MAS Notice 626 Guidelines on Money Laundering and Terrorism Financing (2015) PDF

Monetary Authority of Singapore GUIDELINES TO MAS NOTICE 626 ON PREVENTION OF MONEY LAUNDERING AND COUNTERING THE FINANCING OF TERRORISM 24 APRIL 2015 TABLE OF CONTENTS 1 Introduction ...................................................................................................... 1 2 Not...

Monetary Authority of Singapore GUIDELINES TO MAS NOTICE 626 ON PREVENTION OF MONEY LAUNDERING AND COUNTERING THE FINANCING OF TERRORISM 24 APRIL 2015 TABLE OF CONTENTS 1 Introduction ...................................................................................................... 1 2 Notice Paragraph 2 – Definitions, Clarifications and Examples ....................... 5 4 Notice Paragraph 4 – Assessing Risks and Applying a Risk-Based Approach .......................................................................................................... 7 5 Notice Paragraph 5 – New Products, Practices and Technologies ................ 12 6 Notice Paragraph 6 – Customer Due Diligence ............................................. 13 7 Notice Paragraph 7 – Simplified Customer Due Diligence............................. 26 8 Notice Paragraph 8 – Enhanced Customer Due Diligence ............................ 28 9 Notice Paragraph 9 – Reliance on Third Parties ............................................ 34 10 Notice Paragraph 10 – Correspondent Banking and Similar Services ........... 36 11 Notice Paragraph 11 – Wire Transfers .......................................................... 38 14 Notice Paragraph 14 – Suspicious Transactions Reporting........................... 40 15 Notice Paragraph 15 – Internal Policies, Compliance, Audit and Training ..... 42 I Other Key Topics - Guidance to Banks on Proliferation Financing ................ 46 II Useful Links ................................................................................................... 49 APPENDIX A – Examples of CDD Information for Customers (Including Legal Persons/Arrangements) .................................................................. 50 APPENDIX B – Examples of Suspicious Transactions ............................................ 53 For ease of reference, the chapter numbers in these Guidelines mirror the corresponding paragraph numbers in the MAS Notice 626 on Prevention of Money Laundering and Countering the Financing of Terrorism - Banks (e.g. Chapter 2 of the Guidelines provides guidance in relation to paragraph 2 of the Notice). Not every paragraph in the Notice has a corresponding paragraph in these Guidelines and this explains why not all chapter numbers are utilised in these Guidelines. GUIDELINES TO MAS NOTICE 626 ON PREVENTION OF MONEY LAUNDERING AND COUNTERING THE FINANCING OF TERRORISM 1 Introduction 1-1 These Guidelines provide guidance to all banks on the requirements in MAS Notice 626 on Prevention of Money Laundering and Countering the Financing of Terrorism – Banks (“the Notice”). These Guidelines should be read in conjunction with the Notice. 1-2 The expressions used in these Guidelines have the same meanings as those found in the Notice, except where expressly defined in these Guidelines or where the context otherwise requires. For the purposes of these Guidelines, a reference to “CDD measures” shall mean the measures as required by paragraphs 6, 7 and 8 of the Notice. 1-3 The degree of observance with these Guidelines by a bank may have an impact on the Authority’s overall risk assessment of the bank, including the quality of its board and senior management oversight, governance, internal controls and risk management. 1-4 Key Concepts 1-4-1 1-4-2 Money Laundering Money laundering (“ML”) is a process intended to mask the benefits derived from criminal conduct so that they appear to have originated from a legitimate source. Singapore’s primary legislation to combat ML is the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act (Cap. 65A). A bank should refer to the Commercial Affairs Department’s (“CAD”) website for more information. Generally, the process of ML comprises three stages, namely ― (a) Placement – The physical or financial disposal of the benefits derived from criminal conduct. (b) Layering – The separation of these benefits from their original source by creating layers of financial transactions designed to disguise the ultimate source and transfer of these benefits. (c) Integration – The provision of apparent legitimacy to the benefits derived from criminal conduct. If the layering process succeeds, the integration schemes place the laundered funds back into the economy so that they reenter the financial system appearing to be legitimate funds. 1-4-3 Terrorism Financing Acts of terrorism seek to influence or compel governments into a particular course of action or to intimidate the public or a section of the public. Banks are reminded of the definitions of terrorism set out in the Terrorism (Suppression of 1 GUIDELINES TO MAS NOTICE 626 ON PREVENTION OF MONEY LAUNDERING AND COUNTERING THE FINANCING OF TERRORISM Financing) Act (Cap. 325) (“TSOFA”) and the United Nations (Anti-terrorism Measures) Regulations (Rg. 1). 1-4-4 Terrorists require funds to carry out acts of terrorism, and terrorism financing (“TF”) is the act of providing these funds. Such funds may be derived from criminal activities such as robbery, drug-trafficking, kidnapping, extortion, fraud or hacking of online accounts. In such cases, there may be an element of ML involved to disguise the source of funds. 1-4-5 However, terrorist acts and organisations may also be financed from legitimate sources such as donations from charities, legitimate business operations, selffunding by individuals etc. Coupled with the fact that TF need not always involve large sums of money, TF can be hard to detect and banks should remain vigilant. 1-4-6 Singapore’s primary legislation to combat TF is the TSOFA. Banks may refer to the Inter-Ministry Committee on Terrorist Designation’s (“IMC-TD”) website for more information. 1-4-7 The Three Lines of Defence Each bank is reminded that the ultimate responsibility and accountability for ensuring compliance with anti-money laundering and countering the financing of terrorism (“AML/CFT”) laws, regulations and notices rests with its board of directors and senior management. 1-4-8 A bank’s board of directors and senior management are responsible for ensuring strong governance and sound AML/CFT risk management and controls at the bank. While certain responsibilities can be delegated to senior AML/CFT employees, final accountability rests with the bank’s board of directors and senior management. A bank should ensure a strong compliance culture throughout its organisation, where the board of directors and senior management set the right tone. The board of directors and senior management should set a clear risk appetite and ensure a compliance culture where financial crime is not acceptable. 1-4-9 Business units (e.g. front office, customer-facing functions) constitute the first line of defence in charge of identifying, assessing and controlling the ML/TF risks of their business. The second line of defence includes the AML/CFT compliance function, as well as other support functions such as operations, human resource or technology, which work together with the AML/CFT compliance function to identify ML/TF risks when they process transactions or applications or deploy systems or technology. The third line of defence is the bank’s internal audit function. 1-4-10 As part of the first line of defence, business units require robust controls to detect illicit activities. They should be allocated sufficient resources to perform this function effectively. The bank’s policies, procedures and controls on AML/CFT should be clearly specified in writing, and communicated to all relevant employees and officers in the business units. The bank should adequately train employees and officers to be aware of their obligations, and provide instructions 2 GUIDELINES TO MAS NOTICE 626 ON PREVENTION OF MONEY LAUNDERING AND COUNTERING THE FINANCING OF TERRORISM as well as guidance on how to ensure the bank’s compliance with prevailing AML/CFT laws, regulations and notices. 1-4-11 As the core of the second line of defence, the AML/CFT compliance function is responsible for ongoing monitoring of the bank’s fulfilment of all AML/CFT duties by the bank. This implies sample testing and the review of exception reports. The AML/CFT compliance function should alert the bank’s senior management or the board of directors if it believes that the employees or officers in the line departments are failing or have failed to adequately address ML/TF risks and concerns. Other support functions such as operations, human resource or technology also play a role to help mitigate the ML/TF risks that the bank faces. The AML/CFT compliance function is typically the contact point regarding all AML/CFT issues for domestic and foreign authorities, including supervisory authorities, law enforcement authorities and financial intelligence units. 1-4-12 As the third line of defence, the bank’s internal audit function or an equivalent function plays an important role in independently evaluating the AML/CFT risk management framework and controls for purposes of reporting to the audit committee of the bank’s board of directors, or a similar oversight body. This independent evaluation is achieved through the internal audit or equivalent function’s periodic evaluations of the effectiveness of the bank’s compliance with prevailing AML/CFT policies, procedures and controls. A bank should establish policies for periodic AML/CFT internal audits covering areas such as ― (a) the adequacy of the bank’s AML/CFT policies, procedures and controls in identifying ML/TF risks, addressing the identified risks and complying with laws, regulations and notices; (b) the effectiveness of the bank’s employees and officers in implementing the bank’s policies, procedures and controls; (c) the effectiveness of the compliance oversight and quality control including parameters and criteria for transaction alerts; and (d) the effectiveness of the bank’s training of relevant employees and officers. 1-4-13 1-4-14 Governance Strong board and senior management leadership is indispensable in the oversight of the development and implementation of a sound AML/CFT risk management framework across the bank. The board of directors and senior management should ensure that the bank’s processes are robust and there are adequate risk mitigating measures in place. The successful implementation and effective operation of a risk-based approach to AML/CFT depends on the bank’s employees and officers having a good understanding of the ML/TF risks inherent in the bank’s business. A bank’s board of directors and senior management should understand the ML/TF risks the bank is exposed to and how the bank’s AML/CFT control 3 GUIDELINES TO MAS NOTICE 626 ON PREVENTION OF MONEY LAUNDERING AND COUNTERING THE FINANCING OF TERRORISM framework operates to mitigate those risks. This should involve the board and senior management ― (a) receiving sufficient, frequent and objective information to form an accurate picture of the ML/TF risks including emerging or new ML/TF risks, which the bank is exposed to through its activities and individual business relations; (b) receiving sufficient and objective information to assess whether the bank’s AML/CFT controls are adequate and effective; (c) receiving information on legal and regulatory developments and the impact these have on the bank’s AML/CFT framework; and (d) ensuring that processes are in place to escalate important decisions that directly impact the ability of the bank to address and control ML/TF risks, especially where AML/CFT controls are assessed to be inadequate or ineffective. 4 GUIDELINES TO MAS NOTICE 626 ON PREVENTION OF MONEY LAUNDERING AND COUNTERING THE FINANCING OF TERRORISM 2 2-1 2-2 2-3 Notice Paragraph 2 – Definitions, Clarifications and Examples Connected Party The term “partnership” as it appears in the definition of “connected parties” includes foreign partnerships. The term “manager” as it appears in limb (b) of the definition of “connected parties” takes reference from section 2(1) of the Limited Liability Partnership Act (Cap. 163A) and section 28 of the Limited Partnership Act (Cap. 163B). Examples of natural persons with executive authority in a company include the Chairman and Chief Executive Officer. An example of a natural person with executive authority in a partnership is the Managing Partner. Customer When performing Customer Due Diligence (“CDD”) measures in the scenarios below, the following approaches may be adopted: (a) Portfolio Managers A bank may encounter cases where, to its knowledge, the customer is a manager of a portfolio of assets and who is operating the account in that capacity. In such cases, the underlying investors of the portfolio shall be beneficial owners within the meaning of the Notice. However, the Authority recognises that a bank may not be able to perform CDD measures on the underlying investors. For instance, the portfolio manager may be reluctant, for commercial reasons, to reveal information on the underlying investors to the bank. In such circumstances, the bank should evaluate the risks arising from each case and determine the appropriate CDD measures to take. The bank may consider whether simplified CDD (“SCDD”) measures could be applied to underlying investors under paragraph 7 of the Notice. However, where the customer falls within paragraph 6.16 of the Notice, the bank is exempted from making inquiries about the existence of such underlying investors (i.e. beneficial owners). Therefore, the bank does not need to identify and verify such underlying investors. (b) Credit or Charge Card Customers Where a bank issues a credit card or a charge card as defined in section 56 of the Banking Act (Cap. 19), or a particular type of credit card or charge card defined in regulation 2 of the Banking (Credit Card and Charge Card) Regulations 2013 (such as a business card, business card with no personal liability, corporate card, guarantee card, corporate card with no personal liability, corporate purchasing card, guaranteed credit card or guaranteed charge card), the following are customers for the purposes of the Notice: (i) (ii) (iii) the principal credit card or charge card holder; any supplementary credit card or charge card holder; any employee to whom the business card is issued; 5 GUIDELINES TO MAS NOTICE 626 ON PREVENTION OF MONEY LAUNDERING AND COUNTERING THE FINANCING OF TERRORISM (iv) (v) (vi) the sole proprietor or partnership which bears liability for the business card issued; any employee or officer of a body corporate to whom the corporate card is issued, and the body corporate; and the guarantor of any guaranteed credit card or guaranteed charge card. A merchant for whom the bank opens or maintains an account (including a ledger account) for the purchase of goods by, or provision of services to, any person from the merchant, using any credit card or charge card, should be considered a customer for the purposes of the Notice. (c) Location of Relationship Management Given the globalised nature of modern banking, it may often be the case that a bank’s relationship and transactions with a particular customer is managed by a bank employee or officer based in one country or jurisdiction but the account itself is held with an office in another country or jurisdiction for bookkeeping purposes. The Authority will generally look at the substance of the relationship management as a whole. A bank should perform the applicable CDD measures if in substance, the relationship or account is managed by an employee or officer of the bank in Singapore even though the account is booked in another country or jurisdiction. However, the bank may rely on the CDD measures carried out by its related entity (or in the case of a branch network, another branch of the bank) in accordance with paragraph 9 of the Notice. 2-4 2-5 2-6 2-7 Financial Advice The bank need not perform the CDD measures where the bank solely prospects natural persons, legal persons or legal arrangements, without the provision of financial advice. Legal Arrangements In relation to the definition of “legal arrangement” in the Notice, examples of legal arrangements are trust, fiducie, treuhand and fideicomiso. Legal Persons In relation to the definition of “legal person” in the Notice, examples of legal persons are companies, bodies corporate, foundations, anstalt, partnerships, joint ventures or associations. Officer A reference to “officer” refers to a bank’s board of directors and senior management. 6 GUIDELINES TO MAS NOTICE 626 ON PREVENTION OF MONEY LAUNDERING AND COUNTERING THE FINANCING OF TERRORISM 4 4-1 4-2 4-3 Notice Paragraph 4 – Assessing Risks and Applying a Risk-Based Approach Countries or Jurisdictions of its Customers In relation to a customer who is a natural person, this refers to the nationality and place of domicile, business or work. For a customer who is a legal person or arrangement, this refers to both the country or jurisdiction of establishment, incorporation, or registration, and, if different, the country or jurisdiction of operations as well. Other Relevant Authorities in Singapore Examples include law enforcement authorities (e.g. Singapore Police Force, Commercial Affairs Department, Corrupt Practices Investigation Bureau) and other government authorities (e.g. Attorney General’s Chambers, Ministry of Home Affairs, Ministry of Finance, Ministry of Law). Risk Assessment In addition to assessing the ML/TF risks presented by an individual customer, a bank shall identify and assess ML/TF risks on an enterprise-wide level. This shall include a consolidated assessment of the bank’s ML/TF risks that exist across all its business units, product lines and delivery channels. The enterprise-wide ML/TF risk assessment relates to a bank in Singapore in the following ways: (a) A bank incorporated in Singapore shall take into account the ML/TF risks of its branches and subsidiaries, including those outside Singapore, as part of its consolidated assessment of its enterprise-wide ML/TF risks. (b) The Singapore branch of a bank incorporated outside Singapore may refer to an enterprise-wide ML/TF risk assessment performed by the head office, group or regional AML/CFT function, provided that the assessment adequately reflects the ML/TF risks faced in the context of its operations in Singapore. 4-4 The enterprise-wide ML/TF risk assessment is intended to enable the bank to better understand its overall vulnerability to ML/TF risks and forms the basis for the bank’s overall risk-based approach. 4-5 A bank’s senior management shall approve its enterprise-wide ML/TF risk assessment and relevant business units should give their full support and active co-operation to the enterprise-wide ML/TF risk assessment. 4-6 In conducting an enterprise-wide risk assessment, the broad ML/TF risk factors that the bank should consider include ― (a) in relation to its customers ― 7 GUIDELINES TO MAS NOTICE 626 ON PREVENTION OF MONEY LAUNDERING AND COUNTERING THE FINANCING OF TERRORISM (i) target customer markets and segments; (ii) profile and number of customers identified as higher risk; (iii) volumes and sizes of its customers’ transactions and funds transfers, considering the usual activities and the risk profiles of its customers; (b) in relation to the countries or jurisdictions its customers are from or in, or where the bank has operations in ― (i) countries or jurisdictions the bank is exposed to, either through its own activities (including where its branches and subsidiaries operate in) or the activities of its customers (including the bank’s network of correspondent banking relationships), especially countries or jurisdictions with relatively higher levels of corruption, organised crime or inadequate AML/CFT measures, as identified by the Financial Action Task Force (“FATF”); (ii) when assessing ML/TF risks of countries and jurisdictions, the following criteria may be considered: - evidence of adverse news or relevant public criticism of a country or jurisdiction, including FATF public documents on High Risk and Noncooperative jurisdictions; - independent and public assessment of the country’s or jurisdiction’s overall AML/CFT regime such as FATF or FATF-Styled Regional Bodies’ (“FSRBs”) Mutual Evaluation reports and the IMF/World Bank Financial Sector Assessment Programme Reports or Reports on the Observance of Standards and Codes for guidance on the country’s or jurisdiction’s AML/CFT measures; - the AML/CFT laws, regulations and standards of the country or jurisdiction; - implementation standards (including quality and effectiveness of supervision) of the AML/CFT regime; - whether the country or jurisdiction is a member of international groups that only admit countries or jurisdictions which meet certain AML/CFT benchmarks; - contextual factors, such as political stability, maturity and sophistication of the regulatory and supervisory regime, level of corruption, financial inclusion etc; (c) in relation to the products, services, transactions and delivery channels of the bank ― 8 GUIDELINES TO MAS NOTICE 626 ON PREVENTION OF MONEY LAUNDERING AND COUNTERING THE FINANCING OF TERRORISM (i) the nature, scale, diversity and complexity of the bank’s business activities; (ii) the nature of products and services offered by the bank; and (iii) the delivery channels, including the extent to which the bank deals directly with the customer, relies on third parties to perform CDD measures or uses technology. 4-7 The scale and scope of the enterprise-wide ML/TF risk assessment should be commensurate with the nature and complexity of the bank’s business. 4-8 As far as possible, a bank’s enterprise-wide ML/TF risk assessment should entail both qualitative and quantitative analyses to ensure that the bank accurately understands its exposure to ML/TF risks. A quantitative analysis of the bank’s exposure to ML/TF risks should involve evaluating data on the bank’s activities using the applicable broad risk factors set out in paragraph 4-6. 4-9 As required by paragraph 4.1(d) of the Notice, a bank shall take into account all its existing products, services, transactions and delivery channels offered as part of its enterprise-wide ML/TF risk assessment. 4-10 In assessing its overall ML/TF risks, a bank should make its own determination as to the risk weights to be given to the individual factor or combination of factors. 4-11 4-12 4-13 Singapore’s National ML/TF Risk Assessment (“NRA”) Report A bank should incorporate the results of Singapore’s NRA Report into its enterprise-wide ML/TF risk assessment process. When performing the enterprise-wide risk assessment, a bank should take into account any financial or non-financial sector that has been identified as presenting higher ML/TF risks. A bank should consider the NRA results and its enterprise-wide ML/TF risk assessment results when assessing the ML/TF risks presented by customers from specific sectors. The NRA also identifies certain prevailing crime types as presenting higher ML/TF risks. A bank should consider these results when assessing its enterprisewide ML/TF risks of products, services, transactions and delivery channels and whether it is more susceptible to the higher risk prevailing crime types. Where appropriate, a bank should also take these results into account as part of the bank’s ongoing monitoring of the conduct of customers’ accounts and the bank’s scrutiny of customers’ transactions. Risk Mitigation The nature and extent of AML/CFT risk management systems and controls implemented should be commensurate with the ML/TF risks identified via the enterprise-wide ML/TF risk assessment. A bank shall put in place adequate policies, procedures and controls to mitigate the ML/TF risks. 9 GUIDELINES TO MAS NOTICE 626 ON PREVENTION OF MONEY LAUNDERING AND COUNTERING THE FINANCING OF TERRORISM 4-14 A bank’s enterprise-wide ML/TF risk assessment serves to guide the allocation of AML/CFT resources within the bank. 4-15 A bank should assess the effectiveness of its risk mitigation procedures and controls by monitoring the following: (a) the ability to identify changes in a customer profile (e.g. Politically Exposed Persons status) and transactional behaviour observed in the course of its business; (b) the potential for abuse of new business initiatives, products, practices and services for ML/TF purposes; (c) the compliance arrangements (through its internal audit or quality assurance processes or external review); (d) the balance between the use of technology-based or automated solutions with that of manual or people-based processes, for AML/CFT risk management purposes; (e) the coordination between AML/CFT compliance and other functions of the bank; (f) the adequacy of training provided to employees and officers and awareness of the employees and officers on AML/CFT matters; (g) the process of management reporting and escalation of pertinent AML/CFT issues to the bank’s senior management; (h) the coordination between the bank and regulatory or law enforcement agencies; and (i) the performance of third parties relied upon by the bank to carry out CDD measures. 4-16 Documentation The documentation should include ― (a) the enterprise-wide ML/TF risk assessment by the bank; (b) details of the implementation of the AML/CFT risk management systems and controls as guided by the enterprise-wide ML/TF risk assessment; (c) the reports to senior management on the results of the enterprise-wide ML/TF risk assessment and the implementation of the AML/CFT risk management systems and controls; and 10 GUIDELINES TO MAS NOTICE 626 ON PREVENTION OF MONEY LAUNDERING AND COUNTERING THE FINANCING OF TERRORISM (d) details of the frequency of review of the enterprise-wide ML/TF risk assessment. 4-17 4-18 A bank should ensure that the enterprise-wide ML/TF risk assessment and the risk assessment information are made available to the Authority upon request. Frequency of Review To keep its enterprise-wide risk assessments up-to-date, a bank should review its risk assessment at least once every two years or when material trigger events occur, whichever is earlier. Such material trigger events include, but are not limited to, the acquisition of new customer segments or delivery channels, or the launch of new products and services by the bank. The results of these reviews should be documented and approved by senior management even if there are no significant changes to the bank’s enterprise-wide risk assessment. 11 GUIDELINES TO MAS NOTICE 626 ON PREVENTION OF MONEY LAUNDERING AND COUNTERING THE FINANCING OF TERRORISM 5 Notice Paragraph 5 – New Products, Practices and Technologies 5-1 International developments of new technologies to provide financial services are fast-changing and growing at an accelerated pace. A bank shall keep abreast of such new developments and the ML/TF risks associated with them. 5-2 A bank’s assessment of ML/TF risks in relation to new products, practices and technologies is separate from, and in addition to, the bank’s assessment of other risks such as credit risks, operational risks or market risks. For example, in the assessment of ML/TF risks, a bank should pay attention to new products, practices and technologies that deal with customer funds or the movement of such funds. These assessments should be approved by senior management and heads of business, risk and compliance. 5-3 An example of a “new delivery mechanism” as set out in paragraph 5 of the Notice is mobile banking. 12 GUIDELINES TO MAS NOTICE 626 ON PREVENTION OF MONEY LAUNDERING AND COUNTERING THE FINANCING OF TERRORISM 6 Notice Paragraph 6 – Customer Due Diligence Notice Paragraph 6.2 6-1 Where There Are Reasonable Grounds for Suspicion prior to the Establishment of Business Relations or Undertaking any Transaction without opening an Account 6-1-1 In arriving at its decision for each case, a bank should take into account the relevant facts, including information that may be made available by the authorities and conduct a proper risk assessment. Notice Paragraphs 6.3 to 6.4 6-2 When CDD is to be Performed and Linked Transactions 6-2-1 Paragraph 6.4 of the Notice is applicable to a bank when it undertakes transactions for customers who or which have not established business relations with the bank. 6-2-2 A bank should monitor whether the related or linked transactions exceed the thresholds set out in paragraph 6.3(b) or paragraph 6.3(c) of the Notice and should take these into consideration when formulating scenarios and parameters. 6-2-3 Two or more transactions may be related or linked if they involve the same sender or recipient. A bank should be aware that transactions may be entered into consecutively to deliberately restructure an otherwise single transaction, with the intention of circumventing applicable thresholds set out in the Notice in relation to the circumstances set out in paragraphs 6.3(b) or (c). Notice Paragraphs 6.5 to 6.18 6-3 CDD Measures under Paragraphs 6.5 to 6.18 6-3-1 When relying on documents, a bank should be aware that the best documents to use to verify the identity of the customer are those most difficult to obtain illicitly or to counterfeit. These may include government-issued identity cards or passports, reports from independent company registries, published or audited annual reports and other reliable sources of information. The rigour of the verification process should be commensurate with the customer’s risk profile. 6-3-2 A bank should exercise greater caution when dealing with an unfamiliar or a new customer. Apart from obtaining the identification information required by paragraph 6.6 of the Notice, a bank should (if not already obtained as part of its account opening process) also obtain additional information on the customer’s background such as occupation, employer’s name, nature of business, range of annual income, other related accounts with the same bank and whether the 13 GUIDELINES TO MAS NOTICE 626 ON PREVENTION OF MONEY LAUNDERING AND COUNTERING THE FINANCING OF TERRORISM customer holds or has held a prominent public function. Such additional identification information enables a bank to obtain better knowledge of its customer’s risk profile, as well as the purpose and intended nature of the account. Notice Paragraph 6.6 6-4 Identification of Customer 6-4-1 With respect to paragraph 6.6(c) of the Notice, a P.O. box address should only be used for jurisdictions where the residential address (e.g. street name or house number) is not applicable or available in the local context. 6-4-2 A bank should obtain a customer’s contact details such as personal, office or work telephone numbers. Notice Paragraph 6.8 6-5 Identification of Customer that is a Legal Person or Legal Arrangement 6-5-1 Under paragraph 6 and paragraph 8 of the Notice, a bank is required to identify and screen all the connected parties of a customer. However, a bank may verify their identities using a risk-based approach 1. A bank is reminded of its obligations under the Notice to identify connected parties and remain apprised of any changes to connected parties. 6-5-2 Identification of connected parties may be done using publicly available sources or databases such as company registries, annual reports or based on substantiated information provided by the customers. 6-5-3 In relation to legal arrangements, a bank shall perform CDD measures on the customer by identifying the settlors, trustees, the protector (if any), the beneficiaries (including every beneficiary that falls within a designated characteristic or class) and any natural person exercising ultimate ownership, ultimate control or ultimate effective control over the trust (including through a chain of control or ownership), as required by paragraph 6.14 of the Notice. 1 For the guidance on SCDD measures in relation to the identification and verification of the identities of connected parties of a customer, banks are to refer to paragraph 7-3 of these Guidelines. 14 GUIDELINES TO MAS NOTICE 626 ON PREVENTION OF MONEY LAUNDERING AND COUNTERING THE FINANCING OF TERRORISM Notice Paragraph 6.9 6-6 Verification of Identity of Customer 6-6-1 Where the customer is a natural person, a bank should obtain identification documents that contain a clear photograph of that customer. 6-6-2 In verifying the identity of a customer, a bank may obtain the following documents: (a) Natural Persons ― (i) name, unique identification number, date of birth and nationality based on a valid passport or a national identity card that bears a photograph of the customer; and (ii) residential address based on national identity card, recent utility or telephone bill, bank statement or correspondence from a government agency; (b) Legal Persons or Legal Arrangements ― (i) name, legal form, proof of existence and constitution based on certificate of incorporation, certificate of good standing, partnership agreement, trust deed, constitutional document, certificate of registration or any other documentation from a reliable independent source; and (ii) powers that regulate and bind the legal person or arrangement based on memorandum and articles of association, and board resolution authorising the opening of an account and appointment of authorised signatories. 6-6-3 Further guidance on verification of different types of customers (including legal persons or legal arrangements) is set out in Appendix A. 6-6-4 In exceptional circumstances where the bank is unable to retain a copy of the documentation used to verify the customer’s identity, the bank should record the following: (a) information that the original documentation had served to verify; (b) title and description of the original documentation produced to the bank’s employee or officer for verification, including any particular or unique features or condition of that documentation (e.g. whether it is worn out, or damaged); (c) reasons why a copy of that documentation could not be made; and 15 GUIDELINES TO MAS NOTICE 626 ON PREVENTION OF MONEY LAUNDERING AND COUNTERING THE FINANCING OF TERRORISM (d) name of the bank’s employee or officer who carried out the verification, a statement by that employee or officer certifying verification of the information against the documentation and the date of the verification. Reliability of Information and Documentation 6-6-5 Where a bank obtains data, documents or information from the customer or a third party, it should ensure that such data, documents or information is current at the time they are provided to the bank. 6-6-6 Where the customer is unable to produce an original document, a bank may consider accepting a copy of the document ― (a) that is certified to be a true copy by a suitably qualified person (e.g. a notary public, a lawyer or certified public or professional accountant); or (b) if a bank staff independent of the customer relationship has confirmed that he has sighted the original document. 6-6-7 Where a document is in a foreign language, appropriate steps should be taken by a bank to be reasonably satisfied that the document does in fact provide evidence of the customer’s identity. The bank should ensure that any document that is critical for performance of any measures required under the Notice is translated into English by a suitably qualified translator. Alternatively, the bank may rely on a translation of such document by a bank staff independent of the customer relationship who is conversant in that foreign language. This is to allow all employees and officers of the bank involved in the performance of any measures required under the Notice to understand the contents of the documents, for effective determination and evaluation of ML/TF risks associated with the customer. 6-6-8 The bank should ensure that documents obtained for performing any measures required under the Notice are clear and legible. This is important for the establishment of a customer’s identity, particularly in situations where business relations are established without face-to-face contact. Notice Paragraphs 6.10 to 6.12 6-7 Identification and Verification of Identity of Natural Person Appointed to Act on a Customer’s Behalf 6-7-1 Appropriate documentary evidence of a customer’s appointment of a natural person to act on its behalf includes a board resolution or similar authorisation documents. 6-7-2 Where there is a long list of natural persons appointed to act on behalf of the customer (e.g. a list comprising more than 10 authorised signatories), the bank 16 GUIDELINES TO MAS NOTICE 626 ON PREVENTION OF MONEY LAUNDERING AND COUNTERING THE FINANCING OF TERRORISM should verify at a minimum those natural persons to whom the customer has assigned the authority to operate the customer’s account with the bank or move the funds in and out of that account. Notice Paragraphs 6.13 to 6.17 6-8 Identification and Verification of Identity of Beneficial Owner 6-8-1 A bank should note that measures listed under paragraph 6.14(a)(i), (ii) and (iii) as well as paragraph 6.14(b)(i) and (ii) of the Notice are not alternative measures but are cascading measures with each to be used where the immediately preceding measure has been applied but has not resulted in the identification of a beneficial owner. 6-8-2 In relation to paragraph 6.14(a)(i) and (b)(i) of the Notice, when identifying the natural person who ultimately owns the legal person or legal arrangement, the shareholdings within the ownership structure of the legal person or legal arrangement should be considered. It may be based on a threshold (e.g. any person owning more than 25% of the legal person or legal arrangement, taking into account any aggregated ownership for companies with cross-shareholdings). 6-8-3 A natural person who does not meet the shareholding threshold referred to in paragraph 6-8-2 above but who controls the customer (e.g. through exercising significant influence), is a beneficial owner under the Notice. 6-8-4 A bank may also consider obtaining an undertaking or declaration from the customer on the identity of, and the information relating to, the beneficial owner. Notwithstanding the obtaining of such an undertaking or declaration, the bank remains responsible for complying with its obligations under the Notice to take reasonable measures to verify the identity of the beneficial owner by, for example, researching publicly available information on the beneficial owner or arranging a face-to-face meeting with the beneficial owner, to corroborate the undertaking or declaration provided by the customer. 6-8-5 Where the customer is not a natural person and has a complex ownership or control structure, a bank should obtain enough information to sufficiently understand if there are legitimate reasons for such ownership or control structure. 6-8-6 A bank should take particular care when dealing with companies with bearer shares, since the beneficial ownership is difficult to establish. For such companies, a bank should adopt procedures to establish the identities of the beneficial owners of such shares and ensure that the bank is notified whenever there is a change of beneficial owner of such shares. At a minimum, these procedures should require the bank to obtain an undertaking in writing from the beneficial owner of such bearer shares stating that the bank shall be immediately notified if the shares are transferred to another natural person, legal person or legal arrangement. Depending on its risk assessment of the customer, the bank may require that the bearer shares be held by a named custodian, with an 17 GUIDELINES TO MAS NOTICE 626 ON PREVENTION OF MONEY LAUNDERING AND COUNTERING THE FINANCING OF TERRORISM undertaking from the custodian that the bank will be notified of any changes to ownership of these shares or the named custodian. 6-8-7 For the purposes of paragraph 6.16 of the Notice, where the customer is a legal person publicly listed on a stock exchange and subject to regulatory disclosure requirements relating to adequate transparency in respect of its beneficial owners (imposed through stock exchange rules, law or other enforceable means), it is not necessary to identify and verify the identities of the beneficial owners of the customer. 6-8-8 In determining if the foreign stock exchange imposes regulatory disclosure and adequate transparency requirements, the bank should put in place an internal assessment process with clear criteria, taking into account, amongst others, the country risk and the level of the country’s compliance with the FATF standards. 6-8-9 Where the customer is a majority-owned subsidiary of a publicly listed legal person, it is not necessary to identify and verify the identities of beneficial owners of the customer. However, for such a customer, if there are other non-publicly listed legal persons who own more than 25% of the customer or who otherwise control the customer, the beneficial owners of such non-publicly listed legal persons should be identified and verified. 6-8-10 Deleted with effect from 30 November 2015. 6-8-11 Deleted with effect from 30 November 2015. 6-8-12 Where a customer is one which falls within paragraph 6.16 of the Notice, this does not in itself constitute an adequate analysis of low ML/TF risks for the purpose of performing SCDD measures under paragraph 7 of the Notice. Notice Paragraph 6.18 6-9 Information Relations on Purpose and Intended Nature of Business 6-9-1 The measures taken by a bank to understand the purpose and intended nature of business relations should be commensurate with the complexity of the customer’s business and risk profile. For higher risk customers, a bank should seek to understand upfront the expected account activity (e.g. types of transactions likely to pass through, expected amount for each transaction, names of counterparties) and consider, as part of ongoing monitoring, whether the activity corresponds with the stated purpose of the accounts. This will enable a more effective ongoing monitoring of the customer’s business relations and transactions. 18 GUIDELINES TO MAS NOTICE 626 ON PREVENTION OF MONEY LAUNDERING AND COUNTERING THE FINANCING OF TERRORISM Notice Paragraphs 6.19 to 6.26 6-10 Ongoing Monitoring 6-10-1 Ongoing monitoring of business relations is a fundamental feature of an effective AML/CFT risk management system. Ongoing monitoring should be conducted in relation to all business relations, but the bank may adjust the extent and depth of monitoring of a customer according to the customer’s ML/TF risk profile. The adequacy of monitoring systems and the factors leading the bank to adjust the level of monitoring should be reviewed regularly for effectiveness in mitigating the bank’s ML/TF risks. 6-10-2 A bank should make further enquiries when a customer performs frequent and cumulatively large transactions without any apparent or visible economic or lawful purpose. For example, frequent transfers of funds to the same recipient over a short period of time, multiple deposits of cash such that the amount of each deposit is not substantial, but the total of which is substantial. 6-10-3 Where there are indications that the risks associated with an existing business relations may have increased, the bank should request additional information and conduct a review of the customer’s risk profile in order to determine if additional measures are necessary. 6-10-4 A key part of ongoing monitoring includes maintaining relevant and up-to-date CDD data, documents and information so that the bank can identify changes to the customer’s risk profile ― (a) for higher risk categories of customers, a bank should obtain updated CDD information (including updated copies of the customer’s passport or identity documents if these have expired), as part of its periodic CDD review, or upon the occurrence of a trigger event as deemed necessary by the bank, whichever is earlier; and (b) for all other risk categories of customers, a bank should obtain updated CDD information upon the occurrence of a trigger event. 6-10-5 Examples of trigger events are when (i) a significant transaction takes place, (ii) a material change occurs in the way the customer’s account is operated, (iii) the bank’s policies, procedures or standards relating to the documentation of CDD information change substantially, and (iv) the bank becomes aware that it lacks sufficient information about the customer concerned. 6-10-6 The frequency of CDD review may vary depending on each customer’s risk profile. Higher risk customers should be subject to more frequent periodic review (e.g. on an annual basis) to ensure that CDD information such as nationality, passport details, certificate of incumbency, ownership and control information that the bank has previously obtained remain relevant and up-to-date. 19 GUIDELINES TO MAS NOTICE 626 ON PREVENTION OF MONEY LAUNDERING AND COUNTERING THE FINANCING OF TERRORISM 6-10-7 In determining what would constitute suspicious, complex, unusually large or unusual pattern of transactions, a bank should consider, amongst others, international typologies and information obtained from law enforcement and other authorities that may point to jurisdiction-specific considerations. As part of ongoing monitoring, a bank should pay attention to transaction characteristics, such as ― (a) the nature of a transaction (e.g. abnormal size or frequency for that customer or peer group); (b) whether a series of transactions is conducted with the intent to avoid reporting thresholds (e.g. by structuring an otherwise single transaction into a number of cash transactions); (c) the geographic destination or origin of a payment (e.g. to or from a higher risk country); and (d) the parties concerned (e.g. a request to make a payment to or from a person on a sanctions list). 6-10-8 A bank’s transaction monitoring processes or systems may vary in scope or sophistication (e.g. using manual spreadsheets to automated and complex systems). The degree of automation or sophistication of processes and systems depends on the size and complexity of the bank’s operations. 6-10-9 Nevertheless, the processes and systems used by the bank should provide its business units (e.g. front office and relationship managers) and compliance officers (including employees and officers who are tasked with conducting investigations) with timely information needed to identify, analyse and effectively monitor customer accounts for ML/TF. 6-10-10 The transaction monitoring processes and systems should enable the bank to monitor multiple accounts of a customer holistically within a business unit and across business units to identify any suspicious transactions. In the event that a business unit discovers suspicious transactions in a customer’s account, such information should be shared across their business units (e.g. Private Banking and Retail Banking business units) to facilitate a holistic assessment of the ML/TF risks presented by the customer. Therefore, banks should have processes in place to share such information across business units. In addition, banks should perform trend analyses of transactions to identify unusual or suspicious transactions. Banks should also monitor transactions with parties in high risk countries or jurisdictions. 6-10-11 In addition, banks should have processes in place to monitor related customer accounts holistically within and across business units, so as to better understand the risks associated with such customer groups, identify potential ML/TF risks and report suspicious transactions. 20 GUIDELINES TO MAS NOTICE 626 ON PREVENTION OF MONEY LAUNDERING AND COUNTERING THE FINANCING OF TERRORISM 6-10-12 The parameters and thresholds used by a bank to identify suspicious transactions should be properly documented and independently validated to ensure that they are appropriate to its operations and context. A bank should periodically review the appropriateness of the parameters and thresholds used in the monitoring process. Notice Paragraphs 6.27 to 6.29 6-11 CDD Measures for Non-Face-to-Face Business Relations 6-11-1 A reference to “specific risks” in paragraph 6.27 of the Notice includes risks arising from establishing business relations and undertaking transactions according to instructions conveyed by customers over the internet, post, fax or telephone. A bank should note that applications and transactions undertaken across the internet may pose greater risks than other non-face-to-face business due to the following factors: (a) the ease of unauthorised access to the facility, across time zones and location; (b) the ease of making multiple fictitious applications without incurring extra cost or the risk of detection; (c) the absence of physical documents; and (d) the speed of electronic transactions, that may, taken together, aggravate the ML/TF risks. 6-11-2 The measures taken by a bank for verification of an identity in respect of nonface-to-face business relations with or transactions for the customer will depend on the nature and characteristics of the product or service provided and the customer’s risk profile. 6-11-3 Where verification of identity is performed without face-to-face contact (e.g. electronically), a bank should apply additional checks to manage the risk of impersonation. The additional checks may consist of robust anti-fraud checks that the bank routinely undertakes as part of its existing procedures, which may include ― (a) telephone contact with the customer at a residential or business number that can be verified independently; (b) confirmation of the customer’s address correspondence or other appropriate method; through an exchange of 21 GUIDELINES TO MAS NOTICE 626 ON PREVENTION OF MONEY LAUNDERING AND COUNTERING THE FINANCING OF TERRORISM (c) subject to the customer’s consent, telephone confirmation of the customer’s employment status with his employer’s human resource department at a listed business number of the employer; (d) confirmation of the customer’s salary details by requiring the presentation of recent bank statements from another bank, where applicable; (e) provision of certified identification documents by lawyers or notaries public; or (f) requiring the customer to make an initial deposit into the account with the bank from funds held by the customer in an account with another bank in Singapore. Notice Paragraph 6.30 6-12 Reliance by Acquiring Bank on Measures Already Performed 6-12-1 When a bank acquires the business of another financial institution (“FI”), either in whole or in part, it is not necessary for the identity of all existing customers to be verified again, provided that the requirements of paragraph 6.30 of the Notice are met. A bank shall maintain proper records of its due diligence review performed on the acquired business. 6-12-2 Notwithstanding the reliance on identification and verification that has already been performed, an acquiring bank is responsible for its obligations under the Notice. 6-12-3 When a bank acquires the business of another FI, either in whole or in part, the bank is reminded that in addition to complying with paragraph 6.30 of the Notice, it is also required to comply with ongoing monitoring requirements set out in paragraphs 6.19 to 6.26 of the Notice. Notice Paragraphs 6.32 to 6.34 6-13 Timing for Verification 6-13-1 With reference to paragraph 6.33 of the Notice, an example of when the deferral of completion of the verification is essential in order not to interrupt the normal conduct of business operations is securities trades, where timely execution of trades is critical given changing market conditions. One way a bank could effectively manage the ML/TF risks arising from the deferral of completion of verification is to put in place appropriate limits on the financial services available to the customer (e.g. limits on the number, type and value of transactions that can be effected) and institute closer monitoring procedures, until the verification has been completed. 6-13-2 With reference to paragraph 6.34 of the Notice ― 22 GUIDELINES TO MAS NOTICE 626 ON PREVENTION OF MONEY LAUNDERING AND COUNTERING THE FINANCING OF TERRORISM (a) the completion of verification should not exceed 30 business days after the establishment of business relations; (b) the bank should suspend business relations with the customer and refrain from carrying out further transactions (except to return funds to their sources, to the extent that this is possible) if such verification remains uncompleted 30 business days after the establishment of business relations; (c) the bank should terminate business relations with the customer if such verification remains uncompleted 120 business days after the establishment of business relations; and (d) the bank should factor these time limitations in its policies, procedures and controls. Notice Paragraph 6.38 6-14 Existing Customers 6-14-1 In relation to customer accounts which pre-date the coming into force of the current Notice, the bank should prioritise the remediation of higher risk customers. 6-14-2 In taking into account any previous measures as referred to in paragraph 6.38 of the Notice, a bank should consider whether ― (a) there has been any significant transaction undertaken, since the measures were last performed, having regard to the manner in which the account is ordinarily operated; (b) there is a material change, since the measures were last performed, in the way that business relations with the customer are conducted; (c) it lacks adequate identification information on a customer; and (d) there is a change in the ownership or control of the customer, or the persons authorised to act on behalf of the customer in its business relations with the bank. 23 GUIDELINES TO MAS NOTICE 626 ON PREVENTION OF MONEY LAUNDERING AND COUNTERING THE FINANCING OF TERRORISM Notice Paragraphs 6.39 to 6.42 6-15 Screening 6-15-1 Screening is intended to be a preventive measure. A bank is reminded that all parties identified pursuant to the Notice are required to be screened, irrespective of the risk profile of the customer. 6-15-2 Where screening results in a positive hit against sanctions lists, a bank is reminded of its obligations to freeze without delay and without prior notice, the funds or other assets of designated persons and entities that it has control over, so as to comply with applicable laws and regulations in Singapore, including the TSOFA and MAS Regulations issued under section 27A of the Monetary Authority of Singapore Act (Cap. 186) (“MAS Act”) relating to sanctions and freezing of assets of persons. Any such assets should be reported promptly to the relevant authorities and a Suspicious Transaction Report (“STR”) should be filed. 6-15-3 A bank should put in place policies, procedures and controls that clearly set out ― (a) the ML/TF information sources used by the bank for screening (including commercial databases used to identify adverse information on individuals and entities, individuals and entities covered under MAS Regulations issued pursuant to section 27A of the MAS Act, individuals and entities identified by other sources such as the bank’s head office or parent supervisory authority, lists and information provided by the Authority and relevant authorities in Singapore); (b) the roles and responsibilities of the bank’s employees involved in the screening, reviewing and dismissing of alerts, maintaining and updating of the various screening databases and escalating hits; (c) the frequency of review of such policies, procedures and controls; (d) the frequency of periodic screening; (e) how apparent matches from screening are to be resolved by the bank’s employees, including the process for determining that an apparent match is a positive hit and for dismissing an apparent match as a false hit; and (f) the steps to be taken by the bank’s employees for reporting positive hits to the bank’s senior management and to the relevant authorities. 6-15-4 The level of automation used in the screening process should take into account the nature, size and risk profile of a bank’s business. A bank should be aware of any shortcomings in its automated screening systems. In particular, it is important to consider “fuzzy matching” to identify non-exact matches. The bank should ensure that the fuzzy matching process is calibrated to the risk profile of its 24 GUIDELINES TO MAS NOTICE 626 ON PREVENTION OF MONEY LAUNDERING AND COUNTERING THE FINANCING OF TERRORISM business. As application of the fuzzy matching process is likely to result in the generation of an increased number of apparent matches which have to be checked, the bank’s employees will need to have access to CDD information to enable them to exercise their judgment in identifying true hits. 6-15-5 A bank should be aware that performing screening after business relations have been established could lead to a breach of relevant laws and regulations in Singapore relating to sanctioned parties. When the bank becomes aware of such breaches, it should immediately take the necessary actions and inform the relevant authorities. 6-15-6 In screening periodically as required by paragraph 6.40(d) of the Notice, a bank should pay particular attention to changes in customer status (e.g. whether the customer has over time become subject to prohibitions and sanctions) or customer risks (e.g. a connected party of a customer, a beneficial owner of the customer or a natural person appointed to act on behalf of the customer subsequently becomes a Politically Exposed Person or presents higher ML/TF risks, or a customer subsequently becomes a Politically Exposed Person or presents higher ML/TF risks) and assess whether to subject the customer to the appropriate ML/TF risk mitigation measures (e.g. enhanced CDD measures). 6-15-7 A bank should ensure that the identification information of a customer, a connected party of the customer, a natural person appointed to act on behalf of the customer and a beneficial owner of the customer is entered into the bank’s customer database for periodic name screening purposes. This will help the bank to promptly identify any existing customers who have subsequently become higher risk parties. 6-15-8 In determining the frequency of periodic name screening, a bank should consider its customers’ risk profile. 6-15-9 The bank should ensure that it has adequate arrangements to perform screening of the bank’s customer database when there are changes to the lists of sanctioned individuals and entities, covered by the TSOFA, MAS Regulations issued under section 27A of the MAS Act 2 and MAS Notice MA-N-EXT 1/2012 (“Prohibition on Transactions with the Iranian Government and with Iranian Financial Institutions”). The bank should implement “four-eye checks” on alerts from sanctions reviews before closing an alert, or conduct quality assurance checks on the closure of such alerts on a sample basis. 6-15-10 With reference to paragraph 6.41 of the Notice, transaction screening should take place on a real-time basis [i.e. the screening or filtering of relevant payment instructions (e.g. MT103, MT 202) should be carried out before