World Bank International Standards and their Measures for Financial Institutions and Non-Financial Businesses and Professions to Prevent Money Laundering Mark Butler Financial Sector Specialist, Financial Market Integrity, The World Bank April 16, 2006

International Standards to Combat Money Laundering  Financial Action Task Force on Money Laundering (FATF)  United Nations Conventions  Basel Committee on Banking Supervision  Wolfsberg Group

Key Elements of an AML Strategy Legal Prevention Detection & Enforcement International cooperation

Prevention Preventative Measures –Comprehensive List of Involved Institutions –Obligations for Institutions KYC - client identification & record retention Monitor accounts for unusual activity Suspect Transaction Reporting (STR) Other types of reporting (CTR, WTR) –Comprehensive AML Procedures Training Compliance program

Preventative Measures Comprehensive List of Involved Institutions Financial Institutions -Banks -Securities Companies -Insurance Companies -Foreign Exchange Dealers -Credit Companies Designated Non-Financial Businesses and Professions -Lawyers -Accountants -Real Estate Dealers -Dealers in Precious Metals and Stones -Casinos -Trust and Company Service Providers

Designated Non-Financial Businesses and Professions Lawyers and accountants when, on behalf of or for a client, they engage in a financial transaction in relation to: a)Buying and selling of real estate; b)Managing of client money, securities, or other assets; c)Management of bank, savings, or securities accounts; and d)Creation, operation, or management of legal persons or arrangements, and buying and selling of business entities.

Designated Non-Financial Businesses and Professions Real Estate Agents When involved in transactions for their clients concerning the buying and selling of real estate Dealers in Precious Metals and Stones When engage in a cash transaction with a customer above USD/EUR 15,000 Casinos When customers engage in financial transactions above USD/EUR 3,000

Designated Non-Financial Businesses and Professions Trust and Company Service Providers –Forming legal persons or legal arrangements including trusts, partnerships and unincorporated associations; –Acting as, or arranging for another person to act as, a director or secretary of a company, a partner of a partnership or a similar position in relation to other legal persons or arrangements –Providing a registered office, business address or accommodation, correspondence or administrative address for a company, a partnership or any other legal person or arrangement –Acting as, or arranging for another person to act as, trustee of an express trust; –Acting as, or arranging for another person to act as, a nominee shareholder for another person

Designated Non-Financial Businesses and Professions Designated Non-Financial Businesses and Professions (DNFBPs) are subject to the same customer due diligence and record keeping requirements as financial institutions in the circumstances described There is also the requirement to report suspicious transactions Except for lawyers and accountants when relevant information was obtained in circumstances where they are subject to professional secrecy or legal professional privilege (i.e. client-attorney privilege)

Customer Due Diligence Obligations Verification of Customer’s Identity Using reliable and independent documents or information Verification of Beneficial Ownership Especially for legal entities, their principal owners, officers of the company and beneficiaries Purpose and nature of the business relationship Record Keeping Maintenance of identity and transaction records for a minimum of 5 years from termination of relationship or closing of account or completion of a transaction.

Reporting of suspicious transactions Including attempted transactions Except for lawyers and accountants when relevant information was obtained in circumstances where they are subject to professional secrecy or legal professional privilege Ongoing monitoring of transactions and accounts by paying special attention to complex and unusual transactions. Maintenance of account in true name of holder Requirements applicable to branches and majority owned subsidiaries in foreign countries Customer Due Diligence Obligations

Measures for ‘High Risk’ Customers Politically Exposed Persons (PEPs) Individuals who are or have been entrusted with prominent public functions in a foreign country, such as Heads of State or of government, senior politicians, senior government, judicial or military officials, senior executives of state owned corporations, important political party officials Appropriate risk management systems to determine whether a customer is a PEP Reasonable measures to establish source of wealth Senior management approval to establish relationship Monitor the business relationship on an ongoing basis

Measures for ‘High Risk’ Customers Correspondent Accounts Sufficient information about respondent institution to fully understand their business and determine their reputation and level of supervision they are subject to Assessment of respondent institutions AML/CFT controls Senior management approval to start relationship Document respective responsibilities Business relationships and transactions involving countries with little or no AML/CFT regulation

Intermediaries Used to conduct : Verification of Customer’s Identity Using reliable and independent documents or information Verification of Beneficial Ownership Especially for legal entities, their principal owners, officers of the company and beneficiaries Purpose and nature of the business relationship Copies of information must be available to the financial institution upon request and without delay Regulated and supervised for and has measures in place to comply with CDD requirements

Comprehensive AML Program All financial institutions and DNFBPs should develop : Internal policies, procedures and controls relating to compliance with AML/CFT requirements Screening procedures when hiring employees Ongoing employee training programme Audit function to test compliance

World Bank International Standards and their Measures for Financial Institutions and Non-Financial Businesses and Professions to Prevent Money Laundering Mark Butler Financial Sector Specialist, Financial Market Integrity, The World Bank April 16, 2006