Month: October 2008

Military Whistleblowers Get Little Help

The AP released a story describing the poor performance of the Department of Defense Inspector General’s Office: Whistle-blowers get little help if punished.

The inspector general’s office rejected claims of retaliation and stood by the military in more than 90 percent of nearly 3,000 cases during the past six years. More than 73 percent were closed after only a preliminary review that relied on available documents and sources — often from the military itself — to determine whether a full inquiry was warranted.

The Military Reprisal Investigations, or MRI, handles reprisal cases for military whstleblower reprisal cases.

The Directorate for Military Reprisal Investigations fulfills the statutory requirements to conduct and oversee allegations of whistleblower reprisal made by DoD Military Service members, Nonappropriated Fund (NAF) employees, and Contractor Employees. The Directorate also investigates alleged violations of DoD Directive 6490.1, “Mental Health Evaluations of Members of the Armed Forces.”

Policy Lifecycles

Sumner Blount of CA puts together his thoughts on the lifecycles of policies:Policy Lifecycles: The Foundation for a Unified GRC Approach.

As you can easily see, it’s a constant feedback loop, where policies are devised, controls are created and tested, and risks adjusted based on the success of those controls.

Top Ranked Codes of Conduct

Ethisphere ranked 50 Codes of Conduct.

According to Ethisphere, here are some of the best:

Cisco’s Code of Business Conduct
“An attractive Code that passes with flying colors. Only areas that could be improved are the non-retaliation and reporting sections, and the 13,000 word length.”

Alltel Wireless Ethics Policy
“Excellent supportive learning aids and good adherence to core topics with actionable immediate steps hyperlinked within the document if an employee wants to report a concern.”

“Proceeds” From Money Laundering

In US v. Santos (06-1005), the United States Supreme Court sent confusion into what is required for a conviction under the federal money laundering statue: 18 U.S.C. 1956.The problem is the use of the word “proceeds” in 18 U.S.C. 1956(a)(1). Does “proceeds” meean gross receipts or profits?

The justinces could not get together in a clear decision with “Justice Scalia announced the judgment of the Court and delivered an opinion, in which Justice Souter and Justice Ginsburg join, and in which Justice Thomas joins as to all but Part IV,” with Justice Stevens in a concurring opinion.  The result was to dismiss the money laundering charge against Efrain Santos and Benedicto Diaz.

But it is unclear if the government needs to find profits for a conviction. Proving profits would mean comparing gross receipts against expenes and seeing there was a profit. As the government argued, criminals do not keep good records.

Politically Exposed Person

Politically Exposed Person “PEP” is a person who may be or recently acted in the political arena of a country or has held a position in the recent past. These individuals must be tracked by financial institutions as they pose potential risk.

PEP-specific compliance legislation underlines the link between corrupt politicians, money laundering and the financing of terrorism. More than 100 countries have changed their laws related to financial services regulation, with the fight against political corruption playing a foundational role.

The Financial Action Task Force (FATF) definition of a Politically Exposed Person:

  • current or former senior official in the executive, legislative, administrative, military, or judicial branch of a foreign government (elected or not)
  • a senior official of a major foreign political party
  • a senior executive of a foreign government owned commercial enterprise, being a corporation, business or other entity formed by or for the benefit of any such individual
  • an immediate family member of such individual; meaning spouse, parents, siblings, children, and spouse’s parents or siblings
  • any individual publicly known (or actually known by the relevant financial institution) to be a close personal or professional associate.

Specially Designated Nationals and Blocked Persons List Updated

The Office of Foreign Assets Control has just updated the Specially Designated Nationals and Blocked Persons List.

It is a big list. The .pdf file is 404 pages long. The separate file of additions in 2008 is 106 pages long.

Here are the new bad guys added on October 30, 2008:

ABDELRAHIM, Abdelbasit (a.k.a. ABDUL RAHIM, Abdul Basit Fadil; a.k.a. ABDULRAHIM, Abdulbasit; a.k.a. ABOU BASSIR; a.k.a. ABU BASIR; a.k.a. ADBULRAHIM MAHOUD, Abdulbasit Fadil; a.k.a. AL ZAWY, Abdel Bassit Fadil; a.k.a. AL-ZAWI, ‘Abd Al-Basit Fadhil; a.k.a. AL-ZWAY, ‘Abd Al-Basit Fadil; a.k.a. MANSOUR, Abdallah; a.k.a. MANSOUR, Abdullah; a.k.a. MANSUR, ‘Abdallah), undetermined; DOB 2 Jul 1968; POB GDABIA, LIBYA; alt. POB Ajdabiyah, Libya; nationality United Kingdom (individual) [SDGT]

ABU MU’AWIYA (a.k.a. AL USTA, Abdelrazag Elsharif; a.k.a. AL-MULAY, ‘Abd; a.k.a. ALUSTA, ‘Abd Al-Razzaq Al-Sharif; a.k.a. ELOSTA, Abdelrazag Elsharif; a.k.a. SHARIF, ‘Abd al- Razzaq), undetermined; DOB 20 Jun 1963; POB SOGUMA, LIBYA; nationality United Kingdom (individual) [SDGT]

AL HAK, Al Haj Abd (a.k.a. AL MABROOK, Muftah; a.k.a. AL-FATHALI, Al-Mabruk; a.k.a. AL-FATHALI, Al-Mabruk Muftah Muhammad; a.k.a. EL MABRUK, Muftah; a.k.a. EL MOBRUK, Maftah; a.k.a. ELMABRUK, Maftah Mohamed; a.k.a. ELMABRUK, Mustah; a.k.a. MAFTAH, Elmobruk; a.k.a. “AL HAQQ, Al Hajj Abd”; a.k.a. “AL-HAQ, Haj ‘Abd”; a.k.a. “AL-HAQQ, Al-Hajj ‘Abd”), undetermined; DOB 1 May 1950; POB Libya; nationality Libya (individual) [SDGT]

FinCEN Programs for Mutual Funds

Here are links to the text of some FinCEN program for mutual funds:

31 CFR 103.130 Anti-money laundering programs for mutual funds(.pdf)

each mutual fund shall develop and implement a written anti-money laundering program reasonably designed to prevent the mutual fund from being used for money laundering or the financing of terrorist activities and to achieve and monitor compliance. . .

31 CFR 103.131 Customer identification programs for mutual funds(.pdf)

A mutual fund must implement a written Customer Identification Program (‘‘CIP’’) appropriate for its size and type of business that, at a minimum, includes each of the requirements of
paragraphs (b)(1) through (5) of this section.

FinCEN Withdraws Proposed Rulemaking for Unregistered Investment Companies

On September 26, 2002, Financial Crimes Enforcement Network issued a notice of proposed rulemaking, proposing to require unregistered investment companies” to establish and implement anti-money laundering programs. (Anti-Money Laundering Programs for Unregistered Investment Companies, 67 FR 60617 (Sep. 26, 2002))

In that notice of proposed rulemaking, FinCEN proposed to define the term “unregistered investment company” as (1) an issuer that, but for certain exclusions, would be an investment company as that term is defined in the Investment Company Act of 1940, (2) a commodity pool, and (3) a company that invests primarily in real estate and/or interests in real estate. FinCEN proposed requiring these companies to file a notice so that FinCEN could readily identify such companies and require them to establish and implement anti-money laundering programs.

Today they gave notice under 31 CFR Part 103 Withdrawal of the Notice of Proposed Rulemaking for Anti-Money Laundering Programs for Unregistered Investment Companies. FinCEN is not abandoning the possibility of pursing the rulemaking. Given the six year span since the notice, they feel it has gone stale. If (or when) they decide to proceed with an anti-money laundering program requirement for unregistered investment companies, they will publish a new notice.

Money Laundering Reporting Officer Fined

The Financial Servies Authority of the United Kindom fined Sindicatum Holdings Limited £49,000 and its money laundering reporting officer (MLRO), Michael Wheelhouse, £17,500 for not having adequate anti-money laundering systems and controls in place for verifying and recording clients’ identities. [FSA fines firm and MLRO for money laundering controls failings]  Apparently this is the first time the FSA has fined a money laundering reporting officer. The FSA did not find any evidence of money laundering at the firm.

In the final notice for Mr Michael Wheelhouse, the FSA states:

2.1. Throughout the Relevant Period, Mr Wheelhouse was approved by the FSA to perform and performed the controlled function of Money Laundering Reporting Function (CF11). As such, he was the Firm’s money laundering reporting officer. In that role, he had responsibility for oversight of the Firm’s compliance with the FSA’s rules on systems and controls against money laundering.

2.2. However, in performing that role and discharging CF11, Mr Wheelhouse failed to take reasonable steps to ensure that the business of the Firm for which he was responsible in his controlled function complied with the relevant standards and requirements of the regulatory system (as required by Statement of Principle 7 of APER (“Statement of Principle 7”)).

2.3. Mr Wheelhouse breached Statement of Principle 7 by failing to take reasonable steps to implement adequate procedures for verifying the identity of the Firm’s clients; by failing to ensure that the Firm adequately verified the identity of a significant number of its clients; and by failing to ensure that the Firm kept adequate records to demonstrate that it had verified the identity of a significant number of its clients.