AML/CFT and Financial Inclusion in SADC

Transcription

1 AML/CFT and Financial Inclusion in SADC Consideration of Anti-Money Laundering and Combating the Financing of Terrorism Legislation in Various Southern African Development Community (SADC) countries Seychelles Country Report Finalised by: Compliance & Risk Resources March 2015

2 Contents SEYCHELLES COUNTRY REPORT Changes to the Legal and Regulatory Framework Post December Table 1: The Seychelles: Legislation, Regulation, Guidelines (Post ESAAMLG Evaluation) Current AML/CFT Legislation and Regulation in Force in the Seychelles... 5 Table 2: The AML/CFT Regulatory Landscape in the Seychelles as at June The Seychelles Approach to Recommendation 10: Customer Due Diligence (CDD) When is CDD required in the Seychelles? Identification measures and verification sources Timing of verification of identity Risk-based approach to CDD: Simplified Measures The Seychelles Approach to Recommendation 11: Record Keeping The Seychelles Approach to Recommendation 13: Correspondent Banking The Seychelles Approach to Recommendation 14: Money Transfer Services The Seychelles Approach to Recommendation 15: New Technologies The Seychelles Approach to Recommendation 16: Wire Transfers The Seychelles Approach to Recommendation 17: Reliance on Third Parties The Seychelles Approach to Recommendation 18: Internal Controls The Seychelles Approach to Recommendation 20: Suspicious Transaction Reports (STRs) Table 3: Suspicious Transaction Indicators Sourced From the Websites of Various FIUs Table 4: Suspicious Transaction Indicators Specific to the Seychelles The Seychelles Approach to Recommendation 34: Guidance and Feedback High Level Recommendations for the Seychelles Table 5: High Level Recommendations for the Seychelles... 20

3 SEYCHELLES COUNTRY REPORT FinMark Trust, an independent trust based in Johannesburg, South Africa, was established in 2002, and is funded primarily by UKaid from the Department for International Development (DFID) through its Southern Africa office. FinMark Trust s purpose is Making financial markets work for the poor, by promoting financial inclusion and regional financial integration as well as institutional and organisational development, in order to increase access to financial services for the un-served and under-served. While the underlying focus of this report is on the harmonisation and calibration of provisions found in Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT) laws and regulations in the Southern African Development Community (SADC), it is hoped that the country reports will become living documents that will be used as a resource for SADC Member States to make appropriate amendments to their domestic laws and regulations, define the strategic direction to achieve the objectives of Annex 12 of the FIP and prompt further research and other initiatives that will support State Parties in fulfilling their harmonisation objectives. FinMark Trust commissioned Compliance & Risk Resources to conduct the final review of the report and to circulate the report to country stakeholders in order to obtain support and facilitate finalisation. The initial research that informed this country report was conducted and prepared by Sarah Langhan and Associates.. Raadhika Sihin assisted in reviewing and editing the initial research aandcountry report. She was assisted by a panel of experts comprising of Ben Musuku (World Bank), Tom Malikebu (ESAAMLG) and Prof Louis de Koker (Deakin University, School of Law, Faculty of Business and Law) who reviewed and provided guidance on the content for the initial edited research report.. The authors are grateful for the level of cooperation and assistance provided by all persons consulted during the research phase of the project. We especially acknowledge the willingness of those who made themselves available, often at very short notice, in all participating countries to answer questions, provide numerous documents and generally provide the information that was requested. In this regard, we acknowledge and thank all those who assisted.

4 1. Changes to the Legal and Regulatory Framework Post December 2006 The Eastern and Southern Africa 'Anti-Money' Laundering Group (ESAAMLG) Mutual Evaluation Report for the Republic of Seychelles was adopted and published in August 2008, despite the evaluation team having conducted their in-country assessment almost three years earlier. 1 Since December 2006, the Republic of Seychelles has enacted a significant number of Acts that have a direct bearing on the Anti-Money Laundering and Counter-terrorist Financing (AML/CFT) legal framework. Anti-Money Laundering Regulations were issued in 2012 by the Minister of Home Affairs and Transport, pursuant to the powers conferred by section 63 of the Anti-Money Laundering Act, 2006 (as amended). 2 The primary AML Act, the Anti-Money Laundering Act 2006 (as amended), has been amended twice through the promulgation of two amendment Acts: the Anti-Money Laundering (Amendment) Act, and the Anti-Money Laundering (Amendment) Act, The Financial Investigation Unit (FIU) has been transformed from an administrative FIU into a hybrid FIU as it now has civil asset forfeiture powers as well as powers of arrest and confiscation. The first Guidelines on Anti- Money Laundering and Combatting the Financing of Terrorism Procedures for Reporting Entities in the Seychelles were disseminated to all Reporting Entities in December Those Guidelines are currently being revised by the FIU and will shortly be updated. Table 1: The Seychelles: Legislation, Regulation, Guidelines (Post ESAAMLG Evaluation) Year In-country Assessment Nov Dec 2006 Adopted 2008 Legislation, Regulation and Guidelines Enacted and Issued Post ESAAMLG Evaluation Guidelines on Anti-Money Laundering and Combatting the Financing of Terrorism Procedures for Reporting Entities in the Seychelles, 2007 Securities Act (8 of 2007) Mutual Fund and Hedge Fund Act (10 of 2008) Insurance Act (11 of 2008) Misuse of Drugs (Amendment) Acts (15 of 2008, 4 of 2012, 3 of 2014) Anti-Money Laundering (Amendment) Act (18 of 2008) Proceeds of Crime (Civil Confiscation) Act (19 of 2008) National Drugs Enforcement Agency Act (20 of 2008) Financial Institutions (Amendment) Acts (24 of 2008, 11 of 2009, 23 of 2011) Business Tax Act (28 of 2009, amended by 25 of 2010, 14 of 2012, and 13 of 2013) International Business Companies (Amendment) Acts (7 of 2009, 20 of 2011, 15 of 2013) Central Bank of Seychelles (Amendment) Acts (8 and 12 of 2009 and 13 of 1 See Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG) 2008 Mutual Evaluation Report Anti- Money Laundering and Combating the Financing of Terrorism: The Republic of Seychelles where it is stated in the report preface that The finalisation of this report was subject to significant delay with the result that it was considered and adopted at the ESAAMLG August 2008 meetings. In the course of subsequent exchange of correspondence, the Seychelles authorities have provided additional information to indicate that certain measures had been implemented after the onsite visit, but before the adoption of the report. Under the mutual evaluation procedures established by the ESAAMLG, these subsequent measures cannot be taken into account in the compliance ratings. To enable member countries and other interested parties to take note of the developments that had taken place after the onsite visit, but before the discussion and adoption of the report, we have included Table 3 which sets out the nature of such measures. However, the evaluators have not analysed the substance or effectiveness of the measures. 2 Act 5 of Act 18 of Act 24 of 2011.

5 2011) Foreign Exchange Act (10 of 2009, amended by 22 of 2010) Credit Union Act (13 of 2009, amended by 29 of 2010) International Corporate Service Providers (Amendment) Acts (29 of 2009 and 21 of 2011) Foundations Act (32 of 2009, amended by 18 of 2011) Income and Non-Monetary Benefits Tax Act (10 of 2010) National Clearance and Settlement Systems Act (12 of 2010)* [repealed on 18 August 2014 by new National Payment System Act] Value Added Tax Act (35 of 2010, amended by 3 and 13 of 2012) Companies Ordinance (Amendment) Acts (14 of 2011, 10 of 2012, 5 of 2013) Limited Partnerships (Amendment) Act (17 of 2011) International Trusts (Amendment) Act (19 of 2011) Customs Management Act (22 of 2011) Anti-Money Laundering (Amendment) Act (24 of 2011) Anti-Money Laundering Regulations, 2012 Insolvency Act (4 of 2013) Legal Practitioners (Amendment) Act (18 of 2013) Financial Services Authority Act (19 of 2013) 2. Current AML/CFT Legislation and Regulation in Force in the Seychelles Table 2 below provides an overview of the current laws, regulations, exemptions, guidelines and guidance notes in force in the Seychelles as at June The legislation is broken up into primary legislation (having a direct bearing on AML/CFT), additional relevant legislation (this covers laws and regulations that impact upon the AML/CFT legal and regulatory framework), laws and regulations applicable to banks, non-bank financial institutions (NBFIs), designated non-financial businesses or professions (DNFBPs) and non-profit organisations. The primary AML legislation and regulation in force in the Seychelles is the Anti-Money Laundering Act, 2006 (as amended) 5 and the Anti-Money Laundering Regulations, 2012 issued under section 63 of the Anti-Money Laundering Act, 2006 (as amended). The Seychelles has a separate CFT Act, the Prevention of Terrorism Act, No regulations have been issued under this Act. Table 2: The AML/CFT Regulatory Landscape in the Seychelles as at June 2014 Core Acts Issued Under the Act (as relevant) Anti-Money Laundering Act, 2006 (amended 2008 Guidelines on Anti-Money Laundering and and 2011) Combating the Financing of Terrorism Procedures for Reporting Entities in Seychelles (2007) Anti-Money Laundering Regulations (2012) Prevention of Terrorism Act, 2004 Proceeds of Crime (Civil Confiscation) Act, 2008 Additional Relevant Legislation Criminal Procedure Code (Chapter 54) Penal Code (Chapter 73) Misuse of Drugs Act (Chapter 133) 5 Act 5 of 2006.

6 National Drugs Enforcement Agency Act (2008) Seychelles Code of Civil Procedure (Chapter 213) Companies Ordinance, 1972 (Chapter 40) International Corporate Service Providers Act Code for International Corporate Service (2003, last amended 2011) Providers (FSA) International Business Companies Act (1994, last amended 2013) International Business Companies Guidelines on Procedures (FSA) Companies (Special Licences) Act (2003, amended 2013) International Trusts Act (1995, last amended 2011) Guidance Notes for International Trustee Service Providers (FSA) Protected Cell Companies Act (2003, amended 2004) Foundations Act (2009, amended 2011) Foundations Guidelines (FSA) Limited Partnerships Act (2003, amended 2011) Guidelines to the Limited Partnerships Act (2003)(FSA) Foreign Exchange Act (2009, amended 2010) Electronic Transactions Act (8 of 2001) Mutual Assistance in Criminal Matters Act (Chapter 135A) Extradition Act (Chapter 78) Firearms and Ammunition Act (Chapter 80) Insolvency Act (2013) [Note: provisions on Cross-Border Insolvency not yet in force] Customs Management Act (22 of 2011) Regulations issued in terms of the Customs Management Act Revenue Administration Act (2009) Revenue Administration (Business Registration) Regulations (2010) Business Tax Act (2009) Business Tax Return Form Regulations Income and Non-Monetary Benefits Tax Act (2010) Legislation Applicable to Banks Central Bank of Seychelles Act (12 of 2004, last Central Bank of Seychelles (Credit amended 2011) Information System) Regulations (2012) Financial Institutions Act (2004, last amended Regulations issued in terms of the Financial 2011) Institutions Act (2004) National Clearance and Settlement Systems Act (12 of 2010)* [Note: This Act was repealed as from 18 August 2014 by the National Payment System Act, 2014] Legislation Applicable to NBFIs Financial Services Authority Act (2013) Various guidance documents issued for specific sectors (see above) Insurance Act 11 of 2008 Credit Union Act (13 of 2009, amended 2010) Securities Act (8 of 2007) Financial Leasing Act (2013) Hire Purchase and Credit Sale Act (2013) Legislation Applicable to DNBPs and NPO s Casinos Interactive Gambling Act (2003) Lawyers Legal Practitioners Act (Chapter 111, amended 2013) Legal Practitioners (Professional Conduct) Rules (2013) Notaries Act (Chapter 149) Accountants

7 Precious Metals and Stones Dealers Estate Agents NPOs Registration of Associations Act (Chapter 201) Foundations Act 2009 Foundations Guidelines (FSA) 3. The Seychelles Approach to Recommendation 10: Customer Due Diligence (CDD) CDD requirements are found in sections 4, 7 and 59 of the Anti-Money Laundering Act, 2006 (as amended) 6 and Regulations 3 and 8 to 16 of the Anti-Money Laundering Regulations, Regulation 3 sets out the meaning of CDD measures. Regulation 8 covers the application of customer due diligence measures, Regulation 9 the ongoing monitoring of business relationships, Regulation 10 the timing of customer due diligence measures, Regulation 11 simplified due diligence measures, Regulation 12 reliance on regulated persons, Regulation 13 politically exposed persons, Regulation 14 the correspondent banking relationship, Regulation 15 enhanced due diligence in other cases and Regulation 16 branches and subsidiaries. 3.1 When is CDD required in the Seychelles? Section 4 of the Anti-Money Laundering Act, 2006 (as amended) requires a reporting entity to apply customer due diligence measures in respect of customers, business relationships and transactions, and to conduct ongoing monitoring of business relationships in the manner prescribed in the regulations. Reporting entities are now listed in the Second Schedule to the Anti-Money Laundering Act, 2006 (as amended). 7 The 2012 Regulations contain comprehensive CDD measures. Regulation 3 of the Anti-Money Laundering Regulations, 2012 defines what is meant by CDD measures as follows: Customer due diligence" means 6 Act 5 of Schedule 2 of the Anti-Money Laundering Control Act, 2006 (as amended) lists the following as reporting entities: (Part 1: A person carrying on a regulated business). Part 2 (Reporting Entities carrying on a business other than a regulated business) namely, accountants; lawyers; estate agency services; high value dealers; casinos; persons who provide the following services acceptance of deposits and other repayable funds from the public; lending, including consumer credit, mortgage credit, factoring, financing of commercial transactions, including forfeiting; financial leasing; money transmission services; issuing and administering means of payment, such as credit and debit cards, cheques, travelers cheques, money orders and bankers drafts and electronic money; financial guarantees and commitments; trust and company service providers; traders for the account of third parties in money market instruments, foreign exchange, futures and options, exchange, interest rate and index instruments, shares and other transferable securities; participation in securities issues and the provision of financial services related to such issues; advice on capital structures, industrial strategy and related questions and advice and services relating to mergers and the purchase of undertakings; money brokering or currency changing; portfolio management and advice; safekeeping and administration of securities; safe custody services and otherwise investing, administering or managing funds or money on behalf of third parties.

8 (a) Identifying the customer and verifying the customer's identity on the basis of documents, data or information obtained from a reliable and independent source or from any other sources that the reporting entity has reasonable grounds to believe can be relied on to identify and verify the identity of the customer; (b) Where the customer is not the beneficial owner, identifying the beneficial owner and taking reasonable measures, on a risk-sensitive basis, to verify the beneficial owner, including, in the case of a legal entity, partnership or trust, measures to understand the ownership and control structure of that legal entity, partnership or trust; (c) Obtaining information on the purpose and intended nature of the business relationship and to establish details of the business of the customer or a beneficial owner to enable the reporting entity to identify (i) Complex or unusual large transactions; (ii) Unusual patterns of transactions which have no apparent economic or viable lawful purpose; or (iii) Any other activity which may be, by its nature, likely to be related to money laundering, financing of terrorism or other criminal conduct; and (d) Taking reasonable measures to ascertain the purpose of a one-off transaction and the origin and ultimate destination of funds involved in a one-off transaction or transferred as part of a business relationship. Reporting entities are required to undertake CDD measures when: Establishing a business relationship 8 ; Carrying out a one-off transaction 9 ; The reporting entity has doubts on the veracity of adequacy of documents, data or information obtained for the purpose of identification or verification of a customer 10 ; or There are reasonable suspicions of money laundering, financing of terrorism or other criminal conduct 11. Regulation 5 of the Anti-Money Laundering Regulations, 2012 defines a once-off-transaction as a transaction carried out other than as part of a business relationship that exceeds SCR100,000 or SCR50,000 in the case of cash transactions, whether the transaction is carried out in a single operation or several operations which appear to be linked. SCR100, 000 is equivalent to USD and SCR50, 000 to USD which are both well below the threshold suggested by the Financial Action Task Force (FATF). 12 Reporting entities are also required to apply customer due diligence measures to existing customers at appropriate times on a risk-sensitive basis 13. Regulation 8(3) of the Anti-Money Laundering Regulations, 2012provides additional requirements with respect to the CDD measures that must be applied on a risk-sensitive basis, and states that a reporting entity shall determine the extent of customer due diligence measures on a risk-sensitive basis 8 Regulation 8(1)(a) Anti-Money Laundering Regulations, Regulation 8(1)(b). 10 Regulation 8(1)(c). 11 Regulation 8(1)(d). 12 Date of conversion (31/03/2015). 13 Regulation 8(2) Anti-Money Laundering Regulations, 2012.

9 depending on (i) the type of customer, business relationship, product or transaction; and (ii) the guidelines issued by the FIU which are not inconsistent with the Act or the Regulations. Reporting entities must be able to demonstrate to their supervisory authority that the extent of the measures is appropriate in view of the risks of money laundering, financing of terrorism or other criminal conduct. Reporting entities are required to maintain accounts in the true name of account holders and are prohibited from opening, operating or maintaining any anonymous account or any account that is in a fictitious, false or incorrect name. 14 In addition, section 59 deals with the situation where a person is commonly known by two or more different names and specifically prohibits a person from using one of those names in opening an account with a reporting entity unless the person has previously disclosed the other name or names to the reporting entity Identification measures and verification sources Neither the Anti-Money Laundering Act, 2006 (as amended), nor the Anti-Money Laundering Regulations, 2012 contain provisions setting out identification measures or verification sources. As section 4 of the Anti-Money Laundering Act, 2006 (as amended) requires a reporting entity to apply customer due diligence measures in respect of customers, business relationships and transactions, and conduct ongoing monitoring of business relationships in the manner prescribed in regulations, it would have been beneficial if there were provisions in the regulations dealing with acceptable forms of identity (ID card, passport etc.) and accepted reliable and independent verification sources. Additional guidance is however found in the Guidelines on Anti-Money Laundering and Combating the Financing of Terrorism Procedures for Reporting Entities, 2007 which were issued by the Financial Intelligence Unit in December, Paragraph 8 of the Guidelines requires reporting entities to obtain the following information from prospective customers resident in the Seychelles: True name and or names used; Correct permanent Seychelles address, including post box number; Occupation of the person; and Source of wealth and property of the person. 17 Paragraph 8(ii) suggests that ideally the true name or names used should be verified by reference to a document obtained from a reputable source which bears a photograph. The paragraph states that a current valid full passport or national identity card, not older than 10 years, should be requested and the number registered. The Guidelines also require that the residential address be verified and suggests that the best way of verifying the address is: To request a recent (not older than 3 months) copy of utility bills for an individual and exert from the Chamber of Commerce for a legal entity; By checking an official register such as the voters roll and Social Security Register; 14 Section 7 Act 5 of 2006 (As Amended). 15 Section 59(1). Section 59(2) reads, Where a person using a particular name in his or her dealings with a reporting entity discloses a different name or names by which he or she is commonly known, the reporting entity shall make a record of the disclosure and shall, at the request of the FIU, give the FIU a copy of that record. 16 The FIU has confirmed that these Guidelines are currently being updated to incorporate changes brought about by the various Amendment Acts which have been promulgated. 17 Paragraph 8(i) of the Guidelines on Anti-Money Laundering and Combating the Financing of Terrorism Procedures for Reporting Entities, 2007.

10 By making a credit reference agency search; By requesting sight of a recent utility bill, local authority tax bill, bank or other financial institution bank statement; or By checking a local and current telephone directory. Regulation 9 of the Anti-Money Laundering Regulations, 2012 specifically requires reporting entities to conduct ongoing monitoring of a business relationship. Ongoing monitoring applies only to a business relationship and requires the scrutinising of transactions undertaken throughout the relationship to ensure that the transactions are consistent with the reporting entity s knowledge of the customer, the business and risk profile as well as the source of customer funds. 18 Reporting entities are also required to keep the document, data or information obtained for the purpose of applying CDD measures up to date Timing of verification of identity In terms of Regulation 10(1) of the Anti-Money Laundering Regulations, 2012, reporting entities are required to carry out customer due diligence measures before establishing the business relationship or carrying out a single transaction. Regulation 10(2) however permits reporting entities to complete the CDD measures during the establishment of a business relationship if this is necessary so as not to interrupt the normal conduct of business or where there is a low risk of money laundering, financing of terrorism or other criminal conduct, provided that the CDD measures are completed as soon as practicable after establishing the business relationship. 20 Section 5 of the Anti-Money Laundering Act, 2006 (as amended) 21 however makes it very clear that where a reporting entity is unable to apply CDD measures in accordance with the regulations prescribed under the Act, the reporting entity shall not carry out a transaction with or for the customer through a bank account nor establish a business relationship or carry out a one-off transaction with the customer and must terminate any existing business relationship with the customer and make a suspicious transaction report. Where the reporting entity is unable to undertake ongoing monitoring with respect to a business relationship, it is also required to terminate the business relationship and make a suspicious transaction report Risk-based approach to CDD: Simplified Measures Regulation 11 of the Anti-Money Laundering Regulations, 2012 covers simplified CDD measures. Regulation 11(1) reads: Subject to sub-regulation (2), a reporting entity may apply customer due diligence measures in regulation 8(1)(a), (b) or (c) where (a) The customer is (i) A licensed bank; (ii) A recognised foreign bank; (iii) The Central Bank of Seychelles; or (iv) A public body in the Seychelles. 18 Regulation 9(1) Anti-Money Laundering Regulations, Regulation 9(2). 20 Regulation 10(2)(a) and (b). 21 Act 5 of Section 5(2) Act 24 of 2011.

11 b) There are reasonable grounds for believing that the product related to the relevant transaction is a pension, superannuation or similar scheme that provides retirement benefits to employees, where contributions are made by way of deductions from wages and the scheme rules do not permit the assignment of a member s interest under the scheme. c) Where there is suspicion of money laundering, financing of terrorism or other criminal conduct, the reporting entity shall apply the customer due diligence measures in regulation 8(1)(a), (b) or (c). The use of the word may in regulation 11(1), contrasted with the use of the word shall in regulation 11(2), provides discretion to reporting entities as to whether the CDD requirements set out in Regulation 8 need to be applied for specifically listed types of customers (licensed bank, recognised foreign bank, CBS or a public body in the Seychelles) and products (pension, superannuation or similar scheme). Regulation 11 unfortunately makes no mention of financial products or services that provide appropriately defined and limited services to certain types of customers so as to increase access for financial inclusion purposes (FATF, 2013). The Anti-Money Laundering Regulations, 2012, do however introduce a risk-based approach. Regulation 8(3) requires customers to (a) determine the extent of customer due diligence measures on a risk sensitive basis depending on (i) the type of customer, business relationship, product or transaction; and (ii) the guidelines issued by the FIU which are not inconsistent with the Act or the Regulations. Reporting entities must also be able to demonstrate to their supervisory authority that the extent of the measures is appropriate in view of the risks of money laundering, financing of terrorism or other criminal conduct. 23 Paragraph 8(ii)(v) of the Guidelines on Anti-Money Laundering and Combating the Financing of Terrorism Procedures for Reporting Entities, 2007 makes specific reference to the circumstances where potential customers (particularly the young and elderly) are unable to provide the appropriate documentary evidence of their identity and where independent verification of their address is not possible. Under these circumstances, the Seychelles permits the manager of a branch to authorise the opening of an account if he/she is satisfied with the circumstances provided that he/she records these circumstances in the same manner and for the same period of time as other identification records. 4. The Seychelles Approach to Recommendation 11: Record Keeping Section 6(1) of the Anti-Money Laundering Act, 2006 (as amended) 24 requires reporting entities to maintain records of: customer due diligence measures prescribed by regulations 25 ; all transactions carried out by it and correspondence relating to the transactions as is necessary to enable any transaction to be readily reconstructed at any time by the FIU or the Attorney-General 26 ; all reports 23 Regulation 8(3)(b) Anti-Money Laundering Regulations, Act 5 of Section 6(1)(a) of Act 24 of Section 6(1)(b) of Act 24 of The provision further requires that, the records shall contain particulars sufficient to identify - (i) the nature and date of the transaction; (ii) the type and amount of currency involved; (iii) the type and identifying number of any account with the reporting entity involved in the transaction; (iv) if the transaction involves a negotiable instrument other than currency, the name of the drawer of the instrument, the name of the institution on which it was drawn, the name of the payee (if any), the amount and date of the instrument, the number (if any) of the instrument and details of any endorsements appearing on the instrument; (v) the name and address of the reporting entity, and of the officer, employee or agent of the reporting entity who prepared the record.

12 made to the FIU under section ; enquiries relating to money laundering and the financing of terrorism made to it by the FIU. 28 Reporting entities are required to keep these records for a period of seven years, 29 two years over the five year period suggested by the FATF. Section 6(4) of the Anti- Money Laundering Act, 2006 (as amended) requires reporting entities to keep copies of the required documents together with the appropriate back-up and recovery procedures. These must be kept in a machine-readable form, if a paper copy can be readily produced from it 30 ; or in an electronic form, if a paper copy can be readily produced from it and in a manner that enables appropriate authentication. 31 The Guidelines on Anti-Money Laundering and Combating the Financing of Terrorism Procedures for Reporting Entities, 2007 are particularly sensitive to the fact that reporting entities often find it necessary to rationalise their hard copy filing requirements and that most will have standard procedures which seek to reduce the volume and density of records which have to be stored, whilst still complying with statutory requirements. 32 As such, the Guidelines conform that retention may be by way of original documents or in a machine readable or electronic form as long as the paper copy can be readily reproduced from it. Paragraph 13.4 states further that records kept in an electronic form must be kept in such a way that they can be authenticated. For these records to be acceptable or admissible in a court of law, a certification confirming the computer s reliability is likely to be required. The nature of that certificate and information that it must contain should be in accordance with recognised standards. Reference can be made in this respect to the Seychelles Electronic Transactions Act, 2001, which provides for the authentication and legal recognition of electronic records via secure digital signature, and also to the Evidence Act (Chapter 74), section 15 which addresses the admissibility in Court proceedings of documentary evidence from computer records. 5. The Seychelles Approach to Recommendation 13: Correspondent Banking Correspondent Banking is specifically covered by Regulation 14 of the Anti-Money Laundering Regulations, Licensed banks are prohibited from entering into correspondent banking relationships with banks or other credit institutions situated outside the Seychelles unless the licensed banks: Gather sufficient information about the bank or credit institution so as to fully understand the nature of the business of the bank or credit institution; Are satisfied on reasonable grounds, based on publicly available information, that the reputation of the bank or credit institution and the quality of supervision or monitoring of the operation of the bank or credit institution in the other country are sound, adequate and effective; Are satisfied on reasonable grounds, having assessed the anti-money laundering and anti-terrorist financing controls applied by the bank or credit institution, that those controls are sound, adequate and effective; Obtain approval of the Board of Directors; Document the responsibilities of the bank or credit institution in applying anti-money laundering and anti-terrorist financing controls to customers in the conduct of the correspondent banking relationship; or 27 Section 6(1)(c) of Act 24 of Section 6(1)(d). 29 Section 6(2). 30 Section 6(4)(a). 31 Section 6(4)(b). 32 Paragraph 13.3 of the Guidelines on Anti-Money Laundering and Combating the Financing of Terrorism Procedures for Reporting Entities, 2007

13 In the case of customers of the bank or credit institution who have direct access to a payablethrough account held with the licensed bank in the name of the bank or credit institution, are satisfied on reasonable grounds that the bank or credit institution - (i) has identified and verified the identity of those customers, and is able to provide to the licensed bank, upon request, the documents, whether or not in electronic form, or information used by the credit institution to identify and verify the identity, of those customers; (ii) has applied measures equivalent to the measures referred to in Regulation 8 in relation to those customers; and (iii) is applying measures equivalent to the measures referred to in Regulation 9 in relation to those customers. In addition, Regulation 17(1) of the Anti-Money Laundering Regulations, 2012 specifically prohibits licensed banks from entering into or continuing a correspondent banking relationship with a shell bank and to take appropriate measures to ensure that it does not enter into, or continue a banking relationship with a bank that is known to permit its accounts to be used by a shell bank. Regulations 14 and 17 are in line with FATF Recommendation The Seychelles Approach to Recommendation 14: Money Transfer Services Money transmission services are specifically listed as a reporting entity in Part 2 of Schedule 2 of the Anti-Money Laundering Act, 2006 (as amended) and as such are subject to the requirements of the Act and supporting regulations. In terms of section 8(1) of the Anti-Money Laundering Act, 2006 (as amended) 33, a person licensed to do business in the Seychelles as a financial institution or money transmission service provider must include accurate originator information and other related messages on electronic funds transfers, and such information must remain with the transfer. 34 The two international money transmission operators in the Seychelles (Western Union and MoneyGram) provide their services through commercial banks. The definition of banking activities under section 4(1) of the Financial Institutions Act, 2004 (as amended) includes providing money transmission services. Bureaux de Change are also licensed and regulated under the Financial Institutions Act, but these bureaux are only authorised to buy and sell foreign currency (for Class B bureaux, solely in the form of notes, coins and travelers' cheques; this limitation does not apply to Class A bureaux). As at June 2014, there were no provisions in law in the Seychelles which required natural or legal persons working as an agent to be registered by a competent authority or that the MVTS provider should be required to maintain a list of its agents accessible by competent authorities. The Guidelines on Anti-Money Laundering and Combating the Financing of Terrorism Procedures for Reporting Entities, 2007 do not contain any requirements requiring MVTS providers who use agents to include them in their AML/CFT programmes. As branchless banking and the use of agents is not being practiced in the Seychelles yet, this is somewhat of a moot point at this time. As the market matures and mobile money transfer services are introduced, both the CBS and FIU will need to consider amending the AML Regulations to make provision for the use of agents by reporting entities. 33 Act 5 of As per section 8(2) of the Anti-Money Laundering Act, 2006 (as amended), subsection (1) does not apply to a money transfer effected from the use of a credit card or debit card as a means of payment and results from a transaction carried out using a credit or debit card, but the credit or debit card number shall be included in the information accompanying such a transfer nor in terms of section 8(3) to electronic funds transfers and settlements between financial institutions where the originator and beneficiary of the funds are acting on their own behalf.

14 It should be noted that the National Clearance and Settlement Systems Act, 2010 was replaced as of 18 August 2014 by a new National Payment Systems Act, 2014, administered by the Central Bank, which deals with the licensing and regulation of payment service providers (defined as including money remittances and other services functional to the transfer of money). Section 13 of that Act specifically regulates the use of agents and the measures for ensuring compliance with AML/CFT requirements. A meeting with one of the larger commercial banks in the Seychelles uncovered the fact that people in the Seychelles have been victims of a type of 419 scam using Western Union. Individuals were targeted through an SMS message which contained a promise along the lines of send money and you will get x in return. Innocent and uninformed individuals were sending tens of thousands of Rupees to Nigeria through Western Union in the hopes of receiving large amounts of cash in return. People in the Seychelles are particularly vulnerable to this type of scam as electronic payments and new channels are a relatively new phenomena on the islands. The FIU has been sensitising the public against such scams through print and broadcast media. 7. The Seychelles Approach to Recommendation 15: New Technologies New technologies are not covered in the Anti-Money Laundering Act, 2006 (as amended) or in the Anti- Money Laundering Regulations, The Guidelines on Anti-Money Laundering and Combating the Financing of Terrorism Procedures for Reporting Entities, 2007 do however make specific reference to the opening of accounts in non-face-to-face situations. 35 Paragraph 9 specifically states that financial institutions are increasingly being asked to open accounts on behalf of customers who do not present themselves for a personal interview. The Guidelines warn that photographic evidence of identity is inappropriate as there is greater difficulty in matching the customer with the documentation in the case of non-face-to-face customers which becomes more difficult with telephone and internet banking. The Guideline requires a bank, when accepting business from such customers, to apply equally effective customer identification procedures and apply specific and adequate measures to mitigate higher risks. Examples of measures which may mitigate these risks are provided and listed as follows: Certification of documents presented; Requisition of additional documents to complement those which are required for non-face-to-face customers; Independent contact with the customer by the bank; Third party introduction subject to the bank reaching an agreement with the introducer that it will be permitted to verify the due diligence undertaken by the introducer at any stage; and Requiring the first payment to be carried through an account in the customer s name with another bank subject to similar CDD standards. As noted above, the National Clearance and Settlement Systems Act, 2010 was replaced as of 18 August 2014 by a new National Payment Systems Act, 2014, administered by the Central Bank, which deals specifically with the licensing and regulation of payment service providers (defined as including money remittances and other services functional to the transfer of money) and requires them to comply with the AML/CFT legislation. This and other recent legislative developments in the financial services sector will need to be considered by the FIU in the next round of amendments to the Anti- Money Laundering Act, 2006 (as amended) and the Anti-Money Laundering Regulations, Paragraph 9 of the Guidelines on Anti-Money Laundering and Combating the Financing of Terrorism Procedures for Reporting Entities, 2007

15 8. The Seychelles Approach to Recommendation 16: Wire Transfers Section 8(1) of the Anti-Money Laundering Act, 2006 (as amended) requires a person licensed to do business in the Seychelles as a financial institution or money transmission service provider to include accurate originator information and other related messages on electronic funds transfers, and such information must remain with the transfer. 36 No distinction is made between domestic and crossborder transfers and the information required is not specified. The de minimis exemption for crossborder wire transfers, as allowed in terms of Recommendation 16, has not been implemented. The Anti-Money Laundering Regulations, 2012 make no reference to wire transfers or electronic funds transfers. Paragraph 14 of the Guidelines on Anti-Money Laundering and Combating the Financing of Terrorism Procedures for Reporting Entities, 2007 notes that in order to ensure that the SWIFT system is not used by criminals as a means to break the audit trail, reporting entities are required when sending SWIFT MT100 messages (customer transfers) to ensure that the fields for the ordering and beneficiary customers are completed with their respective names and addresses. Reporting entities are required to obtain the necessary information from ordering customers for all credit transfers (both domestic and international), regardless of the payment or message system used. The necessary information is not specified although reference is made to the SWIFT fields for ordering and beneficiary customers. Records of electronic payments and messages are required to be treated in the same way as other records in support of entries in the account and kept for a minimum of seven years. 9. The Seychelles Approach to Recommendation 17: Reliance on Third Parties Regulation 12 of the Anti-Money Laundering Regulations, 2012 permits reporting entities to rely on a regulated person to apply customer due diligence measures in respect of the regulated person s customer if the regulated person consents to being relied on and gives the reporting entity a written undertaking that it (i) applies or will apply customer due diligence measures on an ongoing basis; (ii) is under a legal obligation to keep and keeps records of the customer due diligence measures applied with respect to its customers; (iii) will keep the records described in paragraph (ii) for the same period referred to in section 6(2) of the Act; (iv) will, without delay, on request by the reporting entity, produce the original or certified copies of the records described in paragraph (ii) to the reporting entity, which records may be used as evidence in court proceedings; (v) where it is about to or has ceased to carry on business, shall forward to the reporting entity all records of customer due diligence measures applied in respect of its customers. 37 A reporting entity may rely on a regulated person to apply customer due diligence measures in respect of (a) any beneficial owner or controller of the customer; (b) any third party for whom the customer is acting; (c) any beneficial owner or controller of a third party for whom the customer is acting; or (d) any person purporting to act on behalf of a customer. It is important to note that Regulation 12 of the Anti-Money Laundering Regulations, 2012 does not apply to licensed banks, bureau de change and persons who by way of business provide the following services to third parties: (a) acceptance of deposits and other repayable funds from the public and (b) lending, including customer credit, mortgage credit, factoring, financing of commercial transactions, including 36 As per section 8(2) subsection (1) does not apply to a money transfer effected from the use of a credit card or debit card as a means of payment and results from a transaction carried out using a credit or debit card, but the credit or debit card number shall be included in the information accompanying such a transfer nor in terms of section 8(3) to electronic funds transfers and settlements between financial institutions where the originator and beneficiary of the funds are acting on their own behalf. 37 Regulation 12(1) Anti-Money Laundering Regulations, 2012 defines a regulated person as a regulated reporting entity other than a bureau de change; or a foreign regulated person.

16 forfeiting. 38 This implies that these entities are required to undertake CDD measures themselves and may not rely on third parties to do so. 10. The Seychelles Approach to Recommendation 18: Internal Controls Under section 15(1)(a) of the Anti-Money Laundering Act, 2006 (as amended), financial institutions must appoint a Compliance and Reporting Officer, which should be a senior officer with the necessary qualifications and experience to ensure that the reporting entity complies with the provisions of the Act. There is however no requirement in the law to ensure that the Compliance and Reporting Officer and other staff have timely access to customer identification data and other CDD information, transaction records and other relevant information. Section 15(1)(c) of the Anti-Money Laundering Act, 2006 (as amended) requires a financial institution to establish and maintain procedures and systems to make its officers and employees aware of the procedures, policies and audit systems adopted by it to deter money laundering and financing of terrorism. These systems and procedures under section 15(1)(c) must cover the implementation of customer identification requirements under section 4 of the Anti-Money Laundering Act, 2006, (as amended), record keeping and retention requirements under sections 6 and 7 of the Act, and reporting requirements under section 10 of the Act. Section 15(1)(c)(e) of the Anti-Money Laundering Act, 2006 (as amended) requires a reporting entity to establish an audit function to test its AML and CFT procedures and systems, while section 15(1)(d) of the Act requires a reporting entity to train its officers, employees and agents to recognise suspicious transactions, trends in money laundering and the financing of terrorism activities and risks within the reporting entity s products, services and operations. Regulation 16 of the Anti-Money Laundering Regulations, 2012 is compliant with the FATF requirements introduced by the new Recommendation 18, namely that financial institutions should ensure that their foreign branches and majority owned subsidiaries apply AML/CFT measures consistent with the home country requirements. Regulation 16 requires reporting entities to require its branches and subsidiaries outside the Seychelles to apply, to the extent permitted by the laws of the country where they are located, measures at least equivalent to those set out in the Regulations with regard to customer due diligence, ongoing monitoring and record-keeping. 39 In the case where no such equivalent CDD measures are required under the laws of the country where the branches and subsidiaries are located, the reporting entity is required to inform its supervisory authority accordingly and apply the customer due diligence measures provided in the Regulations, as applicable to the risk of money laundering, financing of terrorism or other criminal conduct. Reporting entities are also required to produce to the FIU, without delay on request, all information data and documents in the possession or control of such branch or subsidiary undertaking in accordance with the obligations of the reporting entity under the Regulations. 40 Neither the Anti-Money Laundering Act, 2006 (as amended) nor the Anti-Money Laundering Regulations, 2012 contain provisions requiring financial groups to have group wide AML/CFT programmes that include policies on information sharing within the group. 38 Regulation 12(4)(a), (b) and (c). 39 Regulation 16(1) Anti-Money Laundering Regulations, Regulation 16(2)(c).

17 11. The Seychelles Approach to Recommendation 20: Suspicious Transaction Reports (STRs) The provisions pertaining to suspicious transaction reporting as contained in the Anti-Money Laundering Act, 2006, were substantially amended through the promulgation of the Anti-Money Laundering (Amendment) Where a reporting entity has knowledge or reasonable grounds to suspect that any service or transaction may be related to the commission of criminal conduct, including an offence of money laundering or of financing of terrorism; or to money or property that is or represents the benefit of criminal conduct; information that may be relevant to an act preparatory to an offence or to money or property; relevant to an investigation or prosecution of a person for an offence; or of assistance in the enforcement of this Act or the Proceeds of Crime (Civil Confiscation) Act, 2008, the reporting entity is required to make a suspicious transaction report to the FIU within two working days of ascertaining the knowledge, forming the suspicion or receiving the information. 41 Section 10(1)(b) specifically requires the FIU to acknowledge receipt of the suspicious transaction report within 24 hours of receipt. Where a suspicious transaction report relates to a service or transaction in respect of property in the possession or control of a reporting entity, the reporting entity is prohibited from providing the service or proceeding with the transaction for a period of 10 working days from the date of the suspicious transaction report without written consent of the FIU. 42 If no consent is received within a period of 10 working days from the date of the suspicious transaction report, the reporting entity may provide the service or carry out the transaction. 43 Section 10(11) provides that any person who fails or refuses to comply with a requirement by the FIU; knowingly, directly or indirectly furnishes false or misleading information, documents or material to a reporting entity relating to a service, transaction or property; fails to comply with a direction or order under section 10; or directly or indirectly furnishes false or misleading information, documents or materials to the FIU or to the Court in support of an application; commits an offence and is liable on conviction to a fine not exceeding SCR3,000,000 or a term of imprisonment not exceeding 5 years or to both such a fine and term of imprisonment. The Anti-Money Laundering Regulations, 2012 do not contain any regulations related to suspicious transaction reporting. Useful guidance is provided to reporting entities on the recognition and reporting of suspicious transactions to the FIU in paragraphs 16 to 19 of the Guidelines on Anti-Money Laundering and Combating the Financing of Terrorism Procedures for Reporting Entities, In paragraph 16, it is stated that: As the types of transactions which may be used by a money launderer are almost unlimited, it is difficult to define a suspicious transaction. However, a suspicious transaction will often be one which is inconsistent with a customer's known, legitimate business or personal activities or with the normal business for that type of account. Therefore, the first key to recognition is knowing enough about the customer's business to recognise that a transaction, or series of transactions, is unusual. Developing a customer profile will assist reporting entities with identifying suspicious transactions. 41 Section 10(1)(a) Act 24 of Section 10(1)(c). 43 Section 10(1)(d).The FIU may however consent to a service being provided or the transaction to proceed in whole or in part. This does not apply to inward transfers in a bank account or to any service or transaction that will increase the value of the property.