Anti-money laundering and anti-terrorist financing

Purpose

The primary method of prevention in money laundering and terrorist financing is to verify the identity of clients, that they really exist and that they are who they say they are. This means taking reasonable risk based steps to verify the identity of potential clients, to receive appropriate documentation of their identities and source of wealth, and to investigate and/or report instances when a current or prospective client appears to be engaging in unusual or suspicious transactions. It is also important to be aware of the source of funds being submitted as well as the destination of the funds being disbursed.

Anti-Money Laundering and Anti-Terrorist Financing Legislation and Obligations

In order to combat money laundering and terrorist financing, Bermuda and most other countries, have passed laws that make money laundering and terrorist financing a crime. Similarly, these countries have also imposed affirmative obligations on banks, broker-dealers, insurance companies, and other financial institutions and businesses to take steps to prevent and detect money laundering and terrorist financing.

The financial services industry in Bermuda is regulated by the Bermuda Monetary Authority ("BMA") which is responsible for oversight of compliance with Anti-Money Laundering and Anti-Terrorist Financing ("AML/ATF") legislation (www.bma.bm). Pursuant to various statutes, financial institutions and individuals may incur criminal and civil liability for violating AML and ATF laws. Penalties for money laundering and terrorist financing can be sever and include fines, imprisonment, and forfeiture actions.

The following outlines the regulatory obligations of Sun Life Financial affiliates in Bermuda:

• The Proceeds of Crime Act 1997, as amended ("Act")
• The Proceeds of Crime (Anti-Money Laundering and Anti-Terrorist Financing) Regulations 2008 ("Regulations")
• The Anti-Terrorism (Financial and Other Measures) Act 2004 as amended, and (Businesses in Regulated Sector Order) 2008 ("ATF Act")
• Proceeds of Crime Regulations (Supervision and Enforcement) Act 2008
• Proceeds of Crime (Designated Countries and Territories) Order 1998
• Financial Intelligence Agency Act of 2007, as amended
• Guidance Notes – AML/ATF Regulated Financial Institution on Anti-Money Laundering & Anti-Terrorist Financing
• Canadian anti-money laundering and anti-terrorist financing laws and regulations as they may apply to Bermuda international operations
• Sun Life Financial’s Global Anti-Money Laundering and Anti-Terrorism Policy and other such legislation and guidance that may be published from time to time and applicable to our business

As a leader in the financial services industry, Sun Life Financial has an interest in maintaining a company policy to detect and prevent possible instances of money laundering and, when appropriate, to report suspicious activity to the authorities. Sun Life Financial is committed to:

• Complying with applicable AML/ATF regulatory requirements in the jurisdictions in which it operates
• Employing reasonable efforts to deter and detect money laundering and terrorist financing activities in question
• Implementing an enterprise-wide AML/ATF risk management program
• Refusing to engage in transactions with individuals or organizations identified as terrorists or suspected terrorists; and
• Cooperating with regulatory and law enforcement bodies who are charged with enforcing AML/ATF laws and regulations

Regulations require Sun Life Financial to establish an AML/ATF program that includes the following elements:

• Development of internal policies, procedures and controls for anti-money laundering and anti-terrorist financing
• Appointment of a Compliance Officer and AML Reporting Officer
• Verification of identity of persons and entities
• Identification and reporting of suspicious activities to the AML Reporting Officer
• Reporting of suspicious activities to Bermuda’s Financial Intelligence Agency (“FIA”)
• An ongoing training program for employees
• Maintaining records about clients and financial transactions
• Cooperation with government investigations and law enforcement efforts

What is Money Laundering?

(a) Money laundering is the process by which criminals attempt to conceal the true source of ill-gotten gains and disguise them to make them appear legitimate. Money laundering may involve illicit drug money or proceeds from other serious crimes such as bank fraud, insurance fraud, bankruptcy fraud and public corruption. In addition, many different types of financial products, transactions and services can be involved in money laundering, from annuity and life insurance products, to loans and wire transfers.

The purpose of money laundering is to turn "dirty money" into "clean money" through a series of financial transactions so that the criminal origin of the funds becomes difficult to trace.

(b) In general, the money laundering process involves 3 stages: placement, layering and integration.

• Placement involves the physical disposal of bulk cash derived from criminal activity or its initial placement into the financial system. This may include the deposit of cash into a bank or the purchase of insurance, annuities, mutual funds and other types of investment products. Placement is the most vulnerable stage of the money laundering process. That is, it is the stage at which the money laundering activity is most likely to be detected
• Layering involves distancing the proceeds of criminal activity from its source through the use of complex layers of financial transactions. These layers are designed to disguise the trail and provide anonymity. Layering can include the purchase of insurance, annuities, mutual funds and other investment products with bank drafts, cashier checks, money orders or other instruments that have been purchased with cash, and the wire transfer of funds from a bank or securities account. Layering may involve quick movement of funds into and out of different accounts, from company to company, and to different countries or jurisdiction.
• Integration is the final stage in the money laundering process. Integration involves distributing "cleaned" or "laundered" money back to the criminal or organization - putting the money back into distribution. If the money launder is successful, the monies will appear to have been derived from a legitimate source. Integration may take the form of loan proceeds taken out against an insurance policy, the early surrender of an annuity, or from the cancellation of a life insurance policy during the free look period, all could appear to be the proceeds of legitimate transactions

What is Terrorist Financing?

Terrorist financing refers to supplying funds that facilitate activities intended to intimidate a population or compel a government to do something. Terrorist methods include intentionally killing, seriously harming or endangering a person, causing substantial property damage that is likely to seriously harm people, or by seriously interfering with or disrupting essential services, facilities or systems.

What is the offense of “Willful Blindness”?

The laws of Bermuda, and many other countries, make it a crime to engage knowingly in a financial transaction that involves the proceeds of criminal activity or that is intended to promote illegal activity. Under these laws, “knowledge” may include “willful blindness” to the legitimacy of the source of funds. For example, if an associate or producer suspects that someone may be laundering illegal proceeds with Sun Life Financial, but the associate or producer deliberately refuses or ask questions because he or she wants to remain ignorant or turns a “blind eye”, the lawmakers or enforcers could possibly assert that the associate or producer and the Company had knowledge of the illegal activity.

Reporting Suspicious Activity to the Reporting Officer

All distributors have a duty to report any and all suspicious client activity to the Reporting Officer at the Sun Life Financial Bermuda Branch. Suspicious activity is that which raises doubt and points to possible money laundering efforts. In order to detect suspicious activity, Financial Representatives should be aware of the following examples of money laundering "red flags".

• Any attempt to make a payment to the Company in the form of cash, or a cash equivalent such as a money order;
• The client is evasive, unwilling to provide necessary information, exhibits unusual concern for secrecy or delays in providing identity credentials
• The client shows greater interest in how to access the funds in the product than in the product features and performance
• The client exhibits a lack of concern for financial risk or surrender charges
• As a Financial Representative, you know of no reasonable explanation for the transactions or activity after examining all of the facts
• The client requests withdrawal of funds soon after a payment or change of ownership

Distributors should report suspicious activity immediately following the suspicion being raised by summarizing, in writing, the circumstances surrounding the activity or transaction and the reasons why such activity may be suspicious. Reports may be made directly to the Anti-Money Laundering Reporting Officer.

Money Laundering Offences

As stated above, money laundering includes any steps taken to conceal the true origin of proceeds of crime so that they appear to have originated from a legitimate source. The common features of this criminal activity include:

• Intention to conceal the true ownership and origin of criminal proceeds
• Maintaining control over such proceeds
• Laundering (or changing the form) of those proceeds

It is important to note that it is irrelevant whether or not the act or omission took place outside of Bermuda. The Act cites specific money laundering offences, which include the following:

• Concealing, Converting, Transferring or Disguising the Proceeds of Crime
• Assisting Another to Retain Criminal Proceeds
• Acquisition, Possession or Use of the Proceeds of Crime
• Failure to disclose Knowledge or Suspicion of Laundering Proceeds of Drug Trafficking (or of Any Crime)
• Tipping Off - A "tipping off" offense is committed when a person knows that an investigation is proposed or pending into money laundering, or disclosure has been made to a police officer under the Act, and that person discloses information to any other person which is likely to prejudice the proposed or pending investigation