Customer Due Diligence & Corporate Governance Forum October 2014 Customer Due Diligence...

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Transcript of Customer Due Diligence & Corporate Governance Forum October 2014 Customer Due Diligence...

  • Slide 1
  • Customer Due Diligence & Corporate Governance Forum October 2014 Customer Due Diligence Experiences from the Eurozone Antonio Ghirlando Legal & Compliance Manager
  • Slide 2
  • The Scenario Global Regional National Obliged Entities Customer Due Diligence Customer Due Diligence Risk-Based Approach Simplified Due Diligence Simplified Due Diligence Enhanced Due Diligence Enhanced Due Diligence
  • Slide 3
  • Global Standards APGCFATFMONEYVALEAGESAAMLGGIABAGAFISUDMENAFATF
  • Slide 4
  • Global Standards 19901996200120032012 The revised FATF Recommendations issued on the 16 th February 2012 include a number of significant and important changes that have strengthened the standards in a number of key areas.
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  • 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 21 st century challenges posed by money laundering threats, regulators and the financial services industry continue to lag behind todays 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 others resources, align mutual interests, and effectively tackle financial crime. KPMG Global Anti-Money Laundering Survey 2014
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  • Regional Measures The 3 rd 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.
  • Slide 7
  • Regional Measures
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  • The 3 rd 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.
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  • 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
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  • Obliged Entities Customer Due Diligence Risk Assessment & Risk Management Record Keeping Procedures Reporting Procedures & Obligations Awareness, Training & Vetting of Employees Internal Controls
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  • CDD Measures Customer Due Diligence Ongoing Monitoring Purpose & Intended Nature Identification & Verification
  • Slide 12
  • 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.
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  • 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.
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  • 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
  • Slide 15
  • Identification & Verification Identify Official full name Date & place of birth Permanent residential address Identity reference number Nationality Verify Government-issued document with photographic evidence to verify identity Document to verify address Applicant for business Beneficial owners Applicant for business Beneficial owners
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  • Principal Identification and verification procedures depend on whether: Obliged entities must ensure that the applicant is duly authorised in writing to act on behalf of the principal. Applicant is acting on behalf of a natural person Applicant is acting on behalf of a natural person Applicant is acting on behalf of a company or partnership Applicant is acting on behalf of a company or partnership Applicant is acting on behalf of a foundation or association Applicant is acting on behalf of a foundation or association Applicant is a trustee of a trust Applicant is a trustee of a trust
  • Slide 17
  • 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 1267/1999 o UN Security Council Resolution 1373/2001 o Related EU Regulations Obliged entities need to remain updated with all sanctions that might have an impact on their business operations: o Independent research o International Sanctions section on the MFSA website (= prudential regulator) o Commercial databases, etc.
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  • 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
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  • 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.
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  • 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
  • Slide 21
  • Application of CDD SDD EDD Customer Due Diligence
  • Slide 22
  • Enhanced Due Diligence Customer Due Diligence General Circumstances Customer RiskProduct/ Service RiskInterface RiskGeographic Risk Specific Circumstances Non Face-to-FaceCorrespondent BankingPolitically Exposed PersonsNew/ Developing Technologies
  • Slide 23
  • Simplified Due Diligence Customer Due Diligence Applicants Relevant financial businessListed entitiesBOs of pooled accountsPublic authorities/ bodiesCertain low-risk entities Products Certain insurance policies Certain pensions or similar schemes Electronic moneyCertain low-risk products Specific criteria/ limits apply in most instances
  • Slide 24
  • Implementation of 3 rd AML Directive There are significant differences in the way the 3 rd 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.
  • Slide 25
  • Towards the 4 th AML Directive Scope o Align EU legislation with the revised FATF Recommendations. o Address issues that have arisen within a European context. Timeline o Official proposal published by the Commission 5 th February 2013. o 1 st compromise text issued by the Presidency 30 th August 2013. o 2 nd compromise text issued by the Presidency 22 nd November 2013. o 3 rd compromise text issued by the Presidency 28 th January 2014. o 3 rd compromise text (revised) issued by the Presidency 21 st February 2014. o European Parliament amendments 11 th March 2014. o 4 th compromise text issued by the Presidency 8 th May 2014. o 4 th compromise text (revised) issued by the Presidency 22 nd May 2014. o 5 th compromise text issued by the Presidency 10 th June 2014.
  • Slide 26
  • Beneficial Owner In the case of corporate entities the definition is clarified, and further guidance on how to identi