Central Bank of Lebanon Circular No. 498: Amendments to Anti-Money Laundering and Terrorist Financing Regulations and Related Financial Sector Rules

Circular No. 498

To Banks and Financial Institutions And to All Institutions Specified in Article Four Of the Anti-Money Laundering and Terrorist Financing Law No. 44 Dated 24/11/2015

We enclose herewith a copy of Intermediary Decision No. 12826 dated 13/6/2018 regarding the amendment of:

• The system for monitoring financial and banking operations to combat money laundering and terrorist financing, attached to the foundational Decision No. 7818 dated 18/5/2001, subject of the foundational Circular No. 83, concerning the introduction of the definition and method of determining the "Beneficial Owner".
• The foundational Decision No. 7299 dated 10/6/1999 (ATMs and Credit/Debit Cards), attached to the foundational Circular No. 63.
• The foundational Decision No. 7548 dated 30/3/2000 concerning financial and banking operations via electronic means, attached to the foundational Circular No. 69.
• The executive system of the law regulating the profession of money dealers, attached to the foundational Decision No. 7933 dated 27/9/2001, subject of the foundational Circular for money dealer institutions No. 3.
• The foundational Decision No. 7540 dated 4/3/2000 (conditions for establishing and operating "Financial Leasing Companies"), attached to the foundational Circular for leasing companies No. 1.
• The foundational Decision No. 12174 dated 21/1/2016 concerning the conditions for practicing lending operations according to the provisions of Articles 183 and 184 of the Money and Credit Law, attached to the foundational Circular for "Lending Counters" No. 2.

Beirut, June 13, 2018

Governor of the Central Bank of Lebanon

Riad T. Salamé

Intermediary Decision No. 12826

Introduction of the definition and method of determining the "Beneficial Owner" on the "System for Monitoring Financial and Banking Operations to Combat Money Laundering and Terrorist Financing" And amending the foundational Decision No. 7299 dated 10/6/1999 and the foundational Decision No. 7548 dated 30/3/2000 And the Executive System of the Law Regulating the Profession of Money Dealers, the foundational Decision No. 7540 dated 4/3/2000 And the foundational Decision No. 12174 dated 21/1/2016

The Governor of the Central Bank of Lebanon,

Pursuant to the Money and Credit Law, particularly Articles 70, 183, and 184 thereof,

Pursuant to the provisions of the Anti-Money Laundering and Terrorist Financing Law No. 44 dated 24/11/2015, particularly Article Four thereof,

Pursuant to Law No. 347 dated 6/8/2001 concerning the regulation of the profession of money dealers in Lebanon, particularly Article 13 thereof,

Pursuant to Law No. 160 dated 27/12/1999 concerning the regulation of financial leasing operations, particularly Article 20 thereof,

Pursuant to Law No. 234 dated 10/6/2000 concerning the regulation of the financial brokerage profession,

Pursuant to Law No. 161 dated 17/8/2011 concerning financial markets,

Pursuant to Law No. 706 dated 9/12/2005 concerning collective investment bodies in securities and other financial instruments,

Pursuant to the foundational Decision No. 7818 dated 18/5/2001 and its amendments concerning the system for monitoring financial and banking operations to combat money laundering and terrorist financing,

Pursuant to the foundational Decision No. 7299 dated 10/6/1999 and its amendments concerning ATMs and credit/debit cards,

Pursuant to the foundational Decision No. 7548 dated 30/3/2000 and its amendments concerning financial and banking operations via electronic means,

Pursuant to the foundational Decision No. 7933 dated 27/9/2001 and its amendments concerning the executive system of the law regulating the profession of money dealers,

Pursuant to the foundational Decision No. 7540 dated 4/3/2000 and its amendments concerning the conditions for establishing and operating "Financial Leasing Companies",

Pursuant to the foundational Decision No. 12174 dated 21/1/2016 and its amendments concerning the conditions for practicing lending operations according to the provisions of Articles 183 and 184 of the Money and Credit Law,

Pursuant to the Rules of Conduct in Financial Markets issued on 10/11/2016 by the Capital Market Authority in Lebanon,

Pursuant to the recommendations of the "Financial Action Task Force" (FATF), particularly Recommendation 10 and the related interpretive note,

Pursuant to the decision of the Central Council of the Central Bank of Lebanon taken in its meeting held on 6/6/2018,

../..

-2-

Decides as follows:

Article One: The text of paragraph (1) of Article 3 of Part Two of the "System for Monitoring Financial and Banking Operations to Combat Money Laundering and Terrorist Financing" attached to the foundational Decision No. 7818 dated 18/5/2001 is repealed and replaced with the following text:

"1- The following terms are understood as:

• 'Client': Any natural or legal person, whether a company or institution regardless of its type or any legal structure (Legal Arrangement) such as a Trust, or an entity, organization, or non-profit association (mutual funds, cooperatives, social care homes, charitable associations, endowments, etc.)...

• 'Beneficial Owner': Any natural person who ultimately owns or exercises effective control, directly or indirectly, over the 'Client', and/or over the natural person on whose behalf transactions are conducted. Indirect ownership and/or control are considered to exist where ownership and/or control is exercised through successive holdings or through indirect means of control."

Article Two: The preamble of paragraph (2) of Article 3 of Part Two of the "System for Monitoring Financial and Banking Operations to Combat Money Laundering and Terrorist Financing" attached to the foundational Decision No. 7818 dated 18/5/2001 is repealed and replaced with the following text:

"2- Banks, in particular, must adopt clear procedures for opening accounts, and apply due diligence procedures which include verifying the identity of each of their permanent and occasional clients, residents and non-residents, and determining the nature of their business, understanding the ownership structure and/or control of the legal person, and the purpose of the transaction or account opening, the type of any of them, and the 'Beneficial Owner', source of funds, and monitoring transactions on an ongoing basis, especially in the following cases:"

Article Three: Paragraph 2 bis is added to Article 3 of Part Two of the "System for Monitoring Financial and Banking Operations to Combat Money Laundering and Terrorist Financing" attached to the foundational Decision No. 7818 dated 18/5/2001, with the following text:

"2 bis - When determining the identity of the 'Beneficial Owner', the same due diligence procedures required to be applied to the 'Client' must be applied, including those issued by the special investigative body."

Article Four: Article 9 bis is added to Part Three of the "System for Monitoring Financial and Banking Operations to Combat Money Laundering and Terrorist Financing" attached to the foundational Decision No. 7818 dated 18/5/2001, with the following text:

"Article 9 bis: First: The 'Beneficial Owner' is determined for clients who are legal persons, and the necessary measures are taken to identify these persons as follows: 1- Determining the identity of every natural person who owns, directly or indirectly, an amount equivalent to or exceeding 20% of the capital of the legal person.

../..

-3-

2- In case of doubt as to whether the natural person(s) specified in paragraph (1) of 'First' above are the 'Beneficial Owners', or in the absence of any natural person owning an amount equivalent to or exceeding 20% of the client's capital, it is then necessary to determine the identity of the natural persons exercising control over the legal person through other means (such as owning a majority of voting rights or rights to appoint or dismiss the majority of the administrative or supervisory board in a subsidiary entity...).

3- In the absence of any natural person as specified in paragraphs (1) and (2) of 'First' above, it is then necessary to take the necessary measures to determine and identify the persons holding senior management positions.

Second: The 'Beneficial Owners' are determined for clients from the category of Legal Arrangements, and the necessary measures are taken to identify these persons as follows: 1- Regarding Trusts, it is necessary to determine the identity of each of:

• The Settlor
• The Trustee
• The Protector
• The Beneficiary, and in the absence of determining or identifying his identity, the categories of persons for whom the legal structure (Legal Arrangement) was established.
• Any other natural person exercising effective control over the Trust through direct or indirect ownership or through other means. The definitions contained in the list of terms attached to the Forty Recommendations issued by the 'Financial Action Task Force' are relied upon to determine what is stated in paragraph (1) of this item.

2- Regarding other types of Legal Arrangements, including structures similar to Trusts, it is necessary to determine the identity of persons holding positions similar to those specified in paragraph (1) of 'Second' above."

Article Five: Paragraph (8) is added to Part Five of the "System for Monitoring Financial and Banking Operations to Combat Money Laundering and Terrorist Financing" attached to the foundational Decision No. 7818 dated 18/5/2001, with the following text:

"8- Keeping and updating a special register containing the names of the 'Beneficial Owners' who have been determined for each 'client/natural person', and only in the event of a difference between the client and the 'Beneficial Owner', and for 'client/legal person'."

Article Six: 'Article 5 bis' is added to the foundational Decision No. 7299 dated 10/6/1999, with the following text:

"Article 5 bis: Credit and debit card issuing institutions must comply with prevailing laws and regulations issued by the Central Bank of Lebanon, and in particular those related to combating money laundering and terrorist financing, including the definition and identification of the 'Beneficial Owner'."

../..

-4-

Article Seven: The text of paragraph (8) of Article 5 of the foundational Decision No. 7548 dated 30/3/2000 is repealed and replaced with the following text:

"8- They must comply with prevailing laws and regulations issued by the Central Bank of Lebanon, and in particular those related to combating money laundering and terrorist financing, including the definition and identification of the 'Beneficial Owner'."

Article Eight: Article 16 is added to the Executive System of the Law Regulating the Profession of Money Dealers attached to the foundational Decision No. 7933 dated 27/9/2001, with the following text:

"Article 16: Money dealer institutions must comply with prevailing laws and regulations issued by the Central Bank of Lebanon, and in particular those related to combating money laundering and terrorist financing, including the definition and identification of the 'Beneficial Owner'."

Article Nine: The text of the 'First' paragraph of Article 10 of the foundational Decision No. 7540 dated 4/3/2000 is repealed and replaced with the following text:

"First: Financial Leasing Companies must comply with the provisions of the Anti-Money Laundering and Terrorist Financing Law and the regulatory texts issued by the Central Bank of Lebanon on this subject, including the definition and identification of the 'Beneficial Owner'."

Article Ten: The text of paragraph 3 of Article 12 of the foundational Decision No. 12174 dated 21/1/2016 is repealed and replaced with the following text:

"- Combating money laundering and terrorist financing, including the definition and identification of the 'Beneficial Owner'."

Article Eleven: This decision shall take effect upon its issuance.

Article Twelve: This decision shall be published in the Official Gazette.

Beirut, June 13, 2018

Governor of the Central Bank of Lebanon

Riad T. Salamé