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Preventing Money Laundering and Terrorism Financing: Obligations for Banks

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Banks play a critical role in preventing money laundering and terrorism financing. In this article, we outline the key obligations for banks to prevent and combat these crimes.

I. General Obligations

Identifying Clients and Understanding Their Business Activities

• Banks have a general obligation to prevent and combat money laundering and terrorism financing.
• They must be able to identify clients, understand their business activities, and detect suspicious transactions.
• The ability to identify a client includes determining the purpose of the transaction and verifying their identity.

II. Understanding Client Activity

Factors to Consider

• Identifying client activity involves understanding their financial dealings over time.
• Factors to consider include:
  • Frequency
  • Periodicity
  • Resource consumption
  • Source of income
  • Provision of service or product
  • Financial size of the business
• Each factor should be considered separately, but together they can indicate whether an activity is ordinary.

III. Determining Ordinary Activity

Characteristics of Ordinary Activity

• A bank must examine if an activity normal cannot be confused with another business and it is characteristic for the system, processes, promotion, and competitiveness in the market segment where it operates.
• Banks need to look at the resources allocated for the activity in relation to the volume of products and services provided.

IV. Complex Transactions

Identifying Complex Transactions

• Banks must understand the structure and purpose of complex transactions involving high risks and not guaranteeing a clear economic sense.
• Factors that might indicate complexity include:
  • Financial instruments
  • Lending with collateral
  • Investment management
  • Self-employment activities
  • Securities market participation
  • Purchase-sale of precious metals and stones

V. Minimizing Risks

Continuous Employee Training and Risk Management

• Banks can minimize risks by continuous employee training for complex transactions, using appropriate systems for tracking performance and risk management, and implementing management procedures and internal control.

VI. Final Provisions

Transaction Monitoring System

• Banks are required to have a transaction monitoring system that identifies suspicious, complex, and unusual transactions.
• An effective transaction monitoring system should also help banks manage resources efficiently by rationally managing processes when identifying client activity and transactions.