This week we take a look at the amendments that are proposed to sections on Due Diligence in Chapter 3 of the Bill.
Before delving into the amendments let’s first highlight the changes to the chapter’s name which will be amended from ‘Control measures for money laundering and financing of terrorist and related activities’ to ‘Money laundering, financing of terrorist and related activities and financial sanctions control measures’. Also, Part 1 has had a name change from ‘Duty to identify clients’ to ‘Customer Due Diligence’.
The amendments and newly added sections look to introduce more stringent customer due diligence requirements in order to extend and strengthen the processes of accountable institutions (AIs).
Amendments and newly added sections to the Bill, relating to due diligence, are noted as follows:
- Anonymous Clients or Clients with False Names
The first change, which will impact AIs, will be the newly inserted Section 20A which will prohibit an AI from establishing a business relationship or concluding a single transaction with an anonymous client or a client with an apparent false or fictitious name. Furthermore, Section 20A will apply to all transactions, irrespective of the minimum prescribed amount for a single transaction. An AI may therefore not conclude any transaction with such a client. The Risk Management and Compliance Programme of the AI must also set out the manner in which the institution will comply with Section 20A.
- Ongoing Due Diligence
A newly inserted Section 21C introduces the duty for AIs to conduct ‘ongoing due diligence’ in respect of its business relationships. This includes that the information obtained for the purpose of establishing and verifying the identities of clients is kept up-to-date. It also includes the monitoring of transactions carried out throughout the course of the relationship, including where necessary, the source of the funds. This is to ensure that the transactions are consistent with the AI’s knowledge of the client and the client’s business and risk profile.
The monitoring of transactions will also include the background and purpose of complex, unusual large transactions and all unusual patterns of transactions which have no apparent business or lawful purpose. The new section, which will require ongoing due diligence, places the onus on AIs to implement or amend its current processes to ensure that it not only verifies the identity of clients when establishing a business relationship, but also to monitor transactions throughout that relationship. An AI must at all times have records of the client’s transactions and be able to measure and assess if those transactions fall within the normal behavioural activity of a client. Ongoing monitoring records must therefore be maintained in order to comply with this provision and such records must also be kept up to-date. We therefore recommend that AIs start planning a strategy of how to monitor its business relationship with clients on an ongoing basis and also ensuring that records of such monitoring are maintained.
- Doubts of the Adequacy of Information Obtained from the Client
The Bill also includes a section on the ‘doubts about the veracity of previously obtained information’ which is when an AI has doubts of the adequacy of information obtained at the time a single transaction or business relationship was established. The AI will therefore have to repeat the steps of establishing and verifying the identity of the client to the extent necessary to confirm the doubts in question. The new Section 21E will provide that if an AI is unable to establish and verify the identity of the client, that it will not be able to establish a relationship or conclude a single transaction with such client.
- Foreign Prominent Public Officials and Domestic Prominent Influential Persons
The Bill no longer has the term ‘Politically exposed persons’ and instead has a new Section 21F and Section 21G.
Section 21F – ‘Foreign prominent public official’
An AI must determine whether a prospective client is a foreign prominent public official, an immediate family member or a known close associate of such person. If an AI establishes that such person does meet this criteria, the institution must obtain senior management approval for establishing the business relationship, take reasonable measures to establish the source of wealth and source of funds of the client and conduct enhanced ongoing monitoring of the business relationship.
Section 21G – ‘Domestic prominent influential person’
This section has the same establishment requirements as per Section 21F but relates to domestic prominent influential persons. The institution must also determine whether the prospective business relationship entails higher risk.
All of these requirements must be made in accordance with the Risk Management and Compliance Programme of the AI. In the next issue of our newsletter, we will be looking at what this Programme entails and the requirements that an AI will have to adhere to in order to ensure that its Programme is as per the provisions of the Bill.