International Standards and Guidelines on AML, KYC, CDD, Sanctions, and Customer Identification Programs

Suspicious Transaction Reporting (STR) indicators for the FIUs– i. large cash transactions, ii. undefined political/influential level fund transfers, iii. shell company activities iv. rapid fund movements in public/private sectors v. unjustified accumulation of wealth.

Trade-based money laundering (TBML) indicators – investigating and interrogating, i. shell corporations, ii. companies lacking online presence, iii. dormant companies, iv. trafficking, smuggling, and counterfeiting activities, v. forged or unreliable trade documents, vi. baseless offshore cash/bank transactions, vii. irregular payroll transactions.

 

BASEL Committee on Banking Supervision

The G10 central banks initiated the Basel Committee on Banking Supervision (BCBS) in 1974 to contribute to worldwide financial stability. It’s a voluntary body with no legal binding; nevertheless, the member nations are expected to follow the BCBS regulations for quality banking supervision and international financial market reforms.

During the late 90s, the world financial system underwent globalization regimentation. At that time, the national banks faced serious capacity and information challenges, and the BCBS regulatory and policy-making body has since gained prominence.

At present, BCBS has 45 members from 28 jurisdictions that are as follows –

Argentina, Australia, Belgium, Brazil, Canada, China, France, Germany, Hong Kong, India, Indonesia, Italy, Japan, Korea, Luxembourg, Mexico, the Netherlands, Russia, Saudi Arabia, Singapore, South Africa, Spain, Sweden, Switzerland, Turkey, the United Kingdom, and the United States. The BCBS Secretariat is positioned at the Bank for International Settlements (BIS) in Basel, Switzerland. Though, the BIS and the Basel Committee remain two distinct units.

Basel Committee on Banking Supervision (BCBS), an official Bank for International Settlements (BIS) subdivision, manages various cooperative forums and AML-KYC guidelines via its research publications. Some notable publications include The Core Principles for Effective Banking Supervision and The Supervision of Cross Border Banking.

In these two papers, the BCBS highlights the importance of sound KYC/CDD policies in the correspondent banking system. It is remarkable that banks, nonbank financial institutions, and professional intermediaries (gatekeepers) subject to KYC-CDD standards have also adopted BCBS guidelines. –

• In the correspondent/respondent banking relationship, sound Know Your Customer (KYC) and Customer Due Diligence (CDD) practices can potentially detect and deter money laundering threats with correct analysis of customer background and their transaction activities.  

• It is on the part of the respondent banks to correctly establish customer identity and continuously monitor their activities. Therefore, the BCBS reiterates its core KYC policies on –

i. Customer Identification at the onset of the account opening and continuous account monitoring;
ii. Maintaining appropriate anti-money laundering measures with a proper risk management system;

iii. A sound customer acceptance policy based on the risk matrices;

iv. Deriving suspicious activity and transaction alerts based on account monitoring;

v. Timely audits and record-keeping;

vi. Compliance and governance; and

vii. Continued monitoring.

• High-level KYC procedures for numbered accounts, high-risk customers, pooled accounts and accounts maintained for non-face-to-face customers and politically exposed persons. Customer screening against sanctions; banks must have the means to freeze suspicious accounts and unidentified assets.

 

Transparency International (TI) – Transparency, Accountability, Integrity

Founded in 1993, Transparency International (TI) is a non-governmental anti-corruption body in Berlin, Germany. The body is neither legal nor government binding. However, it fights against corruption, the root cause of money laundering. Transparency International is renowned for its corruption level gauging tools, Corruption Perception Index (CPI), and Global Corruption Barometer (GCM).

The CPI measures public and corporate level corruption practices in over 175 nations to help financial institutions and other AML obligated institutions risk-rate customers and perform due diligence. In addition, the Corruption Perception Index has proved to be an excellent heads-up to clasp money laundering activities across the globe, especially amongst the EU institutions. As TI plans to expand worldwide, currently, it serves around 100 national chapters to challenge the inevitability of bribery and corruption. On the other hand, TI’s second most popular initiative, the Global Corruption Barometer (GCM), captures personal corruption challenges that citizens face in their daily lives.

 

Economic Sanctions

Trade embargos, travel bans, and commercial activity restrictions imposed on countries, groups, entities, vessels, or individuals are economic sanctions, mainly levied for political reasons. Important sanctions that hold gravity worldwide are those implemented by;

i. The Office of Foreign Asset Control (OFAC) in conjunction with The U.S. Department of Treasury (DoT),

ii. The U.K. Treasury Office,

iii. The European Union (EU),

iv. The Hongkong Monetary Authority, and

v. The United Nations.

Economic and trade sanctioned individuals or nations are allegedly charged with terrorist financing, narcotics trafficking, the mass proliferation of weapons, and other illegal activities causing threats to world peace and security. Economic sanctions are effective by country. However, there are sanctions with United Nations mandates that have international nexus. History has witnessed sanctions often getting lifted once the sanctioned body is determined to mend its ways and work towards common goals and values.

United States OFAC sanctions, constructed on the nation’s foreign policy, are very important to follow for those financial institutions outside the U.S. having correspondent relationships within the State. Additionally, OFAC holds rights to freeze assets and transactions of those on its Specially Designated National (SDN) list. Both deliberate and oversight in OFAC violations have caused banks and financial institutions to pay hefty fines in the past.

Notable United States economic, trade, and commercial sanctions are with the countries whose social and economic activities are conflicting with the U.S. foreign policies, including –

• Cuba (trade embargoes against dictatorship),

• Russia (military aggression against Ukraine),

• Iran (promoting terrorism and nuclear fuel pillage),

• Syria (endorsing terrorism), and

• North Korea (sponsoring war and war weapons).

Other nations under the U.S. sanction list mainly for illegal trade, terrorism financing, and arms proliferation are Afghanistan, the Balkans, Belarus, Burma, Central African Republic, Democratic Republic of Congo, Ethiopia, Hong Kong, Iraq, Lebanon, Libya, Mali, Nicaragua, Somalia, Sudan, South Sudan, Ukraine, Venezuela, Yemen, and Zimbabwe.

At the same time, there are noteworthy United Nations economic sanctions and trade embargos against the following countries –

• Somalia (political and civil war tensions),

• North Korea (proliferation of nuclear weapons),

• Libya (human-rights abuse), and

• South Africa (apartheid policies).

An increasing number of international bodies suggest a better problem-solving approach to encourage sanctioned nations to mend their ways. As sanction impositions have severe drawbacks, including deglobalization, thwarted technological progress, and stagnancy in global trade activities.

IDMerit works persistently in mitigating AML, KYC, and Due Diligence compliance risks for financial and non-financial businesses across the globe. Also, we protect organizations from initiating business with sanctioned individuals and entities, thus avoiding hefty fines. 

IDMerit’s robust Sanctions, PEP, and Adverse Media Monitoring Solutions identify high-risk global sanctioned entities barred from entering into economic and trade activities. Our services will mitigate sanction risks and save you from costly compliance violation fines. 

Contact our Compliance Expert for a Quick Compliance Consultancy on IDMerit AML-KYC-Due Diligence Tool.