Financial Crime World

Financial Institutions Must Implement Stricter AML Measures for High-Risk Jurisdictions

The Financial Action Task Force (FATF) has identified several jurisdictions with strategic Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF) deficiencies, prompting financial institutions to apply stricter measures to prevent money laundering and terrorist financing.

New Regulations

In response to these findings, financial institutions are required to implement equivalent AML/CTF measures as those laid down in the Law, unless assessed to be higher risk. This means that financial institutions must apply customer due diligence (CDD) measures in three cases:

Cases Requiring CDD Measures

  • When establishing a business relationship, including subscription or signing of distribution agreements.
  • When there is a suspicion of money laundering or terrorist financing, regardless of any derogation, exemption, or threshold.
  • When there are doubts about the veracity or adequacy of previously obtained customer identification data.

The CDD Process

The CDD process typically follows five steps:

Step 1: Identification and Verification

  • Identify, collect, and verify customer details.

Step 2: Risk Assessment

  • Assess the risk of the customer, including sanction list screening and documentation of the assessment.

Step 3: Monitoring

  • Monitor transactions, payments, and changes in static data.
  • Conduct risk-based transaction monitoring and payment monitoring.

Step 4: Escalation

  • Escalate suspicious activity to the Money Laundering Reporting Officer (MLRO) for case assessment.
  • Decide whether immediate steps need to be taken.

Step 5: Suspicious Transaction Reporting

  • Report suspicious transactions, where required.

The CDD process is cyclical, with financial institutions required to request additional information from or about customers if unexpected behavior is detected.

Simplified Due Diligence (SDD) Measures

For customers and beneficial owners deemed to be low-risk, financial institutions can apply simplified due diligence measures. SDD allows for a reduction of identification and verification requirements, but still requires ongoing monitoring of transactions.

Enhanced Due Diligence (EDD) Measures

In cases where higher risk is identified, such as situations that may present a higher risk of money laundering or terrorist financing, financial institutions must apply enhanced due diligence measures.

Implementation Requirements

Financial institutions are required to ensure that they have implemented the new AML/CTF measures to protect the international financial system from ongoing and substantial money laundering and terrorist financing risks. This includes:

  • Implementing CDD measures for high-risk customers.
  • Applying SDD measures for low-risk customers.
  • Conducting EDD measures in cases of higher risk.
  • Ensuring ongoing monitoring and reporting of suspicious transactions.