Suggested practice guide. for Anti-Money Laundering. Activities

Transcription

1 Guidance to Members Suggested practice guide for Anti-Money Laundering Activities August 2014

2 Contents 1. Purpose Introduction to AML procedure Client Acceptance Guidance Due diligence documentation... 3 a) Internal Client Acceptance Documentation... 3 b) Client Identification Documentation Identity Verification and Due Diligence for individuals and legal entities... 4 c) Client Due Diligence Documents - Other Types of Entities:... 5 i) TRUSTS... 5 ii) FUNDS... 5 iii) PARTNERSHIPS... 5 d) Certification of Documents Risk Assessment... 6 a) Key factors... 6 b) Red Flags for Further Investigative Procedures Due Diligence Procedures... 7 i) Face to face meetings... 7 ii) Intermediaries/Professional Service Clients... 7 iii) Situations where enhanced due diligence may be required... 8 iv) Enhanced Due Diligence Procedures CLIENT RETENTION... 9 a) Frequency of client review b) Updating of due diligence documents c) Shift in nature of activities d) Review of transactions e) Undertaking a database check f) Face to face meetings Record Keeping a) Due diligence documentation b) Transaction documentation c) Time frames Suggested practice guide for Anti-Money Laundering Activities 2

3 1. Purpose This Guide endeavours to provide a practical and comprehensive, but not an absolute and/or exhaustive, list of steps in order to comply with the Law (Section 59(4) of The Prevention and Suppression of Money Laundering Activities Law of 2007 as amended in 2010, 2012 and 2013) and the ICPAC Directive to the members of September Introduction to AML procedure Pursuant to Section 59(4) of The Prevention and Suppression of Money Laundering Activities Law of 2007 as amended in 2010, 2012 and 2013 auditors, external accountants, tax advisors and trust and company service providers as well as their staff are required to comply with the said legislation and the ICPAC Directive to the members of September In this respect, professional accountants must prepare Anti-money-laundering (AML) Manuals ensuring that they have in place appropriate AML procedures in compliance with the Law. It is also necessary to arrange for training at regular intervals to ensure that staff are kept up to date with their responsibilities and are kept informed of any new developments in the prevention of money laundering and terrorist financing. AML procedures is a series of questions/steps which need to be addressed during the onboarding of a new engagement as well as throughout the subsequently established business relationship through the ongoing monitoring of the engagement in order to assess whether there are any suspicions for Money Laundering practice. 3. Client Acceptance Guidance Key objectives: o Assess the relationship between the prospective client, previous auditors, lawyers, bankers etc and o Assess whether the prospective client's management team standards of integrity and ethics m Key steps: o Establish client acceptance protocol; and o Draft client acceptance/rejection forms 4. Due diligence documentation The below evidence and documentation should be received as part of the due diligence process and varies slightly based on the nature of the entity to be accepted. a) Internal Client Acceptance Documentation Client Acceptance Procedures and Checklist Client Acceptance Information Form Client Acceptance/ Rejection Letter Suggested practice guide for Anti-Money Laundering Activities 3

4 b) Client Identification Documentation Identity Verification and Due Diligence for individuals and legal entities Client Identification Documents for individuals: Passport Birth Certificate National Identity Card Driving licence Country of residence Full Residential Address (Not PO Box) Proof of address (recent utility bills) Key banking relationships and legal advisers Family status, incl. family names/ ages etc Notes: At least one official document must include a recent photograph. A valid passport or national identity card should be requested at the outset. Customers must be filtered against known lists to establish whether they are under any sanctions or have any negative press information or are Political Exposed Persons (PEPs). Client Identification Documents for legal entities: Certificate of Incorporation Articles and Memoranda of Incorporation Certificates of Officers/ Directors/ Shareholders/ Beneficial Owners Certificate of Registered Office and Address Certificate of Good Standing List of Authorized signatories Signature Card List of Legal and other advisers/auditors/ Business partners/ Suppliers/ Others Business and Operational Profile (industry/ market-share/ locations/ revenue sources/ key clients/ suppliers etc) Business references (a credit reference agency or a reference from a bank or another professional adviser) Recent audited accounts, incl. auditors report Business website Client due Diligence Documents for both individuals and legal entities: Supporting documentation must be provided for the declared source of wealth Personal interviews Proof of place of work (employer confirmation) Proof of salary (recent pay slip etc) Contact details (home and work) World Check (passport ref) for prospective individual client, as well as all stakeholders/ directors/ officers/ controllers of prospective legal entity client The economic profile of the customer should be prepared Business location visits (without appointment) Suggested practice guide for Anti-Money Laundering Activities 4

5 Own profile (travelling frequency, main sources of income/ commitments etc) Management profile Business Reference interviews Verification of information provided across many sources (e.g. inquiring public registries and private record databases) Business Background Checks could involve: Civil Court Records Criminal Records Credit-Check Databases Address Verifications Specialized searches, including facilities and location verification. Bankruptcy records National Newspapers Databases National Security Databases Regulatory Records c) Client Due Diligence Documents - Other Types of Entities: i) TRUSTS o Copy of Trust Deed where the names of the trust, trustees and beneficiaries are evident o The relevant registry of the Trust o Type of Trust/ Nature of Trust/ Reason for Trust Establishment o Trustees and settlors' personal details (as for individual client identification and due diligence) o Where Trustee is legal entity (as for legal entity client identification and due diligence) o A notice issued by the Inland Revenue within the last 12 months (e.g. Notice of Assessment) o Identification documents for all beneficiaries under the Trust o Recent Audited accounts o Recent Bank statements ii) FUNDS o Fund incorporation certificates o Related statutory documents o Fund subscription documents o Customer Identification Policy and Procedures o Fund managers' personal details iii) PARTNERSHIPS o Copy of the Partnership agreement o Country of Partnership Establishment o All Partner client identification and due diligence o Full name and residential address of each partner Suggested practice guide for Anti-Money Laundering Activities 5

6 o Industry o Identification documents for Ultimate Beneficial Owners if different from the above o A copy of the latest report and accounts (audited where applicable) o Identification documents of all partners o Identification documents of a minimum of 2 individual principals/authorized persons empowered to conduct business with the service provider. d) Certification of Documents It should be clarified that certified true copies should be obtained of all original documents for identity verification. Certification MUST only be accepted from approved certifiers/notaries. 5. Risk Assessment a) Key factors in assessing risk (emphasis on determination of source of wealth) b) Red flags for further investigative procedures a) Key factors The economic/ financial profile of the client; The jurisdiction (client s jurisdiction and the jurisdictions of the related entities and/or source and/or destination of funds). Jurisdictions subject to sanctions and embargoes should be excluded; The possibility of the client being a politically exposed person (pep); The industry of operation; The mode of operation; The complexity of group structures and whether this is done in order to obscure the ultimate beneficial owner(s); The inclusion of trusts and foundations; The possibility of the individuals having criminal records; Non-face-to-face business relationships; Negative publicity/ press articles; Invisible ultimate beneficial owners; Frequent changes in the legal structures of a client s company which has no clear justifications; Customer has a history of changing bookkeepers or accountants; New customer carrying out large one-off transactions; Clients involved in business that handles large amounts of cash; Foreign clients; A customer who makes regular transactions with same individual or company; b) Red Flags for Further Investigative Procedures High cash-generating business; Stock turnover ratios etc not in line with industry standards; Promotion arrangement with significant number of agents/ individual/ representatives/ sales persons/ principals (usually people sign up to take advantage of discounts); Suggested practice guide for Anti-Money Laundering Activities 6

7 Frequent rotation of professional service providers; Poor financial record history; Prior failed business or bankruptcy; Sudden revenue jumps/ peaks, not justified by the production levels etc; Business/ employment history; Unstable addresses, professional or employment history; Significant prior litigation history as a plaintiff or defendant; High turnover in senior management; Short operations history; sudden growth; No prior track record for top executive and senior management in the business e.g. Nobody has heard of them before this company; Foreign operations or plants. E.g. Hoping you won t check whether there is a factory in Ireland, or whether the production volumes p.a. Justify the revenues p.a. Reluctance to provide references; Pressure to get deals done quickly; Have past/ pending regulatory, disciplinary and other actions filed against them. 6. Due Diligence Procedures i) Face to face meetings o Conducted as part of KYC procedures for all prospective individual clients and prospective legal entity clients. o By face to face meetings the identity of the client can be verified directly and the copies of the identity document can be certified whether the result of verification allows this. o Non face to face customers from a country subject to strict sanctions by EU, UN and OFAC or countries considered by FAFT as high risk or non cooperative jurisdictions should be prohibited from establishing a business relationship. ii) Intermediaries/Professional Service Clients Reliance may be made on persons who are Regulated credit or financial institutions (excluding money service businesses) and professional lawyers, auditors, accountants that are regulated by EU state or a third country equivalent holding a valid license certificate. The Company may rely on third parties for the implementation of Client identification and due diligence procedures, as these are prescribed by the AML legislation, provided that the third person makes immediately available all data and information, which must be certified as true copies of the originals that were collected in the course of applying client identification and due diligence procedures. o Introduction of agreement to regulate relationship The third party shall fill in a Professional Intermediary Questionnaire with all necessary details. Suggested practice guide for Anti-Money Laundering Activities 7

8 o Periodic assessment of intermediary The Company obtains data and information so as to verify that the third person maintains his professional registration in accordance with the competent law of its country of incorporation and/or operation as well as supervision for the purposes of compliance with the measures for the prevention of money laundering and terrorist financing according to EU and third party equivalent regulations. The periodic assessments and lists issued by Financial Action Task Force should be taken into consideration. For those not registered in Cyprus they need to have in force anti-money laundering laws and procedures that are equivalent to the Republic of Cyprus and are member countries of FATF or CFATF and also be appropriately regulated, with good reputation and maintain memberships of professional bodies. Documents to be provided include: Certificate of Incorporation or business registration or equivalent depending of the status of the professional service client Validity of the business address and communication numbers of the Professional service client List of authorised signatories (if applicable) Names of principals or professionals involved in the professional service client and persons authorised to conduct business with the service provider. Applicable business cards may be obtained from such individuals with identification documents from a minimum of 2 persons (if applicable) from whom the service provider would normally accept instructions Consideration as to the jurisdiction of the vehicle It has to be assessed / determined whether the jurisdiction of the vehicle applies requirements equivalent to those stated in the European Union Directive. iii) Situations where enhanced due diligence may be required For Legal entities these situations may include: o When the customer isn't physically present when carrying out identification checks. (Non Face to Face customers) o When the business relationship involves a 'politically exposed person'. o Companies whose shares are in the form of Bearer o Electronic gambling/gaming entities through internet o Trusts o Persons connected with countries subject to sanctions/restrictive measures o Non profit organizations/charities/foundations registered in Cyprus or EU and the majority of the donators/sponsors are not from the country of registration o Legal entities with complex corporate structures o Foreign government organizations provided there is reasonable ground/business jurisdiction for establishing a business relationship o Any other situation where there's a higher risk of money laundering. Suggested practice guide for Anti-Money Laundering Activities 8

9 For Individuals these situations may include: o Production and/or trading cigarettes, oil and alcoholic products o Online Trading o Gaming o Prize Competitions o Gambling online related services (software providers, payment processing services, card acquirers) o Providers of financial, brokerage, insurance services including money transmission services and currency exchange services o Investment schemes and hedge funds o Precious metals/stones o Sporting guns iv) Enhanced Due Diligence Procedures The enhanced due diligence measures for customers who aren't physically present and other higher risk situations are broadly the same and include: o obtaining further information to establish the customer's identity (for example two officials documents could be requested instead of one for establishing his identity); o applying extra measures to check documents supplied by a credit or financial institution; o making sure that the first payment is made from an account that was opened with a credit institution in the customer's name; and o finding out where funds have come from and what the purpose of the transaction. The enhanced due diligence measures when you deal with a politically exposed person could include: o having risk management procedures to determine whether the customer is a PEP; o having senior management giving approval for a new business relationship; o taking measures to establish whether the person's wealth and the funds involved in the business relationship come from legitimate businesses; and o carrying out ongoing monitoring of the business relationship. 7. CLIENT RETENTION According to the Section 60 of The Prevention and Suppression of Money Laundering and Terrorist Financing Laws of 2007 and 2010 (188(I)/2007 & 58(I)/2010, Law, persons carrying out financial or other activities adopt the verification of Identity and the measures of Customer Due Diligence as to the client in the following cases: When they establish a business relationship; When they carry out occasional transactions amounting to EUR or more, whether the transaction is carried out in a single operation or in several operations which appear to be linked; When there is suspicion of money laundering or terrorist financing regardless of the amount of the transaction; When there are doubts about the adequacy of the documents, data or information collected earlier for the scrutiny of identity of an existing client. Suggested practice guide for Anti-Money Laundering Activities 9

10 a) Frequency of client review Client records must be maintained and regularly updated: Documents, data or information collected under the client due diligence process should be kept up-to-date by the firms through undertaking reviews of existing records. The review should be adjusted to the client risk level (Country/Geographic, Client and service risk) i.e. conduct enhanced on-going monitoring for high risk clients (PEP s). An initial review on a new client should be completed by the Compliance officer or the file handlers within the first three months to ensure account transactions are in accordance with the client s stated aims and that satisfactory identification verification is obtained The employees cooperate and report, without delay anything that comes to their attention in relation to transactions for which there is a slight suspicion that are related to money laundering or terrorist financing. Employees fulfil their legal obligations to report their suspicions regarding money laundering and terrorist financing, by submitting an Internal Suspicion Report to the Compliance Officer Also, where a specific event occurs that could potentially be of legal, financial or regulatory risk to the service provider, such as litigation or public disclosure of a high-risk client, should be reported to Management immediately b) Updating of due diligence documents Documents, data or information collected under the client due diligence process should be kept up-to-date by the firms through undertaking reviews of existing records. Specific concern should be placed on the structure and legal status of the client, the economic profile of the client, the services provided or business carried out and the documentation for individuals. According to the degree of risk, any additional data and information for the purpose of updating the client s economic profile or for the purpose of examining unusual transactions executed through the firm, should be obtained from the natural persons (directors, beneficial owners) who control and manage the activities of the client and have the ultimate responsibility of decision making as regards the management of funds and assets. Relevant documents of correspondence with the clients or other persons with who a business relation is established. c) Shift in nature of activities Regular activity or occasional activity Normal course of business or one off transaction Obtain an understanding of the origin and source of Funds Suggested practice guide for Anti-Money Laundering Activities 10

11 d) Review of transactions The Compliance Officer (or other designated officer) reviews the client transactions taking place during the evaluation period as well as the instructions given and the supporting documentation. Warning signs that may indicate that a transaction might be suspicious are: 1. Size of transaction 2. Complexity of transaction 3. Rationality of transaction 4. International transaction with no obvious reason e) Undertaking a database check The Compliance Officer undertakes a database search for all: Registered shareholders owning more than 10%, Ultimate beneficial owners owning more than 10%, Directors, Bank signatories, Attorneys and Authorized persons. f) Face to face meetings A face-to-face interview with a new client should be carried out whenever it is possible, as part of the identity verification procedure and in order to better understand the nature of the client s business. For those who are initially assessed as high risk, the senior management of the local jurisdiction should ask the client to make himself available for a face-to-face interview. The interview may take place at the service provider s office or at the client's office when dealing with a high risk case. In such a case, all the documentation submitted by the client may be certified by the employee of the service provider firm. It is acceptable for the service provider to allow the interview to be undertaken by the professional intermediaries where the service provider is satisfied that their due diligence policies and procedures are acceptable to the service provider. 8. Record Keeping According to the law, companies should retain records concerning client identification and details of transactions. Suggested practice guide for Anti-Money Laundering Activities 11

12 a) Due diligence documentation Document the Business and financial background. List the sources of funds available to the business/partnership BY BOTH LOCATION AND TYPE e.g. European Union Vs. country without the same AML procedures, reputable bank, and shareholder loan. (provided this is not documented elsewhere in client acceptance procedures). Obtain and understand ownership/structure leading to the ultimate partners or owner or ultimate beneficial owner (>10% in the group structure The natural person or natural persons, who ultimately own or control a legal entity through direct or indirect ownership or control of a sufficient percentage of the shares or voting rights in the legal entity, including thorough bearer share holdings, a percentage of 10% plus one share be deemed sufficient to meet this criterion). Passport or national identity card authenticated by a certified attorney or notary Confirm the identity and permanent address with a reputable financial institution or professional adviser (utility bills) Obtain trust deeds which verify the trustees, settlors and the beneficiaries Group Structure leading to the beneficial owner of the company Obtain bank references or credit reference agency search or reference from another professional adviser (only obtain on high risk clients, if considered necessary) Police clean report Obtain evidence that any individual representing the business has the necessary authority to do so. Notes: If a physical or legal person that wishes to establish a relationship with the firm, is registered in a country that is considered to be at risk for money laundering, then before a business relationship is established the compliance officer or RRL or CEO should be contacted to approve such relationship. The RRL should consult the FATF country evaluations ( and the Moneyval Committee of the council of Europe ( Also a useful source of information is the Transparency International Corruption Perceptions Index found on the website of Transparency International at Refer also to the attachments issued by the Ministry of Foreign Affairs. For all the above documents: Keep original document where appropriate. Record the fact that you have seen the original document from which the photocopy was taken and sign and date the copy. Request that all documents for which we receive photocopies only, be apostilled by a notary or consulate or request confirmatory certification by a credit or financial institution within the EU Directive. Suggested practice guide for Anti-Money Laundering Activities 12

13 b) Transaction documentation The name and address of its client and copies or records of official identification documents (like passports, identity cards, or driving licenses), The name and address (or identification code) of the counterparty, The form of instruction or authority, The account details from which any funds were paid, The form and destination of payment made by the business to the client, and Business correspondence. General Powers of attorney should not be issued. The directors should have access to all the company s bank accounts. c) Time frames The Law requires documentation to be kept for at least 5 years from the date that the relationship with the client has been terminated or completed. All necessary records on transactions must be maintained for at least five years and must be sufficient to permit reconstruction of individual transactions (including the amounts and types of currencies involved) so as to provide, if necessary, evidence for prosecution of criminal activity. Suggested practice guide for Anti-Money Laundering Activities 13