Financial Crime World

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Financial Institutions Must Know Who They’re Doing Business With

In an effort to combat money laundering and terrorist financing, financial institutions in Lesotho are now required to thoroughly vet their clients and business partners before establishing any relationship.

Identifying Clients and Beneficial Owners

According to the Money Laundering and Proceeds of Crime Regulations, 2019, financial institutions must:

  • Identify and verify the identity of all clients and beneficial owners
  • Establish the ownership or control structure of legal persons
  • Gather sufficient information about the client’s purpose and intended nature of the business relationship

Prohibitions and Enhanced Measures

Financial institutions are also prohibited from:

  • Entering into cross-border correspondent banking relationships with shell banks
  • Failing to gather sufficient information about the corresponding respondent institution’s business and reputation before establishing a relationship

In addition, sector supervisory authorities and the Unit may issue directives and instructions to financial institutions to apply enhanced measures to clients from higher-risk countries or where deemed necessary by the Financial Action Task Force (FATF).

Responsibility and Compliance

Financial institutions may rely on intermediaries or third parties to perform certain requirements, but they must bear ultimate responsibility for ensuring compliance. They are also required to:

  • Take adequate steps to ensure that identification data and other relevant documentation is available upon request

Key Takeaways

• Financial institutions must identify and verify the identity of all clients and beneficial owners. • They must establish the ownership or control structure of legal persons. • Financial institutions must gather sufficient information about the client’s purpose and intended nature of the business relationship. • They are prohibited from entering into cross-border correspondent banking relationships with shell banks. • Financial institutions may rely on intermediaries or third parties, but must bear ultimate responsibility for ensuring compliance.

By adhering to these regulations, financial institutions can help prevent the misuse of their systems for money laundering and terrorist financing, and contribute to a safer and more secure financial environment.