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Anti-Money Laundering Overview Our AML program is designed to prevent criminals from using Penn Mutual for money laundering or terrorist financing. Overview Penn Mutual's AML program consists of several elements to govern the program and support its success: 1 AML Officer. An officer responsible for assuring compliance with AML regulations. 2 Risk Assessment and Internal Controls. Includes customer due diligence (CDD) and enhanced due diligence as needed. 3 Policies and Procedures. Guidelines to help us meet AML requirements. 4 Education and Awareness. Training for employees to recognize and prevent money laundering. 5 Transaction Monitoring and Reporting. Identifying and reporting suspicious activity. 6 Independent Review. Regular assessments of the program's effectiveness. Did You Know? Employees are often the first line of defense against money laundering. Training and awareness can significantly enhance our ability to detect and prevent suspicious activities. Continued Understanding Money Laundering Money Laundering is the illegal process of making money obtained from criminal activities appear legitimate. The intent is to hide the criminal origin of the money. Money laundering occurs in three stages (sometimes overlapping each other): 1 Placement. Inserting "dirty money" into the financial system or retail economy. This stage is when money is most susceptible to detection and seizure. 2 Layering. Distancing the money from its source through a series of financial transactions, making it difficult to trace. 3 Integration. Moving the laundered money into the economy as legitimate funds, such as through the purchase of goods or services. A key element in these stages is avoiding a "paper trail" by evading reporting and recordkeeping requirements. Continued Penalties for Money Laundering Violating anti-money laundering laws can lead to severe civil and criminal penalties, including heavy fines and imprisonment. Individuals who are willfully blind to suspicious activities involving illegal funds can also face penalties. Companies may be liable for employees' actions, emphasizing the need to adhere to our policies and procedures. Willfully Blind means a deliberate failure to make a reasonable inquiry of wrongdoing despite suspicion or an awareness of the high probability of illegal activity. Continued Preventing Money Laundering The best way to prevent money laundering is to stop it before it starts. Our best weapon is knowing our clients well. Customer Due Diligence (CDD) helps us know the people we do business with through collecting and evaluating relevant information about a client or potential client. Know Your Customer/Client (KYC) responsibilities continue for the entire client relationship. While most information is collected on our applications or forms, financial professionals are best suited to verify a client's true identify and behavior. They should regularly review client activities to spot any unusual or suspicious actions. To perform CDD and KYC, know the following categories about the client: • Account Type. The kind of account the client holds. • Account Registration or Ownership. Is the client an individual, a business, or a trust? This helps determine who provides documentation and the source of funds. • Occupation of Business. Understand the clients business and its legitimacy. Sources to consider are articles of incorporation, partnership agreements, and business certificates to account for any new beneficial owners. • Investment Options. Understand the client's financial goals and activities. This establishes types of transactions to expect and better identify unusual activity, such as unexpected deposits or transfers. • Financial Information. Including income, net worth, and liquid net worth. • Residence. Be aware of clients who live in high-crime areas or hold positions that might increase their risk of involvement in bribery or corruption. According to FinCen.gov, financial professionals should exercise extra caution with clients who: - Reside in High-Intensity Financial Crime or Drug Trafficking Areas - Are Affiliated with Politically Exposed Persons (PEPs) - Operate Cash-Intensive Businesses - Generate Revenue from Foreign Jurisdictions - Are Senior Political Figures Regulators require greater due diligence when opening accounts for these high-risk clients. Did You Know ? Know Your Client (KYC) procedures are not just a regulatory requirement; they can also enhance client relationships by fostering trust and transparency. Continued Acceptable Forms of Payment Penn Mutual has set guidelines for acceptable payment forms to prevent money laundering: We do not accept cash payments or cash equivalents. Prepaid cards and third-party wire transfers are not accepted without adequate documentation. Financial professionals must inform clients of these policies to assure compliance and risk mitigation. Regulators and Regulation Companies, like Penn Mutual, who handle sensitive personal and financial information are prime targets for money laundering and other illicit activities. Regulators and regulations play a crucial role by maintaining the integrity, stability, and trust essential to our success. Regulations help assure that we operate fairly, transparently, and in the best interests of policyholders—protecting both the Company and our clients from potential risks. Regulators enforce these standards by conducting audits and assessments to verify compliance. By upholding regulations, Penn Mutual not only safeguards against money laundering, but also fosters trust and confidence among financial professionals, policyholders, and the broader public. This lesson provides an overview of the key regulators and regulations affecting Penn Mutual, as well as recent regulator updates and their implications. Regulators Regulators Understanding the landscape of Anti-Money Laundering (AML) regulators is essential for Penn Mutual to prevent illicit activities and comply with the law. Regulatory bodies play a vital role in enforcing regulations and providing assurance we can adhere to the strict guidelines necessary to combat money laundering and terrorism funding. These regulators work to protect national security and maintain the integrity of financial systems by monitoring and analyzing suspicious transactions, imposing sanctions, and collaborating with law enforcement agencies. Exploring these regulatory roles and their impact on AML programs provides a clearer understanding of the comprehensive measures in place at Penn Mutual to safeguard our financial system from criminal activities. Financial Crimes Enforcements Network (FinCEN) FinCEN, a part of the U.S. Department of Treasury, is the main regulator for Anti-Money Laundering (AML) programs. FinCEN enforces AML laws and regulations, and assures that financial institutions, like Penn Mutual, comply with them. FinCEN combats money laundering, terrorism financing, and other financial crimes by monitoring banks, financial institutions, and individuals—in addition to analyzing suspicious transactions. They collaborate with state and federal law enforcement to share information and help fight financial crime. While FinCEN is the primary regulator, other regulatory bodies, such as individual state insurance regulators, the SEC, or FINRA also review AML programs. Office of Foreign Assets Control (OFAC) The Office of Foreign Assets Control (OFAC), part of the U.S. Treasury, enforces economic and trade sanctions based on U.S. foreign policy and national security goals. These sanctions target individuals and entities involved in activities like the spread of weapons of mass destruction and other threats to U.S. national security, foreign policy, or the economy. OFAC maintains a list of Specially Designated Nationals and Blocked Persons (SDNs) who are considered threats to national security. This list includes individuals, groups, or entities. Financial institutions are blocked from conducting transactions with SDNs, in addition to nationals of targeted countries and politically exposed persons (PEPs). As a result, these lists are regularly checked against client names to assure compliance. Key Regulations In the fight against financial crimes like money laundering, there are several important regulations tied to AML and AML programs. Recognizing these established key AML regulations is essential to identify how Penn Mutual's AML program is designed and how you can help us maintain the transparency and accountability necessary to keep our financial systems safe from criminal activities. Numbered divider 1 Bank Secrecy Act (BSA) The BSA was enacted in 1970 and is enforced by FinCEN. It requires financial institutions maintain records and report specific transactions to combat money laundering and other financial crimes. Key notes related to the act include: Currency Transaction Reports (CTRs): Report cash transactions over $10,000 in one day. Suspicious Activity Reports (SARs): Report unusual activities that may indicate money laundering or fraud. AML Programs: Financial institutions must have established AML programs with specific requirements. Customer Identification Programs (CIPs): Verify customer identities when opening new accounts. FinCEN collaborates with federal and state regulatory agencies to enforce compliance, in addition to investigating and prosecuting violations. Did You Know ? FinCEN reports that financial institutions in the U.S. file over 1.3 million Suspicious Activity Reports (SARs) each year. This highlights the extensive monitoring happening related to suspicious behavior. Numbered divider 2 USA Patriot Act The Patriot Act was enacted in 2001 and aims to combat terrorism through expanded surveillance efforts, including significant money laundering and financial crimes provisions. Key notes to this Act include: Information Sharing: Facilitates information exchange between financial institutions, law, and intelligence agencies to identify money laundering (Section 314a). AML Program Strengthening: Adds additional components to existing AML programs. Numbered divider 3 Anti-Money Laundering Act of 2020 The most significant update to AML regulations since the Patriot Act of 2001. Its purpose modernizes the approach to combating money laundering, terrorist financing, and other illicit activities. Key notes to this Act include: Beneficial Ownership Disclosure: Requires disclosure of company owners, including corporations and limited liability companies. Innovative Technologies: Encourages new approaches to detect money laundering. Enhanced Information Sharing: Improves communication between financial institutions. Did You Know ? Recent regulations, like the AML Act of 2020 in the U.S., have expanded compliance requirements, increasing the focus on enhanced due diligence for high-risk customers.