Myanmar Microfinance Institution Must Implement AML/CFT Measures

The microfinance industry in Myanmar has been reminded of the importance of implementing Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) measures to prevent financial crimes. According to Directive No. 4/2022, microfinance institutions (MFIs) must establish an information management system, communicate regularly with senior management and law enforcement agencies, and identify high-risk factors.

Sources of Risk to Monitor

The directive identifies several sources of risk that MFIs must monitor, including:

Newly Joined Members: Newly joined members who may pose a higher risk due to lack of knowledge or intention.
Applicants for Membership through Current Members: Applicants who join through existing members may be at a higher risk due to their association with the member.
Politically Exposed Persons (PEPs): PEPs, including government officials and politicians, are considered high-risk individuals.
Members Who Have Attempted Abuse in the Past: Members who have attempted abuse in the past pose a higher risk of re-engaging in similar behavior.
Members Who Are Purchasing Products on a Lease: Members who purchase products on a lease may be at a higher risk due to their financial situation.
Members Who Join as Members through an Intermediary: Members who join through an intermediary may be at a higher risk due to the lack of transparency in the membership process.
Members Who Carry Out Electronic Money Transfers: Members who engage in electronic money transfers may pose a higher risk due to the ease of transfer.

Membership Acceptance Policy

MFIs must establish and apply a membership acceptance policy that does not accept certain individuals or members, including those:

Determined to be Criminals by a Reliable Source: Individuals or members determined to be criminals by a reliable source.
With a History of Criminal Activity from a Country with High Terrorist Activity: Members who have a history of criminal activity from a country with high terrorist activity are considered high-risk.
Perpetrators of Certain Offences Deemed to Pose a High Risk of Money Laundering and/or Terrorism Financing: Individuals or members who have committed certain offences deemed to pose a high risk of money laundering and/or terrorism financing.
From Countries Where Corruption or Similar Activities Are Common: Members from countries where corruption or similar activities are common may be at a higher risk.
Wanted by the Financial Intelligence Unit (FIU) or Law Enforcement Agencies: Individuals or members who are wanted by the FIU or law enforcement agencies pose a high risk.
From Countries Identified as Having a High Risk of Exposure to Money Laundering and Terrorism Financing: Members from countries identified as having a high risk of exposure to money laundering and terrorism financing may be at a higher risk.

Risk-Based Strategy

MFIs must classify members as high, medium, or low-risk based on personal information and financial behavior. They must also determine the risk for non-citizen members and customers using the Corruption Perception Index and FIU reports.

Managing Membership and Geographic Risks

MFIs must be aware of their members’ nature and purpose for commercial operations and identify any inconsistencies during the initial communication period. They must also verify the level of risk concerning businesses that mainly use cash and conduct Enhanced Due Diligence (EDD) on high-risk members.

Consequences for Non-Compliance

An MFI that fails to comply with the provisions of Directive No. 4/2022 will be prosecuted, including its members and those who communicated with it, according to the Microfinance Law, Anti-Money Laundering provisions Law, and the Anti-Terrorism Law.

The directive emphasizes the importance of implementing AML/CFT measures to prevent financial crimes and ensure the integrity of the microfinance industry in Myanmar. MFIs must ensure that their employees understand AML/CFT procedures through regular training and education campaigns.

For more information on this topic or any other legal issues in Myanmar, please contact our office at myanmar@dfdl.com.