Credit institutions now have better guidance on these issues to help them manage their compliance processes. This overview takes a closer look at each of the points listed above. It also provides information on how the ACTICO Compliance Suite monitoring system can help.
1. Origin of assets in cash transactions
The origin of cash assets must be proven with a certificate of origin (EUR 10,000 for customers and EUR 2,500 for non-customers). In the case of non-customers, these supporting documents should be requested as soon as the service is used, whereas customers can submit them retrospectively. If a customer has not provided the certificate of origin, this is flagged up by the Compliance Suite. As soon as the proof is delivered, it can be stored in the system as a file.
2. Real estate transactions
The risk of money laundering in the real estate sector is rated as high. As a result, the regulators have been scrutinizing the movement of money by customers in the real estate sector. Credit institutions that are involved in such transactions are now required to exercise particular vigilance. Using the Compliance Suite, they can do this in 3 steps:
- Identify customers whose transactions are likely to be related to real estate. Potential indicators of this include the sector (housing associations, tradesmen, etc.) and the customer’s occupation (estate agent, notary, etc.). Of course, there are also certain products to consider, such as construction loans.
- Considering these criteria when classifying the risk of a business relationship.
- The transaction check then considers this risk in terms of the business relationship and, for example, applies lower thresholds or looks for repeated transaction patterns. It is also possible to monitor transactions using keywords if there are no obvious ties between the customer and the real estate sector.
3. Investment transactions
With regard to investment management companies, in general it is necessary to identify the beneficial owners (UOB) that the company is representing. This requirement is only waived if the company is conducting combined investment business for several of its customers. When conducting individual transactions for individual customers, they are required to keep a record of the beneficial owner, type of transaction, and amount. Once they have provided this information, it is stored in the Compliance Suite.
4. Syndicated loans
Banks involved in syndicated loans can expect due diligence obligations to be fulfilled by the lead bank or principal bank. However, they still have to ensure that these banks are meeting their due diligence obligations. They have to record the structure of the transaction and all the parties involved. One of the tools at their disposal is KYC profiles in the Compliance Suite, which can be used to record information and documents delivered.
5. Correspondent banking relationships
The general duty of due diligence requires the structure of correspondent banks to be examined. This includes identifying the bank’s beneficial owners, its controlling structure, the purpose of the business relationship, and sanctions and risks relating to its country of domicile. Certain conditions lead to an obligation to perform enhanced due diligence, e.g., if a PEP has an interest in the respondent bank or if other high-risk elements exist. In this case, it is necessary to record additional information (type of business, reputation, etc.). A named person also has to be designated as being responsible for the correspondent banking relationship. In the Compliance Suite, correspondent banks are included in the database and can be analyzed and documented via a correspondent bank profile in the same way as KYC profiles.
6. Monitoring systems
A monitoring system (not a screening system) that checks all transactions has to be used to guard against money laundering (AML). This is how the AUA guidelines distinguish between the two types of system:
- Monitoring is the continuous, ex-post process of observing transactions to spot red flags. This is done retroactively and is designed to help identify unusual individual transactions or transaction flows (such as recognizing patterns in a sequence of transactions). By the time the monitoring system detects an anomaly, the payment has already been fully executed or processed.
- Screening is the selection or filtering of payment transactions in real time, i.e., before they are executed. One of the aims of screening is to prevent the transfer of funds associated with sanctions, embargoes, rules on terrorist financing and other measures.
Monitoring also relates to transactions involving people who are not customers of the institution. The only exceptions are internal bookings without a customer reference that were initiated by the institution itself. The scenarios that require monitoring have to be adapted to the bank’s risk situation and updated regularly. Every hit has to be fully clarified and documented in a traceable manner. Changes must always be accompanied by comments explaining the reason behind them. This also applies to IT-based decisions.
7. (Omnibus) trust accounts
For certain omnibus or trust accounts (such as school class accounts, club accounts, and low-risk collection agency accounts), a simpler form of due diligence can be applied if the reason for this is recorded, for example in a KYC profile. In addition, owners who have no control over the management/realization of an asset are not required to identify the beneficial owners. This relates to things like insolvencies, wills and foreclosures. This information can be delivered to the Compliance Suite or stored in the KYC profile.
8. Trade finance
Trade finance means financing and hedging of international trade conducted by non-banks with the help of credit institutions. In the case of short-term, document-based forms of trade finance transactions, it is important for the bank to develop a feel for the transaction and assess whether it could be used for the purposes of money laundering or terrorist financing. It is necessary to document the parties involved, the goods traded, the countries involved and the trade routes. If this results in a higher risk, additional information has to be collected within the scope of the increased due diligence obligations by means of trade register inquiries, internet searches and/or questioning trusted third parties. During the trade, the documents and transactions also have to be checked for plausibility and any related SWIFT reports retained as evidence.
Contact our experts if you would like to analyze your compliance environment to find organizational or software-based options that meet the AuA guidelines.
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