GP Global Ltd Tel.: Fax:

Transcription

1 Newsletter 6 June 2009 Compliance / Fraud / Anti Money Laundering Newsletter Introduction In this newsletter we will present the topic Important measures and procedures that a Financial Organisation (Investment Firm) must implement MLCO duties and responsibilities. We welcome comments and feedback which will help us to enhance the quality of the Newsletter Procedures for preventing Money Laundering and Terrorist Financing The legislation requires all persons carrying on financial business to establish and maintain specific policies and procedures to guard against their business and the financial system in general being used for the purposes of money laundering or terrorist financing. In essence these procedures are designed to achieve two purposes: firstly, to facilitate the recognition and reporting of suspicious transactions and, secondly, to ensure through the strict implementation of the "knowyour-customer" principle and the maintenance of adequate record keeping procedures, should a customer come under investigation, that the Financial Organisation is able to provide its part of the audit trail. The Law requires that any person carrying on financial or other business activities is obliged to apply adequate and appropriate systems and procedures in relation to the following: a) Customer identification and customer due diligence b) Record-keeping c) Internal reporting and reporting to Financial Intelligence Unit (FIU) d) Internal control, risk assessment and risk management in order to prevent money laundering and terrorist financing e) Detailed examination of each transaction which by its nature may be considered to be particularly vulnerable to be associated with money laundering offences or terrorist financing and in particular complex or unusually large transactions and all other unusual patterns of transactions which have no apparent economic or visible lawful purpose. f) Informing their employees in relation to the above systems and procedures, relevant national legislation as well as European Union s Directives on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing. g) Ongoing training of their employees in the recognition and handling of transactions and activities which may be related to money laundering or terrorist financing Appointment of compliance officer - assistants of compliance officer A compliance officer is appointed by the Board of Directors, who belongs to the management of Financial Organisation so as to command the necessary authority. Where it is deemed necessary due to the volume and/or the geographic spread of the services/activities, assistants of the compliance officer might be appointed, by geographical district or otherwise for the purpose of assisting the compliance officer and passing internal suspicion reports to him. The Financial Organisation communicates immediately to the competent authority, the names and positions of the persons it appoints as compliance officer and assistants of the compliance officer. Compliance officer s duties As a minimum, the compliance officer s duties include the following: 1. Design of measures, procedures and controls Designs, based on the general policy principles the internal practice, measures, procedures and controls relevant to the prevention of money laundering and terrorist financing, and describes and explicitly allocates the appropriateness and the limits of responsibility of each department that is involved in the abovementioned. 1

2 The above, among others, include measures and procedures for the prevention of the abuse of new technologies and systems providing financial services, for the purpose of money laundering and terrorist financing (e.g. services and transactions via the internet or the telephone), as well as measures so that the risk of money laundering and terrorist financing is appropriately considered and managed in the course of daily activities of the Financial Organisation with regard to the development of new products and possible changes in the Financial Organisation economic profile (e.g. penetration into new markets). 2. Development and establishment of customers acceptance policy and risk management and procedures manual Develops and establishes the customers acceptance policy and submits it to the board of directors for consideration and approval. Prepares a risk management and procedures manual regarding money laundering and terrorist financing. 3. Monitoring Monitors and assesses the correct and effective implementation of the policy, the practices, measures, procedures and controls and in general the implementation of the risk management and procedures manual. In this regard, applies appropriate monitoring mechanisms (e.g. on-site visits to different departments of the Financial Organisation) which will provide him all the necessary information for assessing the level of compliance of the departments and employees of the Financial Organisation with the procedures and controls which are in force. In the event that he identifies shortcomings and/or weaknesses in the application of the required practices, measures, procedures and controls, gives appropriate guidance for corrective measures and where deems necessary informs the board of directors. 4. Internal reporting procedures Reporting to Financial Intelligence Unit (FIU) Receives information from the Financial Organisation employees which is considered to be knowledge or suspicion of money laundering or terrorist financing activities or might be related with such activities. The information is received in a written report form. Evaluates and examines the information received by reference to other relevant information and discusses the circumstances of the case with the informer and, where appropriate, with the informer s superiors. The evaluation of the information received is done on a report. If following the evaluation the compliance officer decides to notify the FIU, then he completes a written report and submits it to the FIU the soonest possible. After the submission of the compliance officer s report to the FIU, the accounts involved and any other connected accounts, are closely monitored by the compliance officer and following any directions from FIU, thoroughly investigates and examines all the transactions of the accounts. If following the evaluation the compliance officer decides not to notify the FIU, then he fully explains the reasons for such a decision on the relevant report. Acts as the first point of contact with the FIU, upon commencement and during an investigation as a result of filing a report to the FIU. 5. Preparation of customer s List Ensures the preparation and maintenance of the lists of customers categorised following a risk based approach (Low, Normal, High risk) which contains, among others: the names of customers their account number the date of the commencement of the business relationship. Moreover, ensures the updating of the said lists with all new or existing customers, in the light of additional information obtained. 2

3 6. Detection, recording and evaluation of risks and updating of procedures Detects, records, and evaluates, at least on an annual basis, all risks arising from existing and new customers, new financial instruments and services and updates and amends the systems and procedures applied by the Financial Organisation for the effective management of the aforesaid risks. Evaluates the systems and procedures applied by a third person on whom the Financial Organisation relies for customer identification and due diligence purposes and approves the cooperation with it. Ensures that the branches and subsidiaries of the Financial Organisation that operate in countries outside the European Economic Area, have taken all necessary measures for achieving full compliance with the provisions of the present Directive, in relation to customer identification, due diligence and record keeping procedures. 7. Training Provides advice and guidance to the employees of the Financial Organisation on subjects related to money laundering and terrorist financing. Acquires the required knowledge and skills for the improvement of the appropriate procedures for recognising, preventing and obstructing any transactions and activities that are suspected to be associated with money laundering or terrorist financing. Determines the Financial Organisation departments and employees that need further training and education for the purpose of preventing money laundering and terrorist financing and organises appropriate training sessions/seminars. In this regard, prepares and applies an annual staff training program. He/she assesses the adequacy of the education and training provided. 8. Reporting Prepares correctly and submits timely to the competent authority the Monthly prevention statement and provides the necessary explanation to the appropriate employees of the Financial Organisation for its completion. This report includes details for: the total cash deposits accepted by the Financial Organisation the Internal Suspicions Reports, and the Compliance Officer s Reports to FIU Prepares the Compliance Officer s annual report. Responds to all requests and queries from FIU and the competent authority, provides all requested information and fully cooperates with FIU and the competent authority. Maintains a registry which includes the following reports: Internal Suspicion Report Internal Evaluation Report Compliance Officer's Report to the FIU and relevant statistical information (department that submitted the internal report, date of submission to the compliance officer, date of assessment, date of reporting to FIU), the above evaluation reports and all the documents that verify the accomplishment of his/her duties. Preparation of the General policy principles and risk management and procedures manual The board of directors determines records and approves the general policy principles of the Financial Organisation in relation to the prevention of money laundering and terrorist financing. The board of directors communicates the general policy principles to the compliance officer. The compliance officer prepares a risk management and procedures manual regarding money laundering and terrorist financing. The board of directors approves the risk management and procedures manual. The risk management and procedures manual is communicated to all employees of the Financial Organisation that manage, monitor or control in any 3

4 way the customers transactions and have the responsibility for the application of the practices, measures, procedures and controls that have been determined. Design and implementation of measures and procedures to manage and mitigate the risks When the compliance officer identifies the risks it faces then designs and implements the appropriate measures and procedures for the correct management and mitigation, especially of high risk clients, which involve: the verification of the customers identity the collection of information for the construction of their economic profile monitoring their transactions and activities increase awareness of higher risk situations within business lines escalate approval of establishment of an account or relationship, even if not required to do so increase levels of Know Your Customer rules or Enhanced Due Diligence at account opening increase monitoring of transactions increase levels of ongoing controls and reviews of relationships seek additional verification information beyond the minimum requirements to substantiate client s identity obtain additional information about intended nature of relationship and estimate of the amount/type of business obtain additional documented information regarding clients source of funds and wealth independently verified information implement senior management approval of all relationships identified as high risk implement senior management review process to exit from an existing high risk relationships if risk level exceeds the entities risk tolerance analyze money laundering and terrorist financing risk vulnerabilities for new acquisition processes and product or service development processes Update 3rd party information on a more frequent basis Customer s categories 1. Low customers The category of low risk customers includes the following customers: Credit or financial institution covered by the EU Directive. Credit or financial institution which is situated in a country outside the European Economic Area, which: in accordance with a decision of the relevant Authority imposes requirements equivalent to those laid down by the EU Directive and it is under supervision for compliance with those requirements. Listed companies whose securities are admitted to trading on a regulated market in a country of the European Economic Area or in a third country which is subject to disclosure requirements consistent with community legislation. Domestic public authorities of countries of the European Economic Area. 2. High customers The category of high risk customers includes the following customers: Non face to face customers. Accounts in the names of companies whose shares are in bearer form. Trusts accounts. Client accounts in the name of a third person. Politically exposed persons accounts. Electronic gambling /gaming through the internet. Customers from countries which inadequately apply Financial Action Task Force s recommendations. Correspondent banking relationships with credit institutions-customers from third countries. Any other customer determined by the Financial Organisation itself to be classified as such. 3. Normal risk customers Generally all customers which do not fall in the low or high risk categories are considered as normal risk customers. 4

5 Monitoring and improving the measures and procedures The measures, procedures and controls are kept under regular review by the compliance officer so that risks resulting from changes in the characteristics of existing customers, new customers, services and financial instruments are managed and countered effectively. The compliance officer monitors and evaluates, on an on going basis, the effectiveness of the measures and procedures, and in general the implementation of the risk management and procedures manual, that have been introduced. The compliance officer applies appropriate monitoring mechanisms (e.g. on-site visits to different departments of the Financial Organisation) which will provide him all the necessary information for assessing the level of compliance of the departments and employees of the Financial Organisation with the procedures and controls which are in force. In the event that he/she identifies shortcomings and/or weaknesses in the application of the required practices, measures, procedures and controls, gives appropriate guidance for corrective measures and where deems necessary informs the board of directors. Development and establishment of customer s acceptance policy on a risk based approach The Financial Organisation customer s acceptance policy is prepared by the compliance officer after detailed assessment of the risks faced by the company. In this regard the Financial Organisation applies appropriate measures and procedures, on a risk based approach, so as to focus its effort in those areas where the risk of money laundering and terrorist financing appears to be higher. criteria The compliance officer identifies, records and evaluates the main risk criteria when assessing the extent of money laundering and terrorist financing risks. Based on the extent and the combination of the given risk criteria, the overall risk of a customer will be quantified as either High, Normal or Low. The main risk criteria that the compliance officer can consider are the following: Country or geographic risk Customer risk Products/services risk Further analysis of the above risk criteria (individually or in combination) in assessing the overall risk of potential money laundering and terrorist financing is performed by the compliance officer. The compliance officer should document and periodically review its risk assessment approach. indicators The compliance officer analyses the above risk criteria into different risk indicators. Some risk indicators are shown in the following table. Criteria Customer Product and Service Country/Geographic Variables Indicator Customer characteristics/behaviour/history Customer Business Customer ownership structure Duration of Business relationship Business activity/expected transaction turnover Transaction Types Product/service Types Country/Geographic For each risk indicator the compliance officer identifies various risk variables. Some risk variables are the following: 5

6 Criterion 1: Customer Indicator 1.1: Customer characteristics/ behaviour/history variables: No financial/commercial rationale for the customer buying the product The origin of wealth and/or source of funds cannot be easily verified Requests to associate undue levels of secrecy (unwillingness to provide information on the beneficial owners) Accounts for "gatekeepers" (accountants, lawyers, or other professionals) for their clients etc Criterion 1: Customer Indicator 1.2: Customer Business variables: Weapon manufacturers Art and antique dealers Dealers in high value or precious goods Real estate agents Unregulated charities Unregulated "non for profit" organisations etc Criterion 1: Customer Indicator 1.3: Customer ownership structure variables: Criterion 2: Product and Service Indicator 2.1: Transaction Types variables: The compliance officer develops the above model by assigning risk variables to all risk indicators. classification model For each customer/account, the compliance officer analyses the different risk criteria we mentioned before (customer, product/service and geographic risk) and assign scores and weights to the various risk variables and risk indicators. The compliance officer combines the risk ranking (High or Neutral) from each risk criteria at the customer level to determine the overall risk level. The compliance officer completes the table below. The compliance officer has the authority, at his/her absolute discretion not to follow the standard procedure described in this section if he/she believes that by following the procedure, for specific customer, the assigned classification will not be correct. Levels Level 1 Level 2 Level 3 Customers risk classification Unique Combin ations Custo mer Product/ Transactio n Geographi c 1 H H H 2 H H N 3 H N H 4 N H H 5 H N N 6 N H N 7 N N H 8 N N N With this model we have 3 Levels. Level 1 represents accounts with the highest risk. Customer s categories Based on the criteria described above customers will be categorised in the following three categories: Low risk (only customers specify in the law) Normal risk ( level 2 and level 3) High risk ( level 1) Approval of customers acceptance policy The compliance officer submits the customers acceptance policy to the board of Directors for consideration and approval. 6

7 For more information on how: To develop and establish customers acceptance policy. To develop and establish a risk management and procedures manual. To prepare the General policy principles. To develop a customer s Categorisation model on a risk based approach. Contact us at: papanicgeor@cytanet.com.cy Tel.: George Papanicolaou Member of the International Compliance Association (MICA) Managing Director GP GLOBAL LTD 7