MAKING THE MOST OF SANCTIONS AND WATCH LISTS

1 2013 MAKING THE most OF SANCTIONS AND WATCH LISTS Various SANCTIONS , terrorist, and serious crime WATCH LISTS are available to anti-fraud professionals and can be utilised for anti-fraud purposes. Led by the architect behind the United Nation s new format for the al-Qaeda and Taliban SANCTIONS LISTS , this session discusses best practices in WATCH list screening and the latest developments in identity matching techniques. VICTORIA MEYER, CFE, FCCA Director Swiss International Business Academy Zurich, Switzerland Victoria is a Director of the Swiss International Business Academy. She trained in the Forensic Services Department of KPMG London before moving on to coordinate the European Forensic Technology practice for PricewaterhouseCoopers. After more than a decade in Big-4 Forensic practices, Victoria now works mainly in the financial services sector, and has worked with the UN, OFAC, and other government agencies on a new format for anti-terrorism SANCTIONS information.

2 She began working with identity data on Social Security fraud investigations and has since used increasingly sophisticated linguistic matching techniques to support investigations as diverse as FCPA, insider trading and mortgage fraud enquiries, as well as high profile assignments for the UN and the search for dormant bank accounts dating from the Second World War. Association of Certified Fraud Examiners, Certified Fraud Examiner, CFE, ACFE, and the ACFE Logo are trademarks owned by the Association of Certified Fraud Examiners, Inc. The contents of this paper may not be transmitted, re-published, modified, reproduced, distributed, copied, or sold without the prior consent of the THE most OF SANCTIONS AND WATCH LISTS 2013 ACFE European Fraud Conference 2013 1 NOTES Contents 1. Intelligence Screening for Compliance and Anti-Fraud Purposes SANCTIONS Screening Screening Other Official WATCH LISTS Screening Other Intelligence LISTS Internal Intelligence LISTS 2.

3 Selecting External WATCH LISTS Available External LISTS Selecting Appropriate LISTS Outsourcing Collection 3. Managing Identity Data 4. Linguistic Identity Matching This paper supports the session MAKING the most of SANCTIONS and Other WATCH LISTS for presentation at the ACFE 2013 European Conference in Prague. The session looks at the different kinds of SANCTIONS and other WATCH LISTS available to the anti-fraud professional and considers how they can most effectively be employed in compliance and anti-fraud processes. It begins by considering the various counter-fraud uses for SANCTIONS and other WATCH LISTS (including internally gathered intelligence information) and goes on to highlight some of the areas that are most important in MAKING the most effective use of this intelligence: WATCH list selection and creation, data management, and linguistic identity matching.

4 Intelligence Screening for Compliance and Anti-Fraud Purposes The four main sources for identity screening in compliance, anti-fraud, and counter-terrorism projects are: SANCTIONS LISTS Other official WATCH LISTS MAKING THE most OF SANCTIONS AND WATCH LISTS 2013 ACFE European Fraud Conference 2013 2 NOTES Other published intelligence LISTS Internally generated intelligence LISTS While these LISTS may be compiled in different ways, and used for different purposes, the techniques necessary for MAKING effective use of the intelligence they contain are very similar. SANCTIONS Screening International SANCTIONS programs may take different forms. Some of the most well-known are country-based programs, which prohibit certain kinds of transactions with designated states. These often follow UN resolutions designed to promote world peace or human rights, such as the EU s program of measures against Iran, but may also be instigated at a national level, as is the case with the United States economic embargo against Cuba.

5 Country-based official programs often do not provide specific WATCH LISTS for screening, but may still form the basis of internal LISTS . For example, a financial institution might use a list of towns and ports in a sanctioned country to help filter the payments it processes. Of more direct relevance to the screening process are SANCTIONS programs that produce official LISTS of named individuals, groups, and entities against which restrictive measures are in place. These are often LISTS of parties who carry out or support terrorist activities, but may also list members of a corrupt regime or parties accused of war crimes or other atrocities. The measures applied could include financial restrictions as well as travel bans or other restrictive measures. Examples of targeted SANCTIONS LISTS include the UN s al-Qaeda SANCTIONS List, the OFAC Specially Designated Nationals List, the Consolidated List of MAKING THE most OF SANCTIONS AND WATCH LISTS 2013 ACFE European Fraud Conference 2013 3 NOTES Persons, Groups and Entities Subject to EU Financial SANCTIONS , and the UK HMT s Financial SANCTIONS List.

6 Again, many of the national programs are based on SANCTIONS imposed under UN resolutions, so many of the names appearing on the UN LISTS also appear on supra-national LISTS such as those issued by the EU, as well as national SANCTIONS LISTS such as the OFAC and HMT LISTS . It is arguably in the financial services industry that organisations face the greatest risks if their SANCTIONS screening processes fail, as the penalties for providing parties involved in money laundering or terrorist financing with access to the financial system can be severe. In the worst case scenario, an organisation s ability to do business in one or more regions can be threatened, as regulators impose strict fines and consider withdrawing banking licences for breaches of SANCTIONS or anti-corruption legislation. In addition, indirect penalties can include negative effects on the organisation s reputation and the cost of increased regulatory scrutiny going forward.

7 That said, as many of the named SANCTIONS LISTS apply to individuals working with terrorist organisations or accused of serious crimes, more and more non-financial services organisations are choosing to incorporate these LISTS into their anti-crime procedures. Screening Other Official WATCH LISTS The principles discussed in this paper can just as easily be applied to other kinds of WATCH LISTS , including law enforcement LISTS such as Interpol s Red Notices, the FBI s Crime Alert List and Featured Fugitives LISTS , and the various national and regional wanted LISTS issued by police forces around Europe. Effective screening against such LISTS can help to prevent an organisation MAKING THE most OF SANCTIONS AND WATCH LISTS 2013 ACFE European Fraud Conference 2013 4 NOTES from doing business with parties accused of criminal offences and from becoming involved in on-going scams. The techniques discussed in this paper are also applicable to regulatory enforcement LISTS , such as the LISTS of unauthorised firms issued by the FSA in the UK, the OCC list of Enforcement Actions and the SEC list of administrative proceedings, as well as a host of similar European LISTS , such as those issued by BaFin in Germany, the AFM in the Netherlands, and the CNMV is Spain.

8 However, greater care must be taken in selecting such LISTS for screening and in determining the appropriate response if a prospective business partner is found to be on such a list. While some LISTS comprise serious warnings, such as parties involved in known scams, others detail more administrative penalties and may contain the names of large, reputable international businesses. Screening Other Intelligence LISTS As part of their compliance programs, many organisations also screen LISTS that are not intended to serve as a warning of a specific risk. Some of the most commonly used are PEP LISTS LISTS of politically exposed persons. Though in most cases there is no implication of impropriety on the part of those listed, some organisations choose to apply enhanced due diligence to such parties in order to limit the risk of becoming implicated in corrupt activities. Some organisations, particularly those required to comply with the FCPA or the more recently introduced UK Bribery Act, also use LISTS of organisations with full or partial state-ownership in order to determine which of their business partners might qualify as public officials.

9 MAKING THE most OF SANCTIONS AND WATCH LISTS 2013 ACFE European Fraud Conference 2013 5 NOTES Other LISTS may be of a more specific nature. For example, one of the most high-profile identity screening exercises of recent times was the project to identify assets left behind by victims of the Second World War. The value of dormant assets under management is climbing globally, fuelled in part by successive international crises, which have seen owners unable to make timely claims for their property, and in part by the reduction in practices that would previously have seen such assets written up to profit or transferred to state ownership. Fraudsters have long since recognised this and become skilled at claiming to be the owner of assets left behind by those killed or displaced by war and other crises. Using verified LISTS of those known to have been incapacitated by these events can help to identify fraudulent claims for the assets they left behind.

10 Internal Intelligence LISTS While official, published WATCH LISTS can be invaluable in the fight against crime and terrorism, for specific anti-fraud investigations it is often internally gathered intelligence that forms the basis for screening exercises. Examples include: Corruption and bribery investigations: Over the last two decades, the FCPA has become a significant feature of the anti-fraud landscape, and the 2011 introduction of the UK Bribery Act has strengthened the applicable provisions. A fundamental pillar of all anti-bribery investigations is the identification of relevant power holders and agents, and the matching of these individuals and organisations against payment registers. Investigations often focus on the creation of a list of relevant public officials and local facilitators, and MAKING THE most OF SANCTIONS AND WATCH LISTS 2013 ACFE European Fraud Conference 2013 6 NOTES screening this against an organisation s vendor and payment registers.