Customer Due Diligence & Corporate Governance Forum October 2014 Customer Due Diligence Experiences...
-
Upload
amber-gordon -
Category
Documents
-
view
224 -
download
2
Transcript of Customer Due Diligence & Corporate Governance Forum October 2014 Customer Due Diligence Experiences...
Customer Due Diligence & Corporate Governance ForumOctober 2014
Customer Due DiligenceExperiences from the Eurozone
Antonio GhirlandoLegal & Compliance Manager
The Scenario
Global
Regional
National
Obliged Entities
CustomerDue Diligence
Risk-Based Approach
SimplifiedDue Diligence
EnhancedDue Diligence
Global Standards
APG
CFATF
MONEYVAL
EAG
ESAAMLG
GIABA
GAFISUD
MENAFATF
Global Standards
1990 1996 2001 2003 2012
The revised FATF Recommendations issued on the 16th February 2012 include a number of significant and important changes that have strengthened the standards in a number of key areas.
Global Standards
“Although the financial services industry is increasingly moving towards a globally standardised approach, there is still notable inconsistency with regard to implementation of AML controls at regional and local levels. This is not too dissimilar from the fragmented approach regulators continue to display in their global efforts to manage financial crime.
Despite some positive steps and evident strides in coming to grips with the 21st century challenges posed by money laundering threats, regulators and the financial services industry continue to lag behind today’s globally connected money launderers.
Inconsistent regulations have left gaps in which money launderers thrive, and as such, it will become essential that regulators implement a consistent regulatory approach, but also foster a closer working relationship with industry professionals in order to leverage each other’s resources, align mutual interests, and effectively tackle financial crime”.
KPMG Global Anti-Money Laundering Survey 2014
Regional Measures
The 3rd Anti-Money Laundering Directive has been adopted by all 28 EU Members States, as well as a number of other European countries.
There are a total of 18 EU Member States that have, to date, adopted the €uro. Most others are obliged to do so.
The use of the currency extends beyond the Eurozone, either through monetary agreements or through unilateral adoption of the €uro.
Regional Measures
Regional Measures
The 3rd Anti-Money Laundering Directive (Directive 2005/60) is part of a broader set of legislative measures aimed at the prevention of money laundering and terrorist financing. These include: Directive 2006/70; Regulation 1781/2006; Regulation 1889/2005; EU Council Decision 2000/642; and A number of EU legal instruments imposing sanctions and restrictive measures on
governments of third countries, or non-state entities and individuals.
National Measures
Prevention of Money Laundering Act
Criminal Code (Articles 328A to 328M)
Prevention of Money Laundering & Funding of Terrorism Regulations
Implementing Procedures
Guidance Notes
Obliged Entities
Customer Due Diligence
Risk Assessment & Risk Management
Record Keeping Procedures
Reporting Procedures & Obligations
Awareness, Training & Vetting of Employees
Internal Controls
CDD Measures
Customer Due Diligence
Ongoing Monitoring
Purpose & Intended Nature
Identification & Verification
Applicant for Business
A legal or natural person
Whether acting as principal or agent
Who seeks to form a business relationship, or carry out an occasional transaction
With a person who is acting in the course of either relevant financial business or relevant activity.
Beneficial Owner (BO)
General Definition: A natural person who ultimately owns or controls the customer. A natural person on whose behalf or for the benefit of whom a transaction is
being conducted.
Specific Instances: Body corporate or body of persons. Legal entity or legal arrangement which administers and distributes funds. Long term insurance business.
Beneficial Owner (BO)
• A natural person who owns or controls, whether directly or indirectly, more than 25% of the shares or voting rights (including through bearer shares).
• A natural person who otherwise exercises control over the management.
Body corporate or
body of persons
• A natural person who is the beneficiary of at least 25% of the property.• In the case of non-determined beneficiaries, the class of persons.• A natural person who controls at least 25% of the property.
Legal entity or legal
arrangement
• The beneficiary under the policy.Long term insurance business
Identification & Verification
IdentifyOfficial full nameDate & place of birthPermanent residential addressIdentity reference numberNationality
VerifyGovernment-issued document with photographic evidence to verify identityDocument to verify address
Applicant for businessBeneficial owners
Principal
Identification and verification procedures depend on whether:
Obliged entities must ensure that the applicant is duly authorised in writingto act on behalf of the principal.
Applicant is actingon behalf of anatural person
Applicant is actingon behalf of a
company or partnership
Applicant is actingon behalf of a
foundation or association
Applicant is atrustee
of a trust
CFT Obligation
Obliged entities should have a system in place which detects whether an applicant for business is subject to any financial sanctions:
o UN Security Council Resolution 1267/1999o UN Security Council Resolution 1373/2001o Related EU Regulations
Obliged entities need to remain updated with all sanctions that might have an impact on their business operations:
o Independent researcho ‘International Sanctions’ section on the MFSA website (= prudential regulator)o Commercial databases, etc.
Purpose & Intended Nature
Establish Business & Risk Profile
Business/ occupation/ employment
Source(s) of wealth
Expected source & origin of
funds
Anticipated level of activity
Anticipated nature of activity
Ongoing Monitoring
Scrutiny of transactions: On the basis of the business and risk profile of the customer. In response to activities of a similar peer group. In response to specific types of transactions.
Complex or large transactions.Transactions from a non-reputable jurisdiction.
Updating CDD documentation: Updating expired documentation. Collecting new documentation as necessary.
Source of Wealth & Funds
The economic activity generating the total net worth
of the customer
Source of Wealth Source of Funds
The activity, event, business, occupation or employment from which funds used in a
transaction originate
At the beginning of the business relationship
As part of the ongoing monitoring process
Application of CDD
SDD
EDD
Customer Due Diligence
Enhanced Due Diligence
Customer Due Diligence
General Circumstances
Customer Risk
Product/ Service Risk
Interface Risk
Geographic Risk
Specific Circumstances
Non Face-to-Face
Correspondent Banking
Politically Exposed Persons
New/ Developing Technologies
Simplified Due Diligence
Customer Due Diligence
Applicants
Relevant financial business
Listed entities
BOs of pooled accounts
Public authorities/ bodies
Certain low-risk entities
Products
Certain insurance policies
Certain pensions or similar schemes
Electronic money
Certain low-risk products
Specific criteria/ limits apply in most instances
Implementation of 3rd AML Directive
There are significant differences in the way the 3rd Anti-Money Laundering Directive has been implemented within the Eurozone and the EU as a whole. Differences relating to CDD (including BOs) include: Calculation of the 25% threshold for corporates; Categories of persons considered to otherwise exercise control over corporate
entities; Calculation of the 25% threshold for legal entities; Control and ownership structure; Verification of identity; High-risk indicators and enhanced due diligence; Requirement to keep BO information up-to-date; and Use of BO information obtained for CDD purposes.
Towards the 4th AML Directive
Scopeo Align EU legislation with the revised FATF Recommendations.o Address issues that have arisen within a European context.
Timelineo Official proposal published by the Commission – 5th February 2013.o 1st compromise text issued by the Presidency – 30th August 2013.o 2nd compromise text issued by the Presidency – 22nd November 2013.o 3rd compromise text issued by the Presidency – 28th January 2014.o 3rd compromise text (revised) issued by the Presidency – 21st February 2014.o European Parliament amendments – 11th March 2014.o 4th compromise text issued by the Presidency – 8th May 2014.o 4th compromise text (revised) issued by the Presidency – 22nd May 2014.o 5th compromise text issued by the Presidency – 10th June 2014.
Beneficial Owner
In the case of corporate entities the definition is clarified, and further guidance on how to identify beneficial ownership is outlined in the text.
In case of trusts and similar arrangements the settlor, trustee, protector, beneficiaries or class of beneficiaries (or similar positions) or any other person exercising control shall be regarded as a beneficial owner.
Beneficial Owner
Company A
Company B 10%
Person 2 100%
Company C 60%
Person 3 20%
Person 4 50%
Person 5 30%
Person 1 30%
Legal persons
Natural persons not required to be identified as a beneficial owner
Natural persons required to be identified as a beneficial owner
Beneficial Owner
Company V
Company W 18%
Company Y 100%
Person 4 100%
Company X 52%
Person 2 20%
Person 3 50%
Company Z 30%
Person 1 30%
Legal persons
Natural persons not required to be identified as a beneficial owner
Natural persons required to be identified as a beneficial owner
Beneficial Owner
Company A
Person 1 Shares 20% Voting 10%
Person 2 Shares 30% Voting 20%
Person 3 Shares 20% Voting 30%
Person 4 Shares 30% Voting 40%
Legal persons
Natural persons not required to be identified as a beneficial owner
Natural persons required to be identified as a beneficial owner
Natural persons required to be identified as a beneficial owner
Beneficial Ownership Information
5th Presidency Compromise Text (Articles 29 – 30)
What information should be retained?o Corporate entities – essential information, including beneficial ownership
information.o Trusts or similar arrangements – identity of settlor, trustee, protector,
beneficiaries or class of beneficiaries (or similar positions) and any other person exercising effective control.
How should information be made available?o To obliged entities – on request when these would be conducting CDD.o To competent authorities and FIUs – information should be stored in a
specified location through central registries or by virtue of data retrieval systems. (Obliged entities may be granted access as well).
Beneficial Ownership Information
European Parliament Amendments (Articles 29 – 30)
What information should be retained?o Corporate entities – essential information, including beneficial ownership
information.o Trusts or similar arrangements – identity of settlor, trustee, protector,
beneficiaries or class of beneficiaries (or similar positions) and any other person exercising effective control.
How should information be made available?o Through public registers, commercial or company registers.o Accessible by competent authorities, FIUs, obliged entities and the public at
large (subject to identification).
Politically Exposed Persons (PEPs)
Members of governing bodies of political parties will also be regarded as PEPs.
EDD will not be limited to PEPs residing in other Member States or foreign jurisdictions, but will also be applicable to domestic PEPs.
Customer Due Diligence
Simplified Due Diligenceo No longer considered to mean “no CDD”.o Entirely risk-based.
Enhanced Due Diligence o Still mandatory in specific circumstances.o Inclusion of further specific circumstances where the application of EDD is
mandatory (for example, domestic PEPs and certain complex transactions).
Reliance on third partieso No longer strictly rules-based.o Introduction of group-wide reliance.
Risk-Based Approach
Shall have policies, controls and procedures to mitigate and manage effectively the money laundering and terrorist financing risks identified at Union level, Member State level, and at the level of obliged entities.
May determine the extent of customer due diligence (CDD) measures on a risk-sensitive basis depending on the type of customer, business relationship, product or transaction.
CurrentProposed
Risk Assessments – Overview
Supra-NationalEU Commission
NationalNational Authority
Obliged EntitiesSubject Persons
EU Member States, ESAs, FIUs & others
Public & private entities
Recommendations
Direction & Guidance
----------
----------
Antonio [email protected]