Instructions No. 2 of 2025 Regarding the Anti-Money Laundering and Counter-Terrorist Financing Function

[Logo of the Palestine Monetary Authority] Palestine Monetary Authority

PALESTINE MONETARY AUTHORITY

Instructions No. (2) of 2025 Regarding the Anti-Money Laundering and Counter-Terrorist Financing Function

Based on the provisions of Law Decree No. (9) of 2010 regarding Banks, particularly Articles (43, 72), and the provisions of Law Decree No. (39) of 2022 regarding the Combating of Money Laundering and Financing of Terrorism, particularly Articles (22, 25, 26, 27, 34), and according to the powers delegated to us, and to achieve the public interest, we have issued the following Instructions:

Article (1) Definitions

The following words and phrases shall have the meanings specified below wherever they appear in these Instructions, unless the context indicates otherwise:

• The Law: Law Decree No. (39) of 2022 regarding the Combating of Money Laundering and Financing of Terrorism and its amendments.
• The Function: The Anti-Money Laundering and Counter-Terrorist Financing Function.
• The Function Officer: The Manager of the Anti-Money Laundering and Counter-Terrorist Financing Function.

Article (2) Objective and Scope of Application

1. The provisions of these Instructions aim to the following: a. Contribute to maintaining the integrity and stability of the financial and banking system. b. Enhance the environment and framework for combating money laundering and terrorist financing. c. Reduce banks' exposure to risks related to money laundering and terrorist financing.
2. The provisions of these Instructions apply to all banks licensed by the Palestine Monetary Authority to conduct banking business and their external branches.

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Article (3) Anti-Money Laundering and Counter-Terrorist Financing Function

The bank's Board of Directors must commit to the following:

1. Establish the function at the senior management level, and assign it to an independent employee at the manager level titled "Anti-Money Laundering and Counter-Terrorist Financing Officer", such that it reports to the Board of Directors, the Compliance Committee emanating therefrom, or any arrangements approved by the Palestine Monetary Authority.
2. Supervise the Anti-Money Laundering and Counter-Terrorist Financing Function in the bank and approve the charter or any other official document establishing this function.
3. Adopt job descriptions for the Anti-Money Laundering and Counter-Terrorist Financing Function that include tasks, responsibilities, and qualifications of the incumbent, and a clear organizational structure for the function commensurate with the bank's size, branches, risks, operational complexity, and customer base.
4. Adopt a risk-based approach (RBA) procedure manual, which shall be based on FATF recommendations, best international practices, and relevant principles and guidelines issued by the Basel Committee on Banking Supervision, and clearly specify the function's priorities, responsibilities, working methods, reporting mechanisms, and presentation of work results, and shall include a mechanism for taking corrective actions in case any violations are discovered.
5. Ensure the independence of the function and protect it from interference, and adopt a system for its employees regarding bonuses, incentives, salaries, and accountability in case of negligence or breach of job duties.
6. Provide sufficient financial budgets for the function's structure to ensure its operation and achieve its establishment purpose, and enhance employees' capacity to manage and mitigate money laundering and terrorist financing risks, particularly budgets for training, providing qualified human resources, and programs and systems for combating money laundering and terrorist financing and implementing targeted financial sanctions.

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Article (4) Bank Responsibilities

The bank must commit to the following:

1. Provide adequate controls, systems, and programs to identify and prevent any potential misuse of financial and banking services, products, and technologies, and report potential violations, which shall include: a. Electronic systems and programs specifically for combating money laundering and terrorist financing, capable of classifying customer risks, monitoring and tracking transactions and financial movements according to certain scenarios and indicators, and detecting unusual transactions, movements, and suspicious activities. b. Systems and programs to query the customer base against international and national listing lists, which shall be reviewed periodically, and whenever any transaction is conducted or a business relationship is entered into with any person or entity. c. Subscribe to the website services of the United Nations Security Council Sanctions Committee, and prepare its electronic systems to enable reference to the UN list and the national listing list.
2. Ensure that the bank's subsidiaries apply AML/CFT standards.
3. Monitor and audit the bank employees' accounts to ensure they are not misused for the benefit of others and/or contrary to their nature and purpose, or for criminal activities, and work to follow up on employees' unusual financial activity, examine the proportionality of such transactions to the nature of the accounts and monthly income, and verify the integrity of transactions and the adequacy of due diligence procedures regarding them.
4. Enhance the adoption of administrative and disciplinary measures against violating employees proven to have committed incidents harming the bank's integrity and reputation due to misuse of their accounts or committing financial crimes such as fraud, embezzlement, and credit abuse, including reporting to the Palestine Monetary Authority and competent authorities any breaches and violations of laws, regulations, instructions, and operational policies and procedures, in compliance with Article (25) of the Law.
5. Prepare a risk-based policy and operational procedures to apply AML/CFT requirements and measures, which shall cover at a minimum the following: a. Opening and updating customer account management, including identifying the data and documents required to be collected and updated to identify and verify customer identities, understand their risks, identify the beneficial owner, the purpose of establishing the business relationship, and account funding sources and usage. b. Establishing business relationships and mechanisms for accepting or rejecting customers. c. Mechanisms and approval authorities for establishing and continuing business relationships with politically exposed persons (PEPs) representing risks, including obtaining senior management approval before establishing a business relationship with the customer or continuing it for existing customers, and all procedures related to PEPs representing risks according to Article (12) of the Law. d. Applying due diligence and enhanced due diligence. e. Identifying and classifying customer risks (high, medium, low), updating them, and taking mitigation measures in accordance with prevailing legislation. f. Ongoing due diligence regarding business relationships, including monitoring financial transactions and unusual financial operations. g. Filing suspicious reports according to the mechanism approved by the unit while maintaining reporting confidentiality. h. Retaining information, documents, transactions, and records for the period specified by the Law and Instructions. i. Communicating with the competent authority, relevant authorities, and the Financial Monitoring Unit. j. Evaluating compliance with regulatory and supervisory requirements and reporting information in a timely manner. k. Dealing with correspondent banks and relying on other parties, including collecting sufficient information about those banks and parties to understand their nature of business, customer base, and supervise them, and verifying that they do not deal with banks lacking adequate controls to combat criminal activities or shell banks. l. Instructing employees to report to the Function Officer any suspected cases or misuse of financial services.
6. Enhance bank access controls, including querying the names of persons intended to be hired by the bank or contracted with, or attracting new strategic shareholders, and verifying the sources of funds intended to be used to purchase bank shares, with the aim of preventing criminals or their partners from entering the banking sector.

Article (5) Function Independence

The bank must ensure the independence of the function to guarantee the efficient and effective performance of its duties without overlapping authorities with any other departments in the bank, and the Function Officer must have the following:

1. Easy access to communicate with any bank employee and review files, documents, records, and internal investigation committees, and provide necessary tools to enable him to perform his responsibilities seriously and impartially, including providing systems, programs, and authorities that assist him in executing the function's tasks.
2. Complete freedom enabling him to execute his responsibilities through his own initiatives in all bank departments and divisions to ensure no conflict of interest.
3. Complete freedom and independence in preparing and submitting suspicious reports to the Financial Monitoring Unit, and any other reports related to the unit's work stipulated in prevailing legislation.
4. Freedom to write reports regarding any violations of laws, regulations, instructions, and internal institutional breaches.

Article (6) Tasks and Responsibilities of the Function Officer

The Function Officer must perform the following tasks and responsibilities:

1. Ensure the bank's compliance with AML/CFT requirements stipulated in the Law, Palestine Monetary Authority instructions, the National AML/CFT Committee, and related legislation, and the bank's approved policies and operational procedures, which shall include: a. Sampling opened accounts and executed financial transactions, and conducting compliance checks on AML/CFT procedures. b. Submitting reports on the effectiveness of AML/CFT at the bank, cases of failure to apply AML/CFT procedures, cases of bank employees' non-compliance with customer identification, verification, due diligence, and enhanced due diligence procedures, and necessary recommendations for remediation and correction. c. Following up on the immediate execution of orders to halt financial transactions issued by competent authorities and implementing relevant Security Council resolutions immediately and without delay in accordance with prevailing legislation in the State of Palestine and approved mechanisms. d. Retaining internal documents and reports received and forwarded to the Palestine Monetary Authority and the Financial Monitoring Unit. e. Applying the risk-based approach (RBA) and classifying the bank's customers according to their exposure to money laundering and terrorist financing risks (high, medium, low), taking into account the risk assessment targeting the institution, customers, products, distribution channels, and geographic dimension, and national risk assessment results. f. Working to periodically review the classification of the bank's customers' exposure to money laundering and terrorist financing risks in light of unusual transactions and available bank information and data. g. Periodically screening the bank's customer base against international and local freezing and blocking lists in accordance with prevailing legislation and documenting the results. h. Participating in and/or supervising the preparation of the bank's self-assessment of money laundering and terrorist financing risks, including identifying those risks according to the four main assessment axes (customers, products and services, distribution channels, geographic dimension). i. Participating in the assessment of money laundering and terrorist financing risks in new financial and banking products, services, and technologies before their launch, and when developing and modifying previous products, services, and technologies, participating in establishing and enhancing necessary controls and measures to mitigate and manage those risks, and documenting this. j. Participating in any national-level money laundering and terrorist financing risk assessments.
2. Submit recommendations regarding the financial needs and