Financial Crime World

Compliance Risks for Financial Institutions in Azerbaijan: What You Need to Know

Azerbaijan has made significant strides in addressing anti-money laundering (AML) and counter-terrorism financing (CFT) concerns, but financial institutions operating in the country must still navigate a complex regulatory landscape. Here’s what you need to know about compliance risks and obligations.

Regulatory Landscape

The Financial Action Task Force (FATF), a global watchdog, has not listed Azerbaijan as having strategic AML deficiencies. However, the country’s regulators are still keen to ensure that financial institutions comply with international standards.

Azerbaijan has three main regulatory bodies responsible for ensuring compliance:

  • The Central Bank of the Republic of Azerbaijan
  • The Financial Markets Supervision Authority (FMSA)
  • The Financial Monitoring Services (FMS-AZ)

Compliance Obligations

Financial institutions operating in Azerbaijan must develop and implement a robust AML/CFT program, which includes measures such as:

  • Customer Due Diligence: conducting thorough checks on customers and beneficial owners
  • Ongoing Monitoring of Transactions: monitoring transactions to detect suspicious activities
  • Strong Internal Controls: implementing effective controls to prevent fraud and other financial crimes

Designated service providers must also have a senior management-approved policy for onboarding politically exposed persons from foreign countries.

Risk-Based Approach

Azerbaijan’s regulators have adopted a risk-based approach to customer due diligence, recognizing that each institution has unique circumstances. Financial institutions should tailor their AML/CFT programs accordingly, taking into account factors such as:

  • Market Conditions: economic conditions and market trends
  • Corporate Structure: company structure and ownership
  • Clients: type of clients and transactions
  • Transaction Types: types of transactions and payment methods

Reporting Suspicious Activities

Financial institutions are required to report suspicious activities to the Financial Monitoring Services (FMS-AZ). This includes:

  • Maintaining Records: keeping records of transactions for at least five years
  • Submitting Suspicious Transaction Reports: submitting reports within three business days
  • Identifying and Verifying Customers and Beneficial Owners: verifying customers and beneficial owners before carrying out occasional transactions above a certain threshold

Compliance Risks

Compliance risks can be significant in Azerbaijan, where financial institutions face penalties and reputational damage if they fail to meet regulatory requirements. It is essential that institutions prioritize AML/CFT compliance to avoid these risks and maintain their reputation in the market.

Conclusion

Understanding and complying with Azerbaijan’s AML/CFT regulations requires a thorough knowledge of the country’s unique regulatory landscape. Financial institutions operating in Azerbaijan must be proactive in managing compliance risk to avoid costly mistakes and ensure continued success.