Anti-Money Laundering Regulations Banking Supervision Circular No. 4 (2002)

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1 0TCash 0TPurchase 0TBank Anti-Money Laundering Regulations Banking Supervision Circular No. 4 (2002) UIntroduction: In view of adverse effects of money laundering on the national and international economy, and its possible ramifications on confidence reposed by the general public on the financial institutions, the efforts to combat money laundering have become one of the main concerns of the legal,0t 0Tlegislative0T 0Tand regulatory authorities all over the world. In addition, fast changing information technology and electronic banking make the banks and financial institutions more vulnerable channel for money laundering. To provide support to the international efforts to counter money laundering or, and in order to protect the Sudanese banks and financial institutions from being used in money laundering operations, and in accordance with Article (6 a) of Bank of Sudan Act (1959) and with Articles (8), (36 a and e - Sixth) and (38) of the Banking Regulation Act (1991), Bank of Sudan is issuing the following directives and procedures reflecting the Recommendations of the Financial Action Task Force (FATF). Definition of Money Laundering Any transaction or proceeding aimed at concealing and/or changing the identity of illegally obtained money so that it appears to have originated from a legitimate source, by misusing the financial system is considered money laundering. The term also refers to owning and using illegally obtained money in any way to acquire fixed assets and use it in any other manner to make the process ostensibly a normal financial transaction. First: Ways / Forms of Using Banks in Money Laundering There are many ways/forms in which banks can be used in money laundering operations, such as: i. 0T deposit of small amounts in different accounts to conceal that it was actually one large amount. ii. 0T 0TA bank s employee working as accomplice to facilitate money laundering operations. iii. 0T transfers. iv. 0T of paper money, such as bankers draft and travel, cheques.

2 v. Use of electronic methods for depositing and transfer. vi. Establishing fictitious companies through whose accounts dealings are done in banks. The ways used for money laundering are numerous, but cash transfer is the most prevalent form. For this reason, banks employees must exercise utmost care and vigilance to the following :- 1. Banking Transactions a. Large cash deposits in an individual s or company s account whose normal course of business transactions are carried out through cheques or other negotiable instruments. b. Huge and sudden increases in cash deposits of an individual or enterprise for no apparent reason, especially if these deposits were subsequently transferred within a short period of time out of the account to a destination that is not normally associated with customer s business. c. Customers who deposit small cash amounts but the total of these deposits is a big amount. d. Companies accounts which transact, both when depositing or withdrawing, in cash instead of using other payment instruments. e. Customers who always pay out or deposit cash instead of using bank transfers or money transfers through other payment instruments. f. Customers who seek to exchange large quantities of small denomination banknotes for those of big denomination banknotes for no obvious reasons. g. Customers who transfer large sums of money outside or large sums transferred from outside into Sudan, with instruction for payment in cash. 2. Customers Accounts a. Customers who maintain a number of accounts not required by the type of business they conduct, specially if there were bank transactions having names of unknown persons. b. Customers who maintain several accounts and make cash deposits to each of these accounts, whereby the total credit is a large amount, except for institutions that maintain these accounts for banking relationships with banks which extend to them facilities. c. Any individual or company whose account shows virtually no normal personal banking or business-related activities, but is used to receive or disburse large sums which have no obvious purpose or for a purpose not related to the account holder and his business. d. Customers who have accounts with several banks within the same locality and who transfer the balances of those accounts to one account, then transfer the consolidated amount to a person abroad. e. Large cash withdrawals from a previously dormant/inactive account or from an account that has just received unexpected large sums of money from abroad. f. A large number of individuals who deposit money into the same account without an adequate explanation.

3 3. Investment-Related Transactions a. Purchasing of securities to be held by the financial institution in safe custody, where this does not appear appropriate given the customer s apparent standing. b. Individuals or commercial enterprises who bring in large sums of money to invest in foreign currencies or securities, where the size of the transaction is not consistent with the income of the concerned individuals or commercial enterprise. c. Buying or selling of securities with no obvious reason or in circumstances which appear to be unusual. 4. International Banking and Financial Transactions a. Building up of large balances not consistent with the known turnover of the customer s business, and the subsequent transfer to an account or accounts abroad. b. Frequent requests for travellers cheques, foreign currency transfers or other negotiable instruments for amounts exceeding the limit prescribed as indicator for no obvious reason. c. Frequent deposit of travellers cheques or foreign currency transfers exceeding the limit prescribed as indicator for no obvious reason, particularly if originating from abroad. 5. Letters of Credit and Other Methods of Trade Finance: Banks must exercise prudence in case the beneficiary of the letter of credit owns the shipping companies used. a. Amounts on letters of credit submitted by the customer to the bank or to the Customs Authorities do not match with the original. In this case the bank should stop the procedures of the transaction and take the necessary steps. b. The size of the facilities is not in line with the securities on hand and with nature of the business or the worth of the customer. c. Customers who repay loans classified as below standard before the expected time. d. Finance against assets that are inconsistent with the customer s standing or whose origin is not known. e. Musharaka financing where the origin of the customer s share is not known or is inconsistent with the customer s standing. 6. Electronic Banking Services a. When an account receives numerous small fund transfers electronically, and then the account holder carries out large transfers in the same way to another country. b. Customers who make regular and large payments including electronic means that cannot be clearly identified as bona fide transactions, or those who receive regular and large payments from countries that are known to be big drug markets and havens for other illegal activities. c. Transfers from abroad which are received in the name of a customer of the bank or any financial institution electronically and are then transferred abroad in the same manner without passing through an account (i.e., they are not deposited then withdrawn from the account) are not allowed, that is these amounts should be registered in the

4 account and should appear in the account statement.

5 Second: Ways to Detect and Prevent Money Laundering Banks should adhere to the following directives when opening and managing current accounts: 1. Authorization for opening current accounts is entrusted to the branch manager, and in his absence it goes to his/her deputy, after getting the recommendation of the Accounts Manager. 2. The bank must obtain the identity of the account holder from the official identity documents (ID card, Passport, etc.) including the full name (quadruple). 3. A recommendation from a bank that the customer had previous dealings with or from persons who are very well known to the bank (two of them at least) and who are of good standing must accompany the request to open an account. 4. Obtaining the permanent and current addresses of the account holder. The address must be available to the bank in a manner that facilitates contacting the customer at any time and the customer must notify the bank of any change of address. 5. Knowing the account holder place of work (accompanied with the necessary documentation) and the main source for account transactions. 6. Any request for opening an account shall not be processed if the account holder uses a stamp or thumb-stamping. 7. The minimum amount for opening the account, as specified by the bank s management, must be paid and a cheque book will not be issued unless a certain time limit has passed after depositing the amount. 8. The Accounts Manager, in collaboration with the branch manager or deputy manager, are fully responsible for following the specified procedures for opening an account and ensuring that the necessary documents are kept. 9. Banks must go in steps when issuing cheque-books, specially to its new customers, starting with a 25 papers cheque-book and going upwards depending on the bank s evaluation of the customer, provided that the account is active and a certain time limit has passed after opening it. 10. Banks must regularly supply their customers with their statement of account, at least every 3 months and upon request. 11. Banks must inform their customers of the necessity to manage their accounts properly and inform them of the bank s rights towards them. Bank of Sudan must be informed of any account that is used improperly, such as: being used in terrorist operations or in any suspicious or illegal activities or do not abide by the directives of Bank of Sudan. 12. Records must be kept of all accounts opened and closed in each branch and showing the reason for closing them, and returning the unused papers of the chequebook. 13. For inactive accounts, the following points must be taken into consideration: a. Scrutinize cheques drawn on them. b. Payments from them must be done by the branch manager or his deputy. c. Payments from them should be by cheque only. d. They must be separated from the other accounts and be under the direct responsibility of the branch manager.

6 e. A monthly report on them must be prepared and presented to the top management of the bank. f. A time limit for these accounts in the branch must be specified, after which they must be transferred to the head office of the bank. 14. Banks must have a special form for each type of account, that are different in colour and design. 15. Banks must not give a customer a cheque-book before making sure that he/she has fulfilled all the requirements for the previous cheque-book. 16. Banks must not give cheque-books to those customers whose account balances are small with the exception of employees and pensioners accounts. 17. Banks must take more care regarding targeted accounts (legal entities, big businessmen accounts, etc.) and they must be treated in a special manner regarding having the name and ID card of their representative for doing all banking transactions, such as depositing and encashing cheques). Types and Rules for opening Current Accounts 1. Personal Accounts: These include accounts of merchants, employees, professionals, etc. Regulations: a. Professionals must present certificate of profession, address and place of work. b. Merchants must present the original of their valid trade licence and a registration certificate from the Chamber of Commerce. c. Sudanese nationals working abroad must present a valid Resident Visa from the countries in which they work or an exit/ entry visa for work purposes or a temporary contract of work. d. For employees, the following must be considered: i. A salary certificate must be obtained from the employer. ii. Banks employees accounts may be supplied with amounts other than their benefits that are stated in their terms of service, provided that they present the necessary documents that support the origin of the amount to be deposited, after notifying the employer or immediate superior. iii. No bank or financial institution employee is allowed to manage or run any account on behalf of (or any other form) any of the bank s or financial institutions customers. e. Foreigners and non-residents must present a valid Resident Permit, a work permit, photo-copy of contract of employment in Sudan and a salary certificate from the employer. Bank of Sudan circular regarding accounts of non-residents must be adhered to. f. The above is also applicable to accounts in foreign currency, and circulars of the General Administration for Foreign Exchange of Bank of Sudan, concerning dealings in foreign currency must also be adhered to. 2. Joint Accounts: These are accounts held by two or more persons, the nature of the relation between them must not be a commercial one. Regulations: a. Presenting the Identity Documents for each one of the account holders.

7 b. Specifying whether the responsibility of running and managing the account is several or joint. Also, specifying the upper limit for withdrawal by a partner if he is the sole signatory to the account, if any. The application must be supported by an explicit mandate for opening the account and must be added to the signatures card as explanatory note. 3. Partnership Accounts: These are accounts held by more than one person who carry on different businesses, be they commercial in nature or not. Regulations: a. Presenting the Registration Certificate of Business Name as issued by the Registrar of Companies or the Registration of Partnership if it is registered in the name of one or more of the partners or carried in a Business Name. b. Presenting the Partnership Contract after being stamped and authorized from the Partnership and Business Names Registrar, showing the names of the partners and their addresses. c. Specifying the names of the partner(s) authorized to sign solely or jointly. 4. Companies Accounts: These are the accounts belonging to companies registered according to the Company Act. Regulations: a. Presenting the Certificate of Incorporation by the Registrar of Companies and Certificate of Commencing Business for public owned companies. b. Presenting the Articles and Memorandum of Association for the company. c. Presenting a copy of the Decision of the Board of Directors of the company to open an account in the specific bank. d. Presenting a copy of the Decision of the Board of Directors of the company to authorize specific person(s) as responsible for running the account and the limits of their authority. 5. Banks and Financial Institutions Accounts: The following points must be adhered to: a. Resorting to the head office of the bank to authorize opening the account for a bank or company (financial institution) that carry on some banking business (e.g. investment companies). b. The head office must go back to the head office of those banks or companies to enquire and ensure the information presented, where necessary. 6. Accounts of Legal Entities, Charity Organizations and Social Societies: These include accounts opened for Professionals Societies, Social and Co-operative Societies, Clubs, Charity Organizations, etc. Regulations: a. Presenting a Certificate of Registration from the concerned Authorities. b. Presenting a copy of the society s constitution and Articles of Association that govern the dealings of the society.

8 c. The resolution of forming the executive committee and appointment of three officers duly signed by the Registrar of Societies. d. A letter specifying the bank in which the current account is to be opened duly signed by the chairman and secretary of the society, and designating the persons authorized to sign on behalf of the society and the limits of their authority. 7. Accounts of Guardians and Administrators: For these types of accounts the following points must be considered: a. The original letter of appointing the guardian issued by the concerned court must be presented (Shari a court or Non-Muslims Personal Law Court). b. A copy of the Order of Guardianship or Administration must be presented. Administrators are responsible for carrying out wills according to the stipulated requirements and conditions related to them. Usually their job is transitional, until the inheritance is duly distributed. 8. Accounts of Will Executor or Guardian: For this type of accounts, the following must be taken into consideration: a. Presenting the Order of Aappointment issued by a competent court, as required in the case in hand depending on the status of the heirs. b. Presenting a copy of the Administration Order or Guardian Order as issued by a competent court. The Executor must comply with its terms and conditions. 9. Accounts of Minors: For accounts of minors, the following must be considered: a. The application form to open this account must be presented by the parent or guardian of the minor. b. The account must be a saving account, unless the guardian requests otherwise. In this case, he takes the full responsibility if he runs the account in a manner which is detrimental to the minor s interests. c. The guardian is fully responsible to the minor until the minor attains his majority in all the matters related to running the account. d. The minor is not allowed to run a current account in his name, and is not issued a cheque book. Any withdrawals from this account must be done in the presence of his parent/guardian or with an order from the concerned court. Foreign Currency Accounts In case of opening a foreign currency account, all the above regulations pertaining to local currency accounts must be applied, in addition to the directives and circulars of the General Administration of Foreign Exchange.

9 Third: Co-operation between Banks to combat Money Laundering: 1.Banks must co-operate among themselves internally and with outside banks in combating money laundering, through sharing information and documents related to discovered money laundering operations and suspected transactions. This must be done within the legal procedures and secrecy measures expected from them. 2.The banks must get the approval of Bank of Sudan when the information and documents are asked for by a foreign bank. Fourth: General Procedures and Directives: 1. Banks must pay special attention to those transactions that are not in line with the normal transactions of the account, such as cash deposits in large amounts or deposits in small amounts carried out at regular periods without having any obvious purpose or economic reason, or dealings with other partners in countries where there are no adequate measures are taken to combat money laundering operations. 2. In case of suspecting the authenticity of data and information presented by customers, the bank employee must ensure its authenticity using appropriate tools. In general, adequate information must be obtained on the nature of the business of the customer, in addition to knowing the origin and nature of transaction or service granted to any suspected customer. 3. Banks must draw up internal policies and procedures to combat money laundering; and these must be constantly reviewed and updated. These procedures must include at the minimum level the following:- a. The Compliance Officer in each bank is entrusted with ensuring the appropriate execution of these directives, in collaboration with the central bank in this field. b. The bank must develop an internal audit system to combat money laundering, and this system must include the written policies and procedures that ensure that the bank (or any of its branches) is not used by money launderers as well as ways to detect money laundering operations. These policies must emphasize the principle of Know your Customer, by designing an effective system of internal reporting on bank operations that assist in this matter. The reports should include balances of current accounts, transfers in and out, big transactions as well as consecutive small deposits. c. The Internal Audit Unit in the bank must ensure that all the bank employees in the different grades and levels are following the bank policies and procedures regarding combating money laundering operations. d. Banks must invoke adequate measures to prevent any possible use of their electronic payment systems in money laundering operations.

10 Fifth: Reporting Detected or Suspected Money Laundering Operations 1. If a bank employee suspects or detects a money laundering transaction, he/she is obliged to report it immediately to the bank s management, which in turn must immediately report it to Bank of Sudan accompanied with the supporting documents and information. Bank of Sudan might direct the bank to freeze that transaction (or refuse to execute it) and it might decide to report it to any judicial or law enforcing authority. The bank or its employee must not alert/tell its customer that his transaction is suspected for money laundering. 2. If a bank employee suspects or detects a money laundering operation, he/she is obliged to report it to the bank s management immediately by following the steps specified by the bank for such reporting. Failure to report such a transaction or alerting and assisting a customer in money laundering operations, entails financial or administrative or legal penalties to be imposed on the employee himself/herself. 3. The bank employee shall not be held responsible for reporting a suspected money laundering operation as long as this reporting was done on a bona fidebasis, whether the transaction was proven to be sound or a money laundering operation. Reporting to the concerned law enforcing authorities does not vitiate the principle of secrecy of banking transactions stipulated in the banks laws and regulations. Sixth: Responsibilities of the External Auditor in Combating Money Laundering Operations The external auditor of the bank s financial statements must, within his audit ambit, review the execution of the money laundering policies followed by the bank and ensure that these policies are adequate and must also review the efficacy/adequacy of the internal audit system of the bank and give observation in Auditor s Report. External auditor must report to the bank management any transaction that is suspected to be a money laundering operation. Seventh: Training of Bank Staff a. The bank must train employees working in cash deposits and accounts control and reporting on aspects related to money laundering. The training must go in line with the employee s responsibilities and these employees should always exercise great care and vigilance while discharging their duties. b. Bank of Sudan will direct the banks regarding the training methods to be adopted and will also establish training sessions on methods to combat money laundering.

11 Eighth: Responsibility of the Bank regarding Records and Files Keeping Each bank must develop its system for keeping records and files related to domestic or foreign operations in such a manner as to facilitate presenting them to the concerned authorities when asked to do so. The records and files related to any transaction carried domestically or with another country must be kept for a period of not less than five years from the date of executing that transaction so as to be able to provide Bank of Sudan with whatever information it requests. These records must be sufficient to enable tracing individual transactions with the values and currencies used. All banks must ensure compliance of this circular commencing its date of issuance, and they must ensure distributing this circular to all their operating branches within and outside Sudan and directing them to strictly adhere to these instructions. For / Bank of Sudan El-Hadi Saleh Mohammed Mohammed Siddig El-Hassen General Administration for Banking Supervision