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Combating Money Laundering and the Financing of Terrorism & Proliferation: Key Recommendations and Requirements

Financial institutions have a critical role to play in preventing money laundering and the financing of terrorism & proliferation. To achieve this, they must implement effective measures to identify, assess, and mitigate risks associated with these illicit activities.

Customer Due Diligence (CDD)

Effective CDD is essential for identifying potential customers who may be involved in money laundering or terrorist financing. Financial institutions should:

• Apply CDD measures to all new customers using a risk-based approach.
• Verify the identity of the customer and beneficial owner before or during the establishment of a business relationship or transactions for occasional customers.
• Allow financial institutions to complete verification as soon as reasonably practicable following the establishment of the relationship, where risks are effectively managed and normal conduct of business is not interrupted.

Record-Keeping

Accurate record-keeping is crucial for enabling compliance with information requests from competent authorities. Financial institutions should:

• Maintain records on transactions for at least five years.
• Records must be sufficient to reconstruct individual transactions, including amounts and types of currency involved.
• Keep all records obtained through CDD measures, account files, business correspondence, and results of analysis for at least five years after the business relationship is ended or after the date of the occasional transaction.

Politically Exposed Persons (PEPs)

Financial institutions must have robust systems in place to identify PEPs and assess their risk profile. They should:

• Have risk-management systems to determine whether a customer or beneficial owner is a PEP.
• Obtain senior management approval for establishing or continuing business relationships with PEPs.
• Take reasonable measures to establish the source of wealth and source of funds for PEPs.
• Conduct enhanced ongoing monitoring of business relationships with PEPs.

Correspondent Banking

Financial institutions must ensure that they have adequate controls in place when engaging in correspondent banking activities. They should:

• Gather sufficient information about respondent institutions to understand their nature, reputation, and quality of supervision.
• Assess respondent institution’s AML/CFT controls.
• Obtain approval from senior management before establishing or continuing correspondent banking relationships.

By implementing these recommendations and requirements, financial institutions can effectively prevent money laundering and the financing of terrorism & proliferation, and contribute to a safer global financial system.