1. Law Society of Zimbabwe Winter School - July 2015 OBLIGATIONS OF THE LEGAL PROFESSION UNDER THE MONEY LAUNDERING & PROCEEDS OF CRIME ACT Oliver Chiperesa Deputy Director - Financial Intelligence Unit 1

2. PRESENTATION OVERVIEW  Introduction  Defining “money laundering”  Defining “terrorism financing”  The FATF, ESAAMLG and Zimbabwe’s international AML/CFT obligations  AML/CFT legal framework  Relevant legislation  Designated institutions  Obligations of the legal profession under the Money Laundering and Proceeds of Crime Act  Legal practitioner / client privilege versus the requirement to report suspicious transactions 2

3. Defining Money Laundering & Terrorist Financing ML is variously defined as –  A transaction or process designed or intended to clean-up proceeds of crime  A transaction or process designed or intended to disguise the illicit nature and origin of proceeds of crime; 3

4. Defining Money Laundering & Terrorism Financing TF is defined as –  Providing or mobilising funds to support terrorists, terrorist organisations, or terrorist activities;  Knowingly, or by gross negligence, participating in or facilitating a transaction intended for TF purposes 4

5. Zimbabwe ‘s AML/CFT Legal Framework  Money Laundering and Proceeds of Crime Act [Ch. 9:24]  This is the main piece of AML/CFT legislation in the country – was passed in June 2013  Bank Use Promotion Act [Ch. 24:24]  Before the MLPC Act came into effect, this Act set out the AML/CFT obligations of designated institutions and provided for the establishment of the financial intelligence unit (officially known as the Bank Use Promotion and Suppression of Money Laundering Unit)  Suppression of Foreign &International Terrorism Act  Suppression of Foreign and International Terrorism (Application of UNSCR 1267 of 1999, UNSCR 1373 of 2001 and Successor UNSCRs ) regulations, 2014 (SI 76 of 2014) (relating to freezing of assets of designated persons) 5

6. The FATF, ESAAMLG and Zimbabwe’s AML/CFT obligations  The Financial Action Task Force (FATF) is an intergovernmental body with the mandate to set AML/CFT Standards and to oversee compliance by countries. The FATF issued the Forty Recommendations  Every country is required to implement the FATF Forty Recommendations and to ensure that “designated institutions” implement AML/CFT measures to guard the institutions against being used by criminals as conduits to clean-up proceeds of crime or to finance terrorism.  The FATF monitors compliance by countries through a global network of FATF-Style Regional Bodies (FSRBs). The Eastern and Southern Africa Anti Money Laundering Group (ESAAMLG) is one of the eight global FSRBs, which Zimbabwe is a member of. 6

7. The FATF, ESAAMLG and Zimbabwe’s AML/CFT obligations  Countries are periodically assessed to determine the level of their compliance with the FATF Forty Recommendations. The FATF Recommendations have elements for implementation by public sector institutions as well as by private sector institutions.  ESAAMLG is currently assessing member countries’ compliance with the FATF Standards. ESAAMLG assessors are in the country (13-24 July, 2015), meeting relevant public sector institutions and private sector to assess AML/CFT compliance levels.  The assessors will compile Mutual Evaluation Report which is expected to be adopted and made public in March 2016. The findings of the report could have far- reaching implications for the image of the country in terms of attracting international finance and investment. 7

8. Why implement AML/CFT Measures  Why should LPs in particular and designated institutions in general implement AML/CFT measures  To guard against abuse / misuse of the profession by criminals;  To protect the integrity of the profession;  To deter ML/TF  To detect suspected cases of ML/TF and assist law enforcement authorities 8

9. Designated Institutions  In line with the FATF Forty Recommendations, the Money Laundering and Proceeds of Crime Act (MLPC Act) designates types of institutions that are deemed to be vulnerable to be used as conduits for ML or TF purposes (Section 13).  The legal profession is among the designated professions on account of its deemed vulnerability to ML.  Designated institutions are required to implement prescribed measures to guard themselves against misuse / abuse for ML/TF purposes. 9

10. Designated Institutions  Designated institutions are broadly divided into two classes namely –  financial institutions; and  Designated Non Financial Businesses and Professions (DNFBPs)  Financial institutions encompass banking institutions, securities sector (stockbrokers, asset managers, custodians) and insurance companies, money transfer and currency exchange service providers. 10

11. Designated Institutions  Designated Non Financial Businesses and Professions (DNFBPs) consist of the following-  The legal profession;  The accounting profession;  Estate agents;  Precious stone / precious mineral dealers;  Casinos  Trust and company service-providers 11

12. Obligations of legal practitioners Key obligations  Understanding the ML/TF risk of your business  Customer identification and verification  Customer Due Diligence (CDD)  Reporting suspicious transactions Other requirements  Appointing a Money Laundering Reporting Officer  Putting in place a documented AML/CFT policy  Reporting large cash transactions  Screening of clients and transactions against the UN Sanctions lists (pursuant to UNSCR 1267 and Successor Resolutions and UNSCR 1373).  Record-keeping requirements 12

13. Obligations of legal practitioners Key obligations (1)Understanding the ML/TF risk of the business  This requirement is not adequately set out in law in the MLPC Act but is derived from Recommendation 1 of the FATF Recommendations (as revised in 2012): There are, however, a number of provisions in the MLPC Act that require designated institutions to pay attention to ML/TF risks in certain situations.  FATF Recommendation 1 requires every country to identify, assess and understand its ML/TF risks at national level;  Every country is also obliged to require its financial institutions and DNFBPs to similarly identify, assess and understand their ML/TF risks at institutional level and to implement AML/CFT measures on a risk-sensitive basis 13

14. Obligations of legal practitioners Key obligations (2)Customer identification and verification: S. 15  Every legal practitioner (as with all FIs and DNFBPs)is required to identify and verify the identity of his/her clients in the following circumstances as applies to all financial institutions and DNFBPs  When establishing a business relationship with a customer (s 15(1)(a) of the MLPC Act  When an occasional client (i.e. one who is not seeking to establish an ongoing business relationship with the LP) wishes to undertake a transaction valued at US$5000 or above (s 15(1)(b). 14

15. Obligations of legal practitioners Key obligations (2) Customer identification and verification: S. 15  Apart from the general circumstances for customer identification, Legal Practitioners are required to identify and verify the identity of their clients in the following special circumstances - ( i)Buying /selling immovable property; (ii)Management of money, securities or other assets; (iii)Management of bank, savings or securities accounts; (iv) The organization of contributions for the creation, operation or management of companies; (v)The creation, operation or management of legal persons or legal arrangements. 15

16. Obligations of legal practitioners (2) Customer identification and verification  Customer identification and verification is undertaken before commencement of a business (LP/client) relationship  Identity verification for a client who is a natural person consists of obtaining and retaining a copy of his/her official identification document (i.e. passport, national ID or driver’s licence) 16

17. Obligations of legal practitioners (2) Customer identification and verification / CDD  Identifying and verifying the identity of a customer who is a corporate entity requires the following –  For a company: Obtaining and retaining copies of all basic company documents such as certificate of incorporation, articles and memorandum of association, Form CR14, Form CR6 etc;  In the case of trusts: Identifying every trustee, settlor and beneficiary (in the case of express trust) and any person with authority to manage, vary or otherwise control the trust;  Identifying the person who is representing the legal person / legal arrangement and verifying his /her authority to so act;  Identifying the beneficial owner(s) of the company / trust / entity;  Getting sufficient information about the customer’s nature of business and source of funds (S. 17 of the Act) 17

18. Obligations of legal practitioners ( 3) Ongoing Customer Due Diligence  Every financial institution and every DNFBP is required to carry out customer due diligence (CDD).  Customer identification at the commencement of a business relationship is part of CDD – and is based on the well-known Know Your Customer principle.  For an ongoing business relationship (as opposed to an occasional once-off transaction), customer due diligence is an ongoing process intended to ensure that a designated institution / profession maintains a good understanding of its clients at all times, including the client’s nature of business and source of funds and to keep updated of any changed circumstances.  An adequate understanding of a client’s nature of business and expected source and level of funds enables the legal practitioner to identify an unusual or suspicious transaction (e.g. a transaction that is out of line with the customer’s known) 18

19. Obligations of legal practitioners ( 3) Customer Due Diligence and Risk  Properly undertaken customer due diligence allows the LP to assess and understand the ML/TF risk presented by each client;  Understanding a client’s nature of business and source and level of wealth, allows the LP to identify those clients who pose a higher ML/TF risk and those posing lower ML /TF risks;  Once a LP understands the level of ML/TF risk presented by a client and by certain types of transactions, the LP is expected to implement measures commensurate with the risk levels (the Risk Based Approach or RBA);  Enhanced measures are required for higher levels of risks while less rigorous or simplified measures and controls are required for lower risk situations. Thus a greater level of customer due diligence is required for high risk customers and simplified CDD may be undertaken for lower-risk clients. 19

20. Obligations of legal practitioners (3) Customer Due Diligence and Risk  Section 20 of the MLPC Act requires financial institutions and DNFBPs to have in place appropriate risk management systems to identify clients whose activities pose a high ML/TF risk and to undertake enhanced due diligence in respect of such clients.  While the LP must have systems to identify high risk clients, some types of clients are deemed, by law, to be high risk, thus requiring enhanced due diligence and ongoing monitoring, regardless of the LP’s own assessment of the risk presented by the client.  Politically Exposed Persons (PEPs)  The FATF Standards and Zimbabwean law requires financial institutions and DNFBPs to apply enhanced due diligence when they have a PEP as a client.  Clients from jurisdictions that are deemed to be insufficiently compliant with AML/CFT requirement are also deemed high risk.  Clients who are not physically present for identification when establishing a business relationship with a LP are also deemed high risk. 20

21. Obligations of legal practitioners (4) Obligation to report suspicious transactions  Section 30(1) requires every designated institution to report to the Financial Intelligence Unit (FIU) any property or transaction or attempted transaction where there are reasonable grounds to suspect that such property or transaction involves proceeds of crime.  A Suspicious Transaction Report is required to be submitted to the FIU promptly, but in any case, no later than 72 hours from the time when the suspicion arose. 21

22. Obligations of legal practitioners (4) Obligation to report suspicious transactions  Section 30(2) gives a special qualifying proviso requiring legal practitioners, to report suspicious transactions arising only out of the following types of transactions (as listed under section 15(1)(b1)– (i) Buying /selling immovable property; (ii) Management of money, securities or other assets; (iii) Management of bank, savings or securities accounts; (iv) The organization of contributions for the creation, operation or management of companies; (v)The creation, operation or management of legal persons or legal arrangements  Section 30(2)(b) goes on to specifically exempt a LP from reporting a suspicious transaction in circumstances where the information is protected by LP/client privilege. 22

23. Obligations of legal practitioners (4) Obligation to report suspicious transactions: Exemption in respect of information subject to LP/client privilege  Section 30(2)(b) requires a LP to report a suspicious transaction only where – “the relevant information upon which the suspicion is based was not received from or obtained on a client – (i)in the course of ascertaining the legal position of his or her client; or (ii) in performing his or her task of defending or representing that client in, or concerning judicial, administrative, arbitration or mediation proceedings, including advise on instituting or avoiding legal proceedings, whether such information is received before, during or after such proceedings. 23

24. Obligations of legal practitioners Other requirements  Appointing a Money Laundering Reporting Officer  Every designated institution is required to appoint a MLRO whose main responsibility is to ensure the business’s compliance with all AML/CFT statutory / regulatory requirements.  Small-sized designated institutions / businesses the MLRO does not need to be a stand-alone office dedicated to AML/CFT compliance, but can combine with other duties. 24

25. Obligations of legal practitioners Other requirements  Putting in place documented AML/CFT policies and procedures  This requirement can be relaxed / adapted for small-sized business entities;  Reporting large cash transactions  The FIU recently issued a directive requiring designated financial institutions and DNFBPs to submit periodic returns (weekly for banks and monthly returns for the rest) of all cash transactions of $5000 or above, regardless of whether or not there is suspicion of ML/TF. 25

26. Obligations of legal practitioners Other requirements  Screening of clients and transactions against the UN Sanctions lists (pursuant to UNSCR 1267 and Successor Resolutions and UNSCR 1373).  All financial institutions and DNFBPs are required to screen all their clients and all transactions, to identify any persons who may be listed on the sanctions lists maintained by the UN Security Council, pursuant to UNSCRs 1267 and 1373 (commonly referred to as the Al Qaida sanctions List and Taliban Sanctions List, respectively.  Record-keeping requirements  The MLPC Act requires that adequate records of transactions be maintained for a period of up to 5 years and be available to relevant authorities should the need arise. 26

27. THANK YOU QUESTIONS? DISCUSSION 27