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Know Your Customer - Tips and Tricks

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These slides are from a webinar; the recording can be viewed at www.IdentityMindGlobal.com/watch-webinar-2

How do you ensure you only onboard good customers? Customer Identification is a pressing issue for the world's largest financial institutions, and they have the benefit of seeing their clients in person- most Digital Currency institutions do not. A 'good customer' must meet requirements for:

Sanctions Screening: Customers cannot be on the list of sanctioned entities or individuals identified by Government regulation – including the Office of Foreign Asset Control (OFAC), Office of the Superintendent of Financial Institutions Canada (OSFI), and others.

Money Laundering: Customers cannot be one individual creating multiple accounts, controlling multiple accounts, creating accounts with fake data, or other suspicious activity.

Fraud: Institutions need to watch for Account Takeover or Friendly Fraud for customers purchasing bitcoin and then conducting a chargeback/ACH return.

This webinar will provide key tips and tricks for conducting successful KYC from established companies experiencing the same challenges.

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Know Your Customer - Tips and Tricks

  1. 1. IdentityMind Global™ ©2016 All Rights Reserved WEBINAR SESSION 2 Know Your Customer: Tips & Tricks
  2. 2. Panelists Bob Mengani Managing Compliance Director Chartwell Compliance Zach Kelman Chief Legal Officer Bitt Jana Alonso Compliance Officer meXBT Jose Caldera Vice President of Marketing and Products IdentityMind Global
  3. 3. 2 KYC in the United States Bob Mengani Managing Compliance Director Chartwell Compliance
  4. 4. KYC in the United States New York Codes, Rules and Regulations Part 200 Virtual Currencies 23 CRR-NY 200.15 Anti-money laundering program • Part 200.15 (b) Each licensee shall conduct an initial risk assessment that will consider legal, compliance, financial, and reputational risks associated with the licensee’s activities, services, customers, counterparties, and geographic location and shall establish, maintain, and enforce an anti-money laundering program based thereon. The licensee shall conduct additional assessments on an annual basis, or more frequently as risks change, and shall modify its anti-money laundering program as appropriate to reflect any such changes.
  5. 5. KYC in the United States 23 CRR-NY 200.15(c) The anti-money laundering program shall, at a minimum: (1) provide for a system of internal controls, policies, and procedures designed to ensure ongoing compliance with all applicable anti-money laundering laws, rules, and regulations; (2) provide for independent testing for compliance with, and the effectiveness of, the anti-money laundering program to be conducted by qualified internal personnel of the licensee, who are not responsible for the design, installation, maintenance, or operation of the anti-money laundering program, or the policies and procedures that guide its operation, or a qualified external party, at least annually, the findings of which shall be summarized in a written report submitted to the superintendent; (3) designate a qualified individual or individuals in compliance responsible for coordinating and monitoring day-to-day compliance with the anti-money laundering program; and (4) provide ongoing training for appropriate personnel to ensure they have a fulsome understanding of anti-money laundering requirements and to enable them to identify transactions required to be reported and maintain records required to be kept in accordance with this Part.
  6. 6. KYC in the United States 23 CRR-NY 200.15(c) The anti-money laundering program shall, at a minimum: (1) provide for a system of internal controls, policies, and procedures designed to ensure ongoing compliance with all applicable anti-money laundering laws, rules, and regulations; (2) provide for independent testing for compliance with, and the effectiveness of, the anti-money laundering program to be conducted by qualified internal personnel of the licensee, who are not responsible for the design, installation, maintenance, or operation of the anti-money laundering program, or the policies and procedures that guide its operation, or a qualified external party, at least annually, the findings of which shall be summarized in a written report submitted to the superintendent; (3) designate a qualified individual or individuals in compliance responsible for coordinating and monitoring day-to-day compliance with the anti-money laundering program; and (4) provide ongoing training for appropriate personnel to ensure they have a fulsome understanding of anti-money laundering requirements and to enable them to identify transactions required to be reported and maintain records required to be kept in accordance with this Part.
  7. 7. 23 CRR-NY 200.15(d) The anti-money laundering program shall include a written anti- money laundering policy reviewed and approved by the licensee's board of directors or equivalent governing body. 23 CRR-NY 200.15(e) Each licensee, as part of its anti-money laundering program, shall maintain records and make reports in the manner set forth below. (1) Records of virtual currency transactions. Each licensee shall maintain the following information for all virtual currency transactions involving the payment, receipt, exchange, conversion, purchase, sale, transfer, or transmission of virtual currency: (i) the identity and physical addresses of the party or parties to the transaction that are customers or accountholders of the licensee and, to the extent practicable, any other parties to the transaction; (ii) the amount or value of the transaction, including in what denomination purchased, sold, or transferred; (iii) the method of payment; (iv) the date or dates on which the transaction was initiated and completed; and (v) a description of the transaction. KYC in the United States
  8. 8. 23 CRR-NY 200.15(e) continued (2) Reports on transactions. When a licensee is involved in a virtual currency to virtual currency transaction or series of virtual currency to virtual currency transactions that are not subject to currency transaction reporting requirements under Federal law, including transactions for the payment, receipt, exchange, conversion, purchase, sale, transfer, or transmission of virtual currency, in an aggregate amount exceeding the United States dollar value of $10,000 in one day, by one person, the licensee shall notify the department, in a manner prescribed by the superintendent, within 24 hours. (3) Monitoring for suspicious activity. Each licensee shall monitor for transactions that might signify money laundering, tax evasion, or other illegal or criminal activity. (i) Each licensee shall file suspicious activity reports (“SARs”) in accordance with applicable Federal laws, rules, and regulations. (ii) Each licensee that is not subject to suspicious activity reporting requirements under Federal law shall file with the superintendent, in a form prescribed by the superintendent, reports of transactions that indicate a possible violation of law or regulation within 30 days from the detection of the facts that constitute a need for filing. Continuing suspicious activity shall be reviewed on an ongoing basis and a suspicious activity report shall be filed within 120 days of the last filing describing continuing activity. KYC in the United States
  9. 9. 23 CRR-NY 200.15 continued (f) No licensee shall structure transactions, or assist in the structuring of transactions, to evade reporting requirements under this Part. (g) No licensee shall engage in, facilitate, or knowingly allow the transfer or transmission of virtual currency when such action will obfuscate or conceal the identity of an individual customer or counterparty. Nothing in this section, however, shall be construed to require a licensee to make available to the general public the fact or nature of the movement of virtual currency by individual customers or counterparties. KYC in the United States
  10. 10. 23 CRR-NY 200.15 continued (h) Each licensee shall also maintain, as part of its anti-money laundering program, a customer identification program. (1) Identification and verification of account holders. When opening an account for, or establishing a service relationship with, a customer, each licensee must, at a minimum, verify the customer’s identity, to the extent reasonable and practicable, maintain records of the information used to verify such identity, including name, physical address, and other identifying information, and check customers against the Specially Designated Nationals (“SDNs”) list maintained by the Office of Foreign Asset Control (“OFAC”), a part of the U.S. Treasury Department. Enhanced due diligence may be required based on additional factors, such as for high risk customers, high-volume accounts, or accounts on which a suspicious activity report has been filed. (2) Enhanced due diligence for accounts involving foreign entities. licensees that maintain accounts for non-U.S. persons and non-U.S. licensees must establish enhanced due diligence policies, procedures, and controls to detect money laundering, including assessing the risk presented by such accounts based on the nature of the foreign business, the type and purpose of the activity, and the anti-money laundering and supervisory regime of the foreign jurisdiction. (3) Prohibition on accounts with foreign shell entities. licensees are prohibited from maintaining relationships of any type in connection with their virtual currency business activity with entities that do not have a physical presence in any country. (4) Identification required for large transactions. Each licensee must require verification of the identity of any accountholder initiating a transaction with a value greater than $3,000. KYC in the United States
  11. 11. 23 CRR-NY 200.15 continued (i) Each licensee shall demonstrate that it has risk-based policies, procedures, and practices to ensure, to the maximum extent practicable, compliance with applicable regulations issued by OFAC. (j) Each licensee shall have in place appropriate policies and procedures to block or reject specific or impermissible transactions that violate Federal or State laws, rules, or regulations. (k) The individual or individuals designated by the licensee, pursuant to paragraph (c)(3) of this section, shall be responsible for day-to-day operations of the anti-money laundering program and shall, at a minimum: (1) monitor changes in anti-money laundering laws, including updated OFAC and SDN lists, and update the program accordingly; (2) maintain all records required to be maintained under this section; (3) review all filings required under this section before submission; (4) escalate matters to the board of directors, senior management, or appropriate governing body and seek outside counsel, as appropriate; (5) provide periodic reporting, at least annually, to the board of directors, senior management, or appropriate governing body; and (6) ensure compliance with relevant training requirements. 23 CRR-NY 200.15 Current through February 29, 2016 KYC in the United States
  12. 12. 11 KYC outside the US Jana Alonso Compliance Officer meXBT
  13. 13. KYC outside the US • Mexican Law is very strict (since it is a risky territory) • Indispensable for the company’s reputation • Clients & Employees loyalty • Save money • Save time
  14. 14. KYC outside the US • Principles • Policies • Procedures • Control
  15. 15. What to do when we get a sanctions screen match? Specific Questionnaire Transactional Behavior Consistency on operations Monitoring Evidence - Frequency - Sender/Receiver - Source of funds Reports Record should be updated once a year
  16. 16. 15 Bitcoin and the State of Regulation 2016 Zach Kelman Chief Legal Officer Bitt
  17. 17. CENTRALIZED VS. DECENTRALIZED CURRENCY
  18. 18. HOW BITCOIN WORKS
  19. 19. PROBLEMS BITCOIN SOLVES High Remittance Costs High Banking Fees Regional Online Trust Settlement Time Global Digital Access Fragmented Currencies Unbanked Citizens Restrictive Barriers To Ecommerce
  20. 20. BLOCKCHAIN APPLICATIONS
  21. 21. MAJOR BITCOIN MERCHANTS
  22. 22. FINANCIAL INSTITUTION STAKEHOLDERS
  23. 23. ● Immutable public records of transactions - Easy monitoring of money supply ● Freeze high risk accounts instantly without down time ● Enforce Foreign Exchange Controls using Smart Contracts ● Reduce friction of national economy ● Vastly reduce the costs of seigniorage ○ Currency Minting ~ 28 Billion USD annually ○ Bitcoin Minting - 0.79 Billion USD annually ● Manage international financial settlement at low cost, instantly CENTRAL BANK CURRENCY DIGITIZATION
  24. 24. RISKS AND SOLUTIONS (PART I) Risks Solutions Anonymity Risks Financial Crimes Forensics - Peeling Chains Cyber Theft Cyber Security Policies Money Laundering, Drug and Terrorist Financing AML/CFT Regulation Reduced Fiscal Control Digitization of Fiat Currency Lack of Regional Technical Expertise Follow Sophisticated Regulators
  25. 25. LEGAL STATUS OF BITCOIN GLOBALLY
  26. 26. Canada: Businesses must comply with Part 1 of the EAP, Bill C-31, September 2014 by “...record keeping, verifying identity, reporting of suspicious transactions and registrations.” New York: Businesses must register with the DFS for a BitLicense and comply with FinCen guidelines and the ‘Regulation of Financial Services Part 200’ (BitLicense), June 2015 California: AB 129 will ensure that “various forms of alternative currency such as digital currency” will be legal in purchasing goods and transmitting payments. “In an era of evolving payment methods, from Amazon Coins to Starbucks Stars, it is impractical to ignore the growing use of cash alternatives,” Democratic Assemblyman and the bill’s author Roger Dickinson said in a recent statement. England: “The government intends to apply anti-money laundering regulation to digital currency exchanges in the UK, to support innovation and prevent criminal use.” Digital currencies:response to the call for information, HMT March 2015 REGULATORY CLARITY
  27. 27. WHO SHOULD BE REGULATED?
  28. 28. RECOMMENDATIONS TO REGULATORS 1. Warn users of the risks of investing into digital currencies due to their speculative value. 1. Issue a call for would be financial service providers to comply with existing AML compliance legislation in their target markets and self-regulate or be regulated in other territories. 1. Provide clarity to financial institutions on the fact that digital currencies are not legal tender BUT they are also not illegal. 1. Observe the impact of the New York, California, Canada, and UK regulation and defer affirmative legislative changes until the best path is identified. 1. Allow innovation and technology disruption to occur in the Caribbean - embrace the opportunity and enormous human potential of decentralized digital currency systems.
  29. 29. CLICK HERE To watch this webinar! This webinar is one of a series of four. You can view the recordings on our website at www.IdentityMindGlobal.com/Resources 29

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