CURRENT TRENDS ON KYC REGULATIONS ATTY. MEL GEORGIE B. RACELA,
CPA, LlB, LlM Deputy Director and Head Anti-Money Laundering
Specialist Group (AMLSG) Supervision and Examination Sector
I. Introduction to Risk Based approach II. Risk Based and
Tiered Customer Identification System III. International Wire
Transfers IV. Techniques to ensuring KYC is properly performed V.
Enforcement Actions
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1. Placement Objective is to transform banknotes into non-cash
assets. Places physical cash with Banks and other financial
institutions or makes cash purchases. smurfing or structuring
converted into financial instruments commingled with legitimate
funds purchase of insurance contract, real estates, precious
stones, jewelries
2. Layering Objective is to disguise the origin of criminal
funds. To do this, the launderer creates complex layers of
financial transactions. Electronic transfer of funds disguise the
transfer as a payment for goods or services transfer the funds to
shell corporation
3. Integration Objective is to integrate illicit funds with
legitimate business. The money is once again made available to the
criminal with the occupational and geographic origin obscured or
concealed. The laundered funds are now integrated back into the
legitimate economy through the purchase of properties, businesses
and other investments. Purchase shares of stocks in the stock
exchange Purchase of house and lot Engage in legitimate
businesses
Laundered money is most vulnerable to detection when: cash
initially enters the financial system funds are transferred within
and out of the financial system cash flows abroad
A risk-based approach avoids 'one-size fits all' policies and
procedures. Banks should tailor their efforts according to the
level of the money laundering risk posed by their customers,
products and services. This involves putting anti-money laundering
policies and procedures in place that cover risk identification,
assessment, mitigation and monitoring.
The extent of AML/CTF measures and due diligence depends
greatly on perceived risk. There are a number of areas where banks
tend to be more vulnerable. 1. Vulnerable Services (i.e.
international wire transfers, private banking operators, electronic
banking); 2. High Risk Customers (i.e. money changers/ remitters,
luxury item retailers, non-governmental organizations); and 3. High
Risk Geographic Areas (i.e. NCCT list)
Objective: To establish the true and full identity of customers
by undertaking the following requirements: 1. Identification
Document 2. Face to Face requirement 3. Gathering of minimum
information 4. Risk Profile the customer
Customers and the authorized signatory/ies of a corporate or
juridical entity who engage in a financial transaction with covered
institutions for the first time shall be required to present the
original and submit a clear copy of at least one (1) valid
photo-bearing ID document issued by an official authority.
General Rule: No New accounts shall be opened and created
without face-to-face contact and personal interview, except: 1.
Account opened through a trustee, nominee, agent, or intermediary,
2. Outsourcing arrangement, and 3. Third Party Reliance
What are these minimum information? I. For Individuals: 1.
Name; 2. Present address; 3. Date and place of birth; 4. Nature of
work, name of employer or nature of self- employment/business; 5.
Contact details; 6. Specimen signature; 7. Source of funds. 8.
Permanent address; 9. Nationality; 10. Tax identification number,
Social Security System number or Government Service Insurance
Number, if any; and 11. Name, present address, date and place of
birth, nature of work and source of funds of beneficial owner or
beneficiary, whenever applicable.
What are these minimum information? II. For Juridical Entities:
1. Certificates of Registration issued by DTI for single
proprietors, or by the SEC, for corporations and partnerships, and
by the BSP, for money changers/foreign exchange dealers and
remittance agents; 2. Articles of Incorporation or Association and
By-Laws; 3. Principal business address; 4. Board or Partners
Resolution duly certified by the Corporate/Partners Secretary
authorizing the signatory to sign on behalf of the entity; 5.
Latest General Information Sheet which lists the names of
directors/trustees/ partners, principal stockholders owning at
least twenty percent (20%) of the outstanding capital stock and
primary officers such as the President and Treasurer; 6. Contact
numbers of the entity and authorized signatory/ies; 7. Source of
funds and nature of business; 8. Name, present address, date and
place of birth, nature of work and source of funds of beneficial
owner or beneficiary, if applicable.
Who may perform this? The BSP Supervised Entity, or 1.
Outsourcee pursuant to an Outsourcing arrangement (X806.2.d)
Outsourcing Entity has ultimate responsibility Board Approved
Written Service Level Agreement Counterparty has reliable and
acceptable KYC process and training program Turn over of all
identification documents within 90 days 2. Third Party through TP
Reliance (X806.2.e.1) Relying Entity has ultimate responsibility
Sworn Certification that Third Party has conducted KYC and has
custody of all ID documents and Relying Entity has ability to
obtain ID docs upon request without delay
RATIONALE: Focus on the risks that really matter in your
institution- the one with the potential to cause harm- and placing
measures that will enable it to monitor, control and minimize these
risks.
RISK-BASED TIERED CUSTOMERS LOW RISK REDUCED DUE DILIGENCE
EXISTING AND ON-BOARDING NORMAL RISK AVERAGE DUE DILIGENCE EXISTING
AND ON-BOARDING HIGH RISK ENHANCED DUE DILIGENCE EXISTING AND
ON-BOARDING
Factors to consider in assessing customers (see X806.1.a.)
during on-boarding: Factors LOW NORMAL HIGH 1. Background/ Source
of funds Payroll Business Unknown/ inconsistent 2. Country of
Origin/Residence Philippines U.S. Afghanistan 3. Public position of
the customer or of the directors/ trustees, stockholders, officers
and authorized signatories Retired PEPs PEPs of reputable GOCCs
PEPs with elevated risks, etc. 4. Materially linked accounts None
With 1 link 2 or more links
Factors to consider in assessing customers (see X806.1.a.)
during on-boarding: Factors LOW NORMAL HIGH 5. Watchlist of
individuals and entities engaged in illegal or terrorist activities
None None Listed individuals and entities 6. Business activities
Self- employed Hotels, Restaurants, Real Estate Casinos, dealers of
precious stones, jeweler, NGOs 7. Types of services/ products/
transactions to be availed of Savings/ Time deposits Current
Accounts International wire transfers and private banking
services,etc.
Factors to consider in assessing existing customers (in
addition to above): Factors LOW NORMAL HIGH 1. High volume
(relative) transactions Below normal Define what is normal volume
Above normal 2. High value transactions Below normal Define normal
value Above normal
1. Set Criteria/ Factors that will rate customer as low, normal
and high risk 2. Perform an initial assessment 3. Adjust according
to the risk appetite until an acceptable ratio is arrived
(20:60:20) 4. Establish the necessary due diligence procedures i.e.
reduced, average and enhanced due diligence.
Documentation is essential: 1) Copy of the ID, Account
Information Form, and Personal Interview; and 2) There must be an
indication and documentation on how a customer was risk profiled
(low, normal or high) and what standard of CDD (reduced, average or
enhanced) was applied.- The Risk Score/ Assessment Chart
Bangko Sentral ng Pilipinas Maynila, Pilipinas High Risk
Customers under the UARR: 1) X806.2.m- customer from a country that
is recognized as having inadequate internationally accepted AML
standards, or does not sufficiently apply regulatory supervision or
the FATF recommendations, or presents greater risk for crime,
corruption or terrorist financing. 2) X806.2.o- NUMBERED
ACCOUNTHOLDERS;
Bangko Sentral ng Pilipinas Maynila, Pilipinas High Risk
Customers under the UARR: 3) X806.3.a Inaccurate information or
document Based on the criteria adopted Transacting without any
underlying legal or trade obligation, purpose or economic
justification Transacting an amount that is not commensurate with
the business or financial capacity or deviates from his profile
Structuring transactions in order to avoid being the subject of CT
Reporting
Bangko Sentral ng Pilipinas Maynila, Pilipinas High Risk
Customers under the UARR: 3) X806.3.a Knowing that the customer was
or is engaged or engaging in any unlawful activity Where additional
information cannot be obtained when applying EDD Any information or
document provided is false or falsified Where validation process is
unsatisfactory when applying EDD Where any circumstance for filing
an STR exists
Bangko Sentral ng Pilipinas Maynila, Pilipinas High Risk
Customers under the UARR: 4) X806.2.l. - Forex dealers/ MCs/ Ras 5)
X806.2.n. Shell Company/ Shell Bank/ Bearer Share entities 6)
Foreign PEPs 7) Domestic PEPs with elevated risks
Apart from profiling and monitoring the transactions, CIs
should do the following: 1. Obtain additional information other
than the minimum information and/documents required such as list of
banks, companies and banking services to be availed if individuals
and for juridical entities, certain information on and
identification documents of primary officers and stockholders and
directors;
Apart from profiling and monitoring the transactions, CIs
should do the following: 2. Conduct Validation Procedures. For
individuals confirm date of birth from official document; verify
permanent address through utility bills, credit card statements;
contacting customer by phone, email or letter; and Determining
authenticity by requesting certification from issuing authority or
by any other means.
Apart from profiling and monitoring the transactions, CIs
should do the following: 2. Conduct Validation Procedures. For
Juridical Entities Require submission of Audited Financial
Statements Inquire from Supervising Authority the status of the
entity Obtain Bank references On-site visitation of the Company;
and Contact the entity by phone, email or letter
Apart from profiling and monitoring the transactions, CIs
should do the following: 3. Obtain senior management approval for
establishing business relationship.
Bangko Sentral ng Pilipinas Maynila, Pilipinas (K) Beneficial
Owner refers to natural person(s) who ultimately owns or controls a
customer and/or person on whose behalf a transaction is being
conducted. It also incorporates those persons who exercise ultimate
effective control over a legal person or arrangement. Owns- 100%;
Controls- 50% plus 1; ultimate effective control- literal meaning
Improved Risk Management Policy
Bangko Sentral ng Pilipinas Maynila, Pilipinas (K) Politically
Exposed Person or PEP - an individual who is or has been entrusted
with prominent public positions in the Philippines or in a foreign
state, including heads of state or of government, senior
politicians, senior national or local government, judicial or
military officials, senior executives of government or state owned
or controlled corporations and important political party officials.
Requirement for CI: Endeavor to establish and record the true and
full identity of PEPs as well as their immediate family members and
the entities related to them and establish a policy on what
standard of due diligence will apply to them (see X806.2.g).
Bangko Sentral ng Pilipinas Maynila, Pilipinas X806.2.i. (e)
The following originator information shall remain with the transfer
or related message amounting to P50,000 or more or its equivalent
through out the payment chain: 1. Name of the originator; 2.
Address or in its absence the national identity number or date and
place of birth of the originator; 3. Account number of the
originator or in its absence, a unique reference number
Bangko Sentral ng Pilipinas Maynila, Pilipinas Subsection
X806.2.i. Fund/Wire Transfer, item 5 thereof is amended to read as
follows: X806.2.i. Fund/Wire Transfer. xxx: For cross border and
domestic wire/fund transfers and related message amounting to
P50,000 or more or its equivalent in foreign currency, the
information accompanying all qualifying wire transfers should
contain the following: 1. the name of the originator; 2. the
originator account number where such an account is used to process
the transaction; 3. the originators address, or national identity
number, or customer identification number, or date and place of
birth; 4. the name of the beneficiary; and 5. the beneficiary
account number where such an account is used to process the
transaction.
Bangko Sentral ng Pilipinas Maynila, Pilipinas X806.2.i. (f)
provides that the CI shall: 1. Exert efforts to establish the true
and full identity and existence of the originator; and 2. Apply EDD
on the beneficiary. 3. If any of the two fails, the beneficiary
institution shall REFUSE TO EFFECT the wire transfer or the PAY-OUT
of funds; and 4. When circumstances warrant, file an STR with the
AMLC. 5. What to do with the funds? CIs Internal Policy
1. Establish a system of internal controls and monitoring to
ensure ongoing compliance: implement risk-based customer due
diligence identify high-risk banking operations periodically update
customer's risk profile identify all reportable transactions
include dual controls and the segregation of duties
2. Perform testing of AML compliance The testing should be
independent of the internal audit function itself Objective is to
establish the existence of customers aka identifying fictitious
accounts
3. Specifically designate an AML compliance officer(s),
responsible for managing AML compliance Should have adequate
authority to execute the responsibilities of the position Should
possess the necessary independence Adequate resources- sufficiently
staffed Direct reporting line to the Board of Directors/ Board
Level Committee or Board Approved Committee
4. Ensure adequate training and supervision of personnel
personnel should be fully aware of their responsibilities under AML
policies and practices personnel who handle currency transactions,
complete reports, grant exemptions or monitor for suspicious
activity should be well supervised
5. Institute systemic reporting to the board and senior
management Reports should cover: compliance initiatives identified
compliance deficiencies suspicious activity reports corrective
action/s taken
6. Invest in Systems upgrade and Technology A robust system is
founded on sound technology Trash-in Trash Out Officers and Staff
should be equipped Constant checking
Bangko Sentral ng Pilipinas Maynila, Pilipinas Section X811.
Sanctions and Penalties. In line with the objective of ensuring
that covered institutions maintain high anti-money laundering
standards in order to protect its safety and soundness as well as
protecting the integrity of the national banking and financial
system, violation of these Rules shall constitute a major violation
subject to the following enforcement actions against the Board of
Directors, Senior Management and line officers.
Bangko Sentral ng Pilipinas Maynila, Pilipinas Thank you