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Guidance Manual for Money Changers on Combating Money Laundering (2014)

Table of Contents

• Governor’s Message ... 3
• Definitions ... 6
• Consequences of Money Laundering Crime ... 7
• Stages of the Money Laundering Process ... 9
• Practices Exposing Money Changers to Money Laundering Risks ... 10
• Suspicion Indicators ... 11
• Preventive Procedures Against Money Laundering ... 14
• Enhancing the Internal Work Environment ... 19

Governor’s Message

The increasing daily incidence of money laundering crimes globally, and their negative impacts at both macro and micro levels across all economic and social sectors, have necessitated the cooperation of all relevant parties, led by government, judicial, civil, and private sector entities, to combat, curb, and reject these crimes in order to build a real economy that actively contributes to sustainable economic development.

The Palestine Monetary Authority (PMA) has been committed to combating money laundering by providing a suitable legal framework (the Money Laundering Combating Law) that aligns with relevant international standards and considers the specifics of Palestinian society. Accordingly, the National Committee for Combating Money Laundering was established to formulate national policies and strategies related to money laundering combating and issue necessary instructions for implementing the law's provisions.

The issuance of this manual further consolidates the PMA’s efforts in combating money laundering, aiming to strengthen the soundness and stability of the money exchange sector, which is a cornerstone of the financial system. It seeks to elevate this sector across regulatory, professional, and technical levels so that it becomes a leading regional sector, contributing significantly to monetary and financial stability. The PMA also strives to enhance the awareness and capabilities of sector employees, thereby preventing them from becoming victims of exploitation in illegal activities, including money laundering operations.

This manual explains the concept of money laundering, its parties, stages, and negative impacts on money changers and the economy in general. It also includes practices that may expose money changers to money laundering crime risks, suspicion indicators suggesting money laundering operations, and preventive measures.

Finally, the PMA reaffirms its support for this sector by providing a competitive environment and assisting in adopting modern administrative and technological systems, while strengthening corporate culture to advance the sector’s operations in line with global developments. We highly appreciate the efforts that money changers will exert to comply with this manual, as it has a significant impact on consolidating sound banking principles and positively affecting the overall economy and public interest.

Dr. Jihad Al-Khalil Al-Weber, Governor

1. Definitions

Money Laundering (according to the Money Laundering Combating Law): Any act intended to conceal or alter the identity of funds derived from one of the predicate offenses, thereby disguising their true origin to appear as originating from lawful sources.

Predicate Offenses: Participation in a criminal group and organized fraud, human trafficking and smuggling of migrants, sexual exploitation of children and women, illegal trade in narcotic drugs and psychotropic substances, illegal trade in arms and ammunition, illegal trade in stolen goods and others, bribery and embezzlement, fraud, currency and official document forgery, forgery and infringement of intellectual property rights, environmental law violation crimes, homicide or grievous bodily harm, kidnapping or unlawful detention/hostage-taking, robbery or theft, smuggling, extortion, threat or intimidation, forgery, piracy in all its forms, manipulation of financial markets, and illicit enrichment.

2. Consequences of Money Laundering Crime

1. Negative Impacts on the Economy: • Hindering economic development and reducing real investment opportunities, as money launderers aim to establish dummy economic entities to provide cover for their crimes. • Damaging banks and exposing them to liquidity problems, as sudden withdrawals and deposits are part of money laundering operations and may not be genuine. • Reducing the efficiency of financial markets, as buying and selling securities are conducted to integrate funds into the formal financial system rather than for investment purposes. • Affecting competitive market fairness, as money launderers win contracts and tenders at the expense of other traders, since their objective is fund integration rather than profit. • Reducing national tax revenues due to money launderers evading taxes. • Providing funds for corruption and increasing crime, making it the easiest means of creating wealth. • Negatively affecting the country’s reputation from an international perspective, which in turn impacts its international financial relations.

2. Negative Impacts on the Money Changer/Company: • Poor reputation of the money changer. • Exposure to legal accountability, resulting in high and excessive costs and compensation. • Bearing losses due to imposed fines and penalties. • Deprival of the right to practice the profession and license cancellation.

3. Stages of the Money Laundering Process

The money laundering process involves three stages:

1. Placement: Employing or injecting funds derived from predicate offenses into the country’s financial system.
2. Layering: Concealing and/or disguising the relationship between funds and their unlawful sources through a complex series of financial and non-financial transactions.
3. Integration: Integrating unlawful funds into the national economy, making it difficult to distinguish them from funds originating from lawful sources.

4. Practices That May Expose Money Changers to Money Laundering Crime Risks

1. Substituting or converting funds from any person, knowing that these funds constitute criminal proceeds, for the purpose of concealing or disguising their unlawful origin, or to assist a person involved in the predicate offense from bearing legal consequences.
2. Concealing or disguising the true nature, source, location, disposition, movement, ownership, or rights related to funds by any person knowing that these funds constitute criminal proceeds.
3. Acquiring, possessing, or using funds by any person knowing at the time of receipt that these funds are criminal proceeds.
4. Participating, assisting, instigating, conspiring, providing advice or counseling, facilitating, conniving, attempting, or committing any of the acts whose proceeds are considered unlawful.

5. Suspicion Indicators

1. The client’s refusal to provide the money changer with necessary data required by the Know Your Customer (KYC) rule.
2. The client’s inquiry to the money changer regarding systems, instructions, and maximum limits issued in the instructions, aiming to obtain sufficient information and avoid legal violations concerning money laundering operations.
3. The client’s withdrawal from executing part or all of the transaction upon learning that special due care and KYC procedures must be followed, if the transaction exceeds a specified financial threshold.
4. Submission of identity verification documents suspected to be false or forged.
5. The client’s willingness to buy transactions at a price higher than market rate or sell them at a lower price, without showing interest in the commissions deducted by the money changer.
6. The client giving valuable money or gifts to the money changer or its employees, attempting to persuade them not to verify identity verification documents and other records.
7. Providing the money changer with a permanent residence address located outside the money changer’s service area or outside the country’s jurisdiction.
8. Inability to maintain continuous communication through the contact details provided by the client.
9. A client accompanied/controlled by another person when visiting the money changer, or an elderly client being assisted by a non-relative during the transaction.
10. Disproportionate operations and values relative to clients’ financial status and nature of business.
11. Conducting transactions involving individuals or institutions with a poor reputation in money laundering or other criminal activities.
12. Conducting transactions whose source cannot be identified or verified.
13. Disbursing large cash amounts unusually for clients whose commercial activity typically uses checks and other payment instruments.
14. Exchanging large quantities of small denominations for large denominations without justified reasons.
15. Executing several large cash transactions personally by the client or through proxies at the money changer and its branches within a short period.
16. Presenting large cash amounts that include counterfeit or worn-out banknotes.
17. Transferring large amounts (daily/weekly) that collectively constitute a large sum.
18. Receiving transfers accompanied by instructions from the sender to convert their value into checks and send them via post to a specified person.
19. Issuing large-amount transfers to countries known for banking secrecy and tax evasion havens.

6. Preventive Procedures Against Money Laundering

1. Registration: Recording the money changer’s operations as follows: • Registering all buying and selling transactions of currencies, outgoing and incoming transfers, and purchased checks in the accounting system.

2. Identification and Verification of Clients for the following operations: a. Steps to be followed when executing outgoing transfers, regardless of value:

1. Obtaining a copy of the client’s ID (if the sender is an individual).
2. Obtaining a copy of the registration certificate and memorandum/articles of incorporation (if the sender is a legal entity).
3. Completing the designated form, which includes: Sender’s name, Sender’s ID number, Address (City/Street), Phone number, Transfer type, Currency, Transfer amount (in numbers), Transfer amount (in words), Intermediary bank name (sender’s side), Intermediary bank name (receiver’s side), Money changer name (receiver), Beneficiary name, Beneficiary address, Purpose of transfer, Sender’s signature, and a declaration from the sender that all data is correct and they bear any legal consequences arising from executing this transfer.

b. Steps to be followed when executing incoming transfers, regardless of value:

1. Obtaining a copy of the client’s ID (if the beneficiary is an individual).
2. Obtaining a copy of the registration certificate and memorandum/articles of incorporation (if the beneficiary is a legal entity).
3. Completing the designated form, which includes: Beneficiary name, Beneficiary ID number, Beneficiary address (City/Street), Beneficiary phone number, Transfer type, Currency, Transfer amount (in numbers), Transfer amount (in words), Intermediary bank name (receiver’s side), Intermediary bank name (sender’s side), Money changer name (sender), Person sending the transfer, Address of the person sending the transfer (Country/City/Street), Purpose of transfer, Beneficiary’s signature, and a declaration from the receiver that all data is correct and they bear any legal consequences arising from executing this transfer.

c. Steps to be followed when purchasing checks:

1. The checks must be drawn on a licensed bank in Palestine or abroad.
2. They must be due and not post-dated.
3. They must not be signed in blank.
4. They must not be collateral for facilities granted to the customer.
5. Completing the designated check purchase register, which includes: Client name, Check purchase date, Check amount (in currency), Check due date, Nature of the check owner’s business, Name of the drawn bank.

d. Steps to be performed when buying and selling currencies from individuals or legal entities:

1. Obtaining a copy of the client’s ID (if the beneficiary is an individual) and a copy of the registration certificate and memorandum/articles of incorporation (if the beneficiary is a legal entity) when executing transactions reaching or exceeding five thousand US dollars or their equivalent in other currencies.
2. Completing the designated register for buying and selling currencies from the public, banks, or money changers, which includes the client’s name and amounts of cash purchases and sales.

3. Reporting: The money changer must immediately report any suspicious transaction to the PMA’s Compliance Unit according to the designated form.

4. Sending Periodic Reports: The money changer must send periodic reports to the PMA according to issued instructions.

5. Retention and Documentation: The money changer must follow these steps regarding documentation: • Retaining data and documents related to suspicious transactions submitted to the PMA for no less than ten years. • Retaining a copy of outgoing transfer requests and supporting documents in a dedicated file, recorded in the outgoing transfers register for no less than ten years. • Retaining a copy of incoming transfer requests and supporting documents in a dedicated file, recorded in the incoming transfers register for no less than ten years. • Retaining account files, commercial correspondence, and copies of identity verification documents.

7. Enhancing the Internal Work Environment

1. Preparing policies, operational procedures, and an organizational structure including job descriptions.
2. Appointing individuals with good reputations.
3. Appointing qualified individuals possessing appropriate experience and certifications enabling them to perform their duties professionally, particularly compliance officers.
4. Strengthening internal control and avoiding overlap of authorities, while reinforcing dual-control principles and not granting any single authorities.
5. Establishing punitive and disciplinary procedures that reduce the likelihood of employees being involved in money laundering operations.
6. Developing and training employees, particularly on money laundering combating topics: • Introducing them to money laundering, its risks and impacts on society and the money changer. • Introducing them to the Money Laundering Combating Law and ensuring full understanding of its content. • Introducing them to the PMA’s laws, regulations, and instructions governing the money exchange sector. • Introducing them to the internal system and operational procedures. • Emphasizing the importance of confidentiality and non-disclosure except to competent authorities.
7. Monitoring employees at the money changer for fear of involvement in money laundering operations. The following are some suspicion indicators regarding employees: • Continuously violating instructions under the pretext of ignorance or unwillingness to lose a client. • High spending level by employees, purchasing assets and investing in amounts disproportionate to their monthly income. • Executing transactions that may involve risks to serve unknown parties at the money changer. • The employee’s evasive policy during work performance and failure to answer inquiries clearly. • The employee’s lack of credibility, ethics, and capabilities regarding some clients. • Employees evading taking their vacations.

Telephone: +970 2-2409920 (Tel) Fax: +970 2-2409922 (Fax) Email: ps.pma@info (mail-E)