AML/CFT Concepts in Mauritius PDF

**Summary of Key AML/CFT Concepts in Mauritius** **Offense of Tipping Off** - **Section 16(1) of the Financial Intelligence and Anti-Money Laundering Act (FIAMLA)** defines the offense of tipping off as informing a person involved in a suspicious transaction, or any unauthorized thir...

**Summary of Key AML/CFT Concepts in Mauritius** **Offense of Tipping Off** - **Section 16(1) of the Financial Intelligence and Anti-Money Laundering Act (FIAMLA)** defines the offense of tipping off as informing a person involved in a suspicious transaction, or any unauthorized third party, that the transaction has been reported or that information has been supplied to the Financial Intelligence Unit (FIU). - This prohibition is in place to prevent suspects from concealing funds, destroying evidence, or evading justice. - While specific penalties are not outlined in the FIAMLA, individuals who commit tipping off can face fines up to 2 million rupees and up to 10 years imprisonment. - **Reasonable inquiries**, conducted discreetly, about a transaction that has raised suspicion are **not** considered tipping off. - However, if an employee believes that conducting Customer Due Diligence (CDD) would tip off the client, they should **immediately file a Suspicious Transaction Report (STR) with the FIU and cease CDD efforts**. **Unusual vs. Suspicious Transactions** - **Unusual transactions** are activities that deviate from a customer\'s expected pattern but may not be suspicious. - Examples include: - Complex, large, or unusual transactions - Transactions with unclear purpose - Activities that raise doubts about the customer's identity or intentions - A sudden large deposit from a customer who normally makes small deposits - A dormant account suddenly becoming active - Funds sent to a high-risk country without explanation - When a reporting person identifies an unusual transaction, they are obligated to: - Conduct appropriate scrutiny - Obtain Enhanced Due Diligence (EDD) information, if it doesn\'t risk tipping off the customer - Consider making an internal disclosure to the MLRO - **Suspicious transactions** raise a reasonable suspicion of involvement in money laundering, terrorist financing, or related activities. - Key indicators include: - \"Reasonable Suspicion,\" a lower standard of proof than legal certainty - The specific predicate offense does not need to be known - **Reporting persons are mandated to report suspicious transactions to the FIU within 5 working days**. This involves internal disclosures to the MLRO and, if necessary, filing an STR with the FIU. **Compliance Officer vs. Money Laundering Reporting Officer** - **Compliance Officer (CO):** - Holds a senior management position responsible for ensuring overall compliance with AML/CFT laws and regulations. - Focuses on the strategic development, implementation, and maintenance of the AML/CFT framework. - Key responsibilities include: risk assessment and mitigation, policy development and implementation, training and awareness programs, compliance monitoring and testing, and reporting to senior management and the board. - **Money Laundering Reporting Officer (MLRO):** - Designated point of contact for receiving and assessing internal reports of suspicious transactions or activity. - Plays a reactive and investigative role in responding to potential ML/TF threats. - Key responsibilities include: receiving internal disclosures, assessing disclosures, determining suspicion, filing STRs with the FIU, and maintaining an STR register. - While distinct in their roles, the CO and MLRO collaborate to ensure the effectiveness of the institution\'s AML/CFT program. **Terrorist and Terrorist Financing Offenses in Mauritius** - Mauritius addresses terrorism and its financing through legislation like: - **Prevention of Terrorism Act 2002** - **Convention for the Suppression of the Financing of Terrorism Act 2003** - **United Nations (Financial Prohibitions, Arms Embargo, and Travel Ban) Sanctions Act 2019** - **Terrorist acts** are broadly defined as actions causing harm or disruption with the intent to intimidate a population, coerce governments or organizations, or destabilize structures. - Examples include: - Serious damage to a country or international organization - Hostage taking - Terrorist training - **Offenses related to terrorist groups** include: - Membership in or support for a **proscribed organization** - Harbouring terrorists - Recruiting or participating in terrorist groups - **Terrorist financing** is defined as knowingly providing or collecting funds to be used for: - Committing terrorist acts - Funding terrorist organizations or individuals - Financing travel for terrorist purposes - **Proof of actual use is not required**, as the intent itself is criminalized - Penalties include a minimum of 3 years imprisonment - The **UN Sanctions Act** empowers Mauritius to implement UN Security Council sanctions, including asset freezes against designated individuals and entities involved in terrorism. **Money Laundering Offenses in Mauritius** - **Section 36 of the Financial Crimes Commission Act 2023** outlines the primary money laundering offense, criminalizing: - Engaging in transactions with property suspected to be the proceeds of crime - Possessing, concealing, or disguising the origin of criminal proceeds - Transferring, converting, or disposing of criminal proceeds - Removing or importing criminal proceeds - Conviction requires either subjective suspicion or objective reasonable grounds to believe that property is linked to criminal activity. - Penalties include fines up to 20 million rupees and imprisonment up to 10 years. - **Section 36(2)** specifically targets financial institutions that fail to take reasonable measures to prevent money laundering. - **Section 38** clarifies: - A money laundering conviction is possible **without a prior conviction** for the predicate crime. - **Dual charges** for both the money laundering offense and the predicate crime are permitted. - **Section 5(1) of the Financial Intelligence and Anti-Money Laundering Act 2002 outlines the limitation of payment in cash, criminalizing:** - Any person who makes or accepts any payment in cash in excess of 500,000 rupees. **When to File an STR During Customer Due Diligence** - Scenarios that warrant filing an STR during CDD: - Suspicion of money laundering, terrorist financing, or proliferation financing - CDD process might tip off the customer - Inability to comply with CDD measures for legal persons or arrangements - Inability to comply with CDD measures in general - Inability to perform Enhanced Due Diligence (EDD) - Customer provides false or stolen identification **Listed and Designated Individuals: Differences and Reporting Obligations** - **Designated parties** are individuals or entities designated by the Mauritian Secretary for Home Affairs based on UN sanctions. - **Listed parties** are those whose names appear on relevant UN Sanctions Lists, likely managed by the UN Security Council. - **Financial institutions have specific reporting obligations related to designated and listed parties, including:** - Immediately verifying customer details against designated/listed parties - Identifying any funds or assets belonging to designated/listed parties - Submitting immediate reports to the National Sanctions Secretariat and the relevant supervisory authority - Non-compliance can result in fines up to 5 million rupees and imprisonment up to 10 years **Understanding Politically Exposed Persons (PEPs)** - **PEPs** are individuals entrusted with prominent public functions, both domestically and internationally. - **Domestic PEPs** include high-ranking officials in government, judicial, military, and state-owned corporations, as well as political party officials. - **Foreign PEPs** hold or have held prominent public functions outside Mauritius. - **International organization PEPs** are those with prominent functions in international organizations. - Due to their position and potential influence, PEPs present a higher risk for financial crime like money laundering. - Financial institutions must apply **Enhanced Due Diligence (EDD)** measures when dealing with PEPs, which includes: - Implementing risk management systems to identify PEPs - Obtaining senior management approval before establishing or continuing relationships with PEPs - Taking reasonable steps to establish the source of wealth and funds - Conducting enhanced, ongoing monitoring of the business relationship - EDD measures also apply to **family members and close associates** of PEPs. **Customer Due Diligence (CDD) Procedures** - **Customer Identification and Verification:** Reporting persons must identify and verify the identity of both permanent and occasional customers using reliable and independent sources. This includes using electronic identification means if available. - **Verification of Representatives:** Anyone claiming to act on behalf of a customer must have their authorization verified and their identity established. - **Beneficial Ownership Identification:** The reporting person must identify and take reasonable steps to verify the identity of the beneficial owner. This should be done using reliable information, ensuring the reporting person is confident about knowing who the beneficial owner is. - **Understanding the Business Relationship:** Reporting persons are required to obtain sufficient information to understand the purpose and intended nature of the business relationship or occasional transaction. - **Ongoing Monitoring:** Reporting persons have a responsibility to continuously monitor business relationships. This involves: - **Transaction Scrutiny:** Closely examining transactions to ensure they align with the reporting person's knowledge of the customer, their business, and their risk profile. This includes verifying the source of funds when necessary. - **Keeping Records Up-to-Date:** Ensuring that all documents, data, and information gathered during the CDD process remain current and relevant. This is particularly important for higher-risk customers and is achieved through periodic reviews of existing records. - CDD procedures vary depending on the type of customer: - **Natural persons:** Verification requires gathering specific identification data (e.g., legal name, address, occupation, TIN) and validating it using reliable documents like a valid passport, national ID, or driver\'s license. - **Legal persons:** The CDD process involves identifying and verifying both the legal entity itself and its beneficial owners. This includes verifying the legal status, legal name, registered address, and other relevant data. For high-risk legal persons or individuals associated with them, multiple verification methods may be necessary. - **Legal arrangements (e.g., trusts):** CDD focuses on identifying the arrangement and its key individuals or groups. This includes verifying the legal status, name, address, and relevant information about the arrangement\'s structure and beneficiaries. - **General CDD Principles:** - **Risk-based approach:** Tailor the depth and extent of CDD measures to the level of risk posed by the customer or transaction. - **Key aspects** include identification and verification, understanding the business relationship, ongoing monitoring, EDD for higher-risk relationships, record-keeping, and employee training. **Source of Funds vs. Source of Wealth** - **Source of Funds:** - Focuses on the origin of the specific funds used in a particular transaction. - Aims to determine where the money for the transaction is coming from (e.g., salary, asset sale, inheritance). - Relevant for all transactions, especially high-risk ones with concerns about fund legitimacy. - **Source of Wealth:** - Focuses on the overall origin of a customer\'s entire financial standing or net worth. - Aims to understand how the customer accumulated their wealth (e.g., business success, investments, inheritance). - Typically required for high-risk customers (e.g., PEPs, high-net-worth individuals). - **Key Differences:** - **Scope:** Source of funds is narrower, while source of wealth has a broader scope. - **Timing:** Source of funds is assessed at the time of transaction, while source of wealth may be assessed at the beginning and periodically reviewed. - **Purpose:** Source of funds aims to detect illicit funds in a specific transaction, while source of wealth helps understand overall financial legitimacy. **Different Types of Transaction Monitoring** - **Ongoing Monitoring:** - Continuous process of scrutinizing a business relationship to ensure transactions align with the customer\'s profile and risk assessment. - Aims to detect suspicious activity and maintain updated customer knowledge. - Involves transaction scrutiny, CDD updates, and screening against relevant lists. - Implementation should follow a risk-based approach. - **Real-Time Monitoring:** - Analyses transactions as they occur, allowing immediate detection and potential intervention. - Beneficial for early intervention and detecting offenses like bribery and corruption. - **Post-Transaction Monitoring:** - Reviews transactions after they have occurred to identify patterns or trends. - Beneficial for pattern recognition and uncovering suspicious activity that might not be apparent in real-time. - **Automated Monitoring:** - Uses software to scan transactions and flag potential suspicious activity based on pre-defined rules. - Offers efficiency and scalability, and leverages advanced analytics. - Requires understanding system functionality and regular review and calibration. - **Manual Monitoring:** - Involves human review and analysis of transactions, relying on employee experience and judgment. - Offers contextual understanding and may uncover subtle red flags. - Can be resource-intensive and subject to human error or bias. - **Effective transaction monitoring systems typically combine these approaches**. **Navigating Customer Due Diligence: Simplified, Standard, and Enhanced** - **Standard CDD:** - Baseline set of measures applied to most customer relationships and occasional transactions. - Objectives include establishing customer identity, identifying beneficial owners, understanding relationship purpose, and ongoing monitoring. - **Enhanced Due Diligence (EDD):** - More rigorous measures applied to higher-risk customers, relationships, or transactions. - Triggers include higher risk assessments, high-risk third countries, PEPs, correspondent banking, and unusual or suspicious activity. - Key measures include additional information gathering, senior management approval, enhanced monitoring, and source of wealth verification. - **Simplified Due Diligence:** - Reduced level of CDD applied in low-risk situations. - Conditions include a lower risk assessment and the absence of suspicion. - Examples include accounts with limited functionality, products with inherent safeguards, and low-risk customer relationships. - Financial institutions must justify its application and ensure ongoing monitoring. - **Key Considerations:** - Risk-based approach, proportionality, documentation, ongoing review, and employee training are crucial for choosing the appropriate CDD level. **Understanding Client and Business Risk Assessments** - **Business Risk Assessment:** - Institution-wide analysis to identify, assess, and understand ML/TF risks inherent in operations, products, services, customer base, location, and delivery channels. - Considers factors like business activities, customer base, geographical locations, delivery channels, and technological developments. - Outcomes inform the development of a risk-based approach, AML/CFT policies, resource allocation, training programs, and monitoring systems. - **Client Risk Assessment:** - Customer-specific evaluation of ML/TF risks conducted before establishing a relationship. - Considers factors like customer\'s business activities, reputation, behaviour, geographical connections, and products used. - Outcomes guide the application of CDD measures, determine the CDD level, and inform ongoing monitoring procedures. - Both assessments are interconnected and essential for effective AML/CFT compliance. **The AML/CFT risk for the Securities sector in Mauritius is assessed as Medium-High.** - The ML threat for the Securities sector is Medium-High. - The overall residual ML vulnerability of the Securities sector is Medium-High. The main activities that are considered vulnerable to ML are: - Collective Investment Schemes (CIS) - Closed-End Funds (CEF) - Investment Advisers (Unrestricted) These activities\' higher vulnerability is mainly due to: - Large international client base - Use of complex legal structures - High value of assets - Use of sophisticated products While the inherent ML vulnerability of some activities in the Securities sector is high, Mauritius has a comprehensive legal framework and AML controls in place, which mitigates the overall risk. These controls include: - Comprehensive AML/CFT legal framework - Licensing and registration requirements - Fit and proper tests for directors, shareholders, and senior management - Onsite and offsite supervisory oversight - Mandatory appointment of MLROs - Administrative sanctions - Code of Business Conduct - Regular AML training for staff The FSC (Financial Services Commission) plays a key role in supervising and regulating the Securities sector to ensure compliance with AML/CFT regulations.