Entire section
6.3.2. Customer obligation for life insurance
6.3.4. Existing customer becoming a Politically Exposed Person

6.3.3. Customer is a Politically Exposed Person

Where a customer, or a beneficial owner of the customer, is a PEP, a Relevant Person must ensure that, in addition to AML 6.3.1 it also:

  1. (a) increases the level of risk, the degree and nature of monitoring of the business relationship, in order to determine whether the customer's transactions or activities appear unusual or suspicious; and
  2. (b) obtains the approval of senior management to commence a business relationship with the customer.

Guidance on undertaking Customer Due Diligence

  1. (a) A Relevant Person should, in complying with AML 6.3.1(a), and adopting the RBA, obtain, verify and record, for every customer who is a natural person, the following identification information:
  2. (i) full name (including any alias);
  3. (ii) date of birth;
  4. (iii) nationality;
  5. (iv) legal domicile; and
  6. (v) current residential address (not a P.O. box).
  7. (b) Items (i) to (iii) above should be obtained from a current valid passport or, where a customer does not possess a passport, an official identification document which includes a photograph. The concept of domicile generally refers to the place which a person regards as his permanent home and with which he has the closest ties or which is his place of origin.
  8. (c) A Relevant Person should, in complying with AML 6.3.1(a), and adopting the RBA, obtain, verify and record, for every customer which is a legal person, the following identification information:
  9. (i) full business name and any trading name;
  10. (ii) registered or business address;
  11. (iii) date of incorporation or registration;
  12. (iv) place of incorporation or registration;
  13. (v) a copy of the certificate of incorporation or registration;
  14. (vi) a valid commercial or professional licence;
  15. (vii) the identity of the directors, partners, trustees or equivalent persons with executive authority of the legal person or who holds the position of senior managing official; and
  16. (viii) for a trust, a certified copy of the trust deed to ascertain the nature and purpose of the trust and documentary evidence of the appointment of the current trustees.
  17. (d) In complying with AML 6.3.1(a), it may not always be possible to obtain original documents. Where identification documents cannot be obtained in original form, for example, because a Relevant Person has no physical contact with the customer, the Relevant Person should obtain a copy certified as a true copy by a person of good standing such as a registered lawyer or notary, a chartered accountant, a bank manager, a police officer, an employee of the person's embassy or consulate, or other similar person. Downloading publicly available information from an official source (such as a regulator or government website) is sufficient to satisfy the requirements of AML 6.3.1(a) CDD information and research obtained from a reputable company or informationreporting agency may also be acceptable as a reliable and independent source, as would banking references and, for lower risk customers, information obtained from researching reliable and independent public information found on the internet or on commercial databases.
  18. (e) For factors increasing the risk level, identification information is to be independently verified, using both public and non-public sources.
  19. (f) In complying with AML 6.3.1(b) a Relevant Person is required to "understand" a customer's source of funds. This means understanding where the funds for a particular service or transaction will come from (e.g. origin of funds used in carrying out a business transaction). The best way of understanding the source of funds is by obtaining information directly from the customer, which will usually be obtained during the onboarding process. The Relevant Person should keep appropriate evidence of how they were able to understand the source of funds, for example, a copy of the customer account opening form, or customer onboarding form with confirmation of funds' initial sources taking into account customer's risk assessment and customer's behaviour in comparison with his/her risk profile.
  20. (g) In complying with AML 6.3.1(c) a Relevant Person is required to "understand" a customer's source of wealth. This means understanding the origin of the accumlated monetary assets of an individual, i.e. total assets. For a natural person, this might include information about the source of wealth in an application form or customer questionnaire. The understanding should also be gained through interactions with the relationship manager at a financial institution. It could be gained by obtaining information from a reliable available source. The understanding need not be a dollar for dollar account of the customer's global wealth, but it should provide sufficient detail to give the Relevant Person comfort that the customer's wealth is legitimate and also to provide a basis for subsequent on-going due diligence. The understanding of the customer's source of wealth may be clearly supported by title documents, for example, asset title document, audited financial statement, income tax return, etc. Taking into account customer's risk assessment and customer's behaviour in comparisaon with his/her risk profile.
  21. (h) Understanding a customer's sources of funds and wealth is also important for the purposes of creating customer risk profile and conducting on-going due diligence under AML 6.3.1(d) Initial funding of an account or investments from an unknown or unexpected source may pose a money laundering risk. Similarly, a sound understanding of the customer's source of funds and wealth also provides useful information for a Relevant Person's transaction monitoring programme. Understanding of the customer's sources of funds or wealth shall be performed taking into account customer's risk assessment and customer's behaviour in comparison with his/her risk profile.
  22. (i) An insurance policy which is similar to a life policy would include life-related protection, or a pension, or investment product which pays out to the policy holder or beneficiary upon a particular event occurring or upon redemption.
  23. (j)A Relevant Person should conduct CDD in a manner proportionate to the customer's money laundering risks identified under Chapter 6. When the money laundering risks are identified as high, a Relevant Person must conduct EDD under Chapter 7. 
  24. (k) This means that all customers are subject to CDD under AML 6.3.1. Hovewer, for high risk customers, additional EDD measures should also be conducted under AML 7.1.1.
  25. (l) The board objective is that the Relevant Person should know at the outset of the relationship who its customers (and, where relevant, beneficial owners) are, where they operate, what they do and their expected level of activity. In addition to AML 6.1.1 (a), a Relevant Person must obtain documents on the legal form and the powers that regulate and bind the legal person or arrangement. The Relevant Person must then consider how the profile of the customer's financial behaviour builds up over time, allowing the Relevant Person to identify transactions or activity that may be suspicious.

Guidance on identification and verification of beneficial owners

  1. (a) In determining whether an individual meets the definition of a beneficial owner or controller, regard should be had to all the circumstances of the case.
  2. (b) When identifying beneficial owners, a Relevant Person is expected to adopt a substantive (as opposed to form over substance) approach to CDD for legal persons. Adopting a substantive approach means focusing on the money laundering risks of the customer and the product/service and avoiding an approach which focusses purely on the legal form of an arrangement or sets fixed percentages at which beneficial owners are identified (or not).
  3. (c) A Relevant Person should take all reasonable steps to establish and understand a corporate customer's legal ownership and control and to identify the beneficial owner. There are no explicit ownership or control thresholds in defining the beneficial owner because the applicable threshold to adopt will ultimately depend on the risks associated with the customer, and so a Relevant Person must adopt the RBA and pursue on reasonable grounds an approach which is proportionate to the risks identified. A Relevant Person should not set fixed thresholds for identifying the beneficial owner without objective and documented justification. An overly formal approach to defining the beneficial owner may result in a criminal "gaming" the system by always keeping his financial interest below the relevant threshold.
  4. (d) In some circumstances no threshold should be used when identifying beneficial owners because it may be important to identify all underlying beneficial owners to ensure that they are not associated or connected in some way. This may be appropriate where there are a small number of investors in an account or fund, each with a significant financial holding and the customer-specific risks are higher. However, where the customer-specific risks are lower, a threshold can be appropriate. For example, for a low-risk corporate customer which, combined with a lower-risk product or service, a percentage threshold may be appropriate for identifying "control" of the legal person for the purposes of the definition of a beneficial owner.
  5. (e) For a retail investment fund, which is widely-held and where the investors invest via pension contributions, the manager of the fund is not expected to look through to underlying investors where there are none with any material control or ownership levels in the fund. However, for a closely-held fund with a small number of investors, each with a large shareholding or other interest, a Relevant Person should identify and verify each of the beneficial owners, depending on the risks identified as part of its risk-based assessment of the customer.
  6. (f) Where a Relevant Person carries out identification and verification in respect of actual and potential beneficial owners of a trust, this should include the trustee, settlor, the protector, the enforcer, beneficiaries, other persons with power to appoint or remove a trustee and any person entitled to receive a distribution, whether or not such person is a named beneficiary.
  7. (g) Where no natural person is identified as a beneficial owner, the relevant natural person who holds the position of senior managing official should be identified as such and verified.

Guidance on Politically Exposed Persons

  1. (a) Individuals who have, or have had, a high political profile, or hold, or have held, public office, can pose a higher money laundering risk to a Relevant Person as their position may make them vulnerable to corruption. This risk also extends to members of their families and to their close associates. PEP status itself does not incriminate individuals or entities. It does, however, put the customer into a higher risk category.
  2. (b) Generally, a foreign PEP presents a higher risk of money laundering because there is a greater risk that such person, if he/she was committing money laundering, would attempt to place his/her money offshore where the customer is less likely to be recognised as a PEP and where it would be more difficult for law enforcement agencies in his/her home jurisdiction to confiscate or freeze his/her criminal property.
  3. (c) Corruption-related money laundering risk increases when a Relevant Person deals with PEPs. Corruption may involve serious crimes and has become the subject of increasing global concern. Customer relationships with family members or close associates of PEPs involve similar risks to those associated with PEPs themselves.
  4. (d) After leaving office PEPs may remain a higher risk for money laundering if they continue to exert political influence, directly or indirectly, or otherwise pose a risk of corruption.