Financial Crime World

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Global Banks Face New Rules to Combat Money Laundering

In a bid to curb money laundering and terrorist financing, global financial institutions are now required to implement stricter measures to identify and verify customers’ identities. The Financial Action Task Force (FATF), an international organization that sets standards for combating money laundering and terrorist financing, has issued new recommendations aimed at preventing the misuse of financial systems.

Stricter Measures to Identify and Verify Customers

The new rules, which come into effect immediately, require financial institutions to take a risk-based approach to customer due diligence (CDD). This means that banks must:

  • Identify and verify the identity of customers using reliable sources, including government-issued identification documents.
  • Understand the purpose and nature of business relationships.
  • Conduct ongoing monitoring of transactions.

Maintaining Detailed Records

In addition, financial institutions are required to maintain detailed records of all transactions, both domestic and international, for at least five years. These records must be sufficient to enable authorities to reconstruct individual transactions in case of a criminal investigation.

Specific Requirements for Certain Customers and Activities

The new rules also apply to specific customers and activities, including:

  • Politically Exposed Persons (PEPs): Financial institutions must conduct enhanced due diligence on PEPs, including:
    • Obtaining senior management approval for establishing business relationships.
    • Conducting ongoing monitoring.
  • Correspondent Banking: Financial institutions must:
    • Gather sufficient information about respondent institutions.
    • Assess their anti-money laundering/combating the financing of terrorism (AML/CFT) controls.
    • Obtain approval from senior management before establishing new correspondent relationships.
  • Money or Value Transfer Services: Countries are required to:
    • License or register natural or legal persons that provide money or value transfer services.
    • Ensure that they are subject to effective systems for monitoring and ensuring compliance with AML/CFT measures.

Preventing the Misuse of Financial Systems

The new rules aim to prevent the misuse of financial systems by terrorists and other criminals. By implementing these measures, financial institutions can help protect the global economy from the threat of money laundering and terrorist financing.

Key Takeaways

  • Financial institutions must take a risk-based approach to customer due diligence.
  • Banks must identify and verify customers’ identities using reliable sources.
  • Institutions must maintain detailed records of all transactions for at least five years.
  • Specific measures apply to PEPs, correspondent banking, and money or value transfer services.