PROCEDURE FOR ANTI-MONEY LAUNDERING AND KNOW YOUR CUSTOMER POLICY

Bachir El Nakib (CAMS Instructor), Senior Consultant Compliance Alert LLC

The policy is applicable to all branches/offices of the bank and is to be read in conjunction with related operational guidelines issued from time to time

DEFINITION

The term money laundering would also cover financial transactions where the end use of funds goes for terrorist financing irrespective of the source of the funds. 

CUSTOMER

1. POLICIES

In terms of the Guidelines issued by Bank of Lebanon AML Law # 44 and Lebanon Central Bank Intermediary Circular # 421 dated May 4th May 2016 (AML Board Committee) and Intermediary Circular # 371 dated 11/09/2014 and Basic Circular # 83 on Know Your Customer (KYC) standards and Anti – Money Laundering (AML) measures, Banks are required to put in place a comprehensive policy framework covering KYC Standards and AML Measures. The guidelines issued by Bank of Lebanon take into account the recommendations issued by the Financial Action Task Force (FATT – GAFI) and inter government agency (FIU), on AML Standards and on combating financing terrorism. The guidelines also incorporate aspects covered in the Basel Committee document on customer due diligence.

This policy document is prepared in line of Bank of Lebanon guidelines and incorporates the Bank’s approach to customer identification procedures, customer profiling based on the risk perception and monitoring of transactions on an ongoing basis. The objective of KYC guidelines is to prevent the Bank from being used, intentionally or unintentionally, by criminal elements fro money Laundering activities.

POLICY OBJECTIVES

1. To prevent criminal elements from using the Baking System for money laundering activities
2. To enable the Bank to know/understand the customers and their financial dealings better, this in turn would help the Bank to manage risks prudently
3. To put in place appropriate controls for detection and reporting of suspicious activities in accordance with applicable laws/laid down procedures
4. To comply with applicable laws and regulatory guidelines.  

OBLIGATIONS UNDER PREVENTION OF MONEY LAUNDERING GUIDELINES:

Section II Article 3 (Amended Basic Circular to Banks and Financial Institutions No. 83 – Intermediate Decision No. 8488) places certain obligations on every banking company, financial institution and intermediary which include:

1. Maintain a record of prescribed transactions.
2. Furnishing information of prescribed transactions to the specified authority.
3. Verifying and maintain records of the identity of its clients.
4. Preserving records in respect of (i), (ii), (iii) above for a period of 5 years from the date of cessation of transactions with the clients. 

 KEY ELEMENTS OF THE POLICY:

A.           CUSTOMER ACCEPTANCE POLICY

The Bank will:

1. Classify customers into various risk categories and based on risk perception decide on acceptance criteria for each category of customers
2. Accept customers after verifying their identity as laid down in Customer Identification Procedures
3. Not open accounts in the name of anonymous / fictitious persons
4. Strive not to inconvenience the general public, especially those who are financially  or socially disadvantages

B.           CUSTOMER IDENTIFICATION PROCEDURES

The first requirement of customer identification procedure is to be satisfied that a prospective customer is who he/she claims to be.

The second requirement of customer identification procedures is to ensure that sufficient information is obtained on the nature of the business that the customer excepts to undertake and any expected or

predictable pattern of transactions. The information collected will be used for profiling the customer. 

Identify to be verified for:

o   The named account holder;

o   Beneficial owners;

o   Signatories to an account; and

o   Intermediate parties;  

The Customer Identification Procedures are to carried out at the following stages:

o   While establishing a banking relationship

o   When the bank feels it is necessary to obtain additional information from the existing customers based on the conduct or behavior of the account.

Wherever applicable, information on the nature of business activity, location, mode of payments, volume of turnover, social and financial status etc. will be collected for completing the profile of the customer. Customers will be classified into three risk categories namely High, Medium and Low, based on the risk perception. The risk categorization will be reviewed periodically Customer Identification will be carried out in respect of non-account holders approaching bank for high value one-off transaction as well as any person or entity connected with a financial transaction which can pose significant reputation or other risks to the Bank

A.   MONITORING OF TRANSACTIONS

Monitoring of transactions will be conducted taking into consideration the risk profile of the account

Special attention will be paid to all complex, unusually large transactions and all unusual patterns which have no apparent economic or viable lawful purpose. Transactions that involve large amounts of cash inconsistent with the normal and expected activity of the customer will be subjected to detailed scrutiny.

After due diligence at the appropriate level in the Bank, transactions of suspicious nature and/or any other type of transaction notified under PML Act, 2002, will be reported to the appropriate authority and a record of such transactions will be preserved and maintained for a period as prescribed in the Act.

HEAD OF COMPLIANCE (MONEY LAUNDERING REPORTING OFFICER)

The designate Head of Compliance Unit as Principal Officer is responsible for implementation of and compliance with this policy:

His illustrative duties will be as follows:

a.    Monitoring the implementation of the bank’s KYC / AML policy

b.    To ascertain that responsible officers are complying with the procedure guide on the implementation of legal and regulatory texts for fighting money laundering, and that the KYC forms are properly filled

c.    To review periodically the effectiveness of the procedures and regulations on fighting money laundering operations, and to propose amendments to the special committee, mentioned above in Paragraph 1 of Article 10 (Amended Basic Circular to Banks and Financial Institutions No. 83), for taking appropriate decisions with the approval of Management.

d.    To review the daily/weekly reports received from the concerned departments and branches about cash operations and fund transfers

e.     To monitor, on a consolidated basis, the client’s accounts and operations (in and off balance sheet) at the Head Office and all branches in Lebanon and abroad

f.     To investigate suspicious operations, and to prepare periodical (at least, monthly) reports on suspicious operations that appear to be risky and submit them to the “special committee”.

 The Anti-Money Laundering & Know Your Customer policy will be subject to review at yearly intervals and/or as and when considered necessary.  

1. RISKS

 

MONEY LAUNDERING – RISK PERCEPTION

Money laundering activities expose the Bank to various risks as operational risks, reputation risk, compliance risk and legal risk.

RISK MANAGEMENT

While the Bank has adopted a risk based approach to the implemented of this policy. It is necessary to establish appropriate framework covering proper management oversight, systems, controls and other related matters.

Bank‘s Internal Audit of compliance with KYC/AML Policy will provide an independent evaluation of the same including legal and regulatory requirements. Concurrent / Internal Auditors shall specifically check and verify the application of KYC/AML procedures at the branches and comment on the lapses observed in this regard. The compliance in this regard will be placed before the Audit Committee of the Board at quarterly intervals.

All employees training programs will have a module on KYC Standards – AML Measures so that members of the staff are adequately trained in KYC / AML procedures.

The designated Compliance Head by the Bank in this regard will have an important responsibility in managing oversight and coordinating with various functionaries in the implementation of KYC / AML policy.

KYC FOR THE EXISTING ACCOUNTS

While the KYC guidelines will apply to all new customers, the same would be applied to the existing customers on the basis of materiality and risk. However, transactions in existing accounts would be continuously monitored for any unusual pattern in the operation of the accounts. On the basis of materiality and risk the existing accounts of companies, firms, trusts, charities, religious organizations and other institutions are subjected to minimum KYC standards which would establish the identity of the natural / legal person and those of the “beneficial owners”. Similarly, the Bank will also ensure that term / recurring deposit accounts are subject to revised KYC procedures at the time of renewal of the deposits on the basis of materiality and risk.

CORRESPONDENT BANKING

This policy will apply to our dealings with local and foreign correspondent banks. For correspondent banking relationship an appropriate due diligence procedure is laid down keeping in view KYC standards existing in the county where the correspondent bank is located and the track record of the correspondent bank in the fight against money laundering and terrorist financing.

 

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