JFSC draft rules for Enhanced measures that might be applied in order to address the risk that is presented by specified customers

The following shows Extracts from the NEW Section 7 of the JFSC draft AML/CFT Handbook – It should be noted that there will be an opportunity to make submissions on these proposed measures in Consultation Paper AML 2, 2014 on Revisions to Commission AML/CFT Handbooks

NON-RESIDENT CUSTOMER – OVERVIEW

Customers who are not resident in a country or territory but who nevertheless seek to form a business relationship or conduct a one-off transaction with a relevant person in that country or territory will typically have legitimate reasons for doing so. Some customers will, however, pose a risk of money laundering or financing of terrorism and may be attempting to move illicit funds away from their country or territory of residence or attempting to further conceal funds sourced from that country or territory.

NON-RESIDENT CUSTOMER – GUIDANCE NOTES

A relevant person may demonstrate that it has applied enhanced CDD measures under Article 15(2A) of the Money Laundering Order, where it has applied additional measures that are commensurate with risk.

Additional measures may include one or more of the following:

1. Determining the reasons why the customer is looking to establish a business relationship or carry out a one-off transaction other than in their home country or territory;
2. The use of external data sources to collect information on the customer and the particular country risk in order to build a customer business and risk profile similar to that available for a resident customer.

CUSTOMER PROVIDED WITH PRIVATE BANKING SERVICE – OVERVIEW

Private banking is generally understood to be the provision of banking and investment services to high net worth clients in a closely managed relationship. It often involves complex, bespoke arrangements and high value transactions across multiple jurisdictions. Such customers may therefore present a higher risk of money laundering or financing of terrorism.

CUSTOMER PROVIDED WITH PRIVATE BANKING SERVICE – GUIDANCE NOTES

A relevant person may demonstrate that it has applied enhanced CDD measures under Article 15(8) of the Money Laundering Order, where it has applied additional measures that are commensurate with risk.

Additional measures may include:

1. Taking reasonable measures to find out the source of funds and source of wealth.
2. Reviewing the business relationship on at least an annual basis, including all documents, data and information obtained under identification measures in order to ensure that they are kept up to date and relevant.
3. Where monitoring thresholds are used, setting lower thresholds for transactions connected with the business relationship.

CUSTOMER THAT IS A PERSONAL ASSET HOLDING VEHICLE – OVERVIEW

Personal asset holding vehicles are legal persons or legal arrangements established by individuals for the specific purpose of holding assets for investment. The use of such persons or arrangements may make identification of ultimate beneficial owners more difficult since layering of ownership may conceal the true source or controller of the investment.

CUSTOMER THAT IS A PERSONAL ASSET HOLDING VEHICLE – GUIDANCE NOTES

A relevant person may demonstrate that it has applied enhanced CDD measures under Article 15(10) of the Money Laundering Order, where it has applied additional measures that are commensurate with risk.

Additional measures may include:

1. Understanding the structure of the vehicle, determining the purpose and rationale for making use of such a vehicle, and being satisfied that the customer’s use of such an investment vehicle has a genuine and legitimate purpose.
2. Taking reasonable measures to find out the source of funds and source of wealth.

CUSTOMER THAT IS A COMPANY WITH NOMINEE SHAREHOLDERS OR BEARER SHARES – OVERVIEW

Companies with nominee shareholders or bearer shares may present a higher risk because such arrangements make it possible to hide the identity of the beneficial owner(s) and/or changes in beneficial ownership by separating legal and beneficial ownership, or because there is no trail of ownership, which introduces a degree of anonymity.

Notwithstanding this, nominee shareholders are often used for good and legitimate reasons, e.g. to ease administration and reduce client costs by enabling a nominee to take necessary corporate actions, such as the passing of resolutions, in the day to day administration of a corporate structure.

Where one or more of the following circumstances apply, the customer should not be considered to be a customer that issues bearer for the purpose of Article 15(11) of the Money Laundering Order:

1. The bearer shares are issued by a company in a country or territory that has fully enacted appropriate legislation to require bearer shares to be registered in a public registry; or
2. The bearer shares are traded on an approved stock exchange; or
3. All issued bearer shares are held in the custody of the relevant person, or trusted external party along with an undertaking from that trusted external party to inform the relevant person of any transfer or change in ownership.

CUSTOMER THAT IS A COMPANY WITH NOMINEE SHAREHOLDERS OR BEARER SHARES – GUIDANCE NOTES

A relevant person may demonstrate that it has applied enhanced CDD measures under Article 15(11) of the Money Laundering Order, where it has applied additional measures that are commensurate with risk.

In the case of customers who are companies with nominee shareholders, additional measures may include:

1. Determining and being satisfied with the reasons why the customer is making use of nominees; and
2. Using external data sources to collect information on the fitness and propriety of the nominee (such as its regulated status and reputation) and the particular country risk.

In the case of customers who are companies with bearer shares, additional measures may include:

1. Determining and being satisfied with the reasons why the customer has issued bearer shares;
2. Ensuring that any new or continued relationship or any one-off transaction is approved by the senior management of the relevant person; and
3. Reviewing the business relationship on at least an annual basis, including all documents, data and information obtained under identification measures in order to ensure that they are kept up to date and relevant.