Anti-Money Laundering and Countering the Financing of ...

[Pages:205]Anti-Money Laundering and Countering the Financing of Terrorism Handbook

July 2021

Whilst this publication has been prepared by the Financial Services Authority, it is not a legal document and should not be relied upon in respect of points of law. Reference for that purpose should be made to the appropriate statutory provisions.

Version 01 (First issued July 2021)

Contents

1. Introductory .......................................................................................................................7 1.1 Purpose and scope.....................................................................................................7 1.2 Legislative framework................................................................................................9 1.3 Data protection........................................................................................................10 1.4 Status of the Handbook ...........................................................................................10 1.5 What is money laundering, financing of terrorism and the financing of proliferation? .......................................................................................................................12

2. General requirements and risk based approach .............................................................13 2.1 General requirements..............................................................................................14 2.1.1 Inclusion of countering the financing of proliferation within AML/CFT requirements ...................................................................................................................14 2.1.2 Procedures and controls ....................................................................................14 2.2 Risk Management ....................................................................................................17 2.2.1 Definitions..........................................................................................................17 2.2.2 Risk based approach ..........................................................................................18 2.2.3 Risk assessments................................................................................................19 2.2.4 Risk assessment methodology...........................................................................20 2.2.5 Managing and mitigating ML/FT risks................................................................26 2.2.6 Risk assessment reviews ....................................................................................26 2.2.7 Recording risk assessments ...............................................................................28 2.2.8 Business risk assessment ("BRA") ......................................................................29 2.2.9 Customer risk assessment ("CRA") ....................................................................35 2.2.10 The broader CRA ? the Introducer risk assessment ..........................................49 Determining what should be in the broadened risk assessment ........................................55 2.2.11 Technology risk assessment ("TRA") .................................................................56

3. Customer due diligence, ongoing monitoring and enhanced measures.........................63 3.1 Purpose of customer due diligence ("CDD") and enhanced measures...................65 3.2 Definitions................................................................................................................66 3.3 Key principles of CDD...............................................................................................68 3.3.1 Ultimate responsibility for compliance with CDD requirements ......................68 3.3.2 Anonymity is unacceptable................................................................................69 3.3.3 Risk based approach ..........................................................................................69

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3.3.4 Reliability and independence of source documents, data or information........70 3.3.5 Financial inclusion when usual documentation cannot be provided ................77 3.3.6 Change of CDD information ...............................................................................78 3.3.7 Bearer shares .....................................................................................................78 3.3.8 Sanctions ............................................................................................................79 3.3.9 Reporting suspicions ..........................................................................................79 3.4 Code CDD requirements ..........................................................................................79 3.4.1 Minimum standards table..................................................................................79 3.4.2 New business relationships and occasional transactions..................................81 3.4.3 Introduced business...........................................................................................82 3.4.4 Continuing business relationships .....................................................................92 3.4.5 Beneficial ownership and control ......................................................................93 3.4.6 Ongoing monitoring procedures and controls ................................................102 3.4.7 Enhanced customer due diligence ("ECDD") ...................................................114 3.4.8 Timing of ID&V .................................................................................................118 3.4.9 Timing in relation to continuing business relationships ..................................119 3.4.10 Unable to meeting CDD/ECDD requirements..................................................120 3.5 Identifying the customer, beneficial owner and other related parties .................121 3.5.1 Natural persons................................................................................................121 3.5.2 Legal arrangements .........................................................................................122 3.5.3 Foundations .....................................................................................................122 3.5.4 Legal persons ...................................................................................................123 3.6 Verifying identity....................................................................................................124 3.6.1 Specific aspects of identity prescribed in the Code requiring verification ......125 3.6.2 ID&V where there are multiple signatories/directors.....................................126 3.6.3 Methods to verify identity and address...........................................................126 3.7 Nature and intended purpose of business relationship/occasional transaction ..127 3.8 Source of funds and source of wealth ...................................................................128 3.8.1 Source of funds ................................................................................................129 3.8.2 Taking reasonable measures to establish source of funds..............................129 3.8.3 Requirements where funds are received from a third party's account ..........131 3.8.4 Ongoing monitoring and source of funds........................................................131 3.8.5 Source of wealth ..............................................................................................132

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3.8.6 Taking reasonable measures to establish source of wealth............................133 3.8.7 Researching and verifying source of funds and/or wealth..............................134 3.8.8 Politically Exposed Persons ("PEPs") risk .........................................................135 3.8.9 PEP definitions .................................................................................................136 3.8.10 PEP requirements ............................................................................................138 3.8.11 Assessing PEP risk ............................................................................................140 3.8.12 "Once a PEP, always a PEP"? ...........................................................................142 4. Exemptions and simplified measures ............................................................................145 4.1 Exempted occasional transactions ........................................................................147 4.2 Acceptable applicants ............................................................................................149 4.2.1 The concession.................................................................................................149 4.2.2 Conditions for using the concession ................................................................150 4.3 Persons in a regulated sector acting on behalf of a third party ............................151 4.3.1 Definitions........................................................................................................152 4.3.2 The concession.................................................................................................152 4.3.3 Which regulated persons can use the AOBO concession? ..............................153 4.3.4 Conditions on using the AOBO concession......................................................153 4.3.5 Ensuring appropriate and effective AOBO procedures ...................................160 4.4 Generic designated business .................................................................................163 4.4.1 The Concession ................................................................................................163 4.4.2 What is generic designated business?.............................................................164 4.4.3 Conditions for using the concession ................................................................164 4.5 Eligible introducers ................................................................................................165 4.5.1 Conditions on using the eligible introducer concession ..................................167 4.5.2 Ensuring appropriate and effective eligible introducer procedures ...............174 4.5.3 Unable to meet eligible introducer requirements...........................................177 4.6 Insurance concessions ...........................................................................................177 4.7 Miscellaneous concessions ....................................................................................177 4.7.1 The concessions ...............................................................................................177 4.7.2 Conditions on using the miscellaneous concessions .......................................178 4.8 Transfer of a block of business ..............................................................................179 4.8.1 The concession.................................................................................................179 4.8.2 Conditions for using the concession ................................................................180

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5. Reporting and registers..................................................................................................183 5.1 Introduction ...........................................................................................................183 5.1.1 Relevant legislation..........................................................................................184 5.2 Money Laundering Reporting Officers and Deputy Money Laundering Reporting Officers ............................................................................................................................... 184 5.3 Reporting procedures and requirements ..............................................................185 5.3.1 Suspicious activity ............................................................................................187 5.4 Disclosures .............................................................................................................187 5.5 Registers of disclosures..........................................................................................189 5.6 Register of money laundering and financing of terrorism enquiries ....................189 5.7 Suspicious activity reporting of declined business ................................................190 5.8 Data protection law ...............................................................................................190 5.9 Handling of suspicion in outsourced back office functions ...................................191

6. Compliance and record keeping ....................................................................................193 6.1 Monitoring and testing compliance.......................................................................193 6.2 New staff appointments ........................................................................................195 6.3 Staff training...........................................................................................................195 6.4 Record keeping, retention, format and retrieval...................................................197 6.4.1 Records concerning risk assessments, due diligence and monitoring, branches and subsidiaries and correspondent services................................................................197 6.4.2 Transaction records .........................................................................................198 6.4.3 Record retention..............................................................................................199 6.4.4 Electronically stored records ...........................................................................199

7. Miscellaneous ................................................................................................................201 7.1 Branches, subsidiaries and agents .........................................................................201 7.2 Shell banks .............................................................................................................202 7.3 Correspondent services .........................................................................................203 7.4 Fictitious, anonymous and numbered accounts....................................................204

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Chapter 1 - Introductory

1. Introductory

1. Introductory ................................................................................................................... 7 1.1 Purpose and scope ................................................................................................. 7 1.2 Legislative framework ............................................................................................ 9 1.3 Data protection .................................................................................................... 10 1.4 Status of the Handbook ....................................................................................... 10 1.5 What is money laundering, financing of terrorism and the financing of proliferation? ................................................................................................................... 12

1.1 Purpose and scope

The purpose of the Anti-Money Laundering and Countering the Financing of Terrorism ("AML/CFT") Handbook "the Handbook" is to assist relevant persons supervised or overseen for AML/CFT purposes by the Isle of Man Financial Services Authority ("the Authority") to understand and satisfy their obligations under the Anti-Money Laundering and Countering the Financing of Terrorism Code 2019 ("the Code"). The Code can be found at the Isle of Man Government's legislation website.

Other competent authorities1 have also produced guidance on particular AML/CFT requirements where those matters fall within their responsibilities. This Handbook is complementary to and does not supersede the guidance issued by other competent authorities.

The competent authority in relation to the disclosure of ML/FT suspicions is the Isle of Man Financial Intelligence Unit ("the IOMFIU"). The IOMFIU's document Guidance for making Suspicious Activity Reports (and Other Disclosures) to the Financial Intelligence Unit ("IOMFIU Guidance") is the primary guidance on that subject.

The competent authority in relation to the administration of United Nations and UK financial and trade sanctions and export licensing controls in the Isle of Man is the Isle of Man Customs and Excise Division ("IOMCE"). The IOMCE's website provides information and the Island's primary guidance on:

financial sanctions;

1 Defined in paragraph 3(1) of the Code as all Isle of Man administrative or law enforcement authorities concerned with AML/CFT, including in particular the Isle of Man Financial Services Authority, the Isle of Man Gambling Supervision Commission, the Department of Home Affairs, the Economic Crime Unit of the Isle of Man Constabulary, the Financial Intelligence Unit, the Office of Fair Trading, the Attorney General and the Customs and Excise and Income Tax Divisions of the Treasury.

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 current sanctions regimes; terrorism and terrorist financing; proliferation and proliferation financing; export control and trade control; and trade based money laundering.

This Handbook takes a multilevel approach:

1) Guidance sets out the Authority's expectations for meeting the requirements of the Code. The guidance should be read in conjunction with, and not in isolation from, the Code, other AML/CFT legislation and guidance issued by other competent authorities.

2) Sector specific guidance documents are provided to emphasise particular ML/FT risks of certain products and services offered by relevant persons in particular sectors, and to refine guidance on CDD measures according to those risks. These documents should be read in conjunction with the main guidance.

3) The Supplemental Information Document that provides suggestions on specific AML/CFT requirements is provided for relevant persons requiring further assistance. This document is not considered by the Authority to be guidance as per paragraph 42(2) of the Code. Where relevant persons make use of the suggestions, they should only do so in conjunction with, and not in isolation from the Code, other AML/CFT legislation, the main guidance and sector specific guidance.

This Handbook is not exhaustive, nor does it set limitations on the steps relevant persons must take to meet their AML/CFT obligations. It is not a proforma procedures manual nor a checklist of things that all relevant persons must do, or not do, in order to meet their AML/CFT obligations, and it must not be treated as such. Where lists or examples are provided, these are not exhaustive. The examples present some, but not the only ways relevant persons may meet their obligations. A reasonable, proportionate and intelligent risk based approach is required. Each relevant person must consider its own particular circumstances. This includes additional measures that it may be necessary to implement in order to prevent its exploitation, and that of its products and services, by persons seeking to launder criminal property or to finance terrorism or the proliferation of weapons of mass destruction. It is a matter for each relevant person, based on their own particular circumstances, to ensure they comply with the AML/CFT legislation. Relevant persons must therefore make their own assessments of how they will meet their AML/CFT obligations.

For ease of reference, the Handbook contains extracts from relevant legislation which are boxed for clarity. However, these extracts must not be considered as a substitute for the original documents. References to relevant legislative provisions are also provided in the margin against related guidance. All Isle of Man primary

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