicit obligations on trustees. Trust companies are subject to the ients and this extends to their role as Covered FI obligations when dealing with cl trustees. A minimum of one trustee is required to act in a legal arrangement . l) ): Although it is not mandatory in the U.S. to use a CFA Company formation agents (CFA iness sector provides a full range of to incorporate a legal entity, a substantial CFA bus competitive services to individuals and corporations. CFAs handle approximately half of all incorporations of legal persons in the 56 U.S. incorporating jurisdictions. (d) Preventive measures Currency and Foreign Transactions cornerstone of the U.S. AML/CFT regime is the 60. The Reporting Act (1970) , commonly known as the Bank Secrecy Act Uniting (BSA), as amended by the uired to Intercept and Obstruct and Strengthening America by Providing Appropriate Tools Req -specific regulations. ), and detailed implementing USA PATRIOT Act (the Terrorism Act (2001) sector -keeping, suspicious The BSA and its implementing regulations set out sector -specific CDD, record nal control requirements. The USA PATRIOT Act augmented the BSA reporting and inter activity from engaging in framework by strengthening customer identification procedures, prohibiting FIs ases, business with foreign shell banks, requiring FIs to have due diligence procedures and, in some c enhanced due diligence (EDD) procedures for foreign correspondent and private banking accounts, and improving information sharing between FIs and the government. n Council (FFIEC) (comprised now of the BGFRS he Federal Financial Institutions Examinatio T 61. , CFPB the ), the FDIC, the NCUA, the OCC and the State Liaison Consumer Financial Protection Bureau ( was Committee) established in March 1979 to prescribe uniform principles, standards, originally Bank maintains FFIEC . The ms and to promote uniformity in the supervision of FIs and report for a -Money Laundering (AML) Examination Manual Secrecy Act (BSA)/Anti (the FFIEC Manual), which is a its application is -to-date guide to examination procedures for FBA examiners. 442 up While -page anual contains an mandatory for examiners, it also serves as guidance for banks . The FFIEC M overview of BSA/AML compliance program requirements, BSA/AML risks and risk management expectations, industry sound practices, and examination p he prescriptive elements of the T rocedures. tates money laundering and counter - terrorist financing measur es in the U nited S - Anti – 2016 © FATF and APG 2016 31

34 CHAPTER 1. ML/TF RISKS AND CONTEXT Manual (as opposed to those that are clearly "for consideration") are deemed mandatory and considered 1 “enforceable means" for the purposes of this report. CFTC use Sector regulators such as the SEC and the r manuals. The life insurance sector has included an AML/CFT examination component in the simila NAIC examination manual used by State insurance supervisors. FinCEN and IRS SBSE have published a similar BSA/AML Examination Manual for MSBs. Legal persons (e) and arrangements 10 laws in each of the 50 S is governed by The formation of U.S. legal entities s, the 5 tate 62. inhabited territories and the District of Columbia. Federal law also applies in certain areas ( e.g. criminal l aw, securities regulation, taxation). There are no precise statistics on the exact number of new , with about million 2 million formations legal entities in the U.S. Estimates range around 30 y formation and was home to tates for compan every year. Delaware is one of the most popular S 000 t 169 in 2014, with abou persons legal million 1.11 roughly formations in that year. new legislation or the tate law, whether under Trusts in the U.S. are also governed primarily by S 63. legislation, common law. A total of 31 codifying their common law of the 50 states have enacted are provisions to the (the UTC). The trust law s of the remaining 19 S tates Uniform Trust Code of 2000 based on common law or their own individual codification There are no estimates on the of the UTC. number of trusts governed by State law. (f) Supervisory arrangements FinCEN administers the BSA which is the Federal AML law. It has the authority to issue 64. mplementing the BSA, examine FIs for compliance, and take enforcement actions for regulations i violations of the BSA and its implementing regulations. FinCEN has delegated BSA examination authority to the FBAs, the SEC and the CFTC (which also have independent supervis ory and enforcement authority), for the institutions they supervise and to the IRS for all other FIs that are , but which do not have a FFR. In all sectors, FinCEN has retained civil enforcement subject to the BSA authority. cial activity as defined by the FATF to the primary U.S. aligns finan The following table entities that generally carry on the activity, the primary sector regulatory arrangements, and the core AML/ CFT regulations: applicable 10 are used synonymously to refer to any form of entity that is created leg al entity and legal person The terms by a filing with a State office. S FATF and APG 2016 Anti - money laundering and counter - terrorist financing measures in the U nited tates – 2016 © 32

35 CHAPTER 1. ML/TF RISKS AND CONTEXT ed by FATF Financial activity as defin 1. Table 1 Primary U.S. Entities Primary Sector Regulatory authorities Generally Authorized to (outside of FinCEN enforcement Core AML regulations oversight) carry on the activity Acceptance of deposits and other repayable funds from the public: FBAs [BGFRS (member banks of the Fed Domesti c Banks, comprising AML Program Rule, Customer Identification Program (CIP) including State - charte red banks), FDIC, national and State chartered banks, former savings NCUA, OCC], State banking supervisors Rule, Currency Transaction Reporting (CTR) Rule, associations (“thrifts”), credit Suspicious Activity Reporting unions, Branches of foreign banks, Certain other banks and (SAR) Rule, Record -keeping 11 requirements trust companies , private bankers Lending (This category i ncludes some commercial and consumer loan companies that are not currently Federally regulated for AML) - For banks: AML Program, CIP, Banks, non FBAs (banks), State banking and insurance bank retail - supervisors (banks and life insurance CTR and SAR Rule, Record Mortgage Lenders (RMLO), Life 12 , Insurance Companies keeping requirements. For Life companies), IRS - SBSE (there is no “sector” Insurance Companies and per se for RMLOs either at the Pawnbrokers, Businesses regulator engaged in vehicle sales RMLOs: AML Program, CTR, Federal or State level), Pawnbrokers are not -keeping SAR Rule, Record (automobiles, airplanes, boats) subject to AML/CFT obligations but are bject to the Form 8300 reporting su requirements obligation 13 Financial leasing AML Program, CIP, CTR, SAR asing Banks, Equipment Le FBAs, State banking supervisors keeping - companies Rule, Record requirements Money or value transfer services - Legal/or natural persons AML Program, CTR, SAR Rule, - State MSB supervisors, IRS SBSE - Keeping requir ements, Record MSBs Travel rule 11 More than 98% of all depository institutions, holding well over 99% of all deposits, are subject to Federal banks (approximately 350 non xamination. A small number of State -licensed and supervised - supervision and e depository trust companies, 265 non- Federally insured credit unions, and one private bank) are subject to the and CTR requirements, but for historic reasons are not subject to an AML program obligation. , CIP, Federal SAR 12 U.S. authorities report that U.S. insurance companies do not offer retail loans. They can offer commercial loans. Most often, insurance companies invest in loan portfolios that are sold by banks. 13 This includes some equipment leasing companies that are not currently Federally regulated for AML . tates money laundering and counter - terrorist financing measur es in the U nited S - Anti – 2016 © FATF and APG 2016 33

36 CHAPTER 1. ML/TF RISKS AND CONTEXT Primary Sector Regulatory authorities Primary U.S. Entities 1 Generally Authorized to Core AML regulations (outside of FinCEN enforcement carry on the activity oversight) Issuing and managing means of payment (e.g. credit and debit cards, checks, traveller’s checks, money orders and bankers' drafts, electronic money) Banks (Credit/ debit cards, For banks: AML Program, CIP, anking supervisors FBAs (banks), State b - CTR and SAR Rule, Record (banks), checks, travellers cheques, IRS - SBSE and State authorities (MSBs) Travel Agencies are not subject to keeping requirements money orders, and bankers For MS Bs: AML Program, CTR, fts), MSBs (Travellers dra AML/CFT obligations but are subject to SAR, Record -keeping checks, money orders), Virtual the Form 8300 reporting obligation requirements currency or prepaid products (Electronic money that is represented as prepaid access, such as a prepaid card, is issued by banks, but program managers can be MSBs), Travel Agencies 14 Financial guarantees and commitments IP, CTR and AML Program, C FBAs (banks), State banking supervisors Banks, Surety bonding keeping SAR Rule, Record (banks), Surety bonding companies are - Companies requirements not subject to AML/CFT requirements Trading in: money market instruments (checks, bills, certificates of deposit, derivatives etc.) ; foreign exchange; exchange, interest rate and index instruments; transferable securities; commodity futures trading AML Program, CIP, CTR and FBAs (banks), SEC/FINRA – Securities dealers, broker keeping broker/dealers, CFTC (deri dealers, Investment dealers, - SAR Rule, Record vatives) commodity, FinCEN irements requ Banks, Commodity futures Investment Companies (other than mutual dealers, Commodity Pool funds), Commodity Pool Operators and Operators and commodity Commodity trading advisors are trading Advisors, Investment respectively exempted from and not Companies (other than mutual funds) subject to AML/CFT obligations Participation in securities issues and the provision of financial services related to such issues - Broker AML Program, CIP, CTR and SEC, FINRA, FBAs and State banking dealers, Banks SAR Rule, Record - keeping regulators requirements 15 collective portfolio management Individual and SEC, FINRA, CFTC, NFA Broker - For Broker/dealers and dealers, , FCMs, IBs FCMs/IBs: AML Program, CIP, CTR and SAR Rule, Record - keeping requirements 14 This is generally issued by banks, but also by insurance and surety bonding companies that are not currently . Federally regulated for AML 15 nvestment advisers. This includes i S FATF and APG 2016 Anti - money laundering and counter - terrorist financing measures in the U nited tates – 2016 © 34

37 CHAPTER 1. ML/TF RISKS AND CONTEXT Primary Sector Regulatory authorities Primary U.S. Entities 1 Core AML regulations Generally Authorized to (outside of FinCEN enforcement oversight) carry on the activity other persons Safekeeping and administration of cash or liquid securities on behalf of AML Program, CIP, CTR and FBAs, SEC, FINRA Banks, Couriers such as Brinks, dealers - SAR Rule, Record - keeping Broker requirements Otherwise investing, administering or managing funds or money on behalf of other persons AML Program, CIP, CTR and SEC, FINRA, FBAs, State banking Investment Advisers - , Broker supervisors. Investment Advisors are not SAR Rule, Record - keeping dealers, Mutual funds, FCMs, 16 subject to BSA AML/CFT obligations requirements IBs 17 related insurance - rance and other investment Underwriting and placement of life insu SEC, FINRA, State/territory insurance Life insurance companies, AML Program, CTR, SAR Rule, dealers - Broker - Record captive agents and - supervisors. Non keeping requirements brokers are not covered separately but are required to be included in the obligations imposed on their life insurance company principals. Money and currency 18 - AML Program, CTR and SAR IRS Foreign exchange dealers SBSE, State MSB regulators. - keeping Rule, Record requirements 65. -SBSE is required to conduct BSA compliance examinations for MSBs, As noted above, IRS 1 million , life insurance companies casinos and card clubs with annual gaming revenue over USD -Federally insured credit that deal in covered products, dealers in preci ous metals and stones, non unions, operators of credit card systems, and non -bank residential mortgage lenders and originators (RMLOs). Unlike the FBAs, IRS -SBSE has no enforcement authority of its own for AML/CFT ses, but can refer cases to FinCEN to decide whether civil enforcement measures supervisory purpo routine -SBSE to suspend are warranted. FinCEN has directed IRS AML/CFT of life examinations ucted by State cond insurance companies relying instead on supervision of life insurance companies, life retains authority to conduct -SBSE authorities, pursuant to the NAIC exam manual. However, IRS , if requested by the States or directed by FinCEN. insurance company AML/CFT exams 16 Investment advisers will be directly subject to BSA AML/CFT obligations when legislation, in the process of being enacted at the time of the on -site, comes into force . Certain investment advisers (around 54% of the total) are estimat ed to be already covered indirectly through affiliations with banks, bank holding companies -dealers, when they implement group wide AML rules or in case of outsourcing arrangements. and broker 17 -registered ing of securities or other SEC -related insurance that includes the buying or sell Investment -dealer includes the full scope of AML safeguards. Life insurance investments that involve a broker underwriting and placement that does not involve an investment component is supervised by FinCEN for AML with the support of State insurance supervisors. Insurance companies have AML Program and SAR compliance filing obligations. 18 FinCEN regulates foreign exchange dealers, and although foreign exchange dealers are not subject to the CIP rule, their record -keeping obligation includes similar specific customer identification and verification requirements. tates money laundering and counter - terrorist financing measur es in the U nited S - Anti – 2016 © FATF and APG 2016 35

38 CHAPTER 1. ML/TF RISKS AND CONTEXT (g) International Cooperation 1 66. The U.S. cooperates with many countries, and in recent years, the most frequently requested and requesting countries have been the United Kingdom, Canada, Mexico, Switzerland, and Hong nal Division (OIA) Office of International Affairs, Crimi Kong, China. The (within DOJ) is the U.S. central authority for all incoming and outgoing mutual legal assistance (MLA) and extradition requests. FinCEN also has a formal role in relation to cooperation with foreign FIUs and other competent authorities have their own arrangements with counterparts. terrorist financing measures in the U S - money laundering and counter - Anti – nited tates FATF and APG 2016 © 2016 36

39 COORDINATION AML/CFT POLICIES AND NATIONAL CHAPTER 2. Key Findings and Recommended Actions 2 Key Findings 1. National coordination and cooperation on AML/CFT issues has improved significantly since the last evaluation in 2006. Policy and operational coordination are particularly well - -proliferation and related financing issues which are -terrorism, counter developed on counter the government’s top national security priorities. The authorities have leveraged this expe rience into better inter- agency cooperation and collaboration on ML risks and issues. 2. Overall, the U.S. has attained a significant level of understanding of its ML/TF risks through a comprehensive risk assessment process which has been ongoing for many ye ars. The U.S. has demonstrated a high level of understanding of its key ML/TF threats, but a less evolved level of understanding of vulnerabilities. National policies and activities tend to address ML/TF e on LEAs. The NMLRA does not address threats well and there is a strong focus and relianc DNFBP sector vulnerabilities systemically, but cites many situations where various DNFBPs were abused (wittingly or otherwise). There is a number of gaps and exemptions (some more material than others) in the 3. regulato ry framework, most of which the assessors believe are not justified by a proven low risk assessment. The most significant of these is the lack of systemic and timely access to beneficial ownership (BO) information by LEAs, and inadequate framework for FIs and DNFBPs to identify and verify BO information when providing services to clients. 4. National AML/CFT strategies, and law enforcement priorities and efforts, are broadly in line with the 2015 national risk assessments which represent a point- in-time summa tion of the main ML/TF risks: TF and the laundering of proceeds from fraud (particularly healthcare fraud), drug offenses, and transnational organised crime groups. The U.S. AML/CFT system has a strong law enforcement focus. All LEAs (Federal, State, local) 5. have direct access to SARs filed with FinCEN. A particularly strong feature is the inter -agency task force approach, which integrates authorities from all levels (Federal, State, local). This approach is widely used to conduct ML/TF and predicate invest igations, and has proven very successful in significant, large and complex cases. There is a high level of effective cooperation and coordination amongst competent authorities to address ML/TF and the financing of WMD. The FI sector is reasonably aware of NMLRA and the NTFRA, though there is scope for improved guidance, particularly on SAR reporting, and a more focused approach to more frequent updates of national risk assessments. BSA AML/CFT preventive measures are mostly imposed on the financial sector, with the 6. casino sector being the only significant DNFBP sector comprehensively covered. Accordingly, the financial sector is the focus of most guidance relating to suspicion, and the authorities’ view of risk is heavily influenced by financial activity. Th e financial sector is therefore - All non generally aware of and responsive to ML/TF risks. financial businesses and - – money laundering and counter - terror ist financing measures in the United States Anti 2016 © FATF and APG 2016 37

40 CHAPTER 2. NATIONAL AML/CFT POLICIES AND COORDINATION professions, including DNFBPs other than casinos, are subject to a cash transaction reporting 19 nd professions, including all financial All U.S. businesses a . uirement (Form 8300) req institutions and all DNFBPs, are required to implemen t targeted financial sanctions . 2 However, comprehensive AML/CFT preventive and deterrent measures are not applied to 7. ious metals and stones, many of whom act as DNFBPs, other than casinos and dealers in prec gatekeepers in practice, and are therefore potentially a substantial source of information on high risk sectors and transactions for FinCEN and LEAs. The assessors attribute compliance costs and burden on the pri vate sector as the more heavily weighted factors influencing these exemptions and thresholds rather than a proven low risk of ML/TF, as required by the FATF Recommendations. 8. Generally the objectives and activities of competent authorities align well to national policies and identified threats. The supervisory authorities have adequate mechanisms in place to address FI supervision, but apart from casinos, very limited DNFBP supervisory activities are T preventive measures. in place, as these are not subject to comprehensive AML/CF Recommended Actions 1. Take steps to ensure that BO information of U.S. legal persons is available to competent authorities in a timely manner, by requiring that such information is obtained at the Federal level (see IO.5). the identified vulnerability in the securities sector, the U.S. should continue To address 2. working on extending comprehensive AML/CFT requirements directly to investment advisers (IAs). The U.S should consider building upon the Geographic Targeting Order (GTO) asses sment 3. already started in the high - end real estate sector by addressing the roles of key players involved in the purchase/sale of real estate, to help mitigate ML risks in the high -end real estate sector: IO.1 and R.1 (see also IO.3, IO.4). 4. S. should issue guidance to clarify the scope of the immediate SAR reporting obligation The U. to make it absolutely clear that it applies below the reporting thresholds (USD 5 000 for 000 banks, USD 2 for MSBs) and in which cases it applies. The U.S. should also conduct a focused risk review of the existing thresholds, which are not in line with the FATF Standards or the identified risks relating to terrorism or ML: IO.1 and R.1 (see also IO.4, IO.6, R.20, R.23). 5. The U.S. should conduct a vulnerability analysis of the mini mally covered DNFBP sectors to address the higher risks to which these sectors are exposed, and consider what measures could be introduced to address them. In order to publicly communicate its confirmed or updated understanding of ML/TF threats, 6. should consider updating NRAs on a more regular basis. the U.S. 19 Financial institutions and casinos have a separate cash transaction reporting obligation (CurrencyTransaction Reports). S FATF and APG 2016 Anti - money laundering and counter - terrorist financing measures in the U nited tates – 2016 © 38

41 CHAPTER 2. NATIONAL AML/CFT POLICIES AND COORDINATION 67. The relevant Immediate Outcome considered and assessed in this chapter is IO.1. The recommendations relevant for the assessment of effectiveness under this section are R1 -2. 2 Immediate Outcome 1 (Risk, Policy and Coordination) Country’s understanding of its ML/TF risks Overall, the U.S. has attained a significant level of understanding of its ML/TF risks through a 68. comprehensive risk assessment process that has been ongoing for many years. The understanding of TF risk is highly developed at all levels among all relevant agencies. There is a very good a understanding of ML risk within the relevant Treasury, DOJ and Federal LEAs, but n uneven understanding of risks across the supervisory sectors, with the FBAs and FinCEN displaying a high IRS and some State authorities a lower level. level of understanding, and the civil components of the The U.S. understands terrorism, proliferation and their financing to be the most serious risks 69. particularly high and supported by well to national security. Knowledge of the risks of TF is - coordinated inter -agency activity and input, geographic focus and good input from the intelligence services and reporting sectors in the form of SARs. Cutting edge work is being done on tracking TF threats presented by U.S. ome financial However, s based flights traveling to or near conflict zones. supervisors tend to take a more limited view of TF risk than others, sometimes equating TF risk with designated persons and entities and sanctions. The U.S. also has a good understanding of the significant threats it faces from various sources . 70 U.S. recognizes: the risks posed by the misuse of legal persons and legal ). The (see paragraph 38 -end real estate sector and casinos. arrangements; the vulnerabilities of the financial sector, high However, overall the U.S.’ understanding of the vulnerabilities in the DNFBP sector as a whole is less evolved than that in the financial sector. 71 . The U.S. bases its understanding of ML/TF risks on the entire body of national and other risk assessments (not all of which are public), including the publicly available NMLRA, NTFRA, and 2005 NMLTA (still valid); confidential national risk assessments underpinning national security strategies to combat terrorism, proliferation and their financing, and major proceeds generating crimes and by key Federal LEAs within their area of expertise (s ee -level risk assessments agency related ML; and ) for information on how these risk -Risk Issues Country’s Risk Assessment & Scoping of Higher Chapter 1, assessments are pre pared, and the reasonableness of their conclusions. - F ederal LEAs with principal investigative authority over financial crimes (DEA, FBI, HSI The 72. IRS on an ongoing basis, the ML/TF ICE, -CI, and U.S. Secret Service) individually identify and analyse, risks associated with the predicate crimes within their areas of responsibility. These threat assessments are based on each agency’s operational experience and intelligence, supplemented by , developing he same in its role as both FIU and AML/CFT regulator SAR information. FinCEN does t its understanding of risks on the basis of : analysis of its S AR database; discussions with the private sector through the Bank Secrecy Act Advisory Group (BSAAG) ; direct involvement in inter -agency for threat -based forums (such as NSC working groups) and AML/CFT compliance working groups ( ; ongoing collaboration with policy makers, LEAs, and , the FFIEC BSA/AML working group) example supervisory agencies rtners. ; and information sharing with foreign pa tates money laundering and counter - terrorist financing measur es in the U nited S - Anti – 2016 © FATF and APG 2016 39

42 CHAPTER 2. NATIONAL AML/CFT POLICIES AND COORDINATION National policies to address identified ML/TF risks criminal justice national Overall, 73. -focused policies, activities, and resource allocations are well 2 -level lic and confidential national and agency on addressing the ML/TF risks through the various pub -specific strategic plans and annual performance goals identified in risk assessments (e.g. agency ational . The n annual performance plans , and ) updated with the President’s budget each February strategies security address major predicate crimes and terrorism, including a substantive focus on as identified in the tackling related ML/TF, and are all broadly in line with the country’s main threats . Below are key examples of how the major ML/TF risks are addressed TFRA 2015 NMLRA and N through national AML/CFT policies and activities. . Terrorism: The National Strategy for Counterterrorism 2011 and 74 specifically addresses this risk sets out a strategy for combating terrorism and specifically its financing. The Director of National National Counter Terrorism Center (NCTC) Intelligence is advised by the on how well U.S. intelligence activities, programs, and budget proposals for counterterrorism and TF conform to the -breaking work to identify and address the risks President’s priorities. The U.S. is undertaking ground posed by foreign terrorist fighters. care fraud: (directed 75. The Health Care Fraud and Abuse Control Program (HCFAC) Health- States, healthcare providers, and Secretary of DHHS) identifies Attorney General (AG) by the suppliers and beneficiaries at high risk of being abused for healthcare fraud and related ML, uses to coordinate national efforts to combat such activities, and demonstrates impressive these results . 2013 successes in dismantling high HCFAC -value fraud schemes: Annual Report for FY National Northern Border Counter 76. Drug trafficking: The National Drug Contro l Strategy , specifically address Narcotics Strategy National Southwest Border Counter Narcotics Strategy , and the largest drug trafficking ismantl ing both the predicate crime and related ML. A major focus is d organizations (DTOs) and related ML networks operating internationally and domestically . The Southwest Border Executive Steering Group ( chaired by ONDCP ) includes senior leaders from ederal agencies more than 20 F the threats along the southwest , meets several times a year to assess responses to emerging challenges. border and develops specifically addressed in the 77. Transnational crime organizations (TCOs) are National Strategy to Combat Transnational Organized Crime. A key compon ent of this strategy is using powers under the USA PATRIOT Act to designate foreign jurisdictions, institutions, or classes of transactions which as primary money financial dealings by U.S. persons with those restricts -laundering concerns entities , as well as a sanctions program to block the property of significant TCOs. Operationally, the LEAs focus on disrupting and dismantling TCOs and their financing networks. . desirable destination for the proceeds of The authorities understand that the U.S. is often a 78 foreign predicate offen ses, including corruption. In response to that risk, DOJ and ’s Asset Forfeiture Kleptocracy has a dedicated (AFMLS) Money Laundering Section which Asset Recovery Initiative focu specifically ses on recovering the proceeds of foreign official corruption. The NMLRA notes that the use of domestic shell companies is a known typology to introduce foreign proceeds into the U.S. for layering and integration. S FATF and APG 2016 Anti - money laundering and counter - terrorist financing measures in the U nited tates – 2016 © 40

43 CHAPTER 2. NATIONAL AML/CFT POLICIES AND COORDINATION es and simplified measur Exemptions, enhanced 79. s enhanced due diligence In certain high risk circumstances, law or regulation require 2 FIs are required to apply EDD when establishing/maintaining correspondent accounts for (EDD). foreign banks, and to conduct enhanced scrutiny of private banking accounts maintained for foreign PEPs, and the authorities can designate other high risk situations requiring EDD: USA PATRIOT Act, 312 1 & banking . This is in line with the NMLRA which specifically identifies correspondent s.31 specifically relationships as being an elevated risk, and the 2005 NMLTA which with foreign banks identified foreign PEPs as being elevated risk. Although legislated PEPs requirements do not counts or investment accounts apply to the vast majority of depository ac specifically nly private (o banking accounts, where the threshold deposit at account opening is are or more million 1 USD covered most ), in practice, the FFIEC M anual broadens the application on an enforceable basis, and eterminations FIs to a broader array of accounts and relationships, including BO, do apply PEPs d 5). (see Chapter where known in the The regulatory framework also has gaps and thresholds which fied through the risk identi view of the assessors are not justified or in line with the vulnerabilities to varying degrees . assessment process, and which negatively impact effectiveness There is no requirement to collect BO 80. information in all cases , and in any event the U.S. of very limited application and does not conform to the FATF standards (see TC definition of BO is Annex). Lawyers, accountants, trust and company service providers (other than trust companies) who can establish, facilitate or provide corporate and financial services to comp lex corporate structures or complex transactions are not subject to comprehensive AML/CFT requirements. Even though the involvement of these professionals in such activities is not required under U.S. law, in practice, they often are involved in the creation and management of complex legal persons and arrangements. and are inconsistent Consequently, these gaps are significant as they pertain to high risk situations NMLTA before that), which contains examples of the vulnerabilities of with the NMLRA (and 2005 these sectors to ML/TF. Over the years, the authorities have made several attempts to make the necessary legislative amendments largely without success, although limited progress has been made: see IRS procedures for obtaining a n E IN, and measures extend ing AML/CFT requirements to BO and 20 IA the -making pending on BO. sector. Efforts are once again underway, with draft rule 67 n trillion i USD (a part of the securities industry which manages over Investment advisers 81. assets) IAs, however, are not directly covered by BSA obligations. Some are indirectly covered -dealers, when they implement through affiliations with banks, bank holding companies and broker group wide AML rules or in case of outsourcing arrangements. No netheless, there is a gap, given the size and importance of this sector, which is not in line with the NMLRA which recognizes the risks of ML through the securities sector: p.78 -80. FinCEN has proposed regulations which would extend plicitly AML/CFT requirements ex all IAs. to Real estate agents (REAs) 82. have been exempted from AML/CFT requirements. This is not in -68, line with the NMLRA which documents significant cases of ML through this sector: pp. 26, 42, 67 70. The U.S. has been assessing the ML/TF risks in the real estate sector since 2003. In the U.S. 20 Since the on -site, the Final CDD Rule, that includes a BO requirement, was published on 11 May 2016. The -center/press www.treasury.gov/press - implementation period for the Rule is two years (see releases/Pages/jl04 ) 51.aspx tates money laundering and counter - terrorist financing measur es in the U nited S - Anti – 2016 © FATF and APG 2016 41

44 CHAPTER 2. NATIONAL AML/CFT POLICIES AND COORDINATION context, REAs do not themselves process financial transactions, but they are deeply involved in . Following the negotiating transactions and are therefore subject to the FATF Reco mmendations exemption, the U.S. attempted to mitigate risk in this sector by extending AML/CFT obligations to 2 RMLOs in the financial sector on the basis that these institutions handle mortgage loans in the majority of transactions not otherw ise financed by banks. Historically, 75% of U.S. real estate transactions involve borrowed money, and lenders, both banks and non -banks, are covered by AML 21 However, addressing the vulnerabilities of lenders is only a partial solution, because: rules. ; (b) RMLOs can only conduct CDD on the purchaser, not the vendor on average, about 25% of an (a) . -end market) (see link the market in real estate does not involve financing (particularly the high Figures for some States: Florida: 46.7%; New York: 46.3%) ; (c) although banks have reasonably good AML/CFT programs overall, the same cannot be said of RMLOs whose programs are still in the early stage (their programs do not appear to be very robust and at most would address implementation financed transactions in the mass market only); and ( d) lawyers (who frequently play a key role in tor (such as handling/negotiating financial transactions) and other gatekeepers in the sec condominia associations and others who play an active role applying cooperative associations and sales conditions to real estate sales, which may include prohibiting financing, thereby making real estate an attractive market for large cash investments) are subject to limited AML requirements. In a Geographic Targeting Order (GTO) - to gather early 2016, FinCEN initiated a temporary measure - data on certain high -end real estate sales in two major urban markets. In summary, the assessors that the strategy of addressing ML/TF risk in the real estate sector through the financial believe sector has been of only limited value as it focussed attention mostly on lower risk (the mass market) rather than the high -end market. This is now being addressed by the recent U.S. initiatives using the GTO tool to gather information on high risk transactions. a USD 83. There is generally 5 000 threshold on SAR reporting ( USD 2 000 for MSBs) which is even rd not in line with the standa structuring is an identified risk in NMLRA, as are though individual contributions and self -fun small amounts of money ding of terrorist activity involving larly two factors: (1) (NTFRA). This issue is somewhat mitigated by the financial sector is particu aware of and responsive to TF risks, and FIs with a SAR obligation are required to notify law enforcement immediately and file a timely SAR to report violations that require immediate attention, he U.S. was able to T scheme, regardless of threshold. ML or ongoing such as suspected TF an demonstrate that some SAR reporting below the threshold is taking place. (2) Rather than reporting each suspicious low value transaction as it occurs, if there is a pattern of activity, the U.S. requires FIs and DNFBPs to aggregate the transactions for SAR reporting. The U.S. believes that the thresholds help the authorities focus on larger transactions with a higher probab ility of a nexus to illicit activity. The thresholds and their impact were discussed extensively wi th the U.S. and the assessors acknowledge that some smaller transactions are reported if they qualify for the aggregation or under the immediate reporting obligation. N , it is likely that some transact ions are not being evertheless reported, though FATF sta ndards require reporting of all suspicious transactions regardless of . thresholds 21 -all- -bringing -are -buyers -news/2016/02/05/fewer www.realtormag.realtor.org/daily -close cash S FATF and APG 2016 Anti - money laundering and counter - terrorist financing measures in the U nited tates – 2016 © 42

45 CHAPTER 2. NATIONAL AML/CFT POLICIES AND COORDINATION and activities of competent authorities Operational objectives The priorities and activities of the Federal LEAs are well aligned to and consistent with the 84. 2 ML/TF risks identified through the risk assessments, particularly on TF and ML related to healthcare fraud, drug trafficking and transnational organized crime. This was demonstrated by: annual, budget ed by key agencies demonstrating that their activities and resource and thematic reports publish allocations are focused on ML/TF both in conjunction with predicate activities and as stand -alone offen ses; special initiatives aimed at targeting priority ML/TF activities; and numerous cases ses always include a -generating predicate showing that investigations of serious proceeds offen financial component. 85. On terrorist financing : FBI -TFOS is charged with managing FBI’s investigative efforts into TF facilitators and ensuring financial investigative techniques are used, where appropriate, in all FBI FBI supports the 104 local FBI -led Joint Terrorism Task . investigations counterterrorism -TFOS Forces which coordinate counterterrorism investigations in their respective locations, and Foreign Terrorist Tracking Task Force (FTTTF) s in- he which specialized units such as t conduct depth analyses using government and public source datasets and classified information, to identify al security threats and provide intelligence on these threats to FBI field and track terrorist and nation offices, headquarters sections, and intelligence community partners. : Health Care Fraud Prevention and Enforcement The creation of the On ML related to fraud 86. a Action Team (HEAT) in 2009 by the DHHS and DOJ raised the fight against Medicare fraud to Cabinet and related ML in -level priority. It investigates high dollar value/high impact fraud cases s, Detroit, Houston, Brooklyn, South Louisiana, Tampa, Miami, Los Angele nine high risk locations ( . Chicago, and Dallas ) through Medicare Fraud Strike Force s (MSFS) 87. -complianc e, -risk areas of non identifies trends, detects high IRS , On ML related to tax fraud and prioritizes enforcement actions against taxpayers who file fraudulently, including related -related identity theft fraud adversely financial crimes such as ML/TF, currency violations, and tax IRS FY 2015 President’s Budg et . The IRS -CI strategic plan sets out three affecting tax administration: high level investigative priorities: pursuing tax crimes (including legal and illegal source tax crimes) which is its core mission; other financial crimes such as public corruption, currency violations, and cybe related and counterterrorism financial crimes. rcrimes and narcotics- 88. On ML related to fraud, the Bank Fraud Working Group ( chaired by DOJ Fraud Section) facilitates coordination between LEAs and the FBAs in inves tigating and prosecuting FI fraud and . where proceeds are laundered through the banking sector related ML 89. On ML related to drug trafficking and transnational organized crime: The High Intensity State, local, and tribal law ederal, Drug Trafficking Areas (HIDTA) program provides assistance to F enforcement agencies operating in 28 critical drug -trafficking regions of the U.S. supported by 59 Intelligence and Investigative Support Centers which help identify new targets and trends, develop threat assessments, de -conflict targets and events, and manage cases. The National Guard Counter Threat Finance Program supported over 566 ML investigations of outlaw motorcycle gangs on the Northern border, transnational criminal or ganizations on the Southwest border, and FIs and front companies with links to TF, drug trafficking, and ML. ICE Financial Crimes Illicit I uses the -HS tates money laundering and counter - terrorist financing measur es in the U nited S - Anti – 2016 © FATF and APG 2016 43

46 CHAPTER 2. NATIONAL AML/CFT POLICIES AND COORDINATION to allocate ) a performance metric Pathways Attack Strategy (IPAS) Methodology Assessment ( resources towar d high impact/high risk cases focused on disrupting/dismantling DTOs, identified 1 for a description of t ‐ through pre defined criteria which are reviewed monthly (see also Chapter he 2 OCDETF The U.S. has implemented a specific initiative to address trade- ). sed money laundering ba one of the methods used by transnational organised crime (TOC) and identified in the (TBML), NMLRA. Within ICE, identify global TBML trends and conduct Trade Transparency Units (TTU) ongoing analysis of trade data provided through part nerships with other countries' trade units. ML generally , the High Intensity Financial Crime Area (HIFCA) program is aimed at 90. On targeting financial crime (including ML) in high risk areas, by combining the resources of F ederal, State and local authorities in an inter -2018 FinCEN’s Strategic Plan 2014 -agency task force model. identifies particular risks and vulnerabilities in the financial system, and outlines its strategy for (within ICE National Bulk Cash Smuggling Center (BCSC) addressing them. The -HSI) is an -time investigative assistance to the Federal, State, and operations support facility providing real local officers enforcing and interdicting bulk cash smuggling, the transportation of illicit proceeds, and domestic/international currency seizures. It coordinates with the U.S. Transportation Security Administration (TSA) which screens travellers for contraband at U.S. airports. If TSA encounters mation related to domestic and suspicious bulk cash, it notifies the BCSC which exploits infor LEAs meet quarterly in the international currency seizures. Currency and Emerging Virtual roup to discuss trends in the virtual currency industry. Threats G 91. On the regulatory side , mo st activities of Federal regulators and SROs are broadly consistent with the evolving national AML/CFT policies and identified ML/TF vulnerabilities of supervised (see Chapter 6). For example, to address the emerging threat of sectors virtual currencies an d prepaid cards , FinCEN applied AML/CFT requirements to administrators and exchangers of virtual currency, and issued guidance in this area which has given p rosecutors the tools to combat ML 22 . The anual FFIEC updates the BSA/AML Examination M periodically to reflect through this sector enforcement new ML/TF risks and supervisory expectations. Supervisors are quick to apply if an FI’s risk assessments do not align to those of the authorities (s ). ee Chapter 6 measures National coordination and cooperation 92. National coordination and cooperation on AML/CFT issues has improved significantly since the last evaluation in 2006. Policy and operational coordination are particularly well- developed on counter roliferation and related financing issues. Learning from their -terrorism, counter -p experience in those areas is also leading towards better inter -agency cooperation and collaboration l, on AML issues. Numerous mechanisms are used which is reflective of the complex nature (Federa 50 States and numerous local governments) and vast size of the U.S. and its financial system. 93 . Policy level coordination and cooperation: The NSC staff chair a number of Inter -agency com prised of representatives from relevant government agencies, which Policy Committees (IPC), 22 See Assistant Attorney General Leslie R. Caldwell Delivers Remarks at the ABA’s National Institute , June 26 attorney w.justice.gov/opa/speech/assistant- ww , 2015, - on Bitcoin and Other Digital Currencies caldwell- -r- -leslie general -institute national -s- -aba -remarks delivers S FATF and APG 2016 Anti - money laundering and counter - terrorist financing measures in the U nited tates – 2016 © 44

47 CHAPTER 2. NATIONAL AML/CFT POLICIES AND COORDINATION address a range of national security concerns, including AML/CFT policy and strategy coordination to protect the financial system and strategic markets from abuse by terrorist s and other cr iminals . For manage operational Threat Mitigation Working Group the IPC on TOC and the example, 2 oversees inter TOC Strategy IPC on Corruption implementation of the , and the -governmental coordination of strategies to counter foreign corruption. One of the IPCs meets at least weekly to assess implementation of the National Strategy for Counterterrorism , to identify emerging terrorist threats is led by the Treasury’s AML Task Force . The and TF risks, and consider targeted sanctions targets 2012) to review the AML framework, ng interagency group (established in TFFC and is an ongoi consider where improvements are needed, and implement the necessary legal and operational changes. It includes law has a senior representatives from the CFTC, DOJ, FBAs, IRS, SEC, and FinCEN. It -group to advise on ML/TF risks and challenges to law enforcement investigations. enforcement sub 94 . Operational level coordination and cooperation: A particularly strong feature is the inter - agency task f orce model, which integrates authorities from all levels (Federal, State and local), is widely used to conduct ML/TF and predicate investigations, and has proven very successful in sophisticated, large and complex cases. The benefits and ‘force multiplier effect’ within the task force environment was regularly noted during the on -site. For example, the Federal LEAs highlighted the benefits of being able to leverage off the deep knowledge of the State and local LEAs. The State and local LEAs highlighted the benefits of utilizing Federal authorities’ expertise in conducting financial investigations, their resources, and the additional legal powers that exist at the Federal level. The task Joint force model also facilitates inter -agency information sharing ( see the description of the to address Terrorism Task Forces (JTTFs) in Chapter 4 (IO.9)) . The widespread use of fusion centers , 3 1 and -confliction and provide enhanced leads to LEAs is another innovative feature (see Chapters de coordinates all Federal law y General’s Organized Crime Council IO.6). The Attorne especially enforcement activity against organized crime, including ML. Chaired by the Deputy AG, it consists of the Assistant AG for the Criminal Division, the chair of the AG’s Advisory Committee and th e leaders of nine participating Federal LEAs: FBI; ICE; DEA; IRS; ATF; USSS; U SPIS ; Department of State, Bureau of Diplomatic Security; and the Department of Labor, Office of the Inspector General. 95 There is also good coordination at the coordination and cooperation: Supervisory level . -level supervisors for MSBs. The supervisory level, particularly among FinCEN, the FBAs, and the State FIs with enhance coordination and provide banking examiners and FFIEC Manual and the FFIEC FFIEC BSA/AML Working Group (FBAs, Conference of State Bank The consistent guidance. monthly to discuss examination issues and procedures, regulations FinCEN), Supervisors, and meets , CFTC OFAC, CFPB, SEC nd other stakeholders . The SEC ; and meets quarterly with and guidance , a communicates regularly with FINRA to discuss strategic initiatives, examination coordination, risk Securities and Commodities Fraud Working Group assessment efforts, and industry risks. The (chaired by DOJ Fraud Section) facilitates coordination between LEAs and regulatory agencies in the industries and related ML. The futures investigation and prosecution of fraud in the securities and Indian Gaming Working Group (comprising the National Indian Gaming Commission, DOJ, FBI, FinCEN, and the Bureau of Indian Affairs Law Enforcement Services) coordinates the work of the arious aspects of Indian gaming Federal agencies with authority over v . WMD proliferation and its financing: 96. Policy coordination and cooperation on combating NSC The (Senior Director for WMD, Terrorism and Threat Reduction) coordinates government tates money laundering and counter - terrorist financing measur es in the U nited S - Anti – 2016 © FATF and APG 2016 45

48 CHAPTER 2. NATIONAL AML/CFT POLICIES AND COORDINATION departments and agencies involved in combating WMD proliferation and its financing. The age Department of State chairs four inter- ncy working groups that review and share information on activities of potential proliferation concern and recommend appropriate courses of action to disrupt 2 transfers. combating WMD proliferation and its 97. Operational coordination and cooperation on Office of Export Enforcement The (see Chapter 1: Legal & Institutional Framework financing ) : direct access to FinCEN’s BSA data, works cooperatively with the export (within BIS) has (OEE) community and conducts investiga tions to support criminal and administrative sanctions. BIS is also responsible for developing lists that FIs can use to identify transactions which may involve WMD . The proliferation financing, including the Denied Persons List, the Entity List, and the Unverified List is staffed with fulltime personnel from ICE- Export Enforcement Coordination Center (E2C2) HSI, and individuals detailed from other relevant departm ents and agencies. The National Export Control Coordinator (NECC) (within CES) coordinates counterproliferation investigations and nationwide training of prosecutors, and monitors progress on export control prosecutions, manages exist in certain U.S. -Proliferation Task Forces (CPTF) Counter prosecutions around the country. -proliferation Attorney’s offices to prosecute individuals and entities for violations of U.S. counter t control, laws and regulations, and to enhance cooperation among all agencies involved in expor forge relationships with affected industries, and facilitate information sharing to prevent illegal National Counterproliferation Center ( is the NCPC) foreign acquisition of U.S. technology . The relevant intelligence entity in this area. Privat e sector’s awareness of risks 98. The authorities have mechanisms in place to ensure that FIs, DNFBPs and other sectors al affected by the application of the FATF standards are aware of the relevant results of the nation ML/TF risk assessments. The available on the NMLRA and NTFRA are both public documents -site were aware of them. Treasury website, and the FIs/DNFBPs met with by the assessors during on Bank Secrecy Act Adv is a major vehicle for the (chaired by FinCEN) isory Group (BSAAG) The 99. input, authorities and the private sector to have shared and has cross sector representation, though reflecting the significant role of banks as the primary it is heavily oriented to the depository sector gatekeepers of the financial system . The BSAAG holds two plenary meetings each year, and has three standing committees that meet on an ad hoc basis to consider ML risk compared to regulatory obligations, feedback to industry on the use of SARs, and areas requiring private sector guidance or an advisory. In May 2015, FinCEN created a working group under the BSAAG composed of law enforcement, private sector, regulators and FinCEN working together to identify joint industry -wide ML threats and emerging risks to the U.S. financial system on the basis of available data and the NMLRA. Ultimately, FinCEN will communicate the risks identified through the BSAAG discussions broadly to industry. Securitie SEC and co ( 100 . -chaired by the The s and Derivatives Markets Working Group (SDWG) ) focuses on identifying and addressing ML risks associated specifically with the securities the CFTC and derivatives markets. The group foster egulators and s communications among industry, other r S FATF and APG 2016 Anti - money laundering and counter - terrorist financing measures in the U nited tates – 2016 © 46

49 CHAPTER 2. NATIONAL AML/CFT POLICIES AND COORDINATION law enforcement. Participants include staff from Treasury, FinCEN, FINRA, NFA , DOJ and the IRS, and the group also seeks input from representatives . industry 2 . 101 Through an industry and academic outreac h program called Project Shield America , HS I Special Agents conduct presentations for U.S. manufacturers and exporters of arms and sensitive technology. The program provides an overview of export laws and solicits the private industry's assistance in preventing illegal foreign acquisition of their products. Since the program's inception in -HSI Special Agents have conducted more than 21 000 industry outreach late 2001, ICE presentations. 102 LEAs and s upervisors are all proactive in providing guidance to reporting sectors , The . with a although the quality and frequency vary. There is a steady stream of formal guidance to FIs expects the FI and DNFBP sectors to take the national risk .S. The U cope and topics. wide variety in s assessments into account in their own risk assessment processes; although most formal guidance ed sectors seem minimally covered some s, comes from FinCEN and the LEA aware of the risks and quite recently were issu utreach national risk assessments the ed the latter . Ongoing o , even though rimary method of and publication of advisories by the FIU and LEAs on specific risks is the p r. S communicating with the private secto could be better in the NMLRA identified vulnerabilities ome vulnera . The sector) real estate associated with shell companies and the bilities the (e.g. addressed NMLRA identifies the risks of the misuse of legal persons through case examples demonstrating how yers and (although the U.S. argues that law legal persons have been abused for ML/TF purposes TCSPs are not comprehensively covered, primarily because they are not necessary to register a legal all there and DNFBPs has does not apply comprehensive AML/CFT measures to .S. The U entity). informal little sectors, although there is vered no systemic guidance to the minimally co some been or ve ha dialogue and other touch points. Some sectors (notably the American Bar Association) developed internal AML policies to address the risks as they see them, even though their risk assessment findings as a whole .S. understanding of the risks is not always well aligned to the U . The U.S. is rated as having a substantial level of effectiveness for IO.1. 103. – - money laundering and counter - FATF and APG 2016 © 2016 terrorist financing measur tates S nited es in the U Anti 47

50 CHAPTER 2. NATIONAL AML/CFT POLICIES AND COORDINATION 2 - © FATF and APG 2016 - money laundering and counter Anti terrorist financing measures in the U nited S tates – 2016 48

51 RATIONAL ISSUES LEGAL SYSTEM AND OPE CHAPTER 3. gs and Recommended Actions Key Findin 3 Key Findings Use of financial intelligence (Immediate Outcome 6) 1. Financial intelligence is regularly and extensively used by a wide range of competent authorities to support investigations of ML/TF and related predicate offenses, trace assets, develop operational and strategic analysis, and identify risks. Direct access to the FinCEN database significantly enhances LEAs’ ability to use financial intelligence in a timely manner, in line with their own operational needs and without waiting for disseminations from the FinCEN. A strong feature of the system is how financial intelligence is used within the task force environment through Suspicious Activity Report (SAR) Review Teams (149 nationally), Financial Crimes Task Forces, and Fus ion Centers comprised of Federal, State and local authorities. 2. FinCEN also actively and increasingly supports operational needs by responding to specific LEA requests for information and analysis; providing information to identify unknown targets and new activities related to specific investigations; detecting new trends and producing strategic and tactical intelligence products; and initiating new cases through spontaneous disseminations. FinCEN’s approach to dissemination relating to TF is very . In recent years, it has increasingly applied a similar approach to ML. proactive 3. Gaps in the legal framework somewhat limit the extent and timeliness of information available impacting U.S. authorities’ ability to collect and share accurate and timely intelligence . These gaps are partly mitigated, particularly in the TF context, by the obligation to report immediately suspicious activities that require immediate attention regardless of threshold and through FinCEN’s extensive outreach programs, guidance, advisories, other information and engagement with the private sector. ML investigation and prosecution (Immediate Outcome 7) -the -money” approach at the Federal level, and 1. The U.S. authorities actively pursue a “follow have demonstrated their ability to successfull y pursue sophisticated, large, complex, global and high value ML cases. A wide variety of ML activity is pursued, and examples were - provided of successful prosecutions of standalone ML, third party ML, and of the laundering of proceeds of foreign predicate s. Criminals committing predicate crimes outside the U.S. have been detected and prosecuted when laundering proceeds in the U.S. The U.S. achieves over 1200 ML convictions per year on average at the Federal level, which 2. encompasses prosecutions in all 50 S tates and U.S. territories. Federal authorities prioritize large value, high impact cases, which often occur in the largest States such as California, Florida, New York, and Texas. Money laundering is investigated and prosecuted by Federal level statistics are - authorities. In six States criminalize ML. Some State - addition, thirty available but are not federally reported. Where provided, the information indicates that - – money laundering and counter - terror ist financing measures in the United States Anti 2016 © FATF and APG 2016 49

52 CHAPTER 3. LEGAL SYSTEMS AND OPERATIONAL ISSUES States do not generally prioritise ML. At the Federal level, the sanctions which are being applied for ML are effective, proportionate and dissuasive. 3. The U.S. has national strategies aimed at pursuing ML related to fraud, drug offenses and transnational organized crime which is in line with the main risks identified through the risk 3 assessment process. In 2015, the FBI made pursuing ML one of its top priorities. Several other agencies have a strong focus on the financial component of key criminal activity though there is scope for them to pursue ML more regularly as a discrete offense type. Con fiscation (Immediate Outcome 8) The U.S. is successful in confiscating a considerable 1. value of assets (e.g. over USD 4.4 billion was recovered by Federal authorities in 2014). 2. The U.S. is able to pursue administrative forfeiture, non- conviction based forfe iture and criminal confiscation and uses these tools appropriately. Most asset recovery cases proceed as civil forfeiture and most civil forfeitures take place administratively. Confiscation achievements by agencies, specific task forces or initiatives su 3. ggest that authorities achieve confiscation in high risk areas, in line with national and agencies’ AML/CFT priorities. Additionally, the authorities’ focus on targeting high value cases also ensures that high risk areas are addressed. 4. The U.S. Federal aut horities aggressively pursue high - value confiscation and provided numerous cases which demonstrate their ability to obtain high value confiscation in large and complex cases, in respect of assets located both domestically and abroad. ial information in respect of criminal confiscation, or civil forfeiture, at a 5. There is little offic State and local levels, but it is apparent that State and local asset forfeiture activity is undertaken by joint task forces targeting priority offending and the remainder is li kely to arise from State drug trafficking legislation. Asset sharing arrangements are regularly agreed with both domestic and foreign 6. counterparts, which encourage inter -jurisdictional cooperation. -agency and inter 7. ct on effectiveness including the lack of general Some gaps in the legal framework impa power to obtain an order to seize/freeze property of corresponding/equivalent value which - may become subject to a value based forfeiture order (such authorities exist in only one judicial circuit covering several States). The result is that such assets are unlikely to still be available by the time a final forfeiture order is made. Likewise, not all predicate offenses include the power to forfeit instrumentalities. Nevertheless, the U.S. is successful in value of assets . con fiscating a significant Recommended Actions Immediate Outcome 6 1. FinCEN should continue and enhance its current initiative to increase the level of spontaneous disseminations of information and intelligence relating to TF, and especially ML and predicate crimes. S FATF and APG 2016 Anti - money laundering and counter - terrorist financing measures in the U nited tates – 2016 © 50

53 CHAPTER 3. LEGAL SYSTEMS AND OPERATIONAL ISSUES FinCEN should continue and enhance its recent approach to go to reporting entities, 2. including those not reporting the initial SAR, to obtain additional information for the purposes of FinCEN's operational analysis and dissemination, in addition to supporting ongoing cases/investigations. 3 3. The U.S. should address the gaps in the legal framework which currently limit the extent and timeliness of financial intelligence available to FinCEN and competent authorities. In particular, it shoul d: a) Extend reporting requirements to investment advisers, and DNFBPs (other than casinos); . b) Issue formal guidance clarifying reporting entities’ immediate reporting obligations c) Conduct a focused risk review of the existing reporting SAR thresholds (in pla ce since 1992) and timeframes. Immediate Outcome 7 The authorities should: Continue to prioritise investigation of the financial component of predicate offenses. 1. Continue to enhance inter- 2. agency coordination and cooperation including by further improving inter -agency access to information, in particular IRS information. 3. Continue to prioritise the investigation and prosecution of ML activities per se, at both ses. Federal and State level agencies, rather than as an associate type offense to other offen Improve the visibility of AML State level activities and statistics, including via improved data 4. wide picture of the adequacy of AML efforts at all - collection and sharing, for a clearer nation levels. 5. Legislate to ensure that a range of tax crimes are explicitly considered predicates for ML. Immediate Outcome 8 The U.S. should ensure that: 1. All predicate offenses include the power to forfeit instrumentalities; conviction non- Authorities are able to seize and freeze pre- to be 2. tainted assets that are likely required to satisfy a value based forfeiture order in criminal proceedings; Policy guidance is issued to investigators and/or prosecutors on when to pursue and 3. he risk prioritise confiscation in types of cases highlighted as being of particular concern in t assessments. 4. AML State level proceeds recovery activities and statistics are more widely and uniformly available, including via improved data collection and sharing, for a clearer nation - wide picture of the adequacy of asset recovery efforts at al . l levels tates money laundering and counter - terrorist financing measur es in the U nited S - Anti – 2016 © FATF and APG 2016 51

54 CHAPTER 3. LEGAL SYSTEMS AND OPERATIONAL ISSUES 104 . The relevant Immediate Outcomes considered and assessed in this chapter are IO.6 -8. The Recommendations relevant for the assessment of effectiveness under this section are R.3, R4 & R29 - 32. Immediate Outcome 6 ( Financial intelligence ML/TF ) 3 Use of financial intelligence and other information The U.S. authorities make extensive and regular use of financial intelligence and other . 105 relevant information to ident ify investigative leads, develop evidence in support of investigations, ses and TF. and trac e criminal proceeds related to ML, associated predicate offen This is primarily achieved through direct access to and use of FinCEN data by LEAs, supplemented by act ive (and growing) dissemination of intelligence by FinCEN. The assessment team base s its conclusions on a and variety of information including: statistics on the volume/types of BSA data collected by FinCEN ; discussions with a wide range of LEAs, task forces and prosecutors at the accessed by LEAs tate/local levels; and the team’s review of numerous cases demonstrating such Federal/S information and intelligence is used in practice to support investigations and trace assets. Many mechanisms facilitate the use of financial intelligence in conjunction with other relevant . 106 -TFOS’s Strategic Intelligence Unit information. For example, FBI analyses methodologies to identify possible TF transactions at their earliest point. This includes ongoing analysis of BSA data to identify high -risk jurisdictions and TF typologies that, combined with analysis of other data including classified information, can provide investigators with new leads for possible TF investigations. . Particularly strong features in this area are the fusion centers and joint task forces which bring 107 together Federal/State/local partners in an inter -agency environment. Fusion centers serve as focal -related information, and disseminating points for receiving, analyzing, gathering, sharing threat actionable intelligence (based on financial information, national intelligence, and local, State, and which is a OCDETF Fusion Center (OFC) the prominent example is regional information). A comprehensive data center that combines information from FinCEN with information from its member agencies (DEA, FBI, ATF, USMS, IRS, ICE and USCG, in cooperation with DOJ’s Criminal and Tax , (USAOs) Divisions, the Department of State’s Bureau of Consular Affairs, the 94 U.S. Attorneys’ Offices and State and local law enforcement), and others. Using this information, it analyses drug and drug related financial data to create comprehensive intelligence pictures of targeted organizations, those identified as Consolidated Priority Organization Targets (CPOTs) and Regional Priority including Organization Targets (RPOTs). It then passes actionable leads to OCDETF field agents. The International Organized Crime Intelligence and Operations Center (IOC- 2) was created to enhance OCDETF’s capacity to engage in intelligence -driven investigations. It leverages the resources of the OFC to target international organized crime, and has representatives from the same nine Federal LEAs that participate in the OFC. -CI which review Suspicious Activity . There are 55 Financial Crime Task Forces led by IRS 108 Reports (SARs) based on a geographic or threat specific basis and bring together Federal, State and 1 Legal & local authorities. Key task forces such as the DOJ’s OCDETF (described in Chapter ), and the New York institutional framework Legal & (see Chapter 1, El Dorado Task Force -based S FATF and APG 2016 Anti - money laundering and counter - terrorist financing measures in the U nited tates – 2016 © 52

55 CHAPTER 3. LEGAL SYSTEMS AND OPERATIONAL ISSUES section, IO.7 and IO.8) make extensive use of BSA data and their own in -house institutional framework capacity to query and analyse such data. This task force environment fosters a high degree of cooperation and exchange of information and intelligence between FinCEN and other competent authorities, facilitating collaborative work and operational coordination among Federal, State and local 3 -CI agents in these task forces, given their ability to -value of IRS highlighted the added LEAs agencies. “follow the money” and their forensic accountancy expertise, although some concerns remain over the limited a ccess that other LEAs have to IRS tax information in the early stage of investigations (from an intelligence -sharing perspective). 109 U.S. authorities use financial intelligen ce and other information from diverse sources: . reports and its analytical reports is the primary Bank Secrecy Act of a) FinCEN’s database forms repository of financial intelligence in the U.S. coming from reporting entities in many including SARs , Currency Transaction Reports (CTRs), Reports of Int ernational Transportation of Currency or Monetary Instruments (CMIRs), Foreign Bank Account Reports (FBARs), and Reports of Cash Payments over USD 10 000 Received in a Trade or Business (Form 8300) ; b) The New York Federal Reserve Bank can search names, addresses, and account FEDWIRE: numbers for any fund transfers done through its system ; A subpoena can be served to search the Clearing House Interbank Payment Systems (CHIPS): c) ; to process wire transfers CHIPS network, used by FIs ese can be obtained by the USAO through a -parte court order; n ex Tax returns: d) Th e) Many foreign banks maintain correspondent accounts in the Correspondent bank accounts: U.S. to conduct U.S. dollar transactions on behalf of their customers. Even without jurisdiction over a foreign bank, investigators can serve a grand jury subpoena and receive records of any cheques or wire transfers that cleared through the U.S. correspondent account on behalf of the foreign bank; f) Databases of investigative information held by the LEAs and prosecutorial authorities themselves, including investigative intelligence, criminal records, and mutual legal assistance requests; and g) . source data Information from corporate, motor vehicle and property registries, and open (over contains 11 years of financial intelligence 110 . F million 190 inCEN’s database of BSA data records) which can be analysed, disseminated to or shared with domestic and foreign partners , making FinCEN one of the largest repositories of information available to law enforcement in the . FinCEN receives an average of 55 country (including 4 new reports per day ) from 800 SARs 000 and other approximately 150 000 The 2006 mutual evaluation of /natural persons. legal FIs, DNFBPs, the U.S. noted delays and backlogs in entering SAR information into FinCEN’s database. These have the IT modernization process been eliminated by . Now, the vast majority of SARs are filed electronically and are a . vailable within one business day of being received by FinCEN tates money laundering and counter - terrorist financing measur es in the U nited S - Anti – 2016 © FATF and APG 2016 53

56 CHAPTER 3. LEGAL SYSTEMS AND OPERATIONAL ISSUES 2. Reports received by FinCEN annually Table - 2014) Average number of reports received per year (2012 322 1 725 SARs (Suspicious Activity Reports) CTRs (Currency Transaction Reports) 15 283 950 3 CMIRs (Reports of International Transportation of Curren cy or Monetary Instruments) 918 209 FBARs (Foreign Bank and Financial Account Reports) 927.151 ) 000 10 USD 300 Reports (Reporting Cash Payments of Over 521 259 8 Average number of Bank Secrecy Act reports received annually 18 405 862 Total number of Su spicious Activity Reports (SARs) reported (2010 - 2014) 520 1 517 2011 372 1 326 2010 2014 1 973 813 1 2012 391 1 640 2013 587 763 111 The information collected by FinCEN under the BSA can be linked with a variet y of law . enforcement and commercial databases during analysis. FinCEN’s information sources fall into three categories: (i) direct access to its financial database (SARs, CTRs, CMIRs, FBARs, 8300 Reports); (ii) direct access to open source data and commerc ial databases (State corporation records, property records, people locator records, professional licenses, databases for court records, and vehicle registrations); and (iii) indirect access to law enforcement data from partner agencies (FBI, DEA, USSS, USP IS, DHS, etc. – see Chapter 1, Legal and Institutional Framework). 112 . All LEAs, task forces and prosecutors met with by the assessment team confirmed that the use Federal, of financial intelligence is a regular component of State and local investigations. Given the consider this model for intelligence sharing and direct access by LEAs to BSA data, the authorities investigat a regular part of their intelligence as ive process (rather than as something done only in comprehensive resp onse to dissemination by the FIU). Authorities therefore do not collect specific on the results obtained using this intelligence including investigations or convictions statistics However, numerous cases were arising as a result of spontaneous disseminations by FinCEN . provided which demonstrate that financial intelligence and other relevant information are being successfully used to identify new targets, dismantle the financing networks of criminal enterprises, and trace assets. Box 1 . Financial intelligence and other information supporting investigations and asset tracing HSI agents noticed a series of suspicious transactions involving multiple Belair Financial Services (2015): ICE - HSI and IRS s writing checks to each other. Through FinCEN queries, ICE - businesses listed at the same addres identified beneficial owner information for approximately 30 sham companies, connected the address to the main target, and ultimately dismantled a sophisticated transnational criminal organization laundering money - from fraudulent health related claims using sham companies, U.S. bank accounts and attorneys. Agencies - involved: ICE - HSI, IRS CI, New York EDTF, DOJ/AFMLS and USAO/EDNY. MSB Disshod “Dema” Sidikov (2015): bjects wiring funds from numerous locations in SARs identified 34 su Anti © 2016 – FATF and APG 2016 tates S nited terrorist financing measures in the U - money laundering and counter - 54

57 CHAPTER 3. LEGAL SYSTEMS AND OPERATIONAL ISSUES the U.S. to receivers in Russia, Ukraine, and Uzbekistan, and led to the identification of wires from these countries back to the U.S. Another MSB SAR identified the individual who wrote the virus and conducte d the cyberattacks on the trucking companies to steal their account numbers and check codes. Related CTRs were discovered showing cash deposits/withdrawals from suspected bank accounts used by the defendants which 3 track the proceeds. This investigation led to the dismantling of a enabled LEAs to monitor these accounts and criminal ring that skimmed more than USD from trucking companies engaged in legitimate 1.7 million ICE commerce. Agencies involved: Youngstown, OH City Police and USAO/NDOH. ; HSI - STRs rec eived and requested by competent authorities 113 . Competent authorities make frequent use of SARs, CTRs and other mandatory reports filed ation, the quality of with FinCEN. Although many reports contain relevant, accurate and useful inform reports varies and continues to improve. The extent to which reports are available from some The assessment team based these sectors is reduced by technical deficiencies in the legal framework. conclusions on various information sourc es including: statistics on the reports received/requested by FinCEN, and how often BSA data is accessed by LEAs; the NMLRA concerning ML/TF risks in sectors not subject to SAR reporting requirements; discussions with supervisors and reporting entities (on the quality of SARs, and feedback and guidance received), and with a wide range of LEAs, task forces and prosecutors at the Federal/State/local levels (on the quality and usefulness of SARs and other reports); and the team’s review of cases demonstrating how SARs and other reports are used in practice. 114 . FinCEN provides direct, self- authorized users from service access to its data to about 10 000 over 100 Federal/State/local LEA s and Federal supervisory agencies. Authorized users are easily -line able to access, query and analyse BSA data through the FinCEN Portal and FinCEN Query on 000 inquiry systems introduced in 2012. On average, 30 , daily searches of BSA data are undertaken indicating extensive use of this data to support investigations . Nine key agencies have bulk access allowing them to match BSA data with information in their own databases to identify suspects, associates, possible leads, etc. The largest Federal LEAs also maintain liaison staff at FinCEN, on a -time basis, enabling them to work directly with FinCEN analysts. These relationships are full /part very important when partner agencies need FinCEN’s support or coordination on investigations or other activities. Table Top Fiv 3. e (5) FinCEN Query Users in FY 2015 (not including additional access to financial intelligence and other information that FinCEN provides by other means) Number of FinCEN Query Searches Agency Name Federal Law Enforcement and Other Competent Authorities 256 Drug Enforcement Administration 011 Internal Revenue Service Criminal Investigation 111 223 Immigration and Customs Enforcement 191 324 301 Office of Personnel Management 189 267 63 Federal Bureau of Investigation tates money laundering and counter - terrorist financing measur es in the U nited S - Anti – 2016 © FATF and APG 2016 55

58 CHAPTER 3. LEGAL SYSTEMS AND OPERATIONAL ISSUES Number of FinCEN Query Searches Agency Name State Law Enforcement County District Attorney's Office 34 New York 255 945 Florida Department of Law Enforcement 8 3 909 Illinois State Police 6 865 5 California Department of Justice Texas Department of Public Safety 5 578 115 -site visit, all LEAs, task forces and prosecutors stressed the usefulness of During the on . financial intelligence generally (and BSA data in particular). FinCEN indicated that the quality and depth of SARs varies considerably, depending on the reporting entity and the n ature of the suspicion. Some reporting entities provide very sophisticated SARs, while others may not always provide comprehensive information. The authorities have taken steps to improve SAR quality and FinCEN enhancements made to the SAR form, the introduction confirms that quality is improving thanks to of electronic SAR filing, extensive outreach and guidance to reporting entities (including through the BSAAG mechanism described in IO.1), and feedback and compliance/supervisory actions by is includes: formal guidance provided to reporting entities by FinCEN, the FFRs, State regulators. Th agencies, and law enforcement partners; 66 advisories published by FinCEN on a diverse range of threats from mortgage fraud to financing terrorist organizations (some pu blic and others non- public distributed by FinCEN through its secured network); enforcement actions published by regulators; direct clarification and assistance provided by FinCEN and partners to reporting entities. and 116 A particularly strong feature of the system is that section 314(b) of the PATRIOT Act . encourages FIs (and any association of FIs) to share information amongst themselves for the purpose of identifying and, where appropriate, reporting possible ML or terrorist activity —a mechanism which enhances the quality of SARs. FinCEN is also able to seek further information from the entity which reported a SAR without need for a court order/subpoena (707 such requests were Furthermore, FinCEN has several authorities to collect made to reporting entities in FY 2015). additional information from reporting entities and this additional information becomes part of Statistics about the use of these authorities FinCEN’s financial database (available directly to LEAs). were shown to assessors but some of the figures provided are not included to ensure confidentiality of ongoing investigations. - FATF and APG 2016 © 2016 – Anti tates S nited terrorist financing measures in the U - money laundering and counter 56

59 CHAPTER 3. LEGAL SYSTEMS AND OPERATIONAL ISSUES FinCEN’s authorities to collect additional information from reporting entities . 2 Box require any domestic financial institution or group of domestic Geographic Targeting Orders (GTOs) financial institutions in a geographic area and any other person participating in a given type of transaction to file a report in the manner and to the extent specified in such order. Four GTOS have been publicly issued in 3 the last two years (previously, they were not public). Examples include: a 2015 GTO requiring trades or businesses that export electronics located near Miami to record and report to FinCEN information on certa in ; and a 3 transactions in excess of USD 000 2016 GTO on title insurance (see Box 3 ). Foreign Financial Agency (FFA) rules impose additional reporting requirements on domestic financial ed FFAs. Since 2014, FinCEN has issued institutions regarding transactional information involving identifi multiple FFA regulations to gather transaction data and U.S. FIs have reported over 5 million transactions to FinCEN. Information collected has enabled FinCEN to identify new trends in illicit activity (terrorist meth odology for money movement, use of shell companies for ML, etc.). With this lead information, LEAs have opened numerous investigations into U.S. - based connections to foreign threats. 000 3 USD transfers of is a request for records relating to international funds Demand Letter or more. The scope of the requested information can vary depending on the specific circumstances of the request. Since December 2014, FinCEN has issued nearly 100 Demand Letters to U.S. FIs requesting records. Information response has assisted ongoing investigations, generated leads opening new investigations and provided in assisted in TF investigations. enables Federal, State, local and foreign LEAs, through FinCEN, to reach Section 314(a) (USA PATRIOT Act) out to over 43,000 point s of contact at over 22,000 FIs to locate accounts/transactions of persons that may be “engaged in or reasonably suspected, based on credible evidence, to engage in terrorist acts or money laundering activities, with respect to a particular criminal investigation”. In practice, authorities wait until late in an investigation to use such requests in order to locate additional assets that may be involved in terrorism or serious ML. Waiting until an investigation is mature is due to the reach of the request and the potential for the account holder to be made aware of the investigation. Since 2006 FinCEN has submitted 2,055 section (a) requests to FIs for ML purposes and 480 for TF purposes. ) program involves a small Special Information Sharing Authority (Section 314(a) (USA PATRIOT Act number of U.S. financial institutions that are chosen based upon the particular 314(a) request characteristics (specific ongoing case) in order to report information linked to specific targets and/or typologies under -intensive investigation. Statistics show a very low use of this specific authority to date since it is a resource and time consuming procedure that entails several information sharing and coordination meetings, and maintaining ongoing communications with FIs and part ners, etc. . 117 FinCEN can use the above authorities in combination to obtain additional information regarding a particular SAR from any reporting entity (i.e. not just the entity that reported a is is however very rarely done for operational intelligence analysis by FinCEN of a particular SAR). Th particular SAR or related group of SARs early in the intelligence process. FinCEN indicated that use has been done few times in of information gathering powers in this way is a recent development and – - money laundering and counter - FATF and APG 2016 © 2016 terrorist financing measur tates S nited es in the U Anti 57

60 CHAPTER 3. LEGAL SYSTEMS AND OPERATIONAL ISSUES the previous 18 months. FinCEN's powers to obtain additional information tend to be used much more either to support strategic analysis of particular priority issues (for example, human trafficking n and sophisticated ML networks) or in response to requests from and smuggling, TBML, corruptio LEAs to support existing investigations. While the use of these powerful tools in these broad ways is 3 a real strength of the system, FinCEN is also strongly encouraged to make more expansive use of these tools for operational purposes, particularly noting its current efforts to enhance spontaneous disseminations of intelligence to law enforcement (as discussed below). ve an impact on effectiveness 118 xtent, technical deficiencies in the legal framework ha To some e . as they limit the reports and information available to the competent authorities. It is difficult to reduce effectiveness, gauge the precise extent to which these deficiencies (described below) deficiencies are partly mitigated in practice es pecially as some of the . 119 . are only partially subject to AML Programs or Investment advi sers and a majority of DNFBPs Investment advisers are not directly covered by the BSA mandatory SAR reporting requirements. and the SAR requirement. They can be indirectly covered through their affiliation to a FI, or when they act for a FI in the framework of an outsourcing relationship. Nonetheless, FinCEN is in the 23 Real estate agents are process of extending SAR reporting requirements to all investment advisers. not . However around 75% of subject to AML Program or mandatory SAR reporting requirements involve loans issued by covered bank and real estate transactions are partly covered because they -end real estate sector bank lenders. Furthermore, FinCEN is addressing concerns about the high non- -end market) in order to collect relevant information and by issuing GTOs (specially aimed to high o address the vulnerabilities. Casinos are covered under both AML Programs and assess how best t . mandatory SAR reporting . ) is a concern, but FIs ( USD for MSBs 000 2 USD for banks, 000 5 SAR reporting Thresholds on 120 and DNFBPs with SAR reporting obligations are directed to report immediately suspected violations that require immediate attention without regard for transaction value or whether a transaction has mitigated and 8.37% of total SARs In practice, this issue seems to be somewhat taken place. that FinCEN indicated ARs). submitted are below the thresholds (20% of TF SARs and 8.27% of ML S that its data removing the thresholds is not a top priority in terms of improving effectiveness, but with increased reporting if the thresholds were dropped mining and IT tools would be able to cope (See IO.4 for more details about SAR reporting below the thresholds). 121 . Deficiencies in CDD requirements (in particular the lack of BO requirements) can under mine the usefulness of SARs (e.g. SARs involving legal persons such as shell companies), and/or complicate the analytical process. However, investigators stated that these SARs can still provide enabling LEAs to “follow the money”. actionable leads . 122 The time allowed to file SARs (30/60 days) was criticised in the 2006 U.S. evaluation and may reflect that, until recently, a majority of SARs were filed manually. SARs are now filed electronically. , and time limits vary from country ARs dards set no specific deadline for filing S While the FATF stan ”. The relatively long time to file may reduce promptly to country, STRs must be submitted “ effectiveness, although this is mitigated to some extent by the fact that SARs can be and are 23 On 25 August 2015, FinCEN issued a notice of proposed rulemaking (NPRM) that would impose certain AML requirements, including suspicious activity report (SAR) filing obligations, on investment advisers. S FATF and APG 2016 Anti - money laundering and counter - terrorist financing measures in the U nited tates – 2016 © 58

61 CHAPTER 3. LEGAL SYSTEMS AND OPERATIONAL ISSUES submitted urgently (e.g. in TF cases they can be, and often are, submitted within hours ). Of the SARs timeframe for submission is 17 days filed within 30 days, the median and 24% are filed the same day illicit activity is identified ( 11% of all SARs are filed the same day the suspicious activity is ). identified 3 Operational needs supported by FIU analysis and dissemination thorities FinCEN’s analysis and dissemination support the operational needs of competent au . 123 to some extent, though FinCEN is encouraged to continue and expand its current efforts to focus more resources on proactive, spontaneous disseminations. The assessment team based these conclusions on various sources including: a review of FinCEN’ s processes for analyzing SARs and other reports, and its intelligence and analytical products; the priority risks identified in the NMLRA and NTFRA; discussions with a wide range of LEAs, task forces and prosecutors at the Federal, State and local levels about the usefulness of FinCEN’s products in investigations/prosecutions of ML, predicate offen ses and TF. 124 . All information collected from reporting entities is stored in FinCEN’s BSA database. F inCEN uses e bulk data and methodology based on IT and technological tools to min analysis sticated a sophi modernization efforts since IT relevant information for further analysis and dissemination. detect s, and provided new tools 2012 have significantly improved FinCEN’s data management capabilitie for domestic partners to access the information. 125 Given the very large number of reports being received by FinCEN annually (over 19 million . CEN is not able to comprehensively analyse each SAR. SARs), Fin million 1.9 in 2014, including over Instead, it identifies priority SARs for further analysis by running sophisticated and evolving automatic business rules on incoming SARs each day - a process enhanced by recent IT modernization. Priorit y SARs are flagged and analytical resources devoted to those SARs considered most valuable to law enforcement, in accordance with evolving parameters reflecting national strategic priorities and LEA feedback. A large number of SARs are also analysed independently by law enforcement and other agencies with direct access to the BSA database (see Table 3 above ). FinCEN’s highest priorities at present are: transnational security threats (including terrorism 126 . ransnational organized crime , t and TF), significant frauds (including health and tax frauds) - cyber threats. These priorities are well (including drug and human trafficking), kleptocracy, and aligned with the recent national risk assessments. By identifying and flagging priority SARs for and providing LEAs direct access to its database (subject to appropriate controls further analysis, and confidentiality safeguards), FinCEN is able to manage the large number of reports it receives and provide continuous, targeted added value to the analytical and operational needs of LEAs. At the strategic level, FinCEN assigns analysts to study information for trends and patterns . 127 based on the needs Such analysis of FinCEN’s law enforcement, regulatory, and policy customers. includes identifying geographic and systemic “hot spots,” identifying new and emerging phenomena, and providing detailed lead information to law enforcement and the intelligence community. This information may then be used as a basis for operational action. The following table outlines Priority Threat Products produced by FinCEN’s Intelligence Division in FY2015. tates money laundering and counter - terrorist financing measur es in the U nited S - Anti – 2016 © FATF and APG 2016 59

62 CHAPTER 3. LEGAL SYSTEMS AND OPERATIONAL ISSUES by FinCEN in FY2015 Products developed and disseminated 4. Table Operational analysis products produced by FinCEN to provide case Investigative Memoranda: upon support for responses to requests from domestic request from LEAs to support ongoing investigations. Used LEAs/authorities and Egmont. 3 rd party ML, ML related to drug Prio 1 : TF, significant frauds, 3 271 produced rity areas offenses, transnational organized crime (916 FIU & 355 domestic) : Summarize SARs identified by automated rules and alerts. Used to spontaneously diss Intelligence Flashes eminate terrorism and TF high value SAR information related to to domestic and foreign LEAs, FIUs, and the intelligence community within 1 to 2 days of receipt from reporting institutions disseminated Priority areas: 566 Terrorist financing, foreign terrorist fighters Dispatches or Proactive Referrals : Operational analysis products which FinCEN produces and disseminates to LEAs spontaneously. They s ummarize SARs identified by analyst, with some context. auds Terrorist financing, significant fr Priority areas: 102 disseminated Executive Alerts: Short papers for governments executives on hot topics Cybercrime against FIs Priority areas: 6 published Intelligence Assessments: Longer tactical or strategic analytical papers. Provide in - depth analyses of finan cial crime - measure recommendations methodologies, associated trends, patterns, and vulnerabilities, and counter rd party ML, Compromised FIs, TF, significant frauds, 3 Priority areas: 22 disseminat ed ML related to drug offenses, transnational organized crime Technical Bulletin: Strategic with technical or statistical focus rd 8 published party ML, significant frauds Compromised FIs, 3 Priority areas: 48 published Research Summaries/Situation Reports Although t . 128 he LEAs more often use their access to FinCEN’s database to conduct their own searches and analysis, they can (and do) also request further information and analysis from FinCEN ) to support ongoing investigations. FinCEN asserts tha t, as the FIU, it has Investigative Memoranda ( the most sophisticated software tools and expert analysts to interrogate its own database, and this assertion was supported by the LEAs the assessors met during the on -site. 129 . FinCEN indicate d that a recent decline in the number of Investigative Memoranda being produced reflects the fact that it is seeking to move away from “reactive” disseminations to the extent possible, and to redeploy its analytical resources to focus more on proactive spontaneous disseminations such as Dispatches or Proactive Referrals. This proactive and more operational approach has been welcomed by the Federal LEAs and prosecutorial authorities. Discussions with LEAs confirmed that FinCEN’s spontaneous dissemination are useful for identifying unknown targets, generating investigative leads and new cases, identifying new activities related to existing investigations, and detecting new ML/TF trends. . This change of approach and priorities by FinCEN is also supported by the assessment team 130 for the following reasons : FinCEN’s analytical resources are relatively limited given the size of its the number of incoming reports; LEAs have direct access to FinCEN’s database, an database and d a growing ability (enhanced by the recent IT modernization) to access and analys to e data relevant S FATF and APG 2016 Anti - money laundering and counter - terrorist financing measures in the U nited tates – 2016 © 60

63 CHAPTER 3. LEGAL SYSTEMS AND OPERATIONAL ISSUES particular investigations. Consequently, it makes sense for FinCEN to devote more of its analytical resources to the identification of SARs and targets that might not otherwise be detected by LEAs, and FinCEN is encouraged to continue to the production of other ‘value- added’ analytical products. strengthen ing its efforts to produce more reports of its own initiative (noting that only 102 3 Dispatches or Proactive Referrals were disseminated in FY2015. The previous year (2014) FinCEN disseminated 45 operational proactive products . ing . The U.S. provided numerous case studies demonstrat 131 how BSA data is used to initiate facilitate -site, . During the on evidence gathering LEAs consistently emphasized investigation s and/or the centrality and usefulness of financial intelligence in their investigations. Illustrative examples of FinCEN’s strategic analysis being used to initiate operational . 3 Box action In January 2016, FinCEN issued a GTO that temporarily requires certain U.S. title insurance companies to identify the natural persons behind companies used to pay “all cash” for high - end residential real e state in New York City and Miami. This operational action was initiated after FinCEN’s strategic analysis of BSA data raised concerns that all- cash purchases (i.e., those without ts and identity by bank financing) may be conducted by individuals attempting to hide their asse purchasing residential properties through limited liability companies or other opaque structures. —a near real -time, proactively In 2014, FinCEN initiated the Intelligence Flash product . 132 derive -rule alerts and highlighting new or newly d report, often generated from automated business -2 days of receipt from reporting discovered SAR information. Flashes are disseminated within 1 entities and are intended to provide immediate actionable intelligence to FinCEN’s law enforcement and intelligence community partners on a given subject(s) and/or apparent cluster. Currently, Flashes are focused primarily on TF. Since its inception, over 600 Flash reports have been disseminated to domestic and international stakeholders. The authorities confirmed that Flash reports and information collected from FIs through FinCEN’s “Hotline” have been operationally useful, and the team was provided with concrete examples showing its effectiveness in specific of terrorism. Flash reports are also routinely disseminated to foreign partners, one of investigations whom expressed concern that the reports do not always indicate a connection to the recipient -2 very short (usually 1 country. FinCEN justifies its approach on the basis that Flash reports are pages) and aimed at giving the entire global network an opportunity to see another “piece of the puzzle”, and make connections that may not otherwise be obvious. . F LEAs and receives feedback on 133 the usefulness of SARs reported by inCEN works closely with This stablished for analytical IT tools; and reports disseminated. FIs; the criteria and rules e collaboration leads to an improvement of the whole system. FinCEN also surveys its partners nually on their levels of satisfaction. In FY 2014, 89% of all U.S. competent authorities and foreign an FIU partners expressed satisfaction with the contributions that sharing information with FinC EN has result which further substantiates the This is a very strong ations. provided to their organiz – - money laundering and counter - FATF and APG 2016 © 2016 terrorist financing measur tates S nited es in the U Anti 61

64 CHAPTER 3. LEGAL SYSTEMS AND OPERATIONAL ISSUES conclusion that FinCEN’s operational and strategic analysis supports the operational needs of its users. . To its credit, FinCEN has addressed and is addressing many of the c oncerns expressed in the 134 2006 MER including the need to improve the process for filing SARs and other reports, maintain its 3 key r ole within the AML/CFT chain, move away from being a sole database to be explored by others, and ensure that its products are m eeting LEAs’ needs. As was recommended in the 2006 MER, FinCEN has in fact worked closely with law enforcement to identify the kind of transaction These initiatives have information, crime areas and types of analysis that are of interest to LEAs. resulted in significant improvements in satisfaction levels by LEAs and supervisory authorities. . FinCEN is encouraged to continue its current efforts in this regard /financial intelligence Cooperation and exchange of information The FIU and other competent authorities have a high degree of cooperation, coordination and 135 . exchange of financial intelligence. There are adequate safeguards in place to protect the and coordination is an important confidentiality of information exchanged or used. LEA cooperation aspect of the U.S.’s use of financial intelligence and is an extremely important issue in the context of a country such as the U.S. with many authorities and multiple levels of government. The assessment team based these co nclusions on various sources including: discussions with members from a range of SAR Review Teams, Financial Crime Task Forces, and fusion centers (described above under Core governing the exchange of financial intelligence memoranda of understanding (MOUs) 6.1); Issue -through and/or other relevant information; and a visit to the FIU’s premises which included a walk of some of the security measures in place. . 136 exist in all 94 Federal judicial districts and meet monthly to review all SAR Review Teams SARs received in that judicial district. Some are assigned to a particular LEA to investigate, based on -CI with participation of the Federal LEAs its expertise, or are investigated jointly. Most are led by IRS with authority to investigate financial crimes. Others are controlled by the U.S. Attorney’s Office. SAR Review Teams are also embedded in LEAs and within financial crime task forces (including JTTFs). FinCEN seeks to coordinate and support information An extensive framewor . 137 k of MOUs: sharing across its network of more than 100 State and Federal law enforcement and U.S supervisory agencies. FinCEN has executed 373 separate MOUs for intra -agency sharing of information and acce ss to FinCEN’s data. LEAs direct access to FinCEN’s database information s to ing . 138 exchange, help facilitate coordinate law enforcement efforts . In turn, , support investigations, and provide feedback to the FIU prioritise its work and focus its analysis on the areas of most value to law s helps FinCEN thi enforcement. There are adequate measures in place to protect the confidentiality of FinCEN’s information and to mitigate the risk that providing direct access to su ch a wide variety of agencies could result in leakage of valuable and sensitive information . FinCEN’s IT (see c.29.6) modernization also has helped enhance security and confidentiality by enabling secure communication for . , analysing and disseminating financial intelligence and other information collecting, accessing FinCEN also vigorously polices misuse of SAR data and the unlawful disclosure of SARs. S FATF and APG 2016 Anti - money laundering and counter - terrorist financing measures in the U nited tates – 2016 © 62

65 CHAPTER 3. LEGAL SYSTEMS AND OPERATIONAL ISSUES 139. The U.S. is rated as having a substantial level of effectiveness for IO.6. 7 (ML investigation and prosecution) Immediate Outcome ML identification and investigation 3 140 . The U.S. authorities are very focused on “following the money” both to develop leads which may initiate investigations, support ongoing investigations and prosecutions, and trace assets for confiscation. This is particularly evident at the Federal level. Federal law enforcement agents, prosecutors, and courts are resident in 94 Federal judicial districts spread across the U.S. These the District of Columbia, Guam, the Federal authorities pursue ML investigations in every State, . Asset generating activities are particularly Marianas Islands, Puerto Rico, and the U. S. Virgin Islands ations, targeted at the Federal level as part of a wider effort to disman tle and disrupt criminal organiz and identify forfeitable assets. State and local LEAs can often join up with the Federal authorities in task forces which have greater powers and resources than those at the State level . Thirty -six States ses. The State -level have their own separate ML offense which may complement the Federal ML offen information provided generally indicates that States do not prioritise ML. The assessment team h Federal, State and local LEAs and prosecutors about how based its conclusions on: discussions wit and when they identify and investigate ML; statistics of the numbers of Federal ML investigations and prosecutions undertaken annually; and numerous representative cases. have highly developed capabilities to identify and investigate ML, as well as Federal LEAs . 141 for asset - s , and effectively conduct parallel financial investigation serious and organised crime generating crimes and Federal prosecutors generally give appropriate consideration to charg ing ML. : (i) in the course of an investigation into predicate ML investigations are traditionally triggered activity when investigators may identify evidence and patterns of offending known to be associated tivity to ML ac by prosecutors involved in the early stage of investigations who identify the ; or (ii) potential for a ML charge which, in turn, focuses investigative efforts further down the ML route; and ARs reviews, or information from foreign (iii) by the opening of ML investigations following tips, S authorities. The decision to charge ML involves several factors including: a) the requirement for a clear separation between the predicate offen se and the conduct that forms the ML activity viduals who assisted with the ML activity, but are not otherwise the ability to charge indi b) implicated in the predicate offen se (i.e. ML is favoured for third party ML activity) an inability to charge an individual with the predicate offen se , but where ML is an option. c) ses cate offen cited as an example. Foreign predi in particular w ere 142 -site visit were well trained and able to successfully The authorities met during the on . -value, complex ML, including those involving multiple jurisdictions. New law high investigate enforcement officers are trained on how to conduct financial investigations, employ forensic accounting, and conduct net worth analysis. Guidance on ML investigations is also provided to the field were shared with assessors. and DOJ gents Special A SI ples from the FBI and /H . Some exam tates money laundering and counter - terrorist financing measur es in the U nited S - Anti – 2016 © FATF and APG 2016 63

66 CHAPTER 3. LEGAL SYSTEMS AND OPERATIONAL ISSUES The Federal LEAs have extensive capabilities, resources and tools for undertaking specialist . 143 igence (R.31, IO.6, IO.8). Investigative financial investigations and making good use of financial intell methodologies emphasise the need to “follow the money” as part of the predicate offen se -agency task force environment pools complementary investigation. The well -established inter 3 -specific expertise and resources which further enhances their ability to conduct complex agency financial investigations (see also IO.1). The Federal LEAs and prosecutors met with by the assessment team demonstrated in -depth knowledge of these tools, and how to use them effectively in a wide range of circumstances (the assessment team met with Federal prosecutors from three offices). For example, IRS -CI agents are specifically called in for their forensics accounting and criminal tax investigative expertise. . 144 over Overall, the U.S. charges approximately 2,500 persons, natural and legal, and achieves 1 200 Federal ML convictions per year on average, with the focus being on the ML transactional and 1956 respectiv ely Based on these ): see figures in table 5. basic offen ses (18 USC USC 1957 and 18 numbers alone, the initial impression was that the U.S. pursues ML in only a relatively limited ses at number of cases considering the overall estimate of proceeds and number of predicate offen Federal level alone. However, the extensive during emerged contextual information more during the on . Statistics on the volume of ML investigations are -site discussions with the authorities tigations and reportedly difficult to obtain and do not capture the full range of Federal ML inves prosecutions. Investigating agencies categorize many investigations involving ML under the primary Prosecutors also noted that the final ML convictions represent less than se (rather than ML). offen half of the ML charges laid as many are dropped during the plea bargaining process (see Box 9). The ML charge may be dropped if the defendant pleads guilty to an equally serious crime and commits to nst co -conspirators and higher ranking cooperating with law enforcement in providing evidence agai persons in the criminal enterprise. . At the Federal level, there is a strong focus on serious complex and high -dollar value criminal 145 offenses, as was demonstrated through t he over 100 case examples provided to the assessment team, and discussions with specialized task forces such as OCDETF and El Dorado Task Force (EDTF). The picture that emerged is that the approximately 1,200 Federal level ML convictions each year include a significant number of very large and complex ML investigations. LEAs and prosecutors also demonstrate flexibility and effectiveness in using the range of ML and predicate offenses to icate activity (see Table 6 great effect including prosecuting tax crimes by relying on linked pred and Table 10). Beyond the main ML offenses, the U.S. also provided statistics on offenses that it considers key to complete the Federal ML picture as these relate to specific methods of facilitating laundering including: traveling in commerce to distribute proceeds (18 USC § 1952), using or investing income 5). derived from racketeering (18 USC § 1962); and bulk cash smuggling (31 USC § 5332). (See Box Anti FATF and APG 2016 © 2016 – tates S nited terrorist financing measures in the U - money laundering and counter - 64

67 CHAPTER 3. LEGAL SYSTEMS AND OPERATIONAL ISSUES 1 Table 5. Number of ML charges, convictions and conviction rate (2010- 2014) FY 2013 FY 2014 Action FY 2010 FY 2011 FY 2012 18 USC 1956: Money laundering (proceeds laundering) 3 Charge d 1879 2147 2163 2172 1895 958 983 1129 1072 934 Convicted 51% 55% Conviction rate 53% 59% 57% 18 USC 1957: Money laundering (transactional) Charged 580 425 517 540 526 Convicted 262 229 272 241 249 53% 48% 55% 56% Conviction rate 51% 18 USC 1952: I nterstate & foreign travel/transportation, including of proceeds, in aid of racketeering enterprises 200 198 266 210 Charged 229 130 136 122 Convicted 111 94 49% Conviction rate 51% 52% 58% 52% 18 USC 1962: Receiving or deriving income from racketeerin g activities (RICO) Charged 543 714 625 496 574 400 Convicted 252 302 412 369 78% 83% Conviction rate 77% 81% 79% 31 USC 5332: Bulk cash smuggling Charged 163 117 137 207 207 133 152 Convicted 124 116 109 69% 73% 78% 78% 73% Conviction rate FOR 2010 - 2014 TOTALS Charged 3081 3757 3754 3466 3369 1703 1935 1967 1884 Convicted 1802 : Table Note 5 1. ct was Note that conviction rates in were calculated using the number of defendants in each FY for which a verdi Table obtained (not shown), which is not the same as the number of defendants charged in that FY. The cases initiated in any given FY do not necessarily conclude in that same FY. Table 146 . ML investigations can be star data on ML and ted within an individual agency (see 6 -HSI and the FBI). -CI, ICE financial investigations initiated by IRS tates money laundering and counter - terrorist financing measur es in the U nited S - Anti – 2016 © FATF and APG 2016 65

68 CHAPTER 3. LEGAL SYSTEMS AND OPERATIONAL ISSUES (2011-2014) -CI, ICE-HSI and the FBI Money laundering investigations initiated by IRS Table 6. Agency FY2014 FY2011 FY2012 FY2013 Internal Revenue Service - - Criminal Investigations (IRS CI) 3 Ml investigations initiated 1 726 1 663 1 596 1 312 1071 411 1 377 ML prosecution recommendations 1 383 1 228 1 ations laid ML indictments/inform 934 191 1 325 1 ML sentences 678 785 803 829 Immigration and Customs Enforcement Homeland Security Investigations (ICE - HSI) 6620 Financial Investigations Initiated (including for ML/TF) 6594 6606 6526 1 Federal Bureau of Investigation (FBI) 220 269 282 309 ML investigations Table note: These figures do not include all investigations in which ML was a component of the criminal activity under investigation, 1. only those cases classified as ML investigations in the FBI case management system. Other cases, which may include a ML investigation, may be classified under another specified unlawful activity (predicate offence). 147 . ses, applies in all 50 States and the District of Columbia. Federal law, including the ML offen Additionally, 36 States have criminalized ML at the State level and may undertake their own State- level ML investigations and prosecutions. Overall ML statistics are not readily available at State level that it is the Federal (not State) agencies which are mostly at the forefront and authorities confirmed indicates that some States are pursuing ML at the State level. of the U.S. AML efforts. Box 4 4 . Action by states to pursue ML and/or underlying activit Box y – Illustrative examples of results achieved Texas: From FY 2013 to FY 2015, Texas has incarcerated 133 offenders for ML with an average of 44 incarcerations a year (figures as of 31 August 2015). New York: Between 2011 and 2015, the New York State had carried out 283 ML prosecutions, and obtained 226 ML convictions according to preliminary figures. ML prosecutions per year have ranged from 46 (FY2011) to 68 (FY2015). 2012 with Florida has secured 118 ML guilty counts between 2011 and 2015 with a peak in Florida: 59 ML guilty counts. New Jersey: New Jersey has achieved 80 indictments or accusations containing ML charges between 1 . 2011 and 2015 Note: 1. Compiled by New Jersey Division of Criminal Justice by calendar year. Note that multiple defendants may be charged with ML in a single indictment or accusation and multiple counts of ML may be alleged. Accusations and indictments are both charging documents, but indictments derive from the grand jury and accusations are used when the defendant waives her right to grand jury indictment. his/ Anti FATF and APG 2016 © 2016 – tates S nited terrorist financing measures in the U - money laundering and counter - 66

69 CHAPTER 3. LEGAL SYSTEMS AND OPERATIONAL ISSUES National strategies are intended primarily for and binding on Federal authorities. Most ML/TF . 148 activity in the U.S. is prosecuted under Federal law. Federal, State, and local authorities may work together in joint task forces on ML/TF. Where a case does not already fall under Federal jurisdiction but is too complex, or resource intensive, State and local police authorities may refer it to Federal 3 set authorities to investigate. The -up does vary slightly from State to State. For example, Texan authorities commented that the amount of money involved in a case often dictates whether State or vided the Federal charges are pursued, with relatively smaller cases going to the State. The U.S. pro assessment team with examples of how State and local forces integrate into and support Federal investigations. . Where ML is criminalised at State level, State and local authorities work closely with local 149 prosecutors (e.g. New York, Texas, Florida), and cases have been provided to exemplify some of the work carried out by them (see Box 5). Several factors affect the prioritisation of ML within a given ing the State’s risk profile and the priorities set by the State Attorney General. States may State includ focus on crimes mattering more to the local community e.g. crimes of violence and property crimes, rather than the crimes highlighted in the national strategies. State ML Cases in NY and NJ. ustrative Ill . 5 Box This case illustrates how NY State William E. Rapfogel & David Cohen (2014): NY State: prosecuted a ML case based on fraud, kickback and theft activities. Both defendants plead guilt y to from the NPO they were executives of, in a 20 9 million -conspirators, stealing, together with co - USD in cash years grand larceny kickback scheme. Cohen admitted to illegally receiving USD 650 000 in restitution in addition to 000 USD kickback and payments for personal expenses and will pay 650 1 a prison sentence. Rapfogel admitted to stealing USD million and pleaded guilty to NY grand larceny, ML, criminal tax fraud. He was sentenced to 3.5 to 10 years imprisonment and USD 3 million in restitution. New Jersey: Operation Jacked (2014) : HSI Border Enforcement Security Task Force in partnership with the New Jersey State Police and local law enforcement identified, investigated and dismantled a dividuals with different roles in the ring, violent transnational criminal organization. A total of 23 in including carjacker, car thief, wheel man, fence, shipper and buyer, were arrested and charged with a range of offenses including first degree money laundering. Stolen cars would be loaded into shipping s, which were taken to ports for transport by ship to West Africa. container 150 . Where States have not criminalized ML, the picture is less clear. Discussions with a Federal Judge from one of these States suggested that the lack of State -level criminalisation was not problematic as Federal ML offenses would be available, ensuring that significant cases are pursued in line with the country’s ML priorities. Overall, U.S. authorities are encouraged to collect information re regular and comprehensive basis concerning State -level ML investigations and on a mo prosecutions. Such information would enable Federal authorities to determine the extent to which h national AML/CFT law enforcement activities at the State and local level only are consistent wit priorities and risks. tates money laundering and counter - terrorist financing measur es in the U nited S - Anti – 2016 © FATF and APG 2016 67

70 CHAPTER 3. LEGAL SYSTEMS AND OPERATIONAL ISSUES Consistency of ML investigations & prosecutions with threats, risk profile, & national AML policies The U.S. authorities prioritise and allocate their resources towards p . ursuing the types of ML 151 activity highlighted in the 2015 NMLRA and national strategies as being of particularly high risk. The 3 assessment team based these conclusions on: a review of the budget and strategy documents of relevant agencies; discussions with specialised units and task forces; and cases demonstrating how effective these specialised units and task forces are. The 152 . assessment team placed an increased focus on how the U.S. was pursuing ML related to d (particularly c are fraud), drug trafficking, and transnational organized crime (TOC) as frau health the priorities outlined in the national security strategies, and the main risks identified in the NMLRA. To facilitate their ability to pursue these types of ML cases, the U.S. has: established specialised units and task forces focused on all these predicates and related ML; implemented mechanisms to target ations and their financial networks, with a view to disrupting or dismantling major criminal organiz operations; and leveraged financial sanctions powers against priority targets of interest. These their are described at IO.1, Core Issue primarily 1.4 . These efforts have generated good results that have resulted in the disruption and dismantling of serious crim inal organizations and their financial networks, including ML organizations. In 2010 ML related to fraud: . 153 Medicare Fraud Strike -2013, as Healthcare fraud evolved, the ) a dopted an approach more focused on ML and structuring 2 Chapter 1 Core Issue see – (MSFS Forces which has successfully dismantled some massive high -value healthcare fraud schemes, and shut down related ML networks. 154 . ML related to tax crimes: Although tax ses for ML, the U.S. has crimes are not predicate offen ses, particularly fraud, mail successfully prosecute d ML related to such crimes by using other offen s, -CI takes a leading role in such investigation . IRS fraud, wire fraud and filing of a false tax return which is critical as it is the only agency with direct access to tax information. Box 6 ML related to fraud and tax crimes . – Illustrative examples of results achieved Statistics:  In FY 2013, the MFSFs achieved: 137 indictments, informations and complaints involving charges filed against 345 defendants who allegedly collectively billed the Medicare program more than USD 1.1 billion; 234 guilty pleas negotiated and 34 jury trials litigated, with guilty defendants imprisoned and sentenced to more than against 48 defendants; and 229 verdicts 1 52 months of incarceration on average . 500 suspects are arrested each year by Postal Inspectors of the USPIS for ML  On average, 1 through the mail (including cases involving tax fraud) and drug trafficking. Representative cases: This case dismantled a highly sophisticated transnational criminal Belair Financial Services (2015): organization that used a complicit MSB, multiple shell corporations, U.S. bank accounts and S FATF and APG 2016 Anti - money laundering and counter - terrorist financing measures in the U nited tates – 2016 © 68

71 CHAPTER 3. LEGAL SYSTEMS AND OPERATIONAL ISSUES related claims made - movement of funds obtained from fraudulent health attorneys to facilitate the to insurance companies. The fraudulent financial activity involved the movement of approximately 28 USD complicit -conspirators were convicted of ML and violations of the BSA. The . The co million in 3.4 MSB was closed, USD million 000 900 was forfeited, related property was seized, and USD 3 -CI, DOJ/AFMLS, EDTF and USAO/EDNY. SI , IRS restitution was paid t o the IRS. Agencies involved: H This case dismantled a multi-m illion dollar healthcare fraud ring, Ihosvany Marquez (2011): in illicit proceeds involving several defendants using shell companies to hide USD 61 million generated from a Medicare fraud scheme. Marquez pleaded guilty to ML conspiracy, Medicare fraud, and aggravated identity theft. He was sentenced to 16 years in prison and a forfeiture judgement of -CI, Florida Department of Law Enforcement million 21 was issued. Agencies involved: FBI, IRS USD and USAO/SDFL. This case shut down a Swiss bank that had facilitat Wegelin & Co (2012): ed tax evasion by U.S. tax million 57.8 payers. The bank pleaded guilty to ML and tax fraud charges. It paid USD in restitution 16 was million restitution. A civil forfeiture action of over USD million 20 and fines, including USD also filed in relation to CI, Wegelin’s correspondent bank account in the U.S. Agencies involved: IRS - USAO/SDNY and Main DOJ Tax Division. Note: - 11, 1. DHHS and DOJ Health Care Fraud and Abuse Control Program Annual Report for Fiscal Year 2013, pp.10 - hcfac.pdf https://oig.hhs.gov/publications/docs/hcfac/FY2013 155 . ML related to drug trafficking: DEA has specialised ML groups in each of its 21 domestic field divisions. OCDETF only pursues top -end cases with a parallel financial investigation or central ML component. Both prioritise the most serious cases by developing lists of priority targets. OCDEFT rganization Target (CPOT) list coordinates the annual formulation of the Consolidated Priority O agency target list of the “command and control” elements of the most serious which is a multi- drug trafficking and ML organiz international ations. The DEA develops a list of Priority Target ost significant international and domestic drug trafficking and Organizations (PTO) which are the m ML organizations. – 7 ML related to drug trafficking . Illustrative examples of results achieved Box Statistics: 75% of OCDTEF investigations target ML in addition to dr  ug trafficking, with approximately 10% targeting ML as the primary activity  130 domestic and foreign money laundering PTOs were disrupted or dismantled by the DEA rd quarter of fiscal year (FY) 2015; of these, 29 had a CPOT link. through the 3  50 CPOTs were identified on the FY 2015 CPOT list. Of these, 18 were indicted (36%), 12 arrested (24%), and 16 received an OFAC designation (32%).  696 CPOTs were dismantled between 2001 and 2011. 750 were dismantled in FY2011. 1,082 A has specialised ML groups located in each of the 21 CPOTs were dismantled in FY2013. DE tates money laundering and counter - terrorist financing measur es in the U nited S - Anti – 2016 © FATF and APG 2016 69

72 CHAPTER 3. LEGAL SYSTEMS AND OPERATIONAL ISSUES in cash million 637 and USD million 750 13, USD domestic field divisions. In 2012 and 20 seizures were achieved respectively. Representative cases: 3 This case Enrique Mendez (Op El Patron) (2013, Texas): seriously disrupted a major DTO. Mendez was sentenced to 35 years and five months in prison for drug conspiracy and ML. A forfeiture order million million 41.9 of over USD in drug proceeds and 450 kg of cocaine was issued. Over USD 7.5 ement/distribution of around 12 500 kg of a drug ledger attributing the mov were seized, as was USD 41.9 million in drug proceeds using commercial trailers. Agencies involved: cocaine and CI, USMS, CBP, USAO/SDTX, Texas Department of Public Safety, Webb OCDETF, DEA, HIS, IRS - Country Dan and Laredo Police Department. Joel Sesma -Garcia (Op Ice Vapor) (2015) : This case dismantled a major DTO and ML network 12 which had laundered over USD in drug proceeds via interstate transportation of bulk cash, million sending cash proceeds to Mexico via wire transfers, and acquiring these funds in cash to conceal their true source and nature. The main leader pled guilty to ML conspiracy and was sentenced to 25 years. Over million USD . Agencies 12 cash, one residence and dozens of vehicles were forfeited involved: OCDETF, DEA, HSI, FBI, IRS, CBP, ATF and USAO/AZ. 156 ICE ML related to transnational organized crime: . -of-government -HSI adopts a whole approach to disrupting and dismantling TOC. It concentrates enforcement activity in high -risk illicit pathways used by TOCs to smuggle people and illicit goods into the U.S. ML is a prime focus within this strategy: see IO.1. One of the methods used by TOC (and identified in the NMLRA) is trade -based money laund ering (TBML) which the U.S. is addressing in part through its network of Trade Transparency Units (TTU). TTUs brings together both domestic and foreign trade data, allowing fication of users to see both sides of a trade transaction which effectively enables the identi international trade anomalies and financial irregularities indicative of TBML, customs fraud, potential TBML in SARs, which 8. FIs also identify contraband smuggling, and tax evasion: see Box w Teams (See IO.6) flag for investigation. With ML recently being designated a top SAR Revie enforcement priority by the FBI, its 56 field offices will increasingly target ML in the context of ic and international law sophisticated organized crime investigations and work closely with domest enforcement partners to identify the criminal organizations involved in ML activities, disrupt those organizations and seize and forfeit their assets. . – Illu strative examples of results achieved Box 8 ML related to transnational organized crime Statistics:  HSI prioritised and ranked 56 financial crime and ML investigations involving priority - ICE million 13 TOCs in FY 2014. These cases targeted TOCs generating USD a month to million per year being lau ndered through bulk cash smuggling, structured bank USD 100 M based money laundering (TB - rade deposits, t ), shell corporations, wire transfers, third L S FATF and APG 2016 Anti - money laundering and counter - terrorist financing measures in the U nited tates – 2016 © 70

73 CHAPTER 3. LEGAL SYSTEMS AND OPERATIONAL ISSUES party ML, and MSBs. In FY 2013, ICE HSI met its initial target with 42.6% of transnational drug investigations  - lting in the disruption or dismantlement of high threat transnational DTOs or resu individuals. The FY 2014 target was 44%: Summary ONDCP FY 2015 Budget and Performance 3 The EDTF achieved 240 indictments, 223 convictions, and the seizure of more than  USD 72 million primarily from evidence developed in drug ML investigations in FY 2014.  As of 2014, ICE- HSI had 610 open investigations involving TBML of which 442 in volved countries which had been identified by the U.S. as being in the top 30 of countries vulnerable to TBML. Representative cases: : This case dismantled a major illegal gaming operation and uncovered Vadim Trincher et al. (2013) -American organ ized crime enterprise. The leader was charged with ML, racketeering and a Russian 20 million in illegal gaming offenses, sentenced to 5 years imprisonment and ordered to forfeit USD cash, investment and real estate. Another defendant was subject to a lower prison sentence and a 6.4 forfeiture order of USD . 31 other alleged members and associates were also indicted and million plead guilty. Agencies involved: FBI, IRS -CI, USAO/SDNY and NYPD. on aimed at This is an ongoing investigati Operation Los Angeles Fashion District (2014): disrupting and dismantling various major Black Market Peso Exchange and Mexican drug trafficking organizations laundering proceeds through TBML. The TTU initiative assisted in analysing the extent 90 million confiscations of of the TBML activity. The operation resulted in USD in bulk cash, in a foreign bank account, about USD 22.5 million in domestic bank accounts, USD million 15 million 1.7 USD in general property (vehicles, jewellery, and merchandise), and three properties . Agencies involved: ICE -HSI, CBP, IRS CI, FBI, DEA, FinCEN, multiple - illion m worth about USD 10 local police departments and USAO. Baja Money Laundering Organization (2014): This case disrupted a ML organization that moved USD annually in drug proceeds on beha lf on Mexican 50 -based DTO. The methods used over million to launder money included TBML, bulk cash smuggling, shell companies and wire transfers. Three key figures of the organization were arrested, plead guilty to unlawful money transmitting, and were s 000 was forfeited. Agencies involved: ICE - HSI, 208 USD r in prison. Approximately ntenced to 1 yea e San Diego District Attorney’s Office and California Attorney General’s Office Emerging threats - Money laundering related to virtual currencies emerging ML 157 . . The 2015 NMLRA identifies virtual currencies as representing a potential risk In response to this risk , the U.S. has successfully investigated and prosecuted such activity. tates money laundering and counter - terrorist financing measur es in the U nited S - Anti – 2016 © FATF and APG 2016 71

74 CHAPTER 3. LEGAL SYSTEMS AND OPERATIONAL ISSUES 9 Box al currencies – Emerging threats of virtu . Illustrative examples of results achieved This case shut down ML and criminal activities through an alternative internet Gold (2008): E- based - payment system which was found to be widely used by criminals to launder proceeds and carryout a USD 3 million whole range of criminal activities. Its executives plead guilty and, as of 2014, over 56.6 has been forfeited from E- Gold accounts involved in criminal offenses. Agencies involved: USSS, FBI, -CI, USAO/DC and USAO/MD. DEA, HIS, IRSS Liberty Res erve (2013): This case shut down a digital currency services provider platform that billion in 6 transactions (virtually all illegal) and laundered over USD million conducted about 55 -defendants pleaded guilty of ML. A wide range of pecuniary suspected proceeds of crime. Several co were seized in bank and prison sentences were applied to several defendants. 19.5 USD million wide including in Cyprus, Morocco, Australia, Spain and Hong Kong, China - accounts located world nvolved: USAO/SDNY, DOJ . Agencies i million 24 USD holding over CI, HIS and - Crim, USSS, IRS - FinCEN. Types of ML cases pursued The authorities demonstrated that they prosecute and are able to obtain convictions for a 158 . uding the laundering of foreign predicate offen range of different types of ML incl -party ses, third laundering, stand -alone offen ses and self -laundering. Specific initiatives focused on pursuing m different kinds of ML activity help to generate positive results in this area. The assessment tea based this conclusion on discussions with Federal prosecutors from New York and Washington , and numerous case examples. 159 . I n 2015/2016, F BI Headquarters identified ML facilitation as a stand -alone high priority threat. A ll FBI offices across the country are now required to incorporate this priority within the threat assessment of their own geographic areas. This focus on ML facilitation is intended to address third party money launderers, key facilitators, and ML networks launder money for organized ing Asset Forfeiture and Money Laundering crime groups, drug cartels, and terrorist groups. The focused on prosecuting Section (AFMLS, see Chapter 1) has also implemented a gatekeeper initiative professional money laund and their officers, managers, attorneys, accountants, FIs erers, complicit and employees, violators of the BSA, and those who launder the proceeds of serious criminal -value and organizations such as drug cartels. The authorities prioritise pursuing ML activity in high it would be difficult complex cases. Where ML, the authorities will often prove the substantive of to pursue the inchoate offen conspiracy instead. This is especially evident for international or ML se of -S tate offending. foreign predicate offending and inter Box Illustrative examples of results achieved Prosecuting different types of ML – . 10 Laundering proceeds of foreign predicates This : 2012) Haiti Telecommunication case (2011 - : y scheme laundering the proceeds of foreign predicate case dismantled an international briber offenses in the U.S. Two executives of a U.S. company were sentenced to 15 years and 84 months in 890 USD prison for their role in a scheme to pay - in bribes to government officials at Haiti’s State 000 Anti FATF and APG 2016 © 2016 – tates S nited terrorist financing measures in the U - money laundering and counter - 72

75 CHAPTER 3. LEGAL SYSTEMS AND OPERATIONAL ISSUES owned telecommunications company. They were convicted of charges including ML, conspiracy to million 3.9 USD commit ML, and violations of the FCPA. A forfeiture order was also issued. The spiracy. Agencies involved: IRS - Haitian officials were convicted of multiple counts of ML and ML con CI, FBI and USAO/SDFL. 3 This case dismantled a ): Jiles Johnson (Operation Shattered Dreams) (2013 : Third party ML scale ML and DTO involving the laundering of proceeds by third parties (an accountant, auto large- estate agent and financial planner). The defendant laundered drug proceeds through his dealer, real restaurant with the help of other professionals, and was sentenced to 15 years for conspiracy to of conspiracy to commit distribute cocaine and ML. The accountant and auto dealer were convicted ML (sentenced to 6 and 10 years respectively), the real estate agent was convicted of structuring (3 year’s probation), and the financial planner was convicted of interstate transportation in aid of - racketeering (3 years). Agencies involved: DEA, USPIS, IRS CI, Sandy Springs Police, OCDETF and USAO/NDGA. : This case Alvaro Lopez Tardón (Operation Las Tapas) (2010): ML as a stand -alone offense dismantled an operation laundering the proceeds of foreign predicate offenses (drug offenses ) in the U.S. While no drugs ever entered the U.S. foreign drug trafficking is a predicate offense for domestic ML (18 USC §1956(c)(7)(B)(1). The financial investigation revealed that this ML syndicate laundered million 14 USD over end real estate and exotic - Miami by buying high in narcotics proceeds in automobiles using the banking system to conduct international wire transfers directly to Tardón, funds wired to third parties, MSBs, cash couriers, and companies controlled by Tardón in Spain. cash couriers were involved in the ML enterprise. Tardón was convicted and More than ten sentenced to 150 years in prison to be served concurrently for one count of conspiracy to commit ML 2 and 13 substantive counts of ML, along with a USD asset forfeiture and million million 14 a USD fine. Agencies involved: FBI, IRS -CI, DEA, CBP, Miami Police, Monroe Country Sherriff, USAO/SDFL, OCDETF. This case shut down a wire fraud scheme where the Self -laundering : Mauricio Warner (2014): false tax retur defendant filed over 5 000 ns using names and social security numbers of various s of dollars in fraudulent tax refunds from the IRS. He was sentenced to million individuals to claim 5 USD 20 years in prison and ordered to repay over million in restitution on mail fraud, tax fraud an d in funds derived from the scheme were USD 4 million ML counts. Seven bank accounts with over CI and USAO/NDGA. - forfeited. Agencies involved: IRS Effectiveness, proportionality and dissuasiveness of sanctions . T 160 he range of case studies provided to the assessment team demonstrates that the courts will impose significant and dissuasive sentences in relation to serious instances of ML. In generally ve sentences which in turn ought relation to top end cases, the courts appear to be imposing dissuasi encourage LEAs to pursue ML. The assessment team bas to these conclusions on: statistics of the ed ber of ML charges, convictions and sentences; and numerous cases demonstrating convictions num and sentences against natural p . , to a much lesser extent, legal persons ersons and tates money laundering and counter - terrorist financing measur es in the U nited S - Anti – 2016 © FATF and APG 2016 73

76 CHAPTER 3. LEGAL SYSTEMS AND OPERATIONAL ISSUES ) were charged with violating one of persons natural/legal unique defendants ( 000 Over 10 . 161 the main ML cases with a 000 than 2 , including more -FY2014 in 3,470 cases over FY2010 statutes 18 USC §1956(h) ). The average conviction rate is just under charge of conspiracy to commit ML ( 60%, although rates vary across agencies. For example, around 80% of prosecutions derived from 3 IRS -CI investigations result in conviction and sentences of imprisonment. In many instances, during the plea negotiation process, the ML charge is dropped which in part explains why the number of When defendants have persons charged is so much greater than the number of persons convicted. C §§1956 or 1957, 40% of them received a sentence of 61+ months (over been convicted under 18 US -custodial sentences. 5 years), 15% received non 7). Table Life sentences have been applied (see Table 7. Sentencing for Money Laundering Convictions (FY2010 -FY2014) 1- 12 61+ # of 60 37- 36 25- 14 13- Not Offense Life Defendants imprisoned Months Months Months Months Months 18 USC 1956 5 784 341 520 456 823 2 106 46 076 81 249 174 145 253 112 6 1 18 USC 1957 486 Alternative Measures 162 . Where a conviction for the substantive ML offen se cannot be obtained (e.g. because the defendant is a foreign national residing outside the U.S. who cannot be located or extradited), the authorities can resort to the powerful tools under the USA PATRIOT Act and OFAC sanctions Foreign Narcotics Kingpin to apply economic sanctions against drug traffickers under the programs national criminal organizations (TCOs ) ), and against significant trans Kingpin Act (the Designation Act their U.S. financial accounts, blocking under Executive Order 13581 (E.O. 13581), thereby freezing their U.S. properties, and denying their access to the U.S. financial system. The Kingpin Act is used to target significant foreign narcotics traffickers and ML organizations considered the highest level risk offenders who have evaded arrest or may otherwise be outside the jurisdiction and reach of U.S. he authorities, yet maintain assets in the U.S. The designations under t and E.O. 13581 Kingpin Act work in the same way as targeted financial sanctions under R.6. The designations have ramifications worldwide with foreign branches of U.S. banks abiding by the list and many foreign banks complying as well. In practice, this measure has effectively shut down some professional ML networks in the U.S 24 . The U.S. and beyond. Violations of the Kingpin Act carry proportionate and dissuasive sanctions provided multiple case examples of the application of the Kingpin Act and E.O.s. 24 075 million per violation. For wilful violations: Up to 10 years in prison and civil penalties of up to USD 1 million. Upon conviction criminal penalties of up to 10 years in prison for individuals, and fines of up to USD 5 000, imprisonment for up to of a violation of E.O. 13581 or the Regulations: criminal fines of up to USD 1 000 20 years, or both. tates © 2016 – FATF and APG 2016 Anti S nited terrorist financing measures in the U - money laundering and counter - 74

77 CHAPTER 3. LEGAL SYSTEMS AND OPERATIONAL ISSUES x Bo Achievements and Illustrative example of results achieved . 11 Kingpin Act , OFAC has designated 1 856 foreign persons (1  027 Individuals Since the 1999 and 829 entities) around the world associated with 107 foreign drug kingpins und er 150 separate sanctions investigations. Since 2011, six TCOs have been designated which has 3 resulted in the derivative designations of 70 individuals and 13 entities under E.O. 13581. based drug Under EO 12978, a precursor of the Kingpin Act which targeted Colombia-  traffickers, OFAC named over 1 700 persons (both individuals and companies) from October 1995 to July 2010 under 45 separate sanctions investigations. Rosenthal (2015 ): In July 2015, OFAC designated three Honduran businessmen from the Rosenthal family and related businesses as Specially Designated Narcotics Traffickers pursuant to the Kingpin Act for providing ML and other services to support the international narcotics trafficking activities of multiple Central American drug traffickers. The OF AC action also targeted seven key Rosenthal Kingpin Act businesses, including the first ever designation of a bank. All assets that were under the jurisdiction of the U.S. or in the control of U.S. persons were frozen. 163. The U.S. is rated as having a substantial level of effectiveness for IO.7. Immediate Outcome 8 (Confiscation) Confiscation of proceeds, instrumentalities & property of equivalent value as a policy objective . forfeiture civil and Federal LEAs and prosecutors place a high priority on both criminal The 164 and seek orders forfeiting property of equivalent value as a policy objective. The assessment team value of orders obtained at a Federal level; reviews of the based these conclusions on: the high (the NAFSP); asset forfeiture summaries by key 12 National Asset Forfeiture Strategic Plan 2008- ning State and local levels; trai ederal, LEAs; discussions with a range of LEAs and prosecutors at the F DOJ’s guides provided by Asset Forfeiture and Money Laundering Section (AFMLS) to Federal prosecutors; and case examples. The U.S. authorities have no data on the number of rders made. They did, instrumentalities forfeited, or as to the number of value based confiscation o however, provide examples of cases involving the making of value based confiscation orders and the forfeiture of instrumentalities. -term vision “to make the 165 . In terms of overall policy priority , the NAFSP referred to a long tracing and recovery of assets an integral part of every prosecution for the benefit of the American o people realised”. The NAFSP spoke of pursuing confiscation in appropriate cases and gave priority t the compensation of victims and to the AG’s priorities which were: the effective use of forfeiture in terrorism cases; child exploitation cases; and corporate fraud. However no guidance was given as to when confiscation would be appropriate. The plan is no longer current although the assessment was able to verify that from New York, Florida and Washington, , talking to prosecutors high- team remains a priority in investigation and goes hand in hand with the “follow the value recovery asset .7). dopted in all main asset generating investigations (see IO approach a money” tates money laundering and counter - terrorist financing measur es in the U nited S - Anti – 2016 © FATF and APG 2016 75

78 CHAPTER 3. LEGAL SYSTEMS AND OPERATIONAL ISSUES In extensive discussions with Federal 166 LEAs, confiscation also came across as a Federal law . enforcement priority that seeks to remove the tools of cr ime from criminal organizations, deprive wrongdoers of the proceeds of their crimes, recover property that may be used to compensate Federal LEAs confirmed that the dismantling of the financial victims, and deter crime. All 3 infrastructure of criminal enter prises and other national security threats is essential to achieving of seizures they undertake the ir missions. This is reflected in their public priorities and the value 25 . each year . AFMLS seeks to ensure that forfeiture is pursued as a policy objective and is a goal of 167 domestic and international law enforcement including via the assistance and training it provides. It has three litigating units which bring their own cases and assist U.S. Attorneys’ Offices (USAO s) in their forfeiture cases. Consistent with this stated priority, Federal prosecutors and law enforcement appropriate case and confirmed this agents are trained to conduct a financial investigation in every Policy and Training Team that publishes model curriculum to be a priority. AFMLS has a dedicated for USAOs, and offers seminars, conferences, and other training in ML, forfeiture, financial investigations, complex case litigation, and other relevant topic areas. They administer AFMLS’ a resource containing legal resources and pleading samples used by practitioners intranet website, nationwide. They also develop AFMLS’ publications on asset forfeiture which are available online to 26 -site visit that However it was not clear from the on prosecutors and agents across the country. prosecutors were necessarily aware of the kind of guidance and information available or if indeed updates on policy practices and objectives would trickle down to them. In addition, it was unclear whether there was clear guidance as to when it was appropriate for confiscation at either Federal, State or local level. . 168 by programs at both Federal and The U.S. policy to pursue asset forfeiture has been supported State/local levels. Individual St ates’ confiscation regimes would benefit from ensuring i) that guidance on confiscation objectives and rationale is publically available in all States and ii) detailed confiscation data is collected and available. Confiscations of proceeds from foreign and domestic predicates, and proceeds located abroad confiscation The authorities provided case examples demonstrating that the U.S. . 169 pursues including in cases involving in all contexts, using all of the asset recovery tools at its disposal and domestic and foreign predicate offen in respect of proceeds which have been moved to other ses, and . The U.S. authorities were unable, however, to provide any data providing a breakdown of countries cases based on domestic or foreign predicate offenses, their value, or the number of asset recovery the type of offenses which led to the asset forfeiture orders being made. However, the authorities did 25 ; IRS, Asset Forfeiture Summary FBI ; DHS/ICE, Asset Forfeiture Asset ; DEA, Asset Forfeiture Summary , Seizure and Forfeiture ; USSS, Asset Forfeiture . 26 See, e.g. (2015); Civil and Criminal Forfeiture Case Outline Asset Forfeiture and Money Laundering Statutes (2013); Federal ML Cases (2013); and Guide to Parallel Bankrupt cy and Forfeiture Cases (2009). These resources are updated periodically and AFMLS intends that these books be used by Federal prosecutors and law enforcement agents for training and law enforcement purposes. Prosecutors are expected to conduct their own independent legal research, but these books, particularly the case outlines, address almost any conceivable forfeiture issue faced by prosecutors. tates Anti - money laundering and counter - terrorist financing measures in the U nited S FATF and APG 2016 – 2016 © 76

79 CHAPTER 3. LEGAL SYSTEMS AND OPERATIONAL ISSUES going into DOJ’s by Federal agencies provide data on the seizures and forfeiture of foreign assets Asset Forfei tu re Funds (DOJ- AFF). . 170 The U.S. regularly enters into repatriation and asset sharing agreements with its domestic and for victims. The assessment team foreign counterparts, and also regularly seeks restitution orders 3 based these conclusions on: discussions with LEAs and prosecutors at the Federal, State and local levels about what types of confiscation they pursue, in what circumstances, and with what results; numerous case examples which demonstrated that the U.S. is successfully able to confiscate high - value assets in a variety of circumstances; and statistics on asset sharing with other countries and victim compensation. 171 . Asset recovery is facilitated by specialised units with training and expertise in confiscation, such as , the Kleptocracy Asset Recovery Initiative (described in IO.1, Core Issue 1.2) and the AFMLS OCDETF Proactive Asset Targeting Team (PATT) which works with OFC (see IO.6) to produce asset leads. The authorities also demonstrated during the on -site visit that they have a high degree of effectiveness in using the range of confiscation tools at their disposal: administrative forfeiture, non - conviction based forfeiture, and criminal confiscation (described in R.4). The Federal prosecutors typically resort to non -conviction based forfeiture (NCBF) in the first instance as it is easier to show probable cause as a basis to freeze or seize assets. Administrative forfeiture is also u sed, especially by Customs agents, and can easily proceed when it is not contested. NCBF is also used to provide MLA freezing and seizing assistance. 27 Table 8. Asset forfeitures by seizing agency and by type of forfeiture for FY2014 Forfeited Amount Forfeiture Forfeited Assets (USD) Seized Assets Seizing Seized Value Type Count Agency (USD) Count 17 327 11 868 466.43 16 048 8 613 005.63 Administrative ATF 2 226 14 947 278.70 3 471 25 841 222.36 Civil/Judicial 16 985 4 123.91 655 378.56 192 Crimina l 2 890 11 24 606.55 22,443 38 470 869.04 504 50 646 ATF TOTALS 909.36 Civil/Judicial 7 1 723 367.07 6 1 988 DCIS 24 107.12 401 1 31 854.74 131 Criminal 1 221.81 31 2 855 DCIS TOTALS 37 3 390 016. 48 370 154.32 379 10 914.62 959 613 DEA Administrative 10 968 404 27 Property is seized as a consequence of a violation of Federal law. Seized property can include monetary ins truments, real property, and tangible personal property of others in the actual or constructive possession of the custodial agency. The value of seized property is its estimated fair market value at the time it was seized. Forfeited property is property for which title has passed to the U.S. Government. This property is recorded at the estimated fair market value at the time of forfeiture and is not adjusted for any subsequent increases and is reduced by estimated liens of record. The decreases in estimated fair market value. The value of the property amount ultimately realized from the forfeiture and disposition of these assets could differ from the amounts initially calculated. tates money laundering and counter - terrorist financing measur es in the U nited S - Anti – 2016 © FATF and APG 2016 77

80 CHAPTER 3. LEGAL SYSTEMS AND OPERATIONAL ISSUES Forfeited Amount Seizing Forfeited Assets Forfeiture (USD) Seized Value Seized Assets Count Type Agency Count (USD) 1 1 976 162 Civil/Judicial 459 965.99 314 216 197 283.41 Criminal 644.67 1 124 88 385 050.21 1 325 107 806 3 13 14 068 655 804 930.82 DEA TOTALS 018 694 617 082.40 000.97 Civil/Judic ial 9 7 105 901.28 9 343 5 DSS 7 304 661.34 Criminal 3 64 557.89 DSS TOTALS 16 7 410 562.62 12 5 407 558.86 048.89 Administrative 1 923 68 975 840.86 1 733 50 293 FBI Civil/Judicial 941 3 141 396 033.19 578 3 259 295 588.29 Criminal 2 890 205 2 00 189.67 3 562 221 040 095.39 063.72 572 415 3 732.57 628 530 3 873 5 FBI TOTALS 5 754 10 FDA 39 3 653 627.82 1 329 567.25 Civil/Judicial 425.38 Criminal 49 69 414 707.12 67 69 153 FDA FDA TOTALS 88 73 068 334.94 77 70 482 992.63 Civil/Judicia l 30 630 874.62 327.51 19 616 USMS Criminal 196 7 152 910.84 216 6 671 618.62 7 226 783 493.24 288 7 235 238.35 USMS TOTALS 539.96 Civil/Judicial 128 5 915 189.05 82 6 952 USPS 300 253.22 160 13 002.84 813 46 Criminal 187 382 315 19 075 USPS TOTALS 442.27 53 765 542.80 025.53 44 4 663.57 416 227 TOTALS 42 941 4 220 040 138 While the U.S. has demonstrated effectiveness in using these mechanisms in high . 172 -value cases, ses include the power to forfeit at not all predicate offen its ability can be impaired by the fact th instrumentalities. U.S. prosecutors have suggested that this barrier can be circumvented in some cases by starting a NCBF action based on ML, or by entering into a plea agreement whereby the defend ant gives up his/her rights to the instrumentality notwithstanding the lack of a legal basis to do this. Performance would be further enhanced by filling in the legislative gap in this area. ze/freeze property of Additionally, there is no general power to obtain an order to sei corresponding/equivalent value which may become subject to a value- based forfeiture order prior —which covers nine to conviction (such power exists in only one federal judicial circuit —the Fourth rginia, West Virginia, North Carolina, and South Carolina). The federal district courts in Maryland, Vi result is that such assets are unlikely to still be available by the time a final forfeiture order is made. Addressing this shortcoming would further bolster asset forfeiture outcomes. S FATF and APG 2016 Anti - money laundering and counter - terrorist financing measures in the U nited tates – 2016 © 78

81 CHAPTER 3. LEGAL SYSTEMS AND OPERATIONAL ISSUES and -AFF) the DOJ Asset Forfeiture Funds (DOJ In FY 2014, the combined value of assets in . 173 ), forfeiture programs was about USD 4.6 billion (see table 9 asset Treasury Forfeiture Fund (TFF) of the U.S. economy, the overall risk profile and the extent of a number that reflects the size The figure fluctuated between USD 9.7 billion and forfeiture activity taken by U.S. authorities. 3 3.1 billion between 2012 and 2014. From year to year there are one or more very large settlem ents that cause the annual fo rfeiture figures to fluctuate. -2014 Total Net Deposits to the Two Federal Forfeiture Funds, FY2012 9. Table (in USD) FY2012 FY2013 FY2014 674 DOJ - AFF 9 536 025 078 2 037 205 905 4 416 227 204 500 384 052 796 355 TFF 173 255 617 1 334 709 9 291 4 Total 090 002 260 3 620 727 409 174 851 final orders in criminal cases for . U.S. Federal authorities obtained an annual average of 4 -FY2015 period ( see Table 10 below). Over the same period, the annual average o f civil the FY2010 forfeiture orders was 4 919 and some of these orders will relate to on -going criminal prosecutions, but many will not. Other financial outcomes, such as fines and restitution orders not linked to a billion was criminal forfeiture order, are also pursued i n many cases. From FY2010 -2015, USD 1.3 collected from Federal defendants in restitution ordered to victims. Forfeitures 2010-2015 Federal Table 10 . FY2013 FY2012 FY2011 FY2010 FY 2015 FY2014 Criminal Forfeiture Order Count (more than 4 054 5 084 5 121 5 326 4 894 4 628 one asset can be forfeited per order) Number of assets forfeited pursuant to civil 3 470 2 537 7 513 5 552 5 482 2 538 forfeiture judgments (judg ments may pertain to multiple assets) 175 The assessors were provided with a useful break down of Federal NCBF orders by district . ith some courts doing little in the way of civil court. This showcased a wide range of outcomes w forfeiture while others obtained significant results. In the course of the on -site, the DOJ confirmed that judge’s preferences and those of the U.S. Attorney will partly dictate the use of NCBF within indivi dual Federal districts with some judges being reluctant to use it. 176 . The U.S. also provided multiple examples of proceeds and instrumentalities being confiscated in relation to a wide range of crimes, including ML and TF. In the absence of a breakdown of forfeiture by underlying criminal offen se, the extent to which confiscation has been obtained in respect of ML and predicate offen ses for ML is unclear. It is also unclear how many of the orders relate to foreign ses. edicate offen pr tates money laundering and counter - terrorist financing measur es in the U nited S - Anti – 2016 © FATF and APG 2016 79

82 CHAPTER 3. LEGAL SYSTEMS AND OPERATIONAL ISSUES Illustrative examples of results achieved – Confiscation in different circumstances . 12 Box Confiscation involving domestic predicate offenses This case stopped a m arijuana trafficking Roy McAllister (Operation Border Bandits) (2015): 3 business that brought bulk quantities of marijuana from Canada into Vermont, starting in the mid - 2000s and continuing until mid -2013. The defendant made lavish expenditures with the proceeds of filing false tax returns, conspiracy to distribute marijuana his drug trafficking. He was charged with and ML. He pleaded guilty to the former two charges and was sentenced to 2.5 years in jail, fined 000 25 USD and ordered to forfeit almost in property and currency. Agencies involved: million 1 CBP, DEA, IRS - CI, ATF, OCDETF and USAO/VT. Confiscation involving foreign predicate offenses This case dismantled a USD billion fraud scheme in connection 1.5 Edwin Fujinaga et al (2015): primarily in Japan. The with a Ponzi scheme which defrauded thousands of investors living defendants were ordered to pay over USD 580 million for defrauding clients, and to return over in investor funds. Agencies involved: FBI, SEC, DOJ Criminal Division (Fraud Section) 2.3 million USD and USAO/NV. Confiscation involvin g property that has been moved to other countries LLB Vaduz (2011 - 2013): This case involved a bank in Liechtenstein assisting U.S. tax payers to evade their U.S. tax obligations by opening and maintaining undeclared accounts. Under the terms of 23.8 d prosecution agreement, the bank agreed to pay more than USD a deferre to the U.S. and million 16.3 which had been paid to the bank in Liechtenstein as fees from the U.S. USD also forfeited million CI. - Tax Division and IRS - taxpayers. Agencies involved: USAO/SDNY, Main DOJ Confiscation involving property of equivalent value Lebanese Canadian Bank (2011 - 2013): The U.S. commenced NCBF against Lebanese Canadian Bank (LCB) for its role in laundering the proceeds of an international drug trafficking network, ng the seizure on deposit at a bank in Lebanon that represented a portion of million 430 of USD seeki the purchase price paid for the acquisition of LCB’s assets by another Lebanese financial institution. ation of funds in Lebanon as part of a civil As Lebanese law does not allow for the seizure or repatri forfeiture action, the U.S. seized its correspondent accounts in the U.S. under 18 USC §981(k) and from the former LCB shareholders. Agencies involved: of USD million ultimately obtained NCBF 102 USAO/SDNY and D EA. Domestic asset repatriation and restitution are managed at the Federal level by . DOJ -AFF and 177 . U.S. authorities prioritize making restitution to victims, and undertaking equitable sharing TFF the with Federal/State/local LEAs where they have contributed to the seizures/forfeitures, although this 28 . Between FY 2010- 2015, USD 2.9 billion in program was suspended at the time of the on -site visit vict ims (see Box forfeited assets deposited into DOJ 13) through -AFF have been distributed to 28 -started from April 2016. Payments under the program were re S FATF and APG 2016 Anti - money laundering and counter - terrorist financing measures in the U nited tates – 2016 © 80

83 CHAPTER 3. LEGAL SYSTEMS AND OPERATIONAL ISSUES remission and restoration. The overall priority of victim compensation and the means by which to do rovided so are set out in guidance distributed to prosecutors, LEAs and support staff. The U.S. p multiple case examples of victim compensation including in some of the cases cited above under both core issues 8.2 and 7.2; and others cultural property, art and antiquities. 3 Illustrative examples of re Box sults achieved 13 . Restitution – Andrea Lorraine Avery (2014 ): The case dismantled a multi - state mortgage fraud and money laundering scheme. The main defendant pleaded guilty to conspiracy to commit fraud, mail fraud affecting a financial institution, and conspiracy to com mit money laundering. A seven year prison 10 - 369 in restitution to the FDIC. Agencies involved: IRS 3 32 CI, FBI, sentence applied as well as USD FDLE, USPIS, USAO/NDFL. 178 . The TFF paid USD 93.3 million in restitut ion to victims in FY 2014, and USD 74.6 million in FY 2013. It also pays tens of million s of dollars each year to State and Federal LEAs and foreign governments for their participation in seizures that lead to forfeiture under TFF. During FY2014, the 921 000 with foreign countries. with other authorities and another USD million 68.5 USD hared TFF s Asset sharing with other U.S. authorities went up to USD 408.2 million in FY2013, driven up by high - value cases. This has assisted in ensuring that there are sufficient resources to undertake asset forfeited assets with other countries in the last million 19.7 recovery work. DOJ has shared USD three fiscal years. DOJ-AFF Table 11 . - Distributions and Deposits in USD Equitable Sharing Cash/Proceeds Distribution Assets Forfeiture Fund Forfeiture Vic tim Fiscal Year Amount to State and Law Enforcement Deposits Compensation 2007 625 388 1 583 221 255 416 353 088 306 432 451 672 140 440 098 1 327 604 903 2008 143 2009 712 258 394 218 350 1 404 822 898 705 370 1 600 2010 298 622 572 389 842 469 2011 126 810 1 684 553 368 439 158 080 322 553 505 909 4 221 2012 1 496 270 214 446 368 193 2 084 563 742 2013 807 168 657 220 346 669 260 026 261 425 487 600 4 473 294 2014 3 609 764 381 18 435 261 139 487 853 3 506 Total tates money laundering and counter - terrorist financing measur es in the U nited S - Anti – 2016 © FATF and APG 2016 81

84 CHAPTER 3. LEGAL SYSTEMS AND OPERATIONAL ISSUES . Most U.S. States have their own forfeiture laws which are used independently of Federal law. 179 The overall Federal picture appears to be highly effective given the value of confiscatio n and the focus on following the money/asset forfeiture as a mean to combat crime and dismantle ML networks. Information provided indicates that State- level LEAs actively pursue confiscation of 3 proceeds of crime, although the data was not as comprehensive as Federal level information and not uniformly available from one State to another. -border transaction of currency/BN I Confiscation of falsely or undeclared cross 180 The authorities also actively pursue confiscatio n regarding cross -border movements of . which have been falsely declared (BNI) currency and bearer negotiable instruments , not declared or disclosed. Their effectiveness is facilitated by special initiatives focused on bulk cash smuggling. The assessment tea m based these conclusions on: discussions with Customs and Border P rotection ; risks as described in the Southwest Border Counternarcotics Strategy (2013) and the National (CBP) Northern Border Counternarcotics Strategy 2014; discussions with a range of LEAs and prosecutors at the Federal, State and local levels about what types of confiscation they pursue, in what circumstances, and with what results; and numerous case examples demonstrating that the U.S. is successfully able to confiscate currency/BNI in a variety of circumstances. -border movements of currency and BNI in violation of the law 181 . Falsely or non -declared cross border is by and large the can and do result in confiscation and enforcement action. The southwest primary focus of bulk cash enforcement activity by U.S. authorities in line with the country’s risk profile. Authorities focus on drug dollars that are being transported by or on behalf of Mexican drug trafficking organizations (DTOs) which dominate the supply and wholesale distribution of illicit drugs in most U.S. drug markets. Seizure of outbound undeclared bulk cash at U.S. southwest border ports of entry have trended down over the past several years according to statistical reporting by CBP. While the figures set out below convey a sense of effective prioritisation of the southwest border in line with the DTO risk, and a sense of volume, the assessment team was not able to fully grasp the weight of other points of entry and h ow these are prioritised. It is clear from National Northern Border Counternarcotics Strategy 2014 that drug smuggling and bulk cash smuggling are vulnerabilities for the northern border as well but present a much lower risk as compared to the southwest border. The majority of smuggling activity that takes place along the northern border involves contraband such as narcotics. money laundering and counter FATF and APG 2016 © 2016 – - tates S nited terrorist financing measures in the U Anti - 82

85 CHAPTER 3. LEGAL SYSTEMS AND OPERATIONAL ISSUES 2015) - Box . 14 Confiscations of illicit cash by CBP (2011  in illicit cash leaving the U.S. over the million 34 USD In 2011, CBP seized an annual average USD 64 two year period March 2009 through February 2011, of which 97% ( million ) was billion of illegal cash -Mexico border – leaving an estimated USD 2 confiscated along the U.S. 3 seized through other border/entry points. million 32 The 2012 outbound currency seizure volume compared to 2011 fell to  USD . 1 -over continue to illustrate a year  Current statistics reported by CBP (June 2015) -year declining trend in outbound currency confiscation along the southwest border region, with 2015 total dollars seized down 42.5% compared to 2014. Note: State of the Southwest Border, CBP Office of Intelligence, June 2015. 1. Effectiveness in this area is enhanced by specialised initiatives which are specifically focused . 182 (BCSC see IO.1), the ICE Bulk Cash Smuggling Centre on targeting this type of activity such as the - Operation Firewall (in partnership with CBP, it targets the array of methods and means used HSI’s to sm uggle bulk cash) an d the Memorandum of Understanding with the Transportation Security (TSA - it assists the identification of suspicious movement of bulk cash in commercial air Agency transportation). - Box Confiscation of falsely/not declared cross . 15 Illustrative – border movements of currency examples of results achieved Statistics :  Since its inception in August 2009, the BCSC has initiated 824 investigations, which have resulted in 648 criminal arrests, 431 indictments, and 319 convictions.  HSI bulk cash smuggling investigations led to the arrests Between FY2003 and FY2013, ICE- . of more than 2,300 individuals and seizures of more than USD 547 million Since its inception in 2005 through March 2012, Operation Firewall has resulted in more  million 611 zures totalling more than USD than 6,613 sei , and the arrests of 1,416 individuals. million and 302 These efforts include 469 international seizures totalling more than USD 267 Source: 2015 NMLRA. international arrests. The BSCS MoU with the TSA has yielded 1 083 bulk cash seizures since 2014 totalling  650. 033 43 USD -Border Bulk Cash Smuggling Operation (2015): This case resulted in a seizure of Cross d: USD 824,899 concealed within a vehicle outbound from the U.S. towards Mexico. Agencies involv e HSI, CBP. USD 250 from 62 Álvaro López Tardón (Op Las Tapas) (2014): This case resulted in a seizure of one of Tardón’s cash couriers who was smuggling proceeds via commercial aircraft. tates money laundering and counter - terrorist financing measur es in the U nited S - Anti – 2016 © FATF and APG 2016 83

86 CHAPTER 3. LEGAL SYSTEMS AND OPERATIONAL ISSUES Consistency of confiscation results with ML/TF risks and national AML/CTF polici es and priorities. 183 The authorities provided examples of actively pursu confiscation in line with their risk ing . profile, including cases involving: terrorism (as described in more detail in IO.10); laundering the 3 proceeds of fraud (including healthcare fraud), drug trafficking, and transnational organized crime; es. However, there is very limited data and laundering the proceeds of foreign predicate offens le vel s and Federal forfeiture statistics are available about what is happening at the State and local not broken down by underlying criminal offens e. These information gaps prevented the assessment team from getting a full picture of the totality of the U.S. efforts in this area. Consequently, it is not possible t o conclusively assert that overall the authorities give priority to forfeiture of predicate offen se and ML activity in line with threat/risks assessments set out in the 2015 NMLRA. At a Federal level it is likely that the emphasis on obtaining high value o rders will result in confiscation orders being obtained in drug trafficking and high value frauds. At State and local level, some confiscation activity is undertaken by joint task forces, which are likely to be targeted at priority offenses. Other asset forfeiture activity at State and local levels is likely to mainly target drug trafficking, as this falls within all States’ asset forfeiture legislation. 184 identified in the NMLRA and The assessment team based these conclusions on: the risks as . national security strategies; a range of Federal LEAs and a number of prosecutors at the Federal, State and local levels about what types of confiscation they pursue, in what circumstances, and with confiscat mples demonstrating successful what results; numerous case exa ion of property in a variety of circumstances; and ( limited ) information about what is happening at the State and local levels. 185 . The U.S investigates and prosecutes ML and underlying ML activity in line with its risk profile IO.7 demonstrate that seizure and asset as set out in core issue 7.2. All of the cases provided under forfeiture are actively pursued in these cases. The authorities are successful in forfeiting assets even Forfeiture of in complex and international cases, and are able to forfeit of a wide range of assets. assets is also prioritised for TF (see IO.9 and IO.10 including cases examples provided there). Although statistics of Federal confiscation orders broken down by offen se are not available, . 186 forfeitures carried out by Federal seizing agencies give a sense of volume per broad category of the 8 ng on the agencies’ remit and responsibilities. For example, the Food crime (see ), dependi Table and Drug Administration (FDA) is responsible for forfeiture of a wide range of fraud including s, cosmetics and pharmaceuticals though healthcare fraud does not fall under its counterfeiting drug . The ATF of the U.S. Code 31 ses under Title remit. The DEA has responsibility over drug offen oversees firearms related forfeiture (weapons not included) as well as proceeds from trafficking .S. Marshals (US MS) are the seizing agency for any money including smuggling of cigarettes. The U .S. (USPIS) judgment but can have their own cases. The U will handle forfeiture related Postal Service to mail fraud, and wire fraud which cover many ML cases. A breakdown of forfeiture carried out by the FBI also hi ghlighted that FBI programs focus on higher risk areas such as complex financial crime, white collar crime, organised crime, criminal enterprise, public corruption, and the Latin gest amount of American/South West border (for administrative confiscation) generate the lar confiscation. S FATF and APG 2016 Anti - money laundering and counter - terrorist financing measures in the U nited tates – 2016 © 84

87 CHAPTER 3. LEGAL SYSTEMS AND OPERATIONAL ISSUES Other indicia give a sense of high prioritisation of confiscation by the U.S authorities notably . 187 isk or threat. For the setting up of specific confiscation units and/or initiatives to target specific r example, the Kleptocracy Asset Recovery Initiative, established by the U.S. in 2010, currently has million 150 USD to countries affected billion in restrained assets, and has repatriated over USD 2.8 3 USD ask Force seized more than s of corruption. The El Dorado T by crime primarily from million 58 evidence developed in drug ML investigations. In the absence of more detailed national statistics and a breakdown of these by underlying . 188 offense type, it is difficult to assert that confiscation orders obtained accurately reflect the AML/CTF However risks and national AML/CTF policies and priorities identified by the U.S. authorities. agency -specific confiscations, FBI -specific data and confiscation achievements of specific task forces and initiatives indicate that they do . 189 . The U.S. is rated as having a high level of effectiveness for IO.8. S - money laundering and counter - terrorist financing measur es in the U tates – Anti FATF and APG 2016 © 2016 nited 85

88 CHAPTER 3. LEGAL SYSTEMS AND OPERATIONAL ISSUES 3 FATF and APG 2016 Anti © - money laundering and counter - terrorist financing measures in the U nited S tates – 2016 86

89 AND FINANC TERRORIST FINANCING CHAPTER 4. ING OF PROLIFERATION Key Findings and Recommended Actions Key Findings 4 Terrorism financing investigation and prosecution – TF offense (Immediate Outcome 9) 1. Disrupting and preventing terrorist attacks before they occur is the top U.S. national security ority. The U.S. effectively approaches the threat of terrorism and its financing from both a pri global and domestic perspective. 2. Whenever LEAs pursue a terrorism - related investigation against individuals or entities, a parallel investigation is undertaken t o identify potential sources of financial support. The U.S. is able to identify different methods of TF and the role played by financing networks, and to successfully investigate and prosecute such activity. The conviction rates are high and penalties appl ied in TF cases are effective, proportionate and dissuasive. 3. The CFT system is very well integrated into U.S. counter terrorism structures, which - agency cooperation and coordination, including among Federal, State and - facilitates inter -sharing and coordination between intelligence t also facilitates information local authorities. I officers and LEAs on issues related to terrorism and TF. TF related targeted financial sanctions and NPOs (Immediate Outcome 10) s and other funds pursuant to its targeted The U.S. has frozen a substantial volume of asset 1. financial sanctions (TFS) programs and appears also to have kept terrorist funds out of its financial system to a large extent. Terrorism and its financing have the highest level of priority. The application of TF - related TFS is specifically mandated in the February 2015 National Security Strategy and the U.S takes a leading role promoting their effective global implementation. The U.S. proactively and comprehensively implements TF related TFS and follows up all - 2. signations with a co agency response to thoroughly identify and de -ordinated, cross - investigate the individuals/entities concerned. The U.S. has not implemented TFS against all individuals/entities designated by the UN pursuant to UNSCR 1267/1989 and 1988 and not every UN designation is implemented ‘without delay’ - although the great majority are. In practice, the impact of the missing designations has been minor. There is extensive outreach and guidance to reporting entities and FIs in particular generally 3. emonstrate a good knowledge of TF risk. Risks arising from the lack of beneficial ownership d (BO) requirements are significantly mitigated by the inter -agency approach to detection and investigation of TF. -based, and focused on targeted 4. are risk -profit organization (NPOs) Measures applied to non outreach and engagement with NPOs most at risk for abuse by terrorists and the 2015 NTFRA found that concerted action has improved the resilience of the charitable sector to abuse by TF facilitators. - – Anti - terror ist financing measures in the United States money laundering and counter 2016 © FATF and APG 2016 87

90 CHAPTER 4. TERRORIST FINANCI NG AND PROLIFERATION FINANCING financing (Immediate Outcome 11) Proliferation Like TF, proliferation financing (PF) has the highest level of priority. The application of 1. related TFS is specifically mandated in the February 2015 National Security proliferation- Strategy and the U.S. takes a leading ro le promoting their effective global implementation. The U.S. implements TFS with the same proactive approach to developing proposals for 4 - designation as it does in the TF context. The U.S. follows up all designations with a co ordinated, cross se to thoroughly identify and investigate the -agency respon - individuals/entities concerned, and implements proliferation related TFS comprehensively and without delay. 2. The U.S. has frozen a substantial volume of assets and other funds pursuant to its PF sanctions progr ams. There is extensive outreach and guidance to reporting entities and FIs in particular generally demonstrate a good knowledge of PF risk and are filing SARs related to potential PF. Risks arising from the lack of BO requirements are significantly mitiga ted by the inter -agency approach to detection and investigation of PF. 3. National coordination and cooperation among the U.S. authorities, at both the policy and operational levels, is a particularly strong feature of the system and mechanisms strongly - support and reinforce the application of PF related TFS by facilitating the identification of new potential targets for designation. individuals/entities 4. 2 However, the U.S. has not implemented TFS in relation to 2 of the 3 designated pursuant to UNSCR 1718, and 29 of the 122 individuals/entities designated pursuant to UNSCR 1737 on the basis that there is insufficient information in relation to these names on which to base the U.S. process. In practice, the impact of these missing designations has been minor . Recommended Actions Immediate Outcome 9 1. The U.S. should continue its comprehensive CTF efforts, adapting to new threats as they emerge. Immediate Outcome 10 1. Authorities should continue to work to ensure that all domestic designations of UN designated ind ividuals and entities occur and are implemented without delay, and that the challenges posed by deficiencies in BO requirements are overcome by close cooperation and coordination and sharing of information and intelligence. As violations of TF -related TFS are strict liability offenses, the authorities should continue to 2. engage stakeholders on banking challenges that some NPOs may face when working in conflict zones. The U.S. could further improve the quality of NPO supervision. Immediate Outcome 11 1. Authorit ies should continue to work to ensure that all domestic designations of UN designated persons and entities occur and are implemented without delay, and that the FATF and APG 2016 © 2016 – Anti tates S nited terrorist financing measures in the U - money laundering and counter - 88

91 CHAPTER 4. TERRORIST FINANCING AND PROLIFERATION FINANCING challenges posed by deficiencies in BO requirements are overcome by close cooperation and coord ination and sharing of information and intelligence. The U.S. should continue to enhance inter - agency cooperation and coordination, especially in relation to dual use goods and export controls. 190 . The relevant Immediate Outcomes considered and assessed in this chapter are IO.9- 11. The 4 -8. recommendations relevant for the assessment of effectiveness under this section are R.5 Immediate Outcome 9 (TF investigation and prosecution) profile conviction of types of TF activity consistent with the country’s risk- Prosecution/ The nature, diversity and scale of the TF cases pursued, and the volume of prosecutions 191 . between 2010 and 2015, are in line with the U.S risk profile and demons trate that it is successful in achieving convictions in such cases. The assessment team based these conclusions on: statistics of the number of cases prosecuted and convictions achieved; discussions with prosecutors, the FBI and NTFRA; and numerous cases demonstrating what types of TF activity are other LEAs; a review of the pursued. 192 . Between January 2010 and December 2014, the authorities convicted over 100 individuals of se of knowingly providing material support or resources one or more TF -related offenses. The offen USC to a designated F oreign Terrorist O rganizations (FTO - 18 § 2339B) is most often charged. Between January 2010 and December 2014, 70 individuals were convicted under this statute. During se allows for effective TF the on -site, specialist prosecutors confirmed that this is because this offen prosecution and conviction without needing to prove any specific intent on behalf of the defendant to fund terrorist activity/acts. They also commented that some defendants may perceive less stigma in pleading guilty to the offen se of ‘ Specially undertaking unlicensed financial transactions with a Designated Global Terrorist (SDGT) ’ (50 USC ses of § 1705) rather than the more explicit offen material support to terrorists, where both offenses have been charged. tates money laundering and counter - terrorist financing measur es in the U nited S - Anti – 2016 © FATF and APG 2016 89

92 CHAPTER 4. TERRORIST FINANCI NG AND PROLIFERATION FINANCING 29 Terrorist Financing prosecutions Table 12 . Criminal charge Number of individuals charged 2010 TOTAL 2014 2013 2012 2011 18 USC 2339A: Providing Material Support for the Commission of Terrorist Acts 4 4 6 10 33 4 9 18 USC 2339B: Providing material support or resources to designated FTOs 3 52 7 13 6 23 - 18 USC 2339C: 2339C Prohibitions against the financing of terrorism 0 0 0 0 0 0 aining from a foreign terrorist organization type tr - 18 USC 2339D: Receiving military 0 4 1 2 0 7 50 USC 1705: Undertaking financial transactions (including making/receiving contributions of funds, goods or services) with a SDGT 3 1 0 2 0 0 21 USC 960a: Narco - terrorism 1 14 0 4 1 8 7 109 15 16 TO TAL 39 32 The U.S. provided multiple case examples illustrating how it proactively and aggressively . 193 investigates, prosecutes and convicts individuals involved in a wide range of TF schemes. The U.S. uses its broad criminal statutes to prosecute and convict activity that goes beyond merely financing a ations (e.g. providing terrorist act, and includes providing material support to terrorist organiz equipment, personnel and training). The different types of TF activity in these cases reflect the types of TF activity which were highlighted in the NTFRA. The authorities have also set up specific 30 operations to stem the flow of foreign terrorist fighters. 29 and 13 , Table ) reflect numbers of persons 12 Table ed in the various tables ( The data provid 14 Table -related statutes. Because complex charged/convicted/sentenced with violations of specific TF terrorism cases often take several years between date of the initial charge and date of the trial/subsequent conviction, there will not be a 1 to 1 ratio of charges and convictions each calendar year. Equally, in complex cases, a conviction sentencing can occur in different calendar years. and subsequent 30 E .g. collecting funds through the abuse of NPOs ; using MSBs to move funds; and financing terrorism with the (abuse of non proceeds generated from other crimes. These types of TF are highlighted in the NTFRA: p.35 -45 - -47 (moving funds using MSBs), p.28 -35 (financing terrorism through proceeds profit organizations), p.46 -45 and 57 (foreign terrorist fighters). generated from other crimes); p.44 tates Anti - money laundering and counter - terrorist financing measures in the U nited S – 2016 © FATF and APG 2016 90

93 CHAPTER 4. TERRORIST FINANCING AND PROLIFERATION FINANCING . 16 Box Illustrative examples of results d & offenders convicted - Types of TF prosecute achieved Recent trends:  The authorities report that targeted actions and outreach in the NPO sector have significantly - line, self reduced the misuse of NPOs, while other fundraising trends have consolidated (on - 4 funding).  raising and outreach has also seen a decline of misuse of FIs, while other - Targeted awareness means of moving funds have been on the increase. Collection of funds, including through non - profit organizations Holy Land Foundation (2002- 2009): This case is one of several examples of the U.S. dismantling TF networks which used large tax - exempt charitable organizations. HLF operated as the chief U.S. fundraising arm of Hamas, a designated FTO, cloaking its financial support for Hamas by funneling money through other organizations in the West Bank and Gaza. HLF’s principals were convicted of multiple charges (including providing material support to an FTO, tax and ML violations) and received substantial terms of imprisonment (the longe st being 65 years). HLF was ordered to forfeit million . Agencies involved: USAO/NDTX, DOJ HSI, Department -CI, ICE- over USD 12 -AFMLS, FBI, IRS of State, USSS, U.S. Army CID. Operation Green Arrow (2007 ow of -2013): This FBI initiative was aimed at stemming the fl based grass Shabaab and other insurgents in Somalia by focusing on U.S.- financing from the U.S. to al- root fundraisers who purposed to act under the auspices of charitable giving. It resulted in multiple received sentences ranging from 10 to 20 years TF prosecutions and convictions The defendants imprisonment. Agencies involved: FBI, JTTF, ICE MA. - SDNY, USAO - HSI, NYPD, USAO - line fundraising - On Ahmad (2013): This case shut down a London based TF cell raising funds online. The defendant was - to 150 months imprisonment for conspiring to provide and for providing material sentenced support, including funds, physical items, and personnel to terrorists in several locations including rectly through these Afghanistan and Chechnya. U.S. residents were solicited and donate funds di sites. Movement of funds through MSBs unlicensed money transmitters and Saifullah Anjum Ranjha (2008): This case is illustrative of U.S. efforts to identify and disrupt unlicensed money transmitters who may facilitate transfers of fu nds to terrorist groups. In an extensive sting operation, over USD was supplied to Ranjha and his associate for them to 2 million transfer abroad for the alleged benefit of Al -Qaida, al - Shabaab, and the Taliban. Ranjha pleaded guilty to conspiring to ML, concealing TF and operating as an unlicensed money transmitter and was USD million 2.2 sentenced to over 9 years in prison. The U.S. government seized approximately CI, ICE - worth of assets. Agencies involved: USAO/DMD, FBI, IRS HSI. - tates money laundering and counter - terrorist financing measur es in the U nited S - Anti – 2016 © FATF and APG 2016 91

94 CHAPTER 4. TERRORIST FINANCI NG AND PROLIFERATION FINANCING Financing terrorism wi th the proceeds of other crimes This case is illustrative of individuals raising proceeds for terrorists via Khan Mohammad (2008): criminal activities. Khan Mohammad was sentenced to serve two concurrent life sentences after being found guilty of several criminal statutes related to drug trafficking, including narco -terrorism charges (21 USC § 960a). This person served as both a local operations commander for the Taliban, 4 antities of coordinating attacks on U.S. and NATO troops, as well as assisting in moving large qu the United States. including opium and heroin from Afghanistan to various destinations, This case is an example of a fraudulent activity being used to raise funds. Khalid Ouazzani (2013): The scheme involved submitting false financial informati on to obtain a loan, the proceeds of which were later provided for the use and the benefit of Al Qaida. Ouazzani was sentenced to 14 years imprisonment after pleading guilty to conspiracy to provide material support to a terrorist million and an 1 USD L and bank fraud. He was also subject to a fine up to organization as well as M CI, Missouri Department of Social Services, Kansas - order of restitution. Agencies involved: FBI, IRS City PD, USAO/WDMO. Foreign terrorist fighters led o Operation Rhino: peration is aimed at responding to the threat posed by persons This FBI - traveling from the U.S. to join al - Shabaab in Somalia. Operation Rhino resulted in charges against more than 20 travellers and their facilitators. To date, the DOJ has convicted 10 defendants u nder this initiative, including facilitators who provided funds to pay for travel and weapons in Somalia. - Agencies involved: FBI, JTTF, ICE MA. - SDNY, USAO - HSI, NYPD, USAO . -site visit, the 194 In the course of the on assessment team also discussed the issue of “home -grown terrorists” who do not hail from, work on behalf of, or take inspiration from FTOs. U.S. LEAs and - prosecutors provided information and examples as to how they had identified and charged home grown te rrorists such as the Sovereign Citizen group as well as other domestic terrorists inspired by jihadist ideology. The prohibition against providing material support to terrorists (2339A offen se), equally applies to domestic terrorists (including “home -grown ” terrorists) as well as terrorists with an international connection. investigation TF identification and The U.S. . has been successful at identifying TF in a number of ways including through its 195 extensive and so phisticated use of financial intelligence and in the course of terrorism investigations which always incorporate a TF component. The assessment team based these conclusions on: statistics of the number of cases prosecuted and convictions achieved; discussions with prosecutors, the FBI and other LEAs, including specialised units focused on counter -terrorism; a review of the NTFRA; and numerous cases demonstrating what types of TF activity are pursued. . ility to combat terrorism and TF is facilitated by specialised units and initiatives. 196 The U.S.’s ab -sharing and expertise, The task force environment is particularly useful for enhancing information and helping the authorities to conduct financial investigations effectively. Prominent examples of S FATF and APG 2016 Anti - money laundering and counter - terrorist financing measures in the U nited tates – 2016 © 92

95 CHAPTER 4. TERRORIST FINANCING AND PROLIFERATION FINANCING this are the FBI Joint Terrorism Task Forces (JTTFs) -led task -jurisdictional FBI which are 104 multi forces established nationwide to conduct terrorism -related investigations with representatives from Federal, State and local LEAs. Local fusion centers also often support JTTFs and include their own -agency National JTTF (NJTTF) ensures that information and intelligence SAR review team. The inter flows freely among the local JTTFs and beyond. The JTTFs also coordinate closely with FBI -TFOS) 1, Terrorism Financing Operations Section (FBI (described in Chapter Legal & Institutional 4 framework ) which provides financial investigation and TF expertise to JTTFs with less experience in this area. -led JTTFs have successfully disrupted more than 100 potential The U .S. reports that FBI terrorist attacks in the last 5 years. . 197 pecial investigative s O.7, LEAs have .31 and under I In addition to the powers described in R tools for investigating terrorism and TF, including the national security letter (an administrative subpoena) which expands the FBI’s authority to compel information for national security purposes -approval by a judge. Other powerful tools are procedures for requesting judici and without pre al authorization for electronic surveillance and physical searches of persons engaged in espionage or international terrorism against the U.S. on behalf of a foreign power, terrorist group or as a ‘lone wolf’: Foreign Intelligence Surveillance Act (FISA). . 198 Department of Justice National Security Division TF investigations are also supported by (DOJ -NSD) which oversees terrorism and TF investigations and prosecutions at the Federal level. It provides assistance in the course of the investigation and prosecution and approves all TF prosecutions, in coordination with all 94 U.S Attorney’s Offices (USAOs). NSD has extensive experience of working with the intelligence community and the use of intelligence in court dings, including managing sensitive information gathered under FISA. All USAOs work closely procee with JTTFs to bolster investigation and thus prosecution. The conviction rates achieved are s. symptomatic of the integrated and concerted approach to TF investigation -TFOS . 199 The authorities consider outreach to the private sector critical to their CFT efforts. FBI spearheads continuous outreach to the private sector, including: annual conferences bringing executives from domestic and foreign banks to exchange information on TF together 200 to 300 trends and threats; and semi -annual meetings with the 20 largest banks in the U.S. (representing 65% of U.S. transactions). JTTFs also conduct their own private sector engagement within their geographic remit. Extensive outreach has resulted in a cooperative information -sharing environment between the public and private sector, and better quality/targeted SARs. Examples of this were discussed during the on -site. 200 . The authorities demonstrated numerous successes in being able to identify the specific role and below in Box 17 played by terrorist financiers (see cases above in Box 16 ). – Anti money laundering and counter - FATF and APG 2016 © 2016 terrorist financing measur tates S nited es in the U - 93

96 CHAPTER 4. TERRORIST FINANCI NG AND PROLIFERATION FINANCING n of TF - Identification and investigatio . 17 Box Illustrative examples of results achieved Statistics:  - FBI TFOS initiated over 700 TF investigations since 2010, leading to over 120 convictions for TF offenses. 4 Illustrative examples of cases which identified the specific role played by the t errorist financier ISIL Facilitator (2015) : A joint investigation and analysis initially highlighted an individual’s role in collecting alleged ISIL related money from approximately 20 countries and sending transfers to - receivers in approximately 10 countries, many of whom were already associated with persons in the Terrorist Screening Database (TSDB). The individual’s role was further identified jointly by the FBI and the National Targeting Center (NTC) using FinCEN Flash reports compiled from SARs and da ta . submitted by U.S. businesses RE used a car trade - based ML scheme to Rmeiti Exchange (RE) & Halawi Exchange (2013): launder millions of dollars on behalf of narcotics traffickers & money launderers, and conduct ML activities for and provide financial s ervices to a terrorist organization. Both exchanges operate outside the U.S., and were identified under section 311 of the Patriot Act as being of primary money laundering e. concern. Agencies involved: Treasury (FinCEN), FBI, DEA, CBP, New Jersey State Polic Times Square Bombing (2011): Two unlicensed money transmitters separately transferred funds provided by Pakistani Taliban operatives in Pakistan to help finance the May 2010 attempted Times Square bombing. Although these individuals served as a source o f support for terrorism, they did so unknowingly and, therefore, were not charged with terrorism or TF offenses, but were convicted of unlicensed money transmission. Agencies involved: FBI, CBP, NYPD, USAO/SDNY, USAO/MA, JTTF. The cases listed above in also identified the specific role played by the terrorist financier(s). 16 Box - national strategies and supportive of integrated with - TF investigation 201 U.S. efforts to com bat TF are extremely well integrated with and used to support national . -terrorism strategies and investigations, including the identification and designation of counter ased its terrorist, terrorist organizations and terrorist support networks. The assessment team b National Strategy for Counterterrorism ; and National Security Strategy conclusions on: the NTFRA, - discussions with prosecutors, FBI and other LEAs, including specialised units focused on counter terrorism; and numerous cases demonstrating what typ es of TF activity are pursued. s from raising, moving and using funds is a major component of the U.S. Preventing terrorist . 202 objective of which is to disrupt and pre , the National Strategy for Counterterrorism main vent are fully integrated into th TF attacks before they occur. The U.S. efforts to combat terrorist e strategy which means that, as a matter of policy, any terrorism -related investigation against individuals or entities is accompanied by a parallel investi gation to identify potential sources of financial support. This is evidenced at the institutional level by the full integration of specialized financial investigation units into departments responsible for investigating terrorism. For example: (wh -TFOS FBI’s Counterterrorism Division a) ich has just under 100 staff) is part of the FBI and investigation to better integrate financial information so as - counter wider into S FATF and APG 2016 Anti - money laundering and counter - terrorist financing measures in the U nited tates – 2016 © 94

97 CHAPTER 4. TERRORIST FINANCING AND PROLIFERATION FINANCING -TFOS agents are also embedded within terrorism investigations and prosecutions. FBI the FBI Counterterrorism Division’s International Terrorism Operations Section and threat cells, which manage priority threats and investigations. (ITOS) across the country with fully -embedded IRS b) The prevalence of -CI expert forensics JTTFs accountants demonstrates the high priority given to TF. JTTFs bring together 4 000 personnel from 50 Federal agencies, and over 600 State and local agencies. As noted 4 elsewhere, the multi -used in the U.S. -agency task force model is very successful and widely system. nar To address co c) -terrorism, FBI -TFOS has agents embedded within the relevant DEA specialist division, and holds regular meetings with counterparts in the DEA. The DEA multi- a — -Terrorism Operations Center (CNTOC) -Narco Counter also has a special - agency section that coordinates all DEA investigations and intelligence related to narco terrorism and ML linked to terrorist organizations. As well, the U in the Southern SAO District of New York created a combined to Terrorism and International Narcotics Unit identify and prosecut e global transnational threats. d) monitoring by DOJ enhances the quality of terrorism integrated Central management and -related investigations and prosecutions in support of the country’s goal to disrupt and TF and prevent terrorism. The U.S. has a comprehensive ongoing process of intelligence sharing. The intelligence 203 . produced by the field effectively informs policy priorities. Policy analysis is effectively pushed out to the field on an ongoing basis helping to identify and support ongoing investigations in an integrated fashion. Agency priorities are adjusted to reflect changes in national priorities. For example, there nces is one has been a recent focus on ISIL and foreign terrorist fighters (FTFs). Disrupting ISIL’s fina of the nine lines of efforts in a cross government strategy to combat ISIL. This aims to disrupt ISIL’s access to the international financial its revenue streams in order to deny it access to funds, limit lea dership and financial facilitators to disrupt their ability to its system, and impose sanctions on operate. 204 In line with these priorities, U.S. LEAs also aggressively target the threat posed by FTFs. Key to . this effort has been using financial int elligence to identify and target FTF facilitators and detain Foreign Terrorist Tracking Task Force potential FTFs prior to travel. The FBI has established a (FTTTF) which works with foreign partners, including Canada, Australia, and the United Kingdom. It has information sharing agreements with participating agencies, and the private sector to aid in locating terrorists and their supporters who are/have been in the U.S. The FTTTF has access to more than 70 sources of data including lists of known and suspected foreign terrorists and their supporters. It shares data with the U.S. intelligence community and other government agencies, including FinCEN and OFAC, to create a centralized database for use by FTTTF analysts. These efforts are generating concrete results. To date the U.S. government has filed charges in more than 60 FTF cases. 205 Likewise the . is working on a FTF project aim to National Targeting Center (NTC) CBP’s identify individuals traveling from the U.S., Australia, Canada, and the European Union to Syria and Iraq. NTC analysis identifies selectors and associates who may be of interest to law enforcement and – - money laundering and counter - FATF and APG 2016 © 2016 terrorist financing measur tates S nited es in the U Anti 95

98 CHAPTER 4. TERRORIST FINANCI NG AND PROLIFERATION FINANCING the U.S. intelligence community. As additional selectors and associates are found, NTC shares this information with its U.S. interagency partners, including the NJTTF, the NCTC, and FinCEN. sanctions ness of Effective ness, proportionality and dissuasive The penalties applied are effective, proportionate and dis 206 suasive. The assessment team based . 4 these conclusions on a review of statistics, cases and sentences in this area. Overall, the conviction rate in TF cases is high. 5% of persons charged with a violation of 2339A and over Since 2010, over 8 of those offenses 90% of persons charged with a violation of 2339B have been convicted . In the few instances where a material support charge was dropped pursuant to a plea deal, or could not be ted of other proven beyond a reasonable doubt during trial, the defendants were still convic accompanying criminal charges. . Terrorist Financing convictions Table 13 Criminal charge Number of individuals convicted 2012 TOTAL 2014 2013 2010 2011 18 USC 2339A: Providing Material Support for the Commission of Terrorist Acts 5 40 12 2 13 8 18 USC 2339B: Providing material support or resources to designated foreign terrorist organizations 17 22 13 70 8 10 18 USC 2339C: Prohibitions against the financing of terrorism 0 0 0 0 0 0 18 USC 2339D: Receiv ing military - type training from a foreign terrorist organization 1 6 1 1 2 1 50 USC 1705: Undertaking financial transactions (including making/receiving contributions of funds, goods or services) with a Specially Designated Global Terrorist (SDGT) 3 5 1 0 1 0 21 USC 960a: Narco - terrorism 0 9 0 5 4 0 33 36 130 19 TOTAL 15 27 207 . The U.S. courts have imposed substantial sentences (both prison and fines) against convicted ain would require the defendant to plead to the highest count, terrorist financiers. Any plea barg ses. The application of sanctions is guided by which traditionally includes terrorism or TF offen sentencing guidelines and seem proportionate to the crime committed. When prosecution is the special terrorism sentence successful, the government may request the court applies enhancement which increases both the offense level (with a minimum offense level floor) and the criminal history category (U.S. sentencing guidelines: §3A1.4). It can be diffi cult to apply to a S FATF and APG 2016 Anti - money laundering and counter - terrorist financing measures in the U nited tates – 2016 © 96

99 CHAPTER 4. TERRORIST FINANCING AND PROLIFERATION FINANCING terrorism financier as prosecutors must show by a preponderance of evidence that the defendant’s - conduct was intended to promote a Federal crime of terrorism (which includes the TF and narco lated to influence or affect the conduct of government ses), and the offense was calcu terrorism offen by intimidation or coercion, or to retaliate against government conduct. The judge will look at the errorism t Still, intimidation element and try to assess whether the individual is dangerous. sentenci ng enhancement has been applied in several TF cases. The U.S. has also imposed penalties on 4 ations or otherwise to designated terrorist organiz corporations convicted of providing funds facilitating the movements of funds for the benefits of terrorist organ iz ations. Box 18 . Sentence applied in TF cases - Illustrative examples of results achieved Statistics: -  Between 2001 - 2013, providing direct material support to FTO carried an average 12 year prison sentence. Carrying out prohibited transactions with SDGTs carried an average 22 years prison  sentence to date. Illustrative case examples - Sentences imposed against natural persons were sentenced to approximately 20 years in prison Donald Ray Morgan and Shelton Thomas Bell g and conspiring to provide material support to ISIL as foreign terrorist fighters. for attemptin Holy Land Foundation: The sentences for the five defendants ranged from 15 - 65 years depending ). Box on their roles and the counts they faced (see 16 Illustrative case examples Sentences imposed against legal persons - Chiquita Brands International pleaded guilty in 2007 to violating IEEPA for Chiquita Brands (2007): 825 USD making 50 illegal payments totalling over zation in Colombia designated as to an organi 000 a FTO and a SDGT. As part of the plea, Chiquita Brands was fined 25 million . USD Application of Terrorism Enhancement Sentences - Illustrative case examples ): Khan Mohammad (2008 The defendant was sentenced to life impris onment, upon application of the terrorism enhancement, after being convicted of narcoterrorism for providing support to the Afghanistan Taliban. The Court affirmed the imposition of the terrorism enhancement considering that the defendant specifically inte nded to use the commission from the drug sales to purchase a car to facilitate attacks against U.S. and foreign forces in Afghanistan. The defendant was sentenced to 27 years imprisonment, upon application of Betim Kaziu (2014): the terrorism enhancement, after being convicted of conspiring to commit murder overseas, conspiring to provide material support to terrorism, attempting to provide material support to a foreign terrorist organization, and conspiring to use a machine gun in furtherance of those cri mes. . 208 Below is a summary of the range of prison sentences applied between 2010 and 2014. tates money laundering and counter - terrorist financing measur es in the U nited S - Anti – 2016 © FATF and APG 2016 97

100 CHAPTER 4. TERRORIST FINANCI NG AND PROLIFERATION FINANCING Sentencing for Terrorist Financing Convictions (2010-2014) Table 14 . 25- 14 13- 1- 12 61+ 60 Life 37- 36 Not imprisone d # of Defendants Months Months Months Months Months Imprisonment 18 USC 2339A: Providing Material Support for the Commission of Terrorist Acts 2 38 0 0 0 0 2 34 4 18 USC 2339B: Providing material support or resources to designated foreig n terrorist organizations 2 8 60 0 0 2 5 43 18 USC 2339C: Prohibitions against the financing of terrorism 0 2 0 2 0 0 0 0 50 USC 1705: Undertaking financial transactions (including making/receiving contributions of funds, goods or services) with a Spec ially Designated Global Terrorist (SDGT) 1 5 0 0 0 0 1 3 - terrorism 21 USC 960a: Narco 0 0 0 11 2 4 3 2 Alternative measures used where TF conviction is not possible (e.g. disruption) use of other criminal justice, regulatory or other measures to 209 . The authorities make good activities where it is not practicable to secure a TF conviction. These alternative measures disrupt TF targeted include: pursuing other criminal charges, awareness raising and outreach, the use of The assessment team based its conclusions on: financial sanctions and civil enforcement actions. statistics of disruptions, and discussions with the authorities about current trends in this area; and some illustrative case examples where alternative offen ses have been pursued. “all tools” approach to -agency ively adopted a multi The U.S. authorities have effect . 210 aggressively target TF and terrorist facilitation, disrupt terrorist plots and dismantle terrorist organizations. The U.S. provided several cases where terrorists, would -be terrorist and/or terrorist se was not possible. The financiers have been prosecuted under other statutes where a TF offen gration violations, tax crimes, making alternative offen ses used have include d: identify theft, immi false statements, and unlicensed money transmitter. During the on -site, the authorities confirmed that false statement and immigration offen ses in particular were especially effective for rapidly s of potential terrorists, FTF or TF in the absence of a full- on investigation into addressing the threat se. a TF offen Anti FATF and APG 2016 © 2016 – tates S nited terrorist financing measures in the U - money laundering and counter - 98

101 CHAPTER 4. TERRORIST FINANCING AND PROLIFERATION FINANCING – Alternative Offenses Illustrative Case Examples . 19 Box Jonathan Paul Jimenez (2012): This case involved someone raising funds to en gage in FTFs activities via fraud. Jimenez was sentenced to 10 years imprisonment for making false statement to a Federal agency in a matter involving international terrorism and for conspiring to defraud the IRS. In order to fund his travel Jimenez had su bmitted a false 2010 tax return and obtained a refund from 4 the IRS in the amount of USD 5 587. This case illustrates how charges of immigration document fraud and unlicensed Aftab Ali (2010): money transmitting were successfully applied to sanction a terr orist financier. Ali provided USD 4,900 to Faisal Shahzad (perpetrator of the Times Square bombing attempt) through a ‘hawala’ transaction. Ali conducted money transmission business transactions (including the above transfer) without complying with Federal registration requirements related to money transmitters. He also entered the country in 2009 and defrauded the government by filing documents to adjust his immigration status in which he knowingly omitted his unauthorized employment. He pleaded guilty to unlicensed money transmitting and immigration document fraud. The OFAC and Department of State designations under E.O. 13224 are also utilized effectively 211 . as a tool to disrupt TF activities. Such designations enhance the ability of DOJ prosecutors to pursue criminal charges for financial support provided to terrorists and terrorist organizations. Under E.O. 13224, U.S. persons may not engage in financial transactions with an SDGT unless they have first a license from OFAC, nor may they engage in a transaction to circumvent the E.O., or make obtained or receive any contribution of funds, goods, or services to or for the benefit of an SDGT. high level of effectiveness for IO.9. 212. The U.S. is rated as having a Immediate Outcome 10 (TF preventive measures and financial sanctions) Implementation of targeted financial sanctions for TF without delay Overall, the U.S. has a sophisticat ed system to implement targeted financial sanctions (TFS) 213 . without delay under the relevant UNSCRs. Using the legal framework described under R.6 (administered by OFAC and the Department of State’s Bureau of Counterterrorism) the U.S. has UN designations pursuant to demonstrated its ability to implement TFS within the context of: i) 1267/1989 and UNSCRs 1988; and ii) national designations; and iii) responding to requests from third countries to take freezing action pursuant to UNSCR ons/entities were 1373. A total of 976 pers designated as SDGTs and remained listed on OFAC’s Specially Designated Nationals and Blocked Persons List (SDN List) as of 31 December 2015 of which: over 300 were on the 1267/1989 Al- Qaida Sanctions list; 34 were on the 1988 Taliban Sanctions list; and approximately 600 were associated with other terrorist -related threats designated domestically by the U.S. pursuant to UNSCR 1373. A minor shortcoming is that the U.S. has not implemented TFS against all individuals and entities designated by the UN pursuant to UNSCR 1267/1989 and 1988 and not every UN designation is implemented ‘without delay’ although the great majority are. In reaching its overall conclusions, the assessment team: considered statistics on the number of designations propos ed and made, and TFS – - money laundering and counter - FATF and APG 2016 © 2016 terrorist financing measur tates S nited es in the U Anti 99

102 CHAPTER 4. TERRORIST FINANCI NG AND PROLIFERATION FINANCING applied; and discussed with OFAC, Federal LEAs, and the private sector how targets are identified, how designations are made and communicated to the private sector, and how TFS are implemented in practice. . 214 on TF issues among the regulatory, law enforcement, Strong cooperation and collaboration facilitates the identification of individuals/entities suspected of being and intelligence communities involved in TF activitie s, and who would be appropriate for designation (either domestically 4 pursuant to UNSCR 1373, or at the UN level, or both). P otential designees are closely coordinated , agencies to determine if the designation would actually assist in -conflicted across and de vetted disrupting /imp eding the activities of a larger terrorist network , and this process is well -aligned with also agencies’ operational and policy interests takes a proactive approach to working with . The U.S. other countries to identify individuals and entities suspected of being involved in TF activities, and -sponsoring proposals for designations to the UN proposing and co . FATF International Best The U.S. system incorporates many elements recommended in the . 215 Regardless of whether it is also . Practices: TFS Related to Terrorism and Terrorist Financing (R.6) seeking a UNSCR 1267/1989 or 1988 listing, the U.S. often requests countries to take domestic 1373 (usually as part of a pre- action in accordance with UNSCR notification process) to encourage a global response and reach areas otherwise not subject to U.S. jurisdiction. Since 2010, the U.S. has made 141 requests to other countries to take freezing action pursuant to UNSCR 1373 in relation to its own designations. . Where UN listings face delays, the U.S. often proceeds with a domestic designation under 216 1373, to minimize the threat posed to the U.S. financial system by the designation target. UNSCR 217 . OFAC proactively and widely communicates designations to FIs immediately, rather than relying only on FIs to check the SDN List themselves. Se veral communication channels are used for banks (see R.6, criterion 6.5(d)) to facilitate the implementation of TFS without delay. OFAC about guidance maintains a hotline which banks, individuals, and organizations call to request n in live transactions. This facilitates the freezing of terrorist -related assets potential sanctions, ofte and the clearing of false positives. 218 . OFAC’s SDN list is used by thousands of FIs across the U.S. and around the world to screen re al- time transactions and accounts. U.S. regulators are able to enforce requirements imposed on U.S. and correspondent FIs wishing to do business in or through the U.S. Persons outside the U.S. can and often do voluntarily take the same actions that are required for persons under U.S. jurisdiction, and persons engaging in U.S. dollar -denominated transactions may be particularly likely to do so in order to avoid downstream legal complications in connection with the clearing of U.S. dollar -denominated instrume nts. This global reach of the U.S. sanctions regime reflects the size, complexity and international reach of the U.S. financial system. It is also an effective means of ensuring that U.S. al basis, and enforcing U.N. designations pursuant to E.O. 13224 are widely implemented on a glob 1267/1989 and 1988 internationally. designations pursuant to UNSCR OFAC administers and enforces compliance with all U.S. economic sanctions programs, . 219 -related TFS egulations ility for breach of OFAC r . Liab is “strict liability” (meaning no including TF creates a very clear focus on compliance. proof of knowledge or intent are required) which OFAC’s investigative and enforcement authorities are exclusively civil in nature, as distingui shed from the S FATF and APG 2016 Anti - money laundering and counter - terrorist financing measures in the U nited tates – 2016 © 100

103 CHAPTER 4. TERRORIST FINANCING AND PROLIFERATION FINANCING criminal sanctions enforcement authorities exercised by the DOJ, DHS, and Department of Commerce . in this area To complement OFAC’s enforcement authorities, the FFRs also examine FIs for compliance . 220 with OFAC obligations (see core issue 11.4 for further detail). The 2006 mutual evaluation report raised concerns about the ability of OFAC to monitor compliance with sanctions, given the number of domestic designations (now more than doubled), the huge scope of their application (effectively, all 4 persons in the U.S.) and the limited resources available to OFAC at the time to monitor compliance. Since then, enforcement appears to have become a priority, as is evidenced by a series of highly -related TFS rcement actions involving the banks, mostly in relation to proliferation publicized enfo (see IO.11 for more details). The evaluation team is satisfied that, while monitoring for compliance remains an ongoing challenge, OFAC is effectively meeting this challen ge in collaboration with Federal and State regulators. OFAC, individually or in coordination with other Federal regulators, has -related sanctions also taken civil enforcement action against U.S. FIs for violations of the terrorism programs it administers. . 20 Box Designations proposed/made and TFS implemented Designations proposed/made by the U.S. since 2010:  Over 100 designations were proposed to the UN under 1267/1988 and 1989 of which 63 were proposed under UNSCR 1988. were proposed under UNSCR 1267/1989, and 35 -sponsored or acted as co -designee for 51 designations under UNSCR 1267/1989, The U.S. co  and 23 designations under UNSCR 1988. Implementation of TFS: A total of 976 persons/entities were designated as SDGTs and remained li sted on the OFAC  list as of 31 December 2015 of which: over 300 are on the 1267/1989 Al -Qaida Sanctions list; 34 are on the 1988 Taliban Sanctions list; and approximately 600 are associated with other terrorist- related threats designated pursuant to UNSCR 1373.  The U.S. has not domestically designated 5 of the individuals/entities on the 1267/1989 Al Qaida Sanctions list, and 106 of the names on the earlier UNSCR 1988 (Taliban) Sanctions List. anctions: Enforcing compliance with terrorism-related targeted financial s 32 HSBC (2013): HSBC reached a settlement with OFAC and agreed to pay USD 400 for processing three transactions in December 2010 and January 2011 totaling approximately USD 40 166 on behalf of a designated person (SDGT). . 221 U.S. has not implemented TFS in relation to all of the individuals and entities designated The 2006 during its last mutual by the UN pursuant to 1267/1989 and 1988 (as was noted in . The U.S. justifies evaluation) this on the basis that those UN designations (very early Taliban tates money laundering and counter - terrorist financing measur es in the U nited S - Anti – 2016 © FATF and APG 2016 101

104 CHAPTER 4. TERRORIST FINANCI NG AND PROLIFERATION FINANCING designations) do not contain sufficient identifying information to make the listing of these names do not meet the U.S. legal requirement for domestic designat operationally constructive and ion. The U.S. is also of the view that listing these names would reduce the effectiveness of the system by generating an enormous number of matches for which there would be no practical way to ascertain whether funds/other assets of designated entities were being held. The assessment and individuals team considered this justification in the U.S. context including whether such an enormous volume of 4 transactions are processed and cleared daily through the U.S. financial system and its network of correspondent banking relationships that bottlenecks could, conceivably, impact the global financial system. In concluding that this issue constitutes only a minor shortcoming in the U.S. context, the assessment team considered that: a) t delay (within a matter of hours) against 88% (135 out The U.S. has implemented TFS withou of 154) of the individuals and entities designated by the UN pursuant to UNSCR 1267/1989 and 1988 since 2010. b) in 1999, whereby all individuals as an SDGT The U.S. designated the entire Taliban group , took significant action domestically involved in that organization are deemed to be included in relation to funds belonging to the Taliban as a group, including in 1999 to freeze ccount at the approximately USD 26 5 million held for the Government of Afghanistan in its a Federal Reserve Bank of New York (see 22 below ). Box , the U.S. has implemented TFS against all individuals and c) Since its last mutual evaluation and almost all individuals and entities subsequently designated by the UN under UNSCR 1988 entities subsequently designated by the UN under UNSCR 1267/1989. This reflects that, since 2006, the Security Council has required a more detailed statement of the case and identifying information n more closely with the U.S. domestic approach. , which appears to alig Not all domestic designations of UN -designated individuals and entities are achieved “without . 222 delay” (i.e. ideally within a matter of hours), although the great majority are, thanks to close coordination with the relevant UN committees, which is facilitated by the U.S.’s status as a P5 -designated member of the Security Council. The U.S. reports that since 2010, 88% of the UN individuals and entities have been domestically designated under E.O. 13224 without delay. One challenge to effective implementation of TFS is whether FIs/DNFBPs understand who is . 223 the ultimate beneficial owner (BO) of a customer or party to a transac tion. While the U.S. does not yet have a categorical requirement to identify the BO of a legal entity customer, the U.S. is able to significantly mitigate this technical deficiency in this context. Specifically, U.S. banks have a longstanding obligation to conduct EDD on customers that pose a high risk due to business activity or jurisdictions. In addition, OFAC requires financial institutions and DNFBPs to identify the ownership structure of customers to ensure they are not doing business with entities 50% owned by one or more sanctioned parties, including in the aggregate. In practice, this includes reviewing the extent to which a designated person may have a minority ownership interest or otherwise exercise control without a majority interest, as these entities may be subject to future designation or enforcement action. The U.S. also uses intelligence analysis and information provided by financial institutions from their due diligence to publicly identify and designate individuals and entities acting . for or on behalf of designated persons - money laundering and counter - terrorist financing measures in the U nited S tates – 2016 © FATF and APG 2016 Anti 102

105 CHAPTER 4. TERRORIST FINANCING AND PROLIFERATION FINANCING -profit organizations -risk non approach, outreach and oversight of at Targeted million tax -exempt organizations and an additional 300 houses of worship or About 1.4 . 224 000 similar public charities not required to apply for tax exempt status, account for a significant portion of the financial resources under control of the NPO sector, a substantial share of the sector’s international activities, and include the types of NPOs within t -profit he FATF definition of non 4 organization. , investigations , oversight outreach -based approach to NPO The U.S. has in place targeted risk 225 . and enforcement actions which are largely based on regular engagement with NPOs, intelligence, and and TF investigations. This approach is broadly effective in terms of identifying , understanding responding to the TF risk s and appears to be generating results. The assessment team confirmed these conclusions through discussions with: service NPOs operating in the U.S., other civil society groups, the IRS, OFAC and Federal/S tate LEAs on issues including the TF risks facing the sector and emerging trends in this area; and the related risks described in the NTFRA. 226 . The U.S. has a clear understanding of the risks of TF associated with the NPO sector , as -based approach to addressing the specific described in the NTFRA and the U.S. takes a targeted risk The 2015 NTFRA found that concerted TF risks facing NPOs. This approach ap pears to be working. action has improved the resilienc e of the charitable sector to abuse by TF facilitators. However, the ins large size and diversity of the U.S. charitable sector and its global reach means the sector rema vulnerable to abuse. Agencies consistently shared the view that U.S. efforts in this area had significantly reduced, but not eliminated, the risks of TF through NPOs. -risk for abuse 227 . ransfers are considered to be at higher NPOs involved with international funds t by terrorists. The U.S. response is for enhanced information gathering from domestic and foreign NPOs seeking tax exempt status in the U.S., and considerably enhanced due diligence on more collect in 2008 to international funds transfers . To facilitate this, the IRS redesigned Form 990 finances (including non- stated mission, programs, annually from NPOs concerning their information nd funds sent and used abroad. cash contributions), donors, activities, a In line with the risks identified by the U.S. authorities, t he extensive Schedule F of Form 990 now includes many categories of reporting requirements for charities with overseas activities. 228 . A notable trend iden tified is individuals supporting various terrorist groups seeking to raise funds in the U.S. under the auspices of charitable giving, but outside of any charitable organization . U.S. law enforcement responded by the U.S. government -exempt as tax recognized is emerging to th nationally coordinated campaign of investigations and criminal prosecutions trend through a Box 16 targeting this specific TF method (see - Operation Green Arrow case). Criminal charges and to stop this type of abuse, especially in the U.S. ies are considered to be the most effective tool penalt against such facilitators. where be deployed substantial law enforcement resources may by OFAC may be more effective against overseas entities, where the ability of NPOs Designations of U.S. law enforcement to arrest and prosecute terrorist facilitators is more limited . tates money laundering and counter - terrorist financing measur es in the U nited S - Anti – 2016 © FATF and APG 2016 103

106 CHAPTER 4. TERRORIST FINANCI NG AND PROLIFERATION FINANCING Box Illustrative case Examples – Treasury Designations of NPOs . 21 As of 31 March 2016, Treasury and State have desig nated 56 charities, along with some additional branches and associated individuals, pursuant to E.O. 13224. Of these global designations, 8 relate to based charity since the charities with U.S. operations. The U.S. has not designated a domestic U.S.- Foundation in 2009. This decrease is consistent with the growing trend of fundraising under Tamils 4 false pretences and outside of any charitable organization, and the authorities’ increased use of the criminal offense of providing material support to FTOs. The Treasury designated a front foreign - based NPO (Al Rehmat Trust), operating ehmat Trust: Al R in Pakistan pursuant to E.O. 13224 which was controlled by, acting on behalf of, and providing FTO) (Jaish - e Mohammed financial support to a UN -designated foreign terrorist organization ( (JEM)). This case exemplifies the U.S. Tamil Foundation and the Tamil Relief Organization (TRO): designations of two U.S -based NPOs. U.S. - based Tamil Foundation was designated pursuant to E.O. ignated 13224 for being controlled by, acting on behalf of, and providing financial support to a des LTTE)). Over many years, the Tamil terrorist organization (the Tigers of Liberation Tamil Eelam ( Foundation (based in Cumberland, Maryland) and TRO (another NPO designated for acting on behalf LTTE) had comingled funds and carried out coordinated financial actions. The IRS suspended their of tax - exempt status. The U.S.’s ability to detect terrorist abuse of NPOs is facilitated by reporting requirements and . 229 has IRS’s Tax Exempt/Government Entities Division (TEGE) regulatory oversight. The approximately 1,700 staff including approximately 690 examiners who can examine or review -exempt organizations, for compliance with the U.S. tax laws and review their applications of tax reporting forms. Its financial investigations unit composed of forensic investigators and specialists with financial expertise pursues cases of potential misuse of charities. Any potential TF concerns arising from intelligence (including SARs) or investigations can be fed into the TE/GE’s examination More complex illicit finance cases are program, although no statistics or examples were available. handled in cooperation with other relevant U.S. government agencies and offices. nitors -TEGE mo IRS -based designated changes to the SDN List, and OFAC concurrently informs the IRS of any new U.S. -exempt status of any charities which have been charities which, in turn, will suspend the tax designated. IRS -CI can conduct criminal investigations, as they become necessary. In addition to Federal authorities’ oversight, all 50 U.S. States and the District of Columbia . 230 oversee the practices of charities domiciled/operating in their jurisdictions. Oversight practices vary -nine of the 50 States from State to State and are directed at consumer protection issues. Thirty require any charity raising money in their State to register with them. The statute permits some bilateral sharing of information as appropriate with State regulators, including on issues such as possible TF and fraud. State Attorneys -General have statutory jurisdiction over the charitable assets of these organizations and their fundraising activities. Anti FATF and APG 2016 © 2016 – tates S nited terrorist financing measures in the U - money laundering and counter - 104

107 CHAPTER 4. TERRORIST FINANCING AND PROLIFERATION FINANCING 231 . In t erms of the possible TF risks arising in the 300 or so houses of worship not required 000 to file with the IRS for tax -exempt status, U.S. authorities are of the view that the applicable information requirements (e.g. at the State level), extensive outreac h to the religious and other sectors (see below), and intelligence and investigative activity would nonetheless bring any TF concerns to light. The U.S. provides extensive guidance related to dealing with charit 232. able giving, humanitarian 4 assistance and advice on risks associated with various aspects of the NPO sector. Targeted outreach to the sector appears to be a high priority for the IRS, DHS , Treasury (both TFFC and OFAC), the State Department, the FBI and other agencies. The range and intensity of the outreach is not only strength of the U.S. necessary, considering the huge scope of the NPO sector in the U.S., but is also a efforts in this area. 233 uring the on -site v isit , NPOs supported the view that controls in this area are strictly applied . D ositive feedback on which NPOs’ funds are moving. P through by both government entities and FIs so the level of outreach by the Departments of Treasury and State was received, but me feedback indicated that the extent of engagement and oversight by regulators, particularly IRS, could be on the impact that strict liability improved. In terms of access to financial services NPOs commented for breaching TFS may have on banks’ risk appe particularly when humanitarian aid is provided tites, . in conflict areas with higher TF risk 234 . Overall, the measures being implemented to ensure that NPOs are not abused by terrorists or terrorist financiers seem to be working effectively. Both the Federal and State level authorities take action s against illegitimate or fraudulent charities, or individuals posing as charities, particularly where they are able to demonstrate that these entities were established to facilitate TF. Measures applied to NPOs are risk -based, and focused on targeted outreach and engagement with NPOs most at risk for abuse by terrorists. Striking the right balance and avoiding the disruption of legitimate - -risk conflict zones. As violations of TF articularly in higher NPO activities can be challenging, p related TFS are strict liability offen ses, the authorities should continue to work with the NPO community to understand and mitigate the real TF risks that exist, while engaging stakeholders on banking challenges that some NPOs may face when working in conflict zones. The U.S. authorities are aware of the continuing challenges in this difficult area and are encouraged to continue their efforts, including work with the private sector. Deprivation of TF assets and instrumentalities 235 . The U.S. has frozen a substantial volume of assets and other funds pursuant to its TFS . programs and appears also to have kept terrorist funds out of its financial system to a large extent 236 . OFAC is effective at shutting out designated persons from the U.S. system and depriving them of their assets, particularly given the global reach of the U.S. sanctions regimes. Once funds are blocke d, they may be released only by specific authorization from OFAC. While the amounts currently blocked/frozen in the U.S. are reasonably large, they are not as large as they were in the past and are perhaps less than might have been expected given the size of the U.S financial sector. However, the U.S. authorities argue that part of the reason for this is that the preventive nature of its TFS regime (including strict liability for violations and vigorous enforcement), coupled with other tates money laundering and counter - terrorist financing measur es in the U nited S - Anti – 2016 © FATF and APG 2016 105

108 CHAPTER 4. TERRORIST FINANCI NG AND PROLIFERATION FINANCING actions taken to comb at TF, seem to be having a deterrent effect. The authorities state that TF abuse of the U.S. financial system has decreased over the past 10 years. Additionally, the DOJ uses a variety of tools to pursue and dep . 237 ri ve terrorists, terrorist organiz ations, and terrorist financiers of assets related to TF activities. Forfeiture provisions expressly enable law enforcement to seize and forfeit engaged anyone located, of wherever assets, all cts of terrorism in planning or perpetrating a —regardless of whether the property was involved in 4 the terrorist activity or is otherwise traceable to that activity, as required by most other forfeiture Between 2011 and 2014, individuals convicted of terrorism statutes. offenses were -related criminal million 1.75 USD ordered by U.S. courts to forfeit assets in the following amounts: (2014); USD 38 000 (2011). Examples were provided of million 30.27 USD (2012); (2013); USD 5.195 million iture of terrorist related assets and significant criminal, civil and administrative forfe instrumentalities. – 22 Illustrative examples Box Terrorists deprived of their assets . Statistics: As of 31 December 2015, blocked property and/or frozen assets in the U.S relating to USD TOs totalling approximately SDGTs or F Qaida and - , including assets relating to Al million 37.6 respectively. OFAC has also blocked Hizballah of approximately USD million 13.0 USD 8.2 million and real property belonging to identified and designated organizations i nside the U.S. that are branches of, or have been determined to provide support to or be owned or controlled by, designated terrorist groups or individuals. E.O. specific assets: - Action against Taliban 13129 (effective 6 July 1999) was issued in response - - Qaida as a safe to the use of territory under the control of the Taliban by Usama bin Laden and Al haven and base of operations. It imposed trade sanctions and blocked property and interests in property of the Taliban and specified related persons if those assets were in or came within the U.S., or were/came within the possession or control of U.S. persons. About USD 265 million were blocked under this program. In 2002, the U.S. President issued E.O. 13268 terminating the emergency with respect to the Talib an because the U.S. military campaign in Afghanistan had ended the Taliban’s 13224 territorial control. The Taliban and its leader, Mohammed Omar, were added to the E.O. million 13268 which unblocked approximately USD Annex pursuant to E.O. 261.5 assets in Afghan and turned them over to the Afghan Interim Authority between February and April 2002 as the , other funds were unblocked due to licensing Authority re -established control over Afghanistan. Also agement fees actions, delisting actions, and account maintenance/man . None of the approximately million USD originally frozen by the U.S. was still blocked by OFAC as of 5 February 2016 . 265 Illustrative Case Examples of Confiscation in TF cases: shows the confiscation of Saade (2013) all the defendant’s asset s following his conviction for conspiracy to provide material support or aircraft missiles. The forfeited - resources to the Taliban and conspiracy to acquire and transfer anti a cell phone, and property included various items of jewellery, gold wafers, several wristwatches, 13 USD approximately 831.29 of U.S. and Iraqi currency. S FATF and APG 2016 Anti - money laundering and counter - terrorist financing measures in the U nited tates – 2016 © 106

109 CHAPTER 4. TERRORIST FINANCING AND PROLIFERATION FINANCING Consistency of measures with overall TF risk profile . The measures implemented by the U.S. are extensive with significant international effects. 238 There appears to be considerable consistency between the measures taken and the overall TF risk profile, as set out in the NTFRA, which notes that the wealth and resources of the U.S. continue to make it attractive to a wide range of terrorist organizations seeking to fund their activities. The 4 central role of the U.S. within the global financial system, and the sheer volume and diversity of international FIs passing through U.S. FIs exposes the U.S. financial system to TF risks that other financial systems may not face. Also, while the vast majority of charitable organizations in the U.S. pose little or no TF risk, for those charitable organizations operating abroad or with overseas branches, particularly in high -risk areas where terrorist group s are most active, the TF risk is more significant. 239. The U.S. is rated as having a high level of effectiveness for IO.10. Immediate Outcome 11 (PF financial sanctions) Implementation of targeted financial sancti ons related to proliferation financing without delay , which , highest level of priority i s the government’s 240 2015 National Security Strategy he . T in response to the threat posed from tion of weapons of mass prolifera discusses applying TFS ). WMD destruction ( The U.S. vigorously implements TFS relating to combating PF. Only minor improvements are needed. The main areas of concern are the impact that deficiencies in beneficial ownership (BO) requirements may have on the ability of FIs and DNFBPs to identify the funds/assets of designated individuals/entities, and the fact that the U.S. has not domestically designated all of the individuals/entities designated by the UN. R.7 (particularly variety of authorities described in on 13382 E.O.) Using a Executive Order ( 241 . Blocking Property of WMD Proliferators and Their Supporters ), the U.S. has designated over 700 WMD Proliferators persons and entities for supporting or facilitating WMD proliferation. OFAC’s (31 Sanctions Regulations CFR ), prohibit U.S. persons, meaning any U.S. citizen, permanent Part 544 resident alien, entities organized in the U.S. (including their foreign branches) and any individual or person ing or dealing in any transaction involving any entity in the U.S., from engag whose property 13382. or interests in property are blocked under E.O. Prior to the implementation of the Joint , the U.S. had domestically sanctioned over 700 16 January 2016) Comprehensive Plan of Action ( ogram individuals and entities in connection with, inter alia, Iran’s nuclear and ballistic missile pr . The U.S. had also designated over and support for terrorism, significantly more than on the U.N. list 130 ) individuals and entities involved in WMD Democratic People's Republic of Korea (DPRK which is also significantly proliferation or who are affiliated with the Government of North Korea, more than on the U.N. list. OFAC advised the assessment ions . team that th are e overwhelming majority of UN- designat 242 - . The U.S. implemented 90% (138 of the 154) of the UN DPRK in a timely manner implemented -related listings without delay (within a matter of hours). As noted related and Iran in R.7, 7.1, criterion ensures that it is involved in all UN designation SC bership of the UN the U.S. mem tates money laundering and counter - terrorist financing measur es in the U nited S - Anti – 2016 © FATF and APG 2016 107

110 CHAPTER 4. TERRORIST FINANCI NG AND PROLIFERATION FINANCING . OFAC processes and can coordinate its domestic process to coincide with the UN designation indicated that, while the domestic designation process normally takes weeks or months, in extr emely urgent cases, it can be started and finished within a few days. individuals and of the 3 2 U.S. has designated 30 entities on the UNSCR 1718 Sanctions 243 The . List, and 93 of the 122 individuals and entities on the UNSCR 1737 Sanctions List. It justifies the gaps primarily on the basis that there is insufficient information in the UNSC process on which to base the 4 although there does The impact of these missing designations appears to be minimal process. U.S. not seem to be any technical barriers to designating the missing persons. In the case of the missing 1737 designations, all of the 29 persons not designated by the U.S. are Iranian individuals and entities physically located in Iran. Given the comprehensive U.S. economic and trade embargo on Iran in place since 1995, these individuals and entities are already generally cut off from the U.S. financial system, and U.S. persons are largely prohibited from doing business with them. In practice, U.S. FIs would conduct additional diligence on any transaction involving individuals or entities located in Iran, and FIs are encouraged in OFAC guidance to contact OFAC in relation to any entities they suspect are owned or controlled by the Government of Iran that do not appear on OFAC’s SDN List. relating to WMD proliferators and 13382 is the primary authority for imposing TFS E.O. While . 244 dividuals -specific authorities to target entities and in , the U.S. can also use country their networks -related activities: E.O. involved in proliferation 13687 on Imposing Additional Sanctions With Respect To North Korea was issued in 2015, and broadens Treasury’s authority to increase financial pressure E.O. Prohibiting Certain Transactions With and 13608 on on the Government of North Korea; and Suspending Entry Into the U.S. of Foreign Sanctions Evaders With Respect to Iran and Syria allows for additional targeting with respect to those countries. gnations are communicated effectively to FIs and DNFBPs, as described under IO.10. As 245 . D esi -mails informing relevant government agencies of designations. Although well, OFAC often sends e changes to the list are not always automatically communicated to relevant Federal, State, and local agencies which may have information about non -financial assets subject to TFS, they are immediately available on OFAC’s public website, and all such agencies are U.S. persons with the same obligation to comply with TFS that privat e citizens do. 246 There are two areas of strength in the TFS regime which go beyond the strict requirements of . the FATF Standards but which are relevant to and enhance its overall effectiveness: the international ; and the effective integration of the TFS 10) effects of the U.S. sanctions regime (as described in IO. . Reflecting the (outlined below) -proliferation efforts broader counter regime into the U.S.’s size, posed on al system, and the requirements im complexity and international reach of the U.S. financi U.S. and correspondent FIs wishing to do business in or through the U.S., the OFAC sanctions regime has a positive effect on the implementation of UN sanctions in other countries , making it more difficult for UN -l isted individuals and entities to raise, move and use funds or to procure financial services . This in turn has a preventative or hardening effect for the U.S. implementation of TFS, as it persons out of the U.S, and also provides helps to keep the funds/other assets of designated /entities further information and intelligence to help to identify networks and/or funding channels associated with proliferators. S FATF and APG 2016 Anti - money laundering and counter - terrorist financing measures in the U nited © tates – 2016 10 8

111 CHAPTER 4. TERRORIST FINANCING AND PROLIFERATION FINANCING of assets and funds held by designated individuals/entities and prohibitions Identification The . 247 success in identifying the funds/other assets of designated significant had U.S. has persons/entities, from operating or executing financial transactions related to them and preventing see Box 24 ). The U.S. employs a comprehensive process to identify and proliferation ( designate persons/ entities and implement TFS programs, coordinated by the Departments of the Treasury and 4 to Treasury’s Office of Intelligence and Analysis (OIA) plays an important role in State. OFAC helping source information to nd take effective follow potential targets a analysing identify all- -up action by identify the specific financial vulnerabilities of WMD proliferators and their support networks. OIA ges as appropriate with the broader U.S. intelligence community ( of which OIA is a full enga member ), and with international partners. . 23 Box Illustrative Example in Identifying Individuals and Assets billion of assets related 1.98 USD frozen approximately As of 31 December 2015, the U.S. had  to the government of Iran including assets related to entities involved in Iran’s proliferation activities. 35 e The U.S. has frozen approximately USD million of assets related to the government of th  DPRK including assets related to entities involved in the DPRK’s proliferation activities. - Karl Lee (2007 present): Karl Lee and his primary business were designated pursuant to E.O. affiliated with Iran’s ballistic 13382 in 2006 and 2009 respectively for providing supplies to entities missile program and for contributing to Iran’s nuclear program. Both were added to the SDN listing. Lee was forced to operate much of his business covertly using other companies to conceal his activities. In 2014, he was i ndicted on multiple criminal charges, including violations of economic -prohibited U.S. dollar sanctions by using U.S based FIs to engage in millions of dollars of otherwise transactions, conspiring to commit fraud and money laundering and wire fraud in connection with 895 6 USD illicit transactions. U.S. authorities also announced the seizure of over 000 in funds attributable to the Lee front companies and the filing of a civil complaint seeking the forfeiture of by concurrent OFAC designations (SDN listing) of those funds. These actions were complemented based suppliers to the eight additional front companies used by Lee and the addition of nine China- Department of Commerce Entity List. 1 ): Bank Melli was designated pursuant to E.O. 13382 for providing banking Bank Melli (2007 services to entities involved in nuclear and ballistic missile programs, including entities listed by the UN for their involvement in those programs. In 2008, OFAC further designated two shell companies, Assa Corp and Assa Ltd, for pr oviding support to Bank Melli. Through these companies, Bank Melli held a 40% ownership of an office tower located at 650 5th Avenue. U.S. authorities filed a complaint wnership held by seeking forfeiture of this share, and later filed for forfeiture of the remainder 60% o Alavi Ltd, based on its support to Bank Melli, in violation of TFS. In 2013, U.S. courts ordered 500 forfeiture of 650 5th Avenue and bank accounts related to building, resulting over USD million being seized, and an income stream used to support proliferation activities being closed down. – - money laundering and counter - FATF and APG 2016 © 2016 terrorist financing measur tates S nited es in the U Anti 109

112 CHAPTER 4. TERRORIST FINANCI NG AND PROLIFERATION FINANCING N ote: 1. Bank Melli is no longer on the OFAC SDN List because they were delisted pursuant to the Joint Comprehensive Plan of Action (JCPOA). They are now on the E.O. 13599 List but are no longer consider designated. 248 . The designation process is only an initial step in a coordinated, cross -agency response to 4 proliferation activities which begins with a thorough investigation of the person/entity involved in feration activities, and includes engagement with partner governments to shut the activity proli down. If this is unsuccessful, the U.S. may designate the person/entity, but continue to investigate its designated persons/entities from proliferation activity. Such investigations help to prevent -related transactions, and assist in the identification of other operating or executing proliferation persons/entities for designation. the inter -agency policy making process for The National Security Council (NSC) manages . 249 -prolife ration, and Treasury’s involvement ensures that PF is a part of that framework. Inter - counter Export Enforcement Cooperation agency coordination extends to operational cells, such as the DHS’s to enhance enforcement efforts and minimize enforcement conflicts by ), which aims Center (E2C2 coordinating efforts to detect, prevent, disrupt, investigate, and prosecute violations of U.S. export -related activity. Through these coordinating bodies, U.S. control laws, including proliferation agencies share intelligence and law enforcement information related to countering proliferation and enhances the effectiveness of the TFS regime. . This its financing, and deciding on the best response The Department of State also coordinates U.S. government interdiction efforts across the policy, -chaired interagency working enforcement and intelligence communities through its four State , and conventional arms groups focused on nuclear, ballistic missile, chemical and biological weapons interdictions, and a CP finance team. Within DHS, the Counter- . 250 Proliferation Investigations (CPI) program of Immigration and Customs Enforcement (ICE) oversees a broad range of investigative activities relat ed to export violations. It prioritizes programs targeted at trafficking in WMD materials, sensitive dual -use commodities, and technologies sought by proliferating countries and terrorist groups. xport Enforcement ) works cooperatively with the exporting see IO.1 (OEE) ( he Office of E . T 251 ing community to prevent violations, and conduct investigations to gather evidence support criminal FIs BIS alerts exporters and and administrative sanctions. of entities of concern t hrough the development and publication of specific lists contain unique requirements for dealing with such ing entities (i.e. the Denied Persons List, the Entity List, and the Unverified List). OFAC has provided training and outreach to LEAs and has a hotline for law enforcement on 252 . agency counter also contribute to inter- -proliferation TFS issues. Several components of the DOJ efforts. The FBI’s Counterproliferation Center (CPC) combines three CP -related components into a single jointly managed entity at FBI Headquarters to disrupt global proliferation networks: the WMD ( which provides ); the Counterintelligence Division which provides scientific expertise Directorate ( ( which provides analytical expertise operational expertise) ; and the Directorate of I ntelligence ). The FBI’s work feeds into the efforts of OFAC to monitor for compliance with TFS requirements, and sharing of information is common. S FATF and APG 2016 Anti - money laundering and counter - terrorist financing measures in the U nited tates – 2016 © 110

113 CHAPTER 4. TERRORIST FINANCING AND PROLIFERATION FINANCING , and by in investigations of TFS violations FinCEN plays an important intelligence support role . 253 FinCEN has -public advisories on sanctions issues to reporting entities. issuing public and non worked to refine its business rules to detect SARs that may relate to PF, and the FBI makes u se of FinCEN data (to which it has direct access) to complement other sources of information. 254 entit and reported to OFAC be frozen immediately ies must The assets of designated persons/ . prohibited from engaging in within 10 days, and U.S. persons ( including FIs/DNFBPs) are generally 4 The obligation to freeze ( financial transactions with those persons/entities. ) property is very block ned 50% or broad Under OFAC’s “50% Rule”, any entity ow 7.2(b). , as described in R.7, criterion more in the aggregate by one or more blocked persons /entities is also considered blocked, regardless of whether it is listed on OFAC’s SDN List . The 50% Rule limits the ability of designated /entities from acting through front companies i persons n which they have an ownership interest, even if that front company has yet to be designated. OFAC expanded the reach of the 50% Rule in 2014 by including aggregated ownership, directly or indirectly, by one or more blocked /entities. individuals 255 Blocked property may include, but is not limited to, bank accounts, financial portfolio holdings, . trusts, real estate (commercial or personal), vehicles, and other physical items. Where appropriate, OFAC issues licenses to allow for the effective management of real estate while it is subject to blocking. case basis to -by- OFAC can also license or authorize access to frozen property or accounts on a case ameliorate the effects of the designation, permit access by a designated person to his assets to the -frozen extent necessary for basic or extraordinary expenses, and authorize transfer into the U.S. of non assets which prevents them from being frozen upon receipt by a U.S. person. The evaluation team was mework for and implementation of the licensing regime is in accordance with the satisfied that the fra international standards. . OFAC has additional powers to : 256 a) issue targeted blocking orders to interdict funds belonging to a designated person transiting the U.S. financial system serve , concurrent with a designation, on U.S. persons who OFAC may blocking notifications b) or who /entity have reason to believe have extensive involvement with the designated person may have a high likelihood of dealing in the blocked property or interests in property of such persons/entities, and issue c) cease and desist orders to U.S. persons regarding conduct that is prohibited by any such as engaging in a dealing in blocked property or with a de signated sanctions program— person /entity — when OFAC has reason to believe that a U.S. person has engaged in such conduct , such conduct is ongoing , or may recur. 13608, Treasury has the authority to impose sanctions where Under E.O. it appears that a 257 . foreign person violated U.S. sanctions on Iran (or Syria) but may not meet the E.O. 13382 designation . This enables the U.S. to limit the risk to its commercial and financial systems posed by criteria designation also allows foreign persons determined to have v iol ated U.S. sanctions. An EO 13608 Treasury make public globally such foreign persons’ activity and the risk of similar future activity. 13608. Treasury has designated 13 entities linked to Iran under E.O. tates money laundering and counter - terrorist financing measur es in the U nited S - Anti – 2016 © FATF and APG 2016 111

114 CHAPTER 4. TERRORIST FINANCI NG AND PROLIFERATION FINANCING FinCEN may require U.S. FIs and domestic financial agencies to take In addition to using TFS, . 258 certain “special measures” if the Director of FinCEN finds that a foreign jurisdiction, foreign FI, class of primary money laundering concern transaction, or type of account, is of (see s.311 of the PATRIOT Act). A number of factors, including evidence that WMD proliferators have transacted business in the jurisdiction, may bring FinCEN to more closely consider that foreign jurisdiction. For example, in November 2011 FinCEN issued a Notice of Finding under section 311 indicating it had reason to 4 believe that: Iran directly supported terrorism and was pursuing nuclear/ballistic missile capabilities; owned or controlled FIs to facilitate WMD proliferation and financing; relied on State agencies or State- and used deceptive financial practices to facilitate illicit conduct and evade sanctions. The practical effect for U.S. FIs was to provide additional guidance to help them identify transactions and ac tors of concern. . DOJ can use asset forfeiture laws to seize and forfeit significant assets that would otherwise be 259 For example, one forfeiture provision allows for t used to provide support to WMD proliferators. he forfeiture of any property constituting, derived from, or traceable to any proceeds obtained from an offense against a foreign nation, or any property used to facilitate an offense involv ing trafficking in In 2013, DOJ obtained nuclear, chemical, biological, or radiological weapons technology or material. the forfeiture of substantial U.S. assets controlled by the Government of Iran, including an office USD building in New York City valued at 525 million , seven additional properties and bank accounts ). - New York, NY -2014) Case: 650 5th Avenue (2009 ( of understanding and compliance with obligations FIs and DNFBPs’ citizens and 260 . The obligations arising from the OFAC listing process apply equally to all U.S. all esses, includ busin ing Although wilful and inadvertent breaches of the and DNFBPs. FIs requirements do occur, the competent authorities report that, in general, TFS are being implemented well by obliged entities. During the on- site, the assessors discussed TFS with a wide range of FIs/DNFBPs and, overall, they appear to be well understood and implemented. The obligation of FIs to implement TFS is an absolute strict liability one. Still, OFAC recommends 261 . rstand their risk, context and potential vulnerabilities to effectively comply with TFS that FIs unde requirements. Depending on the institution’s size and sophistication, and the specific financial to screen their customer products/services it offers, many U.S. FIs/DNFBPs use software in order -process transactions, and other pertinent information in an effort to identify the database, in involvement of, or property belonging to, persons, countries, or regions subject to OFAC’s sanctions programs. One challenge to effectively implementing TFS is whether FIs/DNFBPs are implementing CDD . 262 measures sufficient to understand who is the ultimate BO of a customer or party to a transaction. This is the same issue discussed in IO.10 in rel ation to how well the private sector is implementing terrorism . -related TFS. As noted under IO.10, the U.S. significantly mitigates this risk in this context . 263 tities to explain its sanctions programs OFAC conducts substantial outreach to FIs and other en and ensure compliance, and maintains a hotline which banks, individuals, and organizations call into daily requesting guidance, often with questions about potential sanctions for live transactions. OFAC 000 l in excess of 90 receives wel calls on its hotline each year, and responds to thousands of inquiries S FATF and APG 2016 Anti - money laundering and counter - terrorist financing measures in the U nited tates – 2016 © 112

115 CHAPTER 4. TERRORIST FINANCING AND PROLIFERATION FINANCING each year through its compliance email address. It has also published more than 450 FAQs dealing with questions across all sanctions programs, and issued specific guidance to help FIs and other businesses -related TFS by identifying potential sanctions evasion activity. comply with WMD proliferation . FinCEN has also issued guidance to help FIs understand the activity- 264 financial prohibitions based and vigilance provisions in WMD -related UNSCRs. In June 2010, it issued an advisory on the continuing illicit finance threat emanating from Iran which incorporated aspects of the FATF guidance on activity - 4 based financial prohibitions. Similarly, in July 2013, FinCEN issued an advisory on DPRK which referenced the latest FATF guidance in an effort to clarify DPRK’s specific risk associated with diplomatic personnel and cash couriers. FinCEN can use the powerful information gathering an d sharing mechanisms available under section 314 of the PATRIOT Act (see IO.6) to identify and report activities that may involve PF. 265 , which have also signed an MOU for sharing OFAC related information, are FBAs The . responsible for examining to ensure compliance by U.S. banks and U.S. branches of foreign banks with OFAC sanctions programs. The FBAs also provide guidance to these institutions. . 266 ies also work with FIs to improve their understanding of how to Other U.S. government agenc detect proliferation conducts FBI’s WMD Directorate -related financial activity. For example, the -site visits by FBI personnel) on how to identify PF activity and drafts outreach to FIs (including on useful SARs that can be used by LEAs to further proliferation -related investigations. The FBI’s WMD Directorate is also working with FinCEN on guidance for FIs on how to identify PF activity. These extensive outreach, guidance and regulatory efforts appear to have been successful in assisting U.S. financial and other institutions to understand and comply with TFS and to identify transactions that may involve designated persons/entities. FIs met by the evaluation team demonstrated a good of their obligation to implement TFS, particularly in the banking sector, where understanding proliferation- related assets are most likely to be found. To a lesser extent, the DNFBP sectors also demonstrated awareness of these obligations. Competent authorities ensuring and monitoring compliance OFAC effectively administers and enforces compliance with all U.S. economic sanctions . 267 Economic Sanctions Enforcement Guidelines (the Guidelines) set out the range of programs. Its rcement responses available to OFAC, the general factors that OFAC may take into consideration enfo when determining the appropriate administrative action, and the method for determining an appropriate civil monetary penalty for a violation, given the particular facts and circumstances. OFAC’s investigative and enforcement authorities are exclusively civil in nature, as distinguished from the criminal sanctions enforcement authorities exercised by the DOJ, DHS, and the Department of Commerce. 268 . While OFAC is not itself a regulator, its basic requirement is that all U.S. persons including FIs not violate the laws that it administers. OFAC has entered into memorandums of understanding or the sharing of OFAC information: the FBAs, the Internal (MOUs) with the following regulators f – money laundering and counter - Anti FATF and APG 2016 © 2016 terrorist financing measur tates S nited es in the U - 113

116 CHAPTER 4. TERRORIST FINANCI NG AND PROLIFERATION FINANCING 31 Revenue Service (IRS) , and over 30 State banking regulators. The FFIEC Manual establishes policies and procedures for U.S. bank examiners in examining for compliance with OFAC requirements and obl igations. OFAC and the FBAs work closely together and coordinate joint enforcement actions against certain FIs, and/or exchange information regarding upcoming enforcement actions or examinations that identify issues with a particular FI’s OFAC compliance program. OFAC has conducted training for bank, MSB and other examiners at the Federal and State 4 levels. . The FFIEC Manual notes that as a matter of sound banking practice and in order to mitigate 269 the risk of non -c ompliance with OFAC requirements, banks should establish and maintain an effective, written OFAC compliance program that is commensurate with their OFAC risk profile . including a review by Evaluation of TFS compliance is frequently included in BSA/AML examinations examiners of how the bank screens names against the OFAC SDN List, both for accountholders and account parties other than accountholders ( which may include beneficiaries, guarantors, principals, ), and process for blocking /rejecting transactions the beneficial owners or nominee shareholders . Supervisors have identified a need for some supervised involving designated persons/entities entities to do more to detect assets of entities acting on behalf or at the direction of a designated person/entity and report any failures to do so to OFAC. and tate and local LEAs Since 2007, the FBAs, in concert with OFAC, DOJ, and other S . 270 FIs regulators, have pursued enforcement actions against multiple for failure to maintai n effective announced an enforcement OFAC compliance programs. For example, in March 2015, the BGFRS action and imposed a USD 200 fine against a foreign FI because, among other reasons, it million “lacked adequate risk management and legal review policies and procedures to ensure that activities conducted at offices outside the United States complied with applicable OFAC Regulations.” 271 rative OFAC conducts its own civil investigations and, if appropriate, imposes administ . penalties on U.S. persons, including FIs that fail to properly block/freeze funds, assets, property, or interests. Depending on the underlying statutory authority, civil monetary penalties can range up to USD for each violating transaction 000 1,075 . Additionally, in appropriate circumstances OFAC may refer a matter to the appropriate LEAs for criminal investigation and potential prosecution. Criminal 1 million and imprisonment of up penalties for wilful violations can include fines ranging up to USD ederal regulators, has taken civil to 20 years. OFAC, individually or in coordination with other F -related actors for apparent violations of proliferation other and FIs enforcement action against the vast majority of enforcement actions have not involved imposing although civil sanctions below for case examples of public enforcement activity. box see however monetary penalties 31 OFAC has also delegated to the IRS (Treasury Directive 15 -43) authority to conduct reviews for compliance with U.S. economic sanctions. . IRS OFAC compliance Exam Procedures S FATF and APG 2016 Anti - money laundering and counter - terrorist financing measures in the U nited tates – 2016 © 114

117 CHAPTER 4. TERRORIST FINANCING AND PROLIFERATION FINANCING related public enforcement activity. - Illustrative examples of OFAC PF . 24 Box In March 2015, a foreign FI r - eached a settlement with OFAC and agreed to pay approximately 258 for multiple apparent violations of U.S. economic sanctions laws. A small subset of USD million U.S. these apparent violations included the processing of 142 U.S. dollar transactions through the that appeared to have been for or on behalf of, or otherwise contained an interest of, a sanctioned party between September 2008 and January 2010. 4 950 for shipping goods USD -In June 2015, a U.S. company settled with OFAC and agreed to pay 391 purchas ed by a customer in China on a blocked vessel in April 2009, and for several financial transactions associated with the shipment that were also apparent violations of U.S. economic sanctions laws. 272 . The U.S. is rated as having a high level of effectiveness for IO.11 tates - money laundering and counter - terrorist financing measur es in the U nited S – Anti FATF and APG 2016 © 2016 115

118 CHAPTER 4. TERRORIST FINANCI NG AND PROLIFERATION FINANCING 4 FATF and APG 2016 Anti © - money laundering and counter - terrorist financing measures in the U nited S tates – 2016 116

119 MEASURES CHAPTER 5. PREVENTIVE Key Findings and Recommendations Key Findings The financial sector in the U.S. is huge and complex with a large number of institutions. 1. 5 banks, securities sectors, and MSBs have an evolved particularly d institutions, Covere vulnerabilities and obligations and have put in place systems and understanding of ML/TF procedures (some quite sophisticated) to understand, assess and mitigate these bilities. Investment advisers (IAs) are not directly covered by BSA obligations. Some vulnera IAs, however, are indirectly covered through affiliations with banks, bank holding companies -dealers, when they implement group wide AML rules or in case of ou tsourcing and broker - arrangements. Non coverage of the remainder of the sector is a significant vulnerability 32 Life insurance companies appear to understand the identified by the U.S. authorities. 33 vulnerabilities associated with the products covered by the AML regulations. 2. There are TC gaps, specifically exemptions and thresholds, which are not in line with the . risks especially in the context of the U.S. as one of the world’s largest financial systems ng thresholds do create Although the NMLRA notes structuring as a risk, the SAR reporti opportunities for structuring which, while the U.S. argues they exist by design, were originally not subject to a ML/TF risk assessment but put in place on the basis of relief from regulatory burden. Overall, the TC gaps, exemptions and thresholds in the BSA regime collectively soften the deterrent value of preventive measures. This is compensated, to an extent, by the LEAs’ ability to access SAR and other FIU data directly, which is a strong feature of the system. 3. In the DNFBP sector, casinos have developed a good understanding of risks and obligations and apply preventive measures. There is increased focus from the authorities on the sector due to identified vulnerabilities. However, apart from casinos (and to some extent, dealers in precious metals and stones), no other DNFBP sector is comprehensively covered under the AML/CFT framework. All nonfinancial trades and businesses in the U.S have the Form 8300 large cash transaction reporting obligation, allowing voluntary reporting of suspicious transactions, are subjected to targeted financial sanctions and can be subject to a GTO. However, the understanding of risks in the DNFBP sector, other than casinos, is uneven. ctor would improve Addressing the regulatory gaps of certain minimally covered DNFBP se availability of financial intelligence and strengthen the deterrence factor of U.S. preventive . measures The SAR reporting thresholds make it optional for smaller value suspicious transactions to 4. be reported to FinCEN, and this gap is o nly somewhat mitigated by the obligation to report some transactions immediately to LEAs and file a SAR. Further, the 60/30 day period for 32 Investment adviser N PRM) otice of Proposed Rulemaking (N 33 The “covered products” are those the Treasury Department identified as presenting a sufficient AML risk to justify regulation. “Covered products” include: permanent life insurance policies, other than group life insurance policies; annuity contracts, other than group annuity contracts; and any other insurance product with features of cash value or investment. - Anti terror ist financing measures in the United States money laundering and counter - 2016 © FATF and APG 2016 – 117

120 CHAPTER 5. PREVENTIVE MEASURES reporting suspicious activity cannot be said to be promptly; however, in practice the median time taken by reporting entities to file SARs is 17 days; within the 30 day window. 5. Lack of BO obligations remains a significant gap in the regulatory framework, though FIs, such as banks and broker - dealers seem to be taking steps to identify BOs as part of their risk management efforts. 6. Information exchange is happening actively and is facilitated by the USA PATRIOT Act between authorities and the financial sector, and among FIs. This is an important feature of 5 the U.S. system. Recommended Actions 1. icial ownership preventive measures as soon as possible, The U.S. should introduce benef 34 continuing previous efforts to bring these regulations into force. 2. The U.S. should finalize its current rulemaking process to bring IAs under the comprehensive AML/CFT framework. On the basis of a 3. specific vulnerability analysis, appropriate AML/CFT obligations particularly relating to CDD and SAR filing, should be imposed on lawyers, accountants, and trust and company service providers as a matter of priority. After analysis of the current GTO -end omes, appropriate action should be taken to address the ML risks in relation to high outc real estate. - 4. SBSE and State regulators should continue their focus on casinos, including the FinCEN, IRS IRS -SBSE examination work, and expand it to include some of th e smaller and less sophisticated players. 5. The U.S. should operationalise casinos’ participation in information sharing under the USA PATRIOT Act s314(a) and further encourage their use of s314 (b) for better information sharing. . The relevant Immediate Outcome considered and assessed in this chapter is IO.4. The 273 recommendations relevant for the assessment of effectiveness under this section are R9 -23 and elements of R1, 6 and 29. Measures) Immediate Outcome 4 (Preventive 274 In terms of risk and context, not all sectors are of equal importance in the U.S. system. As a . did not impact of implementation issues (both place the same weight on the result, the assessors view assessors’ and negative) equally across sectors. The s of the relative importance of each positive below, and informed the sector, based on risk and context are outlined overall conclusions about the implementation of preventive measures. 34 a BO requirement was published on 11 May 2016. The -site, the Final CDD Rule that includes Since the on center/press https://www.treasury.gov/press- - implementation period for the Rule is two years. ( see ) releases/Pages/jl0451.aspx S FATF and APG 2016 Anti - money laundering and counter - terrorist financing measures in the U nited tates – 2016 © 118

121 CHAPTER 5. PREVENTIVE MEASURES banking sector 275 plays a predominant role in the U.S. and the international financial . The system. The global dominance of the U.S. dollar generates trillions of dollars of daily transaction volume through U.S. banks, exposing them to s ignificant ML/TF vulnerability. The sector is enormous with a large number of banks of varying size and diversity. The complex regulatory regime (multiple supervisors and Federal/State regulation) creates challenges for the sector’s FT requirements. Three categories of State- implementation of AML/C licensed and supervised banks are not subject to an AML Program requirement, but this is a minor gap as these banks do have CIP, 35 CTR, and SAR requirements and the size of this sector is relatively very small. 5 276 . Next in line in relative importance is the securities sector, which is also huge in asset size with a large number of players. It comprises several sub -sectors, the principal ones being the broker - dealers, mutual fu trillion, 67 USD manage customer assets valued at over . In the U.S., IAs nds and IAs Some IAs, however, are indirectly covered through and are not directly covered by BSA obligations. -dealers, when affiliations with banks, bank holding companies and broker they implement group wide AML rules or in case of outsourcing arrangements. To that extent, the risk is also partially mitigated in that IAs do not execute transactions on their own, but instead do so in conjunction with FIs that are already subject to BS A requirements, and many do not generally have physical custody of client funds or securities. Nonetheless, as underlined by the U.S. authorities in their Notice of Proposed R -dealers and banks may not have sufficient information to assess “such broker ulemaking, suspicious activity or money laundering risk” and “such gaps in knowledge make it possible for money rather than through broker- launderers to evade scrutiny more effectively by operating through IAs dealers or banks directly” “IAs may be uniquely situated to . Accordingly, U.S. authorities state that appreciate a broader understanding of their clients movements of funds through the financial system because of the types of advisory activities in which they engage” and that “IAs have an important role to play in safeguarding the financial system against fraud, money laundering.” Consequently, given the enormous size of the sector in terms of number of entities and assets under management, FinCEN has issued a proposed rule to impose AML Program and SAR reporting requirements on IAs . FinCEN 36 . has identified this sector as one of its top priorities for rule making operating in the U.S. are large in number and diverse in size and nature, ranging from 277 . MSBs nd large a entities to small operations. This is also an important sector, given the vast sophisticated processed annually. -border remittances volume of cross 278 The . in the NMLRA as being high risk ed in the U.S. is large, and has been identifi casino sector . Casinos are subject to a robust AML/CFT regime, and in recent years, this sector has had an increased focus on preventive measures. 279 . In relation to DNFBPs other than casinos, on ly dealers in precious metals and stones have BSA requirements, including AML programs, but not SAR reporting. L arge cash transaction reporting suspicious transaction s, and report (Form 8300) requirements, including the ability to voluntarily 35 https://www.gpo.gov/fdsys/pkg/FR- FinCEN has a rulemaking nearing completion to address this issue (see -08 2016 ) -20219.pdf -25/pdf/2016 36 In August 2015, FinCEN proposed a rule requiring certain IAs to establish anti- money laundering (AML) programs and report suspicious activity to FinCEN pursuant to the Bank Secrecy Act (BSA). FinCEN also proposed to include IAs in the general definition of FI. tates money laundering and counter - terrorist financing measur es in the U nited S - Anti – 2016 © FATF and APG 2016 119

122 CHAPTER 5. PREVENTIVE MEASURES , and they can including DNFBPs .S. targeted financial sanctions laws apply to all businesses in the U (GTO) . Although GTOs are not preventative measures be subject to a Geographical Targeting Order orities can use to gather and are temporary in nature, they are a comprehensive tool that the auth (professional trustees) are defined as FIs for the Trust companies information on vulnerabilities. purposes of the BSA and are therefore covered by AML/CF T requirements applying to FIs. . 280 Lawyers, trust & company service providers (TCSPs), and to a lesser extent, accountants can play an active role in preparation for and the formation and activities of legal persons and legal 5 arrangements, though they are not required to form companies in the U.S. Lawyers also play a role in real estate and other transactions. Legal persons (and to a lesser extent, legal arrangements) are at risk of abuse by criminals and terrorist financiers, and are often used in complex ML schemes. Real estate is used as an investment vehicle by legal persons for concealing and laundering criminal proceeds. Given these vulnerabilities, the fact that lawyers, TSCPs, and to a lesser extent, accountants are not subject to an appropriate range of AML/CFT requirements is a serious gap; however minimal obligations noted above as well as the ethical obligations placed on lawyers and accountants, mitigate in paragraph 279 some of these risks. are involved in negotiatin Real estate agents FATF g transactions . 281 and, therefore, fall under the subject to comprehensive AML/CFT requirements. In addition, there Recommendations , but are not -assessed ( have not been risk other gatekeepers in the sector which are cooperative associations e.g. and condo is The U.S. considers that the gap play an active role). minia associations who also . However, as mitigated by the fact that real estate agents do not handle financial transactions directly ts to keep financial transaction noted in the TC annex at c.22, State laws require real estate agen records so it is doubtful they are not involved in financial transactions. The U also asserts that the .S. RMLOs and banks in the context of mortgage sector is mitigated because risk in the real estate financing are covered by AML/CFT requirements. However, for the reasons noted further below, the assessors do not agree this is an effective strategy. Further, lawyers would generally handle the transactions. financial aspects of such of the market, -end , particularly at the high In addition purchasers often use legal persons to hold real estate and the opaqueness of legal persons (see Chapter 5) is a vulnerability which can be exploited by illicit actors. risk in the U.S. context, as do 282 . Life insurance companies , ag ents and brokers represent a low . The principal financial products in the life insurance sector dealers in precious metals and stones assessed as vulnerable to ML and TF are investment/savings products associated with life insurance policies. These insurance products can be accessed by the policy owner to add or withdraw cash or other assets and in this respect they are similar to deposit accounts and investment accounts at securities dealers, and are subject to AML program obligations. The AML Program Rule inter alia development of internal policies, procedures, and controls to ensure compliance with all AML requires ; the designation of a compliance officer; an ongoing employee training program; and an obligations audit function to test programs. independent lack of comprehensive AML/CFT obligations on the FIs/ listed above has 283 . a The DNFBPs cascading impact on the effectiveness of preventive and supervisory measures (IO.3 and negative -35). IO.4), and in the analysis of technical compliance (R.10 to 13, 15 to 23, 26 Other , 28 and 34 technical deficiencies in the legal framework also impact how effectively FIs/DNFBPs are S FATF and APG 2016 Anti - money laundering and counter - terrorist financing measures in the U nited tates – 2016 © 120

123 CHAPTER 5. PREVENTIVE MEASURES FIs/DNFBPs are not required Of these, the most important is that implementing AML/CFT measures. -site although FIs met during the on and verify BO information in all cases; to systematically collect do collect but not verify BO. This has a negative impact on effectiveness, particularly for Core Issues 4.2, 4.3, and 4.4. inter alia , The . 284 assessors base : discussions with a range of types d their conclusions on IO.4 on on how they understand, and sizes of FIs and DNFBPs correlating to the sectors defined by the FATF their risks, and how they implement preventive measures (prescribed or manage and mitigate 5 otherwise); reviews of their internal manuals and procedures; discussions with supervisors, regulators and SROs about their supervisory manuals, their understanding of risks and how well each sector is managing risks and complying with AML/CFT requirements, reviews of the NMLRA, NTFRA and other risk material and industry guidance. Understanding of ML/TF risks and AML/CFT obligations AML/CFT program that is 285 . Covered FIs/DNFBPs are required to develop and implement an commensurate to their risk exposures. They identify, assess and periodically review their risks, in line with their own line of business, customer base, products and services offere d, and geographic -site, the AML/CFT program requirements footprint. Generally, amongst the FIs met with at the on facilitate appear to be well understood in principle, and in practice this s the development of an to all understanding of risks. However, beyond the basic AML/CFT P rogram Rule (which applies other prescribed requirements vary across sectors. Covered FIs/DNFBPs), . 286 The banking and securities sectors have the most comprehensive AML/CFT obligations. MSBs and casinos are also subject to extensive AML/CFT requirements and basic customer identification dealers in precious metals and stones, e.g. , apply. Other sectors ( requirements, based on ML/TF risk nimally mi lawyers, accountants, TSCPs, and real estate agents) are 79). covered (see paragraph 2 These sectors were deemed by the U.S. to pose a low risk - a view shared by those sectors . The following are some examples of how different sectors understand their risks and relevant AML/CFT . obligations banking sector he Institutions in t . 287 U.S. generally financial system, , a key gatekeeper to the ML/TF risks and AML/CFT obligations, and have in place AML have a strong understanding of their ith that understanding of risk Manual . The FFIEC commensurate w policies and procedures sets out a menu of potential risks it clear that such risks will vary from bank to bank according to , but makes ic the organization’s line of business, customer base, products and services offered, and geograph Banks are required to review their risk footprint. periodically and typically do so assessments annually. They are also required to update their risk assessments to identify changes in their risk profiles. Risk self -assessment reports include an evaluat ion of data pertaining to the bank’s activities number of domestic and international funds transfers, locations of business area and customer (e.g. and customers, including CDD information. Banks risk rate their customers, as part of transactions) their co mpliance program. Banks met during the on -site demonstrated that their understanding of ), and to ( all levels ML/ risks and obligations has penetrated including senior management TF day- generally is not limited to the staff directly responsible for executing the to-day AML/CFT responsibilities. The BSA/AML risk assessment is usually reviewed with the direct involvement of tates money laundering and counter - terrorist financing measur es in the U nited S - Anti – 2016 © FATF and APG 2016 121

124 CHAPTER 5. PREVENTIVE MEASURES senior management to determine that it is adequate, and risks are properly identified and mitigated via the AML program. Boards of director s, chief executives, and senior managers are informed on a . controls regular basis of the AML/CFT program and related In the 288 securities sector, broker dealers are subject to similar requirements and, as in case of . y, depending on the -dealer’s AML program var banks, the level of risk and the specifics of each broker customer base size, products offered, and activities, . MSBs 289 . met on -site had in place AML/CFT programs base d on an analysis of risk, including 5 agent risk, and demonstrated a good understanding of sector risk and their own operational risk. Their boards and senior management are trained and are part of the approval process for risk assessments and programs. State regulators confirmed that MSBs have an understanding of their risks and apply appropriate measures. The unregistered remitter initiatives of the U.S. authorities (detailed in IO.3), including enforcement actions resulting therefrom, have mitigated the ri sk in relation to smaller entities. . The American and obligations good understanding of risks -site had a met on s casino The . 290 . putting out useful best practice s guidance Gaming Association (AGA) works to assist the sector by The recent study on Investing in America’s Financial Security: Casinos’ Commitment to A ML Compliance commissioned by the AGA provides a good picture of the understanding of the casino sector and the mitigating measures they have put in place. , assessors met with a large company that had a good understanding life insurance sector In the . 291 of its ML/TF risks associated with insurance products with features of cash value or investment, which are the products covered by the U.S. AML rules. The company applies a group wide approach to assess its ML/TF risks. -site, the developed the following concerns about certain disconnects assessors 292 . During the on DNFBPs and the authorities understand ML/TF risks and corresponding between how FIs/ : obligations Residential Mortgage Lenders and Originators (RMLOs): . 293 The risks of ML through the real estate sector are well documented in the NMLRA (and the 2005 NMLTA before that). The authorities (including FinCEN) informed the assessors that these risks are dealt with at the intersection of the real — a sector which handles estate and financial sectors, by applying AML/CFT requirements to RMLOs the financing of a majority of retail real estate transactions processed in the U.S. However, the assessors believe this approach is incomplete. First, RMLOs only represent one side of a real estate r oversight on all parties to the transaction (the purchaser) and thus do not have the broade -site did not appear to have a holistic understanding of the risks of transaction. Second, RMLOs met on ML, or the potential importance of their role in addressing it. Third, those RMLOs in fact considered ow risk with regard to ML/TF, and their awareness of AML/CFT obligations their sector as l (particularly relating to PEPs) appeared to be limited. Finally, low understanding of risks is reflected in the very low number of SARs being reported by them, most of which were related to mortgage fraud. Overall, RMLO’s approach to AML/CFT requirements is mostly compliance (rules) based, and exchanges with their regulators seem to be very limited. S FATF and APG 2016 Anti - money laundering and counter - terrorist financing measures in the U nited tates – 2016 © 122

125 CHAPTER 5. PREVENTIVE MEASURES The assessment team accepts that for RMLO 294 s, their biggest risk is mortgage fraud. However, . there is a significant risk that high -end real estate is used for ML purposes. The assessment team -end real estate notes that in January 2016 FinCEN put in place a GTO to collect data on certain high sales in two major urban markets. The GTO targets purchases with cash or monetary instruments ; with a view to collecting information which will allow FinCEN to with no use of borrowed funds consider appropriate preventive measures in relation to high -end real es tate, thus acknowledging 37 the gap that exists. 5 295 . Lawyers: The ABA itself has an understanding of the ML/TF risks and has issued good The ABA itself voluntary best practice guidelines. nsistent understanding accepts that there is an inco of risk across this very large sector. It is also not clear that lawyers comply with the best practice guidelines as they are not enforceable. Ethical standards, educative efforts and criminal and disciplinary sanctions imposed again st complicit lawyers may mitigate the risk to a limited extent, though it does not address the concerns arising out of lack of comprehensive preventive measures. 296 . Company formation agents did not demonstrate ade quate awareness of the risks to which they are vulnerable, possibly equating these risks with OFAC requirements. similarly Accountants did not display an understanding of their vulnerability to abuse by criminal elements. . The Jewellers Vigilance Committee (JVC) has done Dealers in precious metals and stones: 297 awareness -raising on ML/TF issues, and developed guidance and compliance tools which, in the view of the industry representatives met during on -site, are help ful. However, this sector comprises -run business), not all of which are members a large number of entities (many of them small, family of the JVC or have access to its resources (available for purchase). There is a scope for further -site discussions with the improvement in understa nding of risks and obligations, as noted during on sector. risk only exists where transactions are . Real estate agents took the view that because ML 298 processed directly , and as they have no role in accepting funds or closing/settlement of deals, they are not vulnerable. However, they are involved in negotiating transactions and do undertake some y. Real due diligence on prospective buyers, primarily to satisfy themselves about their capacity to pa -site, the estate agents are also subject to State obligations to keep financial records . Whilst on -end market, notably assessors met with other real estate sector service providers in the high y conditions to transactions including the condominium associations and cooperatives, who can appl prohibition of mortgage financing, particularly in the high -end market. Application of risk mitigating measures Regulated entities across a broad range of sectors seem to be mitigating their risks through 299 . ed . Interviews with the private sector reflect Covered their AML programs the commitment of /DNFBPs FIs to appropriately staff their AML units , and m any of the compliance officers met by the 37 Since the on Dade -site further GTOs have been put in place, extending the scope from Manhattan and Miami- County, to include (1 ) all boroughs of New York City; (2) Miami- Dade County and the two counties immediately north (Broward and Palm Beach); (3) Los Angeles County, California; (4) three counties comprising part of the San Francisco area (San Francisco, San Mateo, and Santa Clara counties); (5) San Diego County, California; and (6) the county that includes San Antonio, Texas (Bexar County). tates money laundering and counter - terrorist financing measur es in the U nited S - Anti – 2016 © FATF and APG 2016 123

126 CHAPTER 5. PREVENTIVE MEASURES State agencies involved in ederal or as former employees of F experience d prior ha assessors -operation All interviewees mentioned that they exercise full co /enforcement. AML/CFT supervision with, and receive useful information from LEAs, which is a positive aspect considering the predomi nant role that LEAs play in the AML/CFT regime . mitigati . 300 Banks seem generally to have integrated risk on measures into their day -to-day operations , and larger banks appear to have developed a leadership role on m any sophisticated . Banks have been taking a “top controls in the sector -down” approach to foster and maintain a 5 the ( The American Bankers Association culture of compliance throughout their organizations. largest industry association of bankers in the U .S.) has also issued guidance to its members stating “[the] most important baseline of an effective AML program (or any compliance program, for that matter) is the board of directors’ and senior management’s support for maintaining a culture of can be customised to the business line or ughout the entire institution.” Training compliance thro operational function to maximize its effectiveness and relevance. For example, banks and other to front line staff than to back office depository institutions provide different training programs personnel, given that tellers and operations clerks, for instance, are exposed to different ML/TF risks. . 301 The FBAs and S tate banking supervisors routinely examine banks to ensure that ML/TF r isks are appropriately identified and adequately mitigated , in line with supervisory expectations. Regular supervisory reviews of AML/CFT programs are conducted, either as part of broader prudential supervision or in standalone work components. The examinations conform to the FFIEC Manual ing on a bank’s compliance with laws and regulations as well as ensuring requirements, focus the that bank’s compliance program keeps pace with changes in its business model and operations the and issues identified resulting risk profile mit igated by an adequate risk management . Any control -site examination are communicated to management and board of directors in the form of during on anks generally seem to apply BSA supervisory reports/letters that detail findings and conclusions. B CIP obligations, as a starting point for CDD, which is then supplemented on the basis of the identified ML/TF risk. This is consistent with the CIP and other CDD elements prescribed for the banking sectors. Regular review of the AML program by the FBAs encourages a dialogue between the bank and . 302 which leads to a clearer the examiners understanding of the required measures. However, representatives of the banking sector noted that, despite regular engagement with and extensive regulatory expectations based often tend to better understand guidance from their supervisors, they on the contents of the formal enforcement action orders issued against other institutions, when published . areas FBAs have identified some common The . 303 FIs for banks of improvements . For example, have been encouraged by the FBAs to develop their knowledge of the purpose of the relationship with their customers, improve their monitoring systems t hrough validation and testing and align tend to implement these incremental them with their risk profile . In most cases, banks improvements in the course of normal business, without the need for additional supervisory action . situation is very similar to the banking sector, including how a . , the 304 sector In the securities culture of compliance is fostered within institutions, and how controls issues are communicated by S FATF and APG 2016 Anti - money laundering and counter - terrorist financing measures in the U nited tates – 2016 © 124

127 CHAPTER 5. PREVENTIVE MEASURES he SEC and FINRA irectors of broker dealers. T the supervisors to the management and board of d also . with industry groups , and meet regularly issue risk alerts and guidance MSBs met with at the on 305 . -site apply measures even in circumstances where the BSA does not specifically require them (e.g. screening for PEPs, applying measures to money transfers below the USD 000 threshold ). MSBs with agent networks apply mitigating measures to deal with their agent 3 risk, including due diligence. , the recent AGA research study supports the view that the gaming industry has casinos 306 For . 5 taken significant steps to comply with AML/CFT requirements and to prevent potential ML and TF in , validated through in survey the last five years. This industry specific- -depth interviews with various industry participants, LEAs and supervisors, indicates that casinos have not only increased their compliance spending but have also put in place mitigating measures above the requirements of the -site discussions with casinos and their regulators. BSA base d on their risk. This was confirmed by on Casinos are covered by the regulations implementing s.314(a) and 314(b) of the USA PATRIOT Act for that they are not yet operational information sharing. However, casinos and FinCEN both indicated participants in the s314(a) arrangements, and casinos themselves did not appear to understand that they are covered by s.314(b). Use of the procedures provided for by these provisions could increase reventive measures in casinos. the effectiveness of p assessed 307 . Life insurance companies have more limited AML programs corresponding to the lower risk environment. However, a major life insurer interviewed by the assessors applies a gr oup - wide approach to risk (they operate in 50 countries) and applies a sophisticated domestic and non - assessment. U.S. approach to risk State insurance laws define permissible investments for life insurance companies. Prudential examinations conducted by the states include a detailed review of investments. Insurance companies e xercise oversight over their agents and brokers: captive agents are treated as employees, and brokers (which service in the aggregate around 50% of the U.S. life insurance market) ar e subject to oversight and required to apply company standards. 308 . Dealers in precious metals and stones comply with AML program and record -keeping understanding of the ir ML/TF requirements. DNFBPs (other than casinos) appeared to have a mixed . In some cases this reflects the adequate mitigating controls risks, nor had many implemented perceived by the industry, and thus a specific vulnerability analysis by low risk of the sector s, industry profession legal authorities is needed accounting . In some cases, particularly the and practices assist in mitigating risk but not to the requisite extent . The A BA has issued voluntary . guidance on AML but there is no evidence of the extent to which practitioners apply the guidance . 309 appeared to understand what the ML RMLO sector nor the real estate agents Neither the ures would be -end real estate are or what the appropriate mitigation meas risks in relation to high (see paragraph 293 and 29 8). Application of enhanced or specific CDD and record -keeping requirements -keeping requirements varies widely 310 . Implementation of enhanced or specific CDD and record -boarding measures, d entities customize their on across and within sectors. Generally, regulate depending on the products and services that prospective customers may receive. These measures tates money laundering and counter - terrorist financing measur es in the U nited S - Anti – 2016 © FATF and APG 2016 125

128 CHAPTER 5. PREVENTIVE MEASURES are primarily designed to mitigate the risks arising from an organization’s specific business models base. On -boarding controls also differ by the type of prospective customer, as in some and customer . -boarding customers who are PEPs) (e.g. when on instances enhanced due diligence may be required banks As an example, . 311 requirements, obtain information at account , in addition to the CIP opening sufficient to develop an understanding of normal and expected activity for the customer’s occupation or business operations. This understanding may be based on account type or customer . This allows the bank to determine the customer's risk profile at account opening. If classification 5 there is indication of a potential change in the customer's risk profile ( e.g. expected account activity, bank will generally reassess the customer risk change in employment or business operations), the rating for a potential change. This information serves to develop parameters that assist in the demonstrated that they can easily access the data related to identification of potential red flags . FBAs er or transaction a custom , during examinations and that the regulated entities are well aware of the heard instances of banks offering five year record- keeping obligation. In practice, the assessors private banking services (which are attractive to high net worth customers) extending PEPs requirements (including domestic PEPs) to all of their deposit accounts, even though this is not -based controls by law or enforceable means technically required . These regulated entities apply risk based on their business models and ML/TF ty and source of funds to verify new customers’ identi risks they are exposed to. mostly tend to flag clients that trigger S 312 . AR filings as high risk. Most Life insurance companies SARs filed from this sector concern fraud perpetrated against the insurance companies. There is a general belief in the life insurance sector that the insurance products covered by the AML rules are lower risk than banking investment products, even though they are similar. This is likely because of the additional due diligence applied by insurers (beyond what is required of banks) when selling it is not common for policies to be purchased or investments insurance products, and the fact that MSBs interviewed by the assessors prohibit dealings with certain types of made with cash. businesses (based on their own internal criteria) and apply EDD to identified high risk businesses. controls to mitigate . In general, casinos determine and apply CDD measures and oth er 313 also have an AML Program differing levels of risks. Dealers in precious metals and stones requirement which is applied in accordance with their relatively lower risk , Lawyers, accountants . trust and company service providers and e no requirements to apply CDD measures, enhanced hav or otherwise. There is no evidence that, in practice, they make any more enquiries about customers than is absolutely necessary, unless they are paid in or asked to handle cash or monetary 000 in which case the reporting 10 instruments in amounts that aggregate to more than USD requirement includes verified customer identifying information . 38 Beneficial Ownership conformin Despite the absence of a legal requirement 314 g to the FATF standard to determine . , FIs -site indicated that they generally make attempt (see R.10) met on s to at beneficial ownership 38 O requirement was published on 11 May 2016. The -site, the Final CDD Rule that includes a B Since the on https://www.treasury.gov/press- - center/press implementation period for the Rule is two years. (see ) releases/Pages/jl0451.aspx S FATF and APG 2016 Anti - money laundering and counter - terrorist financing measures in the U nited tates – 2016 © 126

129 CHAPTER 5. PREVENTIVE MEASURES . This trend is strongest in the banking sector least know who ; however, beneficial owner s are is still identified as a weakness and work in progress across the verification of BO informat ion financial sector . conduct FIs due diligence to ascertain BO, specifically . s 315 in the banking and securities sector in accordance with the joint g uidance on BO published in 2010 by FinCEN, the FBAs and the SEC (see , but does ). The guidance was issued to clarify and consolidate existing regulatory requirements link not alter or supersede previously issued regulations, rulings, or guidance related to CIP 5 banks requirements. In accordance with this guidance, indicated that as part of their AML compliance program, they establish and maintain CDD procedures that are reasonably designed to ascertain the identity of BOs, based on their evaluation of the risk pertaining to the account. The FFIEC Manual (p57 -58) also states that in the course of conducting enhanced due diligence for high - risk customers, the bank should consider obtaining, both at account opening and throughout the relationship, information on individuals with ownership or control over the account, such as beneficial owners, signatories, or guarantors. The extent to which, they verify the identity of these persons (who may or may not be the BO) seems to be very limited, and in any event the requirement does not conform to the FATF standards (see TCA discussion) . The authorities have demonstrated ning prescribed BO enforcement actions against banks for not obtai certain that there are information based on risks, which tends to indicate that banks understand the risk posed in this area, and this is important to their assessment of risk. on their customers. carry out CDD roker dealers B , even though there are no specific requirements, institution MSB sector s, which deal In the . 316 with legal entities as well as individual customers, do make some effort to at least understand the BO of the entity/customer. In the life insurance sect or , BO is less of an issue since life policies are issued on the lives of natural persons. Transaction Monitoring 317 assessors have developed -site during the on the by met Banks, broker dealers and MSBs . allow ing for effective and robust transaction monitoring. R processes egardless of the size of the organization or the level of system sophistication, regulated entities develop tailored transaction Some FIs work with specialized organizations to develop their monitoring monitoring parameters. rules. The rationale and basis of such parameters are documented and made available to auditors and regulators for review and testing. dedicated generally devote egulated entities . R to investigating and evaluating staff resources 318 the alerts generated by the monitoring systems. AML officers are responsible for determining whether the transactions flagged by the monitoring system are suspicious based on available -boarding processes, e the information generated through on publicly information, and often us available information and commercial databases to inform their assessment. I t is also a standard ation practice to reach out to customers to request additional information or supporting document that could validate the stated purpose of the transactions and reasonably ascertain the legitimacy of the activity. Because of FinCEN’s s , more robust monitoring of activity is occurring, as 319 . casino focus on demonstrated by increases in both quantity and quality of CTR and SAR reporting by casinos. tates money laundering and counter - terrorist financing measur es in the U nited S - Anti – 2016 © FATF and APG 2016 127

130 CHAPTER 5. PREVENTIVE MEASURES Dealers in precious metals and stones monitor transactions for the purposes of meeting CTR are not do not routinely and covered comprehensively reporting requirements. Ps Other DNFB monitor transactions other than for purposes of meeting cash transaction reporting requirements. navailable Risk Mitigation when Customer Information is u Covered FIs 320 . customer or process a transaction until they have been routinely refuse to bank a able to determine the legitimacy of the activity and of the funds and parties involved. Depending on 5 the collected information, they may also file a SAR even though refusing to open an account or proce ss a transaction is not an explicit trigger for a SAR filing. If the activity identified requires immediate law enforcement attention, the FI is required to notify law enforcement by phone and file a SAR. In the DNFBP sector, casinos have systems and proce dures in place, regarding matters to be taken into account in deciding not to accept or carry out a transaction. This was reflected in discussions with State regulators and the recent survey of the sectors. Dealers in precious metals the on met with at and stones -site noted that they tend to have long term relationships with their (other than casinos and DNFBPs customers but that processes are in place where issues arise. have practices relating to knowing their customer (notably dealers in precious metals and stones) and accountants ), and others have voluntary guidance (such as that put out by the ABA for lawyers National Association of Realtors (NAR) for real estate agents). However, it is not clear to what extent the voluntary guidance is applied within these sectors. Application of EDD measures extent to which enhanced due diligence (EDD) measures are 321 . Industry practices and the Banks and broker dealers implemented vary across sectors. rally apply effective measures that gene are commensurate with their level of risk. They recognize that their level of risk is not the same across the customer and product spectrum and, accordingly, apply enhanced measures to mitigate and manage those customers, products, and serviced regions deemed to represent higher risk. The measures applied generally align to the BSA and as detailed in specific sections of the FFIEC Manual. On the whole , MSBs s, as do the AML program met with during the on -site have in place appropriate casinos . Below is an indication of how C overed FIs/DNFBPs in general are implementing EDD in the . specific circumstances described in Core Issue 4.4 er dealers tend to go beyond the legal Politically exposed persons (PEPs): 322 Banks and brok . requirements and apply a foreign PEP determination to all accounts, including processes to flag domestic PEPs, following a risk based approach. However, RMLOs do not seem to be aware of the PEPs requirement. The MSBs met with during the on -site cover foreign PEPs and apply EDD. Casinos also reported treating PEPs as higher risk, including domestic PEPs on occasion. Life insurance companies mostly tend to automatically flag PEPs as high risk. Banks providing correspondent banking services have specific 323 . Correspondent banking: measures for monitoring transactions flowing through them including EDD for foreign correspondent relationships as required by the BSA, and monitoring all transactions through the bank for suspicious activity and SDNs (sanctions). S FATF and APG 2016 Anti - money laundering and counter - terrorist financing measures in the U nited tates – 2016 © 128

131 CHAPTER 5. PREVENTIVE MEASURES . New technologies: Banks and broker dealers apply EDD in accordance with the BSA Manual 324 heir AML/CFT programs are addressing higher and incorporate new information to ensure that t risks. Banks incorporate information from advisories, guidance, and other forms of outreach from FinCEN, FBAs, and law enforcement. MSBs generally apply EDD to products based on or delivered by new technologies, such as virtual currency. 325 and -keeping . Wire transfers : Banks apply appropriate measures to comply with the record travel rule’s requirements. Some banks apply the record -keeping and travel rules to all wire 5 transf ers, as opposed to only those above the USD 3 000 threshold, in order to streamline their operational processes . Additionally, some banks also generally obtain and include all originator and -transfer requirements wire -border cross applying ome MSBs are also beneficiary information. S Overall, these measures help mitigate TC gaps to some extent. below the threshold. 326 . Targeted financial sanctions (TFS): Sanctions obligations appear to be very well understood . mented, particularly by FIs and imple Banks have implemented OFAC programs to freeze or block transactions related to TFS. Most U.S. banks use interdiction software to screen their customer -process transactions, and other pertinent information to ident ify the involvement of, or database, in property belonging to designated persons, countries, or regions subject to OFAC’s sanctions transactions that programs. Banks regularly cooperate in investigations, and provide information on may ies. All U.S. businesses are required to screen against the OFAC entit persons/ designated point to do so. lists, and according to the evidence seen by the assessors 327 One challenge to effective implementation of TFS is that FIs/DNFBPs do not alway s implement . CDD measures sufficiently in order to understand who the ultimate BO of a customer or party to a transaction is. As a result, screening tools cannot assure a sanctions list match. This issue was raised with U.S. authorities, in particular OFAC, who were aware of the risks (and the reality) of designated persons seeking to hide behind front companies, other natural/legal persons or aliases. While this remains a constant challenge, the inter -agency approach taken by the U.S. authorities to the sharing of information and intelligence (including with regulators, law enforcement and various agencies involved in imports/exports) helps to mitigate this significant risk somewhat. To provide further information, Treasury and other U.S. government agencies conduct extensive formal outreach and share information with FIs. For example, OFAC provides well over 100 presentations each year to a variety of industry groups and affected organizations, including through conferences, panels, and webcasts, to ensure that TFS obligations are understood. 328 . Higher risk countries: FIs are well aware of higher risk countries identified by FATF, and connected to countries on the lists apply EDD broadly to most customer relationships based in/ . s of FinCEN publishes advisories cross referencing the FATF public statements. MSBs with network agents and agents, branches or counterparts outside the U.S. have processes in place relating to higher risk countries. The same applies to the life insurance company sector, as major insurance companies have subsidiaries or branches outside the U.S. – - money laundering and counter - FATF and APG 2016 © 2016 terrorist financing measur tates S nited es in the U Anti 129

132 CHAPTER 5. PREVENTIVE MEASURES Reporting obligations and tipping off adequately. The Overall, most covered FIs/DNFBPs implement their reporting obligations 329 . reporting requirements related to TF are being particularly well implemented which reflects the high awareness of this issue that most sectors demonstrated during the on -site visit. . Number of SAR filings by financial institution (2010 -2015) Table 15 5 2011 2012 2013 2014 2015* By 2010 Depository institutions 697 367 798 889 896 610 981 429 886 923 439 688 MSBs 596 494 685 009 640 419 616 761 771 025 441 383 17 46 919 31 401 23 627 900 24 Casinos and Card Clubs 13 987 575 492 Securities and Futures 18 758 19 903 22 437 18 808 22 448 10 3 726 N/A N/A Life Insurance Companies 2 569 897 066 *Data for 2015 included SARs filed from January 1 through June 30, 2015. For life insurance companies the period is from Januar y 1 through March 31, 2015. 330 . SAR filings across some of the biggest sectors in the U.S. show a healthy trend, and the authorities confirmed that defensive filings are not an area of significant concern. LEAs were also generally positive about the quality of SARs being filed. While reporting entities have a window of 30/60 days to file SARs ( see R.20), there is a requirement to report matters requiring immediate attention to LEAs immediately and follow up with a timely SAR. Authorities reported that approximately 11 percent of all SARs are filed the same day the suspicious activity is identified. The median amount of time within the 30 day SAR filing window from the identification of new cious activity to the filing of a SAR is 17 calendar days. The above statistics demonstrate the suspi following trends: s. The rest  Banks and MSBs contribute almost 96% of the total SAR filing are contributed by casinos , the securities and futures sector and the life . insurance sector The level of SAR filings by the secur ities and futures sector appears to be  low, given the size of this sector, the intensity of its activities and the size of the financial system in the U .S. The level of SARs filed by credit unio ns also - seems to be low within the depository institutions . Since a further break down of statistics is not provided, it has not been clearly established whether SAR filings by institutions within and across certain sectors (such re happening at an appropriate level. as credit unions, RMLOs) a Levels of SAR reporting by MSBs have remained constant at  around 40- 45% of all SARs. © 2016 Anti – FATF and APG 2016 tates S nited terrorist financing measures in the U - money laundering and counter - 130

133 CHAPTER 5. PREVENTIVE MEASURES  Casino SAR reporting has tripled from under 1% of total SAR s in 2007 to around 3% in 2014, which may reflect the increased focus by FinCEN and the IRS on casino compliance. 331 . DNFBPs (other than casinos) are not required to report SARs, but are subject to the Form requires reporting entities to report obligation (see above and TC annex). Form 8300 reporting 8300 and allows the 10 related transactions 000 involving currenc y or monetary instruments over USD made in cash entity to voluntarily use the form to report . reporting suspicious transactions 5 ss of Form 8300s filed each year include Somewhere around 2% or le s an indication of suspicion. It is .S ., worth noting that this form of reporting applies to all non- financial trades and businesses in the U s filed by attorneys not just DNFBPs. It is also worth noting that although some 4% of Form 8300 as BA w indicated suspicions, the A strongly of the view that mandatory SAR reporting should not apply to attorneys because of the breadth of legal professional privilege and because of the ability of attorneys to withdraw from a relationship where illegal activity is apparent. Banks, security broker dealers and MSBs meet their reporting obligations by various means . 332 appropriate to their level of risk, such as developing co mputerized monitoring systems, staff capacity building, and ongoing reviews of their AML program. FIs have demonstrated that their transaction monitoring is tailored to their activities and risks which permit them to report suspicious transactions and activity, including structuring. 333 . Regulated entities are increasingly working with law enforcement to enhance their ability to detect possible TF and other criminal behaviour, and ensure that reports are of good qual ity, accurate and filed expeditiously, and that detection efforts are well calibrated to address risks. Public/private engagement on SAR reporting Box 25 . icious activity can A clear example of how FIs have deployed customized parameters to detect susp be observed by analyzing the types of FI reporting transactions potentially involved in human trafficking. After FinCEN published its advisory pertaining to human trafficking and human afficking related SARs increased by 700% smuggling in September 2014, the number of human tr over the same period in the previous year. This change in SAR filing behaviour reflects the ability of FIs to adjust their monitoring systems to better capture particular types of suspicious activity and manage risk s. . 334 Detecting possible TF transactions is a priority focus, in line with the country’s risks. The private sector has good collaboration with the FBI on how to better identify TF. FIs/DNFB Ps with a SAR filing obligation are required by law to notify law enforcement by phone immediately and file a timely SAR when they identify a situation involving a violation requiring immediate attention, irrespective of any threshold. Furthermore, u p to J une 2015, FinCEN’s FI Hotline has received 212 calls from FIs seeking to promptly and directly alert FinCEN and law enforcement of possible .6 comparison, during 2014, FinCEN received 108 calls for the entire year (see IO By instances of TF. 9). MSBs and and casinos both indicated that they use the TF hotline and have relationships with IO. law enforcement agencies enabl , where appropriate. Reporting entities them to report directly ing – - money laundering and counter - FATF and APG 2016 © 2016 terrorist financing measur tates S nited es in the U Anti 131

134 CHAPTER 5. PREVENTIVE MEASURES U.S. does not have figures are not required to use the FinCEN Hotline to notify law enforcement. The for the number of immediate notifications made directly to law enforcement. . 335 e desire Although public/private engagement is clearly taking place, all sectors expressed th for more input from the authorities to facilitate the identification of suspicious transactions and customers who should raise concerns. They would also appreciate more sectoral and horizontal xposed to information regarding the risks their activities are e . . 336 Reporting entities use section 314(b) of the USA PATRIOT Act to share information related to 5 “possible terrorist or ML activities” with one another, under a safe harbour that offers protections ability. FinCEN strongly encourages participation in 314(b) information sharing which is a from li voluntary program. This mechanism helps reporting entities to better identify and report suspicious e.g. human trafficking), and TF. Currently transactions related to ML, associated predicate offen ses ( 500 financial institutions that have registered to participate in 314(b). there are over 4 Suspicious transaction reporting below the threshold 337 . While there are thresholds related to SARs, these are partly mitigated by the immediate filing requirement, which the U.S. authorities advise applies regardless of threshold. 8.37% of SARs filed As noted in R.20, the reporting thres relate to transactions below the relevant thresholds. holds are a technical deficiency (see R.20), which may limit the amount of financial intelligence available (IO.6). . From 1 July 2013 through 30 June 2015, FinCEN received 3,157 SARs noting potential TF. 338 000 2 513), of which 19% were below the ed the largest number (1 MSBs fil threshold. Banks USD casinos and card filed the next largest number (1 302), of which 15% were below the threshold. For The obli clubs, the percentage of filings below thresholds was greater. gation to immediately report suspicious activities that require immediate attention regardless of threshold is expected to mitigate concerns about what effect the reporting thresholds are having on implementation. However guidance , on authorities .S. by the U the scope of this immediate reporting requirement and its is needed , to threshold this existing with the interaction ensure efficient implementation of s . The following table provides a snapshot of avoid gaps in the reporting obligations requirement and TF related SARs below and above thresholds: TF SARs by industry (July 1, 2013- June 30, 2015) Table 16 . Casino/ Depository Insurance SARs Other Securities/Futures MSBs company institution card clubs Below Filing Threshold 31 191 3 285 101 12 9 Above Filing Threshold 111 1 3 1 228 167 16 Tipping Off To prevent tipping off, Covered FIs and DNFBPs, and their current and former directors, . 339 officers, employees, agents, and contractors, are prohibited from disclosing SARs, or any information that would reveal the existence of a SAR and could be subject to civil and criminal penalties for the S FATF and APG 2016 Anti - money laundering and counter - terrorist financing measures in the U nited tates – 2016 © 132

135 CHAPTER 5. PREVENTIVE MEASURES of their unauthorized disclosure of a SAR. FinCEN has published an advisory, reminding FIs 39 -site did not indicate any concerns with regard Discussion with authorities’ during on . obligations to confidentiality provisions. Internal controls and legal/regulatory requirements impeding implementation At the Industry practices and the quality of internal controls vary across sectors. . 340 , group level operating in multiple jurisdictions have -wide firm banks sophisticated and securities dealers 5 towards understanding the risks of operating in each internal control programs calibrated jurisdiction, and how those risks affect the bank’s operations in the U.S. These firms dedicate substantial resources (budgets, staffing) to AML/CFT risk assessment and compliance activities and ternal audit groups are responsible for auditing compliance. their in discussions with a assessors’ The large operating in multiple jurisdictions suggest that a similar approach is insurance company taken in that sector. casino Discussions with a and the AGA reveal that , casino regulators mainstream casinos have been improving their internal controls and procedures for group level compliance. Federal regulatory agencies advised the assessors that, in the The . 341 oker banking and br , dealers sector failures or weaknesses in internal controls is one of the most commonly cited 6 below, in such deficiencies identified in compliance examinations. However, as noted in Chapter at such institutions implement the cases, the regulators conduct close monitoring to ensure th required corrective measures and improve their compliance in this area. . 342 MSBs , and apply these to their networks also have extensive internal controls and procedures of agents. Many of these controls go beyond the explicit BSA requirements, including broader risk assessment and more comprehensive AML programs that deal with operating risk, including agent risk. . 343 inos and dealers in precious metals and stones) are not required to (other than cas DNFBPs As implement internal controls (see R.23), they generally do not do so in practice. Some DNFBPs met with by the assessors explained that they have implemented internal processes in order to comply with industry guidelines or SRO requirements, some of which touch on topics relevant to the risks of ML/TF. On the whole, however, the lack of internal controls, particularly in those DNFBPs with a significant role in relation to high- and in advising on and creating legal persons, is a major gap . end real estate Legal/regulatory impediments to implementation , inconsistent application of data protection and privacy laws in some At the group level . 344 hurdles which may impede the some was cited by FIs as creating legal untries foreign co -site . During the on risk management group implementation of ML/TF , FIs confirmed that they -wide cannot inform their foreign branches of having filed a SAR, even if the SAR is linked to or subsidiaries a customer of the foreign operation . This issue makes it more difficult for FIs to understand and 39 See FinCEN Advisory issued on 2 March 2012, SAR Confidentiality Reminder fo r Internal and External -advisory - https://www.fincen.gov/resources/advisories/fincen Counsel of Financial Institutions., available at -a002 -2012 fin tates money laundering and counter - terrorist financing measur es in the U nited S - Anti – 2016 © FATF and APG 2016 133

136 CHAPTER 5. PREVENTIVE MEASURES mitigate their risks, and meet their foreign STR obligations effectively across the group. FinCEN filing depository institutions, securities broker guidance of 2010 provides that -dealers, mutual funds and filed a SAR may share the SAR, or any information that would reveal the FCM and IBs that ha ve provided the affiliate is subject to a SAR regulatio n. existence of the SAR, with an affiliate, Neither casinos MSBs cited any legal or regulatory requirements impeding AML/C FT compliance. nor The U.S. is rated as having a moderate level of effectiveness for IO.4. . 345 5 S © 2016 Anti tates FATF and APG 2016 nited terrorist financing measures in the U - money laundering and counter - – 134

137 SUPERVISION CHAPTER 6. Key Findings an d Recommended Actions Key Findings -faceted, 1. The regulatory and supervisory framework in the U.S. is highly complex and multi involving a number of authorities both at the Federal and State levels. FBAs and some of the State regulators have effective proces ses to understand ML/TF risks. Entry criteria in the 6 -up and financial and casino sectors are generally robust and examination programs, follow enforcement actions are often coordinated at the Federal and State level. ion is similar, except that the overall quality of 2. In the life insurance sector the situat supervision for AML/CFT requirements is less intensive and is often not followed up with written findings. State insurance supervisors do not appear to have a comprehensive view of ML/TF risks; however the assessors have placed a low weighting on this as there appears to be relatively few instances of ML/TF identified in this sector, and also because of the ability of FinCEN to enforce compliance. 3. The process of coordinating MSB examinations between FinCEN, IRS SBSE and the States is SBSE have taken initiatives to address unregistered - positively evolving. FinCEN and IRS money remitters through outreach and enforcement actions, which have been effective. 4. Other than casinos and dealers in precious metals and s tones, DNFBPs are not supervised for AML/CFT compliance. While there are some voluntary guidance and outreach efforts by the ABA, and the National Association of Realtors the lack of enforceable obligations is an that guidance is applied or is having the desired impediment in assessing the extent to which impact. Recommended Actions Minimally covered sectors exposed to high risks such as IAs, lawyers, accountants, trust and 1. -end real estate agents are company service providers (except for trust companies), and high currently subject to only Form 8300 and targeted financial sanction compliance monitoring. the BSA/USA PATRIOT Act supervisory framework as a They should be brought under priority. As recommended in Chapter 5, they should be responsible for implementing appropriate AML/CFT obligations, which will generate financial intelligence for FinCEN and LEAs. The outcomes of the GTOs currently in place should be analysed and used to develop appropriate regulatory measures. d as a good example of coordinated supervisory While the FFIEC Manual is acknowledge 2. efforts to promote a common understanding of ML/TF risks and BSA obligations, there is a need for more and ongoing guidance from supervisors to industry on their regulatory expectations. This applies to other sectors as well. In particular, guidance on the immediate SAR reporting requirement, its interaction with the existing thresholds is needed to ensure efficient implementation of the requirement and avoid gaps in the reporting obligations. 3. orities and the State insurance supervisors should consider whether The Federal auth - – money laundering and counter - terror ist financing measures in the United States Anti 2016 © FATF and APG 2016 135

138 CHAPTER 6. SUPERVISION anual could be applied to life insurance companies’ Covered M elements of the FFIEC Products AML programs, given the similarity of the vulnerabilities. State life insurance d also improve their understanding of the risks and enhance their regulators shoul supervisory programs, in particular by ensuring that they provide written AML/CFT supervisory examination letters as part of their supervisory processes. Each FBA and State banking agency s 4. hould continue to develop appropriate supervisory tools to improve the effective application of the risk - based approach in supervising and tailoring examinations in order to address identified risks that are specific to each FI. Three categories of non 5. eral State chartered banks should be subject to an AML Program -Fed 6 40 requirement in addition to their reporting obligations . 6. Guidance should clarify that broker dealers are required to conduct a risk assessment to comply with the AML program. This will help cl arify and strengthen the expectations of the supervisory authorities. 7. ensuring that there by The U.S. should further strengthen the existing mechanism of BSAAG is adequate representation from all FI and DNFBP sectors and State financial regulators; to reflect its more valuable role in practice. 8. The coordinated approach for MSBs inspection should be expanded across the sector. More participation by Federal supervisors as appropriate may also be pursued. IRS -SBSE should continue its efforts in the area of unr egistered money remitters. Supervision needs to continue to focus on casinos to ensure that the peculiar risks of this 9. industry are mitigated effectively. in this chapter is IO.3. The 346 . The relevant Immediate Outcome considered and assessed -28 & R.34 recommendations relevant for the assessment of effectiveness under this section are R26 and 35. Immediate Outcome 3 (Supervision) .S. 347 . Although the AML/CFT supervision of FIs an is mostly conducted at the d DNFBPs in the U Federal level, the States are also involved in AML/CFT supervision of MSBs, life insurance companies and banks that are not members of the Federal Reserve System. For practical reasons , the assessors able to interview representatives of all 50 States’ banking and life insurance supervisors. In were not authorities, discussions were held with representatives of the Iowa life cooperation with the U .S. ion of the State of New York. insurance supervisor and the Department of Financial Supervis Generally, the assessors understood from their discussions that these two States would be representative of the approaches taken by State supervisory authorities . The U.S. superviso ry framework for the banking sector is well developed and generally 348 . considerable supervisory resources are applied at the Federal level. This is commensurate with the 40 has an ongoing rulemaking process to address this issue (see Currently FinCEN ). -20219.pdf -25/pdf/2016 https://www.gpo.gov/fdsys/pkg/FR -2016 -08 – - terrorist financing measures in the U nited S tates 2016 © FATF and APG 2016 Anti - money laundering and counter 136

139 CHAPTER 6. SUPERVISION advantage of a sector is also very large and has the size and significance of the sector. The securities . The biggest supervisory gap here is the non dual - supervision mechanism by the SEC and FINRA . Supervisory processes for MSBs are coverage of maturing and there is now a greater all IAs coordination among States in their supervision. 349 . Life insurance companies are subject to lighter touch supervisory processes mostly reflecting the lower risk this sector represents, which is limited to the investment vehicles (“Covered Products”). , lack of any Authorities base this assessment on the low numbers of SARs reported significant supervisory findings for a number of years when the sector was being examined by IRS - SBSE and lack of ML typologies, and the assessors agree that this sector is lower risk. For thes e 6 reasons F inCEN directed IRS -SBSE to refocus its limited examination resources to higher risk and/or more complex areas, such as casinos and MSBs, and therefore now FinCEN relies on the State However, IRS examinations. authorities for insurance ns authority to conduct life -SBSE retai if requested by the States or directed by FinCEN. insurance company AML/CFT exams, 350 . In the DNFBP sectors, there has been an increased focus in recent years on the supervision of s, in line with the identified vulnerability of the sector. However, there ca is little AML/CFT sino most notably dealers in precious metals and stones, DNFBPs other than casinos and of supervision CFAs . This has a significant impact on the effectiveness and lawyers, accountants, real estate agents s of these sectors in relation to a number of high risk situations set out in of the system given the role and the NMLRA involving real estate transactions, advice on and the formation of large and complex in supervision. . The structures se deficiencies are significant enough to require major improvements The assessors based their conclusions on: extensive discussions with FinCEN, IRS -SBSE, all . 351 ROs including FINRA and NFA, Iowa and New York State FFRs (FBAs, the SEC and the CFTC), S authorities and several industry associations and professional bodies; reviews of examination procedures, processes, manuals and priorities of these supervisory authorities, wherever made available; and exhaustive process narratives provided by the U.S. authorities. Input provided on the supervisory regime by the private sector representatives across the FI/DNFBP sectors during the on - site was also factored in, wherever appropriate. Licensing, registratio n & controls preventing criminals & associates from entering the market .S. In general, the U . 352 banking for the s a strong system of licensing and entry requirements ha ulators tate level, have the authority to charter ederal or S , whether at the F . The sectoral reg sector and . and to insure deposits at domestic all domestic and foreign banks operating in the U.S supervise FBAs The (and four apply similar banks and a limited number of U.S. branches of foreign banks. sometimes coordinated) entry screening processes (although these frequently duplicate each other, supplemented by criminal background checks the U.S. sees this as a strength of the system), conducted by LEAs /monitoring processes . The U.S. has demonstrated that the entry supervision s when withdraw their application often pplicants . A have prevented criminals from controlling banks they do s. In at least one case, the application was requirement licensing the meet not rejected people associated with the application. because of the existence of a SAR linked to two tates money laundering and counter - terrorist financing measur es in the U nited S - Anti – 2016 © FATF and APG 2016 137

140 CHAPTER 6. SUPERVISION . 353 , there is a dual registration processes for broker- dealers involving the securities sector In the SEC and FINRA. FINRA conducts background checks, extensively reviews business models, and interviews key staff of broker dealers to focus on the adequacy of safeguards in place. Additionally, derivatives sector criminal background checks are conducted by LEAs. In the CFTC has delegated the , regi stration function to NFA, which registers applicants that comply with extensive disclosure obligations and are subject to a criminal background review. tates, wh ely chartered by the S are exclusiv life insurance companies Domestic 354 . are also ich responsible for entry requirements applicable to foreign life insurance companies wishing to operate ich often have banking or wealth branches or subsidiaries in the U .S. For the large companies, wh 6 management subsidiaries, there is a process in place for State authorities and the applicable FBA to liaise with each other when addressing fit and proper requirements. The entry and licensing ederal processes in the banking sector. processes are generally similar to F which take into MSBs, There are generally good licensing, registration and other controls for . 355 41 of the 50 account the fitness and propriety of individuals. Money transmitters are licensed in 47 (except Montana, New Mexic States o and South Carolina ), as well as D.C, Puerto Rico and the U.S. Virgin Islands, and there seems to be a strong system for background and fitness and propriety checks of persons controlling them. In many States, vetting is done of everyone with an interest of 10% or more in the business, as well as officers, the board of directors, and any parent company. Money Transmitter There is good coordination among the States through the mechanisms of the - NMLS) and the Multi sing System ( -State Licen , the Nationwide Multi Regulators Association (MTRA) State MSB Examination Taskforce (MMET). Apart from the State requirement to license, there is also a Federal requirement for money transmitters to register with FinCEN (which must be renewed every two years), and to update registration information in certain circumstances. FinCEN’s Unregistered MSB Initiatives FinCEN . , has conducted outreach to identify potentially , collaborating with S tate authorities 356 als has and unregistered MSBs . FinCEN has taken civil focused on unregistered businesses o has also -SBSE it. IRS failing to register with , including for enforcement actions against MSBs continued to focus on unregistered MSBs. In 2015, for example, IRS completed 122 examinations of sus pected unregistered MSB. IRS identified these MSBs for examination based upon referrals from FinCEN or an internal IRS review of SAR filings indicating potential unregistered activity. -four Sixty (48%) of the entities examined were cited for violations of the BSA. 41 Since the date of on -site, authorities reported that MSBs in New Mexico and South Carolina are now covered under licensing regime as per the legislative amendments in these states. Anti FATF and APG 2016 © 2016 – tates S nited terrorist financing measures in the U - money laundering and counter - 138

141 CHAPTER 6. SUPERVISION Action against unregistered MSB . 26 Box Baltimore, MD: A Pakistani national residing in the U.S. operated a – (2008) Saifullah Anjum Ranjha ot in the State of money remitter business, Hamza, Inc., licensed in the District of Columbia, but n -07, LEAs, acting through a cooperative witness, transferred Maryland. During 2003 million 2.2 USD to Ranjha (mostly in Maryland) ostensibly for onward transfer to Al- Qaida and its affiliated resented that the funds were the proceeds of organizations, through hawala. The witness rep international drug trafficking and smuggling of counterfeit cigarettes and weapons. Ranjha facilitated funds transfers to designated accounts and individuals in Canada, England, Spain, 6 Pakistan, Japan and Austra lia, after charging his commission. The funds were picked up by cooperative individuals and returned to the Government. Ranjha pleaded guilty to conspiring to ML, concealing TF and operating as an unlicensed money transmitter in Maryland and was sentenced to over 9 years in prison. Portland, Oregon: A naturalized citizen living in Oregon created shell Victor Kaganov (2010) – corporations to hide illegal activities on behalf of his Russian clients. Using these corporations, he set 172 up bank accounts and moved more than USD million through the U.S. from July 2002 through March 2009. Most of the funds came from Russia, with the rest from more than 50 other countries, mainly in Asia and Europe. In March 2010, Kaganov pleaded guilty to operating an illegal money transmitting business and was sentenced to three years’ probation and four months of house arrest. Kaganov was also found to be in violation of BSA registration, AML program and SAR requirements. lty against Kaganov for operating an 000 25 USD civil money pena In March 2011, FinCEN issued a unregistered money transmitter and without a State licence. 357 . The following table provides a snapshot of ML charges, convictions and the conviction rate for failure to register with FinCEN by MSBs: Table 17 . Number of ML charges, convictions and conviction rate (2010 -2014) 2014 2013 2012 Offense Action 2010 2011 47 22 24 40 53 Charged Failure to comply with FinCEN 18 USC 1960 ( 20 29 39 Convicted 16 21 registration requirement for MSBs) Conviction rate 67% 83% 91% 73% 40% . 358 During the on -site, the assessors identified lack of licensing of MSBs in three states (Montana, 42 , with a potential to create vulnerabilities (particularly New New Mexico and South Carolina) Mexico, in relation to the south west border). State authorities also confirmed that this loophole might have been abused for illicit purposes. However, MSBs in these States only represent 2.3% of all -site, the only State now left without a licensing regime is MSBs registered with FinCEN and since on . Montana 42 Ibid . tates money laundering and counter - terrorist financing measur es in the U nited S - Anti – 2016 © FATF and APG 2016 139

142 CHAPTER 6. SUPERVISION There is a strong licensing regime for casinos, owners and certain senior associated . 359 yers and accountants have professional and continuing ethical requirements in individuals. Law order to be able to practise. For lawyers , this is administered through either the State Bar not subject to Associations or State courts. Real estate agents are licensed under State law but are any specific fit and proper criteria. The precious metal and stones industry also lacks any specific entry criteria. . Refusals to licence money transmitters, casinos and casino employees and revocations of 360 licences are uncommon. However, the authorities indicated that applicants often withdraw their applications in cases where serious concerns are expressed by authorities. Licensees with problems 6 such as financial distress will often sell or relinquish their licence instead of waiting for it to be revoked. Supervisors’ understanding and identification of ML/TF risks in FinCEN . 361 , work ing is responsible for the AML/CFT supervision of the financial sector has delegated BSA examination authority. cooperation with the sectoral supervisors to which it FinCEN seems to have a good understanding overall of the inherent nature of risks across the covered sectors, both between the sectors and in relation to various types of institutions within sectors and passes that understanding on to the delegated supervisors. It also supports the understanding of other supervisors through its own analysis and feedback. In the , FBAs are required to conduct supervision of their supervised entities tor . 362 banking sec -site visit of varying duration, and for the generally on a fixed cycle . In most cases this involves an on embedded in the banks’ premises, fostering immediate co , the FBA staff is largest banks -operation . FBAs further maintain and update their understanding of ML/TF and dialogue on risk and controls such as forums -agency with law enforcement, participation in inter risks through on -going dialogue roup the BSAAG and the FFIEC AML Working G ad hoc and in regular and , industry meetings, meetings and discussions with FinCEN. visit generally exhibited an advanced level of understanding of 363 . FBAs during the on -site met the ML/TF risks respective sectors . FBAs’ understanding of risks is also supported ir in the present information FIs’ products, services, customers and geographic locations. This their knowledge of by State banking is also used in planning and scoping of such examinations, often in coordination with (most notably with FDIC and also with the Federal Reserve, which shares supervision of regulators -chartered banks that are Federal Reserve members on a bi State . -annual basis) F risks 364 he OCC has developed its Money Laundering Risk (MLR) system to differentiate ML/T . T among individual institutions and across groups of institutions and aid examiners in the process. It Lead OCC also facilitates a horizontal comparison among banks across multiple indicators. The Expert network also helps the OCC identify and analyse ML/TF risks across its portfolio and early facilitates communication of these risks to the early identification of significant risks and also examiners for inclusion in supervisory strategies . The FDIC and the Federal Reserve have established a number of controls to understand the ML/TF vulnerabilities and threats faced by the . supervision depository institutions subject to their respective S FATF and APG 2016 Anti - money laundering and counter - terrorist financing measures in the U nited tates – 2016 © 140

143 CHAPTER 6. SUPERVISION 365 , SEC and FINRA have a good understanding of ML/TF risk. FINRA is the urities sector sec In the . frontline examiner. The SEC oversees FINRA and conducts focused inspections based on SAR filings, among other risk factors. Supervisors seem well aware of risks in the sector and the same is reflected in their overall approach to supervision. This includes a substantial amount of coordination, and exchange of examination programs and referrals, geared towards a more coordinated approach to promote better understanding and id entification of risks. This was particularly notable in the larger institutions, which often form part of financial conglomerates (banks, insurers, securities dealers, etc. supervised by more than one FFR). FINRA assigns cumulative risk -ratings to supervised entities and classifies them into appropriate risk buckets based on different parameters which further drive the 6 supervisory processes. CFT. It has delegated , CFTC does not directly supervise FIs for AML/ 366 . In the derivatives sector this task to two SROs, the National Futures Association (NFA) and the Chicago Mercantile Exchange However, the CFTC has formed a BSA Review Team that conducts analysis of Group (CME Group). o derivative trading activities. This is intended to detect SAR filings in FinCEN’s databases related t emerging flags on frauds or other illegal activity, and to provide support to the investigative teams. Those searches can result in referrals to LEAs as well. On average, the BSA Review Team reviews 000 SARs annually and refers more than 100 of them to investigative teams in support more than 12 of new or existing investigations. To date, the CFTC has brought 24 enforcement actions based on leads developed from SARs. While this SAR analysis is not disseminated to the SROs, regular meetings between the CFTC and the SROs facilitate exchange of trends. States apply AML/CFT supervision as part of their broader prudential examinations of the . 367 life insurance sec tor . The AML/CFT component of supervision is specified in the NAIC examination manual. The overall scope of the supervision is commensurate with the lighter touch applied to insurance companies, but is high level compared to the FFIEC Manual, even allowing for the lower , there is no mention of the assessment of ML/TF risk in the manual and there risks. For example appears to be no expansion of ML/TF risk assessment outside of the Covered Products c overed , so under BSA. Life insurance companies are not obligated to create written ML/TF risk assessments it is likely more difficult for supervisors to judge whether their programs are adequate. FinCEN guidance addresses risks related to Covered Products as these bear the most resemblance to in other sectors but there is no obligation to assess addressing broader risks, comparable facilities, such as loans or corporate investments for example (although this happens in practice in the larger . The State insurance supervisors in general displayed a limited understanding of ML/TF companies) risk. MSB State supervisors in the . 368 sector have a good understanding of the ML/TF risks for the o ( at least in those States which participate in the MTRA, NMLS and MMET ). In relation t sector good , there is a State casino regulators casinos understanding of ML/TF risks in FinCEN and in the -site the assessors met during on . In respect of other DNFBPs , IRS -SBSE did not demonstrate that it is e different sectors with which it deals. Its fully conversant with the risks across and between th The IRS Manual, chapter 4.26 examination priorities are mostly directed or influenced by FinCEN. , does refer to risk analysis in the context of examinations (4.26.6.4.1.1.1) but only in relation to the -compliance. This lack of focus on ML/TF risk was confirmed by the assessors’ risk of n on meetings -SBSE. with the IRS tates money laundering and counter - terrorist financing measur es in the U nited S - Anti – 2016 © FATF and APG 2016 141

144 CHAPTER 6. SUPERVISION tate regulatory agencies seem to pay particular attention to Generally, none of the relevant S . 369 . issues or to particularly understand risks emanating from DNFBPs, other than casinos AML/CFT This is partly because FinCEN has prioritized the casino sector in recent times due to its vulnerability (with less attention to other DNFBPs), but primarily reflects the f act that none of the other sectors are covered under the comprehensive AML/CFT framework. . 370 ABA has provided good voluntary guidance to lawyers and attorneys but as BSA obligations do not apply, there is no BSA sup ervisor for this sector. The ABA has a broad understanding of risks posed by the legal sector, but is not equipped to understand the risks posed by individual law firms. FT In particular, it considers strongly that any attempt to bring lawyers under BSA AML/C 6 obligations will conflict with obligations around legal professional privilege and client confidentiality. Conversely, the assessors note that the lack of BSA coverage of lawyers contrasts with the very significant gatekeeper role being played by them particularly in the high -end real estate transactions and the company formation processes in the U.S. Risk -based supervision of compliance with AML/CFT requirements is the most significant issue in the overall context of 371 . Lack of coverage of DNFBPs effectiveness of the supervisory process. Apart from casinos and dealers in precious metals and stones, DNFBPs are subject only to limited supervision related to cash transaction reporting, despite the authorities’ under standing of the risks in these sectors, particularly in relation to advice on and formation of legal persons and arrangements, and the risks presented by high -end real estate. ittle focus on any other Although there is a strong focus on supervision of the casino sector, there is l DNFBP sector, leaving them susceptible to abuse. 372 . In the banking sector , the supervisory approach incorporates minimum standards with a -based approach to tailor examinations. FBAs and the State bank agencies are required to include risk reviews of BSA compliance programs in their examination of insured depository institutions. These reviews mostly include on -18 month) -based (12 -site examinations and are scheduled on a rules cycle. Regardle ss of the individual FI risk profile, the supervisory program systematically covers all entities subject to the prudential supervision of the relevant regulator. The intensive approach to banking supervision reflects the importance and vulnerability associ ated with the U.S. financial system. The RBA is reflected, not in the frequency of examinations, but in the fact that the examinations are tailored based on the BSA/ML risk profile of the bank. This is done by selecting relevant supplemental examination pr ocedures directed at what the FFIEC Manual describes as high risk activity (in addition to the core material that is covered in all cases and which constitutes a ds robust baseline for the implementation of AML/CFT supervision). This supervisory approach lea to close monitoring of the AML/CFT system put in place by the FI. A similar approach is generally followed by State bank regulators. The FFIEC Manual is a key strength of banking supervision in the U.S. . 373 The FB A supervisory process encourages a dialogue between the bank and the examiner and leads to a clearer understanding of the measures needed to more effectively mitigate the bank’s risks. There were, however, some concerns expressed to the assessors by representatives of the private sector that they have to discover the expectations of their regulators through the publication S FATF and APG 2016 Anti - money laundering and counter - terrorist financing measures in the U nited tates – 2016 © 142

145 CHAPTER 6. SUPERVISION of the formal enforcement actions against fellow participants. Bankers met by the assessors suggested that a more nuanced articulation of such regulatory expectations in advance would be more helpful than discovery through enforcement actions. The following tables indicate the numbers of institutions subject to BSA supervision by regulators: Table 18 . Number of depository institutions No. of Regulated entities for BSA examinations for BSA examinations 2015 Assets under supervision FBA (USD trillion) 2011 2015 2012 2013 2014 6 047 BGFRS 1 1 063 1 064 1 065 1 058 5.8 4 598 4 460 4 FDIC 312 4 138 3 995 2.7 537 1 663 1 810 1 955 1 086 11.1 OCC 2 350 6 620 6 888 6 1.2 021 NCUA 7 179 6 No. of BSA examinations (BGFRS, FDIC, OCC, NCUA) This data was received and reviewed by assessors, but the U.S. requested it not to be published 374 . In the securities sector , the SEC and FINRA conduct risk -based examinations of broker dealers based on their examination priorities. AML is part of SEC’s priorities and in 2015 the , allowing customers to deposit principal focus was on broker dealers filing incomplete or late SARs and withdraw cash, and allowing access to the U.S. market from higher risk jurisdictions. The BSA Review Group within SEC also reviews all the SARs filed by broker dealers along with SARs filed by e a securities market connection. The results of such review are other institutions that hav considered when determining follow up including targeted examinations. -based examination program taking into account cumulat 375 . ive risk rating FINRA conducts a risk of broker dealers. The risk rating factors in parameters such as whether the firm has omnibus or intermediated account relationships, trading volume in penny stocks, percentage of business overseas or firms that target overseas clients, hig h impact firms having large numbers of client accounts, sales practices etc. Examination frequency and intensity is based on the sector risk categorization of the respective firms and not solely on ML/TF matters, although there is a regular topical focus on some ML/TF risks. Firms are grouped in examination cycles (1 year to 4 years) based on such parameters. Overall, the risk that is taken into account in deciding where to apply its examination resources appears to be the risk of non -compliance with the BS A obligations, rather than ML/TF risk. Number of examinations by SEC and FINRA Table 19 . 13 - 2012 SEC 2014 15 - - 2013 14 104 105 94 Number of exams including AML review etter requiring Number of AML related deficiencies resulting into deficiencies l 150 86 125 written response from firms - FATF and APG 2016 © 2016 – terrorist financing measur tates S nited - money laundering and counter es in the U Anti 143

146 CHAPTER 6. SUPERVISION 2015 2014 2013 FINRA 1 547 Number of exams including AML review 462 102 29 Number of AML cause exams 24 19 410 Number of exams that cited AML as a deficiency 207 238 ions that resulted in informal action Number of exams with AML citat 177 327 207 (cautionary action letter) 31 Number of Enforcement actions that included an AML charge 35 34 6 . derivatives sector , the NFA and the CME In the Group are the fron tline examiners, although 376 the CFTC retains jurisdiction to conduct examinations and can do targeted reviews. CFTC oversees the NFA and the CME Group and is not directly involved in examinations of FCMs and IBs on a routine or exception basis also bri . CFTC ngs enforcement actions against institutions based on its identification by the NFA or CME own investigations and SAR reviews, and in some cases following NFA conducts most of the group of KYC deficiencies or failures to investigate suspicious activities. -clearing FCMs and IBs) and brings disciplinary direct examination of its registered entities (non actions against such entities for compliance deficiencies. AML/CFT compliance is part of the broader examination program. Factors generally considered during such examinations include business model, prior examination findings, number of SAR filings, business emanating from high risk countries etc. Number of examinations of FCMs and IBs Table 20 . 2013 2012 Agency 2014 1 # of instit utions regulated for AML 1 402 366 379 1 CFTC # of failure to supervise actions, including failure to follow AML procedures 3 0 2 1 353 334 1 318 1 # of institutions regulated for AML # of AML examinations 82 74 122 NFA 4 # of formal AML enforcement acti 7 ons (including Civil Monetary Penalty (CMP)) 5 44 50 66 # of informal AML enforcement actions (including CMP) # of institutions regulated for AML 45 48 49 11 # of AML examinations 7 5 CME 1 0 # of formal AML enforcement actions (including CMP) 0 # of informal AML enforcement actions (including CMP) 0 2 0 377 In the life insurance sector , an AML/CFT examination component is included in the NAIC . he sector in 2006 when the sector Handbook . The IRS -SBSE began Federal AML/CFT supervision of t came under BSA obligations, but after several years with no enforcement actions (BSA violations), FinCEN determined IRS -SBSE’s examination resources would be better used elsewhere. Examinations were turned over to the State authorities. Life insurance companies are required to assess risks with respect to Covered Products but there is no corresponding process for State S FATF and APG 2016 Anti - money laundering and counter - terrorist financing measures in the U nited tates – 2016 © 144

147 CHAPTER 6. SUPERVISION AML/CFT component of the The supervisors to assess the risk as is the case in the FBA sector. supervision process is less rigorous than for banks, which is consistent with the lower risk this overall quality of the process varies widely from State to State, mostly sector represents. The appears to vary depending on each State’s knowledge and understanding of ML/TF risk, which materially. For example in Iowa, there appears to be little focus on risk and the process appears check for the presence of expected elements. On the other hand, DFS essentially to be a -NY appears to take a more sophisticated approach based on its knowledge of the banking sector . tates participat , the coordinated supervision effort by S in the MSB sector In the . 378 ing MTRA/MMET is a strength. The MMET coordinates approximately 75 multi -S tate and S tate/ Federal 6 State examinations per year. States and come supervisors appear to be focused on risk across together to decide which money transmitters should be the subject of joint examinations. Supervisors select entities to examine based on risk and the BSA MSB Manual sets out a risk- based approach to individual examinations. Furthermore, IRS -SBSE also conducts MSB examinations. For example, during 2014- -SBSE examined 517 MSBs, which included 171 principal MSBs and 15, IRS 346 of their respective branches and agents. IRS ing 7,341 MSBs operat -SBSE also examined a further any MSB services provided as an agent to a principal MSB. , including as small independent MSBs DNFBP sector In the -SBSE resulted in , the assignment of AML/CFT supervision of casinos to IRS . 379 close attention to ML risk in the casino industry and by the State casino regulators. However while the IRS examination manual (chapter 4.26) refers to identifying non -bank FIs which are not regulated for BSA compliance by any other Federal regulator, and to risk analysis in relation to examinations, it appears that the risk IRS -SBSE takes into account in deciding where to apply its examination resources is, in fact, the risk of non -compliance with the BSA obligations, rather than ML/TF risk. IRS -SBSE did, -15. however, examine 60 casinos and 30 dealers in precious metals and stones during 2014 s While there are ongoing ethical or code of conduct requirements in some DNFBP sector . 380 (lawyers and accountants in particular), and professional supervision of these requirements, they are not focused on ML/TF risks and tend to be considered only in the context of a complaint. Only the OFAC requirements and the Form 8300 reporting requirements apply at a broader level across all the businesses and professions. OFAC does not supervise for its requirements, in these sectors. -SBSE supervises compliance with the Form 8300 reporting requirements, noting that reporting IRS of suspicions in this context is voluntary. This limited AML/CFT supervision of the majority of DNFBPs is a major gap in the supervisory framework. Remedial actions and effective, proportionate, and dissuasive sanctions process has resulted in identifying, remedying and sanctioning failures to 381 . The supervisory rs and securities secto banking comply with the AML/CFT requirements. In the , FinCEN has brought . Each FBA and other Federal regulators enforcement actions also pursue their own act ion in parallel State regulators) , and this strategy extends to parallel criminal enforcement with FinCEN (and measures exercised by the DOJ. Authorities provided case studies indicating that referrals from FBAs regulators to DOJ take place and are supported by clear processes. FBAs and other and other Federal Federal regulators further discussed below. actions, take a range of remedial tates money laundering and counter - terrorist financing measur es in the U nited S - Anti – 2016 © FATF and APG 2016 145

148 CHAPTER 6. SUPERVISION 382 . Broadly , the type and range of applied appear to be satisfactory. s sanction enforcement Authorities provided a number of case examples demonstrating enforcement action imposed by FBAs, SEC and FINRA against FIs and responsible individuals for BSA/AML compliance failures. . 383 he banking sector, FBAs actively require FIs to implement corrective measures to Specifically in t address control weaknesses which do not merit a financial penalty (but failure to implement may result in an informal or formal action including CMP). These actions may include issuing supervisory findings in the form of Matters Requiring Attention (MRAs) and Matters Requiring Immediate Attention (MRIAs) that identify specific deficiencies or control weaknesses, and require the depository institution to take corrective actions in a time bound manner. MRAs/MRIAs are deemed corrected only 6 after follow up and verification by FBAs. Authorities have indicated that these mechanisms are an h, in the important tool to correct deficiencies and it seems these are effective in preventing issues whic absence of these mechanisms, might otherwise worsen and require further formal or informal enforcement action. FDIC uses the mechanism of Matters Requiring Board Attention (MRBA) as a material issues and recommendations needing expeditious consideration by similar tool to highlight the directorate and between examination follow -up by regulators. MRBA does not preclude the FDIC from citing a violation of law related to the item that directors and management should address. State banking regulators Similarly, in the securities sector, supervised banks. use a similar approach to State- regulated entities are also required to implement corrective measures when deficiencies are identified. . 384 In appropriate cases, where a specific commitment from the board of directors is needed, FBAs can and do use informal actions such as Bank Board Resolutions (BBRs) and MoUs. These contain more oblems identified. explicit commitments that the banks need to make to support the correction of the pr NCUA’s informal actions include a Document of Resolution (DOR) which outlines the highest priority issues that need to be corrected as per corrective action plan agreed by credit union. 385 . Formal enforcement actions are always made public. Th ese comprise written enforcement agreements, cease and desist (C&D) orders, CMPs, and removal and prohibition. In more egregious violations, this may also include termination of charter, deposit insurance and o f U.S. banking activities. There is also a mandatory statutory requirement for the FBAs to issue a C&D Order against a bank for (i) failures of the bank’s compliance program and for (ii) the failure to remediate a BSA “problem” that was previously brought to the attention of the bank. Case studies were provided by tate regulators and authorities where enforcement actions were taken, often in coordination with S ): DOJ, indicating a coordinated approach (See box below coordinated enforcement action Examples of . 27 Box OCC and other agencies: In December 2012, the OCC (coordinating with the DOJ, the BGFRS, CMP USD 500 million FinCEN, OFAC and the New York County District Attorney's Office) imposed a against a bank for BSA violation and it s failure to fully comply with a C&D order issued in October 2010. The order required the bank to take comprehensive corrective actions to improve its BSA compliance program, while deferring the OCC's decision on assessing a penalty. The OCC also issued - wide compliance program. a separate C&D order to address deficiencies in the bank's enterprise Some of the key deficiencies assessed in the consent order for the assessment of CMP included: S FATF and APG 2016 Anti - money laundering and counter - terrorist financing measures in the U nited tates – 2016 © 146

149 CHAPTER 6. SUPERVISION ions. Deficiencies in BSA/AML monitoring of certain wire transfer transact   Failure to perform BSA/AML monitoring of bulk cash transactions with group entities. Failure to collect or maintain CDD or EDD information for Group Entities.  Failure to dispose alerts appropriately and to comply with SAR obligations.  -risk” for BSA/AML monitoring. opriately designate customers as “high Failure to appr  In July 2015, FDIC and California Department of Business Oversight (CDBO) imposed CMP of FDIC: 40 USD 140 USD and million respectively against a bank for its failure to implement an million 6 effective BSA/AML compliance Program over an extended period of time. The institution failed to (a) retain a qualified and knowledgeable BSA officer and sufficient staff (b) maintain adequate internal licit financial transactions and other suspicious controls reasonably designed to detect and report il activities, (c) provide sufficient BSA training, and (d) conduct effective independent testing. ssessors taken by FBAs. A The following statistics relate to BSA formal enforcement action . 386 were also provided with data on MRA/MRIA and other informal enforcement action taken by the four FBAs, which the U.S. authorities cited as confidential and hence are not published in this . chapter Formal enforcement action taken by FBA . Table 21 Agency 2015 2014 2013 1 8 BGFRS Number of formal enforcement actions 12 4 Orders 22 20 19 2 0 Civil Monetary Penalties (CMP) 0 FDIC 1 0 Removal Actions 0 0 1 0 Suspensions and Prohibitions Enforc ement Actions OCC 16 Formal 16 8 NCUA Cease and Desist Order 1 0 0 Table note: Although formal enforcement actions are tailored to a specific institution, they are issued publicly. 1. iencies are identified 387 . In the securities sector when defic , SEC staff and FINRA issue a requiring written responses from registrants on letter respectively, ary deficiency letter or caution corrective steps to be taken by them. This may be This is not considered an enforcement action. follow ed up by examinations from FINRA or in limited cases by SEC itself to verify the position. Both Formal actions by FINRA can result in SEC and FINRA have a range of sanctions available to them. fines, disgorgement, restitution and expulsion of firms. tates FATF and APG 2016 © 2016 – S nited es in the U terrorist financing measur - money laundering and counter - Anti 147

150 CHAPTER 6. SUPERVISION AML Deficiencies Cited in Examinations and Formal enforcement action taken by SEC 22. Table and FINRA Agency 2015 2014 2013 150 86 125 Number of AML deficiencies cited in SEC examinations 1 SEC 1 2 0 Number of formal enforcement actions 207 238 410 Total number of exams that cited AML as a deficiency Total number of exams with AML citations that resulted in informal 2 FINRA 177 207 327 action (cautionary letter)requiring remedial measures 6 Number of enforcement actions that include 34 31 35 d an AML charge Table notes: - 14 and 2014 - 13, 2013 - Data for SEC pertain to fiscal years 2012 1. 15. 2. After conclusion of each examination, an examination Report is issued to the firm, which includes deficiencies and tten response that identifies the corrective action the firm has taken/plans to take is required. recommendations. A formal wri FINRA will then send a disposition letter that may be: No Further Action needed, Cautionary Action or Referral to Enforcement . In the . 388 derivative sector , the bulk of supervision and enforcement actions are taken by NFA, with CFTC only exercising oversight on NFA. Table 23. Informal and formal enforcement action taken by NFA 2015 2014 2013 51 44 50 Number of Informal Actions 78 75 82 Total number of AML deficiencies cited Main areas of deficiencies (in %) NFA 32 45 50 Policies, procedures and internal control 34 29 27 Annual independent testing 1 1 Designation of compliance officer 0 24 Training 23 33 -15, NFA filed 17 complaints before its Business Conduct Committee alleging 389 . During 2012 to 000 15 USD violations, including AML deficiencies. Most resulted in CMPs ranging from 500 USD 0 and in some cases, barring individuals from applying for membership of NFA in the 00 future or acting as compliance officer. As indicated earlier, CFTC does not directly supervise FCMs and IBs. 390 . In the life insurance sector , State supervisory authorities generally issue AML supervisory findings on an exception basis. The State regulators interviewed had no MRAs or MRIAs (equivalent to -compliance the banking sector) statistics and informed the assessors that AML non issues are handled , and therefore, no information was provided to the assessors on the informally and not in writing S FATF and APG 2016 Anti - money laundering and counter - terrorist financing measures in the U nited tates – 2016 © 148

151 CHAPTER 6. SUPERVISION -SBSE results of State examinations. Prior to being directed to cease BSA examinations by FinCEN, IRS violations in the life insurance sector for referral to FinCEN for had also not identified any compliance enforcement. The authorities attribute the lack of enforcement measures to the IRS not having found mine any violations warranting an enforcement action. The assessors were thus unable to deter whether the supervisory measures taken on AML/CFT obligations in the life sector are effective, although the weighting put on this sector is low. . State supervisors report to FinCEN on MSB 391 BSA compliance. In 2015, they Money transmitters: reported conducting 2061 MSB examinations, uncovering a total of 767 BSA violations where FinCEN took enforcement measures. FinCEN can refer matters it is aware of to the State authorities for 6 licensing action, and notify the relevant State whenever civil enforcement remedies under the BSA may be warranted. However, it is not clear what action the States may have taken as a result. Furthermore, IRS -SBSE provided some case examples of referrals being made by it to FinCEN after examinations. previous FinCEN has assessed 18 CMPs based on referrals from the IRS since the MER. . Casinos are subject to significant licensing and other sanctions and remedial actions. In 392 DNFBPs othe relation to and to a limited extent dealers in precious metals and ( r than casinos AML/CFT obligations and hence very little supervision and, therefore, no stones), there are limited lawyers and sanctions. While the U.S. provided cases examples of criminal sanctions taken against ) AML/CFT minimal others for their complicity in ML, these do not relate to the enforcement of ( obligations. While there is some good (non -enforceable) guidance in place in relation to lawyers, there was no indication as to the level of complia nce with the guidance and, as it is voluntary, there would be no remedial action taken against lawyers for non -compliance. Similarly, company service providers are registered at the State level but are not specifically supervised or sanctioned for As noted in other parts of this report, the risks relating to advice on and formation of legal AML/CFT. persons and arrangements and to real estate are such that this gap significantly affects the effectiveness of the system. /criminal Impact of supervisory actions on compliance proceedings FBAs report that the MRAs/MRIAs are having a positive effect on the level of compliance by . 393 banks . Statistics on these were provided to the assessors, but are not included in this report at the request of the authorities due to confidentiality reasons. The overall numbers of MRAs/MRIAs are considerably higher than the number of enforcement actions which tends to substantiate the view of the FBAs that . remedial measures reduce the eventual number of enforcement measures needed impact on the level of compliance Authorities stated that public enforcement actions have a strong across industry, a view supported by the private sector participants -site visit. during the on n supervisory action, i Furthermore while not a respect of criminal prosecutions, DOJ also uses to fulfil certain Deferred Prosecution Agreements (DPAs) under which the institution agrees , frequently with a monetary penalty. A monitor may also requirements to correct its failures be appointed to assess compliance with the terms of the DPA DPA does not conclude until all the . A requirements are complied with and the monitor is satisfied that this is so. These DPAs are public, However, no statistics having an impact on the industry in terms of acceptable regulatory standards. provided were on the numbers of DPAs, or underlying violations. tates money laundering and counter - terrorist financing measur es in the U nited S - Anti – 2016 © FATF and APG 2016 149

152 CHAPTER 6. SUPERVISION , the SEC and FINRA have also brought actions against individuals for securities sector In the . 394 compliance and supervision failure, apart from actions against firms. This has resulted into fines, debarment and suspensions and also an articulation of supervisory expectations and industry standards. Actions against Individuals taken by SEC and FINR A Table 24 . 2015 2014 2013 Agency 0 0 2 Number of Individuals charged with an AML violation SEC 6 18 15 Number of Individuals charged with an AML violation 11 FINRA nly Covered Products are subject to AML/CFT measures , o life insurance sector In the . 395 including risk assessments. The large insurance conglomerates with banking or investment subsidiaries do in practice address group -wide risks. The State regulators do not conduct their own risk assessments in this sector, and the results of supervision often do not result in written findings. Although no statistics or more detailed information on supervisory remedial measures have been this sector that provided, there have been no enforcement actions which is consistent w ith the view is of lower risk than other FI sectors. The authorities note that most insurance industry SARs cite potential fraud against the insurer rather than a suspicion of ML/TF. for MSBs 396 FinCEN has . serious violations of their taken civil enforcement actions against AML/CFT obligations, including failing to register with it. Since 2010, FinCEN has assessed penalties against eleven MSBs for failing to register, among other violations. The average penalty assessed for these violation s was approximately USD 85 000 . In addition, in two cases involving serious violations , in addition to failing to register, FinCEN entered consent orders in which the respective MSB owner aging in conduct and transactional activities related to /operator agreed to cease eng 43 money transmission , effectively barring them from operating as an MSB. casinos For 397 nce. , there is an increased focus on raising awareness and improving complia . Coupled with an enforcement action taken by DOJ against a casino operator in 2015 resulting into 47.5 payment of USD fine for failure to file SARs, this has led to significant increase in SAR million reporting levels from the sector (see chapter 5). On- site discussion with authorities, State regulators and casino operators indicated that the sector has reacted positively to the emphasis being placed on this sector from compliance perspective. Promoting a clear understanding of AML/C FT oblig ations and ML/TF risks FinCEN and its domestic law enforcement and regulatory stakeholders conduct extensive . 398 -regarded guidance, advisories and other information to engage outreach programs and provide well the private sector and enhance the abilities of reporting entities. This includes: formal guidance tate agencies, and law , some S FFRs , other provided to reporting entities by FinCEN, the FBAs 43 Aurora Sunmart Inc. See e.g. “In the Matter of Saleh H. Adam dba Adam Service ” and “In the Matter of and Jamal Awad”. Anti © 2016 – FATF and APG 2016 tates S nited terrorist financing measures in the U - money laundering and counter - 150

153 CHAPTER 6. SUPERVISION ies others non enforcement partners -public distributed by . Numerous (some public and advisor ) on a diverse range of threats from mortgage fraud to FinCEN through its secured network ranging ; e financing terrorist organizations nforcement actions published by regulators; and direct clarification and assistance provided by FinCEN and partners to reporting entities tend to promote an understanding . 399 The BSAAG is active and has a number of working groups that deal with issues of broad . significance to reporting entities. Indust ry bodies work with FinCEN via the BSAAG and as a result assist in promoting an understanding within industry. There is a case for further strengthening its effectiveness by involving a wider range of FIs and State supervisors within BSAAG. 6 Examples of awareness . 28 Box raising programs of Federal Financial Regulators - The OCC organizes periodic workshops for Boards of Directors and CEOs of its supervised pliance officer institutions (nine director workshops scheduled for 2015). It also organizes com roundtables for mid -size banks. These are intended to raise awareness among compliance officers, directors and senior managers of the ML/TF typologies and discuss regulatory requirements and supervisory expectations for identifying and mitigating associated ML/TF risks. FDIC offers a series of educational videos designed to provide useful information to bank The directors, officers, and employees on areas of supervisory focus and regulatory changes. BSA/AML ese videos. topics are included in some of th SEC conduct regular meetings with industry groups to discuss AML issues, including FINRA and risks, common exam findings, and supervisory expectations based on recent enforcement actions. priorities which include AML issues. SEC and FINRA each publish their respective examination . 400 There is good guidance and outreach by authorities for the regulated sectors, and especially in the banking and securities sectors. Even so the assessors were told by those interviewed from these sectors that they continue to have a strong appetite for more directed and topical guidance given the complexities of BSA requirements and the manner in which the FBAs communicate enforcement tween the immediate reporting requirement and the SAR findings. Guidance on the articulation be obligations above thresholds would clarify the scope of these requirements and favour their efficient implementation. There is a significant gap in relation to DNFBPs other than casinos. In some sectors , has also made , such as that issued by the ABA, which there is voluntary Good Practices Guidance related issues. However al bar associations efforts to publicize to State and loc Formal Opinion on ML it is unclear to what extent this has had any impact across the s ector. The U.S. is rated as having a moderate level of effectiveness for IO.3. 401. – - money laundering and counter - FATF and APG 2016 © 2016 terrorist financing measur tates S nited es in the U Anti 151

154 CHAPTER 6. SUPERVISION 6 – 2016 © Anti FATF and APG 2016 - money laundering and counter - terrorist financing measures in the U nited S tates 152

155 LEGAL PERSONS AND ARRANGEMENTS CHAPTER 7. Key Findings and Recommended Actions Key Findings 1. The NMLRA highlights instances of complex structures, shell or shelf corporations, trusts, foundations and other forms of legal entities being used to obfuscate the source, ownership, and control of illegal proceeds. The vulnerability of legal persons to ML/TF is understood to es by the competent authorities: the Treasury, LEAs and prosecutors have a different degre higher level of understanding than State authorities who create and supervise them. 7 2. It is estimated that more than 30 million legal persons exist in the U.S. with about two million new legal persons created every year in the 56 incorporating jurisdictions. There is no information on how many legal arrangements subject to State law may be in place as these do not require State action to create. Information on how to create legal pers ons and arrangements in the U.S. is widely available publicly, and legal entity use is attractive as illustrated by the large number of incorporations each year. The relative ease with which U.S. perceived global credibility corporations can be established, their opaqueness and their makes them attractive to abuse for ML/TF, domestically as well as internationally. 3. Measures to prevent or deter the misuse of legal persons and legal arrangements are stigatory powers of LEAs and generally inadequate. The U.S. primarily relies on the inve certain regulators to compel the disclosure of ownership information. These powers are generally sound and widely used. However, the system is only as good as the information available within the U.S. is often minimal that is available to be acquired. The BO information or cannot be obtained in a timely manner for companies not offering securities to the public or not listing their securities on a U.S. stock exchange. There are no mechanisms in place to legal entities at the formation stage, and there are currently no capture BO information on measures in place to systematically collect BO information (as defined by the FATF) in all cases through CDD measures in the FI/DNFBP sectors. No mechanism is realistically available to aut horities to collect BO information on legal arrangements from the trustee or other parties, other than through trust companies, and the extent to which these act for all trusts is unknown. 4. The ability of the U.S. to use the States’ formation processes as a means of LEA timely access to accurate and adequate BO information is significantly impeded, because the States do not verify the information they collect on legal persons. The States consider their role in company formation to be administrative in nature without any control function. In keeping with the States’ views on ML/TF risk generally, States do not consider that they have a significant AML/CFT role during the company formation/registration process. Federal on of adequate, accurate and current beneficial legislative efforts to facilitate collecti ownership (BO) information on legal persons have not been successful to date, through the company formation process, through requirements imposed on legal entities themselves or through CDD measures applied i n the financial and casino sectors. 5. Trustees (except for trust companies) are not subject to comprehensive AML/CFT 2016 - money laundering and counter - FATF and APG 2016 © terror – ist financing measures in the United States Anti 153

156 CHAPTER 7. LEGAL PERSONS AND ARRANGEMENTS obligations, but there are no obstacles to accessing BO information where held by trustees, . LEAs demonstrated that they can and do provided that the LEAs know the status of trustee access BO information but this involves substantial investigative resources which negatively impacts timeliness of access. 6. Some relevant information is collected as part of the requirement (where applicable) for le gal entities in the U.S to obtain an Employer Identification Number (EIN) from the IRS. The authorities provided examples of LEAs’ ability to obtain adequate and accurate information about the BO of legal persons created in the U.S. using the wide range of financial investigation tools at their disposal. However, because adequate and accurate BO information is not systematically collected and therefore readily available, it is not clear this was accomplished on a timely basis. The State authorities can only provide limited assistance 7 since no State collects BO data at the time of incorporation or subsequently, nor do they impose this obligation on legal persons. There are no meaningful sanctions imposed on legal persons for non -compliance with the present in formational requirements. For trusts, sanctions would involve bringing civil actions by the beneficiaries against the trustee. The U.S. Federal authorities experience difficulties in collecting statistics from the State 7. authorities on company formation: notably the lack of statistics on: the numbers and types of legal entities formed in each State; whether such formations were triggered through a person representing the new company or through a company formation agent; and requests to pecific entities. States by LEAs about s Recommended Actions Take steps to ensure that adequate, accurate and current BO information of U.S. legal persons 1. is available to competent authorities in a timely manner, by requiring that such information is obtained at the Federal leve l, and in doing so, ensure that (a) BO information is collected from all legal persons including those formed to hold real property, and (b) BO information obtained is made available systemically to LEAs in a timely fashion. legal entities being used as shell companies or nominees, To address the vulnerability of 2. consider amending the BSA regulations to prohibit FIs from providing financial services (including correspondent banking services) to any U.S. legal person, where any U.S. person in the BO chain of ownership does not have an EIN issued by the IRS. 3. Build upon the 2016 rule making (BO measures applicable to the financial sectors) by ensuring that FIs can make BO information available to LEAs in a timely fashion. competent authority collects and compiles the following 4. Ensure that the appropriate Federal statistics for monitoring the exposure of U.S. legal entities to ML/TF: The number and types of legal entities formed in each State;  hrough intermediaries Whether entities are created directly by the beneficial owner, or t  such as lawyers, CFAs or other TCSPs The number of requests from law enforcement processed by States regarding specific  entities. 5. Consider measures to limit or terminate the ability of shareholders and/or directors to act as S FATF and APG 2016 Anti - money laundering and counter - terrorist financing measures in the U nited tates – 2016 © 154

157 CHAPTER 7. LEGAL PERSONS AND ARRANGEMENTS nominees. Alternatively create a specific obligation for them to disclose their nominee status and for FIs and DNFBPs to identify if they are nominees, wherever providing services to such persons. their status to FIs and Ensure that trustees are subject to an AML/CFT obligation to declare 6. DNFBPs, and an explicit obligation to obtain and hold adequate, accurate and current information on identity of all parties to trusts, including any other natural person exercising ultimate effective control over trusts. t proportionate and dissuasive sanctions are applied for failure to comply with the Ensure tha 7. measures set out in the foregoing. 402 . The relevant Immediate Outcome considered and assessed in this chapter is IO.5. The 7 dations relevant for the assessment of effectiveness under this section are R24 & 25. recommen Immediate Outcome 5 (Legal Persons and Arrangements) Public availability of information on the creation and types of legal persons and arrangements . 403 Information on types of legal persons that may be established in the U.S. and how to create them is available on the internet for each State, territory and the District of Columbia (collectively referred to in this Chapter as “States ”). Each State creates and dissolves legal entities, and it is the State that has the power to verify the legal entities’ status. Consolidated links are freely available on ) which makes the link the website of National Association of Secretaries of State (NASS) (see information easily accessible. Identification, assessment and understanding of ML/TF risks & vulnerabilities of legal entities 404 . The ML/TF vulnerabilities of legal persons and arrangements are well understood by law enforcement, prosecutors and Treasury, but less so by others, including representatives of Secretaries of States (the competent authority at the State level, responsible for the registration process). As noted in chapter 1, as an attractive and popular destination for company formation, the U.S. faces particularly significant vulnerabilities to ML/TF through legal persons and, to a lesser extent, legal arrangem ents, because of the lack of transparency that is built in to these vehicles. This vulnerability is not mitigated by existing BO measures and key sectors (lawyers, accountants, ) are not sub company formation agents and trustees (other than trust companies) ject to comprehensive AML/CFT requirements. As in many countries, there is no requirement to use an intermediary in the U.S. and it is estimated that approximately half of the legal entities formed in the U.S are so formed. The vulnerabilities are further amplified by contextual factors (the enormous size of the company formation industry and the large number of companies formed in the U.S.). 405. The role of domestic legal entities in financial crime and ML was assessed in a sectoral assessment in 2006. The 2015 NMLRA also identifies several cases where legal entities (mostly corporations, limited liability corporations and in a few cases, trusts) have been misused for illicit purposes, including through tures involving front companies, shell companies and shelf companies. In many instances, complex struc these are used to disguise the intermingling of licit and illicit profits and incomes. To a much lesser extent – es in the U terrorist financing measur - FATF and APG 2016 © 2016 money laundering and counter tates S Anti - nited 155

158 CHAPTER 7. LEGAL PERSONS AND ARRANGEMENTS (as noted in the NMLRA), trusts have been identified in complex ML schemes, but there is no information on the numbers of trusts organized under U.S. States’ laws. . agree uthorities The a the absence of a physical presence can be a problem with the U.S. 406 that legal entit may use s (i.e. beneficial owners) who ies due to the difficulty of identifying the individual standing vulnerability across a range shell companies to conduct illicit activities. This remains a long . of criminal predicates including healthcare fraud, sanctions evasions, ML and corruption 407 . FinCEN demonstrated its awareness of the vulnerability posed by legal entities being abused TO required for hiding assets through the real estate, by issuing a GTO on 13 January 2016. The G certain U.S. title insurance companies to identify the natural persons behind legal entities used to pay “all cash” for high -end residential real estate purchases in Manhattan, New York and Miami -Dade 7 County, Florida, and to report the true BO behind the transaction. This is intended to address -cash purchases may be conducted by individuals attempting to hide their assets concerns that all high -end residential properties using limited liability companies and identity by converting funds to 44 (see also paragraph 82 and 293). her opaque structures or ot Mitigating measures to prevent the misuse of legal persons and arrangements verall, measures to prevent the misuse of legal persons and legal arrangements are 408 . O inadequate. The existing U.S. legal framework has serious gaps impeding effectiveness in this area 25, R.10 regardless of the methods used to address systemic access to BO information (see R.24, R. previous and R.22). This is a priority issue that was flagged in the mutual evaluation of the U.S. Unfortunately; efforts to strengthen the legal framework in this area have been unsuccessful to date. 409 . The formation process for legal persons varies across States, as does the information collected 45 . During the formation by States during the entity formation process and in annual/periodic reports process: only 23 States collect the principal office address from corporations, and 31 collect it from t the names and addresses of officers and/or directors (or persons with similar LLCs; 17 States collec authority) from corporations; and 20 States collect the names of managers or members from LLCs. Formation documents in several States specify that this information is optional. As part of annual/periodic reporting: 40 States collect the principal office address (or similar . 410 address) from corporations; 30 States collect the principal office address (or similar address) from tes collect the names and addresses of officers and/or directors (or persons with similar LLCs; 46 Sta authority); 33 States collect the names of LLC managers or members (or persons with similar authority); only 3 States collect some form of entity ownership or control information from LLCs, and only 4 States collect some form of entity ownership or control information in corporate periodic reports for companies. 44 This is a temporary measure wh ich will expire on 27 August 2016. This Order only came into effect on which is after the on- site visit. Consequently, this measure cannot be considered for the 1 March 2016 purpose of Co re Issue 5.3 (how well the country has implemented measures to prevent the misuse of legal site visit is taken into account in Core Issue 5.2 persons/arrangements, but its issuance before the on- (how well the competent authorities understand the risks). 45 - http://www.nass.org/nass NASS Summary of Business Entity Information collected by States: -formation company initiatives/nass- force/ -task- S FATF and APG 2016 Anti - money laundering and counter - terrorist financing measures in the U nited tates – 2016 © 156

159 CHAPTER 7. LEGAL PERSONS AND ARRANGEMENTS . States do not consider that they have a significant AML/CFT ro le during the company formation 411 process. This is consistent with the Federal authorit ies’ view that Federal authorities are responsible for the AML/CFT regime as a whole (as noted in Chapter 1). The Offices of the Secretaries of State review each application for incorporation to ensure that it meets the statutory requirements; however, the information contained in the application is generally not verified. Representatives of State authorities indicated to the assessors that States are in competition with on e another to create companies, as part of strategies designed to improve their respective economic development. tates As noted, S 412 do not verify the information collected during the formation process which . t means the information held by them may not be accurate. Although false , in practice, hat information provided during the corporation registration process may sometimes generate leads for LEAs, and help prosecutors to establish intent to evade applicable law in c ertain criminal 7 prosecutions where such intent is a required element, the lack of verified basic information significantly weakens the impact that these measures have on preventing the misuse of legal persons. A few states (Delaware, Wyoming and Nevada) have taken some preliminary steps to raise 413 . awareness about the misuse of legal persons. This includes publication of a Best Practices Paper in 2013 to highlight new developments in State company formation laws in these States and to set forth best practices of “company registries” in the U.S. The suggested “best practices” do not go far enough to -enforceable meet the requirements of the FATF Standards and it is also unclear as to whether this non guidance has led to any meaningful improvements in understanding, or the taking of any mitigating steps by any of the other States. With respect to legal arrangements, there do not appear to be any obstacles preventing LEAs . 414 ccessing BO information that may be held by trustees. However there is no explicit obligation from a either in State common or statute law, or in the BSA, that obliges trustees to gather and retain BO information (as defined by the FATF) (although in practice the trustee may have access to this information in order to fulfil fiduciary obligations (if any) to the settlor or the beneficiaries of the trust). Further, unless LEAs know who the trustee is, it may be difficult to pursue enquiries through DNFBP sectors. the financial or Timely access to adequate, accurate & current basic/BO information on legal persons/arrangements 415 . Overall, basic information is available on legal persons provided the State of incorporation is wn. Similar information may be available on trusts provided the trustee is known. However, BO kno information on legal persons is not generally accessible to the standards expected by the FATF in a lect BO information at the time of timely manner due to the absence of: a) any requirement to col effective measures in place to collect BO information from legal persons or formation; and b) surveillance operations e.g. . LEAs use investigative techniques and procedures ( arrangements (which can be lengthy), witness interviews, and searches for evidence) to obtain this information as needed. – money laundering and counter - Anti FATF and APG 2016 © 2016 terrorist financing measur tates S nited es in the U - 157

160 CHAPTER 7. LEGAL PERSONS AND ARRANGEMENTS Some limited measures are in place. U.S. law requires all entities formed in the U.S (with narrow 416 . exceptions) and any other entity that has a Federal or State tax filing requirement to obtain an Employer Identification Number (EIN) for tax administration purposes , if they have income, employees, or are otherwise required to file any documents with the IRS. EIN is also required under A to open a bank account. In order to obtain an EIN, a legal entity must designate a “responsible the BS 46 might, in certain cases, help to identify the BO of party”. While the definition of a “responsible party” (as it is possible for someone other than the BO of a a legal person, it is not synonymous with that term company, for example a principal officer to act as a responsible party) ( R.24 ). for a detailed analysis see In addition, not all legal entities are required to obtain an EIN and the responsible party information is accessible by LEAs for non- tax investigations only through a court order. Furthermore, private companies formed to hold land have no need to register with either the SEC or IRS. An EIN is also not 7 required for a company that does not have a bank account with a U.S. FI or that does not have income, employees or is otherwise not required to file any documents with the IRS. within . “responsible party ” need to be re ported 417 For legal entities with an EIN, any changes in 60 days. Entities are not subject to penalties for failure to make such a reporting. The only consequence of a failure to provide the IRS with the current identity of the “responsible party” is the (and potential no n- receipt of a deficiency notice penalties and or tax demand notice from the IRS , apart from the discrepancies between interest will continue to accrue on any tax deficiencies) . Thus the requirement to update EIN the “responsible party” and the FATF BO definitions, information is mo re a tax administration measure than a mandatory obligation to ensure accurate and up -to-date information about BO. This significantly reduces the adequacy, currency and accuracy of BO information that could be obtained by LEAs as part of their criminal in vestigations. Nevertheless, the EIN system is a potentially strong existing mechanism that could be appropriately levered by the authorities for the recording of BO information as contemplated by R. 24. ) on corporations and legal FIs are only obliged to collect BO information (as defined by the U.S. . 418 47 However, in practice, many FIs do collect arrangements in limited cases (see R.10 and Chapter 5). ces based on joint regulatory (although they do not verify) such information in certain circumstan guidance issued in March 2010. Depository institutions are required to have enhanced due diligence procedures for higher -risk customers and among the procedures suggested in such circumstances is collecting information on individuals with ownership or control over the account, such as beneficial owners, signatories, or guarantors. Regarding trusts, the authorities stated that FIs can identify the trustees and verify their identity, if the trustee is the person opening the account, despite the absence -identify. However, while these measures help to a of a mandatory requirement for the trustee to self limited extent, they are not adequate to ensure timely access to BO information in all high risk cases. Although company formation agents (CFAs) are involved in forming companies on behalf of . 419 others and providing related services (e.g. serving as a registered agent), individuals and legal 46 -publicly traded companies, as “the person who has a level of The “responsible party” is de fined, for non control over, or entitlement to, the funds or assets in the entity that, as a practical matter, enables the individual, directly or indirectly, to control, manage, or direct the entity and the disposition of its funds or assets.” 47 -site, the Final CDD Rule on BO was issued on 5 May 2016. The implementation period for the Since the on Rule is two years. (see -center/press https://www.treasury.gov/press ) -releases/Pages/jl0451.aspx S FATF and APG 2016 Anti - money laundering and counter - terrorist financing measures in the U nited tates – 2016 © 158

161 CHAPTER 7. LEGAL PERSONS AND ARRANGEMENTS entities can perform these functions for themselves directly with State authorities. While some States do not define or recognise CFAs, others register them in the form of ‘registered agents’ or ‘commercial registered agents’ but their role is limited to accepting notices of service of process, 48 .CFAs are not subject r tax notice or demands and to forward them on to the company other legal o to comprehensive BSA AML/CFT requirements. Consequently, even when a CFA is involved, there is no mechanism to collect or maintain BO information. . 420 Although their involvement is not required, in practice, lawyers and accountants may also become involved in the company formation process, particularly for more complex corporate structures or for the purpose of preparing financial adv ice, statements and filings. As with CFAs, where lawyers and accountants are involved, they are not subject to comprehensive AML/CFT obligations, so there is no mechanism to ensure that they will have collected and maintained basic 7 and BO information. -site visit that investigators will follow the money and conduct Authorities stated during the on . 421 . The authorities provided a criminal financial investigation whenever deemed necessary case are able to obtain adequate and accurate information about the examples demonstrat LEAs that ing BO of some legal persons /arrangements created in the U.S., however there was no information as key to available on the actual lengths of time it took the authorities to identify the BO where that w the success of the cases. gathering this must often resort to advised the assessors that they LEAs s, which may investigation -intensive, and lengthy resource -consuming, time information through -the physical action records; and trans : detailed analysis of bank accounts -clock involve around collection of emails; conducting searches; interviewing potential witnesses, etc. As a surveillance; result, the competent authorities are not always able to access such information in a timely manner, and thus it cannot be said that there are no impediments to their collection of such information. The requirement to launch a full and costly investigation cannot be construed as an effective mechanism for timely access to adequate, accurate and current BO information . LEAs indicated that reforms that would be welcome from their perspective give them easier access to IRS information on BO would . . Use of investigative powers to obtain beneficial ownership information 29 Box Nature Inc. (Greg P 2012): Le This case shut down a complex ML scheme - - odlucky, et al) (2011 involving fraud and tax evasion connected to a sophisticated Ponzi scheme. The proceeds were laundered through numerous legal persons and arrangements established to conceal the BO of the se illicit assets. Investigation: Although authorities obtained legitimate business records from third parties via grand jury subpoena, conducted numerous third party interviews to determine the true g the source of payments for the ownership (as opposed to paper ownership) after followin acquisitions and tracing the flow of the funds through the myriad of bank accounts, no information Outcome: Podlucky pleaded guilty to one count was provided on the length of time this process took. of conspiracy to commit ML. In 2011, he was sentenced to 20 years imprisonment 650 Fifth Avenue and Related Properties: The DOJ obtained forfeiture of substantial assets th controlled by the Government of Iran, including a 36 - story office tower in Manhattan at 650 5 48 Such service providers must be registered in Nevada and Wyoming, and licensed and registered in Delaware. tates money laundering and counter - terrorist financing measur es in the U nited S - Anti – 2016 © FATF and APG 2016 159

162 CHAPTER 7. LEGAL PERSONS AND ARRANGEMENTS Avenue with a n appraised value of USD , other properties, and several million dollars in million 525 cash. Ownership of the office tower was split between Bank Melli (40% through shell companies Assa Corp. & Assa Ltd) and the Alavi Foundation (60%), which provided numer ous services to the Iranian Government, including managing the office tower, running a charitable organization, and Shell use: transferring funds from the office tower to Bank Melli. U.S. authorities identified front companies used to conceal that certain U.S. assets were actually owned by Bank Melli, which had been previously designated for providing financial services to entities involved in Iran’s nuclear and ballistic missile program, and was subject to a call for enhanced vigilance in UNSCR 1803. No formation was provided on the length of time it took to determine the beneficial ownership of all in these entities. 7 Michael Staaf (March 2012): In Pittsburgh, Pa., Staaf was sentenced to 120 months in prison and ction of conspiracy to commit bank fraud, mail fraud and five years of supervised release on his convi wire fraud and ML conspiracy. Staaf operated Beaver Financial Services, a mortgage broker business, and several other companies that owned and managed real estate. He and several others engaged in scale mortgage fraud and ML scheme involving tens of millions of dollars and dozens of large- a One aspect of the scheme involved the purchase of Shell use: mainly commercial properties. Staaf would "sell" properties owned by entities that Staaf controlled through an employee. commercial property owned by an entity he controlled to another entity that he controlled at highly 1 elevated prices. He used nominee accounts, shell corporations , and other schemes to conceal his ownership of the proceeds of the fraud and to make the proceeds more difficult to track. No information was provided on the length of time it took to determine the beneficial ownership of all these entities. Note: - 1. New Bridgton Man Pleads Guilty in Large Scale Mortgage Fraud Scheme, Press Re lease, United States Attorney’s Office, Western District of Pennsylvania, November 21, 2011). 422 . Some States seem cognizant of the fact that LEAs would like considerably more detailed information than the existing measures are designed to provide. Some States do provide assistance to LEAs by providing whatever information corporations are legally required to submit at the time of formation (however minimal). Corporate registries of States are publicly available (som etimes for a fee) and LEAs have access to them. However if law enforcement is unable to obtain BO information directly through investigation, there is little possibility that the office of the Secretary of States will 49 be more helpful. 423 . As in the case of legal persons, timely access to adequate, accurate and current basic and BO information on legal arrangements by competent authorities faces serious impediments (as is ) and s no register of trusts t here i there is no general common with many common law countries, obligation imposed on trustees under the BSA to declare their status as a trustee. The UTC and 50 se laws do The . comparable State laws do impose obligations (which can be overridden) on trustees 49 . NASS Survey on Company Formation Process in the States available at the following link 50 Section 810 (c) of the UTC states that “a trustee shall cause the trust property to be designated so that the interest of the trust, to the extent feasible, appears in records maintained by a party other than a trustee or S FATF and APG 2016 Anti - money laundering and counter - terrorist financing measures in the U nited tates – 2016 © 160

163 CHAPTER 7. LEGAL PERSONS AND ARRANGEMENTS not specifical ly require BO information to be known to the trustees, though in practical terms, trustees may have access to such information in order to operate the trust. Lawyers are, in most , comprehensiv cases involved in setting up trusts. Lawyers are not subject to e AML/CFT BO information is available to them. Authorities requirements and it is not clear to what extent, indicated that compared to legal persons, use of legal arrangements for illegal purposes is less to set up and these arrangements are, common as they generally require the use of lawyers case of legal therefore, likely to be less attractive for criminal purposes. In any event, as in the -intensive and often lengthy investigations, which can be persons, LEAs have to resort to resource cumbersome, . ess such information to acc Effectiveness, p roportionality and dissuasiv eness of sanctions 7 424 . The only sanctions against legal entities for not updating information on State company registries would be to dissolve the entity. So far as trusts are concerned, a beneficiary may bring a civil action against the trustees for breach of fiduciary duty. If the very purpose of the trust is to disguise the involvement of the parties and/or the illegal source of the trust assets, then it is highly unlikely that such an action would be commenced. If the trust is created for or subsequently used for an illicit purpose, this could invalidate the trust under State law, effectively making witting 51 Because the trustee is the owner of record of all See -conspirators ( participants co tion 4). : UTC, Sec assets within the trust, there is always a natural or legal person to whom law enforcement can serve uch . Failing to comply with s subpoenas and search warrants, if they know such person is the owner se to provide false information to a FBI orders would be contempt of court. It is a criminal offen investigator. The U.S. is rated as having a low level of effectiveness for IO.5. 425. this could be accomplished without necessarily declaring to an FI the existence of the trust However beneficiary”. e overridden by the terms of the trust. and the trustee’s status as such and the obligation can b 51 UTC Section 404 states “a trust may be created only to the extent its purposes are lawful, not contrary to public policy, and possible to achieve.” The comment to this section states “a trust with a purpose that is unlawful or against public policy is invalid” but limits unlawful to situations where executing the trust requires the trustee to commit a tort or a criminal act, or to where the settlor’s purpose in creating the trust was to defraud creditors or others, or the consideration of the trust was “illegal”. It is not clear if this illegality addressed the proceeds of crime. – - money laundering and counter FATF and APG 2016 © 2016 - tates S nited es in the U terrorist financing measur Anti 161

164 CHAPTER 7. LEGAL PERSONS AND ARRANGEMENTS 7 FATF and APG 2016 Anti © - money laundering and counter - terrorist financing measures in the U nited S tates – 2016 162

165 COOPERATION INTERNATIONAL CHAPTER 8. Key Findings and Recommended Actions Key Findings The U.S. generally provides constructive and timely assistance when requested by other 1. countries. This encompasses the range of international cooperation requests, including Mutual Legal Assist ance (MLA), extradition, financial intelligence, supervisory, law enforcement and other forms of international cooperation. The U.S. also proactively seeks assistance in an appropriate and timely manner to pursue domestic predicate and TF cases which have transnational elements. The assistance requested includes requests for evidence and for the freezing, seizing and forfeiture of assets, besides financial intelligence, 8 supervisory and other forms of international cooperation. 2. There may be barriers to obtai ning beneficial ownership (BO) in a timely way, because the U.S. legal framework in this area is seriously deficient, and there are no other measures in place to ensure that BO is collected, maintained and easily accessible to the authorities. This uire resource can req -intensive investigations by LEAs, often impinging on timeliness and . priority concerns Tax information is not generally available to foreign law enforcement for use in non -tax 3. criminal investigations. Recommended Actions The U.S. should conti 1. nue to allocate more resources to process the very large number of MLA and extradition requests, and updating the framework and systems for providing such assistance. This will facilitate timely response to cases which may not be receiving a high priority. The U.S. should take urgent steps to ensure that adequate, accurate and current BO 2. information of U.S. legal persons is available in a timely manner in order to facilitate their timely sharing, without having to resort to extensive investigation technique s and procedures in each case (see IO.5). . The relevant Immediate Outcome considered and assessed in this chapter is IO.2. The 426 recommendations relevant for the assessment of effectiveness under this section are R.36 -40. 2 (International Cooperation) Immediate Outcome International cooperation plays a prominent and central role in U.S. efforts to combat ML and . 427 TF due to the country’s particular risks (from transnational organized crime, the laundering of the proceeds from foreign predicate offen ses, and international terrorism) and context (as playing a central role in the global financial system). In these circumstances, many large cases have require the U.S. to cooperate with other countries. At the highest level, transnational elements that - – money laundering and counter - terror ist financing measures in the United States Anti 2016 © FATF and APG 2016 163

166 CHAPTER 8. INTERNATIONAL COOPERATION the President’s National Security Strategy recognizes the centrality of international cooperation in criminal justice and counter -terrorism matters. Overall, the U.S. has implemented measures in this area that are broadly in line with its identified risks and context, and which achieve this Immediate Outcome to a large extent. and timely MLA and extradition Providing constructive 428 . Overall, the U.S. provides good quality constructive mutual legal assistance (MLA) and -operation requests, including in relation to ML, TF, extradition across the range of international co and asset forfeiture. This is demonstrated by feedback from B delegations on their 47 FATF and FSR experiences requesting international cooperation from the U.S. The vast majority of the feedback was positive and, on the basis of the responses received, there do not appear to be any systemic ality of requests. This was also demonstrated through issues concerning the timeliness and qu 8 statistics and numerous illustrative case examples. As one of the largest economies and financial systems in the world, the U.S. is, understandably, the recipient of a very large number of requests for MLA in cases involving financial crime. As of July 2015, the U.S. was actively executing more than 5,200 incoming MLA requests for all criminal matters, of which 1,541 related to ML, TF, and asset forfeiture. Additionally, it was in the process of executin g and pursuing more than 3,800 incoming extradition requests, of which 21 related to ML matters. Incoming MLA and Extradition Requests (2009 -2014) . Table 25 Incoming MLA Requests ± 5200 Total MLA requests received in criminal matters Total MLA requests received in matters involving money laundering, terrorist financing (providing 1541 material support or resources for terrorism), and asset forfeiture Asset ML Response to incoming MLA requests TF Forfeiture Granted 568 53 501 ed (grounds include lack of evidence, assistance not legally available, and other Deni 3 64 72 process reasons) ML and asset forfeiture cases: Other reasons for not executing request (includes 150 102 N/A - unable to locate evidence, withdrawn, and other non ) process reasons TF cases: Other reasons for not executing request (includes no response from N/A N/A 14 requestor, unable to locate evidence, and withdrawn) 10 0 4 Inexecutable under U.S. law Total number of MLA requests related to ML, TF & asset forfeitu re 786 70 685 Incoming Extradition Requests Total extradition requests received in criminal matters 3800 Total extradition requests received in matters involving money laundering, terrorist financing 21 sm), and asset forfeiture (providing material support or resources for terrori - money laundering and counter - terrorist financing measures in the U nited S tates – 2016 © FATF and APG 2016 Anti 164

167 CHAPTER 8. INTERNATIONAL COOPERATION TF ML Response to incoming extradition requests Granted 0 10 Denied 3 0 Other (Includes cases withdrawn, fugitive not located, fugitive located in another country or 6 0 fugitive arrested in requesting country) 0 2 e under U.S. law Inexecutabl 0 Total number of extradition requests related to ML & TF 21 429 . The MLA requests reflected in the above table came from approximately 85 jurisdictions pursuant to bilateral treaties, agreements, and conventions, as well as requests sent as letters of 8 .37). Between 2009 and 2014, in ML and asset forfeiture matters, request and letters rogatory (see R and the Netherlands. .K. the U.S. received the most MLA requests from Switzerland, Mexico, U The DOJ Office of International Affairs (DOJ . 430 -OIA) executes or, depending on the natures of the assistance sought, oversees the execution of foreign requests for MLA. Its attorneys review each request, provide guidance, facilitate communication between the requesting and executing authorities, transmit evidence, and provide sample court documents for use by prosecutors and the law enforcement agents who may work with the prosecutors. For raining, coercive measures such as rest seizing, and confiscating or forfeiting assets, the U.S. may provide assistance in two ways (not mutually exclusive): i) by taking actions on behalf of the foreign authority to advance the foreign asset initiating its confiscation proceedings (the U.S. currently has about 40 such cases ongoing); or ii) by -conviction based forfeiture (NCBF – as part of a criminal case or a non own forfeiture action in rem action) often based on evidence provided by the foreign jurisdiction. Extradition requests are received through the State Department and are ordinarily referred to . 431 -OIA for execution. The assessment team noted a potential barrier to provide assistance for the DOJ requests made on the basis of extradition treaties that define extraditable offenses by felonies and where dual criminalization may be problematic (see. R.39), although the U.S. denied only one extradition request on that basis in 2012 in a case involving the laundering of proceeds from non - payment of taxes. Managing such a large number of incoming requests in a timely manner presents significant 432 . . T generally able to provide MLA in a timely manner challenges. The U.S. is he DOJ however -OIA maintains an elec tronic case management system and conducts file reviews of pending cases to involve serious offenses. Cases involving TF and ML are prioritize requests, particularly when they on how long the presumptively serious cases. The U.S. does not systematically collect statistics although it will benefit from a new I.T. system by the end of this year MLA/extradition process takes ing of was that will enable proper track the time taken to respond to each MLA request still . The U.S. able to provide estimates . The actu al duration of the MLA process varies, depending on the clarity and completeness of the request received from the foreign jurisdiction, the complexity of the issues presented, whether it is possible to find the evidence sought or the person to be interviewed, and whether compulsory process is needed. The majority of feedback from FATF and FSRB delegations tates money laundering and counter - terrorist financing measur es in the U nited S - Anti – 2016 © FATF and APG 2016 165

168 CHAPTER 8. INTERNATIONAL COOPERATION noted that MLA was being provided in a timely manner. However, some delegations noted delays in specific cases, and the U.S. acknowledges that there is a backlog of pending MLA requests (presumably related to cases judged to be of lesser priority). . MLA requests seeking ele ctronic s ubscriber information can generally be provided in three to 433 four months, but may take up to one year if compulsory process is needed. To improve timeliness, 800 the U.S. established the Cyber Unit in June 2014 has submitted to court more than which applications for authorization to obtain electronic evidence . One delegation’s feedback no ted that U.S. response times for MLA requests relating to electronic data have subsequently reduced. 434 . The duration of the extradition process depends on the complexity of the issues presented, number of the amount of time t hearing (s) required, and whether the fugitive files a he hearing takes, petition after having been found extraditable. Extradition matters take approximately habeas corpus re. Many fugitives waive one to four months if a fugitive elects a “simplified extradition” procedu 8 extradition. The average contested extradition matter takes at least one year to resolve. improvements are needed to improve the system’s effectiveness, and oderate Overall, m . 435 (i) of responding to MLA requests in lower priority cases. Such improvements include timeliness allocating more resources to process the very large number of MLA and extradition requests, and (ii) he time of the on t t updating the framework and systems for providing such assistance. A -site visit, which recognizes and addresses the DOJ was leading implementation of a White House initiative . It aims at updating, these issues: the Mutual Legal Assistance Treaties (MLAT) Modernization Plan andling of requests from foreign governments for evidence has . It improving, and accelerating the h -OIA to begin hiring more than 30 additional attorneys, 20 additional paralegals and allowed DOJ nding support staff to improve the response times for foreign MLA requests, reduce the backlog of pe MLA requests (notably for electronic evidence), and train U.S. and foreign prosecutors on MLA. This is an important initiative which should continue as the DOJ -OIA’s current staffing levels (approximately 60 attorneys, 30 paralegals and support staff) is not sufficient to handle the large 2015 budget volume of incoming MLA and extradition requests. In the interim, the Fiscal Year allowed the FBI to establish a dedicated group of FBI agents from its International Operations Division to assist DOJ ith MLA and provided additional resources for the USAOs who also play -OIA w a role in executing foreign MLA requests. . The U.S. provided numerous case examples which demonstrate that it provides a wide range of 436 types o f assistance in response to MLA and extradition requests and the time taken to respond to such for a few examples). requests (see Box The U.S. is only able to provide intercept evidence in 30 response to an overseas request for MLA if it opens a U.S. investigation and may find it difficult to provide BO information for legal persons or arrangements within a reasonable time (see IO.5). U.S. tax information is not generally available to foreign law enforcement for use tax criminal in non- investigations. S FATF and APG 2016 Anti - money laundering and counter - terrorist financing measures in the U nited tates – 2016 © 166

169 CHAPTER 8. INTERNATIONAL COOPERATION Examples of assistance provided and time taken to process requests . 30 Box Information documenting the flow of funds (5 months): OIA received a - In April 2010, DOJ request to provide information into the flow of funds into Liechtenstein, as they related to the investigation of a person suspected of laundering money from a fraudulent investment scheme that collected at least ies with -OIA provided Liechtenstein authorit from investors. , DOJ million 6.7 USD the records in September 2010. Liechtenstein authorities have record of USD 2.6 million of this flowing through their banks. (13 months): In March 2014, a Colombian citizen was arrested in Haskell, Texas, on an Extradition rrest warrant coordinated by U.S. and Mexican authorities. The urgency emergency provisional a stemmed from his imminent removal to Colombia. He was wanted for extradition to Mexico to stand fficking -based drug tra trial on ML and organized crime charges relating to his role in a Colombia organization. In the U.S. case, he pleaded guilty to conspiracy to import cocaine. After completing his 8 -OIA U.S. prison sentence, he was released into ICE’s custody pending removal to Colombia. DOJ received the request in early March 2014, and the defendant was arrested within two weeks. Extradition proceedings following his arrest took approximately one year, and he was surrendered to Mexico in April 2015. 437 -OIA assigns attorneys to cover tem is that DOJ A particularly positive feature of the U.S. sys . specific countries and proactively assists foreign counterparts in preparing both MLA and extradition requests that comply with U.S. legal requirements. Regular case consultations (if necessary) are used to address any issues that may arise. There were 212 bilateral coordination 2012, 165 in 2013, and 114 in 2014. Such proactive engagement was highly praised in meetings in the feedback received from FATF and FSRB delegations, and helps to facilitate the swift execution of -OIA’s public website also publishes basic information about making requests. The DOJ MLA/extradition requests, and contact links. As part of the MLAT Modernization Project, DOJ -OIA orities will be able to access plans to provide more detailed information so that foreign auth information regarding the status of their respective requests. 438 . International asset sharing is encouraged by U.S. authorities and often premised on haring agreements or asset sharing provisions within MLA freestanding international asset s agreements (see R.38). The U.S. can spontaneously share even when a country makes no direct request for a share of forfeited proceeds of crime that were forfeited due to assistance provided to million 257 U.S. Since 1989, more than USD the in forfeited assets has been transferred to . In the last three Fiscal Years, DOJ has shared 47 countries from DOJ’s fund (DOJ -AFF, see IO.8) 124 588 13 USD ; FY2014: 066.45 FY2015: 2 USD 313.11 (FY2013: 714 USD and 369.68 19 52 Since 1994, the TFF has transferred more than . ) with 18 countries 876.98 001 4 USD To date, Antigua and Barbuda, the Bahamas, Canada, Cayman Islands, USD 37 million to 29 countries. Hong Kong, Jersey, Liechtenstein, Luxembourg, Singapore, Switzer land, and the United Kingdom have shared forfeited assets with the U .S. 52 Antigua and Barbuda, Bahamas, Canada, Cayman Island, Czech Republic, Curacao, Dominican Republic, Greece, Israel, Italy, Korea, Luxembourg, Panama, Sweden, Switzerland, Turks and Caicos Islands, Uruguay, United Kingdom. tates money laundering and counter - terrorist financing measur es in the U nited S - Anti – 2016 © FATF and APG 2016 167

170 CHAPTER 8. INTERNATIONAL COOPERATION Seeking timely legal assistance to pursue domestic cases with transnational elements 439 . The U.S. makes extensive use of MLA in an appropriate and timely manner to pursue domestic predicate and TF cases with transnational elements including making requests for evidence and for the freezing, seizing and forfeiture of assets. The Initiative AFMLS Kleptocracy (see IO.8) is an in the context of international grand corruption cases. Effectiveness in this exemplar in this regard area was demonstrated through statistics, numerous illustrative case examples provided by the U.S., and extensive discussions with the authorities. As of July 2015, the U.S. was actively seeking MLA in about 2 542 related to ML, TF, and asset forfeiture. Additionally, it 400 criminal matters, of which 1 was seeking extradition in about 3 200 criminal matters, of which 457 outgoing extradition requests related to ML matters. Between 2009 and 2014, in ML and asset forfeiture matters, the U.S. sent the .K. most MLA requests to Switzerland, U , Netherlands, and Canada. The U.S. provided numerous case examples which demonstrate that it seeks assistance in a wide range of cases (see examp le in Box 8 below). 31 Box Examples of assistance requested . In 1999, U.S. LEAs provided information to the Criminal Police of Geneva about a Asset sharing: suspected money launderer’s activities and money transfers to accounts in Sw itzerland. Based on this information, the Swiss authorities opened a ML investigation against two individuals, resulting in the 2007 conviction of one individual on ML charges and the confiscation by Swiss authorities of two of his accounts at Credit Suiss . In e, which contained a total of approximately USD 868 000 November 2013, in recognition for the assistance provided by U.S. authorities on a ML case, the government of Switzerland shared 30% of the net forfeited proceeds, or USD 260 465, with the U.S. go vernment. After fighting Extradition (ML and operating an unlicensed money transmitting business): ), an 9 extradition for more than a year, in October 2014, the founder of Liberty Reserve (see Box million users -criminals with more than one rrency service extensively used by cyber online digital cu worldwide, including over 200 000 users in the U.S. and involving transactions totaling over of New York for ML and billion, was extradited by Spain to stand trial in the Southern District 6 USD operating an unlicensed money transmitting business. Extradition (Terrorism): In August 2014, Turkey extradited an individual to the U.S. to stand trial for terrorism offenses. Turkish authorities provisionally arrested him in May 2011, at the request of the U.S. He was wanted to stand trial in Arizona on one count of conspiracy to commit murder of a U.S. national and one count of providing material support to terrorists. Beginning in January 2005, he ts for improvised explosive devices to members and associates of allegedly supplied component par the 1920 Revolution Brigades, an Iraqi insurgent group that has claimed responsibility for approximately 230 improvised explosive device attacks, 156 shelling attacks, and 82 sniper and arms attacks targeting U.S. military personnel from 2005 to 2010. small . 440 In order to facilitate the preparation of timely and good quality requests for assistance, t he -OIA has an internal non- DOJ and all Federal LEAS ugh which most Federal public website thro S FATF and APG 2016 Anti - money laundering and counter - terrorist financing measures in the U nited tates – 2016 © 168

171 CHAPTER 8. INTERNATIONAL COOPERATION inventory of criminal assistance d an to prepare requests an prosecutors can access templates treaties, including multilateral treaties which the U.S. considers in force. Seeking other forms of international cooperation for AML/CFT purposes . The U.S. authorities regularly seek other forms of international cooperation in an appropriate 441 f liaison and timely manner for AML/CFT purposes. The U.S. maintains an extensive global network o law enforcement attachés, DOJ attachés, and FinCEN attachés who seek international cooperation on behalf of the U.S. when needed. By placing attachés overseas, the U.S. is able to help and obtain help from foreign law enforcement counterparts in a more rapid, constructive, and effective manner. Box 32 . The reach of the U.S. liaison network to facilitate international cooperation Federal Agency Number countries covered 8 Drug Enforcement Agency (DEA) 86 offices in 67 countrie s Department of Homeland Security/ICE/HSI 62 offices in 46 countries Federal Bureau of Investigation (FBI) 60 offices covering over 200 countries - Criminal Investigations (IRS – Internal Revenue Service Liaisons posted in 10 countries CI) DOJ currently stations nine Federal prosecutors as attachés in six countries covering 20 territories and the European Union. 442 the types of investigations and prosecutions for These liaisons focus on seeking assistance . that are consistent with the risk profile of the U.S. For example, DEA attachés focus their -CI attachés investigative efforts on DEA targets in support of domestic U.S. investigations and the IRS seek assistance from other countries to counteract tax schemes, ML, and the flow of narcotics and TF (see Chapter 1 for agencies’ responsibilities) . One of the primary goals of the OCDETF Program is the development of multi 443 . -jurisdictional investigations that simultaneously ta rget the geographically -dispersed components of major trafficking networks (see IO.7). OCDETF investigations are frequently international and involve TCOs. Currently, around 39% of OCDETF’s investigations are being undertaken with active and coordination with, a foreign government. These investigations involve more participation by, than 100 different foreign LEAs. – - money laundering and counter - FATF and APG 2016 © 2016 terrorist financing measur tates S nited es in the U Anti 169

172 CHAPTER 8. INTERNATIONAL COOPERATION . 33 Box Example of results achieved through other types of international cooperation The governments of the U.S. (throu gh its DHS attachés’ network) and Mexico (through its Secretaría de Hacienda y Crédito Publico (SHCP) Unidad De Inteligencia Financiera (UIF)) prepared a bi - national study attempting to track the mechanisms used by criminals on both sides of the border to hide their ill gotten gains, including, how money is transported, diverted into legitimate channels, or - 1 exchanged for goods and services. This study has formed the basis for further investigations into these activities. Note: al Criminal Proceeds Study -Nation – Mexico Bi U.S 1. See , 2010: https://www.dhs.gov/xlibrary/assets/cne - criminalproceedsstudy.pdf 444 rnational collaboration role for the U.S., exchanging financial . FinCEN plays a critical inte 8 intelligence using the Egmont Group process and on the basis of bilateral and multilateral operational engagements, either on its own behalf or on behalf of its domestic partners. Since FY 201 2, FinCEN has sent almost 500 requests per year (on average) to foreign FIUs from U.S. law enforcement and U.S. supervisory agencies. Starting in FY 2014, FinCEN began sending requests on tners on its own behalf or that its own. For FY 2015, FinCEN made 409 Egmont requests of its FIU par of a U.S. law enforcement or regulatory agency and has made another 213 during the first half of FY 2016. The following chart gives a breakdown of the outgoing requests by FinCEN in the past five . 445 years. Spontaneous disclosures sent by FinCEN dramatically increased last year (there were 45 in in FY , and 451 during the first half of FY 2016). This significant increase 2015 2013, 17 in 2014, 779 in spontaneous disclosures is due to th e more proactive approach that FinCEN has been taking to operational and strategic analysis in the past couple of years ( IO .6) , and which should be see continued ;, and the significant increase in terrorist activity globally and the subsequent focus by the U.S. authorities on FTFs. For the same reasons, a greater proportion of the outgoing requests sent by FinCEN are being sent on its own behalf (rather than being sent on behalf of another LEA). Egmont FIU Information Sharin seeking/receiving information g Statistics – . Table 26 Description 2013 2014 2015 2011 2012 Outgoing requests sent by FinCEN 416 409 366 284 773 -designated representat 446 . ive to INTERPOL on The U.S. National Central Bureau is the statutorily behalf of the Attorney General. As such, it is the official U.S. point of contact in INTERPOL’s world - wide, police to police communications and criminal intelligence network. INTERPOL Washington includes analysts and agents detailed from DOJ, DHS, Treasury, and many other agencies. Providing other forms international cooperation for AML/CFT purposes S FATF and APG 2016 Anti - money laundering and counter - terrorist financing measures in the U nited tates – 2016 © 170

173 CHAPTER 8. INTERNATIONAL COOPERATION through its The U.S. can provide many forms of assistance before receiving a request for MLA . 447 netw described above) as posted abroad ( attachés ork of . In the feedback from FATF and FSRB network ing requests for assistance from foreign was generally praised for facilitat delegations, this ide equal levels of service. authorities, although it was noted that not all these agencies prov . The U.S. can assist other countries in the investigation and prosecution of ML, TF and 448 predicate offenses through a variety of means. Requests for ordinary investigative assistance an d information sharing are usually made by foreign police authorities directly to the relevant liaison officers /attachés who pass the request for assistance to their appropriate regional office or The U.S. LEAs also play a proactive role sharing information headquarters in the U.S. for execution. spontaneously with their counterparts. . -OIA works closely with AFMLS as 449 With respect to asset restraint, seizure, and forfeiture, DOJ well as its network of asset forfeiture experts in the USAOs located throughout the U.S., to provide a 8 wide range of assistance. Assistance in tracing and identifying assets often unfolds via police -to-police vious section). communication, by or with the assistance of law enforcement and DOJ attachés (see pre Outside these bilateral channels, the U.S. also exchanges certain law enforcement information . 450 ecovery e.g. the Camden Inter -agency Asset R through international and multilateral networks Network (CARIN) network used for informal inquiries relating to the identification and tracing of the proceeds and instrumentalities of crime. On average, the U.S. successfully process es about 100 to 150 incoming CARIN requests for assistance per year. 451 Within the last three years, the DOJ used confiscated proceeds of crime to fund INTERPOL’s . -AFP) which supports domestic confiscation Washington Asset Forfeiture Program (USNCB investigations, and assists in the identificatio n of assets within the U.S. pursuant to requests from foreign INTERPOL National Central Bureaus. In the last two years, inquiries for recoverable assets have resulted in locating 27 fugitives from U.S. justice as well as about 30 asset recovery leads. As outlined above, FinCEN exchanges financial intelligence using the Egmont Group process 452 . and Egmont Secure Web (ESW) system and enters into bilateral and multilateral operational s or exchange of letters are not required for FinCEN to engage in bilateral or engagements. MOU multilateral information sharing with FIUs. Prior to 2012, FinCEN sought MOUs with FIUs as a matter of policy. Since then, FinCEN negotiates MOUs if the foreign FIU requires one to exchange informa tion or if the FIU is not a member of the Egmont Group. FinCEN has either an MOU or an exchange of letters in place with the FIUs of a number of jurisdictions to facilitate the exchange of information and is negotiating others. Table 27 . Egmont FIU Information Sharing Statistics 2013 2012 2011 Description 2015 2014 Incoming requests received by FinCEN 021 1 845 728 772 765 914 327 316 291 Incoming spontaneous disclosures received by FinCEN 526 57 779 17 45 58 t by FinCEN Outgoing spontaneous disclosures sen tates money laundering and counter - terrorist financing measur es in the U nited S - Anti – 2016 © FATF and APG 2016 171

174 CHAPTER 8. INTERNATIONAL COOPERATION . 453 FinCEN is the most requested FIU for information in the world, supporting requests from an s a average of 100 FIUs each year, or from approximately 75% of all FIUs with which it maintain relationship. FinCEN shares the results of its analysis both spontaneously and upon request and, since 2012, has received an average of 871 requests from foreign FIUs for financial intelligence annually (see Tab le 27). A special section within FinCEN’s Liaison Division processes all incoming and outgoing case 454. requests for assistance to FIUs and domestic law enforcement. FinCEN makes every attempt to meet questers’ deadlines in providing responses, particularly those involving priority partner FIU re violations, but response times are often dictated by the type and amount of information found during research. Box . Example of FinCEN Engagement to Facilitate Clearer FIU Requests 34 8 FIU A : FinCEN determined that FIU A had submitted several requests for information to assist enforcement in country B in half a dozen tactical cases. The requests lacked identifiers and had no fficult for FinCEN to process. Instead of rejecting the requests or clear U.S. nexus, making it di delaying responses indefinitely, the FinCEN Egmont request processing team contacted the OGL for assistance. The OGL Specialist coordinated with FIU A, and FIU A involved the U.S. DOJ Resi dent Legal Advisor, who had been providing technical assistance related to a law enforcement case to FIU A. All relevant authorities collaborated to provide FinCEN the missing identifiers so the case requests could be processed. As a result, FIU A modified and re - submitted its requests to incorporate this feedback which then allowed FinCEN to process requests in a timely manner. Below are illustrative examples of assistance FinCEN provides to foreign counterpart s: . 455 B ox 35 . Examples of Intelligence Provided to Case Requests FIU A: FinCEN responded to a request from FIU B concerning an individual suspected of facilitating travel of non -U.S. citizens to the U.S. to open bank accounts to launde r illicit funds. FIU B indicated that the suspect, who was associated with two travel companies, had been to the U.S. to open to accounts to potentially launder millions in funds. FinCEN reported that SARs were filed by U.S. banks over a two concerning over USD 500 000 in fraudulent credit/debit card activity -year period in the U.S. The fraud was identified with an individual using a known alias for the request suspect as well as a matching business name. FIU B: FinCEN responded to a request from FIU C r egarding two individuals, who are among 25 individuals under U.S. federal indictment as owners of a sports betting Internet website operating illegally in multiple U.S. states that profited more than USD 50 million during an 18 -month period by accepting wagers on various sporting events —including horse -racing and professional and college football, basketball, hockey, and baseball. FIU C indicated the subjects of the request intended to liquidate some or all of their ownership in a European holding company. FinCEN reported that both - SF) filings suspects were cited in multiple SAR and SAR by Securities and Futures Industries (SAR involved millions in suspicious wire transfer and checking activity in 2014. Additionally, multiple S FATF and APG 2016 Anti - money laundering and counter - terrorist financing measures in the U nited tates – 2016 © 172

175 CHAPTER 8. INTERNATIONAL COOPERATION transportation of CMIRs, CTRs, CTR - International Reports of the filed by Casinos, and FBAR filings were found regarding the subject of the request within the past few years. International cooperation also takes place at the supervisory level. FinCEN signed its first MOU for AML/CFT su pervisory purposes with a Mexican supervisory agency in 2013, and similar MOU with a Canadian AML/CFT supervisory agency in 2015. The MOUs provide for strict controls and safeguards to ensure that shared information is well protected and used in a confiden tial and authorized manner for AML/CFT supervision purposes only. The OCC, the FDIC, and the BGFRS have together entered into a - sharing arrangements with foreign supervisors. significant number of information International S Box 36 . upervisory Cooperation – Illustrative Data  From 18 January 2014 through 10 August 2015, FinCEN has processed eight supervisory 8 requests (five requests received and three requests sent).  Since 2006, 24 MOUs or statements of cooperation have been entered by OCC/FDIC/FRS. This is in addition to making or responding to ad hoc requests for confidential information.  border supervisory -OIA is handling an increased volume of requests in cross- SEC -border examinations, asset verifications and registrations. During cooperation matters, cross 1 , 117 FY 2014, the SEC received 548 requests for international enforcement assistance 2 from foreign authorities, and opened 30 investigations requests for supervisory assistance 3 lly, the SEC has benefited from Additiona to assist the SEC’s foreign counterparts. “spontaneous referrals” made by foreign FIUs.  -border cooperation and The CFTC is handling an increased number of requests for cross actively seeks cooperation from foreign authorities as well In FY 2015, the CFTC received 38 requests for international enforcement assistance while sending 235 requests for enforcement assistance to foreign authorities. Notes: 1. FY 2014 Agency Financial Report, at 26, available at www.sec.gov/about/secpar/secafr2014.pdf 2. FY 2014 Annual Perfo rmance Report; FY 2016 Annual Performance Plan, at p.30. 3. FY 2014 Agency Financial Report, at p.27. 456 The U.S. has also established a number of specific initiatives with strategically important . with Mexico (strategically important because of the threat from drug trafficking partners such as through Mexico by transnational organized crime groups) and the U.K. (strategically important as a global financial center) to facilitate international cooperation on illicit finance matters: with Mexico to advance bilateral The Bilateral Illicit Finance Working Group (BIFWG) a) illicit finance cooperation by increasing coordination between agencies and identifying new trends and vulnerabilities being exploited by TCOs. – - money laundering and counter - FATF and APG 2016 © 2016 terrorist financing measur tates S nited es in the U Anti 173

176 CHAPTER 8. INTERNATIONAL COOPERATION -Mexico Public Private Bilateral Banking Group U.S. that brings together Th b) e policymakers, regulators and private sector representatives from both countries to identify illicit finance priorities and develop strategies to tackle the threat. Criminal Assets Taskforce (RoCAT) Recovery of The c) with the U.K. Crown Prosecution Service to coordinate confiscation and ML business. RoCAT holds quarterly video - teleconferences between the attorneys and investigators executing requests and the attorneys and investigator s seeking the requested assistance, thereby expediting bilateral cooperation and resolving confiscation matters. International exchange of basic and beneficial ownership information of legal persons and arrangements. 457 . As noted above, the U.S. is an attractive destination for company formation, and there are a very large number of legal persons incorporated in the country. In this context, it is not surprising ests for legal and BO information about that the U.S. receives a relatively large number of requ 8 domestically incorporated companies. For example, most of the 100 to 150 CARIN requests executed by the U.S. each year involve requests to obtain BO information. 458 . The U.S. h as demonstrated some success in this area, though significant barriers exist (see IO.5). Some registries may also identify incorporators, officers, registered agents or other individuals who can provide investigative leads to the actual BO information. Requesting countries often search these online registries for their investigations. In case these registries do not provide necessary information, a foreign country can seek BO information from the U.S. on a police -to-police basis or through formal channels. . 459 Lawyers often play a role in company formation where complex corporate structures are being established. In practice, lawyers may collect BO on their clients for their own business y, be accessed by the competent authorities through issuing a purposes which could, in theor -level approvals may be required from DOJ to issue a subpoena to lawyers subpoena. However high lient when the U.S. is providing international assistance to another country. In the U.S., the attorney-c privilege protects from disclosure the confidential communications between attorney and client made for the purpose of furnishing or obtaining legal advice or assistance though this can be on was actively participating in the overcome i) where it can be shown that the attorney in questi criminal activities of his client; ii) where an attorney acts as a nominee shareholder, trustee, settlor, a company director, or under a power of attorney to represent a company, the disclosure of information resulting from, and in relation to, such activity, cannot be declined iii) where advice is sought from an attorney but it is not legal advice. The IRS also collects some information in respect of both companies and trusts. However, this . 460 se for information cannot be shared through an MLA procedure if the request is based on a ML offen which the predicate offen se is tax evasion or tax fraud. Moreover, as a general rule, the U.S. cannot tax information obtained by officers or employees of a disclose to foreign government officials Federal agency pursuant to a court order §6103(i) ), except for tax administration purposes (26 USC ). §6103(k)(4) 26 USC ( pursuant to a treaty, convention, or information exchange agreement In this environment, the only recourse is for the LEAs to use time consuming and resource . 461 intensive investigative methods (see R.31 and IO.5). Some of these investigative means are very uld be impractical in covert cases. This has two implications overt (e.g. witness statements) and wo Anti FATF and APG 2016 © 2016 – tates S nited terrorist financing measures in the U - money laundering and counter - 174

177 CHAPTER 8. INTERNATIONAL COOPERATION for international cooperation. First, the U.S. authorities are unlikely to undertake a resource - se intensive investigation to uncover BO information on behalf of a foreign counterpart unless the ca is of a significantly high priority (e.g. involving terrorism or a very large volume of proceeds). Second, even where the U.S. applies the resources, such information cannot always be provided in a timely way. The authorities acknowledged that, in fact, investigative processes can sometimes take many months . 462 . In significant investigations, FinCEN has a range of tools available to it, including the ability to query the U.S. financial system (22 FIs) for accounts or transactions of specified individuals, 000 entities, and organizations engaged in, or reasonably suspected of engaging in, terrorist acts or ML activity (see Section 314(a) of the Patriot Act process in R.29 and IO.6). FinCEN may resort to this on & behalf of foreign law enforcement though it can be used in limited circumstances only (see R.29 IO.6). 8 463 . SEC staff assists foreign regulators to obtain information identifying persons who benef icially own or control legal persons organized in the United States. SEC staff provides such assistance through public records, including SEC reporting and filings by companies that register offerings or file periodic reports with the Commission, as well as registration applications and amended filings 53 through SEC nonpublic -dealers and investment advisers, -registered entities such as broker by SEC 54 and by obtaining the information through its authority to conduct an supervisory information, 55 The investigation on behalf of a foreign authority under Section 21(a)(2) of the Exchange Act. -sharing arrangements for enforcement IOSCO MMOU and a number of bilateral information cooperation specifically provide for assistance in obtaining information and records rel ated to 56 Further, many of the SEC’s supervisory MOUs provide broadly for the sharing beneficial ownership. of supervisory information, which would enable the SEC to share beneficial ownership information obtained through examinations of the financial institutions it regulates. The SEC shares information -sharing about BO in accordance with these arrangements with foreign authorities for information Further, Exchange Act and confidentiality and pursuant to its authority under section 24(c)(1) of the . many of the CFTC’s supervisory MOUs provide broadly for the sharing of supervisory information, which would enable the CFTC to share beneficial ownership information obtained through examinations of the FIs it regulates. The CFTC shares information about BO, on a confidential basis, in accordance with both formal and informal arrangements with foreign authorities and pursuant to Commodity Exchange Act. its authority under section 8(e) of the 464. The U.S. is rated as having achieved a substantial level of effectiveness for IO.2 53 SEC Self- See -164 (public sources), SEC Form ADVs Assessment, at 237 (SEC sharing BO information), 163 filed by investment advisers, Schedules A and B (for control information). 54 See SEC Self -Assessment, 221, 235 (SEC supervisory info). 55 SEC Self -Assessment at 218 referencing power to obtain info identified in Question 13.3(a) -(g) (of which BO & control information is (e)). 56 IOSCO MMOU, paragraph 7(b)(ii). tates money laundering and counter - terrorist financing measur es in the U nited S - Anti – 2016 © FATF and APG 2016 175

178 TECHNICAL COMPLIANCE ANNEX TECHNICAL COMPLIANCE This annex provides detailed analysis of the level of compliance with the FATF 40 Recommendations ive text on the country situation or risks, and is in their numerical order . It does not include descript limited to the analysis of technical criteria for each Recommendation. It should be read in conjunction with the Mutual Evaluation Report. Where both the FATF requirements and national laws or regulations remain the same, this report refers to analysis conducted as part of the previous at the following link Mutual Evaluation in 2006 . available Recommendation 1 - A -Based Approach ssessing Risks and applying a Risk This is a new Recommendation which was not assessed in the 3rd MER. .1 Criterion 1 - The U.S. maintains a substantial number of complementary processes to identify and de variety of outputs. Risk assessments to support the assess ML/TF risks which generate a wi with President’s national security strategies are prepared by relevant government agencies participation from intelligence, law enforcement, and policy agencies involved in AML/CFT, including FinCEN wh ich contributes ML/TF risks and trends identified from the reporting regime. To an extent, these risk assessments rely on non -public information and though not provided to the cipal investigative -site. The Federal LEAs with prin assessors, were extensively discussed during on authority over financial crimes conduct their own identification and analysis of the ML/TF risks associated with the predicate crimes within their areas of responsibility. Most recently, in 2015, the U.S. published two consolidated national risk assessments (NMLRA and NTFRA) (see Chapter 1, Country’s risk assessment ). Technical compliance Criterion 1.2 - The risk assessments underlying the national security strategies are coordinated by the NSC staff and approved by the NSC. The identifies priority threats gy 2015 National Security Strate global financial system from being abused by transnational and policies including preventing the “ criminal and terrorist organizations that engage in or launder the proceeds of illegal activity.” The and related National Drug Control Strategy AML focus related to the ONDCP has a predominantly -specific reports and strategies. Separately, relevant government agencies prepare agency assessments that complement and support these strategies. Criterion 1.3 - The U.S. updates its ris k assessments: annually or bi -annually for the national security 57 and the program to combat healthcare fraud; and as strategies targeting narcotics trafficking necessary for the other relevant national security strategies. Multi -agency NSC working groups assess national security strategy implementation and discuss emerging new threats and related ML/TF risks and their policy implications. The inputs for this process come from the U.S. intelligence, law enforcement and supervisory communities, drawing from ongoing investigations. There is no regular schedule planned for the updating of the NMLRA and the NTFRA, although in the broader context risk assessment is a continuous process. 57 National Southwest Border Counter Narcotics Strategy and , National Drug National Northern Control Strategy Border Counter Narcotics Strategy . Anti FATF and APG 2016 © 2016 – tates S nited terrorist financing measures in the U - money laundering and counter - 176

179 TECHNICAL COMPLIANCE make the large volume of risk information Criterion 1.4 - The NMLRA and NTFRA generated by U.S. government agencies more easily accessible to the public and private sectors (see Chapter 1, ). The U.S. confirms these are accurate “point in time” summaries of all Country’s risk assessment e. underlying risk assessment work described abov The risk assessments underlying the President’s ederal government agencies engaged in available to F and national security strategies are classified Director of National Intelligence and the Director of NCTC provide protecting national security. The al unclassified threat assessments to the U.S. Congress. annu Criterion 1.5 - Based on their understanding of the threats and vulnerabilities, and in keeping with their mandates, the authorities apply a risk -based approach (RBA) to allocating resources. Budget 58 indicate that funds are being allocated to submissions and reports from key Federal agencies support identified AML/CFT priorities, including the targeting of third party ML networks. The supervisory approach is broadly satisfactory for the financial sect or with FinCEN, the FBAs, the SEC, other federal financial regulators, the IRS -SBSE and State authorities all playing their respective role in supervision. The collection of large cash transaction data from U.S. businesses and professions via process is managed by FinCEN and IRS (which requires all nonfinancial trades and Form 8300 the , to report cash received in one or more related (except casinos) businesses, including DNFBPs Certain financial institutions and casinos have a similar in amounts transactions over USD 10 000 ). Technical compliance . However, comprehensive reporting requirement, referred to as a Currency Transaction Report cash AML/CFT preventive measures have not been directly applied to deter the abuse of investment advisers (only some are indirectly covered), la wyers, accountants, trustees, real estate agents and company formation agents (CFAs) (see the NMLRA, NTFRA, and published risk information from FinCEN). Aspects of the FATF Recommendations are not applied to certain transactions and/or Criterion 1.6 - counts and most DNFBPs. The most notable of these are: (1) lack of measures addressing BO in BSA ac CDD obligations; and (2) investment advisers, lawyers, accountants, real estate agents, trustees and y are only subject to the Form 8300 CFAs are not subject to comprehensive AML/CFT measures (the U.S. attributes the low (residual) risk in the minimally requirements and TFS obligations). The based practices that reduce covered sectors to complementary regulatory safeguards and/or market- ansactions and customer relationships. In some limited instances these the ML/TF risk in normal tr can tend to limit vulnerability (e.g. some investment advisers are indirectly covered, if they are part of a financial group or are subsidiaries of banks/bank holding companies or are a cting for a financial The U.S. also asserts that ML/TF institution in the framework of an outsourcing arrangement). activity through the minimally covered sectors is generally due to deficient compliance with existing he part of the service provider, rather than the customer safeguards or criminal complicity on t taking advantage of inadequate regulations. However, these factors do not prove low ML/TF risk as the lack of preventive measures means that negligent/unwitting facilitation of ML/TF through these sectors is less likely to be detected. The assessors attribute compliance costs and burden on the private sector as the more heavily weighted factors influencing these exemptions and thresholds (notably the SAR reporting thresholds and the exemption of real estate agents from BSA obligations), rather than a proven low risk of ML/TF, as required by the For example the FATF Recommendations. 58 DHS Congressional 2015 DEA budget, 2015 FBI budget, 2015 DHS Budget for ICE and USSS, 2015 IRS Budget, Forfeiture Fund Accountability Report for fiscal year 2013. , and the TEOAF Y 2015 Budget Justification F – - money laundering and counter - FATF and APG 2016 © 2016 terrorist financing measur tates S nited es in the U Anti 177

180 TECHNICAL COMPLIANCE U.S. confirmed in its technical compliance (TC) response that SAR reporting thresholds were n of reporting and to confirm the treatment of ML and related intended to “reduce the burde 59 transactions to that of other situations in which reporting is required by the Supervisory Agencies”. Th FIs e U.S. has enacted legislation directed at Criterion 1.7 - d some DNFBPs to address some an threats Public corruption is partially addressed by the categorized in the NMLRA as higher risks. requirements aimed at foreign PEPs (although this only applies in the Covered FI ). The misuse sector of banking products and ser vices is partially addressed th rough systemic measures directed at private banking and correspondent banking. The widespread use of cash is addressed more broadly However, in the other key vulnerabilities by the IRS Form 8300 reporting requirements. some 60 are either not addressed or are only addressed by indirect measures. For example, the NMLRA NMLRA identifies cash transaction structuring as a vulnerability , notwithstanding that attempts to structure are seen as useful flags for LEAs. - Criterion 1.8 U.S. does not explicitly allow for simplified measures. For CDD and account The monitoring, the regulations set baseline customer identification requirements with which Covered FIs and DNFBPs must comply regardless of the risks presented by their customers, p roducts, services, etc. The baseline requirement must always be met, and cannot be simplified. Covered FIs/DNFBPs are supervised for compliance with the requirements of criteria Criterion 1.9 - nvestment advisers, lawyers, accountants, 1.10 to 1.12, as described in R.26 and R.28. However, all i real estate agents, trustees and CFAs are not subject to obligations under R.1. Criterio risk assessment. are required to develop a BSA/AML DNFBPs s/ Covered FI n 1.10 - However, wyers, accountants, real estate agents, trustees and CFAs are not some FIs, all investment advisers, la covered. The FFIEC Manual which applies to the banking sector expect s that the risk assessment Technical compliance products, services, customers, geograph ic must take into consideration all relevant factors (e.g. 61 locations and correspondent relationships) : a) According to the FFIEC Manual, it is “a sound practice that the risk assessment be reduced to writing” (p.18). Other sectors (except the life insurance sector) are required to have written risk assessments. b) FinCEN and other competent authorities provide information on relevant risk factors that FIs should take into account when determining the level of risk (see criteria 1.4 above). 59 61 Fed. Reg. 4326, 4328 (Feb. 5, 1996) . 60 Structuring resulting from thresholds, disguise (hidden actors using fronts), compliance deficiencies, complicit violators in FIs, and complicit merchants and financial services providers. 61 31 CFR §1020.210 (FinCEN), 12 CFR §21.21 (OCC), 12 CFR §208.63 (Federal Banks and credit unions: 31 CFR Reserve), 12 CFR §326.8 (FDIC), 21 CFR §748.2 (NCUA). Brokers or dealers in securities: Dealers in 23.210 (FinCEN), Rule 3310 (FINRA). §10 31 CFR §1021.210. Casinos and card clubs: 31 CFR §1027.210. precious metals and stones: FCMs and IBs: 31 CFR §1026.210 (FinCEN), Rule 2 -9 ). Insurance companies : 31 CFR §1025.210. MSBs: (National Futures Association 31 CFR §1022.210. 31 CFR RMLOs: 31 CFR §1024.210. Operators of credit card systems: 31 CFR §1028.210. Mutual funds: §1029.210. Anti FATF and APG 2016 © 2016 – tates S nited terrorist financing measures in the U - money laundering and counter - 178

181 TECHNICAL COMPLIANCE Covered FIs and DNFBPs are required to keep their risk assessments up to date, but c) other sectors are not subject to such a requirement. d) All covered FIs/DNFBPs sectors are required to make their risk assessments available to supervisors and various other competent authorities. Covered FIs /DNFBPs are required to h Criterion 1.11 ave policies, controls and procedures that are - by senior management and which enable them to manage and mitigate the ML/TF risks approved identified by their risk assessment. Some specific higher risks are identified by the U.S. in legislation or enforceab .1.7. Covered FIs/DNFBPs are required to conduct an independent audit to : c le means test their program and have an ongoing employee training program. Reporting entities are required to implement internal controls, policies and procedures which are adequate to mitigate their ML/TF 62 . For DNFBPs (other than casinos and dealers in . Not all investment advise rs are covered risks precious metals and stones), no comprehensive AML/CFT obligations apply. . The U.S. does not explicitly allow for simplified measures: c.1.8 - Criterion 1.12 Weighting and Conclusion: -coordinated LEAs and multiple The U.S. has a strong risk assessment process involving well Technical compliance the authorities’ collective good understanding of the threats faced competent authorities. However, t being sufficiently by the U.S. is no translated into effective mitigation measures against vulnerabilities of the high (often , lawyers, accountants, trustees and CFAs agents real estate -end cited as vulnerable to abuse by criminal elements and shown to be so by the NMLRA) as these are not covered for AML/CFT obligations , other than limited Form 8300 and targeted financial sanctions obligations . 1 is rated partially compliant. Recommendation Recommendation 2 - National Cooperation and Coordination rd In its 3 MER, the U.S. was rated largely compliant with these requirements. The deficiency related to effectiveness which is not assessed as part of technical compliance under the 2013 Methodology. Criterion 2 - The U.S. has a range of national AML/CFT policies that are infor med by the risks .1 National identified, and regularly reviewed and updated as described in c.1.4 including: the President’s Security Strategy ; Strategy to Combat Transnational Organized Crime , National Drug Control Strategy , which sets out Federal law enforcement DOJ Strategic Plan ; orism National Strategy for Counterterr -2018 Strategic Plan FinCEN’s 2014 strategies for pursuing priorities including ML/TF; and which addresses FinCEN’s role as both the FIU and the primary AML regulator. Criterion 2.2 - The NSC coordinates the development of national security strategies which include -agency AML/CFT initiatives. The Office of TFFC chairs the AML Task Force which is an ongoing inter group convened in November 2012 to review the U.S. AML framework, identify priorit y AML/CFT regulatory and enforcement issues, consider where improvements are needed, and implement the in pursuing coordinates the application of LEAs necessary legal and operational changes. The DOJ 62 31 USC §5318(h), regulations listed in footnote 61. – - money laundering and counter - FATF and APG 2016 © 2016 terrorist financing measur tates S nited es in the U Anti 179

182 TECHNICAL COMPLIANCE , like the NSC staff, is part of the priority criminal threats, including ML/TF threats. The ONDCP National Drug Control Executive Office of the President. The ONDCP is responsible for developing the the annual drug control strategy Strategy, the consolidated National Drug Control Budget, and specific to the U.S . southwest and northern borders : ONDCP Reauthorization Act of 2006. The U.S. has numerous mechanisms in place, at both the policy and operational levels, - Criterion 2.3 to enable policy makers, the FIU, LEAs, supervisors and other relevant competent aut horities to cooperate and, where appropriate, coordinate domestically on the development and implementation of AML/CFT policies and activities. Inter -agency groups and task forces facilitate such cooperation Legal and institutional Framework ) and coordination, and are described in detail un der Chapter 1 ( and Chapter 2 ( National coordination and cooperation). The U.S. has - Criterion 2.4 -agency forums to coordinate policy making and a number of inter on of weapons of mass destruction (WMD). operational efforts to combat the financing of proliferati A description and role of these agencies and task forces is provided under Chapter 1 ( Legal and institutional Framework ) and Chapter ). National coordination and cooperation 2 ( Weighing and C onclusion : All four crite ria are met . . Recommendation 2 is rated compliant Recommendation 3 - Money laundering offense rd In its 3 MER, the U.S. was rated largely compliant with these requirements. The technical Technical compliance es did not fully cover the deficiencies were: the list of domestic predicate and foreign ML offens ses; mere possession and concealment of proceeds did not constitute designated categories of offen for the cross border ML offen se only included monetary property ML; and the definition of instruments or funds. The U.S. has four Federal offenses which criminalise ML broadly in line with the Vienna Criterion 3 - .1 and Palermo Conventions: “Basic offense”: a) conducting or attempting to conduct a financial transaction with property knowing that it is the proceeds of a felony under State, Federal or foreign law, and which in fact involves the proceeds of “Specified Unlawful Activity” (SUA), with the intent to: i) promote carrying out an SUA; ii) commit tax evasion; or knowing the transaction is designed in whole or in part to iii) co nceal/disguise the nature, location, source, ownership or control of the proceeds; or iv) avoid a transaction reporting requirement: 18USC§1956(a)(1). b) transporting, transmitting or transferring monetary instruments “International offense”: or funds out of/into the U.S.: i) with the intent to promote carrying out an SUA regardless of whether or not the monetary instruments/funds constitute criminal proceeds; or ii) knowingly transporting, transmitting, or transferring a monetary instrument/funds constituting the proceeds of some form of unlawful activity with the specific intent to conceal/disguise aspects of the proceeds of an SUA or avoid a transaction reporting requirement under State/Federal law: 18 USC §1956 (a)(2)(A) & (B). Anti FATF and APG 2016 © 2016 – tates S nited terrorist financing measures in the U - money laundering and counter - 180

183 TECHNICAL COMPLIANCE “Undercover sting offense c) ”: conducting a financial transaction with property represented to be the proceeds of an SUA by an undercover law enforcement official or someone acting under his/her direction and with a similar intent as those set out in §1956(a)(1): §1956(a)(3). “Transactional offense”: knowingly engaging or attempting to engage in a “monetary d) transaction” (transaction through a FI) in criminally derived property of over USD 10 000 : §1957. 63 there is even a connection The Federal ML offense s apply if: 1) de minimis -state to “i nter commerce” (a requirement necessary to establish Federal jurisdiction); and 2) the activity 64 monetary transaction (18 USC 1957 s) or (18 USC 1956 offense financial transaction constitutes a offense ). Mere possession is not criminalised because the ML act is not distinct from the predicate crime . ML is not charged in relation to mere acquisition of proceeds of crime through commission of the predicate offense although mere receipt by a third party, with requisite knowledge, may be sufficient to attr act liability for ML: U.S. v. Gotti, 459 F.3d 296, 335 (2d Cir. 2006). Criterion 3.2 - are covered. Predicate offenses All but one of the 21 designated categories of predicate offense s are defined in a statutory list of SUA covering approximately 250 seri ous s: offense §1956(c)(7)(A) Tax crimes are not SUAs although the laundering of proceeds of another -(F). Technical compliance with the intent to evade taxes is considered a crime: §1956(a)(1)(A)(ii) and predicate offense United States v. Zanghi to capture mail and wire fraud and the U.S. relies on , 189 F.3d 71, 81 (1st Cir. 1999) instances of tax fraud - . when appropriate Criterion 3.3 - The U.S. does not apply a threshold approach domestically. Criterion 3.4 - The basic and undercover sting offense s cover any type of property, regardless of value, that directly or indirectly represents the proceeds of a SUA: 18 USC §§1956(a)(1), (2), and (3). The international covers these aspects but only in relation to “funds” or “monetary instruments § offense 1956(a)(2). The transactional offense only applies where the value of the laundered property exceeds 1957. Gaps under the transactional and international offense USD 10 000 : § s are deemed minor since the basic offense will apply when the transmission or transfer of proceeds qualifies a s a transaction . When proving that property is the proceeds of crime, it is not necessary that a person Criterion 3.5 - be convicted of a predicate offense : 18 USC §§1956 & 1957. 63 by the courts to include cases -state commerce” requirement has been broadly interpreted The “inter involving: use of interstate transportation (e.g. highways), telephones or the mail; any drug offence; theft from y companies purchasing goods interstate in the normal course of their business; ML involving goods partiall man jewelry , diamonds), etc. ufactured interstate (e.g. 64 The term “financial transaction” covers a very broad range of conduct and is defined in §1956(c)(4) as “(A) a transaction which in any way or degree affects interstate or foreign commerce involving (i ) the movement of funds by wire or other means or (ii) one or more monetary instruments, or (iii) the transfer of title to any real property, vehicle, vessel, or aircraft, or (B) a transaction involving the use of a financial institution which is transaction engaged i n, or the activities of which affect, interstate or foreign commerce in any way or degree.” A is understood to include the sale, purchase, lease, pledge, gift, transfer, or other disposition (deposit, withdrawal, extension of credit, using a safe deposit box or transfer between account, excha nge of currency, loan, purchasing/selling monetary instruments). Any disposition of the receipt of proceeds, any handing over in the care of, including mere receipt by a third party, with requisite knowledge , may be sufficient to attract liability for . ML – - money laundering and counter - FATF and APG 2016 © 2016 terrorist financing measur tates S nited es in the U Anti 181

184 TECHNICAL COMPLIANCE s: Criterion 3.6 - Twelve designated categories are specifically included as foreign predicate offense §1956(c)(7)(B)(i)- -section: (vii). The remaining 9 categories are not listed individually in this sub 1) participating in an organized criminal group and racketeering; 2) illicit trafficking in stolen and other goods; 3) counterfeiting currency; fraud (whe n it is not by/against a foreign bank); 4) 5) environmental crime; 7) counterfeiting and piracy of products; 6) insider trading and forgery; 8) market manipulation; and 9) tax crimes. The gap is largely mitigated as: (i) the definition of SUA 65 ; (ii) section 1956(c)(7)(B)(vi) can capture any foreign includes crimes arising under foreign law predicate, so long as the crime abroad is transnational in nature and involves an organized criminal group (three or more persons) set up to commit a serious offense, as defined by the Palermo 66 and (iii) in circumstances where the non -listed foreign predicates are not captured by Convention; §1956(c)(7)(B)(vi), the U.S. is able to use certain domestic predicates for ML which apply extraterritorially. The U.S. provided assessors with case law in which domestic predicates served to capture foreign conduct, thus permitting a money laundering charge in the U.S. for the nine non -listed offenses. This means any one of the approximately 250 violations enco mpassed in §1956(c)(7) might be domestic predicate offenses for ML in some circumstances, and have been interpreted by Federal 67 courts to apply extraterritorially in some instances. laundering is criminalised: 18 USC §§1956 & 1957. Self- Criterion 3.7 - iterion 3.8 Cr - For the three ML offenses under 18 USC § 1956, proof of knowledge and the intention offense can be inferred from direct, indirect or objective factual evidences. All elements of the ML nal must be proved beyond reasonable doubt. For the transactio offense , proof of criminal intent is not necessary. The only proof needed is that the defendant knowingly engaged in the monetary transaction and knew the property involved in that transaction was criminally derived from activity Technical compliance constituting a felony under State, Federal or foreign law. Criterion 3.9 - Proportionate and dissuasive criminal sanctions apply to natural persons convicted of 500 ML. A criminal fine of up to USD or twice the value of the property involved in the transaction 000 (whichever is greater), or imprisonment for up to 20 years, or both apply for the basic, international, 65 Additionally, the money laundering statutes, by virtue of 18 USC §1956(f), apply extraterritorially, provided that “the conduct is by a United States citizen or, in the case of a non -United States citizen, the conduct occurs in part in the United States; and the transaction or series of related transactions involves funds or monetary Thus, a U.S. citizen can be charged with ML that occurs instruments of a value exceeding USD 10 000.” exclusively abroad. Further, § 1956 applies to “foreign persons” who commit offenses involving transactions, property, or institutions with certain specified connections to the U.S . Id. §1956(b)(2), (f). Additionally, §1957 imposes criminal liability on “United States person[s]” who engage in prohibited transactions “outside of the . §1957(d)(2). United States.” Id 66 § 1956(c)(7)(B)(vi)’s reference to “an offense with respect to which the United States would be obligated by offender or to submit the case for prosecution, if the a multilateral treaty, either to extradite the alleged offender were found within the territory of the United States,” has been interpreted by case law, to capture any foreign predicate, so long as the crime abroad is considered serious, transnational, a nd organized in nature, as defined by the Palermo Convention. United States v. Real Property Located at 9144 Burnett Road, SE, Yelm, Washington , 104 F. Supp. 3d 1187 (W.D. Wash. 2015). Section 1956(c)(7)(B)(vi) includes participating in an organized crim inal group and tax evasion, per case law, but could also include any of the other 7 foreign predicates not listed individually in §1956(c)(7)(B)(i) -(vii). The judicial precedent that permits the U.S. this flexibility is new since its 2006 MER, and U.S. authorities can seek to rely on it in all judicial districts as needed, but it is not binding. 67 (vii). ‐ §1956(c)(7)(B)(i) This is in addition to the offenses against foreign nations specifically listed in 18 USC Anti FATF and APG 2016 © 2016 – tates S nited terrorist financing measures in the U - money laundering and counter - 182

185 TECHNICAL COMPLIANCE -(3). A criminal fine of up to undercover sting, and conspiracy offenses: 18 USC §1956(a)(1) 500 (for a natural person) or USD 000 250 USD (for a legal person), or twice the amount of the 000 criminally derived property involved in the transaction (whichever is greater), or imprisonment for up to 10 years, or both apply for the transactional offense: 18 USC §1957. Higher fines may be applied in 000 10 cases of egregious conduct. All ML offenses are also punishable by civil fines of up to USD or the value of the property involved in the transaction (whichever is greater): § 1956(b). Any officer, director or employee of a FI found guilty of a ML offense should also be the subject of a written notice principals to the relevant regulatory agency: §1956(g). Natural persons may be sanctioned as to the accessories after the fact offense or : 18 USC §§2 & 3. Criterion 3.10 - tions for ML apply to legal Criminal liability and proportionate, dissuasive sanc persons, and are without prejudice to the criminal liability of natural persons: 1 USC § 1. Legal persons are punishable by the same criminal and civil fines described in c. found guilty of 3.9. Any FI a ML offense should be the subject of a written notice to the relevant regulatory agency and may §1956(g). subsequently face the revocation of its licence: USC -(3) and s: §1956(h), §1956(a)(1) s to all of the ML offense There are ancillary offense - Criterion 3.11 1957(a)., including conspiracy and attempt . Anyone found aiding and abetting, counselling, can be prosecuted and punished commanding, inducing, procuring, or wilfully causing a ML offense Technical compliance §2. as a principal: 18 USC Weighting and C onclusion : Criterion 3.1 shortcomings are minor as the Federal ML offense s cover all but an extremely limited number of circumstances. That gap is also narrowed to some extent by the 36 States which have -stat s (all of which apply regardless of any connection to “inter -level ML offense enacted State e commerce”). Shortcomings under c.3.2 and c. 3.6 are also considered minor: while tax crimes are not specifically listed as predicate, other predicates in effect criminalise a range of tax fraud and even though 9 designated categories of predicate are not specifically listed as foreign SUAs, a broad range of foreign conduct is captured by other means including domestic SUAs applying extra -territorially. 3 is rated largely compliant . Recommendation Recommendation 4 - Confiscation and provisional measures rd In its 3 MER, the U.S. was rated largely compliant with these requirements. The technical inability to seize/restraint property of equivalent value which may be subject deficiencies were: the s s which are not required predicate offense offense ; and proceeds derived from confiscation to cannot be frozen/seized/confiscated based on a ML offense. criminal (in personam) Criterion 4.1 - The U.S. has three mechanisms enabling confiscation: i) confiscation applies to, among other things, an y property held by a defendant convicted of an ML 68 -conviction civil judicial non ; ii) - offense which was involved in the ML offense or traceable to it based forfeiture (NCBF) (i.e., civil forfeiture) (in rem) procedures may be used to forfeit any 68 18 §982(a)(1) and §981(a)(1)(G) apply to all assets of terrorists, including those convicted of TF. USC – - money laundering and counter - FATF and APG 2016 © 2016 terrorist financing measur tates S nited es in the U Anti 183

186 TECHNICAL COMPLIANCE inked to a crime which is held by the defendant or a third party (§981); and property l iii) administrative forfeiture (in rem) permits a Federal seizing agency to forfeit property held by the 69 . Pro perty is also subject to defendant or a third party, as long as such seizure is not contested criminal confiscation in all cases where civil forfeiture is available: 28 USC §2461(c). Over 220 separate Federal offenses give rise to confiscation in the context of predicates and non- predicate crimes. For ML offenses and crimes constituting ML predicate offenses, the following types of property (including that which is “clean”, commingled, appreciated in value, income or earned interest) may be confiscated: any property involved in a transaction or attempted transaction in viola tion of a ML offense a) (even if the offense (criminal confiscation), 18 USC was not completed): 18 USC §982(a)(1) ) §981(a)(1)(A) (NCBF of the ML offense corpus property other than SUA proceeds, which is also part of the b) s, includ c) proceeds of predicate offense ing income/other benefits derived from such proceeds: of the 18 USC§982(a)(2) -(8) [(a)(1)(A) of the former and (a)(1) 18 USC§981(a)(1)(C) -(F) and broader than proceeds but could technically include proceeds] latter are (i.e., any property instrumentalities d) the ML offense or used to commit the SUA involved in offense ): 18 USC §982(a)(1); 18 USC §981(a)(1)(A). It can be deduced from the very broad that instrumentalities used or intended for use in the commission of a notion of involved in ML subject to confiscation. Separately, many predicate offenses, in the are also offense statutes in which they are criminalized, contain provisions permitting the forfeiture of ; for firearms instrumentalities (e.g. for drug offenses, 21 USC §881, 21 USC §853(a)(2) offense, 1 8 USC §924(d), 26 USC §5372 ; for smuggling offenses, 19 USC §1595a). Technical compliance F s, and in respect of the NCB is permitted for the proceeds of ML and predicate offense offense and some of the predicate instrumentalities of a ML s: 18 USC (a)(1)(C). offense Instrumentalities ( some forfeitable in the U.S. under statutes authorizing forfeiture of facilitating ) are forfeitable pursuant to some of the main or property used to commit an offense property 70 . Specifically, 18 USC forfeiture statutes and the statutes criminalizin g certain offenses §981(a)(1)(G) of any individual, all assets, foreign or domestic (...) provides for the forfeiture of “ Federal entity or organization engaged in planning or perpetrating any Federal crime of terrorism .” crime of terrorism is defined in 18 USC §2332b(g)(5) to include the primary TF offenses, namely 18 USC § 2339A (providing material support to terrorists), 18 USC §2339B (providing material support 71 ). financing of terrorist acts to terrorist organizations), and 18 USC §2339C ( Equivalent when the tainted property subject to value forfeiture is possible in criminal cases In such case confiscation under a particular statute has become unavailable. substitute assets s, the 69 18 USC §983(a)(1) -(2), 19 USC 1602 & 1607, and other statutes. 70 -(8); 8 USC. §1324(b), 18 USC §981(a)(1)(B) (facilitating property for certain foreign E.g. 18 USC §982(a)(6) crimes, including drug trafficking, crimes of violence, public corruption); 18 USC §§2253 and 2254; 17 USC §§506(b) and 509; 16 USC §407; 16 USC §1540(e)(4); 16 USC §3637(d); 18 USC §1037(c)(1)(B); 18 USC §1029(c)(1)(C); 18 USC §1955(d); 18 §2319A(b); 22 USC §401(a); 21 USC §881(a); 18 USC §1028(b)(5); 18 US. USC §986(a)(6); etc. 71 18 USC §981(a)(1)(G), 18 USC §2332(b)(g)(5), 18 USC §2339A, 18 USC §2339B, 18 US. §2339C. Anti FATF and APG 2016 © 2016 – tates S nited terrorist financing measures in the U - money laundering and counter - 184

187 TECHNICAL COMPLIANCE are forfeitable value -based co nfiscation order made upon the criminal conviction of the defendant: replicated in many separate Rule 32.2(e) of the Federal Rules of Criminal Procedure Federal and 72 ot applied s, equivalent value . For ML offense forfeiture is n offense s that give rise to confiscation where the defendant acted merely as an intermediary who handled but did not retain the property in unless the defendant conducted three or more separate transactions the c ourse of the ML offense, or more in any 1 000 100 USD involving a total of 2 month period: 18 USC §982(b)(2). Criterion 4.2 - The U.S. has measures that enable their competent authorities to: a) Identify, trace and evaluate property subject to confiscation by using grand jury and administrative subpoenas, search warrants and writs o f entry: 18 USC§985, 18 USC §3322. ), or other measures to preserve b) Carry out provisional measures (e.g. seizure or restraint property prior to trial, and prevent any transfer /disposal of property subject to 73 -tainted assets prior to a here is no general power to freeze/seize non . T confiscation although this is possible on one Federal judicial -based confiscation order, conviction or value circuit. c) the ing Take steps (in both civil and criminal proceedings) to prevent or void actions prejudic country’s ability to freeze /seize /recover property subject to confiscation: 18 USC §981(f), 18 Technical compliance USC §982(b)(1), 21 USC §853(c) /remove to take any action to destroy . It is an offense property to prevent seizure or to knowingly impair the jurisdiction of a U.S. court over property subject to confiscation: 18 USC § 2232 (a) & (b). Violations of restraining orders issued in advance of forfeiture can be deemed contempt of court, the punishment for which can include imprisonment. d) broad investigative powers he through t Take any appropriate investigative measures described in R.29 and R.31. 74 . The rights of bona fide third parties are protected by law - Criterion 4.3 The U.S. has various mechanisms for managing and, when necessary, disposing of Criterion 4.4 - property frozen, seized confiscated. All forfeited cash, proceeds from the sale of forfeited , and property, interest from the investment of the DOJ , and interest from the Seized Asset balances – AFF roceeds of all Deposit Fund (i.e. currency not yet confiscated) are to be deposited with JAFF. P confiscations enforced/administered by a Treasury or DHS LEA occurring are deposited into the TFF. Both funds may be used for asset management expenses, qualified third party interests, equitable asset sharing payments, or investigative expenses. 72 21 USC §853(p); 18 USC §982(b)(2); 18 USC §1963(m), 31 USC §5332(b)(4 ); 31 USC §5317(c)(1)(B), 18 USC §2253(b). 73 E.g. -(3), 18 USC §981(b)(4) (restraint of assets pursuant to foreign arrest or charge) 21 USC 18 USC §982(b)(1) §853(e)&(f), 18 USC §983(j), 18 USC §981(b)(2); 18 USC §981(k) (seizure of funds subject to forfeiture in -03. -95, 1602 correspondent accounts); 19 USC §§1594 74 32.2(c); 18 USC §982(b)(1); 21 USC §853(c) & (n); 21 USC §853(n)(6) -(7); 18 Federal Rules of Criminal Procedure -(7) (RICO); 18 USC §983(d) (innocent owner defense); Rule G of the Federal Rule of Civil USC §1963(l)(6) Supplemental Rules for Admiralty or Maritime Claims and Asset Forfeiture Action. Procedure, – - money laundering and counter - FATF and APG 2016 © 2016 terrorist financing measur tates S nited es in the U Anti 185

188 TECHNICAL COMPLIANCE : onclusion Weighting and C Although the confiscation of instrumentalities is not covered for all predicate offenses, this is a minor deficiency as the key predicate offenses (from a risk perspective) do yield this power, including the -tainted assets prior to a drug and RICO offenses. There is no general power to freeze/ seize non preserve them in order to to conviction -based confiscation order ; however, this is satisfy a value permitted . on one Federal judicial circuit Recommendation 4 is rated largely compliant. 75 Recommendation 5 - Terrorist financing offense In the previous mutual evaluation, the U.S. was rated as compliant with these requirements. United Nations Convention for the Suppress Criterion 5.1 . - The U.S. criminalises TF in line with the ion of Terrorist Financing (T F Convention). There are five F ederal TF offense s: a) with the intention that such funds be used, or Wilful provision or collection of funds 76 are to be used, in full or in part, in order to carry with the knowledge that such funds 77 ; or out: i) TF Convention set out in the treaties listed in the Annex of the offense an ii) any other acts intended to cause death or serious bodily injury to a civilian or any rmed conflict, other person not taking an active part in the hostilities in a situation or a when the purpose of such act, by its nature or context, is to intimidate a population, or to compel a government or an international organization to do or to abstain from doing any act: 18 USC §2339C(a). Technical compliance Knowing concealment or disguise of the nature, location, source, ownership or b) any funds or proceeds of funds , with control of any material support or resources, or the knowledge or intent that the concealed material support or funds were or would be: ist organization in violation of 18 USC. §2339B; i) provided to a designated foreign terror or ii) provided or collected in violation of 18 USC. §2339C(a): 18 USC §§2339C(c)(2)(A) and (B). c) Knowing provision of material support or resources, or concealing or disguising the or ownership of material support or resources, with the nature, location, source, intent or knowledge that such material support or resources are to be used for preparing for or carrying out certain enumerated predicate offense s related to terrorism , including but not limited to t hose involving: aircraft and airports; arson; chemical, biological, and nuclear weapons; explosives; hostage taking; damage to U.S property, communications lines and systems or energy facilities; or a ny other offense separately listed as a Federal crime of terrorism, meaning certain acts calculated to the conduct or retaliate against the conduct of the U.S. government: 18 influence or affect USC§ 2339A, 18 USC §2332b(g)(5 )(B). 75 -site visit. The R.5 and its interpretative note were revised by the FATF in February 2016, i.e. after the on . process -up will be taken into account during the follow version revised 76 Funds TF Convention . is defined in line with Article 1.1 of the 77 All of these treaties have been entered into force in the United States. Anti FATF and APG 2016 © 2016 – tates S nited terrorist financing measures in the U - money laundering and counter - 186

189 TECHNICAL COMPLIANCE Knowing provision of material support or resources to Foreign Terrorist d) as designated by the Secretary of State under section 219 of the , ) FTO Organizations ( Immigration and Nationality Act knowing that the codified as amended at 8 USC § 1189, , , or knowing that the organization organization engages or has is a designated FTO . §2339B. a covers Terrorist activity engaged in terrorist activity or terrorism: 18 USC broad range of violent criminal behaviour: 8 USC §§1182(a)(3)(B)(iii) and (iv). Terrorism s - is defined a “premeditated, politically motivated violence perpetrated against non comba §2656f(d)(2). by subnational groups or clandestine agents”: 22 USC targets tant e) Wilfully undertaking financial transactions (including making/receiving contributions of funds, goods or services) with a Specially Designated Global Terrorist (SDGT), by the Secretaries of State or Treasury under Executive as desi gnated Order (E.O.) 13224 (2001). U.S. persons and persons within the United States are SDGT y in financial transactions with an prohibited from engaging (which can include unless they have first obtained a both individuals and entities, foreign and domestic) license from OFAC, nor may they engage in a t , or ransaction to circumvent E.O. 13224 make or receive any contribution of funds, goods, or services to or for the benefit of an SDGT. §1705(c). SC. E.O. 13224, 50 U Technical compliance Criterion 5.2 - Together these five TF offense s extend to any person who wilfully provides or collect funds by any means, directly or indirectly, with the unlawful intention that they should be used, or in the knowledge that they are to be used to carry out a terrorist act (18 USC §§2339A, 2339C(a), and 2339C(c)(2)(B)), or be used by a terrorist organization or by an individual terrorist in the absence of a terrorist act (18 USC §§2339C(c)(2)(A), 2339B, 50 USC §1705(c)). - Criterion 5.3 TF offense s extend to any funds and/or other types of material support or The resources whether from legitimate or illegitimate source: 18 USC §2339A(b)(1), 18 USC §2339C(e). wilfully nor Os of providing material support or resources to FT the offense Neither Criterion 5.4 - to undertaking financial transactions with designated persons and organization s require s the funds used to carry out or attempt a terrorist act or be linked to a terrorist act: 18 USC §2339B have been 50 USC §1705(c). s, it is not necessary that For the wilful pro vision or collection of funds offense and funds were actually used or intended to be used to carry out a terrorist act as defined in the treaties TF Convention listed in the Annex of the : 18 USC §2339C(a)(3). The material support off ense of (defined as a §2339A is linked to the commission of a terrorist act or attempt to commit such act wide range of predicate offenses covering activities carried out with terrorist purposes). Criterion 5.5 - Intent and knowledge may be inferred from o Federal bjective factual circumstances: Rules of Evidence . Sanctions are proportionate and dissuasive: up to 20 years imprisonment for each Criterion 5.6 - violation and/or a fine (§2339C(a); up to 20 years imprisonment for each violation or indefinitely where the act resulted in death, and/or a fine (§2339B); up to 15 years imprisonment or indefinitely where the act resulted in death, and/or a fine (§2339A); and up to 10 years imprisonment and/or a fine for each violation (§2339C(c)). The maximum fine app s is offense licable for all these for a natural person and may be many times this in respect of an organization when a USD 000 250 multiplier is applied to calculate the amount of the fine: §§2339A, 2339B, 2339C. Civil penalties of at – - money laundering and counter - FATF and APG 2016 © 2016 terrorist financing measur tates S nited es in the U Anti 187

190 TECHNICAL COMPLIANCE y to legal entities breaching §2339C(a), and of appl 000 10 USD least 50 000 or at least twice the USD amount of which the FIs was required to retain possession of for breaches of §2339B(a)(2): shable by §2339C(f), §2339B(b). Wilfully undertaking financial transactions with SDGTs is puni USC , or both: 50 1 imprisonment for up to 20 years and criminal fines of up to USD 000 000 000 §1705(c). Civil penalties up to USD 250 or an amount that is twice the amount of the transaction that is the basis of the violation (whichever is greater) can also be imposed: 50 USC §1705(b). Criterion 5.7 - Both natural and legal persons can be prosecuted for the TF offense s: §§2339A, 2339B §1705, s.3 E.O. 13224. In addition to any other criminal, civil, or administrative USC and 2339C; 50 liability, specific civil penalty provisions apply to legal entities situated in the U.S. or organized pursuant to U.S. law if a person responsible for the management or control of that legal person has, of providing/collection offense in that capacity, committed the funds, or attempting or conspiring to do so: USC §2339C(f). USC 18 alised: s is crimin Attempting or conspiring to commit the TF offense Criterion 5.8 - . Anyone found aiding and abetting, §1705(a) §§2339A(a), 2339B(a)(1), 2339C(a)(2), and 50 USC g, commanding, inducing, or procuring the commission of a crime can be prosecuted and counsellin §2. punished as a principal: 18 USC Sections 2339A, 2339B, and 2339C are predicates for ML: 18 USC - Criterion 5.9 §1956(c)(7)(D). t this would be an issue only in limited circumstances. §1705 are not, bu Violations of 50 USC Criterion 5.10 s apply, regardless of whether the person alleged to have committed The TF offense - the is in the same or different country from the one in which the terrorist(s)/terrorist offense org anization(s) is located or the terrorist act(s) occurred/will occur: §2339A (unlimited jurisdiction to prosecute), §2339B (applicable to anyone within the U.S. or subject to its jurisdiction), Technical compliance territorial Federal jurisdiction all §§2339B(a)(1) & (d) (extra- -U.S. offenders ows U.S. offenders, non and persons who have never been in the U.S. to be prosecuted for crimes committed). The 2339C(a) in” jurisdiction, extending the jurisdictional offense applies extra -territorially and includes “found- reach to anyone later brought into the U.S. to face charges, regardless of where the initial crime took 13224: place: 2339C(b)(2)(B). Any U.S. person or any person within the U.S. may be liable under E.O. 50 USC §1705. onclusion Weighting and C : met. All of the 10 criteria are . 5 is rated compliant Recommendation terrorist Targeted financial sanctions related to terrorism and Recommendation 6 - financing In its 3rd MER, the U.S. was rated largely compliant as targeted financial sanctions (TFS) were not /entities implemented against designated pursuant to United Nations Security Council all persons ) 1267(1999). Resolution ( n. has not substantively changed since the The framework UNSCR - Criterion 6.1 For designations under UNSCRs 1267/1989 and 1988: Anti FATF and APG 2016 © 2016 – tates S nited terrorist financing measures in the U - money laundering and counter - 188

191 TECHNICAL COMPLIANCE the competent authority responsible for proposing The Department of State is a) designations to the UN via the U.S. Mission to the UN. b) Potential targets for designation are identified using a range of classified and open , in consultation wi sources. The lead agency (Treasury or State) th the non -lead agency and DOJ , compiles an administrative record of classified and unclassified information supporting the designation , based on the criteria in the relevant UNSCRs . “reason to c) The evidentiary standard of proof applied to a designation p roposal is a believe” and legal review of the designation process is under the “arbitrary and . The decision is not conditional Administrative Procedure Act capricious” standard of the: on the existence of a criminal proceeding. UN standard forms and procedures for listing filled out in d) Submissions are made using the coordination with the agency that developed the domestic designation evidentiary information. e) Submissions include the basis for the designation, with supporting unclassified information, and as mu ch identification information on the target as possible. The U.S. usually allows its status as a designating state to be made known. Technical compliance Criterion 6.2 For designations under UNSCR 1373: - Secretar ies The a) of the Treasury (Sec/Treasury), State (Sec/State), Homeland Security and the Attorney General consult on all designations. The Sec/Treasury is the lead for designating foreign /domestic persons owned, controlled by, acting on behalf of, associated with, assisting ac or supporting terrorist ; 31 ts or designated persons : SDGTs: 31 CFR 594.316 & E.O. 13224 have committed : foreign persons who .. The Sec/State is the lead for designating CFR 594.310 acts threatening U.S. security , its nationals, (or pos e a significant risk of committing ) terrorist 78 . ; and FTOs foreign policy or economy b) mechanisms and dedicated resources for identifying -led State or Treasury clear U.S. has The targets for designation. or State) prepares When a third country requests the U.S. to take freezing action, Treasury ( c) 13224. ) to support a U.S. designation under E.O. evidentiary an administrative record ( basis”). to believe The same standard of proof applies as is described in c. d) 6.1(c) (“reason an rovides When requesting another country to give effect to freezing mechanisms, the U.S. p e) the basis for the designation and identifiers , including unclassified statement of the case and additional information when possible. associated with the target itself Criterion 6.3 - The President is authorized to collec t identifying information on individuals and entities meeting the designation criteria: IEEPA, National Emergencies Act. These powers are delegated to the Sec/Treasury and Sec/State for the designation of specially designated terrorists (SDTs) and SDGTs. The Sec/State is also authorized to collect information to designate organizations 78 §1189. All current FTOs have als , s.201, codified as amended at 8 USC o been Immigration and Nationality Act 13224. designated as SDGTs pursuant to E.O. – - money laundering and counter FATF and APG 2016 © 2016 - terrorist financing measur tates S nited es in the U Anti 189

192 TECHNICAL COMPLIANCE as FTOs: 8 USC §1189(a). Ex parte action may be taken if the applicable law/regulation does not :1 designation is needed explicitly state that a person/entity must be present and no prior notice of a E.O. 13224, s.10. Criterion 6.4 - Domestic designations pursuant to UNSCR 1373 implement TFS without delay by 13224. UN designations pursuant to 1267/1989 and 1988 are taking immediate legal effect: E.O. ut delay from the moment of UN designation, even though the domestic generally implemented witho designation process may take a number of months. This is because of a unique feature of the U.S. context: as a P5 member of the Security Council, the U.S. always receives pre of proposed -notification UN designations and almost always completes its designation process prior to UN listing. The U.S. has not implemented TFS against all persons/entities designated by the UN and on a few occasions see analysis under IO.10). The USG reports ( without delay has not implemented designations however since 2010, 88% of its domestic designations of UN -designated entities have been that within a matter of hours of UN designation) . made without delay - OFAC administer s three sanctions progr Criterion 6.5 ams for terrorists and terrorist organizations: (i) the Terrorism Sanctions Regulations (31 CFR Part 595 implements E.O. 12947 on foreign terrorist Global Terrorism Sanctions Regulations disruptions of the Middle East peace process); (ii) the (31 13224 on grave acts/threats of terrorism by foreign terrorists); and CFR Part 594 implements E.O. (31 CFR Part 597). Foreign Terrorist Organizations Sanctions Regulations (iii) the citizens and lawful permanent residents in the ing All U.S. persons (natural and legal), includ a) U.S, all U.S. companies and their branches worldwide, and foreign entities and individuals are required to freeze without delay or prior notice with respect to their activities in the U.S. the funds or other assets of designated persons/entities . Technical compliance 80 79 actions pursuant to E .O. 13224 extend to all property and “interests in property” Freezing b) in line with the criteria set out under c.6.5(b). 81 All U.S. persons c) with, and providing services are prohibited from dealing to/by/for the designated p natural and legal) and entities persons ( benefit of, 13224 and ursuant E.O. 82 . unless first authorized by OFAC 12947 E.O. has mechanisms in place to communicate designations (and any changes to the lists) to OFAC d) y Designated Nationals (SDN) and FIs and DNFBPs including publi cation of the Speciall via a in the Federal Register Blocked Persons List and bulletin to the Clearing House Interbank Payment System (CHIPS) member banks and multiple e -mail notification lists. The Federal Reserve Bank of New York resends an ele ctronic bulletin of all designations to the more than 10 000 institutions connected to its Fedwire system. 79 “Blocking” is the term for the freezing of assets used in Executive Orders and OFAC regulations. 80 nder an interest of any nature whatsoever, direct or indirect, in whole or in part: 31 CFR 594.306. U Meaning OFAC’s “50 Percent Rule,” any entity owned 50% or more in the aggregate by one or more blocked individuals or entities is also considered blocked, regardless of whether that entity is listed on OFAC’s SDN List. 81 Including permanent resident aliens or any person in the U.S: 31 CFR 594.315. 82 31CFR Part 594 implements E.O. 12947. 13224, 31 CFR Part 595 implements E.O. Anti FATF and APG 2016 © 2016 – tates S nited terrorist financing measures in the U - money laundering and counter - 190

193 TECHNICAL COMPLIANCE Anyone freezing/rejecting a funds transfer must report to OFAC within 10 business days : 31 e) CFR 501.603. Upon receipt, these reports are examined to ensure that appropriate action was taken. f) .4.3 above. The rights of innocent third parties are protected: see c - There are mechanisms for de -listing and unfreezing the funds/other assets of Criterion 6.6 persons/entities which do not, or no longer, meet the designation criteria: For 1267/1989 or 1988, p a) a de ting ersons submit -listing request are directed to the relevant UN Sanctions Committee website for information on the de -listing procedure. The U.S. will notify the relevant Committee and provide supporti ng material if it believes that a UN designation criteria. entity no longer meets the person/ -listing and unfreezing the funds/other assets of persons/entities For 1373, procedures for de b) criteria are publicly outlined in 31 CFR 501.807. no longer meeting the designation For 1373, the U.S. has public procedures to allow, upon request, review of the designation c) . decision before a court: 31 CFR 501.807, Administrative Procedure Act, and U.S. Constitution that a person/entity will be de d) -listed For 1988, if OFAC or the State Department determines Technical compliance domestically (based on the procedures above), the U.S. will contact the relevant UN authority to facilitate a review of the UN designation pursuant to the procedures set out in UNSCR 1730. OFAC or th e State e) For 1267/1989, if - determines that a person/entity will be de Department listed domestically, it will contact the relevant UN authority and Ombudsperson Committee to facilitate a review of the UN designation pursuant to the procedures in UNSCRs 1 904, 1989 and 2083. I f the U.S. believes the person/entity should remain designated, it will share with designated the the Ombudsperson information regarding entity. person/ There are procedures to request the unfreezing of funds believed to have been frozen in error f) staken identity: 31 CFR 501.806. due to mi g) -freezing actions. /un listing 6.5(d) are used to communicate de- The mechanisms in c. Criterion 6.7 - OFAC can license or authorize access to frozen property /accounts to the extent -frozen non to transfer s (humanitarian grounds) or necessary for basic or extraordinary expense assets into the U.S. which prevents the from being frozen upon receipt by a U.S. person. m and C Weighting onclusion : The U.S. has applied TFS to most but not all persons pursuant to UNSCRs 1267/1988/1989, and on a without delay a minor deficiency because: the (c.6.4). This is few occasions has not implemented TFS U.S. has implemented TFS without delay against 88% of the persons/entities designated by the UN designations since 2006, and the Taliban was since 2010. TFS have been applied to all UN Taliban designated as an entity which, in principle, captures anyone associated with it. Recommendation 6 is rated largely compliant. – - money laundering and counter - FATF and APG 2016 © 2016 terrorist financing measur tates S nited es in the U Anti 191

194 TECHNICAL COMPLIANCE Recommendation 7 – Targeted financial sanctions related to Proliferation rd new Recommendation which was not assessed in the 3 MER report. This is a Criterion 7.1 OFAC implements proliferation -related TFS programs without delay in the same way - . The U.S., as a P5 as described in c.6.4, under Executive Orders on combating the proliferation WMD -notification of proposed UN designations and, member of the Security Council, always receives pre therefore, is able to postpone the UN process if necessary until its own domestic designation is in 83 . The only deficiency is that the U.S. has no t implemented TFS against all of the place 1718 and 1737 (see IO.11). persons/entities designated by the UN pursuant to UNSCRs - Criterion 7.2 OFAC is responsible for implementing and enforcing TFS as follows: TFS apply to : all U.S. natural /legal persons and per manent resident aliens regardless of where a) /entities within the U.S., and all U.S. incorporated entities and they are located, all persons their foreign branches. Certain programs also require foreign subsidiaries owned or origin goods to comply. controlled by U.S. persons and foreign persons in possession of U.S.- 84 13382 and E.O. actions pursuant to E.O. 13551 extend to all property and Freezing b) “interests in property” (meaning an interest of any nature whatsoever, direct or indirect, in ) t hat come (or thereafter come) within the U.S., or within the possession or whole or in part /services provided by FIs located in the control of U.S. persons, which includes most products U.S. or organized under its laws, including their overseas branches: 31 CFR 544.305; 31 CFR 544.308; 31 CFR 510.307. A person/entity’s p roperty and interests in property are also frozen if the owned, directly or indirectly, 50% or more by one or more designated y are persons /entities , regardless of whether the entity itself is on OFAC’s SDN L ist. Technical compliance c) Payments, transfers, exportations, withdrawals, or other dealings may not be made or effected with respect to frozen property or frozen accounts except pursuant to an authorization or license from OFAC expressly authorizing such action: 31 CFR 544.201. For DPRK, with certain exceptions, U.S. persons are prohibited from transferring, paying, exporting, withdrawing, or otherwise dealing in the property and interests in property of an 13551 or designated pursuant t o the North Korea person/entity named in the Annex to E.O. Sanctions Regulations : 31 CFR 510. 6.5(d) is used. The process for communicating designations described in c. d) e) Anyone holding frozen funds or property is required to report to OFAC within 10 business days, and submit an Annual Report of Bl ocked Property detailing the aggregate value of the property being held under each sanctions program: 31 CFR 501.603. FIs that reject a funds transfer where the funds are not blocked under the provisions of this chapter, but where processing the transfer would nonetheless violate, or facilitate an underlying transaction that is prohibited under other sanctions programs must report the rejected transaction to OFAC within 10 business days 83 E.O. Executive Order 13382 ( E.O. 13382); 31 CFR Part 544; 31 CFR 510; Executive Order 13551 ( 13551). 84 “Blocking” is the term for the freezing of assets used in Executive Orders and OFAC regulations. Anti FATF and APG 2016 © 2016 – tates S nited terrorist financing measures in the U - money laundering and counter - 192

195 TECHNICAL COMPLIANCE (b). 6.6(f) & 6.6 ide third parties are protected: see c. The rights of bona f f) Criterion 7.3 - OFAC administers and enforces compliance with TFS and issues guidelines for their enforcement: Appendix A to 31 CFR 501. The State and Federal financial regulatory agencies monitor with proliferation -related TFS: see R.26 and the FIs/DNFBPs under their supervision for compliance R.28. Civil, administrative and criminal sanctions apply for failing to comply with sanctions 85 USD fine for natural persons to 000 250 . Penalties range from USD million 1 for legal programs persons. Imprisonmen t ranges from 5 to 20 yrs. Penalties are considered proportionate and dissuasive. - Criterion 7.4 The U.S. has publicly known procedures to submit de -listing requests to OFAC for domestically designated persons/entities that, in the U.S. view, no longer meet the designation . If , in line with the UN obligations procedures mirror those for c Such .6.6 (31 CFR 501.807). criteria entity will be de -listed domestically, it will contact the Focal Point. If OFAC determines that a person/ , the U.S. entity should remain listed by the UN with the Focal may share the U.S. believes the person/ information classified even possibly Point information ( . ) to support the continued designation a) Persons/entities not (or no longer) meeting the designation criteria may be de -listed an d their funds/other assets unfrozen: 31 CFR 501.807. The OFAC website has links that allow de - listing petitioners to directly contact the staff responsible for reviewing petitions. Technical compliance n procedures exist to unfreeze funds/assets of persons with th b) Publicly know e same/similar name as designated persons/entities or those inadvertently affected by a freezing -criteria 7.2(f) & 6.6(f). mechanism: see sub c) OFAC has authority to license certain transactions that otherwise would be prohibited due to so would “further U.S. foreign policy: 31 CFR 501.801. These sanctions, when doing 1718 procedures are publicly available and in line with the procedures set out in UNSCRs and 1737. d) freezings are communicated through the same channels used to -listings and un De communicate the initial sanctions obligations: see c. 7.2(d) & 6.5(d). The U.S. has mechanisms to handle contracts, agreements or obligations that arose Criterion 7.5 - lding such funds prior to the date on which accounts became subject to TFS: a) any U.S. person ho 86 located in the U.S.; and b) OFAC may blocked interest -bearing account shall hold or place them in a 7.5 and authorize release of certain frozen funds or economic resources in accordance with criterion .7.4(c). relevant UNSCRs under the licensing p rocedures described c 85 CFR 31 WMD Trade Control Regulations 31 501.701, OFAC Reporting, Procedures and Penalties Regulations 31 CFR CFR 539.701, and 544.701. WMD Proliferators Sanctions Regulations 86 in a federally insured U.S. bank, thrift institution, or credit union, provided ccount blocked: i) Meaning an a the funds are earning interest at rates that are commercially reasonable; or ii) with a broker or dealer e Act of 1934 Securities Exchang registered with the SEC under the , provided the funds are invested in a money 544.203. 78a et seq.: 31 CFR market fund or in U.S. Treasury bills: 15 USC FATF and APG 2016 © 2016 – - tates S nited es in the U terrorist financing measur - money laundering and counter Anti 193

196 TECHNICAL COMPLIANCE : onclusion and C Weighting The U.S. has applied TFS without delay to most but not all persons designated by the UN pursuant to 90% (138 of the154) implemented 1718 and of has the U.S. a minor deficiency as 1737. This is UNSCRs . Iran (within a matter of hours) and -related UN DPRK -related listings without delay the Recommendation 7 is rated largely compliant. 87 Non -profit organizations (NPOs) Recommendation 8 – rd . Th In its 3 MER, the U.S. was rated compliant e FATF had not yet adopted the detailed requirements of the Interpretive Note to this Recommendation. Criterion 8.1 - The U.S. has conducted several internal reviews of its domestic charitable sector to assess its risk of misuse for TF: one in June 2010 as part of TFS information published by Treasury, and another in 2012/13 to support the 2015 National Terrorist Financing Risk Assessment. While there has been no separate, comprehensive review of the adequacy of laws and regulations relating to NPOs since 2003, the authorities indicated that the laws are subject to ongoing review (e.g. by the civil -makers. One important components of IRS) and any deficiencies are brought to the notice of policy example of this process was the enhancements made to the Form 990 (the annual returns required -exempt NPOs) in 2008. from tax Criterion 8.2 - Treasury conducts multifaceted outreach to NPOs to raise awareness of TF threats and , issues s website deter their misuse. It maintains resources for charities on risks of terrorist abuse on it periodic general and thematic guidance, and holds regular meetings with NPOs to discuss guidance, CFT policies, practices and challenges such as maintaining access to the regulated financial system. Technical compliance Th policy of promoting transparency, integrity and public confidence in Criterion 8.3 - e U.S. pursues a is also Transparency through its outreach. the administration and management of all NPOs facilitated by F -exempt NPOs to ederal tax laws which provide that most information reported by tax -TEGE) is publicly available. IRS Tax Exempt and Government Entities Division ( the IRS tax million pproximately 1.4 A - Criterion 8.4 ( including public charities and tions -exempt organiza or smaller public charities account for a houses of worship 000 300 ) and private foundations significant portion of the financial resources under control of the NPO sector, and a substantial share of the sector’s international activities. Both Federal and (varying) State requirements apply to those to ensure that they -profit organization non entities falling under the FATF definition of : ational an organiz Document administrative and policy controls over their operations; meet a) 88 and relevant tax exemptions; and file with the IRS forms and operational test to qualify for , when ing includ associated documents, detailed identifier and organizational information : IRC Section 501(c)(3). applying for tax exemptions 87 -site visit. The revised R.8 and its interpretative note were revised by the FATF in June 2016, i.e. after the on will be taken into account during the follow version -up process. 88 -EZ for smaller charities. 1023 1023 for charities, and Form F orm Anti FATF and APG 2016 © 2016 – tates S nited terrorist financing measures in the U - money laundering and counter - 194

197 TECHNICAL COMPLIANCE File annual statements to the IRS providing information on their income, expenses, assets, b) liabilities, programs (Form 990). Smaller charities with annual gross receipts under -N keeping their identifying information up to date. Some 50 000 file an annual Form 990 USD states also require charities to file periodic financial results with the State if they hold assets subject to a charitable trust. Maintain financial records and other information reported on Form 990 and other IRS forms. c) Houses of worship s are exempt d) status. Apply to the IRS for recognition of their tax -exemption from these requirements , but this gap is partly mitigated as many choose to apply for tax - exempt recognition since it may result in exemptions from State/local income and property le donors to obtain charitable deductions for their and enab taxes Thirty nine contributions. State, no matter where states require any charity to register before soliciting funds within the the charity is domiciled. e) Keep detailed records and case histories to demonstrate that grants to individuals serve their 89 charitable purposes. Retain records for F f) tax purposes until the statute of limitations expires for the charity ederal additional tax amending its return and the IRS assessing (usually 3 years after the return is Technical compliance . Longer retention period due or filed, whichever is later) may be required for S tate or local , but the required 5 years retention period is not met in all circumstances. taxes - At the Federal level, IRS -TEGE monitors compliance with U.S. ta x laws, and IRS -CI Criterion 8.5 conducts criminal investigations as necessary. Although houses of worship are not required to file a there is a reasonable belief that they are Form 990 series return, the IRS can examine them if engaging in activities not consistent wit -exempt status. Penalties apply for violating these h their tax requirements which appear to be proportionate and dissuasive (see R.35). The States and District of Columbia oversee the fund sdictions. -raising practices of charities domiciled or operating in their juri Charities operating in the U.S. are also subject to self- regulation managed by umbrella and watchdog organizations. NPOs Authorities are able to investigate - Criterion 8.6 : gather relevant information and TEGE personnel To enhance domestic coordination and information sharing on TF issues, IRS- a) -CI special agents are assigned to the Joint Terrorism Task IRC -TFOS, and are detailed to FBI Forces ( -CI to obtain partner with IRS may Federal LEAs ther Treasury’s OIA. O JTTFs) and access to non -public ta x information for their investigations of terrorist activity under certain conditions specified by law. Within IRS, the civil examiners in IRS -TEGE work with IRS -CI which enhances its ability to investigate terrorist abuse of NPOs. b) All relevant authoritie s can access relevant programmatic and financial information if needed. There are multiple mechanisms to promptly share information regarding suspicion of c) including: F ederal LEAs directly accessing FinCEN’s database ( see terrorist abuse R.29 and task force environment which bring e JTTF IO.6); th s together multiple agencies to investigate TF activity ; and coordination with OFAC when NPOs are designated pursuant to R.6 . TEGE has 89 Compliance Guide for 501(C)(3) Public Charities, Schedule I of Form 990 and instructions. – - money laundering and counter - FATF and APG 2016 © 2016 terrorist financing measur tates S nited es in the U Anti 195

198 TECHNICAL COMPLIANCE its own financial investigative capabilities and can process leads from all rele vant ederal, F State and local sources. Criterion 8.7 - The Department of State, Bureau of Economic and Business Affairs, is the initial point of contact for international requests for information on NPOs suspected of TF abuse. Inquiries are then forwarded to the appropriate agency, such as the IRS for information related to Federal tax returns. onclusion : Weighting and C Sub -criterion 8.4(f) has one deficiency which the assessment team considers to be minor as the time - substantial and, in some instances may meet and exceed the 5 limits for record retention are not in year minimum required by R.8. T here also remains a gap in the system in relation to houses of worship which are not captured by or do not voluntarily choose to submit to federal or state (see sub ents requirem -criterion 8.4(d)). rated c ompliant. 8 is Recommendation largely Recommendation 9 – Financial institution secrecy laws In its 3rd MER, the U.S. was rated compliant with these requirements. The detailed analysis set out at rd round 2006 MER continues to apply. paragraphs 557 – 7 of the 3 56 Right to Criterion 9.1 - FI secrecy laws do not inhibit the implementation of AML/CFT measures. The Financial Privacy Act 12 Federal agencies obtain governs how U.S. ) -22. 3401 USC ( (RFPA) 90 , and under what circumstances they may disclose it: information from FIs Technical compliance a) Access to information by competent authorities: The RFPA contains numerous exceptions to allow disclosure by an FI to competent authorities for regulatory/supervisory, law enforcement and intelligence matters. Accounts of individuals held by FIs not subject to the RFPA are protected from disclosure to the Federal Government by the Gramm -Leach -Bliley 6801 et seq., and its implementing regulations. The GLBA allows FIs to Act (GLBA), 15 USC provide non lic personal information about their customers to law enforcement when -pub served with a court order, and also allows sharing for required institutional risk control purposes and to protect against fraud. The GLBA also grants FIs safe harbor, including for di sclosures to law enforcement, on matters related to public safety, institutional risk control and fraud prevention. GLBA does not restrict a federal regulator’s ability to get information from its regulated entities. b) Sharing of information between competent authorities: The RFPA also governs the transfer of covered financial records by the Federal agencies holding those records, and permits the sharing of information for a wide range of purposes: 12 USC 3412 and 3413. 90 The RFPA defines “financial institution” to include any of the following entities located in any state or territory of the U.S.: any office of a bank; savings bank; card issuer [as defined in 15 USC 1602(n)]; industrial loan company; trust company; savings association; building and loan or homestead association (including cooperative banks); credit union; and consumer finance institution”. Anti FATF and APG 2016 © 2016 – tates S nited terrorist financing measures in the U - money laundering and counter - 196

199 TECHNICAL COMPLIANCE c) Sharing of information between FIs: FIs are able to share information with one another, under a safe harbor that offers protections from liability, to better identify and report potential ML or terrorist activities: s.314(b), USA PATRIOT Act: 31 CFR. 1010.520. Participation in ing pursuant to section 314(b) of the USA PATRIOT Act is available to those information shar FIs located in the U.S. and required to have AML compliance programs pursuant to Section 352 of the USA PATRIOT Act. Weighting and Conclusion: met. is The criterion n 9 is rated compliant . Recommendatio Recommendation 10 – Customer due diligence In its 3rd MER, the U.S. was rated partially compliant. The technical deficiencies related to: insufficient requirements to identify BOs and conduct ongoing due diligence; timing of customer identity verification and the obligation to terminate the business relationship; customer identification for occasional transactions not involving cash; and scope issues ( IAs , commodity Technical compliance trading advisors, and life insurers were not adequately covered). Keeping anonymous accounts or accounts in obviously fictitious names is not - 1 Criterion 10. expressly prohibited. However, the CIP provisions have been in place for many years and prevent 91 are required to FIs Covered opening anonymous accounts or accounts in fictional names. implement a written CIP that must include risk -based procedures for verifying the identity of each customer to enable a FI to form a reasonable belief that it knows the customer’s true identity. At a ust provide the following information which the FI must minimum, persons opening accounts m verify: name, date of birth (for natural persons), address and/or place of business, and an 92 and for non -U.S. identification number (for U.S. persons, a tax payer identification number (TIN) persons, at least one of the following: a TIN , passport number (and country of issuance), alien identification card number, or number and issuing country of any other government -issued safeguard). The document evidencing nationality or residence and bearing a photograph or similar foregoing measures apply regardless of risk, and thus appear to prevent FIs from opening 31 CFR §1020.220. There are no equivalent anonymous accounts or accounts in fictitious names: or finance companies and government life insurance companies, loan explicit obligations for sponsored housing enterprises , other than a general requirement to obtain all relevant customer related information necessary for an effective AML program, which in the life insurance sector, only fe insurance policies, other than group life insurance policies; annuity applies to permanent li contracts, other than group annuity contracts; and any other insurance product with features of cash value or investment are MSBs . §1029.210 and CFR §1030.210 respectively. : CFR §1025.210, CFR 91 ies es includes insured banks, commercial banks, agenc This of a foreign bank in the U.S., credit or branch 611, trust s actin unions, savings associations, corporation g under section 25A of the Federal Reserve Act 12 USC -dealers, futures commission companies, securities broker merchants (FCMs), introducing brokers in (IBs), and mutual funds. commodities 92 The CIP program rules permit covered FIs to rely on evidence that a TIN has been applied for before the account is opened, if it has not yet been received. – - money laundering and counter FATF and APG 2016 © 2016 - tates S nited es in the U terrorist financing measur Anti 197

200 TECHNICAL COMPLIANCE subject to a general requirement to develop, implement and maintain effective AML programs, reasonably designed to prevent them from being used to facilitate ML/TF. The program must incorporate policies, procedures and internal controls reasonably designed to assure compliance inter alia with CFR §1022.200 including, , requirements for verifying customer identification: CFR §1022.210. Criterion 10.2 - Covered FIs are required to undertake CDD measures when: Establishing busin a) ess relations: Covered FIs are required to establish a written CIP that must 93 , they must contain account opening procedures. At a minimum, prior to opening an account obtain and verify certain identity information from their customers: see c.10.1. The CIP must contain risk -based procedures for verifying the identity of the customer within a reasonable period of time after the account is opened. Life insurance companies are required to integrate ant customer -related agents and brokers into their AML programs and obtain all relev information necessary for an effective AML program (regulatory expectations do not specify when this needs to be obtained ). MSBs do not typically maintain customer account cumstances: currency dealers relationships, but do have CDD obligations in those limited cir CFR or exchangers (31 CFR §1022.410 and providers of prepaid access (31 . (d)(1)(iv)) §1022.210 b) Carrying out occasional transactions: Certain FIs (including banks, securities broker -dealers, transactions in e required to record and report FCMs, IBs, MSBs, and mutual funds) ar 10 currency above USD 000 (CTRs) to FinCEN after verifying the customer’s identity. This obligation requires reporting related tra 10 000 and are nsactions that together exceed USD made during the same day if the FI has knowledge that ea ch transaction was made by or on Technical compliance behalf of the same person. Other FIs (e.g. life insurance companies) must record and report on Form 8300 receipts of currency that (alone or when combined with monetary 000 whether in one transaction, or in two or more related 10 instruments) exceed USD . transactions occurring over a 12 month period -bank FIs are Undertaking occasional transactions that are wire transfers: Banks and non c) required to maintain records for wire CFR §1020.410(a), or more: e.g. 000 3 USD -transfers of CFR §1010.410 (e). This includes obtaining, verifying and retaining customer -related identification information. There is suspicion of ML/TF regardless of any exemption or thresholds: There are no CDD d) requirements specifica lly addressing additional or other CDD measures to be taken where there is suspicion of ML or TF beyond those addressed below. CIP e) Doubts about veracity and adequacy of previously obtained customer identification data: obligations for Covered FIs must include procedures for responding to situations in which they cannot form a reasonable belief that they know the customer’s true identity. These the terms under procedures should describe: a) when the account should not be opened; b) which a customer may use an account while its identity is being verified; c) when the account should be closed after attempts to verify a customer’s identity have failed; and d) when SARs 93 encompasses the concept of business relations: 31 CFR §1020.100(a)(1). account The definition of Anti FATF and APG 2016 © 2016 – tates S nited terrorist financing measures in the U - money laundering and counter - 198

201 TECHNICAL COMPLIANCE bout the should be filed. In principle, this covers situations where covered FIs have doubts a veracity and adequacy of previously obtained information. Covered FIs are also required to maintain effective internal controls under the BSA/AML compliance program rule, requiring them to maintain current customer information for meeting monitoring obligations. Other FIs are subject to less explicit, more general program requirements that do not address the element of doubt. The CIP must include risk - Criterion 10.3 -based procedures for identifying and verifying each tent reasonable and practicable, subject to the minimum standards customer’s identity to the ex noted under c.10.1. The procedures must enable the to form a reasonable belief that it Covered FI type of knows the true identity of each customer, and be based on its risk assessment, including the account, method of account opening, identification information available to the Covered FI, and its . Covered FIs subject to the CIP rule must 31 CFR §1020.220 size, location and customer base: e.g. implement a written program appropriate for their size and type of business, including procedures -based -keeping. The CIP must also provide for risk for customer identification and record -documentary methods ( verification, either through documents or non comparing information e.g. hat from a consumer reporting agency, public database or similar source), from the customer with t or a combination of the two. For natural persons, documentary verification may be through a Technical compliance egal -issued photo government -identification document evidencing nationality or residence. For l persons, a document evidencing the entity’s existence ( e.g. certified articles of incorporation, a There is an exemption from CIP for partnership agreement or trust instrument) may be relied upon. isition, merger, asset purchase or assumption any account that a Covered FI acquires through an acqu §1020.100 (definition of of liabilities: e.g. , requirements are not as detailed as for For MSBs ). account other Covered FIs and form part of the general program or record -keeping requirements. Foreign exchange dealers, as part of their record -keeping requirements, must verify customer identification at account opening (31 CFR §1022.410), maintain a record of each currency exchange over ort/ regardless of amount, including the customer’s name, address, passp 000 1 USD /, date and TIN amount of the transaction, currency name and country, and total amount of each foreign currency. Life insurance companies are required to have policies and procedures for obtaining all relevant -related information necessary for an effective AML program, integrate their agents and customer brokers into their AML program, and implement policies and procedures reasonably designed to detect suspicious activity from all relevant sources including from their insurance agents and insurance broke (1) and , neither insurers nor a)(3)(i). However 1025.320( b) rs: 31 CFR §§1025.210( their agents or brokers are subject to a specific obligation under the BSA to verify the customer’s identity using reliable independent source documents -dealers, FCMs and IBs are not explicitly required broker FIs (other than securities - Criterion 10.4 ) to verify that any person purporting to act on behalf of the customer is so authorized, or identify and must be filed to repo rt a cash transaction of more verify the identity of that person. TR Whenever a C 000 10 USD than , the FI is required to verify and record the name and address of the natural person presenting the transaction, and the identity, account number, and social security/TIN (if any) of any person/entity on whose behalf the transaction is undertaken: 31 CFR §1010.312. In addition, these FIs are expected (albeit not required) to identify and verify the identity of any person purporting to ance with sound act on behalf of the customer, and verify the person is so authorized in accord – - money laundering and counter - FATF and APG 2016 © 2016 terrorist financing measur tates S nited es in the U Anti 199

202 TECHNICAL COMPLIANCE Securities broker business practices. are required to make a memorandum of each -dealers brokerage order, and any other instruction given or received for the purchase/sale of securities, including the identity of any other person who entered or accepted the order on behalf of the customer: 17 CFR §240.17a- Every FINRA member is required to use reasonable diligence 3(a)(6). know and retain the essential facts concerning every to for opening and maintaining accounts, authority of each person acting on the the concerning customer and customer’s behalf: FINRA Rule derivatives sector, FCMs and IBs are required to keep a record showing the true name 2090. In the and address of any person guaranteeing or exercising any trading control with respect to account: 17 CFR §1.37(a). are required to obtain BO information only in limited specific - Criterion 10.5 Covered FIs circumstances: i) correspondent accounts that are payable -through accounts; and ii) private banking 94 : 31 CFR §1010.610(b)(1)(iii) & 31 CFR -U.S. clients above U SD 1 million accounts for non in value §1010.620 (b) . Beneficial owner is defined as “an individual who has a level of control over, or entitlement to, the funds or assets in the account that, as a practical matter, enables the individ ual, directly or indirectly, to control, manage or direct the account. The ability to fund the account or the entitlement to the funds of the account alone, however, without any corresponding authority to control, manage or direct the account (such as in t he case of a minor child beneficiary), does not cause the : §1010.605. The term excludes an individual who may have a financial interest individual to be a BO” broker ies Securit in the account, but no corresponding ability to “control, manage or direct” it. - are required to make and keep current a record of each cash and margin account indicating, dealers inter alia , the name and address of the account’s BO: 17 CFR §240.17a -3(a)(9). However, where the account is held by a corporation, such records are required only in respect of the person(s) authorized to transact business for such accounts. In these circumstances, BO is defined as “the Technical compliance person who has or shares pursuant to an instrument, agreement or otherwise power to vote or direct the voting of a security” -2. The which is not in line with the FATF definition: 17 CFR §240.14b life insurance sector is not subject to requirements to identify and verify BOs. - Criterion 10.6 Covered FIs are subject to the FFIEC Manual provision requir ing them to obtain ion at account opening sufficient to develop an understanding of normal and expected informat requires the activity for the customer’s occupation or business operations. In addition, the Manual include periodic risk CDD processes to -based monitoring of the customer relationship to determine change in employment e.g. whether there are substantive changes to the original CDD information ( : NASD Notice to or business operations ). Simila r obligations exist for securities broker -dealers Members 02 . ere are no similar obligations in other financial sectors ). Th -21, FINRA Rule 2090 Criterion 10.7 Ongoing monitoring to ensure compliance with the BSA reporting requirements, - including monitoring for suspicious activity, is required by the AML program and SAR reporting rules. are expected to have in place internal controls to a) FIs Scrutinizing transactions: Covered “provide sufficient controls and monitoring systems for timely detection and reporting of 94 was Since the on May 2016. The 11 on published -site, the Final CDD Rule that includes a requirement BO implementation period for the Rule is two years. (see https://www.treasury.gov/press - -center/press releases/Pages/jl0451 ) .aspx Anti FATF and APG 2016 © 2016 – tates S nited terrorist financing measures in the U - money laundering and counter - 200

203 TECHNICAL COMPLIANCE am s and SAR suspicious activity”: FFIEC Manual: pp. 33 -34. Taken together, the AML progr requirements (including the expected risk assessment) require a general transaction . monitoring and ongoing due diligence mechanism by covered FIs as well as MSBs ection -to-date: Covered FIs: The FFIEC Manual, CDD/Customer Risk s b) Keeping CDD data up sets out the FBAs’ expectations for ongoing customer due diligence which appears to be broad enough, when considering “accounts”, to cover business relationships. The provisions address measures to monitor consistency of account use with expectations, and keeping information up to date. Under the BSA and the implementing regulations, each MSB must develop an effective AML program that is tailored to the risks inherent in its business depending on its customer base, location and market served, and typ es of services offered. It must be reasonably designed to ensure proper record -keeping and reporting, and prevent the MSB from being used to facilitate money laundering and the financing of terrorist activities: 31 CFR . §1022.210. Its due diligence should be commensurate with the level of risk of its business. If an MSB's risk assessment indicates potential for a heightened risk of ML/TF, it will be expected to conduct further due diligence in a manner commensurate with the heightened Securities broke r- dealers are require d to maintain an account record for each account risk. -dealer has been required to broker with a natural person as a customer or owner where the Technical compliance Broker make a suitability determination. -dealers are required to attempt to update these records every 36 months 3(a)(17). : 17 §240.17a- CFR account Life Insurance Companies, other No explicit CDD provisions other than the general requirement to have an effective AML FIs: program. to understand ownership and s any category of FI There is no specific obligation for - Criterion 10.8 control structure of customers which are legal persons or legal arrangements. Criterion 10.9 - For customers which are legal persons/arrangements, C overed FIs are required to identify and verify the customer’s identity throug h the following information: name; principal place procedures (which must be contained TIN. Verification ; and of business, local office or other location e.g. certified in CIP) may include documents showing the existence of the entity or arrangement ( les of incorporation, a government issued business license, a partnership agreement or trust artic instrument). Verification procedures need to be applied only to the extent reasonable and practicable and not in all cases m for MSBs should have . AML progra (a)(2) : e.g. 31 CFR §1020.220 verification procedures: 31 CFR §10 22.2 10 (d)(1)(i)(A). Other sectors are not specifically covered. Criterion 10.10 are required to implement measures, reasonably designed to identify Covered FIs - and verify the identity of BOs of an account, as appropriate, based on the covered FI’s evaluation of inCEN the account’s risk: F and SEC guidance issued in 2010. In the context of this guidance and , FBA the corresponding provision in the FFIEC M anual, the definition of does not conform beneficial owner initially apply only in the circumstances to the FATF standard and s. These measures are risk based . No elements cover situations where: there is doubt; or where no overed FIs determined by the C natural person exercises control through own Covered FI to ership or other means; or requiring the ascertain the identity of the most senior managing official. Covered FIs are also subject to a more limited obligation to identify and take reasonable measures to verify the identity of BOs of private banking accounts as described under c. 10.5 above. Although covered FIs are under a separate and – - money laundering and counter - FATF and APG 2016 © 2016 terrorist financing measur tates S nited es in the U Anti 201

204 TECHNICAL COMPLIANCE more general obligation to take additional steps to verify the customer’s identity by seeking count, including signatories, this information about individuals with authority or control over the ac requirement only applies when FIs cannot verify the identity of customers (and not the identities of 31 CFR §1020.220(a)(2)(ii)(C). -documentary methods: e.g. their BOs) through documents or non MSBs and other FIs are required to 10 USD ng occasional transactions in amounts over conducti 000 collect and verify information identifying the natural person conducting the transaction (even if the transaction is initiated in the name of a legal entity) and the natural person on wh ose behalf the transaction is conducted. However, the “person conducting the transaction” is not the necessarily the other FIs . For same as the BO as defined by the FATF life insurance companies including , no provisions apply other than the general requirement to have an effective AML program . Covered FIs as .S. Criterion 10.11 - BOs (noting that in the U are not required to verify the identity of in other common law jurisdictions, legal arrangements are not entities). Covered FIs are required to existence ( the legal arrangement’s ocument showing a d obtain 31 CFR the trust instrument): e.g. ). Trust instruments usually show the names of the settlor, the trustee(s) 2 (a)(2)(ii)(A)( §1020.220 and can also show named beneficiaries. The trustee, under U.S. trust law, holds title to the assets in a trust, but may share control with the settlor, depending on whether the trust is revocable or here are no explicit obligations to verify the identity of settlors, trustees, However, t irrevocable. eneficiaries or classes of beneficiaries and any other natural persons , the b if any) protectors ( exercising control over the trust property . The guidance referred to in c .10.10 states that “CDD procedures may include the following: (emphasis added): Where the customer is a trustee, obtaining information about the trust structure to allow the institution to establish a reasonable understanding of the trust structure and to determine the provider of funds and any persons or entities that have control over the funds or have the power t . In summary, th does not conform to is o remove the trustees Technical compliance the standard, and there are no explicit obligations to verify the identity of any parties to legal arrangements. - provide as follows: State insurance law requirements Criterion 10.12 a) tate law. All States have nce companies and insurance policies are regulated under S Life insura governing legislation requiring life insurance companies to record the name of the beneficiary (where one is designated) of life insurance policies whether or not the polic y has an investment component. The States have governing legislative requirements which require life insurance companies to b) be satisfied that they will be able to establish the identity of the beneficiary, if any, at the time the proceeds of the insurance policy become payable. c) In the U.S. a beneficiary of the proceeds of a life insurance policy cannot receive the proceeds the beneficiary has no other vested rights. Therefore this until the insured person has died – typology seems impracticable for ML, has not been observed in the U.S., and the assessors believe it represents a proven low risk. Accordingly this element of c.10.1 2 is not applicable in context. .S. the U are not required to include the beneficiary of a life insurance policy as a relevant Criterion 10.13 - FIs risk factor in determining whether enhanced CDD measures are applicable. Anti FATF and APG 2016 © 2016 – tates S nited terrorist financing measures in the U - money laundering and counter - 202

205 TECHNICAL COMPLIANCE are not required to verify the identity of the customer and BO (as defined by the Criterion 10.14 - FIs U.S.) before or during the course of establishing business relations or conducting transactions for occasional customers. Instead, FIs are required to verify the identity of their customers within a y institutions); 31 CFR reasonable time after the account is opened : 31 CFR §1020.220 (depositor §1023.220 (securities broker -dealers); 31 CFR §1024.220 (mutual funds), 31 CFR §1026.220 (FCMs and IBs ) and CFR §1022.410 (dealers in foreign exchange). The flexibility to conduct verification procedures after establishing the relationship is not predicated upon the essential requirement of ify and retain are required to collect, ver MSBs not interrupting the normal course of business. : 31 and more prior to transactions 000 3 customer/originator information for funds transfers of USD are outside the purview of these requirements CFR §1010.410. Life insurance companies , but compensating contractual measures make the life sector a lower risk . Criterion 10.15 - -based procedures for responding to A Covered FI’s CIP must include risk circu mstances in which it cannot form a reasonable belief that it knows the true identity of a customer including: i) when the FI should not open an account; ii) the terms under which a customer may use an when the FI should close account while verification of the customer’s identity is being carried out; iii) an account after attempts to verify a customer’s identity have failed; and iv) when a SAR should be filed . Life insurance (e .g. 31 CFR 1020.220(a)(2)(iii)) in accordance with applicable law or regulation Technical compliance policies are usually activated when the insurer has collected enough data on the life insured. For , MSBs for transactions above USD 3 000 , CDD is mandatory before a transaction takes place. There are no equivalent obligations in other financial sectors. Criterion 10.1 Covered FIs are required to apply CDD requirements to existing customers on the 6 - basis of materiality and risk. For CIP purposes, a customer is defined to specifically exclude a person who has an existing account with the covered FI provided that the institution has a reasonable belief that it knows the person’s true identity: e.g. 31 CFR §1020.100(c)(2 )(iii ) for banks. Such FIs are required to have risk based procedures based on their assessment of the relevant risks, including those ted by the various types of accounts maintained, the various types of identifying information presen available, and their size, location and customer base: e.g. 31 CFR §1020.220(a)(2) for banks. In addition ubject to additional record are s -dealers to the CIP requirements, -keeping securities broker obligations pursuant to Exchange Act Rule 17a -3 and SRO customer protection and suitability rules that contain customer diligence requirements, which are not limited to new customers. For example, -dealers to maintain an account record including -3 (a)(17) requires broker Exchange Act Rule 17a certain information for each account with a natural person as a customer or owner for which the broker -dealer is, or within 36 months has been, required to make a suitability determina tion: FINRA , FCM members of NFA are required to contact their derivatives sector In the Rules 2090, 2111, 4512. active customers (natural persons), at least annually, to verify that this information continues to be plete the materially accurate, and provide the customer with an opportunity to correct and com 30(b). No equivalent measures apply to the 2- life insurance sector, although information: NFA rule the general program rules apply to all customers of covered products, including existing customers. erion 10.17 - The regulations addressing enhanced due diligence (EDD) differ in some respects Crit circumstances ( prescribed across sectors, however, FIs are required in Section USA PATRIOT Act 312 requirements applicable to certain correspondent accounts and private banking accounts) to Otherwise, perform EDD. are required to perform EDD where they assess the ML/TF Covered FIs – - money laundering and counter - FATF and APG 2016 © 2016 terrorist financing measur tates S nited es in the U Anti 203

206 TECHNICAL COMPLIANCE . The adequacy of their risk assessment and their EDD procedures are challenged by risks as high their supervisors. The FFIEC Manual contains extensive regulatory guidance on what could be with examples of EDD for high risk customers), and considered high risk ( gives supervisors authority to impose a higher -risk rating where they do not agree that the FI has rated the risk The sp correctly. ecial measures required for correspondent banking arrangements address -risk countries (see c.13.2). Life insurance companies are required prescribed categories of higher to have policies, procedures and internal controls, based on their assessment of ML/TF risks -related associated with covered products, including the ability to obtain all relevant customer are required to have MSBs information necessary for an effective AML program: 31 CFR §1025.210. revent the MSB from being used to an AML program in place which is reasonably designed to p facilitate ML/TF, and commensurate with the risk posed. The U.S. does not explicitly allow for simplified measures. For CDD Not applicable . Criterion 10.18 - and account monitoring, the regulations set baseline requiremen ts with which FIs and DNFBPs must comply and which are based on the risks presented by their customers, products, services, etc. The . baseline requirement must always be met, and cannot be simplified minate the business relationship if unable to are not explicitly required to ter FIs Criterion 10.19 - comply with relevant CDD measures. However, the CDD expectations set out in the FFIEC Manual should continue to review suspicious activity to determine whether other covered FIs state that management determining that it is necessary to terminate a riate (e.g. actions may be approp overed FIs / employee who is the subject of the filing ). The CIP for C relationship with the customer must include procedures for responding to circumstances in which they cannot form a r easonable , belief that they know the customer’s true identity. These procedures should describe, inter alia Technical compliance when the account should be closed after attempts to verify a customer’s identity have failed, and 31 CFR : when a SAR should be filed in accordance with applicable law and regulation 31 CFR ), depository institutions ( (a)(2)(iii) §1020.220 - securities broker ( (a)(2)(iii) §1023.220 ); 31 CFR futures ( §1026.220(a)(2)(iii) ), 31 CFR mutual funds ( §1024.220(a)(2)(iii) dealers ). In the rokers in commodities commission merchants & introducing b , life insurance sector insurance contracts may limit the ability of insurance companies to terminate policies or business only offer occasional transaction services and have no MSBs With few exceptions, relationships. -keeping, reporting, and AML program rules to allow a customer flexibi lity under the relevant record to commence business relations or perform a transaction if the required customer identification and transaction information cannot be collected. .20, Federal law requires to file a SAR when suspicious activity As discussed in R FIs Criterion 10.20 - is detected, and prohibits them from disclosing to any person involved in the suspicious transaction that a SAR has been filed. Although there is no specific provision in the law, this prohibition has been interpreted broadly enough to cover situations in which an FI does not pursue the CDD process and instead files a SAR when it forms a suspicion of ML/TF and reasonably believes that performing the -off the customer. CDD process will tip Anti FATF and APG 2016 © 2016 – tates S nited terrorist financing measures in the U - money laundering and counter - 204

207 TECHNICAL COMPLIANCE Weighting and Conclusion: Lack of CDD requirements to ascertain and verify the identity of BO (except in very limited cases) is a are not directly covered by BSA obligations. As . I IAs, however, are Some significant shortcoming vered through affiliations with banks, bank holding companies and broker indirectly co -dealers, Other when they implement group wide AML rules or in case of outsourcing arrangements. sectors important gaps are that FIs (other than in the securities and derivatives ) are not explicitly required to identify and verify the identity of persons authorized to act on behalf of customers, and some FIs are not explicitly required to understand and, as appropriate, obtain information on the purpose and intended nature of the busine understand the . FIs are not required to ss relationship ownership and control structure of customers that are legal persons/arrangements. Recommendation 10 is rated partially compliant . Recommendation 11 – Record -keeping In its 3rd MER, the U.S. was rated largely compliant with these requirements. The main technical deficiency was that life insurers of covered products were only required to keep limited records of SARs, Form 8300, their AML program and related documents. Technical compliance Criterion 11.1 - FIs are required to maintain records on transactions for at least five years following Bank Secrecy Act completion of the transactions. The -keeping contains a number of statutory record requirements: e.g. 12 USC §1829b (for banks and money transmitters ), 31 USC §5311 (all financial ), 31 USC §5318(l) (for customer identification programs), 31 USC §5325 (for purchases institutions of monetary instruments) and 31 USC §5326 (for GTOs ). Additionally, sector specific record -keeping plementing regulations as well as the in the requirements have been prescribed in numerous im See e.g. respective parent Act, wherever applicable: e.g. 31 CFR §1020.410(a) & 31 CFR §1010.410. (for banks ), 31 CFR §1023.410 & Rule 17a -3 under the Securities Exchange Act of 1934 (c) (for securities broker-d ealers ); 31 CFR §1022.410 (for foreign exchange dealers ); 31 CFR §1022.210 & ). Record 1022.420 (for providers and sellers of prepaid access FCMs -keeping requirements for ect to AML GSEs and RMLOs are also elaborate and seem to cover the requirements. are subj and IBs program and separate record -keeping requirements: 31 CFR §1030.320(c) for housing GSEs; and 31 are subject to SAR obligations which CFR §1029.320(c) for RMLOs. Life insurance companies include a record- keeping component: 31 CFR §1025.320(d). The se provisions are comprehensive -keeping and also at times duplicative and complex. In some cases, a threshold triggers the record bank FI for or more and sale of bank 000 3 USD transmittal of funds by non- e.g. requirement ( checks/drafts, cashier checks, am ong others by FIs for more than 000 3 ). Persons who file a USD Form 8300 must retain a copy of each filed Form for five years from the date of filing. Generally records need to be made available upon request to FinCEN and any designated authority/other toral regulators. sec Criterion 11.2 are required to obtain CIP and related client identifying information and FIs - supporting documents. At a minimum, these include all identifying information about a customer d (e.g. documents relied upon to verify the identity ( e.g. name, date of birth, address, and TIN) an driver’s license/passport for individuals; articles of association, business license, corporate charter, – - money laundering and counter - FATF and APG 2016 © 2016 terrorist financing measur tates S nited es in the U Anti 205

208 TECHNICAL COMPLIANCE partnership agreement etc. for legal persons, and trust instrument for legal arrangements). The name, date of birth, address etc.) cord retention period for customer identifying information ( re e.g. is five years after closing the account, or in the case of credit card accounts at banks, after the or occasional transactions are required to account becomes closed or dormant. Transaction records f be maintained for five years after the date of the transaction record is made. There is a limited five - year retention requirement for account files, business correspondence and results of any analysis conducted by FIs related to SAR filings, noted below. The foregoing applies to FIs with a CIP obligation: FCMs and IBs banks, securities broker dealers, mutual funds, and 31 CFR §1020.220; To the extent that certai 31 CFR §1023.220; 31 CFR §1024.220; 31 CFR §1026.220. n account files, business correspondence and results of analysis are supporting documentation for a SAR, banks, broker -dealers, FCMs and IBs, housing government -sponsored enterprises, insurance companies, loan or finance companies, money services businesses, and mutual funds , are required to retain these records for five years following the date of the filing of the SAR. See : Banks Futures commission merchants and introducing brokers in commodities 31 CFR §1020.320(d); : Housing governme nt -sponsored enterprises 31 CFR §1026.320(d); : 31 CFR §1030.320(c); Insurance companies : 31 CFR §1025.320(d); Loan or Finance Companies : 31 CFR §1029.320(c); : 31 CFR §1022.320(c); Money services businesses Securities : 31 CFR §1024.320(c); Mutual funds broker -dealers : 31 CFR §1023.320(d). Additionally, Exchange Act Rule 17a- 4 requires a broker - dealer to maintain all communications received and copies of all communications sent, as well as all -dealer’s “business as such” for three written agreements (or copies thereof), that relate to the broker -4(b)(4) and (b)(7). Also, all account years (the first two years in an easily accessible place) : 17a record information required pursuant to §240.17a- 3(a)(17) must be maintained until at least six years after the earlier of the date the account was closed or the date on which the information was Technical compliance 17a MSBs must collect the customer’s name, address, and date of birth, replaced or updated: -4(e)(5). TIN occupation, and : 31 CFR §1010.410. for each reportable currency transaction Criterion 11.3 - Transaction records are quite comprehensive and detailed and seem sufficient to Chapter CFR allow reconstruction of individual transactions for evidentiary purposes: 31 . X However, the gaps noted under R.10 could inhibit some reconstruction of individual transactions activity. FIs must make records available upon request to FinCEN and any agency exercising Criterion 11.4 - delegated authority. Records must be filed or stored in such a way as to be accessible within a reasonable period of time, taking into consideration, the nature of the record and the amount of time expired since the record was made: 31 CFR §1010.430(d). In discussions with competent authorities, alers Broker the question of timeliness of compliance with information requests was not an issue. -de are required to furnish copies of their records promptly to a representative of the SEC and FINRA and FINRA Rule 8210 upon request: Exchange Act , Rule 17a . All books and records that must be -4(j) regulations must be made available for kept by the Commodity Exchange Act or its implementing are required to (2). IAs inspection by any representative of the CFTC or the DOJ: 17 CFR §1.31(a)(1)- , Advisers Act furnish copies of their records promptly to a representative of the SEC upon request: Rule 204 , and as a condition to regulatory relief provided by SEC staff (in In addition -2(g). consultation with FinCEN staff), reliance relationships with CIP IAs that have entered into certain broker to, among other things, promptly provide its books and records relating -dealers, must agree Anti FATF and APG 2016 © 2016 – tates S nited terrorist financing measures in the U - money laundering and counter - 206

209 TECHNICAL COMPLIANCE to its performance of the CIP to the Commission, to a SRO that has jurisdiction over the broker - -dealer, at dealer, or to authorized law enforcement agencies, either directly or through the broker that has jurisdiction over the (ii) the Commission, (iii) a SRO -dealer, the request of (i) the broker broker orized law enforcement agency. (FINRA) , or (iv) an auth -dealer Weighting and Conclusion: siness There are minor gaps including; no specific record retention requirement for account files, bu correspondence and results of any analysis conducted by FIs in general, and existence of thresholds for trigger ing the record -keeping requirement . 11 is rated largely compliant. Recommendation Recommendation 12 – Politically exposed persons rd MER, the U.S. was rated largely compliant with these requirements In its 3 as PEPs measures did not explicit apply to MSBs, life insurance sector, investment advisers and commodity trading advisers. The 2012 Recommendations have been extended to domestic PEPs a nd international . organizations Technical compliance Covered FIs - Criterion 12.1 are subject to special standards of due diligence when dealing with 95 PATRIOT Act, : s.312 USA senior foreign political figures in the context of private banking accounts required to take reasonable measures to ascertain the identity of all the §1010.620. Covered FIs are nominal and beneficial owners (BO) of such accounts, and ascertain whether any of them is a senior foreign political figure in line broadly d efined political figure” is gn However, although “senior forei . with the FATF definition of foreign PEP , the U .S. definition of BO does not meet FATF standards as noted under R.10 overed FIs must: ascertain the source . If the direct owner or BO is a foreign PEP, C of funds deposited into the account and the account’s purpose and expected use; and conduct enhanced scrutiny of the account. The FFIEC Manual expands regulatory expectations beyond the parameters set in the BSA and requires Covered FIs to take risk -based measures to determine if n accounts at Covered FIs. The Manual also generally requires developing related PEPs ope PEP- policies which include involving bank management in decisions to accept or retain PEPs account s, mes known subsequently and evaluations of the risks and appropriate steps to be taken, if it beco that the customer is a PEP: p.290 MSBs and the life -295. No specific PEPs requirements apply to insurance sector , other than the broader due diligence requirements set out in the AML program requirements. nd international organization PEPs are not explicitly covered. Domestic a - Criterion 12.2 Criterion 12.3 - The requirements of c.12.1 apply to family members and close associates of foreign PEPs but not those of domestic or international organization PEPs: 31 CFR §1010.605(p). Life insurance companies iterion 12.4 - are not subject to specific PEPs requirements. Cr 95 A is defined as an account (or combinations of accounts) at FIs requiring a minimum private banking account 1 aggregate depo -U.S. sit of funds/other assets of USD million which are for the benefit of one or more non persons who are the direct or beneficial owners of the account and are administered by a person at the FI who acts as a liaison between the FI and the direct or beneficial owner(s). – - money laundering and counter - FATF and APG 2016 © 2016 terrorist financing measur tates S nited es in the U Anti 207

210 TECHNICAL COMPLIANCE Weighting and Conclusion: nvestment advisers, MSBs and life insurance companies are not covered. Other significant All i that shortcomings are domestic and international organizations PEPs are not covered. 12 is rated partially compliant. Recommendation Recommendation 13 – Correspondent banking rd In its 3 MER, the U.S. was rated largely compliant with these requirements. The technical deficiency was not requiring senior management approval when opening individual correspondent accounts. Criterion 13.1 - establishing, maintaining, administering, or managing a correspondent Each FI account in the U.S. for a foreign FI is required to establish appropriate, specific, and (where necessary) EDD policies, procedures, and controls that are reasonably designed to detect and report instances of ML through those accounts: s.312, USA PATRIOT Act which amended BSA through insertion of sub -section (i) to 31 USC §5318. FinCEN published a final regulation implementing the due diligence provisions applicable to covered FIs: 31 §1010.610. As per the implementing CFR regulation, policies, procedures and controls shall include: (a) the nature of the foreign FI’s business and the markets it serves; (b) the type, purpose, and anticipated activity of such correspondent account; (c) the nature and duration of the covered FI’s relationship with the foreign FI and any of its affiliates; (d) the AML and supervisory regime of the home jurisdiction and (to the extent that information regarding such jurisdiction is reasonably available) of the jurisdiction in which any company owning the foreign FI is incorporated or chartered; and (e) information known or reasonably available to the covered FI about the foreign FI’s AML record. The regulation also Technical compliance e.g. -shore banking licenses, or licenses foreign banks holding off requires EDD in certain cases ( cooperative jurisdictions, or jurisdictions otherwise designated as warranting special issued by non- upervisory guidelines and expectations on correspondence banking are set out in the measures). S FFIEC Manual: pp.177- -keeping, reporting and due 180. The FFIEC Manual further describes record diligence examination procedures: pp.111 -124. However there is no specific requirement to obtain senior management approval before opening a new correspondent account, or to determine the foreign bank’s reputation or quality of its AML controls and supervision. As part of their AML t- approved account opening policies and program, however, banks must have senior managemen procedures, including for correspondent accounts: FFIEC Manual p. 178. Certain foreign banks must be subject to EDD, including obtaining information from Criterion 13.2 - the foreign bank about the identity of any p erson with authority to direct transactions through any correspondent account that is a payable- through account (PTA), and the sources and beneficial Implementing Regulation 31 CFR owner (BO) of funds/other assets in the PTA : FIEC Manual further provides that U.S. banks offering PTA services . The F §1010.610(b)(1)(iii)(A) should develop and maintain adequate policies, procedures, and processes to guard against possible illicit use of these accounts: p.195. At a minimum, policies, procedures, and processes sh ould enable each U.S. bank to identify the ultimate users of its foreign FI’s PTAs and should include the bank’s obtaining (or having the ability to obtain through a trusted third -party arrangement) substantially the same information on the ultimate PTA users as it obtains on its direct customers. Anti FATF and APG 2016 © 2016 – money laundering and counter tates S nited terrorist financing measures in the U - - 208

211 TECHNICAL COMPLIANCE Criterion 13.3 Covered FIs are prohibited from establishing, maintaining, administering or - managing correspondent accounts in the U.S. for, or on behalf of, foreign shell banks and are required to take reasonable steps to ensure that any correspondent account established, maintained, administered, or managed in the U.S. for a foreign bank is not being used by that foreign bank to 1 USC 5318(j), indirectly provide banking services to a foreign shell bank: s.313 USA PATRIOT Act 3 31 CFR §1010.630(a). Separately, the FFIEC Manual outlines procedures for assessing banks’ compliance with statutory and regulatory requirements prohibiting correspondent accounts for . foreign shell banks: p.111 Weighting and Conclusion: The re is no specific requirement to obtain senior management approval before opening a new correspondent account, or to make a determination of a correspondent’s reputation or quality of its AML controls and supervision. Recommendation mpliant. 13 is rated largely co Recommendation 14 – Money or value transfer services rd Technical compliance MER, the U.S. was rated largely compliant with these requirements. Compliance in this area In its 3 -face was reduced by technical deficiencies in other areas (CDD measures, new technologies and non - to-face- business, and suspicious transaction reporting). Criterion 14.1 - MVTS providers, both formal and informal and are subject to BSA requirements as MSBs, including registration with FinCEN : 31 USC§5330, 31 CFR §1022.380 . Regulations provide fo r biennial renewal and re -registration processes (in certain limited cases like change in ownership or Montana, (except States ). Additionally, 47 of the 50 more than 50% increase in agents control, or 96 ia, the Commonwealth of Puerto Rico, and , the District of Columb New Mexico and South Carolina ) the U.S. Virgin Islands have separate MSB licensing requirements. Any person failing to comply with the registration requirements may be liable for a Criterion 14.2 - for each viola 000 civil penalty of up to USD 5 tion. Each day a violation continues constitutes a separate violation. The Secretary of the Treasury may also bring a civil action to enjoin the violation: . It is unlawful to do business without complying with the 31 USC §5330(e), 31 CFR §1022.380(e) tration requirements. A criminal fine and/or imprisonment for up to five years may be imposed. regis Failure to comply with State requirements or FinCEN registration is criminalized: 18 USC eholder Liaison Group §1960(b)(1)A/B. To address unregistered money transmitters, the IRS Stak conducted unregistered MSB outreach from 2006 to 2010, when the effort was taken up by FinCEN as one of its priorities. FinCEN has also taken civil enforcement actions against MSBs engaged in serious violations of their AML/CFT obligations, including failing to register with it. - MVTS are regulated as MSBs and subject to monitoring for AML/CFT compliance. Criterion 14.3 96 Since the date of on red -site, authorities reported that MSBs in New Mexico and South Carolina are now cove ive amendments in these states. under licensing regime as per the legislat – - money laundering and counter - FATF and APG 2016 © 2016 terrorist financing measur tates S nited es in the U Anti 209

212 TECHNICAL COMPLIANCE - MVTS are required to prepare and maintain a list of their foreign and domestic Criterion 14.4 -month period: 31 CFR1022.380 agents, which must be revised each January 1 for the preceding 12 (d). A copy of the initial agent list and each revised list must be retained for five years. The list vices offered, gross generally includes details such as agent’s name, contact details, type of ser transaction amount, details of the depository institution where the agent maintains transaction accounts, branches and sub- agents if any. It must be made available to FinCEN and other LEAs upon request. MVTSs are required to develop, implement, and maintain an effective AML program Criterion 14.5 - reasonably designed to prevent their operations from being used to facilitate ML/TF: 31 CFR§1022.210(a). MSBs must require their agents to implement appropriate systems and controls . While t here is no formal requirement to monitor agent compliance, the regulatory expectation is that -51. For MSBs using foreign -16 & 50 such monitoring will occur: MSB Examination Manual p.15 agents or counterparties, the AML program must include risk -based polic ies, procedures, and controls designed to identify and minimize ML risks associated with foreign agents/counter parties that facilitate the flow of funds into and out of the U.S.: FinCEN Interpretive Release 2004 -1 at tates have examination authority over Appendix H of the MSB Manual. FinCEN, the IRS and most S MSB agents. FinCEN has direct enforcement authority over agents. Weighting and Conclusion: There are no formal agent monitoring requirements for MSBs. ommendation Rec 14 is rated largely compliant. Technical compliance Re commendation 15 – New technologies rd MER, the U.S. was rated largely compliant. The main technical deficiency was that there was In its 3 no explicit provision requiring life insurers, MSBs or investment advisers and commodity trading -business relationships or transactions. -face advisors to have policies and procedures for non -to-face In the NMLRA the potential misuse of digital currency, domestic and foreign prepaid Criterion 15.1 - apture of checks, and third party payment processors are reviewed with products, remote deposit c case examples and studies illustrating vulnerabilities and typologies. The laws governing the re FIs to establishment of AML programs in the financial sector, and the FFIEC Manual generally requi take into account all relevant factors into consideration, including the associated risks presented by products and services, new delivery mechanisms and the risks presented by new technology. Covered FIs and MSBs Criterion 15.2 - , when developi ng and implementing an AML program, are required to incorporate policies, procedures, and internal controls based the institution’s assessment of the ML/TF risks associated with its unique combination of products, services, customers, and geographic locations. The MSB and FFIEC Examination Manuals provide an extensive set of expectations governing the risk assessment process, including detailed expectations on the r risks associated with products and services. The model AML Program template FINRA developed fo use by small firms stipulates that the firm should identify its ML/TF risks based on “ the type of customers it serves, where its customers are located, and the types of products and services it Anti FATF and APG 2016 © 2016 – tates S nited terrorist financing measures in the U - money laundering and counter - 210

213 TECHNICAL COMPLIANCE (S ee link ) . Life Insurance companies , offers.” when developing and implementing an AML program, are required to incorporate policies, procedures, and internal controls based upon their assessment §1025.210. th covered products: 31 CFR enforcement of the ML/TF risks associated wi Furthermore, actions illustrate the obligation in the AML Program rule and supporting guidance that FIs include risks associated with new products, practices, and services in their AML risk assessments and AML -existing policies and procedures, and the use of new or developing technologies for new and pre products. Weighting and Conclusion: Not all investment advisers are covered. There are no explicit requirements for FIs to address the risks presented by n ew technologies. However, the NMLRA does address risk related to new technology, and some measures in place in the FFIEC Manual relating to new products and services are frequently interpreted by FIs and supervisors to address the risk of new technologies, and some . enforcement measures reflect this largely compliant 15 is rated Recommendation . Recommendation 16 – Wire transfers Technical compliance rd MER, the U.S. was rated largely compliant with these requirements. The main technical In its 3 000 1 (instead of USD as required by the FATF standards) 3 deficiencies were a threshold of USD 000 and no obligation to include all required originator information on batch transfers. The FATF standards in this area have since been expanded to include requirements relating to beneficiar y information. Criterion 16.1 - Ordering and intermediary FIs located within the U.S. are required to include the : 31 CFR originator’s name, account number and address in any transmittal order above USD 3 000 §1010.410(f). There is no explicit obligation to include a unique transaction reference number in the absence of account. Ordering FIs are required to verify the identity of the originator, and include the following beneficiary information with transmission order: (a) the identity of the beneficiary’s FI and as many of the following items as are received with the payment order: (i) the beneficiary’s name and address; (ii) account number; and (iii) any other specific identifiers of the beneficiary: 31 CFR §1010.410(f). This does not meet c.16.1 which requires both the name of the beneficiary, and either 3 the account number or a unique transaction reference number. The USD 000 threshold applies to all the above requirements. Criterion 16.2 - The National Automated Clearing House Association (NACHA) develo ps the interbank electronic batch transfer payment system operating rules. These rules require that all international ACH transactions comply with its new International ACH Transaction (IAT) format. Each IAT entry includes the originator’s name and physica l address (including street address, city, State/province, country and postal code), originator identification information (which may include the originator’s account number), and the originating bank name, routing number and branch country code. The same information is required for the beneficiary and beneficiary bank. The rules also require the identification of the ultimate foreign beneficiary of the funds transfer for inbound IAT debits and the foreign party funding when that party is not the originator for inbound IAT credits. The Reserve – - money laundering and counter - FATF and APG 2016 © 2016 terrorist financing measur tates S nited es in the U Anti 211

214 TECHNICAL COMPLIANCE Banks, in their operation of an ACH service, largely incorporate NACHA’s rules in their Operating Circular 4 (and EPN, the private sector ACH operator, does the same in its operating rules). As a ed NACHA rules become a contract between the operators (the Reserve Banks result, the incorporat and EPN) and their customers (which includes all banks that originate or receive ACH payments). To the extent a bank does not comply with NACHA rules as incorporated in Operating Cir cular 4 or EPN’s operating rules, the respective operator has a contractual claim against the bank and may take actions as allowed under Operating Circular 4 or EPN’s operating rules. nts for wire transfers by -keeping and information transmittal requireme Record Criterion 16.3 - USD 000 subject to a bank FIs are banks and non- 3 CFR §1020.410 (for banks), 31 CFR threshold : 31 -bank FIs) , below which there are no requirements. §1010.410 (for non Bs) are always required to verify customer identification (including MS FIs While - Criterion 16.4 000 3 when facilitating a funds transfer of USD or more, there is no requirement to verify identity where a suspicious transaction below the relevant threshold occurs. 3 For domestic wire transfers above the USD on 16.5 - Criteri threshold, all of the requirements 000 described in c.16.1 apply, albeit with the same deficiencies. No requirements apply to wire transfers below that threshold. Criterion 16.6 000 3 Subject to the applicable threshold, domestic transfers above the USD - threshold are subject to the same requirements as for international transfers. 3 threshold, FIs are required to obtain and retain: the 000 Subject to the USD Criterion 16.7 - originator’s name and add ress; the amount and execution date of the transmittal order; any payment instructions received from the originator with the transmittal order; the identity of the beneficiary’s Technical compliance (recipient’s) FI; any form relating to the transmittal of funds completed or s igned by the person placing — the transmittal order; and as many of the following items as are received with the transmittal order the beneficiary’s name, address, and account number, and any other specific identifier of the beneficiary: 31 CFR §§1020.410(a), 1010.410 (e). These records must be kept for five years: 31 CFR §1010.430(d). No thresholds apply to securities brokers who are required to make and preserve records of all receipts and disbursements of cash and all other debits/credits: 17 CFR §240.17a -3 and 240.17a- 4. .16.1, before Criterion 16.8 - Subject to the applicable threshold and the deficiencies noted in c executing a wire transfer, ordering FIs are required to collect, retain, and transfer information as specified above at criteria 16.1 ut the prohibition on executing the wire transfer if these -16.7. B requirements are not met . is not explicit Criterion 16.9 - I ntermediary FIs are required to record and to transmit the same information as ordering FIs: 31 CFR §1010.410(f). Criterion 16.10 - Before sending a transmittal order to the Federal Reserve Bank or otherwise converting to the expanded Fedwire message format, an intermediary FI is deemed in compliance if it includes in the transmittal order certain information, and retains and provides the remaining required information upon request of another intermediary FI or the beneficiary FI. The intermediary FI is required to keep such information for five years: CFR §1010.410(f)(3). Anti FATF and APG 2016 © 2016 – tates S nited terrorist financing measures in the U - money laundering and counter - 212

215 TECHNICAL COMPLIANCE - Int ermediary FIs are only required to take reasonable measures to identify cross - Criterion 16.11 border wire transfers lacking required information or containing information that may indicate the -enforceable guidance issued jointly by the U.S. Non wire violates U.S. targeted financial sanctions. FBAs in 2009 on the potential misuse of cover payments advised that: “banks should have as part of their monitoring processes, a risk -based method to identify incomplete fields or fields with meaningless data U.S. banks engaged in pro cessing cover payments should have policies to address such circumstances in connection with risk management for correspondent banking services, and should within reasonable timeframes develop and implement plans for adapting automated p.3. monitoring systems”: Criterion 16.12 - Intermediary FIs are not explicitly required to determine when to reject or suspend an incoming wire transfer for lack of information, but would be expected to file a SAR. An outgoing wire would be subject to the travel/record -keepi ng rules and would have to have the required information. The BSA requires covered FIs to establish AML compliance programs which are reasonably designed to -keeping and reporting requirements of the BSA and its implementing comply with the record regulatio . ns. These require FIs to implement systems of internal controls to ensure ongoing compliance Criterion 16.13 - FIs are required to have appropriate controls and systems in place to identify and Appropriate controls include measures monitor suspicious activity and ensure necessary compliance. Technical compliance to assure and monitor compliance with record -keeping and reporting requirements including internal - or real control systems to identify and monitor for suspicious activity. Such controls may include post time monitorin -border wire transfers or international ACH g of funds transfers to identify cross transactions lacking required originator or beneficiary information that may indicate suspicious activity. threshold in person to the 0 00 3 - Criterion 16.14 When paying out wire transfers over the USD FIs are required to verify the identity of the beneficiary beneficiary, its representative or agent, person receiving the payment, and obtain and retain a record of the person’s name, address, type of reviewed, and TIN (or, if none, alien identification number, or passport number and identification issuing country, or make a notation in the record about the lack thereof). If the beneficiary FI has knowledge that the person receiving the proceeds is not the beneficiary, the beneficiary FI must obtain and retain a record of the beneficiary’s name, address, and TIN (or, if none, alien identification number, or passport number and issuing country if known by the person receiving the proceeds, or make a notation in the record about the lack thereof). If the payment is delivered other than in person, the beneficiary FI shall retain a copy of the check/other instrument used to effect payment, t. or the information contained thereon, and the name and address of the person to which it was sen Criterion 16.15 - An FI’s risk assessment (generally based on type or identity of customer, type of service/product, and applicable geographies served) must determine whether, as part of the uld reject or delay transmittal mitigation procedures specified in its AML program, the FI sho order/payment order lacking complete information, or implement additional follow up procedures. However there are no explicit obligations pertaining to executing, rejecting or suspending wire that are not subject to OFAC sanctions tion -up ac transfers or taking follow . – money laundering and counter - Anti FATF and APG 2016 © 2016 terrorist financing measur tates S nited es in the U - 213

216 TECHNICAL COMPLIANCE Criterion 16.16 - Record -keeping and wire transfer obligations in 31 CFR 1010.410 (subject to 3 000 threshold) apply to MVTS providers, located within the U.S., whether operating directly or USD through their ag ents. Criterion 16.17 - MSBs are required to develop, implement, and maintain effective AML programs reasonably designed to prevent them from being used to facilitate ML/TF activities: 31 CFR §1022.210(a). The program must incorporate policies, procedures, and controls reasonably designed they However, to assure compliance with the BSA and implementing regulations. are not required to: take into account all the information from both the ordering and beneficiary sides in order to AR in any country affected by the suspicious to be filed; or file an S AR determine whether an S has wire transfer, and make relevant transaction information available to the FIU. offense It is a criminal - Criterion 16.18 for U.S. persons to provide material support or assistance to foreign terrorist organizations (FTOs), and FIs are required to block all funds in which FTOs or their agents have an interest. The U.S. implements and enforces its obligations under the relevant UNSCRs, including UNSCRs 1267 and 1373, through E.O. 13224, as described in R.6. Weighting and Conclusion: Requirements apply subject to a threshold for both domestic and international wire 000 3 USD transfers and no t below the threshold. Other shortcomings : there are no explicit requirements to include all the ori ginator and beneficiary information in the transmittal order; to verify originator and beneficiary information below the threshold in case of suspicion of ML/TF; for MSBs to consider information from both the ordering and beneficiary sides for SAR determin ation; and for intermediary or beneficiary FIs on executing, rejecting or suspending transactions due to lack of Technical compliance required information. 16 is rated partially compliant. Recommendation Recommendation 17 – Reliance on third parties rd U.S. was rated largely compliant with these requirements. Deficiencies In its 3 round MER, the noted were: no explicit obligation on relying institution to obtain core information from introducer and no measures applied to investment advisers, commodity trading advisors or the li fe insurance sector. There have since been some changes to the FATF standards in this area. FIs with a CIP requirement may rely on another FI (including an affiliate) to perform Criterion 17.1 - any procedures of the CIP under specific conditions notably t hat: (i) such reliance is reasonable under the circumstances; (ii) the other FI is required to establish and maintain an AML program and is regulated by a Federal functional regulator; and (iii) the other FI enters into a contract requiring it nnually to the relying institution that it has implemented its AML program, and will to certify a perform the specified requirements of the relying institution’s CIP: 31 CFR§1020.220(a) (6) ( ), banks ), 31 mutual funds (6) ( ), 31 CFR §1024.220(a) -dealers securities broker 31 CFR§1023.220(a)(6) ( futures commission merchants and introducing brokers in commodities ). ( CFR§1026.220(a)(6) While there are no specific obligations on relying FIs to immediately obtain core CDD information from the FI they are relying upon as required under standards, the relying FIs remain responsible for Anti FATF and APG 2016 © 2016 – tates S nited terrorist financing measures in the U - money laundering and counter - 214

217 TECHNICAL COMPLIANCE providing that information at any moment. Third party reliance by MSBs is not applicable as they do are required to establish and Life insurance companies not provide account based services. t policies and procedures reasonably designed to obtain customer related information implemen from insurance agents and insurance brokers for meeting their SAR obligations: 31 CFR§ 1025.320(a)(3). The law does not allow reliance on FIs not regulated by a U.S. regulator, including Criterion 17.2 - foreign branches of U.S. banks which are regarded as foreign banks for BSA purposes. There are no separate and special reliance procedures for third parties that are part Criterion 17.3 - itions applicable in other cases (as described under c of the same group. Hence, the cond .17.1) apply in such circumstances as well. Weighting and Conclusion: There is one minor shortcoming : no specific obligations on Not all investment advisers are covered. relying FIs to immediately obta . in core CDD information from the relied upon FI Recommendation 17 is rated largely compliant. Technical compliance Recommendation 18 – Internal controls and foreign branches and subsidiaries rd In its 3 Technical round MER, the U.S. was rated largely compliant with these requirements. federally regulated deficiencies were: AML program requirements did not apply to certain non- banks, investment advisers and commodity trading advisors; there was no obligation under the BSA for FIs to implement employee screening procedures; and the BSA requirements did not apply to the foreign branches and offices of domestic life insurers issuing and underwriting covered life insurance products. Criterion 18.1 - Covered FIs are required to establish AML programs, including, at a minimum: a) deve loping internal policies, procedures and controls; b) designating a compliance officer sufficiently senior to assure compliance with all obligations under the BSA; c) have an ongoing employee training program; and d) have an independent compliance function to test programs: has regulations prescribing that the compliance programs Each of the FBAs s.352, USA PATRIOT Act. should, at a minimum, cover the following elements: a) a system of internal controls to assure ent testing for compliance; c) a designated ongoing compliance with the BSA; b) independ individual(s) responsible for coordinating and monitoring BSA/AML compliance; and d) training for sector: 31 CFR securities and derivatives Similar requirements apply in the appropriate personnel. -dealers (which are also subject to broker 31 CFR§1023.210 for mutual funds, §1024.210 for , applicable SRO rules) and 31 CFR §1026.210 for in derivative sector. Generally, these FCMs, and IBs hat have deposit provisions require FIs to address risks as part of these programs. Covered FIs t are prohibited from hiring any person who has been convicted of (or agreed to enter into insurance -trial diversion or similar program in connection with a prosecution for) a criminal offense a pre -dealers securities sector L: 12 USC §1829. In the involving dishonesty, breach of trust or M , broker must have specific employees fingerprinted and submit the fingerprints to the U.S. Attorney General l 2. Moreover, federa 17 CFR §240.17f- or its designee for identification and appropriate processing: – - money laundering and counter - FATF and APG 2016 © 2016 terrorist financing measur tates S nited es in the U Anti 215

218 TECHNICAL COMPLIANCE -dealers to disqualification from the law and SRO rules subject persons associated with broker industry upon the occurrence of enumerated events, such as certain criminal convictions, or a urities laws: Section 3(a)(39) and Rule finding that the individual has willfully violated the federal sec -1 of the Securities Exchange Act of 1934. are required to have an effective and MSBs 19h commensurate AML program reasonably designed to prevent ML/TF which covers designating a Life insurance companies compliance officer, training and independent review: 31 CFR §1022.210. (which are required to integrate insurance brokers and agents in their AML program) are subject to the four broad elements as stated above in detail: 31 CFR §1025.210. For banks, the FFIEC Manual sets out enforceable expectations on consolidated - Criterion 18.2 BSA/AML programs addressing both domestic and foreign subsidiaries. For MSBs , there are provisions for agreements between agents and principals relating to their AML programs. Criterion 18.3 - are required to: have policies, Foreign branches and offices of U.S. banks procedures, and processes in place to protect against ML/TF risks; be guided by the U.S. bank’s BSA/AML policies, procedures, and processes; and meet all local AML -related laws, rules and regulations: FFIEC Manual p.164 -167. Their BSA compliance programs should ensure that all affiliates (including those operating within foreign jurisdictions) meet the applicable regulatory requirements. The life insurance sector d by BSA/AML obligations, and would also is similarly boun be expected to have policies, procedures, and processes to address ML/TF risks as per their AML program rule obligations. While there is no explicit obligations to inform the home supervisors if host country does no t permit proper implementation of AML/CFT measures, banks are required to take appropriate measures and provide supervisors with any information deemed necessary to assess compliance with U.S. banking laws. In higher risk situations, supervisors can also direct banks Technical compliance to take additional measures, including closing the foreign office. Weighting and Conclusion: and there is no explicit obligation to inform the home nvestment advisers are covered Not all i . mentation of AML/CFT measures supervisors if host country does not permit proper imple 18 is rated largely compliant. Recommendation -risk countries Recommendation 19 – Higher rd In its 3 round MER, the U.S. was rated largely compliant with these requirements. The technical ecific requirement in the life insurance sector to establish and deficiencies were that there was no sp retain written records of transactions with persons from/in countries not (or insufficiently) applying , and no measures applied to investment advisers and commodity t rading the FATF Recommendations There have been some changes to the FATF standards in this area. advisors. - Banks, securities broker -dealers, mutual funds, FCM and IB Criterion 19.1 are required to apply ain categories of foreign EDD to correspondent accounts established or maintained in the U.S. for cert banks in the following circumstances: a) foreign banks licensed by a foreign country designated as non- cooperative with international AML principles by an intergovernmental group with which the U.S. concurs (e.g. the FATF); b) a banking licence issued by a foreign shore banking licenses; and c) off Anti FATF and APG 2016 © 2016 – tates S nited terrorist financing measures in the U - money laundering and counter - 216

219 TECHNICAL COMPLIANCE country designated by the Secretary as warranting special measures to address ML concerns: USA PATRIOT Act, s.312, Regulation 31 CFR §1010.610 , . Such measures may include enhanced scrutiny monitoring of transactions, obtaining and considering information on AML program of foreign banks, obtaining ownership information about the bank, etc. Such measures apply to establishing and maintaining correspondent accounts, which are defined as “an a ccount established to receive deposits from, make payments on behalf of a foreign financial institution, or handle other financial transactions related to such institution”: 31 USC § 5318A(e)(i)(B). This definition is broad enough to include “business relationship” with such a foreign bank, given the inclusion in the definition of Although the statutory authority is limited to actions with such foreign bank. related financial trans “foreign banks licensed by a foreign country designated as non as noted above), in -cooperative” ( practice FinCEN issues an advisory after each FATF Plenary meeting alerting U.S. FIs to the expectations of the FATF regarding jurisdictions subject to any scrutiny by the FATF, whether they are cooperative or not, and these advisories are enforceable pursuant to 31 CFR 1010.610 and 31 USC 5318(h)(1) and its implementing regulations. Criterion 19.2 - The U.S. is able to apply countermeasures. The Secretary of the Treasury is authorized under Section 311 of the USA PATRIOT Act (31 USC 5318A) to designate a foreign jurisdiction, institution, class of transaction, or type of account as being of -laundering primary money Technical compliance concern , and to impose one or more of five special measures (record -keeping on and reporting of certain transactions; collecting information relating to beneficial ownership; collecting information relating to certain payable- through accounts; collecting information relating to certain r correspondent accounts; and prohibitions or conditions on opening/maintaining correspondent o -through accounts). The authority to take such action has been delegated to the Director of payable FinCEN. These special measures can be imposed individually, jointly, or in any combination and in everal instances including Iran, DPRK, Nauru, The U.S. has relied on this authority in s any sequence. ). These countries were under countermeasures at the time the U.S. Burma and Ukraine (see link ese Section 311 findings cite the AML/CFT deficiencies invoked Section 311 against them and th The U.S. may also deny a foreign bank from opening a branch, subsidiary or identified by FATF. representative office due to significant AML concerns: 12 CFR §211.24(c). Criterion 19.3 number of channels to advise FIs about concerns in the AML/CFT The U.S. has a - systems of other countries: PATRIOT Act s.312. These include alerts and advisories, secured Federal banking agencies, International Narcotics Control Strategy Report websites maintained by CSR), OFAC Sanctioned Countries and SDNs and other publications. (IN Weighting and Conclusion: do not apply to EDD measures ers are subject to the requirements. nvestment advis Not all i business fr om such jurisdictions relationships and transactions with natural persons in general . Recommendation compliant. 19 is rated largely – Anti money laundering and counter - FATF and APG 2016 © 2016 terrorist financing measur tates S nited es in the U - 217

220 TECHNICAL COMPLIANCE Recommendation 20 – Reporting of suspicious transaction In its 3rd MER, the U.S. was rated largely compliant with these requirements. The main technical f a threshold for certain categories of suspicious activity reporting deficiencies were the existence o and no measures applied to investment and commodity trading advisers. Criterion 2 0.1 r- specific . Secto The U.S. requires reporting of suspicious transactions by Covered FIs - 97 generally define as: suspicious transactions transactions conducted or attempted BSA regulations where the FI knows or suspects the transaction may involve potential ML or other illegal activity; is designed to evade the BSA or its regulations; has no business or apparent lawful purpose or is inconsistent with the customer’s normal transactions and the FI knows of no reason for the . Such regulations also prescribe the filing procedures, which include rules on the timing transaction of reporting. Federal banking regulations place additional reporting requirements in the case of 98 required to notify law Covered FIs are insider abuse and further elucidate the BSA requirements. enforcement immediately by telephone and to file a “timely” SAR if the FI identifies a situation involving a violation requiring immediate attention regardless of threshold (i.e. ML/TF activity that e.g. ( is underway) §1020.320 (b)(3) and the FFIEC Manual at page 67). The same FR 31 C iolation that requires immediate attention as a result of requirement applies if the FI identifies a v information received from another FI through an information sharing agreement (pursuant to Section 314(b) of the USA PATRIOT Act. Unless required to be reported immediately, reports of 30 calendar days after the date of the must be filed with FinCEN no later than ansactions suspicious tr initial detection of facts that may constitute a basis for filing a SAR. FIs may take up to 60 days no suspect was identified at the time specifically to identify the people involved in the transaction if the suspicious activity was initially detected. While the assessment team acknowledges the statistics Technical compliance relating to numbers of SARs filed in less than 30 days, the reporting timeframe allowed (30/60 days) about the promptness of reporting as required under standards. raises issues Criterion 20.2 - Generally, the implementing regulations create a reporting obligation in respect of ( USD 000 5 USD suspicious transactions that are over an aggregated transaction value of 0 for 00 2 include an aggregated threshold of In addition, the regulations noted at footnote 97 MSBs). USD where no suspect can be identified. Financial institutions are required to monitor all 000 25 for purposes of meeting the threshold, transactions in order to aggregate those that are suspicious which the U.S. sees as a benefit to law enforcement. However, the effects of the threshold are partly mitigated by the requirement to immediately notify law enforcement (and in some cases FinCEN) and file a SAR regar dless of the threshold in the case of violations requiring immediate attention, 99 Banks are also required to report “any known or suspected such as TF or ongoing ML schemes. 97 31 CFR §1020.320 (for banks); 31 CFR. §1023.320 (for securities broker See -dealers); 31 CFR §1024.320 (for mutual funds); 31 CFR §1025.320 (for insurance companies); 31 CFR §1026.320 (for FCMs and IBs in commodities); 31 CFR §1022.320 (for MSBs, including sellers of prepaid access); 31 CFR §1029.210 and 1029.320 (for RMLOs); 31 CFR §1030.320 (for housing government sponsored enterprises) 98 225.4(f) (BGFRS); 12 CFR 353 (FDIC); 12 CFR 748 (NCUA); 12 CFR 12 CFR 208.62, 211.5(k), 211.24(f), and 21.11 and 12 CFR 163.180 (OCC); and 31 CFR 1020.320 (FinCEN) . 99 See e.g. 31 CFR 1020.320(b)(3), and FFIEC Manual, page 67 fn. 63, (“If a bank knows, suspects, or has reason to suspect that a customer may be linked to terrorist activity against the United States, the bank should -3974. Similarly, if -free number (866) 556 immediately call FinCEN’s Financial Institutions terrorist hot line toll any other suspected violation — requires immediate such as an ongoing money laundering scheme — Anti FATF and APG 2016 © 2016 – tates S nited terrorist financing measures in the U - money laundering and counter - 218

221 TECHNICAL COMPLIANCE Federal criminal violation” “regardless of the amount involved” if the activity inv olves the bank and -affiliated parties” is suspected of “one of its directors, officers, employees, agents or other institution 100 committing or aiding in the commission of a criminal act. Weighting and Conclusion: - covered IAs), aggregated There are several moderate shortcomings with respect to the scope (non . However, these shortcomings file SARs (30 and 60 calendar days) thresholds and time allowed to immediately partly , mitigated by the fact that FIs are are directed to report to law enforcement , and to viol ations requiring immediate attention , such as ongoing ML schemes and terrorist activity file a timely SAR, regardless of the threshold . 101 . 20 is rated partially compliant Recommendation Recommendation 21 – Tipping -off and confidentiality rd In its 3 MER, the U.S. was rated compliant with these requirements. - Reporting entities and their directors, officers and employees are protected from civil Criterion 21.1 liability for all SARs made to appropriate authorities, including supporting documentation, so long as Technical compliance . The safe harbor applies to 5318(g)(3) USC : 31 the reporting relates to a possible violation of U.S. law disclosures ), and to disclosures made jointly with another FI. It is not necessary (rather than reports for the report to be made in good f aith to benefit from such protection. Criterion 21.2 - Reporting entities, their directors, officers, employees, or agents that report a suspicious transaction may not notify any person involved in the transaction that such a report was made. The same pro hibition applies to government officials and employees, other than what is necessary to fulfill their official duties: 31 USC §5318(g)(2). Disclosure of a SAR and any information . Similar r that would reveal its existence is prohibited ( egulatory amendments 31 CFR 1020.320(e)) have been issued by various Federal bank regulatory agencies in conjunction with FinCEN. In addition to filing Form 8300 with the FinCEN/ IRS, firms which file the form need to furnish a written statement to each person whose name is required to be included in the Form 8300 by January 31 of the year following the transaction. However, this requirement does not apply when Form 8300 is used to (IRS Form 8300 Reference Guide) transaction . n illegal report a voluntarily Weighting and Conclusi : on All criteria are met. Recommendation 21 is rated compliant. attention, the bank should notify the appropriate federal banking and law enforcement agencies. In either case, the bank must also file a SAR”). See also FinCEN MSB Manual page 86 fn. 61 for nearly identical langu age. 100 See e.g. 12 CFR 21(c)(1). 101 See discussion in relation to IOs 4 and 6 about effectiveness of the U.S. SAR reporting scheme despite . technical compliance issues – - money laundering and counter FATF and APG 2016 © 2016 - tates S nited es in the U terrorist financing measur Anti 219

222 TECHNICAL COMPLIANCE Recommendation 22 – DNFBPs: Customer due diligence rd In its 3 : casinos were not required to perform enhanced due MER, the U.S. was rated non -compliant -r isk categories of customer, nor was there a requirement to undertake diligence (EDD) for higher CDD when there is a suspicion of ML/TF; accountants, dealers in precious metals and stones, lawyers and real estate agents were not subject to customer identification and record -keeping requirements; and DNFBP were not subject to specific obligations relating to PEPs, new technologies, introduced business and unusual transactions. - Criterion 22.1 DNFBPs are required to comply with the R.10 CDD requirements: a) Casinos: CDD requirements apply to casinos with gross annual gaming revenue in excess of 1 USD and in some instances go beyond what is required of FIs: 31 CFR § 1021.410. million There are no specific EDD requirements. tent b) Other DNFBPs: In the U.S. lawyers, company formation agents, and to a lesser ex accountants, often have a role in relation to creation, operation or management of legal persons and buying or selling of business entities. The business of acting as an agent in the formation and administration of companies is not currently subject to AML requirements, with the exception of the Form 8300 filing obligation and targeted financial sanctions obligations . Lawyers and real estate agents both have a role in relation to buying and selling are not subject to Real estate agents of real estate. Dealers in precious AML obligations. in covered goods from persons 000 50 who purchase more than USD metals and stones in gross proceeds from 000 50 other than other dealers or retailers, or receive more than USD their sale, have AML program and currency transaction reporting requirements, and are . Sectors such as in cash 000 10 required to file Form 8300 for transactions exceeding USD lawyers and accountants that do not have other AML obligations, are subject only to targeted financial sanctions obligatio to the obligation to file Form 8300 for cash ns Technical compliance transactions exceeding USD 10 000 , and may choose to use a Form 8300 as a voluntary SAR relating to structuring or any potential illegal activity. ing requirements which generally meet Criterion 22.2 - Casinos are subject to detailed record- keep on the requirements of R.11: 31 CFR 1021.410; 31 CFR 1010.410. R.11 only applies to other DNFBPs a very limited basis in relation to their obligation to file Form 8300. States regulate record retention licensed in their jurisdiction; requirements generally range from 3 to policies for rea l estate agents 5 years. States require licensed brokers to retain all listings, deposit receipts, cancelled checks, trust he agent in connection with any account records, and other documents executed or obtained by t must retain client case files. Requirements vary, lawyer transaction. They also regulate how long a but go some way towards meeting R.11. No obligations are imposed on . company formation agents No Criterion 22.3 - subject to obligations relating to R.12. DNFBPs are Criterion 22.4 - DNFBPs are not subject to obligations specifically relating to R.15. The AML program requirements for may go some way towards dealers in precious metals and stones and casinos meeting R.15 obligations for these sectors: 31CFR1021.210(b)(2)(ii) and 31CFR1027.210(b)(1)(i). Criterion 22.5 - are Casinos are not permitted to utilize third party reliance for CDD. Other DNFBPs not subject to obligations that specifically relate to R.17. Anti FATF and APG 2016 © 2016 – tates S nited terrorist financing measures in the U - money laundering and counter - 220

223 TECHNICAL COMPLIANCE onclusion: Weighting and C Only casinos and dealers in precious metals/stones are specifically covered by BSA requirements. Other DNFBPs are covered in a limited way only when reporting via Form 8300. Where there is and R.12 flow through to R.22. The assessors coverage, the deficiencies noted in relation to R10, R.11 noted the risks involving legal persons/arrangements, and to high -end real estate. In the U.S. context, often have a significant role in such matters. In company formation agents lawyers, accountants and this context, the lack of coverage of lawyers, accountants and TCSPs (other than trust companies which are depository institutions), is significant. The assessors agree there is a lesser risk related to sactions. real estate agents given their level of involvement in tran High -end real estate transactions, where there is no lender involvement but a higher likelihood of involvement of legal entities, pose a higher risk. The current GTOs also address the risk here and results should be considered by the U.S. . ding how to deal with these risks in deci -compliant. 22 is rated non Recommendation Recommendation 23 – DNFBPs: Other measures rd -compliant with these requirements: casinos were the only MER, the U.S. was rated non In its 3 ous transactions and there was a threshold on that DNFBP sector required to report suspici Technical compliance obligation; other DNFBPs were not subject to the tipping off provision or protected from liability a SAR when they choose to file ; other sectors were not required to implement adequate internal controls (i .e. AML programs); and there were no specific obligations on other sectors to give special attention to the country advisories relating to countries that have deficient AML controls. Assessors note the risks relating to legal persons and arrangements, and to some extent real estate transactions. In the U.S. context, lawyers, accountants and TCSPs (other than trust companies which are depository institutions) have a significant role in such matters, and therefore are vulnerable sectors. 000 5 above a USD are required to file SARs inos - Cas Criterion 23.1 ; threshold: 31 CFR 1021.320 however, casinos also are directed to report immediately, regardless of threshold, any transaction or activity that requires immediate attention . The same 30 and 60 day time perio ds apply to other SAR have SAR reporting as for FIs, raising similar concerns about promptness. No other DNFBPs and can reporting obligations although all must report any currency transaction over USD 10 000 ction is voluntarily indicate whether they think a transa suspicious. - Only casinos and dealers in precious metals and stones are required to: have written Criterion 23.2 AML programs which meet most of the requirements of R.18: 31 CFR 1021.210, 31 CFR 1027.210; and appoint a money laundering officer although this officer need not be at management level. Criterion 23.3 - Casinos and dealers in precious metals and stones are required to incorporate policies, procedures, and internal controls based on the institution's assessment of the ML/TF risks associated with its products and services. They do not have a specific and separate requirement to perform EDD for business relationships and transactions with persons from high risk jurisdictions. . There are no obligations on other sectors – - money laundering and counter - FATF and APG 2016 © 2016 terrorist financing measur tates S nited es in the U Anti 221

224 TECHNICAL COMPLIANCE Criterion 23.4 - Ca sinos, and any directors, officers, employees, or agents of such casinos enjoy broad protection from civil liability for making required or voluntary reports of suspicious transactions: ited from disclosing that a 31 5318(g)(3) & 31 CFR 1021.320(f). Persons filing SARs are prohib USC report has been prepared or filed, except to appropriate LEA and regulatory agencies: 31 CFR 5318(g)(2)& 31 USC 1021.320(e). Accountants, lawyers, real estate agents and TCSPs which are not depository institutions are not covered by the voluntary disclosure provisions and protections of 31 USC 5318(g). The protection from liability and tipping off provisions do not apply to businesses that complete the suspicious transaction box on Form 8300. onclusion Weighting and C Only casinos and dealers in precious metals and stones are specifically covered by BSA and requirements. Other DNFBPs are covered in a limited way only when reporting via Form 8300 for targeted financial sanctions purposes. Where there is coverage, the deficiencies noted in relation to R18, R.19, R.20 and R.22 flow through to R.23. For the reasons noted above in R.22, the lack of coverage of lawyers, accountants and TCSPs (other than trust companies which are depository institutions), and to a lesser extent real estate agents, is significant. -compliant. 23 is rated non Recommendation Recommendation 24 – Transparency and beneficial ownership of legal persons rd -compliant with these requirements. The technical deficiencies In its 3 MER, the U.S. was rated non were the absence of any measures to ensure that there was adequate, accurate and timely information on the beneficial ownership and control of legal persons that could be obtained or Technical compliance accessed in a timely fashion by competent authorities. Also, there were no measures taken by those states which permit the issue of bearer shares to ensure that bearer shares were not misused for ML. 102 is governed by S tate law. Each of the 56 S tates , - The formation of U.S. legal entities Criterion 24.1 territories lumbia has its own laws for the formation and governance of legal and the District of Co criminal law, securities e.g. Federal law also applies to them, once formed, in certain areas ( entities. Information about the types and basic features, as well as the process for regulation, taxation). available on the publicly creation and for recording and obtaining information about legal entities, is relevant website of each S .S. are the . Generally, the types of legal entities that are formed in the U tate limited liability corporation, the limited liability company (LLC), the limited partnership (LP), the limited liability limited partnership (LLLP). Corporations and LLCs are the partnership (LLP) and the most common, at well over 95% of all legal entities . While the process for obtaining and recording basic information about these entities tate for there, there is no process or mechanism in any S is and making public the process of gathering information on beneficial obtaining, recording ownership. he ML/TF vulnerabilities of all the types of legal persons that - The U.S. has assessed t Criterion 24.2 can be created and reviewed their associated risks based on LEAs’ experience in conducting financial 102 of entity that is The terms “legal entity” and “legal person” are used synonymously to refer to any form created by a filing with a State office. Anti FATF and APG 2016 © 2016 – tates S nited terrorist financing measures in the U - money laundering and counter - 222

225 TECHNICAL COMPLIANCE investigations involving legal persons. One of the typical ML methods includes creating leg al entities without accurate information being available to authorities about the identity of BO: NMLRA. Front companies, shell companies and shelf companies are misused for illicit purposes, often (in the case of and illicit profits. The U.S. has reported that shell front companies) by intermingling of licit companies (primarily in the form of corporations and LLCs) pose the biggest risk, although the risk is mitigated by some factors including the ability of LEAs to investigate relevant bank records, tax having filings and other documents to obtain information about beneficial owners, living and /or .S . operations in the U Criterion 24.3 . The requirements for creating a corporation and LLC vary from State to State. For corporations, every State requires the issuance, upon application, of a corporate governance document (“articles of incorporation,” “certificate of incorporation,” or “charter”) usually by the m Secretary of State. This contains the corporation’s name, constitutes proof of its incorporation, for and existence, address of its registered office, and number of shares. For LLCs, although requirements vary across states, the process is similar. A limited partnership (LP) can also be formed by filing a Certificate of Limited Partnership (or similar do cument) with the State company registry. The following table gives a brief snapshot of information collected at the time of formation, or 103 periodically, by States. Technical compliance Table 28 Number of states collecting the indicated information . Collected during formation Collected in periodic reports rmation Info Corporation LLC Corporation LLC 29 39 31 23 Principal office address 49 49 - - Registered agent name and address - - 12 12 Signature of registered agent 32 45 20 17 gers Names of Directors/Officers/mana This information is generally publicly available (in some cases upon payment of a fee). Also, in some States, the names and addresses of directors of corporations are publicly available. Not all e.g. information mandated under the FATF standa rds ( list of directors) is required under all State legal frameworks. However the vast majority of the S tates (45 of 50) require corporations to provide (17), a list of their directors and/or principal officers, either in their corporate governance document or periodic report (45) filed with the State. Most S tates require corporations to maintain the basic information discussed under Criterion 24.4 - ions c.24.3 either at their principal office or at an unspecified location. All the S tates require corporat to maintain a record of their registered shareholders, including names and addresses, and the tates do not require this majority of the S number and class of shares held by each. However, a information to be maintained in the U.S. 103 T he National Association of Secretaries of States (NASS) Survey . – - money laundering and counter FATF and APG 2016 - © 2016 terrorist financing measur tates S nited es in the U Anti 223

226 TECHNICAL COMPLIANCE - Whil e the founding documents described above must be filed for registration, there is Criterion 24.5 no mechanism to ensure accuracy of the same. In addition, there is no requirement to update any ng requirements changes to the list of directors/managers (other than through periodic reporti - annual or biennial) in the company registry. Criterion 24.6 - No adequate mechanisms are in place to ensure that BO information is obtained by companies and available at a specified location in the U.S. or can otherwise be determined in a timely manner by a competent authority. The exception is for issuers with securities registered with the SEC (around 8 legal entities in the U.S.), whereby any person or million 000 out of a total of around 30 group of persons who acquires either directly or indirectly the BO of more than 5% of a class of equity securities registered under Section 12 of the Exchange Act is required to file, among other things, a r of disclosure schedule with the SEC, disclosing the identity of the beneficial owner and the numbe shares they beneficially own. Additionally, section 16 of the Exchange Act applies to every person who Exchange is the BO of more than 10% of any class of equity security registered under section 12 of the ely, "reporting persons") of the issuer of such security. and each officer and director (collectiv Act , Section 16(a) also requires reporting of changes in such ownership. In addition, all public companies must disclose in their annual report the name and amount and nature of beneficial ownership of: the BOs of more than 5% of any class of the companies’ voting securities, and the company’s officers and directors. Because of the small number of public companies compared to the total population of legal entities, the assessors ascribe a very low weighting to the SEC measures. Beyond this SEC requirement, there is no requirement for other companies or company registries to obtain and hold up -to-date information on their BO or to take reasonable measures to do so. Deficiencies identified in R.10 and R.22 apply where the mechanism of using existing information (obtained by covered FIs/DNFBPs) is relied upon. In particular, it is noted that for customers that are legal persons, covered FIs/DNFBPs are Technical compliance not required to identify and take reasonable measures to verify the identity of the BOs, except in limited circumstances (c.10.10), the definition of BO in the BSA does not conform to the standard, and there is no specific obligation for any category of FI to understand the ownership and control structure of customers which are legal persons or legal arrangements (c.10.8). Consistent with c.24.6 (c), the U.S. relies on existing information collected by the IRS which requires if they have income, employees, or are otherwise required to file any legal persons to obtain a n EIN n EIN documents with the IRS. A is also required under the BSA to open a bank account. To obtain an Responsible party” is defined as the person who EIN, a legal entity must designate a “responsible party”. “ ement to, the funds or assets in the entity that, as a practical matter, has a level of control over, or entitl enables the individual, directly or indirectly, to control, manage, or direct the entity and the disposition of to the property of the entity alone, its funds and assets. The ability to fund the entity or the entitlement however, without any corresponding authority to control, manage, or direct the entity (such as in the case of a minor child beneficiary), does not cause the individual to be a responsible party). In its current form, the responsible party is not EIN is insufficient to meet this criterion because: i) the definition of a (i.e., the natural person who ultimately owns or beneficial owner consistent with the FATF definition of controls a customer need not be identified, the disclosed may be someone other than responsible party a beneficial owner, and only one responsible party needs to be disclosed even though there may be forming a IN ( e.g. several beneficial owners); and ii) not all legal entities are required to obtain an E private company to hold land does not by itself require registration with either the SEC or IRS, unless Anti FATF and APG 2016 © 2016 – tates S nited terrorist financing measures in the U - money laundering and counter - 224

227 TECHNICAL COMPLIANCE there is a lien or a mortgage on it); and it could remain as a shell after formation. The “responsible party” information is accessible by LEAs for non -tax investigations only through a court order, which the U.S. authorities state is not difficult to obtain. (a term which is not consistent with the FATF Criterion 24.7 Any changes in responsible party - IRS need to be updated within 60 days. O beneficial ther than definition of owner ) as provided to the for companies registered with the SEC, there is no separate requirement for companies or registries to obtain and keep accurate and updated BO information. State requirements create an obligation to maintain a registered office and registered - Criterion 24.8 agent at that office. As noted above, registered agents are not generally required to maintain basic or BO information, although some States require them to maintain names and addresses of directors, officers, LLC managers, etc. However, there is no explicit obligation to ensure that all basic and BO The primary purpose of registered agent s is to information is available to competent authorities. , the scope of for service of process and for delivery of tax and other official notices provide ). There are no requirements requiring companies to responsibilities does not conform to c24.8(a use the services of DNFBPs in the manner contemplated in c24.8(b); as noted these are not IN mechanism which is an option necessary for the company form U.S. The ation process. uses the E contemplated in c24.8(c), but in its current form, that mechanism is insufficient as the information it Technical compliance does not align to the FATF BO definition. collects - States retain indefinitely the information regarding legal entities. IRS maintains Criterion 24.9 EIN process indefinitely in electronic form. information collected in the Tax payers are generally required to maintain books and records for tax administration purposes (for at least 3 years from companies to maintain is no other explicit requirement for the date return is due or filed). There after dissolution . information and records for five years records of In criminal matters, Federal LEAs can utilize judicial processes to obtain Criterion 24.10 - basic and beneficial ownership through the use of a grand jury subpoena. This involves the assistance of the prosecutor, the Assistant U.S. Attorney (AUSA) assigned to the investigation. Compliance with only to the Constitutional bar against self- the subpoena is compulsory and is subject incrimination -incrimination does not extend to legal entities). In most instances, there is a date specified on the (self subpoena as the deadline to for compliance which ensures timely access to information. As part of any Federal criminal investigation, the prosecutor can also apply to a Federal court for the issue of a search warrant (supported by evidence, generally by way of affidavit) to be executed upon a legal person. In have administrative subpoena authority. some types of investigations, LEAs All States prohibit the issuance of bearer shares or similar instruments. - Criterion 24.11 Criterion 24.12 - While State law generally requires that the business and affairs of a corporation be r the direction of the directors, this does not preclude the possibility of them managed by or unde o N acting as nominees. State expressly permits corporations to use nominee directors ; neither is inee requirements for nom sing an there express bar against them. There are no licen directors/nominee shareholders or requirements for them to disclose the identity of nominator. There are no other mechanisms to ensure compliance. – - money laundering and counter - FATF and APG 2016 © 2016 terrorist financing measur tates S nited es in the U Anti 225

228 TECHNICAL COMPLIANCE -compliance with tax filing requirements, IN will result in non Failure to obtain an E Criterion 24.13 - an and civil and criminal penalties, provided that the legal person is conducting activity which requires EIN IN, and there are no penalties for not . However, not all legal entities are required to obtain an E 104 information. Failure to file an as ‘beneficial owner’) updating ‘responsible party’ (which is not same annual report to State authorities may lead to dissolution of the company: Model Business Corporation Act (MBCA) provisions 14.21, by and it is a misdemeanor to sign a false document which is punishable There are some increased penalties for intentional disregard a fine (no amount is mentioned therein). of applicable information reporting rules. Such penalties are not proportionate and dissuasive. g the DOJ Office of International Affairs (OIA), U.S. competent authorities, includin Criterion 24.14 - provide international cooperation, including investigative support to identify and share, as appropriate, basic and BO information. Most often, information identifying the individuals who own gal entity is found through competent authorities exercising their investigative powers or control a le on behalf of foreign counterparts. With court approval, this can include compelling testimony, s not always rapid and the seizing evidence, and freezing funds. The provision of this information i information required may not always be available. Criterion 24.15 - The DOJ OIA makes and responds to requests for assistance involving other countries and monitors quality of assistance received. Weighting and Conclusion: ing major gap is the generally unsatisfactory measures for The ensur that there is adequate, accurate and updated information on BO ( can be obtained or accessed by as defined by the FATF) which competent authorities in a timely manner. Other gaps are in the area s of basic information being Technical compliance obtained by State registries, absence of licensing or disclosure requirements for nominee shareholders/ directors, no requirement for companies to maintain register of shareholders and within the country. Recommendation . compliant non- 24 is rated Recommendation 25 – Transparency and beneficial ownership of legal arrangements rd -compliant with these requirements. The technical deficiency In its 3 MER, the U.S. was rated non was that, although the investigative powers noted were generally sound and widely used, there was minimal information concerning the beneficial owners of trusts that could be obtained or accessed by the competent authorities in a timely fashion. Trusts in the U.S. are governed primarily by State law, whether expressly enacted into Criterion 25.1 - States have enacted versions of out of the 50 legislation or consisting of common law. A total of 31 (the UTC), which is primarily a default statute with most of it s the Uniform Trust Code of 2000 provisions being subject to the terms of the trust (see UTC 105(b) for exceptions). The trust law of State law the remaining 19 states is based on common law, or their own individual codification. -813 of UTC). section 801 e.g. rustees ( ) imposes fiduciary duties on t (statute law or common law 104 Also see IMF FSAP Technical Note on AML/CFT: July 2015. Anti FATF and APG 2016 © 2016 – tates S nited terrorist financing measures in the U - money laundering and counter - 226

229 TECHNICAL COMPLIANCE hese duties include keeping records and informing and reporting to the 25.1 a) and (b): T but do not explicitly require trustees to obtain and hold adequate, accurate and current beneficiaries information on the ident ity of other regulat ed agents of trust service providers, a protector, if any, all beneficiaries, or the identity of any natural person exercising ultimate effective control over the There may be a trust instrument that sets out the identity of the settlor, the trustee and the trust. terms of the trust, which may refer to a beneficiary or class of beneficiaries, but this is not a legal requirement and parties may rely upon other evidence to prove the existence of a trust (section 103(18) of UTC). 25.1 (c): In the U .S ., the only identifiable group of professional trustees is trust companies, which are explicit fiduciary (trust) powers to act as trustee. However, the BSA does not impose FIs with obligations on trustee s. Professional trustees are subject to th e Covered FI obligations when dealing with clients and this extends to their role as trustee. The UTC and the common law obligate trustees to keep adequate records and to keep Criterion 25.2 - to keep records for a period of at . Trust companies are required beneficiaries reasonably informed least 3 years following the termination of the account. State chartered trust companies are subject to the relevant State’s record -keeping requirements , but while there are no explicit obligations to keep , it would be information acc urate and as up -to-date as possible and to update it on a timely basis Technical compliance necessary for trust companies to do so in order to comply with the explicit obligations mentioned in need to be the preceding paragraph. R ecords of receipt, disbursement and assets of the trusts may maintained for tax administration purposes . Criterion 25.3 - Subsections 810(b) and (c) of the UTC require that trustees ensure that the trust interest appears in third party records, including banks, but this requirement may be overridden by the terms of the trust. There is no provision in the BSA that obligates trustees (aside from trust and DNFBPs when forming a business FIs their status as trustee to e ) to disclos companies relationship or carrying out an occasional transaction . Criterion 25.4 - Trustees are not prevented by law from providing information relating to the trusts to the competent authorities. Competent authorities can access information through court order. LEAs and other competent authorities can also compel pr oduction of financial records by issuing administrative, grand jury or civil subpoenas. LEAs have powers of search and seizure in appropriate cases. There is no law that would prevent a trustee from providing FIs and DNFBPs upon request, with information on the BO or the assets held under the trust . Criterion 25.5 - LEAs can obtain relevant information held by trustees, and other parties, including FI and DNFBPs, regarding trusts created in, or operating in, the U.S., including information on the residence of the trustee and any assets held or managed by a FI or DNFBP. Information on the ultimate beneficial owner with effective control may not be available, as it is not required to be kept by trustees (ref. c25.1). Competent authorities can use judicial processes to request a warrant to compel a search or seizure, or a subpoena to require testimony be given or records produced. Access to information may not be timely in all cases since this would largely depend on whether the LEA knew that a person or entity was a trustee. U.S. competent authorities, including DOJ OIA, provide international co The - - Criterion 25.6 operation. This co -operation includes investigative support to identify and share, as appropriate, – - money laundering and counter - FATF and APG 2016 © 2016 terrorist financing measur tates S nited es in the U Anti 227

230 TECHNICAL COMPLIANCE information regarding the relevant parties associated with trusts and other legal arrangements that have a presence in the U.S. It may be necessary for there to be a substantial investigation using investigative powers to obtain any available information and beneficial ownership information may not be available. On that basis, it cannot be said that the information will be provided rapidly. Further, intercept evidence is not available in respect of a MLA request. Criterion 25.7 The trustee, as title holder to the assets of the trust and signatory on tru - st accounts, is directly and personally responsible for the trust assets and the fulfilling the terms of the trust. There are proportionate and dissuasive sanctions for the failure of a trustee to perform his fiduciary duties Those sanctions including failure to obtain and maintain information on the parties to the trust. include being removed as trustee, having to refund to the trust all trustee fees and commissions, However, c25.1 to potential monetary damages and even criminal penalties in the event of fraud. have gaps in coverage, for which there are no proportionate 25.3 or dissuasive sanctions. Criterion 25.8 - BSA sanctions only apply to trust companies . Tax laws provide proportionate and n: a fine of up to USD 1 000 or a prison dissuasive sanction for denying IRS timely access to informatio sentence of up to 1 year, or both, together with the costs of prosecution for failing to comply with an IRS administrative summons; and a fine of not more than USD 25 000 ( USD 000 in the case of a 100 corporation) or imprisonment for less than 1 year, or both, together with the costs of prosecution for the misdemeanor of failing to supply information at the time required by law or regulations. If a summoned party does not comply with a U.S. court order to produce the requested information, the U.S. court has inherent powers (under U.S. common law) to impose so -called “civil society” sanctions, i.e., daily impositions of fines and/or incarceration, until the summoned person complies with the court’s enforcement order. Technical compliance Weighting and Conclusion: Although there are general fiduciary obligations imposed on trustees, these generally address trust law broadly; but do not appear to address obligations on trustees to obtain and hold adequate, accurate and current information on the identity of regulated agents of the trust, service providers, a protector, if any, all beneficiaries, or the identity of any natural person exercising ultimate effective control over -to-d ate only apply to trust companies. the trust. The obligations to keep information accurate and up Trust instruments that could block the ability of trustees to provide information about the trust to FIs and DNFBPs upon request are not prohibited. LEAs can obtain relevant information provided they know whether a person is a trustee, but there is no enforceable obligation on trustees (apart from trust companies) to declare their status to FIs. Due to the foregoing issues, it cannot be said that information will be provided to foreign authorities rapidly. There are requir ements in banking, trust, and tax law that, taken together, meet the 5 year records retention standard but these only apply to trust companies for the most part. The UTC requires trustees to identify property subject to a trust, but that obligation can be overridden by the terms of the trust. It is not known how this provision has been implemented by the non - UTC States. Information may not be obtained in a timely manner or at all in some cases. Overall, it is difficult to weight the impact of the trust com pany obligations as there is no information on the total universe of trusts that are subject to U.S. law. 25 is rated partially compliant. Recommendation Anti FATF and APG 2016 © 2016 – tates S nited terrorist financing measures in the U - money laundering and counter - 228

231 TECHNICAL COMPLIANCE Recommendation 26 – Regulation and supervision of financial institutions rd MER, the U.S. was some securities sector as rated largely compliant with these requirements In its 3 participants were not subject to supervision for AML/CFT requirements. -01), and has authority to examine - Criterion 26.1 administers the BSA (Treasury Order 180 FinCEN 105 for compliance with the BSA and those all financi al institutions subject to its regulations implementing regulations (31 CFR Chapter X) and to take enforcement actions for violations. FinCEN FBAs, SEC, CFTC, IRS has delegated BSA examination authority (31 CFR §1010.810) to -SBSE and 106 authority is in practice -SBSE IRS FHFA , but has retained AML/CFT civil enforcement authority. limited to MSBs, as it no longer examines life insurance companies (now conducted by State life retains insurance prudential supervisors through the NAIC methodology). However, IRS -SBSE authority to conduct life insurance company AML/CFT exams , if requested by the States or directed have independent authority to charter, supervise, and insure most depository by FinCEN. also FBAs FIs. SEC and FINRA oversee the securities sector. SEC also has oversight authority over FINRA. Certain intra -State broker dealers, operating only in one State are not registered/regulated by the 107 oversees derivatives markets. FCMs and IBs are covered FIs subject t o BSA CFTC SEC. requirements. CFTC has further delegated examination authority to SROs: the NFA , and the Chicago Mercantile Exchange Group (CME Group) . The CFTC oversees NFA and CME Group. Technical compliance Criterion 26.2 - The U.S. does not permit shell banks to be established at the National or State level, /continuing correspondent banking relatio and prohibits U.S. FIs from entering into nships with are the FBAs, SEC and CFTC . foreign shell banks: s.313 USA PATRIOT Act & 31 CFR §1010.630 and the S relevant Core Principles ( ) supervisor s at the Federal level CP tate banking and life 108 . All CP supervisors have authority to licence and supervise insurance supervisors at the State level FinCEN their respective sector participants. All MSBs must register with . MSBs are licenced by 47 States and in the District of Columbia and in all other U .S. territories. At the time of the on -site visit , 109 Montana, New Mexico and South Carolina did not license or register money transmitters. Criterion 26.3 - FBA fit & proper processes involve evaluating pro posed directors and senior management with respect to expertise, integrity, and any potential for conflicts of interest, 105 n securities; (3) MSB; (4) telegraph For this purpose, FIs include any : (1) bank; (2) broker or dealer i company; (5) casino; (6) card club; (7) futures commission merchant, (8) introducing broker in commodities, (9) mutual fund, (10) life insurance company; (11) dealer in precious metals; (12) operator of a credit card system; (13) residential mortgage loan originator; and (14) housing government sponsored enterprise. 106 -SBSE routinely examines casinos and MSBs for BSA compliance and is able to examine any entity that IRS inCEN authority. does not have a federal functional regulator, per F 107 However, this exception from registration is very narrow; since to qualify, all aspects of all transactions -dealer cannot must be done within the borders of one state. Thus without SEC registration, a broker participate in any transaction executed on a national securities exchange or Nasdaq. Also, information posted on the Internet that is accessible by persons in another state would be considered an interstate offer of -dealer remains securities or investment services that would require SEC registration. An intrastate broker subject to the State registration requirements where it conducts business. 108 CP financial sectors comprise depository FIs, the securities industry, and the life insurance sector. 109 reported that MSBs in New Mexico and South Carolina are now covered -site, authorities Since the date of on under licensing regime as per the legislative amendments in these states. – - money laundering and counter - FATF and APG 2016 © 2016 terrorist financing measur tates S nited es in the U Anti 229

232 TECHNICAL COMPLIANCE consideration of reputation for honesty and integrity. The processes include obtaining details on educational and professional ex perience, completing fingerprint cards, and having LEAs their conduct background checks. The processes are applied by all relevant FBAs which often overlap or duplicate processes. In addition, the Change in Bank Control Act is designed to ensure the probity of 110 Lastly, a persons taking a significant or controlling interest in a bank or a bank holding company. s involving dishonesty, breach of trust or ML or who has person convicted of any criminal offense trial diversion or similar program is pr entered into a pre- ohibited from owning or controlling, directly or indirectly, an insured institution, or otherwise participating, directly or indirectly, in the conduct of affairs of an insured institution: s.19 FDIC Act. This also applies to holding companies: t 12 USC. §1829. s.19 FDI Ac can deny registration to SEC and FINRA In the securities sector , the impose limitations on entities and individuals that have engaged in certain misconduct, and ing engag : Sections 15(b)(4) and 15(b)(6) of the associated individuals for in certain misconduct , sections 9(b) and 9(d) of the Advisers Act Exchange Act -(k) of the , sections 203(e) -(f) and 203(i) Investment Company Act , NASD Rules 1014 and 1017 . In the derivatives sector , CFTC i s specifically ir authorized to refuse to register person s convicted of certain crimes, and to suspend or modify the registration. State uses the Biographical Affidavit (containing every For life insurance companies, State . background information from persons seeking ownership or management position) are also required to be notified of changes in officers and directors via regulators insurance quarterly and annual statements and, states hree : t MSBs For in some states, upon request. at the time of the on d id not conduct criminal background checks as they d id not licence money -site visit, transmitters. In all other states and t erritories, background checks are completed prior to the issuing of licenses, which include criminal background checks. Further, under the BSA, MSBs are also required to complete an initial registration with FinCEN and renew that registration every two years. Technical compliance FIs are subject to the following: - Criterion 26.4 a) Core Principles Institutions : FBAs coordinate their AML/CFT supervision through the FFIEC structure and follow the FFIEC BSA Examination Manual. FBA examinations are conducted every 12 -18 months, with the methodology following a RBA. SEC examines registered broker Os which have their own compliance monitoring dealers and mutual funds and oversees SR responsibilities for broker -dealers. In the insurance sector, life insurance companies are supervised by State insurance supervisors as requested by FinCEN. The State insurance e.g. supervisors include such reviews as part of their regular, standard NAIC examination ( existence of AML programs, r isk assessments, independent test plans and its results, record - keeping and internal controls etc.). State banking authorities supervise compliance with BSA/AML requirements at most of the State banks not subject to Federal oversight. itutions: b) O ther financial inst CFTC’s regulatory scheme relies on the supervision activities of . While examination of RMLOs falls the SROs (NFA and CME) and its oversight over SROs within the delegation to the IRS, it is yet to commence. The supervision of housing GSEs is by FHFA in coordination with FinCEN in accordance with its examination manual. done 110 12 USC 1817(j). Similar criteria exist in securities and derivatives sectors: ss.15(b)(4) & 15(b)(6) of the Exc Advisers Act -(k) of the , NASD Investment Company Act -(f) & 203(i) , ss.203(e) hange Act , ss.9(b) & 9(d) of the USC § 12a(3), (5) & (11). Rule 1014, FINRA Rule 8310, CEA ss.8a(2), (3) & (11), 7 © 2016 – S nited terrorist financing measures in the U - money laundering and counter - Anti FATF and APG 2016 tates 230

233 TECHNICAL COMPLIANCE Supervision and regulation of the MSB sector occurs through coordination between FinCEN, -SBSE, IRS and the State regulatory authorities. - FBAs have authority to Criterion 26.5 conduct more frequent examinations based on the its supervisory strategy, institution’s risk profile, the application of an enforcement action, the introduction of new product or service offerings, the identification of ML/TF risks by LEAs in regional or local jurisdictions surrounding the institution and similar issues. SEC -OCIE uses a risk - based approach for selecting firms for examination and draws on a variety of data sources for this . -based, and the frequency a FINRA examinations are risk of an examination ranges over Additionally, 1- the BSA Manual makes it clear that intensity of supervision is MSBs, 4 year cycle. In relation to is subject to a lighter touch supervisory regime appropriate to insurance sector based on risk. The ns . the applicable obligatio are required by the statute to include reviews of BSA compliance programs in FBAs Criterion 26.6 - monitor major events or developments through ongoing prudential their examinations, and For other FI sectors , similar requirements apply, supervision of operations and management. though it is unclear if a review of risk assessment is triggered by major events or developments in life insurance sector FIs. For the , State insurance regulators include as part of their regular, standard NAIC examination a review of the existence of AML risk assessments and internal controls. Technical compliance Federal supervisory role is reliant on input from State supervision. The IAIS FSAP of 2015 noted The inCEN and State life insurance supervisors. there were 11 MOUs in place between F Weight ing and Conclusion: Not all investment advisers are covered. At the time of on -site, three States did not license MSBs, resulting in no background checks. Recommendation 26 is rated largely compliant. Recommendation 27 – Powers of supervisors rd MER, the U.S. was rated compliant with these requirements. In its 3 - Criterion 27.1 The Treasury has delegated to FinCEN the authority to implement, administer and §1010. CFR 1 §5318(a)(3) & 3 enforce BSA compliance with respect to all Covered FIs: 31 USC FinCEN has delegated BSA examination authority to the FFR and to the IRS for other covered non - bank FIs, except for life insurance companies. For life insurance companies, FinCEN relies on State BSA obligations and report non- compliance issues insurance supervisors to assess compliance with to FinCEN. It has retained BSA enforcement authority in all delegated cases. The FBAs have their own independent and generally uniform regulations requiring implementation of a BSA/AML compliance -compliance. While banks most depository FIs, and can take enforcement action for non program by -chartered banks and credit unions are may also be chartered by State authorities, a majority of State subject to supervision by an FBA if they are insured by the FDIC, or the NCUA. Most States also conduct BSA/AML examinations under State statutes that require compliance with the BSA. The SEC and FINRA have examination and enforcement authority for compliance with BSA requirements. atives) and IRS -NFA and CME group (for deriv CFTC and SROs -bank -SBSE (for MSBs and other non – - money laundering and counter - FATF and APG 2016 © 2016 terrorist financing measur tates S nited es in the U Anti 231

234 TECHNICAL COMPLIANCE -SBSE has FIs) have examination authority for BSA compliance and applicable SRO rules. While IRS no enforcement authority, it can refer cases to FinCEN for civil enforcement and FinCEN in turn, can issue a w arning letter, or assess a penalty. In the MSB sector, many States also conduct on -site examinations, sometimes in a coordinated manner, through the Nationwide Cooperative Agreement which provides a framework for conducting a single exam by multiple States. Criterion 27.2 - FBAs have their own independent authority to conduct inspections of FIs under their domain, aside from FinCEN’s delegated authority. Such reviews are performed during on -site examinations, as required by statute. SEC, CFTC (along with SROs), IRS and State regulators have their own authority to conduct reviews both under BSA and their own regulations and rules, wherever applicable. FinCEN and any delegated agency may examine - Criterion 27.3 rds, or other any books, papers, reco data of FIs relevant to the BSA record -keeping or reporting requirements. For any investigation for s or any person in civil enforcement of the BSA, FinCEN may summon a FI/ any of its employee possession of BSA records to give testimony and pr oduce records. FBAs have separate broad statutory authority to examine all books and records of regulated FI. In addition, FIs must respond to requests for information within 120 hours after receiving the request from a FBA. FBAs also have investigation authority, permitting them to take sworn testimony and issue subpoenas for the production of documents from third parties. In the derivatives sector, every FCM and IB that conducts business with the public must become a NFA member, comply with its rules and cooperate with it in any investigation, inquiry, audit, examination or proceeding. SEC has broad access to its registrants’ books and records and also has broad investigation authority. Under its subpoena ts or testimony from any person or entity authority, SEC can compel the production of documen Technical compliance anywhere within the U.S. In addition, FINRA also has the right of inspection and to require a member/associated person, or other person under its jurisdiction to provide information and to -SB SE can issue summons and receive evidence and examine witnesses. State testify. For MSBs, IRS regulators also generally have full access to the books and records of MSB licensees. State life insurance supervisors have authority under their governing legislation to require life insurance companies to produce any documents required for supervisory purposes. FinCEN is authorized to assess CMPs against Covered FIs and DNFBPs, and their Criterion 27.4 - partners, directors, officers, or employees for willful or negligent BSA violations. For criminal liability, FinCEN may pass the matter to the DOJ. FinCEN is authorized to subject unlicensed MSB providers to civil or criminal penalties. State banking regulators also have broad enforcement powers under State law. For life insurance companies, FinCEN has retained the authority to enforce sanctions for BSA violations. FBAs can bring informal and formal action. This includes cease and desist (C&D) orders, CMPs, barring individuals from employment within the industry, restricting or suspending the operation of the institution, revoking the license of the institution (all formal), reprimanding individuals (formal/informal) or referral of the matter to FinCEN for possible CMPs, or a combination of these actions. For the derivatives sector, both CME Group and NFA may file disciplinary complaints against their members for violations of AML program rules. The CFTC has broad sanction authority, including the imposition of CMP. In the securities sector, remedies and sanctions a vailable to SEC are broad and include disgorgement of ill -gotten gains, CMP, compliance with undertakings, imposition of limitations of activities, and C&D powers. Registration of regulated money laundering and counter FATF and APG 2016 © 2016 – - tates S nited terrorist financing measures in the U Anti - 232

235 TECHNICAL COMPLIANCE entities may be suspended or revoked, and regulated individuals may be subject to industry- wide bars or suspensions. FINRA’s sanction powers include fines against member firms/associated persons, their suspensions/ bars and undertakings (e.g. review and revise AML procedures or undertake AML training). : lusion Weighting and Conc . four criteria are met. All 27 is rated compliant. Recommendation Recommendation 28 – Regulation and supervision of DNFBPs rd In its 3 MER, the U.S. was rated partially compliant with these requirements as there was no regulatory oversight for AML/CFT compliance for accountants, lawyers, real estate agents or TCSPs, and the supervisory regime for Nevada casinos was not harmonized with the BSA requirements. Criterion 28.1 Casinos in the U.S. must be licensed under the laws of the State, territory, o r tribe - 111 The State gaming commissions investigate the qualifications of the license where they are located. applicants prior to issuing a casino license. They also issue and administer regulations on the types Technical compliance of games that can be offered, consumer protect ion, and internal casino controls. Most licensed gambling in the U.S. takes place on lands administered by 246 Native American tribes. States regulate tribal gaming at a level negotiated through tribal/State compacts. The Federal government regulates it th rough: a) The National Indian Gaming Commission (NIGC), which is the primary F ederal regulator, providing oversight, reviewing licensing of gaming management and key employees, management contracts (25 USC 2711), and tribal gaming ordinances; -state compact process, and reviews The Department of the Interior, which oversees the tribal b) and approves compacts; c) The Treasury which, through FinCEN, regulates and supervises casinos and card clubs for compliance with the BSA; and d) The DOJ, which, through the FBI, has Fe deral investigative jurisdiction over criminal acts directly related to Indian gaming establishments. The BSA regulatory requirements for casinos and card clubs include requirements for a) an AML program: 31 CFR 1021.210 b) currency transaction reporting: 31 CFR 1021.311 c) suspicious activity reporting: 31 CFR 1021.320; and d) record -keeping: 31 CFR1021.410. FinCEN has delegated to the IRS BSA compliance examination authority for institutions not under the supervisory self authority of a Federal regulator or a -regulatory agency, including casinos and card clubs with 41, 31 CFR 1010.810(b)(8). OFAC 1 annual gaming revenue over USD million : Treasury Directive 15- 111 23 States license commercial casinos: Colorado, Delaware, Florida, Illinois, Indiana, Iowa, Kansas, Louisiana, Maine, Maryland, Michigan, Mississippi, Missouri, Nevada, New Jersey, New Mexico, New York, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Dakota, and West Virginia. Source: 2013 American Gaming Association State of the States Survey – - money laundering and counter - FATF and APG 2016 © 2016 terrorist financing measur tates S nited es in the U Anti 233

236 TECHNICAL COMPLIANCE has delegated to the IRS authority to review compliance with U.S. economic sanctions: Treasury Dir ective 15 -43. Criterion 28.2 and 28.3. FinCEN administers the BSA regulatory requirements for dealers in - precious metals, precious stones, or jewels, which include requirements for a) AML program 31 CFR record- 1027.210; and b) Form 8300: 31 CFR 1010.330; and c) keeping: 31 CFR 1010.410. FinCEN has delegated authority to IRS to examine dealers in precious metals, precious stones, or jewels (as -financial trades and businesses), for compliance with Form 8300 reporting well as all other non USD 000 requirements 10 . whic h require them to file reports for currency received in excess of DNFBPs Beyond this, , most of which are much higher risk than dealers in precious metals and stones are not subject to AML/CTF obligations and not monitored for compliance . erion 28.4 - Other than the customer identification and record -keeping requirements associated Crit 8300, broader AML/CFT requirements have not been extended to any with the filing of Form stones. FinCEN has broad category of DNFBP, other than casinos and dealers in precious metals and has no -SBSE powers to supervise dealers in precious metals and stones for AML/CFT purposes. IRS violations, only FinCEN has that authority. over Title 31 BSA civil enforcement authority IRS -SBSE . When indicators reports Title 31 civil violations d uring and after their BSA examinations to FinCEN -SBSE will refer the case to IRS -CI for of potential fraud are identified during an examination, IRS criminal enforcement consideration. The Director of FinCEN, and any agency to which examination has been delegated, may examine any books, papers, records, or other data of non -financial trades or -keeping or repo businesses relevant to the record . FinCEN rting requirements of the BSA: see R.35 participates in non -bank examinations for selected matters. For any investigation for civil enforcement of the BSA, the FinCEN Director may also summon any person in possession of BSA Technical compliance 112 . FinCEN is also authorized to assess civil records to give testimony and produce these records money penalties against a non- financial trade or business, or a partner, director, officer, or employee of a non -financial trade or business for willful or negligent violations of the BSA:31 USC 5321; 31 CFR 1010.810(d)), 31 CFR 1010.820(h). Attorneys and accountants are subject to various state licensing and disciplinary regimes which would meet the requirements of 28.4(b). Company formation agents who act as registered agents are subject to registration requirements through the Secretary of State in some States. Though no criminal ba ckground check is done, they can be delisted if concerns arise. Real estate agents are also generally licensed through Secretaries of State which may require a criminal background check. - Criterion 28.5 supervision of casinos and -based approach to the AML/CFT The U.S. takes a risk dealers in precious metals and stones. The basic examination process is described in the IRS BSA 113 Other DNFBPs are subject to supervision only in respect of Form 8300 Examination Manual. reporting obligations. Weighing and C onclusion : There has been significant focus on the casino sector with excellent results however other sectors such as dealers in precious metals and stones have not been subject to similar focus and action. 112 31 USC 5318(a)(4),(b),(c),(d),(e); 31 CFR 1010.911 -917. 113 -026 http://www.irs.gov/irm/part4/irm_04 -006.html Anti FATF and APG 2016 © 2016 – tates S nited terrorist financing measures in the U - money laundering and counter - 234

237 TECHNICAL COMPLIANCE as a result of their limited obligations. This is a Other DNFBPs are subject to only limited supervision fundamental deficiency when looked at in the context of risk relating to legal persons and high -end real estate in particular. 28 is rated non Recommendation -compliant . telligence units Recommendation 29 - Financial in rd MER, the U.S. was rated as largely compliant on the basis of technical deficiencies related to In its 3 the sharing of terrorism -related requests of information from foreign FIUs to LEA without prior approval from said FIUs. Since then, the FATF standards have been significantly strengthened, imposing new requirements focused on the FIU’s strategic and operational analysis functions, and powers to disseminate information upon request and request additional information from reporting entit ies. The U.S has established an FIU (FinCEN) responsible for Criterion 29.1 - maintaining, collecting, processing, storing , analyzing and disseminating the financial and other information collected under the BSA and other authorities, relating to the analysis or investigations of illicit finance (including ML 310(b). USC 31 : and TF) Technical compliance FinCEN is the central repository for reporting and disclosures filed by reporting - Criterion 29.2 114 including: currency and other reporting information entities pursuant to the BSA including SARs 115 ); ; CTR Filing Exemption Form (Designation of Exempt Persons 000 on CTRs 10 USD exceeding ); Foreign Bank Report of International Transportation of Currency or Monetary Instruments (CMIR 116 117 ; and Registration of MSBs . FinCEN is also the repository for Report of Account Report (FBAR) 118 which is also filed (Form 8300) Received in a Trade or Business 000 10 Cash Payments over USD with the IRS. FinCEN has access to a broad array of information needed to conduct its analysis Criterion 29.3 - operly including both direct and indirect access to a wide range of financial, administrative, pr FinCEN can request all supporting documents commercial and LEA databases and/or information. 114 ude banks, casinos and card clubs, money services Institutions and DNFBPs required to file SARs incl businesses (except check cashers,) brokers or dealers in securities, mutual funds, insurance companies, futures commission merchants and introducing brokers in commodities, loan or finance companies, and housing . and casinos: 31 CFR 1021.311 31 CFR 1010.311 government sponsored enterprises, U.S. Postal Service; 115 -broker dealers, mutual funds, futures commission merchants and For depository institutions, securities introducing brokers in commodities, MSBs, and casinos. For CTR filing obligations for financial institutions other than casinos, see 31 CFR §1010.311. For CTR filing obligations for casinos, see 31 CFR §1021.311(a) -(c). 116 Both CMIR and FBAR individual reporting requirement legal and natural person: CMIR: 31 CFR §§1010.306(b), CFR1010.306(d) and FBAR: 31 CFR 1010.306(c) -(e ). 117 -(f). The registration of money services businesses requirement is available at 31 CFR §1022.380(a) 118 Applicable to life insurance companies; dealers in precious metals and stones; operators of credit card 31 CFR §1010.330 & 31 USC systems; and loan or finance companies, and all non- financial trades and businesses : 5331 . – - money laundering and counter - FATF and APG 2016 © 2016 terrorist financing measur tates S nited es in the U Anti 235

238 TECHNICAL COMPLIANCE 119 related to the filing of a SAR and may also access some records fro m reporting entities. Furthermore, FinCEN is able to combine its several authorities to obtain additional information from reporting entities in relation to specific ongoing cases/investigations (see IO .6 analysis). These 120 122 121 , FFA rules and , Demand Letters information information gathering powers inclu de GTOs 123 (see IO.6). under s.314(a), USA PATRIOT Act sharing authority -based approach to analy sing SARs, devoting its analytical - Criterion 29.4 FinCEN applies a risk aluable to FinCEN and LEAs -driven resources to those SARs considered most v . It produces data tactical, operational and/or strategic reports employing advanced analytics to identify trends, patterns and explain priority threats to the financial system. The format, length and depth of these strateg ic and operation products depend on the target audience. - FinCEN disseminates a wide variety of products and information both spontaneously Criterion 29.5 , BSAAG and requesting countries (via the and /or upon requests to competent authorities LEAs secure E gmont Group or FinCEN attachés). F ederal, S tate and local competent authorities have, by agreement, direct access to FinCEN databases and its financial intelligence information through its secured website (FinCEN portal). Criterion 29.6 - FinCEN protects information in the following ways: There are multiple rules, guidelines , principles in place governing the information security a) by and confidentiality, along with training and monitoring of access to and use of the database personnel Federal, State, local and agency . FinCEN staff must undergo a security clearance which is regularly re -adjudicated. Staff b) receives annual training on security- related issues, including document handling and Technical compliance confidentiality. FinCEN personnel have a duty not to disclos e official information without proper authorization: 31 CFR §0.206 Part I, Subpart B. Access to FinCEN facilities and information, including IT systems, is secured, protected and c) restricted. FinCEN is operationally independent and autonomous: - Criterion 29.7 The Di rector of FinCEN possesses full authority, powers, and duties to administer the affairs a) -01 . Treasury Order 180 and §310 USC 31 and to perform the functions of FinCEN freely: The Director of FinCEN can sign, on his b) /her own authority, non -binding MOUs with domestic , foreign FIU counterparts and foreign AML/CFT financial supervisory competent authorities agencies. 119 31 CFR §1020.320(d) and (e)(depository institutions); 31 CFR §1023.320(d) and (e) (brokers or dealers in securities); 31 CFR §1022.320(c) and (d) (MSBs); 31 CFR §1021.320(d) and (e) (casinos) and 31 CFR insurance §1025.320(e)( companies) 120 -01. 31 USC § 5326(a); 31 CFR § 1010.370; Treasury Order 180 121 12 USC § 1829b (b)(3)(C); 31 CFR § 1020.410(a); 31 CFR § 1010.410(e). See also 12 CFR § 219.23. 122 31 USC § 5314; 31 CFR § 1010.360 123 ; 31 CFR § 1010.520. (Notes) Codified at 31 USC § 5311 tates FATF and APG 2016 © 2016 – S nited terrorist financing measures in the U - money laundering and counter - Anti 6 23

239 TECHNICAL COMPLIANCE c) FinCEN’s powers and duties are separated and distinct from those of other units within the Treasury: 31 USC §310. d) FinCEN’s budget is separate from that of the Treasury. FinCEN is able to spend its budgetary appropriations , deploy necessary resources and make operational decisions to carry out its functions as it sees fit. Criterion 29.8 - FinCEN is a founding and active member of the Egmont G roup. Weighting and Conclusi on : criteria are met. All eight Recommendation 29 is rated compliant . Recommendation 30 – Responsibilities of law enforcement and investigative authorities rd MER, the U .S. was rated compliant with these requirements. The FA TF standards in this area In its 3 were considerably strengthened in 2012. Criterion 30.1 DHS has designated DOJ, .S. The U - , Treasury and USPS as responsible for investigating Technical compliance , TF and associated predicate offense ML ); 18 USC 18 USC 1956(e) and 1957(e); 18 (1956)(c)(7)(d s: The DOJ is the central authority for prosecuti 2339B(e). ederal laws, including the violations of F ng Federal ML and TF offense s. The FBI is the principal investigative arm within the DOJ to conduct criminal investigations of over 200 F ederal crime s. It also has authority to investigate all federal crimes not assigned exclusively to another Federal agency. The remit of DHS (HSI -CI, ICE, USSS), the DOJ (DEA) and Treasury (IRS -CI, USPIS) are described in Chapter 1–Legal institutional framework section . State and local enforcement agencies can work on ML cases on their own (in States criminalizing ML) or with Federal authorities on both ML and TF in the context of task forces. lel financial Criterion 30.2 All Federal LEAs noted above are authorized to pursue paral - Federal criminal prosecutions are handled by the U.S. Attorney’s investigations. The vast majority of Office (USAO) does not have the occurred. Where the USAO in the district where the offense F can be referred to the DOJ y cases, the expertise or resources to handle complex ML and T . –see Chapter 1) including the Asset Forfeiture and Money Laundering Section (AFMLS headquarters .S. has designated competent authorities to expeditiously identify, trace and The U Criterion 30.3 - initiate freezing and seizing of property that is, or may become, subject to confiscation or is suspected of being proceeds of crime. All F s ederal agencies have access to basic investigative tool nd forfeit property including grand jury and administrative subpoenas and have authority to seize a . as described via criminal or civil procedures as set out in R.4 FinCEN and the enforcement divisions of both SEC and OFAC exercise investigative Criterion 30.4 - functions and can complement law enforcement efforts aimed at targeting illicit financial networks. FinCEN conducts parallel financial investigations for BSA violations related to law enforcement investigations into underlying criminal activity. The SEC is responsible for detecting and investigating potential violations of the Federal securities laws and regulations, and for civil and administrative enforcement actions. The CFTC investigates and alleged violations of the CEA and – - money laundering and counter - FATF and APG 2016 © 2016 terrorist financing measur tates S nited es in the U Anti 237

240 TECHNICAL COMPLIANCE Commission regulations and can take civil enforcement action. Both the CTFC and SEC can provide assistance on criminal matters to the DOJ and they are both able to obtain non -public information, including bank records, and testimony from individuals and entities. OFAC has the authority to inst U.S. persons that conduct conduct civil investigations and impose administrative penalty aga business in, to, or through the U. S., including FIs that fail to properly to apply TFS and sanction programs. rruption to s arising from co The U.S. allocates authority to investigate ML/TF offense - Criterion 30.5 including the FBI as – the leading enforcement agency handling public corruption the relevant LEAs and relevant DOJ sections (AMFLS, the Public Integrity Section and the Fraud Section) – all of which have the required powers to related to identify, trace and initiate freezing and seizing of assets and FBI’s International LEAs e three DOJ units corruption at their disposal. Th partner with relevant in their investigations. Corruption Squads onclusion Weighting and C : . e criteria are met All fiv Recommendation 30 is rated compliant. Recommendation 31 - Powers of law enforcement and investigative authorities rd In its 3 which were expanded MER, the U.S. was rated compliant with these requirements substantially in 2012 and now require LEAs to have a much wider range of powers. - Criterion 31.1 The competent authorities may compel the production of records, the search of Technical compliance persons and premises, and the seizing and obtaining of evidence via the use of basic investigate tools and powers including: subpoenas; search, seizure and arrest warrants; and a FBI -specific administrative subpoena to be used in case of terrorism related investigations and national security nts for use in a criminal letters. Relevant LEAs have the power to interview and take witness’ stateme investigation and prosecution, and in civil litigation. - Criterion 31.2 LEAs have authority to use a wide array of investigative techniques including phone undercover operations, communication intercepts (18 USC 2510), pen register of , controlled deliveries by mail (39 CFR 233.3) , and controlled communication (18 USC 3123) deliveries in the context of undercover operation: Attorney General 1992 Guidelines on FBI s requires a search Undercover Operations . Access to computer system warrant unless consent of the to the ies owner is given. Communication intercepts requires a court order unless one of the part communication consent to the interception. d/or background All investigators are trained to conduct financial investigations an - Criterion 31.3 investigations to determine to identify assets, and the person who holds and controls (meaning the account holder and any person(s) authorized to use the account, such as the signatories to the account) using traditional investigative techn notifying the iques (see c.31.1) and without pre- 124 - Beyond these, they have access to numerous commercial databases and non account holder. 124 §1510(b). §3420(i)(2) and 18 USC USC 12 Rule 17 of the Federal Rules of Criminal Procedure Anti FATF and APG 2016 © 2016 – tates S nited terrorist financing measures in the U - money laundering and counter - 238

241 TECHNICAL COMPLIANCE commercial databases at Federal and State levels are accessible by authorities to assist with s and assets to identify assets without notifying the account holder. Where all identification of person traditional means of investigations have been exhausted, and where there is credible evidence of terrorist or ML activity, the U.S. has an additional powerful mechanism to identify whether natural or legal persons hold or control accounts, and identify transactions carried out by natural or legal persons or entities suspected of ML/TF. It is however available only in limited circumstances: -IO.6). Pre- notification to the account holder is not R.29 s.314(a) Program 31 CFR §1010.520 (see necessary. - State and local LEAs Criterion 31.4 Federal, can have direct online access to all BSA data and other reporting information held by FinCEN through FinCEN’s Portal ( see R.29). BSA data includes CMIR data and a wide range of financial, administrative and LEA information as described under criteria 29.2 and 29.3. On -site access to FinCEN database is also possible. onclusion : Weighting and C Law enforcement and investigative authorities have all powers required to conduct ML/TF investigations. While there are mechanisms in places to identify account holders and their assets, there is no general mechanism to do so. S.314(a) is powerful tool which somewhat mitigates this Technical compliance available in limited circumstances only. deficiency, but it is 31 is rated largely compliant Recommendation . Recommendation 32 – Cash couriers rd MER, the U.S. was rated compliant with these requirements. In its 3 cable The U.S has implemented a declaration system appli - Criterion 32.1 to all persons, natural or all incoming and outgoing cross for legal -border transportation of currency and other monetary instruments whether by travelers, or through mail and cargo. The full range of is currency and BNI covered : 31 CFR 1010.100 (mm) & 31 CFR 1010.100(dd). has a written declaration system for all cross s of -border transportation .S. The U - Criterion 32.2 in aggregate, whether the person is acting on his/her above /BNI USD own or on 10 000 currency /other monetary behalf of a third party: 31 CFR 1010.340(a). Whoever receives currency .S. from a place outside the U 000 10 instruments in excess of USD Report of must also file a ) within 15 days of receipt International Transportation of Currency or Monetary Instrument (CMIR 340 to CPB (b). : 31 CFR 1010. Criterion 32.3 - The U.S. has a declaration system . in place Criterion 32.4 Upon discovery of a false declaration/disclosure of currency or monetary - feiture and the instruments or a failure to declare/disclose them, the funds are subject to seizure/for carrier to arrest/prosecution”: 31 USC 5317. The carrier is interviewed to establish the source of the funds and its intended purposes and an investigation is initiated. Criterion 32.5 - Dissuasive and proportionate penalties are applicable to whoever makes a false declaration. Currency and monetary instruments subject to reporting may be seized and forfeited if a – - money laundering and counter - FATF and APG 2016 © 2016 terrorist financing measur tates S nited es in the U Anti 239

242 TECHNICAL COMPLIANCE report is not filed or contains omissions or misstatements: 31 CFR 1010.830 & 31 USC 5317(b). The ns may not be more than the amount of the monetary instrument for civil penalty for such violatio which the report was required though it may be reduced to the amount forfeited for the violation: 31 USC 5321 (a)(2). Criminal penalties for failing to file a CMIR or causing or attempting to cause a person to file a false CMIR or structuring or assisting any important or exportation of monetary instrument a person to fail to do so include a set fine, imprisonment for not more than 5 years, or the CMIR violation is combined with any other both: 31 USC 5324 (d)(1). The penalty doubles if 000 violation or as part of a pattern of any illegal activity involving more than USD in a 12 100 - 000 500 USD for an 000 1 000 for an individual or USD month period. The fine applicable is less than organizatio n and up to a 10 years sentence, or both: USC 5423 (d)(2) & 18 USC 3571 (b)(3) and (c)(3). A criminal penalty of up to 5 or 8 years imprisonment may apply to any material false statement to a U.S. government official (18 USC 1001) while the range of criminal penalties associated with customs violation can also apply: 19 USC §1401(c); 18 USC 542, 545, 554. A penalty of no more than 5 years imprisonment applies to whoever, with the intent to evade the CMIR in currency/BNI on the person of such 000 10 requirement, knowingly conceals more than USD individual or in any conveyance, article of luggage, merchandise, or other container, and transports or transfers or attempts to transport or transfer such currency or monetary instruments from a -versa: 31 USC 5332 (b)(1). place within the U.S. to a place outside the country, or vice . CBP and ICE seizure and arrest P transmits all CMIR data electronically to FinCEN - CB Criterion 32.6 reports are also maintained in the TECS (Treasury Enforcement Communications System) da tabase including FinCEN is accessible to a number of F ederal partner agencies which . Criterion 32.7 - There is adequate coordination among customs, immigration and other relevant Technical compliance ( charged with the management, control and protection of the U CPB authorities. borders at and .S. responsible for between points of entry) share s a common data management platform with ICE ( investigating the illegal movement of people and merchandise, including currency and other orks closely with the DEA’s El Paso Intelligence monetary instrument, across the border ). ICE also w Center which collects and analyses cash data seizures form the Southwestern border. FinCEN State and local law enforcement provides access to CMIR information system to a host of F ederal, . authorities as well ICE and CBP have the authority through a number of statutes to stop or restrain Criterion 32.8 - 31 USC 5316, 31 USC 19 USC 1581 e, unreported or falsely reported currency for a reasonable time: , 31 USC 5332. If there is suspicion that the funds may be related to ML, TF, or associated 5317 d predicate s, civil forfeiture procedures apply (see R offense .4). - Criterion 32.9 The U.S. declaration system allows for international cooperation. Information can be exchanged multilaterally and bilaterally via ICE and CBP attachés posted in U Embassies and .S. Consulates, as well as engagement through Europol, INTERPOL, World Customs Organization Liaison Officers, and pursuant to Customer MLAs, MLATs, and other agreements. CMIR data can also be 32.9. The information is retained in all the instances set out in c. shared with other FIU. CMIR reporting requirements pose little burden to legitimate international travel - Criterion 32.10 to ensure and trade, and do not impede freedom of capital movements. There are strict safeguards Anti FATF and APG 2016 © 2016 – tates S nited terrorist financing measures in the U - money laundering and counter - 240

243 TECHNICAL COMPLIANCE proper use of the information or data that is reported or recorded ubstantial penalties apply : S in case of misuse or abuse of information : BSA and Privacy Act. .S. across the border by transporting them /BNI ing U - Criterion 32.11 to launder funds Persons try s: 18 USC 1956 may be subject to the penalties applicable for violati ng the international ML offense 3). Persons found with TF (2) (see R. currency or monetary instruments may be subject to the -related penalties under the offense s: 18 USC 2339A, B and C (see R.5 and R.4). Aside from TF civil and offense criminal forfeiture for violating the international ML (18 USC 981(a)(1); 982(a)(1)), many provisions apply in the case of smuggling of cash /BNI related to ML/TF other asset forfeiture including civil penalties for not filing or filing a false report (31 USC 5321 and 31 CFR 10 ), 10. 820 criminal penalties for concealed transportation with the intention of avoiding requirements (31 USC 5322 and 31 CFR 10 uments (31 USC 5318 & 31 CFR ), search and forfeiture of monetary instr .840 10 ( 31 USC 5324(c). 830 1010. ), and criminal penalties for not filing or filing a false CMIR onclusion : Weighting and C are met. All 11 criteria Recommendation 32 is rated compliant . Technical compliance Statistics Recommendation 33 - In its 3 rd MER, the U.S. was rated largely compliant with these requirements. The technical deficiencies related to inadequate statistics on freezing, seizing, confiscation, BSA data, MLA and extradition. e number of: maintains comprehensive statistics on th U.S. - The Criterion 33.1 SA a) Rs received, analy zed and disseminated /broken down by type of reporting entity, number of filings by U.S. S tates and territories, violation reported, suspicious wire ; transfers, year and month of filing s broken b) Investigations, prosecutions and convictions related to the F ederal ML offense down by year, investigating agency, type of offense , number of persons charged and convicted, conviction rate, and sentence (but not by predicate office). Statistics at State 125 e; level are not uniformly availabl c) s broken TF offense ederal prosecutions and convictions related to the F Investigations, down by year, type of offense , number of persons charged and convicted, conviction rate, ; and sentence d) Property frozen, seized and confiscated broken down by Federal seizing agency, forfeiture type (administrative, civil/judicial, criminal), number and value of seized and forfeited -AFF assets, but not broken down by ML, predicate for ML and non -predicate for ML: DOJ statistics. Statistics at State level are not unifo rmly available; 125 Department of Justice Bureau of Justice . – - money laundering and counter - FATF and APG 2016 © 2016 terrorist financing measur tates S nited es in the U Anti 241

244 TECHNICAL COMPLIANCE and extradition requests relating to both ML The number of incoming and outgoing MLA e) and TF, broken down by the grounds for the request and whether it was granted or -OIA DOJ refused: electronic case tracking system; and ts for assistance made to and received by FinCEN to/from foreign The number of reques f) . FIUs, including the number of spontaneous referrals Weighting and Conclusion: The U.S. does not maintain comprehensive statistics on the investigations, prosecutions and s, or statistics on the property frozen, seized and convictions relate d to the State ML offense confiscated at the State level. Recommendation 33 is rated largely compliant. Recommendation 34 – Guidance and feedback rd equirements MER, the U.S. was rated compliant with these r . In its 3 The U.S. authorities, including supervisors and SRBs, have issued a significant amount - Criterion 34.1 of guidance and feedback to assist FIs and DNFBPs in applying national AML/CFT measures and in detecting and reporting suspicious transactions. The majority of this information is publicly available and widely disseminated. a) : The assessors reviewed about 90 pieces of guidance issued by FinCEN since the FinCEN previous MER which included sector -specific and general guidance on: recognising suspicious Technical compliance activity; registration requirements for MSBs; application of correspondent banking rules, and on its website CDD obligations etc. FinCEN has published SAR guidance , and FAQs , BSA forms and on its Secure Information Sharing System. FinCEN also provides direct support to FIs and er, a staffed call center which accepts queries DNFBPs through the FinCEN Resource Cent by phone, e- mail, or fax. Guidance on S b) AR: FinCEN, other Federal financial regulators, and LEAs provide FIs and DNFBPs with formal and informal guidance on the proper filing of SARs and may provide direct or aggregated feedback on filed SARs. Emerging trends in SAR filings are also relayed speaking events, conferences, and through FinCEN’s outreach to industry ( primarily through .) Periodically training , FinCEN publishes reports to share information gathered as part of its . Direct feedback from FinCEN to individual SAR filers includes fi outreach initiative ler quality reports. Additional feedback and guidance is provided within the context of individual FI examinations conducted by Federal and State supervisory and examination authorities. , advisories, , bulletins and forms guidance FinCEN provides general information in their SAR FinCEN has a special on general applicability issues, and FAQs on specific issues. guidance “hotline” to receive urgent reports of potential TF or major ML activity. The FFIEC publishes a BSA/AML Examination Manual for the use of bank exami c) Manual, ners. for the industry and guidance which is updated on a regular basis, also contains the Anti FATF and APG 2016 © 2016 – tates S nited terrorist financing measures in the U - money laundering and counter - 242

245 TECHNICAL COMPLIANCE expectations are upheld through the supervisory enforcement process. The regulatory ions. Manual also addresses OFAC requirements for proliferation/WMD obligat SB s for use by d) FinCEN and the IRS published the BSA/AML Examination Manual for M examiners, which also aids MSBs in meeting their AML/CFT obligations. For the insurance the sector the NAIC examination manual contains expectations which essentially mirror sector’s BSA/AML obligations. -agency FBAs inter e) Federal Functional Regulators also publish AML guidance (for example, statement of 2007 on enforcement of BSA/AML requirements , 2009 guidance on cross - , 2010 border payment messages obtaining and multi -agency non- bind ing guidance on and 2015 the FDIC’s statement to encourage institutions to take a information BO retaining risk -risking. -based approach on issue of de FHFA: In 2015, FHFA issued an advisory bulletin reminding FHL banks of their obligations t f) o establish AML programs and file SARs. g) -dealers and mutual funds. SEC and FINRA: SEC publishes AML guidance for securities broker -dealers. SEC staff and FINRA also have regular, FINRA does the same for its member broker periodic meetings with industry grou ps to provide feedback on AML issues. SEC and FINRA Technical compliance each publish their respective examination priorities which have historically included AML issues. and also publish disciplinary actions on their respective websites. h) Guidance is provided on the IRS web site, to educate and assist persons who have the obligation to file Form 8300; and for the tax professionals (such as lawyers or accountants) who prepare and file Form 8300 on behalf of their clients . Weighting and Conclusion: nsive BSA requirements are only covered to some extent because of Sectors not subject to comprehe the limited application of the Form 8300 reporting guidance related to cash transactions. There is a case to align guidance more to vulnerabilities in the minimally covered DNFBP sectors. 34 is rated largely compliant. Recommendation Recommendation 35 – Sanctions rd In its 3 MER, the U.S. was rated largely compliant with these requirements. The technical deficiency was that some banking and securities participants were not subject to all AML/ CFT requirements ederal level. and related sanctions at the F Criterion 35.1 proportionate and dissuasive criminal, civil and administrative sanctions - A range of are available, ranging from disciplinary letters to fines and imprisonment. All U.S. persons (natural and legal) are prohibited from Targeted Financial Sanctions (R.6): a. dealing with persons designated under OFAC’s economic sanctions programs. Failure to ; referral to the CMP may attract penalties, including: a caution is comply with th ary letter; appropriate LEA for criminal investigation and/or possible prosecution; license denial, . Willful : 50 USC §1705; 31 CFR §501 order suspension, modification, or revocation; and a C&D – - money laundering and counter - FATF and APG 2016 © 2016 terrorist financing measur tates S nited es in the U Anti 243

246 TECHNICAL COMPLIANCE violation of an executive order or implementing regulation issued pursuant to the IEEPA is a have the authority to pursue For banks criminal offense: 50 USC§1705(c). , OFAC and the FBAs a broad range of penalties in case of sanctions violations including: cease & desist orders, securities sector , the SEC penalty and removal actions : 31 CFR §501; 12 USC §1818 . In the -dealers for compliance with OFAC regulations and may also make examines securities broker referrals to OFAC of any potential misconduct identified. NPOs (R.8): b. IRS may deny/revoke/suspend the tax -exempt status of NPOs not appropriately operating in found to be affiliated with including if furtherance of their exempt purposes terrorism or is designated under R.6: IRC s.501(p). NPOs failing to file the annual Form 990 20 per day (up to the lesser of series or related forms are subject to civil fine s of USD 100 per day (up to USD 10 000 or 5% of its annual gross receipts) or USD if its USD 50 000 ), and/or revocation of tax million 1 annual gross receipts exceed USD -exempt status if returns he IRS and DOJ can also impose additional ). T (See link are not filed for 3 consecutive ye ars criminal and civil liability under the IRC on tax- exempt U.S. charitable organizations that file false tax forms with the IRS in which the organization conceals their affiliation with a FTO or SDGT, or with a foreign entity connected to an FTO or SDGT. FinCEN -23): Preventive Measures and Reporting (R.9 c. may bring an enforcement action for BSA violations. It has sole Federal enforcement authority over FIs and covered DNFBPs. Besides CMPs, FinCEN can take other formal and informal administrative actions: 31 USC §5320. A range of BSA criminal penalties are also available for criminal conduct involving BSA violations. FBAs and SEC are empowered under their respective Act for taking a range of supervisory actions, including C&D, CMP, and removal, suspension and prohibition. FINRA has Technical compliance SEC independent authority for bringing BSA related enforcement actions. can also bring actions 8) and can bring Exchange Act Section 17(a)/ Rule 17a- for example, for BSA violations ( Exchange enforcement actions against SRO for its failure to exercise oversight over members: has power to enforce compliance through its enforcement authorities. CME Act s.19(h). CFTC Group a nd NFA can bring disciplinary complaints against members for BSA violations. DOJ has authority to bring criminal actions against FIs willfully failing to comply with the statutory and regulatory obligations under Title 31 of the BSA: 31 USC §5322. criminal enforcement has DOJ authority for ML violations under 18 USC §§1956 and 1957, and the ability to prosecute unlicensed and/or unregistered MSB under 18 USC §1960. I As (other than those covered and stones are not indirectly) and DNFBPs, other than casino and dealers in precio us metals subject to comprehensive AML/CFT requirements. - Criterion 35.2 FinCEN is authorized to seek CMP and equitable and administrative relief against institutions, partners, directors, officers, and employees of FIs and DNFBPs onduct violating the for c 126 -keeping, reporting, or failure to maintain an adequate . These violations can include record BSA AML program. FBAs are authorized to take formal administrative action against any officer, director, agent of any depository institution, and in certain cases, any employee, controlling stockholder, or independent contractor (collectively “institution -affiliated party’ or IAP) of any depository 126 §5321; 31 CFR §1010.810(d); 31 CFR §1010.820(h). USC 31 Anti FATF and APG 2016 © 2016 – tates S nited terrorist financing measures in the U - money laundering and counter - 244

247 TECHNICAL COMPLIANCE 127 . Such sanctions include C&D orders, orders of suspension, removal or prohibition, and institution CMPs. Enforcement actions, remedies and sanctions may be ordered against securities broker - dealers, investment companies, and any persons “associated” with them such as directors, senior riate sanctions on any management and other employees. FINRA is authorized to impose approp member firm/associated person for violation of the Federal securities laws and its own rules. IAs (other than those covered indirectly through affiliations with banks, bank holding companies and oup wide AML rules or in case of outsourcing -dealers, when they implement gr broker ) and DNFBPs, other than casinos and dealers in precious metals and stones are not arrangements subject to comprehensive AML/CFT requirements. All U.S. persons are prohibited from dealing with persons designated under OFAC’s economic sanctions programs, which includes TFS pursuant to R.6, and designations for involvement in other crime (for example, under the Kingpin Act). Weighting and Conclusio n: Investment advisers (other than those covered indirectly) and DNF (other than casinos and BPs dealers in precious metals and stones) are not covered by the full range of AML/CFT obligations, and consequently the related sanctions do not apply to them. Recommendation 35 is rated largely compliant. Technical compliance Recommendation 36 – Int ernational instruments The technical In its 3rd MER, the U.S. was rated largely compliant with these requirements. deficiencies were that not all conduct specified in the Vienna and Palermo Conventions had been criminalised, there were gaps in the scope of foreign predicates related to organized criminal groups, and there was a technical deficiency concerning implementation of targeted financial sanctions (which is no longer assessed under this Recommendation, but which is now addressed in R.6). The U.S. has signed and ratified the Vienna Convention (December 1988 and Criterion 36.1 - February 1990 respectively), the Palermo Convention (December 2000 and November 2005 respectively), the TF Convention (January 2000 and June 2002 respectively), and the Merida Convention (December 2003 and October 2006 respectively). The U.S. has fully implemented the TF Convention. Not all conduct specified in Article - Criterion 36.2 3 (Vienna) and Article 6(b)(i) (Palermo) is criminalized (see R.3). The U.S. has broadly implemented the obligations of the Merida Convention. Weighting and Conclusion: The U.S has minor deficiencies in its implementation of the Vienna and Palermo conventions. Recommendation 36 is rated largely compliant. 127 12 USC §§1813(u), 1818(b), (c), (e), (g), and (i), and 1786(b), (e), (f), (i), (o), and (r). tates money laundering and counter - terrorist financing measur es in the U nited S - Anti – 2016 © FATF and APG 2016 245

248 TECHNICAL COMPLIANCE Recommendation 37 – Mutual legal assistance rd In its 3 MER, the U.S. was rated largely compliant with these requirements. The technical deficiency related to potential barriers to granting MLA request linked to the laundering of proceeds that are . derived from a designated predicate offense that is not covered - The U.S. has a legal basis that would permit for the rapid provision of a wide range of Criterion 37.1 MLA in relation to the investigation, prosecution and related proceedings for ML, TF and associated legal framework applies to all MLA requests regardless of whether predicate offenses. A statutory they are based on a letter rogatory, or letter of request: 18 USC §3512. MLA treaties (MLATs) themselves are also a legal framework under which MLA requests may be executed. Where a l treaty is not in place, the basis for cooperation may often be found in multilateral or bilatera 128 129. Additionally, U.S. courts are authorized to provide direct , and agreements regional conventions MLA to international tribunals: 28 USC §1782. - The U.S. has a central authority for transmitting and executing MLA requests —DOJ Criterion 37.2 - OIA through which must be channeled all requests in criminal matters for legal assistance requiring compulsory measures. DOJ -OIA has a prioritisation system in place for incoming and outgoing -treaty requests. Crimes of violence, requests by which Treaty requests are prioritized above non including terrorism cases, are given a high priority. High priority cases are dealt with by order of arrival or urgency (e.g. trial deadline). There is flexibility to deviate from these prioritizations in exceptional circumstances. However, due to their current IT system, the U.S. is only able to monitor progress and time taken to handle a request. Criterion 37.3 - MLA is not prohibited or made to be subject to unduly restrictive conditions. MLA Technical compliance may be provided to foreign investigative authorities in criminal matters, including before a charge is laid and does not specify dual criminality as a condition: 18 USC §3512. Some restrictions may be ed for in treaties and conventions. Where dual criminality applies, this is mainly restricted to provid requests for assistance requiring the application of compulsory or coercive measures. - The U.S. does not refuse requests for MLA on the sole ground that the offense is also Criterion 37.4 considered to involve fiscal matters, even where the applicable MLATs exclude fiscal matters from 130. Separate Tax Treaties or Conventions on Tax Information Exchanges also the scope of assistance provide additional information exchange mechanisms, including on tax offenses. Likewise, MLA requests are not refused on the sole grounds of secrecy or confidentiality requirements on FIs or DNFBP, except where information is protected by the attorney -client privilege. Attorney -client 128 Including but not exclusively: the Inter -American Conventio n on Mutual Assistance in Criminal Matters -8) , the Convention Combating Bribery of Foreign Public (“The OAS MLAT”), the Vienna Convention [arts 7 Officials in International Business Transactions (OECD) [arts. 9, 11]; the International Convention for the -16] ; the Palermo Convention [arts. 18, 21]; Convention Suppression of the Financing of Terrorism [arts. 12 -35]. -49]; Council of Europe Convention on Cybercrime [arts. 25 Against Corruption (Merida) [arts. 46 129 in place with 85 territories As of May 2015, the U.S. had 70 such accords 130 For instance the MLATs between the U.S. and Switzerland, the Bahamas and the Cayman Islands exclude fiscal matters, including offences involving taxes, customs duties, governmental monopoly charges and/or exchange control reg ulations, from the scope of available assistance. Assistance is however generally available for criminal tax matters relating to the proceeds from criminal offences. Anti FATF and APG 2016 © 2016 – tates S nited terrorist financing measures in the U - money laundering and counter - 246

249 TECHNICAL COMPLIANCE privilege may be overcome if it can be shown that the attorney was actively participating in the criminal activities of his/her client. The U.S. maintains the confidentiality of MLA requests received, subject to - Criterion 37.5 fundamental principles of domestic law, in order to protect the integrity of the investigation or inquiry. Most MLATs signed by the U.S. contain confidentiality provisions that can be invoked by the ders, and other requested State. Additionally, subpoenas for documents or testimony, restraining or compulsory measures may be issued or undertaken with a court order sealing the matter from public disclosure for a certain period of time. Where legal process is required, sealing orders are vocation of a treaty’s confidentiality provision and routinely issued on the basis of the country’s in factual circumstances that counsel confidentiality. Criterion 37.6 - Where MLA requests do not involve coercive actions, the U.S. does not make dual of the bilateral MLATs do not require dual criminality a condition for rendering assistance. Most criminality as a condition for granting assistance. Where dual criminality is a condition, this is usually restricted to requests for compulsory or coercive measures. In such instances, gaps in the ML n adversely impact MLA particularly when the foreign request is based on ML activity offenses ca derived from a predicate offense that does not fall within the definition of SUA or the foreign request does not identify the underlying predicate offense (see R.3 and R.36). Conduct -based dual criminality Technical compliance applies when issuing search warrants necessary to execute a foreign request: 18 USC 3512(e). There is no dual criminality requirement for most court orders issued pursuant to 18 USC §3512 in aid of from foreign authorities. requests for assistance Criterion 37.7 - Where dual criminality applies, technical differences between the offense’s categorization in the requesting State do not prevent the U.S. from providing the requested assistance. It is enough to determine that the underlying acts are criminalized in both States. The U.S. has not denied any MLA requests on the basis of dual criminality (ML, TF and asset forfeiture). The powers and investigative techniques required under R.31 and which are Criterion 37.8 - ise available to domestic competent authorities are also available for use in response to MLA otherw requests. When a compulsory process is necessary, an OIA attorney or a Federal prosecutor is routinely appointed as a commissioner to seek any order necessary to execute the request: 18 USC §3512. Where LEAs have entered into case specific MOUs with other countries for ML and TF investigative assistance, additional investigative tools and powers may be used. However, the interception of communications can only be u ndertaken as a part of a U.S. investigation. Weighting and Conclusion: The minor shortcomings identified in R.3 could limit assistance when dual criminality applies. The interception of communications can only be undertaken as part of a U.S. investigation . The OIA case management system is being improved to facilitate the electronic monitoring of the processing of outgoing and incoming requests process and the monitoring of the time taken to handle these. 37 is rated largely compliant. Recommendation tates money laundering and counter - terrorist financing measur es in the U nited S - Anti – 2016 © FATF and APG 2016 247

250 TECHNICAL COMPLIANCE mmendation 38 – Mutual legal assistance: Freezing and Confiscation Reco rd In its 3 MER, the U.S. was rated largely compliant with these requirements. The technical deficiency the laundering of proceeds that are related to potential barriers to granting MLA request linked to . derived from a designated predicate offense which is not covered The U.S. has a range of authorities to take action in response to requests by foreign Criterion 38.1 - countries to identify, freeze, seize or confiscate laundered property, proceeds, and instrumentalities used or intended for use in ML, TF or associated predicate offenses, or property of corresponding value including: Providing a a) lice -to-po informal police ssistance in identifying and tracing assets mainly via communication and information sharing networks Additionally, the U.S may obtain evidence for court proceedings on behalf of a foreign request including testimony, documents, or : 18 USC 3 51 2 (see R.37) . tangible items Restrain ing or seiz ing assets located in the U.S. upon the request of a foreign country for b) 28 USC 2467(d)(3) preservation purposes: ). A)(i The U.S. may also restrain untainted property as long Enforcing foreign confiscation orders. c) . as these are subject to forfeiture and provided all other requirements are met: 28 USC 2467 d) Enforcing a foreign confiscation judg ment on the condition that the requesting country is Vienna Convention, a MLAT or other international agreement with the U.S. that party to the provides for confiscation assistance . T for which forfeiture offense must: i) be an offense he law if the criminal conduct occurred in the U.S; or ii) is would be available under U.S. Federal Technical compliance 28 USC 2467 (a)(2) & 18 USC : offense a foreign offense that is a predicate for a U.S. ML ). 1956(c)(7(B Initiating its own civil forfeiture proceedings against any property, proceeds and e) instrumentalities: . can proceed if it can state . In such cases, the U.S 18 USC 981(b)(4) sufficiently detailed facts to support a reasonable belief that the property would be subject to evidence from the its own evidence and forfeiture under U.S. Federal law, based on requesting for confiscation under U.S. law which would make that State, of a predicate offense the property subject to confiscation. Gaps in the ML offenses and the requirement for dual criminality are potentially an issue when the predicate offense is not one covered in the U.S. However, no MLA request has been denied on the basis of dual criminality (ML, TF and asset forfeiture). The U.S. has authority to provide assistance to requests for cooperation made on the erion 38.2 - Crit -based (NCBF) proceedings and related provisional measures 18 USC basis of non -conviction 981(b)(4)(A) the enforcement of a foreign -(B). Provisional measures may also be carried out under judgment any time, before or after, the initiation of enforcement proceedings by a foreign nation, including NCBF proceedings: 28 USC 2467(d)(3)(A)(1). Criterion 38.3 - nfiscation actions with The U.S. has arrangements for coordinating seizure and co other countries; and for managing and disposing of property frozen, seized, or confiscated whether by on its own behalf or on behalf of a foreign government. Anti FATF and APG 2016 © 2016 – tates S nited terrorist financing measures in the U - money laundering and counter - 248

251 TECHNICAL COMPLIANCE ions with countries that made The U.S shares the proceeds of successful forfeiture act - Criterion 38.4 standing possible, or substantially facilitated, the forfeiture of assets under U.S. law as set out in free- international asset sharing agreements or asset sharing provisions within mutual legal assistance agreements and multilateral treaties by 18 USC §981(i), 21 USC §881(e)(1)(E), and 31 USC §9703(h)(2). AFMLS may negotiate case specific, bilateral asset sharing arrangements even in the absence of specific agreement/treaty. Weighting and Conclusion: In the context of dual cr iminality requirements, the gaps identified under R.3 may be a barrier to providing freezing and confiscation assistance, particularly when the predicate offense is not covered in the U.S. Recommendation 38 is rated largely compliant. Recommendation 39 - Extradition rd In its 3 MER, the U.S. was rated largely compliant with these requirements. The technical deficiencies related to potential barriers to granting extradition request linked to laundering Technical compliance proceeds derived from a designated predicate offense which is not covered , and the list -based treaties not covering ML. - Criterion 39.1 The U.S. has mechanisms that enable it to execute extradition requests in relation to ML/TF without delay: ext a) and radition treaties in force between the U.S. ML and TF are extraditable offenses. The other countries define extraditable offenses by either including felonies (offenses for which punishment is at least one year or more of imprisonment in both countries ) or by listing the In the first category of treaties, a extraditable offenses by name (approximately 55 treaties). -criminality approach ensures that ML and TF dual offenses are extraditable if both treaty activity. In the context of the second category of partners criminalize the underlying ML or TF list treaties, the ability to extradite for money laundering and terrorist financing offenses will .S.s and the extradition treaty partner are State Parties to an on whether the U depend able multilateral convention applic t of narcotics trafficking, which address ML in the contex transnational organized crime, alien smuggling, trafficking in persons, corruption, and in the deems TF to be an extraditable offense TF Convention cybercrime. Likewise, the and the extradition treaty partner if both bilateral extradition treaty in force between the U.S. parties to that convention. This approach may result in occasional gaps. are The b) has an electronic case management system and clear processes for the timely OIA execution of extradition requests t be used to monitor time taken to comply although it canno s. TF and ML cases offense serious premised on with a request. Priority is given to requests are presumptively serious cases. A judge needs to ascertain key elements prior to certifying . The handling of extradition case takes approximately one to four 18 USC 3181 an extradition: months if a fugitive elects a “simplified extradition” procedure, and at least one year when the extradition is contested. – - money laundering and counter - FATF and APG 2016 © 2016 terrorist financing measur tates S nited es in the U Anti 249

252 TECHNICAL COMPLIANCE c) There are no unreasonable or unduly restrictive conditions on the execution of extradition requests . Criterion 39.2 - The U.S. extradites its nationals even where the applicable treaty or convention does not obligate it to do so . Where the applicable treaty does not expressly grant discretionary authority to extradite a U.S. national, the Secretary of State may refuse to issue a surrender warrant for a U.S. national after a U.S. court has determined a fugitive extraditable: 18 USC 3196. Criterion 39.3 - Where a dual criminality extradition treaty applies, technical diffe rences between the categori zation of the crime in the U.S. and requesting S tate do not affect the provision of the requested assistance. It is enough if the particular act charged is criminal in both jurisdictions: Out of over 1 Factor v. Laubenheimer, 290 U.S. 276 (193 incoming extradition cases, during 000 3). this assessment period, the U.S. denied one based on lack of dual criminality in tax crimes. The U.S. has simplified extradition mechanisms available via a waiver of or consent to - Criterion 39.4 extradition, with consent of the fugitive. In urgent circumstances, bilateral extradition treaties (at times in conjunction with 18 USC 3187), permit fugitives to be provisionally arrested in advance of provisional detention to last no more than 90 the receipt of a formal extradition request with such 18 USC 3187. Under more recent extradition treaties, provisional arrest requests may be days: transmitted directly to OIA by the requesting country. Weighting and Conclusion: The absence of multiple bilatera l extradition treaties explicitly listing ML/TF as extraditable offenses is mitigated by the fact that major partners are party to multilateral conventions which address ML Technical compliance (in the context of narcotics trafficking, transnational organized crime, alien smug gling, trafficking in persons, corruption, and cybercrime) and/or TF. 39 is rated largely compliant Recommendation . Recommendation 40 – Other forms of international cooperation rd In its 3 The requirements in new MER, the U.S. was rated compliant with these requirements. Recommendation 40 are considerably more detailed. General principles - Criterion 40.1 The U.S. has mechanisms that allow the FIU, LEAs, and financial supervisory rectly or diagonally. In authorities to provide to foreign counterparts a wide range of cooperation di general, exchanges of information concerning ML/TF may be provided promptly, either spontaneously or upon request, and without unduly restrictive conditions: 31 CFR. §1010.520 12 USC §1818(v)(2) (supervisors). -01 (FIU); (FinCEN); 31 USC §310 and Treasury Order 180 - Criterion 40.2 The below framework facilitates other forms of international cooperation: : 31 USC The competent authorities have a lawful basis for providing cooperation a) s.8(e) and 12(f) t of 1934 Securities Exchange Ac §310(c)(FinCEN); s.21(a)(2) (SEC); Commodity Exchange Act , 7 USC §§ 12(e) and 16(f) (CFTC); information sharing arrangements . (FBAs) Anti FATF and APG 2016 © 2016 – tates S nited terrorist financing measures in the U - money laundering and counter - 250

253 TECHNICAL COMPLIANCE b) Nothing prevents them from using the most efficient means to cooperate. anisms or channels for cooperation All authorities use clear and secure gateways, mech c) including the Egmont Secure Web and multiple established information sharing networks seeking assistance may indicate to counterparts their preferred such as INTERPOL. FBAs . manner in which information is to be transmitted The competent authorities have processes for prioritising and executing requests including d) the Egmont Group’s Principles of Information Exchange prioritisation processes. applying FinCEN’s response times are about 2 months for routine requests, one to two days for urgent requests (e.g. impending court dates or law enforcement actions), and two days to a week for seek -related requests. TF FBAs information sharing agreements with and foreign authorities led to developed U.S. LEAs foreig n- based attachés timely cooperation and notification. companion channels that permit effective and expeditious information exchange both . informally and once the formal request is received The competent authorities have clear processes for safeguarding the information receiv ed. e) Criterion 40.3 - FinCEN, the FBAs and LEAs all have comprehensive networks of bilateral and multilateral agreements, MOUs and protocols to facilitate international cooperation with a wide Technical compliance . range of foreign counterparts Criterion 40.4 - All U.S. compet ent authorities will provide feedback in a timely manner if requested by foreign counterparts from whom they have received assistance. U.S. competent authorities do not refuse requests for cooperation on the grounds Criterion 40.5 - investigation was in the covert stage, a competent authority may delay listed in this criterio n. If a U .S. or reasonably condition the provision of assistance to a foreign authority if to do otherwise would alert the subjects of the investigation, but would not categorically refuse assistance. FinCEN, FBAs, CFTC, SEC, and LEAs have controls and safeguards to ensure that Criterion 40.6 - information exchanged by competent authorities is used only for the purpose for, and by the provided, unless prior authorization has been authorities, for which the information was sought or given by the requested competent authority : 31 USC §310(c): 12 USC §1818(v); Title 18 USC §1906; §3512. 18 USC § 12(a)(1); USC , 7 Commodity Exchange Act s.24(d); Exchange Act maintain appropriate confidentiality for ompetent - The c authorities are required to Criterion 40.7 any request for co- operation and the information exchanged, consistent with both parties’ , and data protection. Information from foreign obligations concerning confidentiality, privacy ed protect unterparts is co authorities The in the same manner as information from domestic sources. to refuse to provide information if the requesting authority cannot protect the information are able 131 . effectively 131 5 USC §552a; Federal Info rmation Security 3422; Right to Financial Privacy Act Privacy Act 12 USC §§3401- 31 USC §§5311 -5332 & 31 USC §310(c); Bank Secrecy Act 44 USC §§3541 Management Act Federal -3549; Information Security Management Act. – - money laundering and counter - FATF and APG 2016 © 2016 terrorist financing measur tates S nited es in the U Anti 251

254 TECHNICAL COMPLIANCE able to conduct inquiries on behalf of foreign ompetent authorities are The c Criterion 40.8 - counterparts, and exchange with their foreign counterparts all information that would be obtainable 132 . by them if such inquiries were being carried out domestically Exchange of information between FIUs Crite rion 40.9 , associated -operation on ML FinCEN has an adequate legal basis for providing co - 133 predicate offense s and TF. - Criterion 40.10 feedback to its foreign counterparts, upon request , whenever FinCEN provides possible, on the use of the information provided, as well as on the outcome of the analysis conducted, based on the information provided . Criterion 40.11 - FinCEN has the power to exchange all information required to be accessible or ecommendation 29, and any other obtainable directly or indirectly by it, particularly under R information which it has the power to obtain or access, directly or indirectly, at the domestic level, subject to the principle of reciprocity: 31 CFR §1010.520 (information sharing) . Exchange of information between financi al supervisors Criterion 40.12 - Financial supervisors (FBAs, SEC, CFTC, FinCEN and State life insurance -operation with their foreign counterparts a legal basis for providing co supervisors) have (regardless of their respective nature or status), consistent with the applicable international standards for supervision, in particular with respect to the exchange of supervisory information 134 . related to or relevant for AML/CFT purposes to exchange with foreign able Financial supervisors (FBAs, SEC, CFTC, FinCEN) are Criterion 40.13 - Technical compliance counterparts information domestically available to them, including information held by financial 135 . institutions, in a manner proportionate to their respective needs Criterion 40.14 - are able to exchange the following Financial supervisors (FBAs, SEC, CFTC, FinCEN) types of information when relevant for AML/CFT purposes, in particular with other supervisors that have a shared responsibility for financial institutions operating in the same group: a) regulatory information, such as info rmation on the domestic regulatory system, and general information on the financial sectors is public and can be shared without restriction. b) prudential information, in particular for Core Principles supervisors , such as information on the financial institution’s business activities, beneficial ownership, management, and fit and 136 , and properness 132 31 USC §310(c); FBAs: s.8(v) Federal Deposit Insurance Act 12 USC. §1818(v); SEC: s.21(a)(2) FinCEN: Commodity Exchange Ex change Act 15 USC §78u(2); LEAs: 28 USC §1782 & Title 18 USC §3512; CFTC: s.12(f) , 7 USC § 16(f);. Act 133 01, FinCEN’s System of Records (Treasury/FinCEN.001), 31 USC §310, 31 CFR §1010.950, Treasury Order 180- Purpose); and 31 CFR §1010.520 (information sharing). §5311 (Declaration of USC 31 134 15 USC S.8(v) – FBAs s.21(a)(2) Exchange Act 12 USC §1818(v), SEC – Federal Deposit Insurance Act §78u(2); FinCEN – 31 CFR §1010.520 (information sharing). 135 FBAs USC §3109; FinCEN - 01; – s.15 International Banking Act 12 31 USC §310 and Treasury Order 180- – 31 CFR. §1010.520 (information sharing). FinCEN Anti FATF and APG 2016 © 2016 – tates S nited terrorist financing measures in the U - money laundering and counter - 252

255 TECHNICAL COMPLIANCE AML/CFT information, such as internal AML/CFT procedures and policies of FIs c) , CDD 137 . information, customer files, samples of accounts and transaction information erion 40.15 able to conduct inquiries on behalf of foreign Crit The financial supervisors - are counterparts, and, as appropriate, authorize or facilitate foreign counterparts in conduct ing inquiries 138 . to facilitate effective group supervis ion themselves in the U.S. Criterion 40.16 - The financial supervisors ensure that they have the prior authorization of the requested financial supervisor for any dissemination of information exchanged, or use of that information for supervisory and non -supervisory purposes, u nless the requesting financial supervisor is under a legal obligation to disclose or report the information. Exchange of information between law enforcement authorities with foreign Criterion 40.17 - Federal LEAs are able to exchange domestically available information counterparts for intelligence or investigative purposes relating to ML, associated predicate s offense or TF, including the identification and tracing of the proceeds and instrumentalities of crime. Requests for simple investigative assistance and information sharing can be made by foreign police authorities to their DEA, FBI, IRS -CI, or HSI/ICE counterparts in -country, who can pass the request for informal assistance to the appropriate agents in the U.S. If compulsory measures are necessary, Technical compliance the foreign government can make a treaty request or send a letter rogatory. The U.S. has LEA and DOJ attachés posted around the globe who can facilitate assistance in support of foreign investigations. It will also provide informal assistance and informatio n through the CARIN for inquiries relating to the identification and tracing of the proceeds and instrumentalities of crime. - The LEAs are able to use their powers, including any investigative techniques Criterion 40.18 available (see Rec31), to conduct i nquiries and obtain information on behalf of foreign counterparts. LEAs respect principles and restrictions set out in agreements with Interpol, Europol or Eurojust and individual countries. Criterion 40.19 - LEAs are able to form joint investigative teams to conduct cooperative investigations, and, when necessary, establish bilateral or multilateral arrangements to enable such joint investigation s. All Federal LEAs (i.e. DEA, FBI, ICE -HSI , IRS -CI , and USSS) maintain offices outside the U .S. through which they coordinate with foreign counterparts , including on joint investigations. -counterparts Exchange of information between non and does Criterion 40.20 - FinCEN is able to exchange information indirectly with non-counterparts The method of such an exchange is determined 31 USC §310 and 31 CFR §1010.950. so in practice: When exchanging information with non- case basis. -by- on a case indirectly or directly counterparts, 136 s.24(c) 326, 1817(a)(2)(C), 1818(v), 3109; 12 CFR §4.37(c); 12 USC §3109(a); SEC – 12 USC §§ – FBAs ting Section 24(c) of the Exchange Act. CFTC – Exchange Act , 15 USC §78x; Rule 24c -1 implemen 7 USC § 12(e) 137 FinCEN – 31 USC §310 and Treasury Order 180 -01. 138 31 USC §310, 31 CFR. §1010.950; Treasury Order 180 – FinCEN -01; FinCEN’s System of Records (Treasury/FinCEN.001); MOUs with foreign counterparts MOUs with foreign counterparts; . FBAs – participation in supervisory colleges which afford members the opportunity to confer regularly on supervisory matters of significance to the group as a whole. – - money laundering and counter - FATF and APG 2016 © 2016 terrorist financing measur tates S nited es in the U Anti 253

256 TECHNICAL COMPLIANCE FinCEN takes steps to ensure that the non -counterpart (s) involved in the exchange submit (s) a n appropriate request and institutes proper controls to protect shared information. (s) Weighting and Conclusion: All 20 criteria are met. . Recommendation 40 is rated compliant Technical compliance FATF and APG 2016 © – tates S nited terrorist financing measures in the U - money laundering and counter - Anti 2016 254

257 TECHNICAL COMPLIANCE – Key Deficiencies Summary of Technical Compliance – Key Deficiencies mmendations Compliance with FATF Reco Rating Factor(s) underlying the rating Recommendation PC Lack of sufficient and effective mitigation measures against • Assessing risks & applying a risk 1. - vulnerabilities of the high -end real estate agents, lawyers, based approach -coverage under accountant s, trustees and CFAs due to non comprehensive BSA AML/CFT regime. Exemptions and thresholds not supported by proven low risk. • Scope issue: All investment advisers are not covered • n is fully met. The Recommendatio National cooperation and 2. C coordination • Mere possession is not criminalised and mere acquisition through Money laundering offense 3. LC the commission of the predicate offense is not considered ML. • Tax crimes are not specifically predicates for ML. The list of predicate offens • es for ML does not explicitly extend to all conduct that occurred in another country. The power to confiscated instrumentalities is not available for all • Confiscation and provisional 4. LC predicate offenses. measures Technical compliance -tainted assets prior There is no general provision to freeze/seize non • -based to a conviction to preserve them in order to satisfy a value confiscation order. The Recommendation is fully met. Terrorist financing offense 5. C ave not been applied to all persons designated by the UN TFS h • Targeted financial sanctions 6. LC pursuant to UNSCRs 1267/1988/1989 related to terrorism & TF • Designations are not always implemented without delay. signated by the UN TFS have been not been applied to all persons de • Targeted financial sanctions 7. LC pursuant to UNSCRs 1718 and 1737. related to proliferation The required 5 years retention period for records of domestic and • 8. profit organisations Non- LC international transaction and other information is not met in all circumstances. • Not all houses of wors hip apply to IRS for preferential tax treatment and not all are subject to state requirements in terms of licensing/registration. The Recommendation is fully met. Financial institution secrecy laws 9. C nts to ascertain and verify the identity of BO • Lack of CDD requireme Customer due diligence 10. PC (except in very limited cases). Scope issue: Not all investment advisers are covered. • • FIs (other than in the securities and derivatives sectors) are not explicitly required to identify and verify the identity of persons authorized to act on behalf of customers • FIs are not explicitly required to understand and, as appropriate, obtain information on the purpose and intended nature of the business relationship, or understand the ownership and control structure of customers that are legal persons/arrangements. • Beneficiaries of a life insurance policy are not specifically required to be included as a relevant risk factor in determining whether – - money laundering and counter - FATF and APG 2016 © 2016 terrorist financing measur tates S nited es in the U Anti 255

258 TECHNICAL COMPLIANCE – Key Deficiencies mmendations Compliance with FATF Reco Factor(s) underlying the rating Rating Recommendation enhanced CDD measures are applicable. retention requirement restricted to account files, • 5 year record Record keeping 11. LC business correspondence and results of any analysis that are supporting documentation for a SAR. -keeping Existence of thresholds for triggering the record • requirement. • Scope issue: MSBs, life insurance companies and all investment 12. Politically exposed persons PC advisers are not covered. • Domestic and international organizations PEPs are not specifically covered. The requirements of c.12.1 apply to family members and close • t not those of domestic or international associates of foreign PEPs bu organizations. Concerns about the scope of BO identification in case of foreign • PEPs. No specific requirement to obtain senior management approval • 13. Correspondent banking LC before opening a new correspondent acc ount. • No explicit obligation to make a determination of a correspondent’s reputation or quality of its AML controls and supervision. • No formal agent monitoring requirements for MSBs. 14. Money or value transfer services LC issue: Not all investment advisers are covered. Scope • New technologies 15. LC • No explicit requirements for FIs to address the risks presented by new technologies, though, the NMLRA does address risk related to Technical compliance new technology, and measures in place in the FFIEC Manual relating oducts and services are frequently interpreted by FIs and to new pr supervisors to address the risk of new technologies, and some enforcement measures reflect this. • Requirements apply subject to a USD 3 000 threshold for both Wire transfers 16. PC domestic and international wire transfers. • No explicit requirements to include all the originator and beneficiary information in the transmittal order; • No explicit requirements to verify originator and beneficiary information below the threshold in case of suspicion of M L/TF • No explicit requirements for MSBs to consider information from both the ordering and beneficiary sides for SAR determination • No explicit obligations for intermediary or beneficiary FIs on executing, rejecting or suspending transactions due to lack of required information. • Scope issue: Not all investment advisers are covered. Reliance on third parties 17. LC • No specific obligations on relying FIs to immediately obtain core CDD information from the relied upon FI. • Scope issue: Not all investment advisers are covered. Internal controls and foreign 18. LC branches and subsidiaries Scope issue: Not all investment advisors are covered. • -risk countries Higher 19. LC • EDD measures do not apply automatically to business relationships and transactions with natur al persons in general from jurisdictions Anti FATF and APG 2016 © 2016 – tates S nited terrorist financing measures in the U - money laundering and counter - 256

259 TECHNICAL COMPLIANCE – Key Deficiencies mmendations Compliance with FATF Reco Rating Factor(s) underlying the rating Recommendation identified by FATF as having strategic AML/CFT deficiencies. • Scope issue: Not all investment advisers are covered. 20. Reporting of suspicious PC • Existence of thresholds for filing SARs. transaction • Time allowed to file SARs (30 and 60 calendar days) does not meet the promptness criteria. • The Recommendation is fully met. 21. -off and confidentiality Tipping C Scope issues: • DNFBPs: Customer due diligence 22. NC Other than casinos, DNFBPs are only subject to limited CDD o obligations (R.10) when filing Form 8300 reports. o Other than casinos, R.11 only applies to DNFBPs on a very limited basis in relation to their obligation to file CTRs, and does not apply to company formation agents at all. No DNFBPs are subject to R.12.DNFBPs are not subject to o R.15, although the AML program requirements for casinos, and dealers in precious metals and stones may go some way towards meeting these requirements. Where there is coverage, the deficiencies noted in relation to R10, • Technical compliance R.1 1 and R.12 flow through to R.22. • Scope issues: DNFBPs: Other measures 23. NC o No DNFBPs (other than casinos) are subject to R.20. o No DNFBPs (other than casinos and dealers in precious metals/stones) are subject to R.18. No DNFBPs (other than casinos, dea lers and precious metals o and stones) are subject to R.19. o No DNFBPs (other than casinos) are subject to R.22 Where there is coverage, the deficiencies noted in relation to R18, • R.19, R.20 and R22 flow through to R.23. • Generally unsatisfactory measures for ensuring that there is Transparency and beneficial 24. NC adequate, accurate and updated information on BO as defined by own ership of legal persons the FATF, that can be obtained or accessed by competent authorities in a timely manner. No mechanism to ensure accuracy of basic information being • to-date. obtained by State registries and keep the information up- • Absence of licensing or disclosure requirements for nominee shareholders/ directors. lders No requirement for companies to maintain register of shareho • within the country • Although there are general fiduciary obligations imposed on 25. Transparency and beneficial PC trustees, these generally address trust law broadly; but do not ownership of legal arrangements appear to address obligations on trustees to obtain and hold adequate, accurate and current information on the identity of regulated agents of the trust, service providers, a protector, if any, all beneficiaries, or the identity of any natural person exercising ultimate effective control over the trust. • The obligations to keep information accurate and up-to -date only apply to trust companies. • Trust instruments that could block the ability of trustees to provide information about the trust to FIs and DNFBPs upon request are not prohibited. – - money laundering and counter - FATF and APG 2016 © 2016 terrorist financing measur tates S nited es in the U Anti 257

260 TECHNICAL COMPLIANCE – Key Deficiencies mmendations Compliance with FATF Reco Factor(s) underlying the rating Rating Recommendation LEA • s can obtain relevant information provided they know whether a person is a trustee, but there is no enforceable obligation on trustees to declare their status to FIs. • Due to the foregoing issues, it cannot be said that information will be provided to foreign authorities rapidly. • There are requirements in banking, trust, and tax law that, taken together, meet the 5 year records retention standard but these only apply to trust companies for the most part. The UTC requires trustees to identify property subj • ect to a trust, but that obligation can be overridden by the terms of the trust. • Information may not be obtained in a timely manner or at all in some cases. • Scope issue: Not all investment advi sers are covered. Regulation and supervision of 26. LC At the time of on-site, three States did not license MSBs, resulting in • financial institutions no background checks. The Recommendation is fully met. Powers of supervisors 27. C • dealers in precious metals and Scope issue: Other than for casinos, Regulation and supervision of 28. NC stones, and in relation to examination for Form 8300 compliance, DNFBPs there are no competent authorities designated to supervise DNFBPs’ compliance with AML/CFT obligations. The Recommendatio n is fully met. 29. Financial intelligence units C The Recommendation is fully met. 30. Responsibilities of law C Technical compliance enforcement and investigative authorities While there are mechanisms in places to identify account holders • 31. Powers of law enforcement and LC and their assets, there is no general mechanism to do so. S.314(a) is investigative authorities powerful tool but available in limited circumstances. The Recommendation is fully met. 32. Cash couriers C • The U.S. does not maintain comprehensive statistics on the Statistics 33. LC inv estigations, prosecutions and convictions related to the State ML offenses, or statistics on the property frozen, seized and confiscated at the State level. Sectors not subject to the comprehensive AML/CFT requirements are • Guidance and feedback 34. LC onl y covered to some extent because of the limited application of the Form 8300 reporting guidance related to cash transactions. There is a case to align guidance more to vulnerabilities in minimally • covered DNFBP sectors. ll investment advisers are covered, and DNFBPs • Scope issue: Not a 35. Sanctions LC (other than casinos and dealers in precious metals/stones) are only partly covered. The U.S has minor deficiencies in its implementation of the Vienna • International instruments 36. LC and Palermo conventions (see R.3). Where dual criminality applies, the minor shortcomings noted in R.3 • 37. Mutual legal assistance LC may be a barrier to granting MLA request. Anti FATF and APG 2016 © 2016 – tates S nited terrorist financing measures in the U - money laundering and counter - 258

261 TECHNICAL COMPLIANCE – Key Deficiencies mmendations Compliance with FATF Reco Factor(s) underlying the rating Rating Recommendation • The interception of communications can only be undertaken as part of a U.S. investigation. • The OIA case management does not currently allow the monitoring of the time taken to incoming and outgoing requests. In the context of dual criminality requirements, the gaps identified • 38. Mutual legal assistance: freezing LC under R.3 may be a b arrier to providing freezing and confiscation and confiscation assistance, particularly when the predicate offense is not covered in the U.S. • The U.S. does not have multiple bilateral extradition treaties 39. Extradition LC explicitly listing ML/TF as extraditable offense s. The Recommendation is fully met. 40. Other forms of international C cooperation Technical compliance money laundering and counter - terrorist financing measur es in the U nited tates - S Anti – FATF and APG 2016 © 2016 259

262 TECHNICAL COMPLIANCE – Key Deficiencies 139 OF ACRONYMS GLOSSARY – American Bar Association ABA Asset Forfeiture and Money Laundering Section AFMLS – – Attorney General AG – AGOCC anized Crime Council Attorney General’s Org APA Administrative Procedure Act – – ATF The Bureau of Alcohol, Tobacco, Firearms and Explosives – AUSA Assistant United States Attorney BCSC – Bulk Cash Smuggling Center BGFRS – Board of Governors of the Federal Reserve System – Border Intelligence Fusion Section BIFS – Bureau of Industry and Security BIS - Negotiable Instrument BNI – Bearer – BSA Bank Secrecy Act Bank Secrecy Act Advisory Group – BSAAG CARIN – Camden Inter - agency Asset Recovery Network sist Cease and De – C&D Technical compliance Customs and Border Protection – CBP – Commodity Exchange Act CEA Code of Federal Regulations – CFR Commodity Futures Trading Commission CFTC – CIP – Customer Identification Program CME – Chicago Mercantile Exchange CMIR – Report of Internation al Transportation of Currency or Monetary Instruments CMP Civil Monetary Penalty – - Narco - terrorism Operations Center – CNTOC Counter Counterproliferation Center CPC – – Counterproliferation Investigations CPI – Commodity Pool Operator CPO CPOT nsolidated Priority Organization Target Co – CSG – Counterterrorism Security Group Commodity Trading Advisor – CTA Currency Transaction Report CTR – D.C. District of Columbia – Drug Enforcement Administration DEA – Department of Homeland Security DHS – Department of Health and Human Services DHHS – Department of Justice – DOJ 139 mmendation Acronyms already defined in the FATF 40 Reco this Glossary s are not included in © Anti 2016 – FATF and APG 2016 tates S nited terrorist financing measures in the U - money laundering and counter - 260

263 TECHNICAL COMPLIANCE – Key Deficiencies DOJ’s Asset Forfeiture Fund – AFF - DOJ – OIA - DOJ Department of Justice Office of International Affairs – Drug Trafficking Organizations DTO E2C2 – Export Enforcement Cooperat ion Center (E2C2) Enhanced Due Diligence – EDD El Dorado Task Force EDTF – EIN Employer Identification Number – Executive Order – E.O. FBA – Federal banking agency – FBAR Report of Foreign Bank and Financial Accounts FBI – Federal Bureau of Investi gation – FBI Counterterrorism Division’s International Terrorism Operations Section FBI - ITOS – TFOS FBI - - TFOS) FBI Terrorist Financing Operations Section (FBI Futures Commission Merchant FCM – Food and Drug Administration – FDA FDIC – Federal Deposit I nsurance Corporation – FFA Foreign Financial Agency FFIEC – Federal Financial Institutions Examination Council Federal Functional Regulator – FFR FinCEN Financial Crimes Enforcement Network – FINRA – Financial Industry Regulatory Authority Technical compliance – F oreign Intelligence Surveillance Act FISA Federal Register – FR Foreign Terrorist Organization FTO – FTF – Foreign Terrorist Fighter Geographic Targeting Order – GTO HCFAC – Health Care Fraud and Abuse Control Program Health Care Fraud Prevention HEAT – and Enforcement Action Team HGSE – Housing Government - Sponsored Enterprise High Intensity Drug Trafficking Areas – HIDTA – High Intensity Money Laundering and Related Financial Crime Area HIFCA – Introducing Broker IB Immigration and Customs Enforcement ICE – Homeland Security Investigations – - ICE Immigration and Customs Enforcement - HSI International Emergency Economic Powers Act – IEEPA – IFR Interim Final Rule – Indian Gaming Regulatory Act IGRA – INTERPOL nization International Criminal Police Orga IOSCO – International Organization of Securities Commissions IOC - 2 – International Organized Crime Intelligence and Operations Center IPC Interagency Policy Committee – IRC – Inland Revenue Code Internal Revenue Service IRS – Criminal Investigation – rnal Revenue Service Inte IRS - CI – RS Employment Division - IRS Small Business and Self – I SBSE - TEGE IRS’s Tax Exempt/Government Entities Division IRS – - – JTTF Joint Terrorism Task Force LLC – Limited Liability Company rship – Limited Partne LP LLP Limited Liability Partnership – – - money laundering and counter - FATF and APG 2016 © 2016 terrorist financing measur tates S nited es in the U Anti 261

264 TECHNICAL COMPLIANCE – Key Deficiencies Limited Liability Limited Partnership – LLLP State MSB Examination Taskforce - Multi – MMET MRA – Matters Requiring Attention Matters Requiring Board Attention – MRBA – MRIA Matters Requiring Immediate Attenti on – Money Services Business MSB Money Transmitter Regulators Association – MTRA NACHA National Automated Clearinghouse Association – Conviction Based Forfeiture - NCBF Non – – NCPC National Counterproliferation Center NFA – National Futures Associati on – National Counter Terrorism Center NCTC National Credit Union Administration NCUA – National Indian Gaming Commission NIGC – NMLS - Nationwide Multi State Licensing System – – NPRM Notice of Proposed Rulemaking National Security Council NSC – Office of the Comptroller of the Currency – OCC Organized Crime Drug Enforcement Task Forces – OCDETF ODNI – Office of the Director of National Intelligence operation and Development - Organization for Economic Co – OECD – OEE rt Enforcement Office of Expo – Office of Foreign Assets Control OFAC – OCDETF Fusion Center OFC – OIA Office of Intelligence and Analysis – Office of Management and Budget OMB – Office of National Drug Control Policy ONDCP Technical compliance RFPA – Right to Financial Privacy Act RICO – Racketeer Influenced and Corrupt Organizations Act Residential Mortgage Lenders and Originator RMLO – RPOT – Regional Priority Target List SAR Suspicious Activity Report – SDN – Specially Designated Nationals sts – Specially designated terrori SDT Securities and Exchange Commission – SEC – Special Operation Division SOD SRB – Self - Regulating Bodies SUA – Specified Unlawful Activity – TCO Transnational Criminal Organization TOC – Transnational Organized Crime – TEOAF Office for Asset Forfeiture Treasury Executive TFF – Treasury Forfeiture Fund – Office of Terrorist Financing and Financial Crimes TFFC – TFI Office of Terrorism and Financial Intelligence Tax Identification Number – TIN United States – U.S. United Nations – UN – United States Attorneys’ Offices USAO USC United States Code – – USCG United States Coast Guards Anti © 2016 – FATF and APG 2016 tates S nited terrorist financing measures in the U - money laundering and counter - 262

265 TECHNICAL COMPLIANCE – Key Deficiencies – USMS United States Marshalls Service – USSS United States Secret Service – USPIS United States Postal Inspection Service United States Postal Serv – USPS ice WMD PF – Weapons of Mass Destruction Proliferation Finance Technical compliance tates FATF and APG 2016 Anti © 2016 – - S nited es in the U terrorist financing measur - money laundering and counter 263

266 FATF and APG © www.fatf-gafi.org | www.apgml.org December 2016 Anti-money laundering and counter-terrorist financing measures - United States Fourth Round Mutual Evaluation Report In this report: a summary of the anti-money laundering (AML) / counter-terrorist financing (CTF) measures in place in the United States as at the time of the on-site visit on 18 January - 6 February 2016. The report analyses the level of effectiveness of the United States’ AML/CTF system, the level of compliance with the FATF 40 Recommendations and provides recommendations on how their AML/CFT system could be strengthened.

Related documents

RIE Tenant List By Docket Number

RIE Tenant List By Docket Number

SCRIE TENANTS LIST ~ By Docket Number ~ Borough of Bronx SCRIE in the last year; it includes tenants that have a lease expiration date equal or who have received • This report displays information on ...

More info »
07 5123 06 zigbee cluster library specification

07 5123 06 zigbee cluster library specification

ZigBee Cluster Library – 075123 Document ZigBee Cluster Library Specification Revision 6 Draft Version 1.0 - 0125 Chapter Document: 14 5123 - 07 ZigBee Document: 06 - ZigBee Document 07 - 5123 201 4 J...

More info »
CityNT2019TentRoll 1

CityNT2019TentRoll 1

STATE OF NEW YORK 2 0 1 9 T E N T A T I V E A S S E S S M E N T R O L L PAGE 1 VALUATION DATE-JUL 01, 2018 COUNTY - Niagara T A X A B L E SECTION OF THE ROLL - 1 CITY - North Tonawanda TAX MAP NUMBER ...

More info »
Out of Reach 2016

Out of Reach 2016

No Refuge for Low Income Renters MADE POSSIBLE BY THE GENEROSITY OF:

More info »
mar19 medpac entirereport sec

mar19 medpac entirereport sec

MARCH 2019 Report to the Congress: Medicare Payment Policy REPOR G RESS T TO THE CON Medicare Payment Policy | March 2019 Washington, DC 20001 425 I Street, NW • Suite 701 • (202) 220-3700 • Fax: (202...

More info »
18UW ALICE Report LA   USED FOR ISSUU

18UW ALICE Report LA USED FOR ISSUU

ALICE: A STUDY OF 2018 FINANCIAL HARDSHIP REPORT IN LOUISIANA ® L imited, is an acronym for A sset ALICE I ncome C onstrained, E mployed. The United Way ALICE Project is a collaboration of United Ways...

More info »
me bpd eng

me bpd eng

2017–18 Estimates Parts I and II The Government Expenditure Plan and Main Estimates ESTIMATES ESTIMATES

More info »
HTACoreModel3.0 1

HTACoreModel3.0 1

netHTA JA2 EU DELIVERABLE 8 WP HTA Core Model Version 3.0 ssessment of the f ull for a Diagnostic Technologies, Medical and Surgical Interventions, Pharmaceutical s and Screening Technologies 2015) ha...

More info »
World Report 2018 Book

World Report 2018 Book

A M U H N S T H G I R C W A T H D R E P O O R T| 2 0 1 8 W R L S 7 0 2 O 1 T N E V E F

More info »
Child Maltreatment 2016

Child Maltreatment 2016

Child Maltreatment 2016 th th Y Y 25 27 G G E E N N A A I I R R T T O O R R F F O O P P R R E E U.S. Department of Health & Human Services Administration for Children and Families Administration on Ch...

More info »
ERP 2019

ERP 2019

Economic Report of the President Together with The Annual Report of the Council of Economic Advisers M a rc h 2019

More info »
Thriving on Our Changing Planet: A Decadal Strategy for Earth Observation from Space

Thriving on Our Changing Planet: A Decadal Strategy for Earth Observation from Space

TIONAL ACADEMIES PRESS THE NA This PDF is available at http://nap.edu/24938 SHARE     Thriving on Our Changing Planet: A Decadal Strategy for Earth Observation from Space DET AILS 700 pages | 8.5 ...

More info »
17 8652 GSR2018 FullReport web final

17 8652 GSR2018 FullReport web final

RENE WA BL E S 2018 GLOBAL STATUS REPORT A comprehensive annual overview of the state of renewable energy. 2018

More info »
StateoftheClimate2017 lowres

StateoftheClimate2017 lowres

STATE OF THE CLIMATE I N 2017 Special Supplement to the Bulletin of the American Meteorological Society Vol. 99, No. 8, August 2018

More info »
Measuring the Information Society Report

Measuring the Information Society Report

Internati onal Measuring Telecommunicati on Union the Information Place des Nati ons CH-1211 Geneva 20 Switzerland Society Report ISBN: 978-92-61-21431-9 2016 6 4 0 4 3 3 9 6 1 2 1 4 2 1 9 7 9 8 Print...

More info »
StateoftheClimate2015 lowres

StateoftheClimate2015 lowres

STATE OF THE CLIMATE I N 2015 Special Supplement to the Bulletin of the American Meteorological Society Vol. 97, No. 8, August 2016

More info »
jun18 medpacreporttocongress sec

jun18 medpacreporttocongress sec

JUNE 2018 Report to the Congress: Medicare and the Health Care Delivery System T TO THE CON REPOR G RESS Medicare and the Health Care Delivery System | June 2018 Washington, DC 20001 Suite 701 • 425 I...

More info »
Out of Reach 2018

Out of Reach 2018

2018 of OUT REACH THE HIGH COST OF HOUSING MADE POSSIBLE BY THE GENEROSITY OF:

More info »
PCI DSS v3 2 ROC Reporting Template

PCI DSS v3 2 ROC Reporting Template

Payment Card Industry (PCI) Data Security Standard Report on Compliance PCI DSS v3.2 Report on Template for Compliance Revision 1.0 April 2016

More info »
ECI Historical Listing    Volume III   March 2019

ECI Historical Listing Volume III March 2019

Employment Cost Index National Compensation Survey – Volume III Historical Listing April www.bls.gov/ect 2019 (December 2005=100) 2019 -March Current Dollar, March 2001 The estimates from 2001 to 2005...

More info »