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AML Policy

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Corporate Policy Scope 

The policy applies to all VBS Financial Securities directors, employees, products, and services. Business units across VBS Financial Securities are to collaborate for an integral effort against money laundering. Each unit and location has put in place risk-based procedures to detect, prevent and report any such transactions. All efforts will be documented and retained. Initiating Suspicious Activity Reports (‘SARs’) or other reporting to the appropriate law enforcement or regulatory agencies is the responsibility of The AML Compliance Committee. Any contact by law enforcement or regulatory agencies related shall be directed to the AML Compliance Committee.

The committee is to:

  • Receive internal reports on suspicions of money laundering
  • Investigate such reports
  • Report suspicious events to relevant authorities
  • Ensure adequacy of arrangements for awareness and training of staff
  • Report at least annually to the governing body on operations and effectiveness of systems and checks.
  • Monitor day-to-day anti-money laundering operations concerning: new product development, client acquisition, and changes in business profile.

The Policy 

VBS Financial Securities has put in place a necessary policy determined to actively prevent money laundering and activity that facilitates or funds terrorist or criminal activities. VBS Financial Securities has committed itself to AML compliance and requires its executives, employees, and producers to adhere to standards and practices for preventing the use of its products and services for money laundering.

In the policy, money laundering is largely defined as acts designed to conceal the true origins of criminally-derived proceeds so that unlawful proceeds appear to have been 

What is money laundering? 

Money laundering is the process through which criminally-obtained money or assets are exchanged for “clean” money or other assets with no obvious link to criminal origins.

Criminal property may take various forms, including money, money’s worth, securities, tangible property, and intangible property. It also covers money funding terrorism.

Money laundering acts include: 

  • Acquisition, use, or possession of the criminal property
  • Handling proceeds from theft, fraud, and tax evasion
  • Knowingly getting involved with criminal or terrorist property
  • Involvement in the facilitation of laundering criminal or terrorist property
  • Investing illicit proceeds in other financial products

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  • Investing such proceeds through the acquisition of property/assets
  • Criminal property transfer.

Methods of money laundering may range from the purchase and resale of luxury items such as a vehicle or jewelry to passing money on a complex web of legitimate operations. Generally, it starts with cash. It is important to understand money laundering is defined in terms of criminal property which can be in any conceivable legal form, whether money, rights, real estate, or any other benefit; if you know or suspect such assets either directly or indirectly resulting from criminal activity and you do not speak up, then you too might be partaking in the process. 

A money laundering process follows three stages: 

  1. Placement: Disposal of the initial proceeds into a bank account.
  2. Layering: Money is moved through the system in a series of financial transactions to conceal its origin
  3. Integration: Criminals are free to utilize the money once it has been removed from the system disguised as ‘clean’ funds.

No financial business is immune to criminal activities. Firms should consider the money laundering risks posed by their products and services.

What is Counter-Terrorist Financing (CTF) 

Terrorist financing is a process in which legitimate businesses and individuals may choose to provide funding to terror organizations or their activities for ideological, political, or other reasons. Firms must ensure that: (i) customers are not terrorist organizations themselves, and (ii) they are not providing means through which terrorist organizations can be funded. 

Terrorist financing may not involve proceeds from criminal conduct. It is an attempt to conceal the origin or intended use of the funds that can be later used for criminal purposes.

Risk-Based Approach 

A certain level of due diligence is required to counter anti-money laundering within the firm. This takes a risk-based approach, meaning the amount of resources spent for due diligence in any relationship subject to risk should be in proportion to the magnitude of the risk.

This can be broken down into:

Customer Risk 

Different customer profiles have different levels of risk. A basic ‘Know your Customer (KYC) check’ may help assess any risk. For example, a nearly retired individual making small, regular contributions to a savings account in line with their financial details poses less of a risk than a mid-aged individual making ad-hoc payments of ever-changing sizes into a savings account that does not fit into the customer profile’s standing financial data.

The intensity of due diligence conducted on the latter would be higher than that on the former as the potential of money laundering in the second case could be perceived as greater. Corporate

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structures can be examples of customers that may carry a higher risk profile, as they can be used by criminals to introduce layers within transactions to conceal the source of the funds.

Product Risk 

This is a risk posed by the product or service itself. The risk is driven by its functionality as a money laundering tool. 

The Joint Money Laundering Steering Group has categorized products with which firms typically deal into three risk bands – reduced, intermediate and increased. Typically pure protection contracts are categorized as reduced risk whereas investments in unit trusts as increased risk. Additionally, a factor contributing to the classification of risk categories is sales associated with the product. If the transaction in product takes place on an advisory basis as a result of a KYC, it will carry less risk than an execution-only transaction, whereby you know significantly less about the customer. 

Country Risk 

The geographic location of the client or origin of the business activity carries risk associations, stemming from the fact that countries around the globe have different levels of risk.

A firm would apply due diligence continuously using the four risk areas above.

Customer identification program 

VBS Financial Securities adopts a Customer Identification Program (CIP). VBS Financial Securities provides notice that it seeks identification information; collects certain minimum customer identification information from each customer, and records the information and verification methods and results.

Customer noticing

VBS Financial Securities provides notice to customers that it requests information from them to verify their identities as required by law.

Know your customer 

When a business relationship is formed, to establish what might constitute normal activity later in the relationship, the company must assert the nature of the business the client expects.

Once an ongoing business relationship is formed, any regular business for that customer can be assessed against the expected pattern of activity of the customer. Any unexplained activity can be examined to determine whether there is a suspicion of money laundering or terrorist financing.

Client income, occupation, wealth source, trading habits, and the purpose of any transaction are typically gathered as part of the provision of advice. At the beginning of a relationship, personal information is obtained, such as nationality, date of birth, and residential address. These are all considered concerning the risk of financial crime (including AML and CTF). For high-risk transactions, it might be appropriate to seek verification of the information.

Fund sources 

When a transaction takes place, the source of funds, i.e. how the payment is to be made, from where, and by whom, must always be recorded in the client file (this usually is by retaining a copy of the cheque or direct debit mandate). 

Identification 

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The standard identification requirement for customers who are private individuals is generally governed by circumstances relating to the customer and the product type that is being dealt in, i.e. the level of risk attributed to the product whether it is a reduced risk, intermediate risk or an increased risk product. Considering reduced risk and intermediate risk products, the following pieces of information are required as a standard for identification purposes: 

  • Full Name
  • Residential Address

Verification 

Verification should be based on credible and unbiased sources, which can include documents provided by the customer or the company, or a combination of both. In face-to-face transactions, companies should view the original copies of any relevant documents.

To have a high level of assurance, documents verifying identity should ideally be issued by government agencies or courts, as these entities are more likely to have verified the identity of the person in question. In situations where these types of documents are not accessible to the individual, other forms of identification may be accepted, but the company should consider the potential risks.

If the identity is to be verified from documents, this should be based on: 

Either a government-issued document that incorporates: 

  • The customer’s full name, and
  • Their residential address

Photographic Government-Issued Identity Documents:

  • Valid passport
  • National Identity card

Alternatively, this can be done by a non-photographic government-issued document that incorporates the customer’s full name, supported by a second document, which incorporates: 

  • The customer’s full name, and
  • Their residential address

VBS Financial Securities does not limit the time for a Client to submit their verification documents, however, submitting them is an obligatory requirement for the Client to withdraw their funds.

VBS Financial Securities undertakes to review any submitted documents within 24 hours on working days.

Monitoring and reporting 

Transaction-based monitoring should occur within the appropriate business units of VBS Financial Securities. Monitoring of specific transactions is to include but is not limited to transactions aggregating $5,000 or more and those concerning which VBS Financial Securities has a reason to suspect suspicious activity. All reports will be documented.

Suspicious activity

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There are signs of suspicious activity that suggest money laundering. These are commonly referred to as ‘red flags’. If a red flag is detected, additional due diligence will be performed before proceeding with the transaction. If a reasonable explanation is not determined, the suspicious activity shall be reported to the AML Compliance Committee. 

Examples of red flags are:

  • A customer exhibits unusual concern regarding the firm’s compliance with government reporting requirements and the firm’s AML policies, particularly concerning his or her identity, type of business, and assets, or is reluctant or refuses to reveal any information concerning business activities, or furnishes unusual or suspect identification or business documents.
  • The customer wishes to engage in transactions that lack business sense or apparent investment strategy or are inconsistent with the customer’s stated business strategy.
  • Information provided by the customer that identifies a legitimate source for funds is false, misleading, or substantially incorrect.
  • Upon request, the customer refuses to identify or fails to indicate any legitimate source for his or her funds and other assets.
  • The customer (or a person publicly associated with the customer) has a questionable background or is the subject of news reports indicating possible criminal, civil, or regulatory violations.
  • The customer exhibits a lack of concern regarding risks, commissions, or other transaction costs.
  • The customer appears to be acting as an agent for an undisclosed principal, but declines or is reluctant, without legitimate commercial reasons, to provide information or is otherwise evasive regarding that person or entity.
  • The customer has difficulty describing the nature of his or her business or lacks general knowledge of his or her industry.
  • The customer attempts to make frequent or large deposits of currency, insists on dealing only in cash equivalents, or asks for exemptions from the firm’s policies relating to the deposit of cash and cash equivalents.
  • For no apparent reason, the customer has multiple accounts under a single name or multiple names, with a large number of inter-account or third-party transfers.
  • The customer’s account has unexplained or sudden extensive activity, especially in accounts that had little or no previous activity.
  • The customer’s account has a large number of wire transfers to unrelated third parties inconsistent with the customer’s legitimate business purpose.
  • The customer’s account has wire transfers that have no apparent business purpose to or from a country identified as a money laundering risk or a bank secrecy haven.
  • The customer’s account indicates large or frequent wire transfers, immediately withdrawn by check or debit card without any apparent business purpose.

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  • The customer makes a funds deposit followed by an immediate request that the money is wired out or transferred to a third party, or another firm, without any apparent business purpose.
  • The customer makes a funds deposit to purchase a long-term investment followed shortly thereafter by a request to liquidate the position and transfer the proceeds out of the account.
  • The customer requests that a transaction be processed in such a manner to avoid the firm’s normal documentation requirements.

Know your customer – the basis for recognizing suspicions

A suspicious transaction will often be inconsistent with a customer’s known, legitimate business or personal activities or with the normal business for that type of customer. The first key to recognition is knowing enough about the customer’s business to recognize that a transaction, or series of transactions, is unusual. 

Questions you must consider when determining whether an established customer’s transaction might be suspicious are: 

  • Is the size of the transaction consistent with the normal activities of the customer?
  • Is the transaction rational in the context of the customer’s business or personal activities?
  • Has the pattern of transactions conducted by the customer changed?

Suspicious scenarios 

Issues that should lead you to have cause for suspicion would include: 

  • Clients reluctant to provide proof of identity;
  • Clients who place undue reliance on an introducer (they may be hiding behind the introducer to avoid giving you a true picture of their identity or business);
  • Requests for cash-related business, for example, questions about whether investments can be made in cash, suggestions that funds might be available in cash for investment;
  • Where the source of funds for investment is unclear;
  • Where the magnitude of the available funds appears inconsistent with the client’s other circumstances (i.e. the source of wealth is unclear). Examples might be students or young people with large amounts to invest;
  • Where the transaction doesn’t appear rational in the context of the customer’s business or personal activities. Particular care should be taken in this area if the client changes their method of dealing with you without reasonable explanation;
  • Where the pattern of transactions changes;
  • Where a client who is undertaking international transactions does not appear to have any good reason to be conducting business with the countries involved (e.g. why do they hold monies in the particular country that the funds are going to or from? Do their circumstances suggest that it would be reasonable for them to hold funds in such countries?);

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  • Clients who are unwilling to provide you with normal personal or financial information, for no apparent or rational reason. (Care should be taken not to include all distance relationships as suspicious, because most will be for genuine reasons. Suspicions will ordinarily be based upon cumulative as opposed to stand-alone issues)

A money launderer is likely to provide persuasive arguments about the reasons for their transactions. Those should be questioned to decide whether a transaction is suspicious. 

Reporting Suspicions

Where, for whatever reason, we suspect that a client, or anybody for whom they are acting, may be undertaking (or attempting to undertake) a transaction involving the proceeds of any crime it must be reported as soon as practicably possible and in writing.

Internal reports must be made regardless of whether any business was, or is intended to be, actually written.

Investigation 

Upon notification to the AML Compliance Committee, an investigation will be commenced to determine if a report should be made to the appropriate law enforcement or regulatory agencies. The investigation will include, but not necessarily be limited to, a review of all available information, such as payment history, birth dates, and address. If the results of the investigation warrant, a recommendation will be made to the AML Compliance Committee to file the SAR with the appropriate law enforcement or regulatory agency. The AML Compliance Committee is responsible for any notice or filing with law enforcement or regulatory agency.

Investigation results will not be disclosed or discussed with anyone other than those who have a legitimate need to know. Under no circumstances shall any officer, employee, or appointed agent disclose or discuss any AML concern, investigation, notice, or SAR filing with the person or persons subject of such, or any other person, including members of the officer’s, employee’s, or appointed agent’s family.

Freezing of accounts 

Where we know that the funds in an account derive from criminal activity, or that they arise from fraudulent instructions, the account must be frozen. Where it is believed that the account holder may be involved in the fraudulent activity that is being reported, then the account may need to be frozen.