Financial Crime World

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Asset Freeze and Financial Services Restrictions: A Guide for Banks, FSPs, and DNFBPs

In a bid to combat money laundering and terrorist financing, governments around the world have implemented targeted financial sanctions (TFS) measures. These measures aim to freeze assets and prohibit financial services to individuals or entities listed on the United Nations Consolidated List or domestic designations lists.

What are Assets and Benefits?

Assets refer to:

  • Cash, checks, claims on money, drafts, money orders, deposits with financial institutions
  • Publicly-traded securities, debt instruments, interest, dividends, credit, guarantees
  • Performance bonds, letters of credit, bills of lading, and other documents showing evidence of an interest in funds or financial resources

Other assets include tangible or intangible property that can be used to obtain funds, goods, or services.

Dealing with Assets

Dealing with funds means:

  • Moving, transferring, altering, using, accessing, or otherwise dealing with funds in any way that would result in a change to their volume, amount, location, ownership, possession, character, or destination
  • Using the assets to obtain funds, goods, or services by selling, hiring, or mortgaging them

Prohibitions on Financial Services

Banks, FSPs, and DNFBPs are prohibited from rendering financial or related services directly or indirectly to individuals or entities listed on the UN Consolidated List or domestic designations lists. This includes activities such as:

  • Portfolio management
  • Account opening
  • Transaction processing

Associated Individuals and Entities

The prohibitions also apply to associated individuals and entities that are owned or controlled by a designated person, even if they do not appear on the sanctions list. These individuals and entities may be acting on behalf of or at the direction of a designated person and are subject to the same TFS measures.

Ownership and Control

Ownership means having a legal entitlement to 25% or more of an entity, either directly or indirectly. Control refers to exercising influence, authority, or power over financial or operational matters, including through:

  • Trusts
  • Agreements
  • Arrangements
  • Understandings
  • Practices

Examples of Circumvention

Designated individuals or entities may attempt to circumvent TFS by:

  • Registering assets in the name of associates or family members
  • Using non-designated individuals’ or entities’ bank accounts to hold funds and facilitate transfers
  • These actions are considered a breach or circumvention of TFS and may result in criminal prosecution or monetary penalties.

Reporting Obligations

Banks, FSPs, and DNFBPs must report to the Financial Intelligence Unit (FIU) any assets frozen or actions taken in compliance with the prohibition requirements of the Regulations, including:

  • Attempted transactions
  • If a customer is a designated individual or entity
  • If an asset is frozen
  • If a financial or related service is prohibited

Conclusion

In conclusion, TFS measures aim to prevent individuals and entities listed on sanctions lists from accessing funds and financial services. Banks, FSPs, and DNFBPs must be vigilant in identifying and reporting suspicious transactions and activities to ensure compliance with these measures. Failure to comply may result in severe consequences, including criminal prosecution and monetary penalties.