iComply Masterclass with Outlier Canada: Trends and Innovation in Anti-Money Laundering

iComply Masterclass with Outlier Canada: Trends and Innovation in Anti-Money Laundering

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The broadcast, is now starting, all attendees, are in listen-only, mode. Good. Afternoon everyone my name is Greg Penn I'm head of strategy for ID compliant Wester services and I'm very very excited to be here with Amber Scott founder and chief AML, ninja, for, outlier Canada. Today. We're going to focus a lot on what. Are the interesting, trends and, innovations, in, AML, specifically. Focus on AML and kamna which is where we're. Number works, operates, and, is, it expert a little. Bit of background on amber as. I've mentioned amber, is an AML expert, she's. A certified anti-money. Laundering specialist. A sort of my privacy, professional. Holds. A mutual fund sales designation. From the investment, funds Institute of Canada and there's, a first-level fellow at the life Management Institute shields, degrees from the University of Waterloo, as. Well as University, of Aspen and she. Has an obsession, with understanding. The risks, and devising actionable. Solutions, to, leap work. In the financial industry in Canada for, accounting, firms consulting. Firms and financial, institutions she. Is the founder of outline outlier, solutions, which. Is a consulting. Firm providing. AML solutions, to Canadian reporting entities, have, I missed anything ever. Thank. You that's that's about it and I usually some of that by saying that we're big compliance, nerds and we try to keep people out of trouble. As. A big compliance, turd myself, i I've. Airy much appreciate, the, title. So. We're gonna we're gonna jump right in and sort. Of start. Up if you if you're able to follow online you'll. See the questions as they come up and, as amirite discuss them so. Amber has more and more financial businesses, business. Being transacted non face-to-face, how does that impact kyc, policies, and procedures. Okay. I think that's a lot, of really good opportunities. There and the biggest things that I'll say about policies, and procedures and. And the issue that we see again and again an audit and that we see coming up in examinations, with regulators is that, you have to document the, things that you're doing you, can implement. Amazing. Solutions, that do all of the right things but, if you don't document, how your doing those things it's a problem and those. Things need to be documented even, if you're only doing them some of the time so. One of the funny questions that I get into with people is is sometimes I'll have clients that tell us well what we meet with people face to face all the time all, the time no exceptions okay. And generally, we can find an exception where there is some sort of non face-to-face, identification. Those, things have to be documented even. If it's an exception, process even if it's sometimes and. I think they're one of the really good things about non face-to-face, is that you can start having when. It's done well a lot, more automation, and, we're. Seeing a lot of tools that are becoming more automated, even, for small companies so, that have dashboards. That are available that, have services. That are available even. If it's not at a massive. Enterprise, level where. You can do that non face-to-face, identification. You can prepare the information, you. Can have that data and, that's. Workable, even, if you're not a big bank and I and I think that that. Advantage, of being a large organization. Is fading, over time as technology, solutions, get better, and better. Thank. You so much for that I think that that's. That's. Very interesting and we're seeing that more and more for. With our business as well. What, differences are you seeing in the KYC implementation. These days and no crypto. Is a big part of what we do I think it's a big part of what you're doing what, differences, are you seeing in the KYC and, AML implementation. Of. Traditional, and crypto systems. This. Is always a funny one to me because when I look at it I always, have the impression, that because crypto. Companies tend to be so tech savvy that. There will be a. Less. Manual, a more, technology. Oriented a more automation oriented. Approach. To kyc and I'm surprised, to see that that's not always the case when. That becomes most apparent I think is when. We have a bull run in the cryptocurrency space, so when you see the prices just going up and up and up and at. The same time you'll see exchanges, that have three months in. Terms of a lag time between when. You set up your account and when your kyc is complete and. That's, really problematic, if I can think of a single, really. Great argument, within the crypto space for automating, kyc processes, as much as possible that's, probably it because, if you expect, those curves to reoccur.

If You expect, that you're, going to have times where you're trying to unboard a lot of clients very quickly. Then. You need a more automated solution. In a, traditional, space I see a lot more fear. Of automated, solutions, so, one of the things that we see is, hybrid. Solutions, that get implemented by, banks, or credit unions where. They might have part of the process that's automated so they're collecting data and the way that's automated and then, they're asking people to come into a branch to finish the process so. You've, either got to come in and present identification. Or. You've got to send, in you. Know avoid, cheque or certain, physical documents. In. Order to be able to complete, that process and again, I think those are places where a lot of people will drop, out of those those, processes, whether it's with a crypto company or. Whether it's with a bank as soon, as you have those points, of friction where, there is less automation. Where. Someone's not able to complete. That process instantaneously. And they have to physically, go to another location or they have to go. And find a particular document then, you'll have people dropping out of those processes. Similarly, even, in the traditional financial world if you have a really good promotion, that's on where you're attracting, a lot of prospective new customers, you don't want them to fall out of that pipeline you, don't want them to drop out of that process and that's really a commonality, between the. Traditional Fiat, and, cryptosystems. Is that the, longer those processes, take the more you'll have people falling. Out of those pipelines. In. Crypto, I think customers are definitely a lot more sensitive, to it so, certainly, if you look at forums you'll see a lot more criticism. When. The processes, aren't automated. In. Particular when, there's a combination, of the processes, being less. Automated. And being, seen as more intrusive in terms of the types of information that's, being requested, or. Multiple, requests, from information I think that. The. Customers, in the crypto space tend. To be more tech savvy. Individuals. That are looking for a faster process that have different expectations and, that, are very willing to publicly, complain, about them on a variety of forums and so. That, that, I would say is a big difference. We've. Seen some very very similar things I think you have some really great points there. One you're we've seen oh look these Fiat institutions. Have thousands. And thousands and thousands, of auditors, and analysts, doing. Their AML and and those institutions are too. Afraid to get rid of those teams, and. Automation, often can bring a less. Human approach and they're they're afraid of that and.

I Think on the quick break. People. Talk about that all the time where you talk about what it wouldn't functions that AI takes over and. Suzanne. O does some some really brilliant, talks, and in the space of AI and the things that I does well and. AI really. Does a repetitive task, extremely. Well, they, don't do creative, tasks very well they don't do problem-solving tasks very and as, a human the. Tasks, in my work that I find rewarding. Orange. They're repetitive, tasks, it's, it's really those creative, problem-solving, tasks that that, give us meaning in our work that are the types of things that we want to be doing so, I would I would argue that the automation actually, frees up those humans, to do the. More higher order, tasks, that are the most satisfying, things for people anyway oh. I. Think. There's I think. What you're pointing out it's not about words in your mouth is the, higher level is tier 2 tier 3 analysts, the ones that actually need to go and run, an investigation, that, work has to be done by humans it's just not work that can be automated the, tier 1 stuff, where, it's literally just you. Know match, not a match match not a match match not a match where you going through looking, at data you, know reference. Data against. Customer. Data that. I think is where a lot of there's there's some interesting technologies. That have come out lately, that may, reduce. Some of that work and really I think exactly to your point pushing the more, interesting, creative stuff out to the fore I. Think. The other thing you said which is we're bears repeating I think is you. Know these crypto, exchanges, are built on by, technologists. And. Usually by by, people who are very, enthusiastic, about crypto. And all the power that crypto can bring they're not in general bankers, or, people with finance backgrounds, and they're definitely not compliance, people and. I know from for myself, and for the for us, and I comply, watching. This over the last 12 to 18 months has been very, very interesting, in, looking at at. Techno. Techno, technology. Enthusiasts. And. Evangelists. Now, trying, to say okay wait there's a regulatory, landscape we have to work in and. We've seen that in in other places outside of AML as well if you look at quadriga, and. The processes, that they had in place and didn't have in place or, holding. Sensitive. Financial information and, backups. And and proper, custody, we're. Starting, to see this whole industry waking, up to wait. A second, we have to act like a financial institution if we're gonna say it's money we, have to act like it's money. Do. It to some extent and the place where I think that that that always gets interesting, is whenever you have a custodial. Institution. Whenever. You have someone that that, is in possession of other people's funds there, is an expectation that they're going to behave a certain way and. You're. Right I think that we are as. A, crypto ecosystem, slowly waking up to that and starting to figure that out totally. I think we're. In a hundred percent agreement there it's. Just a slow wake up and I'm, sure you and I probably follow the same message boards of seeing all these people, kyc, is a scam AML, is a scam and you. Know a big. Part of what I do is educating, on why this is so important you can you can find it or you can realize that these things matter and. These things are there for a reason. Okay. I I think the other answer to that is that if you're building something that is custodial. If you're building something where you're a company in a particular jurisdiction. You're. Taking some very serious risks, if you're not following. The rules that exist in that jurisdiction and.

There. There are ways to do things within the technology context. Where, if you're building something that's completely non custodial if you're building something that's completely peer-to-peer, if you're building something that really is just code. That's. A different story, but, whenever you start having that conversation with, people the answer as well but if I do something that's like that then, I don't get to incorporate my company, and I don't get to you, know charge my 2% on every transaction and, that that. Doesn't work for me either so. You don't get to, have. Your cake and eat it too you have to choose between those things and. It's one or the other it's it's not short Agurs code it doesn't get to be both, I. Completely. Agree. Changing. Areas. Just a little bit I know, you are an absolute. Expert in Canadian regulations and, I think you, know looking historically, whether. It's an AML or a securities, regulation, or banking regulation, Canada's, really led the way on. Ensuring. The safety and security of the financial, system I think. I think after the 2008, market market collapse in the US and in Europe, a lot of the Canadian banks sort of laughed at the, rest of the world and said well we don't have to worry we've been to been, very careful, and. So with, that in mind I'd, love to hear, sort. Of what is going on with. Draft. Canadian clips right. With. The, Canadian, regulations that have been drafted, in 2018, and what, are the interesting things that we are seeing coming out of Canada. Sure. So. In 2018. We had draft regulation, that was published, there. Was a 90-day, comment period we're. Expecting, the final version of it to be published, in. The beginning of 2019. So so in the first half of this year it. Hasn't been published yet and I. Want to start the dialogue by saying, once. It's published it. Is expected that there is going to be a period of 12 months or more for people to get compliant, so when I say these things I never want people to panic and think oh my goodness if we don't do this immediately. We're going to jail it's worth it to figure out how to implement, things properly. And to, get good policies. Procedures, processes. Technology is, in place to be able to do the things that you're being asked to do, and. The. Intent of the government is really to provide time, to do those things and so. One of the things that we've seen is that as, far back as 2014. The. Government started talking about regulating, dealers, in virtual currency, as money. Service businesses but. Too many service businesses right, now are already regulated in, Canada. From. From. An AML perspective, but.

Those, Are just considered, to be anyone that does remittance, so sending money and meaning Fiat, foreign. Exchange so again Fiat foreign. Exchange and cashing, or issuing, monetary. Instruments and so, monetary instruments being traveler's. Checks and things, of that nature so, this sort of near cash type. Of instruments. So. Those, are the three things that would make something a money service business and anything, outside of that is not considered a money service business, if, you try to register it as a money service business on interactive. Web page so FINTRAC is the financial, transactions, and reports analysis Center Canada there. Are AML regulator, and one. Of the questions is actually you know are you doing business in virtual currency, so. Crypto currencies like Bitcoin and. If. You check that box and you check nothing else they'll actually call you back and say hey you know thank you for letting us know you, can't register at this point if. That's the only business that you're doing as. A money service business but when, there's a regulatory change we, will send you an e-mail and let you know because you've submitted your email address as part of that process so. It. Is, an interesting place we do have some entities that are registered because they're doing some other aspect, of that business already so so either with, uh within, their exchange they have a usd/cad, pair or, something like that so Sofia to Fiat exchange or. They have some aspect of remittance within their platform but there's there's other reasons that they're registered as a money service business. But. Anyone who's dealing in virtual currencies would be considered a money service business and regulated, so, that would mean that they would need to be able to do kyc, they. Would need to have policies procedures, a risk assessment a compliance, officer train. Their staff about anti money laundering, so all of those things would come into effect for those types of companies in. Your. US base and then in the u.s. this is been the case for some time already. And those, pieces of the framework are are similar, although different. In a number of very, nuanced, ways in terms of how that's carried out in. That regulatory package, there were also a number of changes that applied, to all reporting. Entities and one, of the interesting, ones from a cryptocurrency perspective, was that there was a new report it, was a large virtual currency, transaction, report, good. So. Right now in Canada if there's a large cash transaction, so, if any reporting, entity receives $10,000. Or more in cash they. Have to do a couple of things so they have to make a third-party determination. Which, is saying hey are. You doing this transaction on your own behalf Greg or are you doing this transaction on behalf of someone else and if the answer is well you know someone else asked you to do this transaction for them then we try to get as much information about said someone else as we can, and. Then, a report goes in to FINTRAC so, there's, a large virtual currency, transaction, report which, would mean that if there's $10,000. Or more received, in virtual currency, a similar, process would be followed and report would be submitted to the regulator so. I think that's. A pretty interesting one. There. Would be identification. That would be required and the, implication. There is that we. May at some point have banks, we may have Securities, Dealers we. Definitely, already have dealer you know gold dealers and dealers and precious metals and stones that are accepting virtual currency as payment so, for those regulated, entities. They're. Looking, at what would need to be reported, even. If they're not strictly a dealer in virtual currency so I think that was pretty forward-thinking, in, terms of the, expectation. That the, use of cryptocurrency was, going to become much, more widespread, and.

Certainly That we're seeing interest on an institutional, level. Yeah. I think to. Add to that looking at a global perspective I think we're seeing that a lot as well with with fat of recommendations. Coming out this year where. Last year fat.if came out and said you. Know hey, you need to start thinking about about. Cryptocurrency, and you need to treat, crypto. Businesses. The same way you do with fiat that. Was reiterated, in February, this year by that if so. We're seeing a lot of push from, from global. Regulatory bodies as. Well. It's. Good to see nation. States taking a very, active role man. I think what what, makes it so interesting with crypto is the behavior of jurisdictions. Like Malta and Gibraltar, so. The crypto havens which, are short or trying to work around some of these regulations which is which. Is sort of an interesting play we'll. Have to see how that how that works it's by out in the next couple of years I. Think. Have a global, perspective that. This. Is one of the things that will probably push us towards looking at an approach where we have something even if it's a little bit more like in Europe where there's path porting. And. That. Would be relatively useful to. Be able to say if you if you have a program and it. Works in Canada maybe. You could apply the same principles, to other participating, jurisdictions. I think. That I mean for the last probably 10 or 15 years that's been the dream for for. AML and I think you, know each country I think Canada's, is one of the most guilty of this sort. Insisting. On on their own rules I think we can probably, for another day we could probably talk for her hours, about the regulations. And. The way that candidate defines politically, exposed persons, for AML purposes, but. But. And that's the piece where each jurisdiction, has their their different nuance, I think, that's probably the biggest point of contention. Between technology. And regulations, is, that technology, is so fast and it's so instant. So, you can deploy your technology and, be everywhere, instantaneously. A, regulation. Is very slow to change, and it's very, tied, to the particular jurisdictions. In which you want to operate all, right I totally, agree. So let's let's talk about that technology, and, really. Taking sort, of a non-regulatory, looking. At vendors. And technologies. What. Technologies, are you excited about what have you in the work that you're that you're doing and. The consultations, that you're having with with. Different institutions, what, are what's getting you excited from. A regulatory perspective. From. A SUP firm software and services that are helping both. Fiat, and crypto, institutions, produce. Their their works on their costs. Um. I think the. The. Use and improvement. Of a lot of different AI applications, is really interesting, to me from the risk management perspective so. For. Me that starts, at onboarding, so your your facial recognition, I. Have. Eight brothers and sisters and. I. Can tell you that. We, used to borrow each other's identification. Cards and we don't all look similar. So. But. But it was one of those things when you have someone who's underage and they and they want to go to the bar they, just you know borrow, your your, siblings ID in a way you go and. And, that was really common, I think, that with. AI and machine learning you can get much better at doing the facial recognition piece, so the you know the, distance of your nose your eyes your mouth so we're all of those things are and I think AI will. Start to do a much and it's we're already seeing it a much better job of those types of pieces I think.

Liveness, Testing, really interesting so. The idea that you have to turn your head and, and do different things. It's. Going to be interesting, to see, how that relates over time to deep fakes so, I've heard a lot of people be worried about well you know what about this layering over technology, what about the ability to sort of fake these things, I. Haven't. Seen. Anything. That I've found that compelling, yet. But. I do think that's something that is going, to become. In. Some, respects a bit of an arms race in terms of figuring out how to combat some of these technologies and and make sure that that's an actual. Valid. Human. And. And. It is now I mean any time that we construct, these systems, there are people, that are trying to find ways around it, I. Think. That the systems themselves in, terms of onboarding so, so I so, I know that I definitely want to talk about the you know its challenges, that you have because you're so multi-jurisdictional. But. I think one of the really, interesting things that technology can do is. Be. Able to flex and recognize, people in different jurisdictions and, be, able to onboard according, to different rule sets for different jurisdictions, which, i think is very different, from the traditional world, where. What. You're looking at is okay we have an application coming in well, where is this person oh no what if they sent us in the application, from Toronto, but, home base for them is is really, somewhere else what if it's Paris and. Then which, will shatter we do yeah. So so how are you dealing with those things and. I think technology can pull, out a lot of those pieces and release serve up a much more. Much. More customized, much more compliant and streamlined. Experience for, your user just. By by, pulling in those pieces of data at the outset and serving up the right experience, based on the. Response, of your applicant, or of the person who's being Qi seed. That's. Really useful and then, from a transaction, monitoring, perspective so. Just looking at. Transactions. That might, be suspicious that. Might be problematic. I think. That. The use of AI, and especially. AI that's taking into consideration, here. Are the things that when they were escalated, we've actually decided. Looked. Suspicious, and we've gone through and investigated, them and here's. A flag that we have set that's always a false positive and can, adjust based on those things I think is pretty fantastic. Because. One of the things that happens within rules based systems, when it's when it's just strictly rules based is. That things. Change over time and those rules aren't necessarily, sensitive, to those changes unless you're going in and doing a lot of manual tuning. And. Especially. When one of those systems is first implemented it's, really. Difficult for people to figure out which rules make sense for them or not, and part. Of the complaint from any. Any, user from. Your biggest bank to your smallest startup that's first implementing, a system is how, do we resource, it so. What happens when we put in this new system and there, there are just thousands, upon thousands, of alerts and and we're looking at all these false positives and trying to dig through them and so, I think having more intelligent. Systems, to deal with that is going to be a. Massive. Savings and to go back to what we talked about earlier I think, will actually really help humans, who are currently.

Looking At alerts and just saying I don't even know why this alert it, you. Know this is so banal that. I'm not even sure why, I'm resolving, this it just doesn't make sense to me that this would be a suspicious. Queue it's just a rule that triggered and it, doesn't make sense that I'm even looking at it so. Being able to, deal. With a lot of those in a way that's more automated and have the human work so the pieces that actual people are reviewing. Be. Cases, and be things that actually require, investigation. And and more looking into, yeah. I think you touched on a couple of things that I want, to just comment, on the. Liveness is has, become a critical thing for us that I comply, really. What we were seeing from a kyt perspective, is you, know the selfie, the selfie image where you just sort of stop. A sheet of paper next. To your face with you know something written on it. And call, that a cave. Enough to do kyc and, that. In these this day and age is so. Easy to to to. Fake forget. Needing sophisticated. Sort of deep face technology. That I mean anyone, who knows Microsoft. Paint can probably make that work with, a Facebook, photo and so, really where. We're going with this is, implemented. Is true liveness and. What's great about lightness, technology, is that you can algorithmically. Require, random, babe and that's. Becomes, a very very compelling thing because, the randomness, means you can't set. Up something, in ahead of time you can't create a video using. Different. Photos from Facebook we can force you to show us emotions, or, expression, expressions, or say words that. We generate, when. You when, you create your. Create. Your video which. Allows, us to do this in a very very cool, effective, way so whether it's transcribing. Text, whether, it's looking at emotion, facial. Expressions, there's a lot of great things that we can do there and there's a lot of interesting technology, to current connect direct through to the webcam where, you can't have someone sitting in between unless. They're really really. Really, sophisticated. And, like, all of these processes and all these technologies, it's how, much, security do you need where, you've gone beyond, what is reasonable, for someone to to break. That's. A lot of what we're looking at from a from a kyc perspective, and a lot of very very cool exciting things, happening. On that side it's it's a very interesting. Time that the, technology, to do liveness, and the. Huge. Increase in non face-to-face, transactions, have really come together nicely and we're, seeing more and more traditional. Financial institutions, allowing. More and more things that are on face to face so you don't really. Need to go into a bank nearly as often the. Other thing I'll mention is as. I think you pointed out perfectly. Face to face ID verification doesn't. Work very well people, are not that good, really. Bad it is human. Will show you my passport photo from, 10. Years ago I had, no beard was, significantly. Say. Of me than. There is today. A, human. Could easily say, well that could be his brother maybe, say maybe it isn't him, where's. What these technology, of aliveness being.

Able To measure those distances, those things that don't change about. Your face the proportion, interface that. Becomes, far. Far, better than what a human can do I think what we're going to see is the. The old way of of, you know your your, banker sort of like holding, up your passport and looking at it I think, that's gonna that's going to be replaced probably with that blindness, technology, even, absolutely. And those, traditions, are your least. Trained, and like no no offense to tellers I have, done some idle I have a healthy respect for it but. But you're badly paid least trained and incentivized, for moving people through as quickly as possible. And. And, that's. That's a hard place to be. You're. You're not incentivized, to really detect, this. Is not the same person is this you is it your brother and, reasonable. Next, yeah, almost and up that's, a hard place to be say I worked, in in kose. AML data for many many years and we often, had clients who would ask us for photos for with our data and, our answer was always you don't want that that. Is bad because. A shave and a haircut. Makes. Two people look very very, very different. So. We've talked about sort of some new technologies, I think let's, talk about what ends, up being the conversation, that I'm sure you've had a thousand, times I bet a thousand times, AML. Costs, continue to rise they're, growing, and growing and growing and there, doesn't seem to be any peak. To those coffee what are you seeing in the work that you're doing. Is, there hope on the horizon what, what, what. Is going to change this, upward, trend of growing, AML, and kyc cost uh. I. Think I think automation, is part, of that a, lot of times automation has an upfront cost but, then I think that it's it's more sustainable over time, and. So the more that you can have those more, intelligent, systems those more automated systems, those, more integrated. Systems. Because I think there there is a lot of cost and complexity, there, is an expectation that, all of, your data so if you, are a big enterprise and you have 13, different business silos and.

I Have an account with you and seven of them that, my risk rating is going to, involve. All seven of those so, you're going to be able to say yes amber has an account in these seven silos and if she's, high risk in one she's high risk in all of them from an AML perspective, so, it really takes good technology, to be able to do that to be able to bring, all of those things together I. Think. That. Slowly. But surely we're, getting there. And, it's. A lot easier I think for new companies than it is for companies that have existed, and, develop. Systems in parallel for different lines of business or acquired different companies over the years there's, always challenges there, but I, do, think that automation, piece and in particular those. Smart, automation, pieces are going to help a lot in that regard, I, think. In terms of a male costs I I wish that I saw a trend in certain, ways and that might be silly for any and all consultants, to say but. It does seem to be it just a growing Katamari ball of rules and spending all your money I, don't, see, that reversing. Itself but I do think that we need to think about the. Effectiveness, of these rules and that that's part of the conversation. That. Becomes much easier and becomes much more measurable, with technology, so, when you can look at your rule set and say well you know this rule generated. Mostly. False Nate you know a false positive and so. When. We adjusted it here, it made more sense those, are things that you can pick up with the right technology system, very, quickly and speak to very intelligently, that, in turn I think provides a really good feedback for regulators, in terms of what works so. Within. Every. Country I think, even internationally, the FHA, is published to them you just have these lists, of indicators, that are miles long and I, think at some point we have to start looking at those and revising them and saying what makes sense what has actually led to cases what has actually led to investigations. And what, are things that were just part of the rule sets that maybe. Made sense to us when we thought but, haven't actually resulted. In any, actionable, intelligence I think, you touched on what. I think is one of the major frustrations. With all AML professionals, is what. Has led to cases, in. The US and I'm pretty sure in Canada as well there is no way to know it's. Actually in the US and I think again, I won't speak for Canada in the u.s. it is illegal, for for. FinCEN, our financial, regulator or. Anyone, in law enforcement to, provide information back. To the reporter, on the removal of the SAR and because. Of that it, becomes hugely, frustrating for. AML departments, because it looks like a black hole so, I submitted a SAR and this guy I mean I'm sure that there there, should be a criminal investigation, on this SAR but. I never ever hear anything and it's, it's, a double-edged, sword we want to encourage people to file. SARS we, want to protect the people that file those SARS the companies and the individuals themselves, we. Want to make sure that that you know these people who are they're.

Not Technically, whistleblowers. But they're acting as sort of financial establish, that, they're that there's no risk on themselves, at, the same time the information at, least in the u.s. that thinset publishes, on their, successes, are as generic. And broad as you can imagine it's. You. Know hyoe. Laundered. Some money and we caught them because the SAR had been filed somewhere, else I mean. Those and it becomes very frustrating. And. You know. For. Us when we speak to regulators around the world we sometimes say like there's, got to be something we can do to, make this less frustrating, to feed that information back, to encourage. This report. Hi. Sorry, go ahead oh I. I do think regulators. Have heard that and that they're they're trying to figure out how to do it, it's. It's a slow process I, am. Aware of at least one. Academic. Project, so a PhD, level academic, that, is, trying. To work, out some of that type of data, obviously. On an you know and no names like anonymized basis, but within canada, in terms of what. Are the things that actually generated. Cases, and then of those cases what are the that actually, were. Useful, actionable intelligence at an FIU level, ya. Know in, the u.s. there's two million stars filed a year. The. The regulators, claim that every one is reviewed I hope that's correct I think. Where there's been a lot of. Difficulty. Is really when it comes to crypto czars because. So many so. Many fiat institutions, file a SAR for every, single crypto transaction, and that's. A lot of where where we're going to need to start seeing a risk-based, approach to, crypto away. From crypto is the risk - what is the risk with each transaction. We then crept out and that's. That's been a very interesting. Interesting. Transition. You. Know I think you know you definitely mentioned some some other sort, of critically important things. Consolidation. I've seen that as well large, financial institutions. Sort of after, 2001. When you if the Patriot Act was passed and these, institutions just blew up try, it let me not. Use that word they, they grew significantly there. There. AML, kyc, controls. The. We we, saw, a huge, huge growth there in AML, kose to the point where they, couldn't manage these huge departments, and now almost. 20 years later we're, starting, to see consolidation. And. That's been a very interesting. Change. And hopefully, it will focus. The effort because at the end of the day the, more wasted, effort the more noise we produce the less actionable. Intelligence. We provide is. So. You. Know I know you work a lot with with. With. The crypto community, so what, advice would you give to a new crypto, exchange, or other crypto business around, AML, and kyc I wanted, to open a crypto exchange. Tomorrow in in. Manitoba, what are you what are you telling me I need to do. Be. Strategic. So think about it early in terms of what. You want your onboarding, processes to be what you want your technology processes.

To Be don't. Wait until you're, in, that upswing, to try to implement the technology because, that's that's problematic. Make sure you're thinking about compliance, from the outset and actually implementing. So it's not enough just to have a binder on a shelf policies, and procedures you, actually have to implement those things, and. Thinking, about it early on and building it into your process is important, and then, I think from a strategic, perspective I, mean we so, we always Canadians. I think we start in Canada, so, people start here saying okay so my exchange is going to be based in Manitoba, I want to serve Canadians, maybe, I don't have French support so I might wait a little bit to serve Quebec but then I want to serve the world and I, think being strategic about, that is really important, so who. Within, the world because. We know that regulation, is different in different places we're, really are your target markets and start understanding those, start understanding, what, the regulatory context, is and prioritizing. Those as part of your business strategy, I think that's that's incredibly, important. So. You and, I we, have a question that relates to this from from, an attendee so let me let me throw this one at you my. Company just provides, software for Bitcoin payment processing, kose costs are just way too high to operate a business what, can I do to prevent money laundering without, breaking the bank. So. I I think that's always an and it depends, it, depends on. What. Your business is what rule sets are applied. To you so really like understand. What rule sets apply to you based on where you're operating. And. Then, you. Know implement, based on those but. But, look for solutions and, there are solutions where you can start small and those, those solutions will have a lower cost at the outset and scale with you so, I think that's part of it is that if you're a regulated, entity and you have to do AML kyc you, might start with a place where you're using you, know the small business dashboard version. Of a product and. Then eventually you're implementing a more sort. Of self hosted API version of it but, it but at the outset you you're able to use the light version of it and I would say to look for those types of tools that are really going to grow with you. There are definitely tools out there that. Are. Really. Intended, for large, institutions, so. I I've, talked to. Companies, that do certain work and they'll, say you know are starting, implementation, cost is $75,000. Just, to 14. On customized, basic, implementation. If. You're. In bootstrap. Startup, mode that probably isn't for you so, look for other solutions that, are going to grow with you and. The other option there is that if you think you have something that's going to scale relatively, quickly, budget. For that and raise funds for that so that you can implement those those, more. Institutional. Grade solutions, at the outset the victor answers a little bit too modest I think the real answer is is hire an Amber iron. AML ninja. But. To be to be completely sincere. On that I think one, of the things a lot of people do is that they think the regulatory, that. These these compliance, obligations are, something you can simply, figure out or. Muddle through and I think that that. Can adapt costing, you a lot of money, there's. Potential, cease and desist orders, from different government entities, and, and, possibly. Jail time and fines I think. My. Advice on top of everything you've said is go. Find someone, who, can help you through this who's done this before. Because, going, at this, alone can be exceedingly. Costly, and. Very. Dangerous from a legal perspective another. One just jumping off on this a very, Canadian question. We. Have another from, the audience we're launching the exchange in Canada we've, had a hard time getting a Fiat, a traditional.

Bank Account what, do I am sure, I can get all. My corporate, bank accounts set up I'll, talk specifically, for you in Canada because this is a huge. Canadian, problem for. A challenge. It's. It's a huge Canadian, problem I think it's it's the, weirdest. First, world problem, that. I encounter, on a regular basis, because. As as, an entrepreneur, the. Biggest barrier to entry should not be establishing, a bank account. But, it is and and. I'm sorry I, don't have an easy answer for that, there. Are some, banks in, the Canadian context right now that. The. Deal with. MSE. Is to deal with crypto companies they are few and far between, and. You want to approach them with your best foot forward and so. Like. I I don't, have consent. From any of them to sort of do a public you, know hey we're here we're open for this type of announcement, but but. Like like. DM me on Twitter and I'll, you. Know I'll, give you a list of ones, that you could be getting ahold of when. You're dealing with the big banks so the banks that have a big branch network. We. Actually say take the approach where you're just going in a circle is the ones that are closest, to you. And you're making an appointment with their branch, manager or their small. Business manager and, do. Not fill out an application right, away go in and talk to them and say hey you know this is my business this is what I'd like to do do, you have other clients like me do you open accounts for people like me and. If they say, right away like don't crypto no get out of my face don't, take that to mean oh no BMO will never open a crypto account. Take. That to mean I should check out another branch, branches. Are funny fiefdoms, and in. Order to be. Able to work within those types of networks you need someone at your branch level that's going to support you that's going to understand, your business it's, going to know that when the, annual MSP, questionnaire, and this is a thing banks have questionnaires, that they give every year to their high-risk customers and as an MS the earth of dough exchange you are a high-risk customer, so. That when this question in air comes in they, need to get it to you right away because, if you don't answer that question, air to that satisfaction. They, will close your account so, you need someone who's actually going to forward it to you that's going to take the time to answer any questions that you have about that questionnaire, it's.

Going To send it back to their compliance department, right away when you send it to them so, those are those are all very important things and people that understand, at the branch level and who have other similar, customers, are used. To going through that process they. Understand, what it is and. And they're going to be able to help Shepherd you through it and that's really the thing that you want and it's, become such a catch-twenty, Canada. Because, Canada has, been so welcoming for. For, entrepreneurs, for, for. Growth and businesses, around crypto. Whether. It's you know Toronto, Vancouver I think especially we've. Seen huge huge amounts of number of crypto businesses, and crypto entrepreneurial. Institutions starting out and then you've got this one piece that just, can't. Be solved, I think, the u.s. we're seeing the, banking, side is easier but the entrepreneurial, side not as much and so, maybe. Some are someone throwing stuff, over the border in Vermont or something might be helpful but. Right, now that we're, sort of seeing the opposite, probably in the u.s. here, we have almost. An infinite number of banks and so, you can always just go down the street and try the next Bank or the next bank or the next bank I mean most of the right part. In the US for a while too but there were a couple of banks that really stepped up and. Did well and built, the appropriate, compliance, controls at a bank level around it, and. The regulators you. Know didn't, come down on them it you know their world didn't end and so other banks have started to take that on yeah. It's interesting but the biggest, you know we talk about the biggest threat to financial institutions. In the u.s.. Marijuana. Is the marijuana. Related minutes, has become their. Biggest headache. Whereas, in Canada obviously that's not an issue so you've. Got these sort of different different problems across the border, yeah. So I mean we do still have a lot of rules around, banking. In marijuana industries, and it, hasn't been easy. For those companies to find banking, but it's becoming easier. So. Let's let's jump I think that that was that was great let's let's. Jump ahead to sort, of a final question for you, we've. Talked a lot about businesses. And industries banks. Ms B's exchanges. Broker-dealers. Sort. Of needing to focus on kyc and AML who. Else do we need to worry about. So. I think anybody, that has a regulatory. Obligation. Needs to think, about it, one, of one. Of the industries that I worry about a little bit in Canada is the real estate industry so, we've caught, a lot of attention in, terms of, money. Laundering through, real estate, in. Particular and, sort of things over in the Lower Mainland in BC but. I would, say that equally. There. There are issues around that in Ontario and Quebec and and literally every other province, and. In. Particular in, major cities and we're, starting to see revised, numbers, in terms of things like foreign ownership, I, think, that the definitely within the real estate industry I see, that as being an increased, risk I, would say within the securities, industry as well because, there there, is a lot of foreign investment, and and, a lot of interest in that way and not not that that's a bad thing per. Se, but. It certainly brings with it certain risks.

That We need to pay attention to you from an AML and qia perspective. And. Those are things that I don't think can be done well. Without, automation I think. That it is very difficult to, look. At something like a foreign. Identification. Passport. So it's from another country it's in another language do. I really know what it says, do. I know how to do, a correct analysis, on that to know that it's an authentic document. Or that it's an altered document, and to. Be able to say as a human, oh yes I can look at any passport so, if it's real and know what's happening. But. You. Know even. From a systems perspective. That's. Something that you have to ask so, if you know that a large proportion, of your clientele, is going to be Chinese then, you know that you need systems, that can do analytics, for Chinese characters, that are going to do the right analytics for Chinese identification. And that's, very different from doing, the analysis, for the special characters and French identifications. And I, think to jump, on that I think this is where ultimate, beneficial, ownership, legislation. Regulations, are playing, a huge huge part I think, a lot of you know we look at at what's been going on in Canada with real estate a lot, of that was, driven by shell corporations, and the more that, we can uncover the ultimate beneficial, owners there. I think the more successful, we can be at stopping, that type of fraud. And. That's, an interesting one I struggle, with that as, as. An. Entrepreneur. And as an AML geek so. I absolutely understand. Why people might want. Privacy. And I. Struggle. With the idea that you. Know beneficial, ownership registry. Or. Me, means, that my information will be very publicly doxxed, if. That's something that's publicly accessible. And. And, that's, that's. Something that I've given. A lot of thought to in terms of what is the cost to, individuals.

Of, Having, this type of information out in the public eye who should be accessing, it when. Should it be accessed should access to it be tracked as well, and. I think those are all questions that, we have to work, through in terms of those registries, I do think on some levels that those that, those things need to exist, but, that we need to really, balance it in terms of protecting, the individual, and not creating a system where were exposing, the individual, to a lot of risk as well yeah. I think this is always that that spectrum, of risk versus. Versus. Privacy. The. More privacy. You want the greater the risk is in the end of the business that you're doing the. Less. Risky, you want to be you have to give up privacy in and I think everyone, on that spectrum has a different, area where they are comfortable you've got you, know Manero enthusiasts. Who believe that privacy, should be absolute, and you've, got people on the other side who are you know sort of more law enforcement side that says well, your privacy, isn't worth certain, things certain risks, being being. Possible I think there's there's a great example of exactly what. You were saying from an entrepreneurial. Perspective. That. Came out of the Panama papers just, sort of an interesting story. The, actress. She. Played Hermione and Harry Potter. Drugged. Emma, Watson Emma Watson, thank you Emma, Watson was listed in the Panama papers she, had set up a shell corporation in, the UK for, the sole purpose of, hiding her real estate purchase for her prime primary. Home because. She has stalkers, and and, obsessive. Fans and, like, that and so she, it was a just, a pass-through company, she didn't avoid any taxes, but, it was solely there to, hide the, her, ownership of a company because property. Records, in the UK are public. And so you've, got to ask yourself I think you pointed, out another great example of that there's, got to be a balance where is chemist, information, only be available to financial, institutions and, kept, in a very private way the way they keep other other. PII. Sure. Here you're the funny concept on that that it is and it's interesting that you mention Manero so both Manero and z cash and and I think most privacy oriented, coins at this point actually have the concept of an audit key so.

Something. That doesn't let you transact, but lets you access information, and, I, think that's really conceptually. Interesting. On. A couple of different levels and on one of those levels I think you know you get into so, who should have an audit key and. And what can you do with it and then is the access, with that key tracked. And and traceable, and what, does that look like so does it create an entry when you use that to access information, I, think, those types of models, are worth. Thinking about as we move forward yeah. I think you know we've looked at, there's. A number of investigations, that are going on as well into. Portable. Identity, where, it's not your actual, information but it's an encrypted a hash, of your information, that, you can then verify the hash without having to know the actual primary. Data, there's. A lot of interesting things that are that are coming along with that technologically. I think, the interesting, thing is the. Math and technology involved. With understanding it, makes. It more, difficult for, people to be comfortable with which you can really say about cryptocurrency, in general the, fact that cryptocurrency, on, very. Very very, complex, math, is. Is a scares. A lot of people away people sort of trust. Organizations. And people math, is scary and so especially, when you get to really complicated, math so there's some some, interesting things there as well, so. We've reached into the our so. Where we've we've run out of time for this webinar hopefully. The first of you I've greatly. Enjoyed the time speaking with you today amber you. Think yeah good, bye amber, at outlier canada.com. Or. At outlier, Canada on Twitter you can find me I comply. Investor Services and, I'm, that compliant crypto. Thanks everyone for your time today this has been a wonderful hour and. Have a great, rest of your day.

2019-04-05 23:36

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