The basic principles of  the Anti- Money Laundering and  combating  terrorist financing and KYC rules policy

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Overview

The AML & Combating Terrorist policy is considered one of the main basics adopted by the United Bank in the fields of financial control , which is in conformity with FATF (The Financial Action Task Force) standards and recommendation.

According to the 40 recommendations of the group on development of financial action on AML & Combating Terrorist , In addition to Basel recommendations EGYPT founded law # 80/2002 & its implementing regulations to comply with these recommendations  and all its amendments.

KYC (Know Your Customer) standards &  AML & Combating Terrorist  measures involve a customer acceptance policy and customer identification program that involves enhanced due diligence for higher risk accounts and includes account monitoring for suspicious activities.

These standards constitute an essential part of risk management by providing the basis for identifying and controlling risk exposures, which The United Bank protect itself and its genuine customers from the risk arising out of suspicious transactions/risky customers.

The inadequacy or absence of KYC standards &  AML & Combating Terrorist measures can subject bank to serious customer and counterparty risk, especially reputation, operational and legal risks.

- Due diligence process is a continuous process all Banks’ representatives must be aware of :

  • Ensure that new Customer has signed a completed KYC form before opening any account.
  • Update all changes concerning the customers data at Customer Basic Information application.
  • Regular contact with the customer & monitor the behavior of customer’s accounts.

While establishing correspondent relations the bank inquires whether the correspondent follow the  AML & Combating Terrorist rules.

KYC objective :

To comply both with the Basel committee on customer due diligence and international money laundering legislation, including the law # 80 issued on 2002 and all its amendments.

To protect the assets and reputation of the United Bank by preventing the bank from either unwittingly facilitating illegal activities or becoming the victim of illegal activities.

To act responsibly in pursuing these objectives, but in a manner that will not disrupt the bank relationship with its customers.

Customer Profile :

All customers’ data must be documented. This relationship profile is used to record all the customers’ data in addition to the KYC form.

In case of companies, all parties’ names and any signatories or intermediaries must be identified & recoded at the relationship profile. Also the customer must clearly identify which of the parties are decision makers at the account.

The customers who have their own business, it is necessary for the C/S Rep. to evidence an understanding of the customer’s business activities.

Determinants Risk Classification :

The level of money laundering risk that The United Bank is exposed to by an investor relationship depends on :

  • Type of customer and nature of business.
  • Type of product service availed by the customer.
  • Country where the customer is domiciled.
  • Customer's account turnover.

Risks are classified into three types :

  • High risk.
  • Medium risk.
  • Low risk.

International lists of sanction  countries :

The Financial Action Task Force (FATF) is a group of countries from around the world whose members have taken steps to establish anti-money laundering programs in their respective countries. FATF provides its members both program guidance & membership obligations.

In June 2000 FATF issued a list of countries or territories determined to be non-cooperative in the international fight against money laundering , This list is annually updated in June & progress reports are issued periodically to update on the status in the country.

All countries listed at this “Non Cooperative” list is considered high-risk marketplace & supervisory analysis will be required for Compliance with the Egyptian laws & regulations. Also, enhanced monitoring actions are required for such countries.

The goal of this process is to reduce the vulnerability of the financial system to money laundering by ensuring that all financial centers adopt & implement measures for the prevention, detection & punishment of money laundering according to internationally recognized standards.

Shell Banks

These banks are those who don’t have a physical presence in any country. A physical presence means a place of business that is maintained by a foreign bank located at a fixed address (rather than the electronic address) in a country in which this foreign bank is authorized to conduct banking business.
The United Bank is not dealing with any of these banks.

Criminal Risk

Where crime is prevalent, the risk of doing business with financial institutions obviously increases through the local banking system. In addition, there may be additional risk for international correspondent banks where the funds are taken offshore if this is done through the international payments system.

Standards of dealing with correspondent banks :

  1. Study the financial situation by reviewing the last three annual reports, and analysis of the balance sheet & income statement to determine the bank's performance level.
  2. Review the bank’s classification from the rating issued by specialized international companies, It is preferred to deal with bank’s rank AAA category.
  3. Study the countries’ risk(political - economic)  where the correspondent work, and its impact the bank’s business line.
  4. Ensure complying the bank with the rules the Anti-Money Laundering rules and Know Your Customer requirements.

Anonymous Relationships or Accounts :

Under any circumstances The United Bank does not accept Anonymous Relationships for any relationships, for any purpose, in any line of business.

For all banking relationships, accounts & any type of transaction performed beneficial owner information is required at accordance with this Policy & Procedures.

Also, all non-proprietary transactions must be identifiable as relating to a specific customer account.

Preconditions for Effective Supervision :

The main elements that provides a foundation for a system of supervision to be effective are as follows :

  • Oversee the establishment of financial institutions.
  • Ongoing supervision.
  • Enforcement power to address compliance with the country law & regulations.
  • Ability to carry duties independently.
  • Sufficient resources in terms of technological capabilities & knowledge.
  • Protection of information obtained by supervisors so that it is only used for the purpose of effective supervision.
  • Continues training & awareness sessions to bank’s staff concerning Quality Assurance & Anti Money Laundering.
  • Ensure that all laws , rules , regulations in addition to the banks policies are strictly adhered to.

Prudential Regulations & Requirements :

AML & Combating Terrorist & KYC policies, suspicious, unusual transaction reporting and currency transaction reporting are considered important tools in assisting banks to prevent or detect involvement of the bank in criminal money laundering activity , These requirements should define minimum standards to provide for prudent risk management.

Compliance officers responsibilities :

  1. Following up activities of the bank on regular basis to ensure that business is conducted in compliance with local laws & international regulations.
  2. Ensuring that the banks policy and procedures regarding  AML & Combating Terrorist & (KYC) are complying with international regulations.
  3. Ensuring that the  AML & Combating Terrorist & (KYC)   procedures are implemented at all branches.
  4. Chief compliance officer must provide senior management and audit committee with the degree of compliance in place and functioning effectively to mitigate the risk to the Bank.

Customer Due Diligence – Guiding Principles :

  1. Do business only with reputable customers whose income & wealth are derived from legitimate sources.
  2. Determine & record the identity, background & business of all customers.
  3. Know the beneficial owner’s of all relationships.
  4. Understand the business purposes for which Bank’s products & services are used.
  5. From the information gathered, reasonably estimate the types & levels of the customer’s anticipated transactions.
  6. Determine appropriate procedures on record retention with customers’ information according to the Egyptian law.
  7. Be alert & regularly monitor the relationship in order to identify unusual or suspicious activities.
  8. Take appropriate action when questions or inconsistencies arise.
  9. Paying particular attention in opening and observing PEP’S accounts (Politically exposed persons).
  10. Classify  Customers  into categories according to the  risk-based approach.

Mandatory controls :

Maximum every 5 years C/S Rep. must review the customers’ files taking into consideration that this period to be reduced to 3 years for high risk customers.. The purpose of this periodic review is to ensure that all the customers’ data at The United Bank is updated certain procedures must be implemented to update the customers’ data base to enhance scrutiny & ensure the existence of anti - money laundering controls.

All prospective customers’ files must be reviewed in accordance with all The United Bank policies establishing a higher standard of  accuracy.

Negative List

The United Bank employees are responsible for checking the negative list before opening accounts or establishing customer’s relationship. For this list relates specifically to proprietary decisions, the list’s contents must not be shared with any person or entity outside The United Bank.

Suspicious Activities or Suspected Violations :

If an employee observes a transaction or activity that appears suspicious or unusual, he/she is required to report it immediately to his/her superior level who’ll recheck the suspected transaction & report it to the Compliance Officer.

All employees must be familiar with the  AML & Combating Terrorist Policy to enable them to act promptly & appropriately. They also must consult the Compliance Officer regarding any questions relating to the AML Policy.

Reports :

A consistent process for activity review must be established for each branch.

The method of monitoring (Either manual or automated) must take place pursuant to written procedures created & distributed locally to all staff.

Branch Compliance Officer must review daily/monthly activity reports for any out of suspicious activity.

Upon detecting out-of-pattern activity, the BCO must contact the C/S Rep. to obtain an explanation on the activity in the account & if necessary establish a going on action plan. The explanation & all follow up must be documented.

Unusual activity Daily / Weekly reports manual & automated ) is reviewed by the Compliance Officer at the Central Dept. & in case of suspecting a transaction the concerned Branch Head is contacted to provide Compliance Officer with proper documents, explanation in addition to his/her opinion concerning the customer’s behavior.

Red flags – Tips for Reviewing Customers’ Activities :

  1. Magnitude of business or profits inconsistent with date of establishment, especially where import or export is involved.
  2. Substantial turnover in an account with no evident relationship to the key party and/or his or her stated business.
  3. Accumulation of balances or deposits inconsistent with knowledge of the Customer’s business or his/her status or source of income.
  4. Unexplained transfers to accounts in other countries or other banks.
  5. An account holder who is reluctant to provide information when requested, or who provides information that is difficult or expensive to verify.
  6. Multiple small deposits into different accounts, which are subsequently consolidated into one account.
  7. Customers who have numerous accounts to facilitate inter-account transfers for no apparent business reason, or to obscure large cash deposits by dividing large amounts of cash among each of them.
  8. Customers who appear to have accounts with several institutions in a nearby area and who consolidate those funds before requesting their transfer.
  9. Deposits of large third party checks endorsed in favor of the customer.
  10. Large cash transactions in a previously dormant/inactive account, or from an account which has just unexpectedly received a large credit from aboard.
  11. Customers may request to use a concentration or other account perhaps to conceal the true nature of the transaction.
  12. Large deposit immediately followed by withdrawal of all or most of funds.
  13. Requests for loans drawn on a previously inactive account and paid to a third party.
  14. Frequent or multiple wire transfers, especially in round amounts.
  15. Repeated activity involving countries to which the customer has no apparent connection.
  16. Loans’ early settlement.

Principals of governance in the UB :

The UB is complying with the following principals :

  1. Adopt effective disclosure and transparency policies.
  2. Compliance of responsibility towards shareholders and protect the rights of Depositors.
  3. Taking into  consideration related benefits of stakeholders associated "regulatory bodies - Governments".
  4. setting goals and strategy development.
  5. determine the acceptable level of risk to the bank.
  6. Put manuals and procedures help to reduce the conflicts of interest within the Bank.

Compliance Dep. In the UB.:

The compliance job is not limited to the assessment  of the impact of changes in the  surrounding environment on the    Bank's activities, but extends to verify that new products and procedures are complying with the currently applicable legal environment.

Also within the main tasks of the compliance function is to find a proper environment within the Bank ,supporting  the compliance culture , And to provide adequate training for employees to familiarize themselves with current and new instructions on an ongoing basis in order to reduce the risk of liability , As well as a focus on the following points :

  1. Ensure the circulation of compliance culture in the work environment.
  2. Continuous monitoring of compliance relevant laws and instructions from the Central Bank.
  3. Promote individual and collective responsibility with regard to communications for illegal or unethical practices in the work area.