Compliance Interview Series
with Sercan Karapoyraz
Sercan Karapoyraz,Head of Compliance, CAMS, CGSS Head of Compliance, MLRO at Crypto.com
1. Could you explain the concept of money laundering in simple terms?
Money laundering is the processing of criminal proceeds to disguise their illegal origin. Essentially illegal group needs financial institution for:
- Safekeeping their money
- Obtain funds or crowdfunding
- Fund transfer
- Change the form of the assets
- Gain legitimate earnings, interest, and more
So, they need to place their funds to the financial system, launder by complex methods and then integrate with a new and legitimate explanation (so-called).
2. What is the biggest challenge in this sector?
We may underline the borderless structure of technology, speed of the transactions, the anonymity of private wallets, difficulties with asset freezing, or product complexity. But the biggest challenge is lack of information about blockchain technology, the definition of crypto assets, and other products (NFT, defi, credit, and derivative products)
We should educate all participants of this ecosystem, our clients, partners, vendors, auditors, and regulators. Recently, I had a chance to listen to a webinar about the FATF 15th recommendation. It was 40 min talk about how dangerous the crypto world is – evil blockchain. We are living in the big data century. We can’t go back to the approach of the medieval. We need data, statistics, definition, assessment, analysis, and then results. It is the only way to go forward if the financial crime is the case.
3. How can AML or KYC or KYB benefit from the blockchain technology?
Transparency of the transactions enables us to trace through a source of funds to the destination of funds. Within the adaption of travel rules to an ecosystem, monitoring weapons will be strengthened. We all know the minimum requirements for effective sanction screening and identifying UBO. On the KYC or KYB side, regulations are coming region by region. Rulesets and the general scope of information/document set which needs to be obtained are shaped. The main advantage of this technology, it is totally digital. So, an individual doesn’t have to prove himself/herself face to face to be a customer.
4. How can governments stop money laundering? What do you think, can they?
It is an obvious fact that setting sophisticated & rigid regulations and punishment doesn’t solve the problem. Society has been shocking to scandals for years – Mexican drug cartels, African corrupt leaders, Russian oligarchs, Middles East-based terror groups and arms smugglers, human traffickers… the list goes on.
Personally, I believe that government should take more responsibility for guiding the industry. Organizing summits and designing specific working groups with the participation of private sector representatives should be a good start. For instance, US FinCen organizes annual industry-specific meetings to exchange ideas and explain expectations better.
Information sharing hubs, financial crime intelligence & experience exchange are another inevitable need. Look at the UK based regtech companies and their info exchange forums.
Regulatory sandbox – governmental bodies should involve and be the part of advanced technology and new product trends. There is good example in Singapore.
Additionally, governments should give access to public sources/databases for information verification. For instance, in Turkey, some companies have it some don’t. There is an uncompetitive issue that breaks down the overall fighting against criminal groups.In order to that LE need highly skilled talents. Nowadays, the state is having a hard time keeping its human resources. Not to mention that they were unable to recruit new talents.
5. If everything went to digital money and cash was no longer accepted, how will change the AML process?
It is almost impossible to detect cash-based money movement. It is out of the system and unrecorded. Without direct external intelligence, cash is not the scope of bookkeeping and financial audit. Some groups still use cash for daily small payments, ordinary purchases. Or sometimes it is specifically preferred to obscure some parties.
When everything will be adopted to the digital platforms, transactions will be recorded and stored which make them monitorable, auditable. It makes our life easier.Government will be able to obtain taxes properly and tax avoidance will be decreased.
6. Why is money laundering bad for the economy? What is the worst effect?
- Increase in crime, corruption, and bribery rate
- Generating unrecorded revenue, lack of tax & budget deficit
- Inefficient use of economic sources
- Decrease in average social wealth
- Lack of public trust to legal norms
- Human right violation
- Increase in drug & alcohol addiction and rehab center cost
- Lack of investment to education, science, search
7. What are the best books to read to learn about Anti Money Laundering? Have you any recommendations?
Book: Haven’t read but really wonder the “Panama Papers” - Frederik Obermaier
Netflix series: Ozark
8. What are the risks and benefits of cryptocurrency in the AML?
According to FATF, the legitimate use of virtual currencies offers many benefits such as increased payment efficiency and lower transaction costs. Virtual currencies facilitate international payments and have the potential to provide payment services to populations that do not have access or limited access to regular banking services. However, other characteristics of virtual currencies, coupled with their global reach, present potential AML/CFT risks, such as:
- The anonymity provided by the trade in virtual currencies on the internet
- The limited identification and verification of participants
- The lack of clarity regarding the responsibility for AML/CFT compliance, supervision and enforcement for these transactions that are segmented across several countries
- The lack of a central oversight body
Digital currencies can make international payments more efficient, convenient, and secure while removing the cumbersome operational and security processes linked to the movement of conventional money, which improves overall economic efficiency.
Blockchain technology is allowing the world to think differently about money and economic ideas and is creating much-needed innovation in the financial markets. Once scalability issues with blockchain are ironed out and technological solutions reduce the risk of fraud, digital currencies could deliver a positive experience around the world. From the point of AML/CTF principles, the traditional financial system has certain limits. For instance, financial intelligence units of governments must commit to information sharing. Blockchain is borderless and transparent. You can trace through from the origin of transactions to the destination with less bureaucratic obstacles. They are all in public ledgers.
9. What is the craziest money laundering scheme you've encountered?
I couldn’t share whole story and details but once I detected a very well structured havala business. They hide their own purpose with legitimate licenses and act as a bridge btw sanctioned jurisdictions and western countries. It all started with one simple findings and when we followed the money, we faced with a old school hawala scheme.
10. What is the essential qualification of an anti-money laundering officer?
Excellent communication skill is required. An AML officer should be a central contact point amongst employees, consultants, partners, auditors, directors and shareholders, and law enforcement. Interaction with team members at all levels of the organization professionally is necessary. AML officers should be able to clarify sophisticated regulations, complex product requirements or unusual transaction clusters for the related groups. Additionally,
- Usage of math skills including multiplying, dividing, and counting using fractions,
- The ability to read and interpret documents such as government regulations, internal controls, and instruction manuals,
- Maintenance of discretion in handling confidential information, are the other useful assets.
11. How has anti-money laundering changed over the time?
It is evolving by globalization and digitalization day by day. Illegal groups have closely followed the trends, new technologies, new products but at the same time, they have learned by red flags,termination of accounts, and asset seizures. They got the idea of UBO and try to use alternative ways to conceal “big boss”. Shell corporates and shelf companies have been used to create very complex shareholder structures and add extra chains to the transaction route. And the result is trade-based money laundering.
FIs responded to this by deep diving more, investigating parent companies & services and geographical footprints, plus knowing your customer of customer concept. Now we are at a different stage. And it’s upgrading again.
12. How can a transaction be called money laundering?
By court order. Our mission is; to facilitate the job of law enforcement by identifying and reporting suspicious activities and supporting them with information and intelligence sharing. In general we concentrate on unusual customer activities, clusters, unexpected movements, unrelated relations, unreasonable attempts.
13. Have you any recommendations to fintech startups about the AML process?
Being non-compliant will bring a huge cost. It is not a sacrifice, nor a tradeoff. Having a robust compliance program, a combination of talented people and advanced tools will be key elements of long-term public trust, reputation, and long-term marketing strategies. Fewer measures and high-risk appetite combo will eventually be crushed, no doubt.
14. If you trade with bitcoins, how do you manage to "explain" anti-laundering authorities the money-in & money-out?
There is not a magic formula, or it is not completely different from the traditional financial market. A proper KYC journey + effective sanction screening program and ongoing monitoring, well-organized risk assessment and score-based actions + comprehensive transaction monitoring criteria and high-quality reporting mechanism. This is what you need to do. The main difference is how are you gonna do? How fast will you respond to the subpoena request? How transparent risk assessment will you have? How flexible/dynamic compliance program will you design?
15. How did you get CAMS certificate, how did you prepare?
You can enroll a virtual classroom and learn the crucial parts from the tutors. Or you can study by your own pace. I preferred second one for the CAMS and CGSS. Original study guide and flash cards were the main sources. But I chased up the refences mentioned in the book as well. A dedicated 3 months’ work is enough. However, I strongly suggest that do not waste this opportunity by only exam-oriented goals. Take benefits as much as you can from library of ACAMS and leverage the best practices your own compliance programs.