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OE BElGl()UE VAN BELGIE Commission des sanctions VERSION NON-NOMINATIVE DECISION OF THE COMMISSION OF SANCTIONS OF THE NATIONAL BANK OF BELGIUM OF 20 APRIL 2017 I Procedure IN THE MATTER OF x whose registered office is located at ( .. . ) Based on the report of the auditor and its conclusions, the Management Committee of the National Bank of Belgium (hereinafter the "NB") decided, in its meeting of 4 October 2016, to refer the matter to the Commission of Sanctions pursuant to Article 36/10, § 1 of the Law of 22 February 1998 fixing the organic statute of the National Bank of Belgium (hereinafter, the "Organic Law"). X (hereinafter, the "credit institution") was informed thereof by letter of 10 October 2016. Pursuant to Article 36/11, § 1 of the Organic Law, the credit institution had a period of two months to submit its written observations to the President of the Commission of Sanctions. By letter of 8 December 2016, its lawyers submitted said observations in the form of a memorandum along with the file of documents attached thereto. By letter of 12 December 2016, the President of the Commission of Sanctions informed the auditor that she was given the possibility to file a memorandum in response to the written observations of the credit institution within a period of one month, specifying that if this option were exercised, the credit institution would have a period of two weeks to file a memorandum in reply. By letter of the same date, the President informed the credit institution thereof and, at the same time, communicated to it the composition of the Commission of Sanctions of which it could challenge the members if necessary, and warned it of the dates scheduled for the hearing. By letter of 13 January 2017, the auditor communicated to the President of the Commission of Sanctions its memorandum in response and informed him that it would present this memorandum and its conclusions at the hearing of 20 February 2017. By letter of 30 January 2017, the credit institution informed the President that it had used the possibility offered to it to file a memorandum in reply to the auditor's memorandum in response, and communicated its memorandum in reply along with its annex, which was the letter of 12 December 2017 mentioned above. The hearing took place, as announced, on 20 February 2017. The auditor ( ... ), assisted by Madame ( ... ), Monsieur ( ... ), representing the Management Committee of the NB, as well as Masters ( ... ) and ( ... ), lawyers at the Brussels Bar, representing the credit institution accompanied by Monsieur ( ... ) (Legal Service of the credit institution), appeared. 1/22

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After hearing the auditor, the representative of the Management Committee and, lastly, the lawyers of the credit institution, the debates were declared closed and the matter put under deliberation.
II Statement of Facts
The facts are detailed in 'PART III' of the auditor's report. A copy of this report and its annexes was transmitted to the credit institution.
Reduced to the essentials, these facts are as follows.
On 12 April 2013, a current account was opened at the branch of ( ... ) in the name of SPRL ( ... ) (hereinafter, the SPRL).
According to its statutes, this Belgian company was formed on ( ... ) and has a broad and heterogeneous corporate object consisting of ( ... ) enumeration, it being specified that it is not exhaustive.
Since 3 April 2013, its sole partner, manager, and beneficial owner has been Mr. ( ... ), of Pakistani nationality, domiciled at ( ... ). At the time of the account opening request, it appeared from the interview with the client that the company actually had the sale of telephone cards as its object, which differs from the activities enumerated in its corporate object and from that of 'Laundry' registered in the database ( ... ), after which an attempt was made at the branch level to replace this erroneous mention with the indication of the actual activity, but without success. The Back Office was informed of this attempt. Nevertheless, instead of entering into the database ( .. . ) the code corresponding to the actual activity of the company, it entered, on its own initiative, the code 'Automatic car wash' mentioned in the statutes and evoked in the company name and appearing in its registration at the Crossroads Bank for Enterprises. The account, opened on 12 April 2013, was closed ex officio by the credit institution on 4 September 2014 following the detection of money laundering operations and their declaration to the Financial Information Processing Unit (hereinafter, the "CTIF"). During the period during which this account remained active, namely between 12 April 2013 and 4 June 2017, 2,790 cash deposits were made at a rate of 55 to 261 deposits per month, with a frequency of several deposits per day, sometimes at very short intervals. During the same period, the deposits were systematically followed by transfers made electronically, with a few exceptions, either on the same day as the deposits or a few days after them for an amount corresponding, for a total of 11,360,931.34 euros. Apart from some minor expenses, the account recorded no other operations than these cash deposits and these transfers, the latter being made in favor of a few telephone companies. Throughout this period, the automatic surveillance system ( .. . ) of the credit institution did not generate any alert allowing the detection of these account movements. It was only finally on 11 April 2014, after the fraud management service of the credit institution drew the attention of its AML department to a suspicious transfer by the SPRL, that the modus operandi followed by the latter was detected. The declaration to the CTIF ~ 2/22

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Commission des sanctions
III In Law
A. APPLICABLE LEGAL AND REGULATORY PROVISIONS
The texts that impose on financial organisms obligations regarding the prevention, detection, and fight against money laundering of which the credit institution is suspected of having violated, are the following:
Law of 11 January 1993 regarding the prevention of the use of the financial system for the purpose of money laundering in its version in force at the time of the facts, namely between 12 April 2013 and 4 June 2014 (hereinafter, the "Law").
Article 14, § 1: "The organisms and persons referred to in Articles 2, § 1, 3 and 4, must exercise constant vigilance regarding the business relationship and conduct a careful examination of the operations carried out and, if necessary, of the origin of the funds, and this, in order to ensure that they are consistent with the knowledge they have of their client, his professional activities and his risk profile.
The organisms and persons referred to in Articles 2, § 1, 3 and 4 examine with particular attention, any operation or any fact that they consider particularly likely to be linked to money laundering or terrorist financing and this, due to its nature or its unusual character compared to the client's activities or due to the circumstances surrounding it or by the quality of the persons involved."
Article 25: "Except in the cases referred to in Articles 23 and 24, when the organisms or persons referred to in Article 2, § 1 have knowledge of a fact that could be an indication of money laundering or terrorist financing, they immediately inform the financial information processing unit in writing or by electronic means.
Upon receipt of the information, the unit acknowledges receipt.
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Article 40, first paragraph: "Without prejudice to the measures defined by other laws or other regulations, the competent authority referred to in Article 39 may, in the event of non-compliance by the organisms or by the persons referred to in Articles 2, § 1, 3 and 4, with Articles 7 to 20, 23 to 30, and 33 of the present law, of Regulation (EC) No 1781/2006 of the European Parliament and of the Council of 15 November 2006 on information on the payer accompanying transfers of funds, or of the decrees taken for their implementation:
1° proceed to the publication, according to the modalities it determines, of the decisions and measures it takes; 2° impose an administrative fine whose amount cannot be less than 250 EUR and cannot exceed 1,250,000 EUR after having heard the organisms or the persons in their defense or at least having duly summoned them; the fine is collected for the benefit of the Treasury by the VAT Administration, registration and domains.
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Regulation of the Banking, Finance and Insurance Commission of 23 February 2010 regarding the prevention of money laundering and terrorist financing, approved by Royal Decree of 16 March 2010, as in force at the time of the facts (hereinafter, the "Regulation").
Article 12: "During the identification of clients referred to in Article 7, § 1, first paragraph, 1° and 2° of the law, they shall monitor and record all necessary information to allow the implementation of the client acceptance policy in accordance with Chapter 8 and the duty of vigilance regarding business relationships and operations in accordance with Chapter 9. "
Article 26: "The organisms establish and implement a client acceptance policy appropriate to the activities they exercise, allowing to submit the entry into business relationships or the conclusion of operations with clients to a prior examination of the reputation risks associated with the client profile and the nature of the business relationship or the desired operation. The client acceptance policy must provide for the attribution of decision-making competencies at the adequate hierarchical level to take into account the importance of these risks. The client acceptance policy must also allow the organism to fully contribute to the prevention of money laundering and terrorist financing by taking knowledge and appropriate examination of the characteristics of new clients and/or the services or operations for which they solicit them.
By application of their client acceptance policy, the organisms distribute their clients into different risk categories to which different levels of requirements apply. These categories are defined based on objective risk criteria which are combined coherently among themselves to define an appropriate risk scale. This takes fully into account:
situations of increased risk of money laundering or terrorist financing defined in Article 12, §§ 2, 3 and 4, of the Law and in Article 27 of the present Regulation, and risk criteria defined by each organism for what concerns it, taking into account, in particular, the characteristics of the services and products it offers and those of the clientele to which it addresses.
The client acceptance policy may also take into account situations of low risk of money laundering or terrorist financing defined in Article 11, §§ 1 and 2, of the Law. "
Article 32: "The organisms complement the first-line surveillance with a second-line surveillance exercised by a surveillance system allowing to detect atypical operations, which must be the subject of a written report referred to in Article 14, § 2, of the Law
The surveillance system must:
cover the entirety of client accounts and their operations; be based on precise and relevant criteria, fixed by each organism taking into account, in particular, the characteristics of the services and products it offers and those of the clientele to which it addresses, and sufficiently discriminating to effectively allow the detection of atypical operations; allow for rapid detection of these operations; produce written reports describing the atypical operations detected and those of the criteria referred to in the second indent of this paragraph on the basis of which they are considered atypical, these reports being transmitted to the head of the prevention of money laundering and terrorist financing referred to in Article 18 of the Law; be automated, unless the organism can demonstrate that the nature and volume of operations to be monitored do not require the automation of the surveillance system; be subject to an initiation validation procedure and a periodic re-examination of its relevance in order to adapt it, if necessary, according to the evolution of activities, clientele or environment. The criteria referred to in the preceding paragraph, second indent, take into account in particular the particular risk regarding money laundering or terrorist financing which is linked to the operations carried out by clients whose acceptance was subject to reinforced rules pursuant to the client acceptance policy referred to in Chapter 8. These criteria also take into account the particular risk of money laundering and terrorist financing which is associated with operations involving unusual amounts in absolute terms or with regard to the habits of the client considered in its relations with the organism. A transfer of funds received in favor of a client without being accompanied by the information regarding the payer required by Regulation (EC) No 1781/2006 of the European Parliament and of the Council of 15 November 2006 on information on the payer accompanying transfers of funds constitutes an atypical operation within the meaning of this article. ". These various provisions have not undergone modifications since then that would have had the effect of making less heavy the obligations imposed on financial organisms and/or less severe the sanctions applicable in case of transgression of said obligations. These texts are commented in the circular CBFA_2010_09 of 6 April 2010 modified by the circular CBFA_2011_09 of 1 March 2011 - Duties of vigilance towards clientele, the prevention of the use of the financial system for the purpose of money laundering and terrorist financing, and the prevention of the financing of the proliferation of weapons of mass destruction (hereinafter, the "circular"). B. INADMISSIBILITY OF THE PROCEEDINGS In its memorandum in reply and orally at the hearing, the credit institution concludes, as a principal plea, to the inadmissibility of the proceedings due to the breach of the guarantees of a fair trial and the rights of
the defense due to the lack of objective or functional independence of the auditor and, as a subsidiary plea, to the striking out of its memorandum in response of 13 January 2017. In its memorandum in reply, the credit institution essentially argues that the auditor has no other mission, like an investigating judge in criminal procedure, than to instruct the file for and against, in total independence, and that the fact that it had the possibility to file a memorandum in response to the observations formulated by the credit institution in a memorandum dated 8 December 2016, while the Commission of Sanctions was already seized by the Management Committee of the NB and that the instruction was finished and that neither the Organic Law nor the internal rules of the ~ 3/22

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Commission des sanctions after, the "internal regulation") do not provide for this possibility, the auditor would have stepped out of his role and would have created in the credit institution the impression that, in doing so, he lacked objectivity and impartiality. This impression would be reinforced by the fact that the auditor, as a member of staff, is subject to the hierarchical control of the Management Committee.
In the developments he devotes to this question in his memorandum in reply, the credit institution invokes at the same time the Report to the King preceding the Royal Decree of 3 March 2011 implementing the evolution of the control structures of the financial sector where it is a question of "operating a strict organic separation at the different stages of the procedure", to the case law of the ECHR regarding the right to a fair trial as well as to a judgment of the Court of Appeal of Brussels of 24 September 2015 and to a judgment of the Council of State of France of 11 September 2009 applying this principle. At the hearing, the auditor wished, as a preliminary matter, to respond to this criticism, having not previously had the opportunity to do so. The auditor essentially argued that Article 36/9, § 1, second paragraph, of the Organic Law guarantees him total independence in the exercise of his mission as auditor, that in the exercise of this mission, he cannot be assimilated to an investigating judge as it appears moreover from a judgment of the Court of Appeal of Brussels of 13 December 2011, 1st chamber, and that his function is, in reality, a sui generis function as shown by Article 36/11, § 3, of the Organic Law in that it expressly provides for the hearing of the auditor by the Commission of Sanctions. The auditor also observed that the judgment of the Council of State of France concerned the independence and impartiality of a member of a jurisdiction. Furthermore, the auditor argued that the credit institution remains in default of proving that the memorandum in response would contain elements allowing reasonably to believe in any bias on his part and that in any event the alleged irregularity, if established, would not vitiate the investigation procedure and the adversarial procedure before the Commission of Sanctions. At the hearing, the credit institution estimated that having not had prior knowledge of the arguments exposed at the hearing for some 20 minutes by the auditor, the rights of the defense had been disregarded. The credit institution then insisted on the fact that the role of the auditor is in every respect comparable to that of an investigating judge and observed that the reference to the judgment of 13 December 2011, mentioned above, by the auditor was not relevant because aiming at the role of the auditor at the FSMA, whose texts do not provide that he instructs for and against. For the rest, the defense referred to its memorandum in reply. The Commission of Sanctions considers that the rights of the defense and the right to a fair trial were not disregarded by the deposit by the auditor of a memorandum subsequent to the seizure of the Commission of Sanctions by the Management Committee for the following reasons:
If it is true that neither the law nor the internal regulation of the Commission of Sanctions provide for the exchange of memoranda subsequent to the seizure of the Commission of Sanctions, the latter could in a pragmatic manner consider it desirable in order to perfect its information and to allow it to decide with better knowledge of the cause, to first give the auditor the opportunity to present written observations of the credit institution on his report ~ 4/22

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Commission des sanctions which could have led him to review his point of view and to consider certain charges as not established - and then to the credit institution, to reply. If the law and the regulation do not provide for this exchange of memoranda, they do not prohibit it either.
Furthermore, the comparison between the auditor and the investigating judge is erroneous. Just as the Commission of Sanctions - whether of the NB or of the FSMA - cannot be assimilated to a jurisdiction, even administrative, so the auditor does not have the quality of an investigating judge but is a member of staff subject to the hierarchical power but who benefits in the exercise of his mission of total independence - his independence is functional - and his mission is not limited to an instruction mission to be exercised for and against since the law expressly provides for his hearing by the Commission of Sanctions. As noted by the Court of Appeal of Brussels in its aforementioned judgment, "the auditor does not have the status of an investigating judge and is not invested with his powers either" (point 56 of the judgment). Certainly, as the defense observed at the hearing, this judgment concerns the auditor at the FSMA, but the auditor at the NB exercises almost the same mission as him, including regarding the power to conduct the instruction in total independence (the organic model according to which the different instances of the FSMA intervene in the procedure for imposing administrative fines has not been fundamentally modified by the Law of 2 July 2011 - see point 41 of the same judgment). In the aforementioned Report to the King, the auditor is not further assimilated or even compared to an investigating judge; the commentary of Articles 36/9 to 36/12 new of the Organic Law is limited to highlighting the functional independence enjoyed by the auditor vis-à-vis the Management Committee, which is reflected notably by his nomination by the Board of Governors, and the independence of the Commission of Sanctions vis-à-vis the same Management Committee. The credit institution does not challenge the subjective impartiality of the auditor, but rather his objective independence. The Commission of Sanctions considers that the latter cannot be challenged either. Indeed, absolutely nothing in the memorandum allows to objectively believe that the auditor - even assuming that his role would be in every respect comparable to that of an investigating judge - showed bias or suffered in any way, at any stage of the procedure, the influence of the Management Committee. The credit institution does not contest this moreover and, in any case, remains in default of bringing any element of proof in this sense. Moreover, to appreciate impartiality, whether from a subjective or objective point of view, it cannot be abstracted from the person who challenges the impartiality: in this case, the credit institution, ( ... ), enlightened by its jurists and lawyers, cannot support having reasonably doubted the independence of the auditor and his impartiality solely due to the deposit of this memorandum, all the more so as it does not contain new factual elements and additional grievances. The circumstance that the auditor gives a different interpretation of the law and
the applicable texts than that of the credit institution and has not in his memorandum in response ~ 5/22

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Commission des sanctions abandoned certain grievances could not also be held as a lack of objective independence and impartiality on his part.
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Nationale BELGIQUE V/W BRGIE Commission des sanctions The rights of the defense were also not disregarded by the fact that at the hearing, the auditor, as a preliminary matter, explained for about 20 minutes the reasons why the grievances formulated against him were, in his opinion, unfounded, without these reasons having been previously communicated to the credit institution. Indeed, the organic law provides that the auditor is heard by the sanctions commission; the auditor did not have the opportunity beforehand to refute this point in the reply memorandum; the credit institution's lawyers were able to plead at the hearing without any time limit and were even offered the possibility to develop their argumentation on this specific point during an additional hearing, which they did not deem necessary.

As a consequence of all this, the sanctions commission decides that the guarantees offered to the credit institution both by internal law and by conventional law, particularly Article 6 of the ECHR in that it enshrines the right to an impartial tribunal, were respected all the more because when, as in this case, administrative fines are imposed by an administrative authority following a quasi-judicial procedure, it is constant jurisprudence that to assess compliance with the guarantees of the aforementioned Article 6, one must take into account the entirety of the procedure and particularly the existence of a full-jurisdiction appeal before a court, whether judicial or administrative, against the contested administrative decision, which appeal is in this case available before the Court of Appeal of Brussels. The judgments of the ECtHR and the French Council of State invoked in the reply memorandum, on the other hand, were rendered in hypotheses where the irregularity complained of was committed within the framework of the criminal procedure proper, even at the stage of information or instruction, or in the procedure conducted before an administrative court and cannot therefore be invoked pertinently.

At the hearing, the credit institution also argued, as a preliminary matter, that the representative of the management committee should have previously informed him in writing of the position he would adopt at the hearing and of the possible sanctions he would request the sanctions commission to impose, and that failing to do so, the rights of the defense were disregarded.

The sanctions commission considers that this is not the case, given that the procedure before it is in principle oral, that the credit institution had beforehand knowledge of the various grievances on which it would have to defend itself before the sanctions commission through the written notification made by the management committee by registered letter of October 10, 2016, that in his short intervention before the sanctions commission, the representative of the management committee did not, any more than the auditor, formulate additional grievances or mention new facts, that he limited himself to supporting the same point of view as the auditor and to specifying, at the request of the president of the sanctions commission, what sanctions he deemed appropriate to adequately reprimand the credit institution's breaches, and that the latter was able, in respect of the principle of contradiction, to defend itself, without time limitation, both on the grievances and on the sanctions.

As a consequence thereof, the sanctions commission decides that the proceedings are admissible and that there is no need to exclude from the debates the auditor's reply memorandum (nor indeed the credit institution's reply memorandum).
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OE BELGIQUE VAN BELGIE Commission des sanctions
C. EXAMINATION OF GRIEVANCES NOTIFIED TO THE CREDIT INSTITUTION
The management committee of the NBB estimated, based on the auditor's report, that the investigation allowed establishing the following facts:

1. the credit institution did not correctly identify the business sector of the SPRL and consequently, the origin of its revenues, although the accuracy of this data is essential;
2. the credit institution's client acceptance policy does not provide for the automatic consideration, in the assessment of money laundering risk associated with a legal entity, of the nationality of the partner, manager, and beneficial owner of said legal entity when these qualities are combined in a single natural person. By leaving this assessment to the evaluation of frontline staff, the credit institution's acceptance policy does not allow adequate apprehension of the potential money laundering risk linked to the interposition of a legal entity to conceal a possible money laundering risk related to the nationality of the partner, manager, and/or beneficial owners of said legal entity;
3. the credit institution does not have a second-line surveillance system allowing detection of manifestly atypical characteristics of transactions carried out on the SPRL's account during the examined period, although various indicators should have led to such detection;
4. the credit institution did not report to the CTIF until June 2, 2014, the transactions carried out on the SPRL's account since its opening in April 2013 (see pp. ii to vi and 81-82 of the investigation report);

and that these facts may constitute breaches of various obligations provided by the law and regulation, namely respectively to:

1. the identification obligation under Article 12 of the regulation;
2. the obligation to provide an adequate client acceptance policy under Article 26 of the regulation;
3. the duty of vigilance under Article 14, § 1st of the law;
4. the obligation to report to the CTIF under Article 25 of the law;

which facts are subject to the imposition of administrative fines under Article 40 of the law, consequently of which the governor seized the sanctions commission (registered letter of October 10, 2016 from the NBB governor to the president of the management committee of the credit institution notifying grievances and seizing the sanctions commission).

It is for the latter to examine, within the limits of its seizure, and following a contradictory procedure, whether the facts are established and constitute infractions of the aforementioned law and regulation, and, if so, to fix the amount of the administrative fine and to rule on the eventual anonymization of its decision on the NBB website.
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DE BELGIQUE VAN BELGIE Commission des sanctions C.1. Obligation to identify and verify identity (Article 12 of the regulation)
Article 12 of the regulation imposes on organizations, when identifying clients referred to in Article 7, paragraph 1, 1° and 2°, of the law, to collect and record all necessary information to allow the implementation of the client acceptance policy and the duty of vigilance regarding business relationships and operations.

For the auditor, the distinction between mandatory criteria and specific criteria invoked by the credit institution in its initial written observations formulated in its letter of September 15, 2016 and subsequently in its writings and at the hearing, does not have the legal scope it attributes to it in the sense that only information expressly provided by the law and regulation would be mandatory and sanctioned, while others would be optional, left to the appreciation of each organization based on its specificity, and not sanctioned. It is indifferent, according to the auditor, that the business sector is formally qualified as a mandatory risk criterion or suggested as a specific risk criterion in the circular; it is in reality all the information necessary for defining the client's risk profile and, consequently, for applying its client acceptance policy and exercising its duty of vigilance that the credit institution was and is, under Article 12 of the regulation, required to collect and record and, from this point of view, the business sector is necessary data. The auditor also observes that the credit institution itself precedes the collection and recording of this data in its database (...) and that it intervenes in the evaluation of the client's risk profile.

The concrete circumstances of the case show that the credit institution failed in this obligation by not correctly identifying the business sector and, consequently, the origin of the SPRL's revenues.

As for the credit institution's argument that even if the identification had been correct, this would not have affected the categorization of the SPRL within the framework of its client acceptance policy and its duty of vigilance, it cannot be retained due to the information available at the time (annual activity reports of the CTIF) and the dynamic nature of a risk profile.

The representative of the NBB management committee aligned himself with the auditor's point of view at the hearing.

The credit institution has continued to argue that Article 12 of the regulation itself does not state the information to be collected, but refers to the client acceptance policy established by the organization (Articles 26 to 28 of the regulation) and its duty of vigilance regarding business relationships and operations (Article 29 of the regulation), that Article 26 of the regulation provides, in paragraphs 2 and 3, that within the framework of the client acceptance policy, clients are divided into different risk categories defined according to objective risk criteria concerning either situations of increased money laundering risk identified in Article 12, §§ 2, 3, and 4, of the law and Article 27 of the regulation (mandatory criteria), or specific risk criteria, such as the business sector cited as an example in the circular, which are not defined in advance in the law and regulation but left to the appreciation of each organization which determines them itself based on its specific needs (specific criteria), that admitting that it is by reference to the purpose pursued by Article 12 of the regulation that all information necessary for a correct risk assessment must be collected and recorded amounts to denying the distinction between mandatory and supplementary criteria and substituting the NBB for the financial institution. In the absence of express provision in the regulation, the failure to identify or incorrect identification of the client cannot be sanctioned under penalty of violating the principle of legality of offenses.

The credit institution adds that, in any case, no reproach can be made to it insofar as, of its own initiative, it systematically proceeds to the identification of the client's business sector and that in this case, it proceeded correctly by prioritizing the activity 'Automatic vehicle washing (car wash)' mentioned in the SPRL's statutes and its registration in the Crossroads Bank for Enterprises, activity also evoked by its social denomination (...). It did not deem it necessary to follow up on information received from frontline staff according to which the actual activity of the SPRL consisted in the sale of telephone cards.

He argues that even if the sale of telephone cards had been retained as the business sector, this would have had no impact on the SPRL's risk profile and thus on the degree of vigilance to be exercised towards it since this sector was not, considering the information available at the time regarding money laundering practices (among others, CTIF activity reports), considered as a risky sector.

The sanctions commission considers that Article 12 of the regulation was transgressed.

Aligning with the interpretation given by the auditor, it considers that Article 12 of the regulation covers indiscriminately all information necessary to allow the implementation of the client acceptance policy and the duty of vigilance regarding business relationships and operations and that this information is not limited to situations of increased money laundering risk defined in Articles 12, §§ 2, 3, and 4 of the law and 27 of the regulation, but also includes those allowing the evaluation of risk criteria defined by the financial institution itself to reflect notably the characteristics of services and products and its clientele.

Certainly, some risk criteria are determined by the financial institution itself but they must be determined based on a rigorous and objective analysis of the money laundering risks to which it is exposed, taking into account all available information.

These criteria must be adequate and the appreciation power possessed by the organization is not absolute, but is exercised under the control of the NBB.

It is not because the organization has a certain margin of appreciation that the principle of legality is disregarded thereby. Indeed, it is only by examining a specific penal provision that it is possible to determine, taking into account the elements specific to the offenses it intends to repress, whether the general terms used by the penal law are so vague that they would disregard the principle of legality in penal matters. In an eminently technical field such as banking and financial operations and the fight against money laundering, it is thus necessary to ensure that legislation is not drafted in too rigid terms to be able to take into account, in its applications, evolutions in the forms and techniques used by money launderers. One must also take into account the particular status of banking organizations which possess or may possess good information regarding the appropriateness of their behaviors and from whom one can therefore expect to show, in all circumstances, the necessary vigilance and great prudence (see C. canst. judgments September 2015, B.3.3 and B.4, and n°1/2016 of January 14, 2016, B.5 and :~ _fLA:;f

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DE BELGIQUE VAN BELCIE Commission des sanctions rendered in a medical context and the reference to ECtHR October 6, 2011, Soros v. France, § 53).

The credit institution did not misunderstand the scope of its obligations since it itself recognized the necessity to determine from the start the business sector of its potential clients.

Correct identification of clients upon entering into a commercial relationship is, according to its own instructions, a primordial element both for money laundering regulation and for the KYC (Know your customer) policy. It must systematically operate through personal contact (face-to-face) with the client, and simply identifying a person is not enough: the application of the KYC principle requires that one can have a view on a set of data including the nature of professional activity (doc.5.7 of the credit institution's file - description of identification and client knowledge obligations).

This importance is also reflected in the fact that the revenue-generating activity was retained as one of the five common risk criteria entering consideration to assess the risk linked to client acceptance. The assessment of this risk criterion involves evaluating the probability that the client is involved in illicit trafficking of goods and merchandise, the risk being higher for activities listed in the list of risky activities at the money laundering level (doc.5.9 of the credit institution's file - risk criteria).

The data encoded in the database (...) serving as the basis for an automatic evaluation of the client's compliance risk profile, it is crucial that this data be complete, up-to-date, and always faithfully reflect reality (doc.5.10 of the credit institution's file - acceptance procedure).

The investigation conducted by the auditor revealed that upon entering into a business relationship, it appeared at the agency level that the actual activity of the SPRL consisted in the sale of telephone cards and not in 'Washing' or another activity mentioned as falling within its corporate object and that consequently, it was important to modify the NACE code accordingly.

Although aware of this modification attempt, the Back Office instead of assigning the SPRL the NACE code 61200 corresponding to the declared activity of selling telephone cards replaced, of its own initiative, the erroneous 'Washing' code with another - the NACE code 45206 'Automatic washing of motor vehicles' - corresponding perhaps to one of the heterogeneous activities in question in the company's statutes and its registration in the Crossroads Bank for Enterprises and which is evoked in its trade name but does not correspond to the activity the company declared to actually exercise.

The sanctions commission estimates that the Back Office had no reason not to follow up on the information collected from frontline staff concerning the actual activity of the company and that in any case, if it had the slightest doubt on this subject, it had the duty to investigate further, all the more so as the SPRL was not in the process of constitution but already created and active and that the manager was no longer a client of the credit institution at the time of the facts.

Certainly, the statutes and registration in the Crossroads Bank for Enterprises constitute in principle probative documents but it is different when, as in this case, it appears from declarations even of the company's representative that it actually exercises another activity than that mentioned therein - which is not disputed (see AUD.7.22 of the auditor's file - declaration of the credit institution to the CTIF of June 2, 2014 under heading 8 « Aanwijzingen van witwassen »: « Volgens de statuten is de activiteit reiniging maar in werkelijkheid telefonie » (Free translation: Money laundering indicators: According to the statutes, the activity is washing, but in reality, telephony) and heading « Interne Informatie » (Free translation: Internal Information): « Pour rappel vente de cartes de tel. Avec pt cash des clients et vt immediat aupres des foumisseurs »)).

The identification obligation referred to in Article 12 of the regulation has thus been disregarded and must be sanctioned.

The objection that even if the actual activity of the SPRL had been taken into account, it would have had no influence on its risk profile because this activity was not included at the time in the list of risky activities at the money laundering level cannot be retained. Indeed, the failure to fulfill the identification obligation constitutes an offense sanctioned as such independently of the consequences it may have.

Furthermore, this objection disregards the essentially dynamic nature of the risk profile.

The sale of telephone cards has moreover long been a high-risk activity. Statistics indeed show that from 2012 already, telecommunications, and particularly the sale of telephone cards, was one of the business sectors where money laundering is most significant (see CTIF activity reports 2012, p.57, 2013, p.53 and 2014, p.55) - which should not have escaped the credit institution. In its report of October 3, 2014, the CTIF also states that in the past, the credit institution had already notified it several files of fraud by means of the sale of telephone cards and that one of these notifications even concerned a company that appeared again in this file as one of the most important clients of the SPRL (doc.8 of the credit institution's file).

C.2. Obligation to establish and implement an appropriate client acceptance policy providing for the attribution of decision-making competencies at the adequate hierarchical level to take into account the importance of risks and allow the organization to fully contribute to the prevention of money laundering (Article 26 of the regulation)

The auditor argues that by not automatically taking into account, in the assessment of money laundering risk associated with a legal entity, the nationality of the partner, manager, and/or beneficial owner of the legal entity, particularly when these qualities are found in the same natural person, - only the nationality of the legal entity is automatically taken into account - and by leaving to the appreciation of frontline staff the task of evaluating case by case if the nationality of the partner, manager, and/or beneficial owner constitutes an element of increased risk, the credit institution's acceptance policy does not allow adequate apprehension of the potential money laundering risk in the case of the interposition of a legal entity to conceal a possible money laundering risk related to the nationality of the partner, manager, and/or beneficial owner of the legal entity. 13/22

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The auditor recalls that during the examined period, the client acceptance procedures provided for a battery of risk criteria, among which geographical links, and that the assessment of this criterion was based on the justification of a banking relationship in Belgium for a client of foreign residence or nationality. For the auditor, the interposition of a legal entity - a practice known for a long time in the fight against money laundering - can only justify that a risk criterion admitted as pertinent when the business relationship is concluded directly with a natural person no longer applies when that person exercises their activity through a legal entity of which they are simultaneously a partner, manager, and beneficial owner.

Interpreting Article 26 of the regulation as obliging the credit institution to put in place a risk acceptance system that automatically takes into account, in the assessment of the money laundering risk related to a legal entity, the nationality of the partner, manager, and/or beneficial owner in case of a cumulation of these qualities in the same person, is to attribute to this provision a reasonable and foreseeable scope for a professional such as a credit institution.

The breach thus reproached to the latter lies at the level of its acceptance policy, without it being necessary to examine whether, modified on this point, its implementation thus adapted would have led to a risk assessment distinct from that made in this case.

The management committee of the NBB shares this point of view.

For its defense, the credit institution argues that since the nationality of the partner, manager, and beneficial owner of a legal entity is not part of the objective criteria defined by Article 26 of the regulation, nor of the specific risks suggested as examples in the circular or recommendations of the Financial Action Task Force (hereinafter, the "FATF"), nor of the information that must be collected for client identification under the law and regulation, it cannot be reproached for not having included this criterion among those defining the risk level of the SPRL. To decide otherwise and interpret Article 26 of the regulation as imposing such an obligation would go against the principle of legality of offenses.

Admittedly, the credit institution remains subject to a general obligation of means to define criteria that are adequate to detect atypical operations, but, in this regard, no reproach can be addressed to it either.

The credit institution further contests that the nationality of the partner, manager, and/or beneficial owner of a legal entity is, in itself, a determining criterion to assess the risk profile of said legal entity within the framework of a risk-based approach, residence being, according to it, a much more pertinent criterion from this point of view, and adds that the circular draws attention to the obligation to respect "anti-discrimination" legislations in the choice of risk criteria and their arrangement (point 5.2.3 of the circular).

It argues that in the case at hand, the manager and beneficial owner of the SPRL was correctly identified based on his identity card and that there was a priori no reason to attach a money laundering risk to his nationality, especially since he had his residence in Belgium, was previously a client of the credit institution in his personal capacity, and that the SPRL was a Belgian company with its registered office in Belgium.

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The Sanctions Commission observes that the use of the interposition of a legal entity to facilitate money laundering is a well-known procedure denounced for a long time by competent authorities, notably the FATF. It deduces that in its client acceptance and risk assessment policy, the credit institution must - and should - take this practice into consideration by putting in place a risk acceptance system that automatically takes into account, at an adequate level, the nationality of the shareholder, manager, and/or beneficial owner of the legal entity in case these qualities are combined in the same person, this when the latter has the nationality of a State considered non-cooperative by the FATF or regarding which it recommends counter-measures or the exercise of enhanced vigilance. Thus, throughout the period under examination, Pakistan appeared on the ( ... ), under the heading C4 FATF Designation with the mention 'Money Laundering risk' (money laundering risk) (auditor's investigation report, annex AUD.17.2). Therefore, the fear expressed by the credit institution of transgressing anti-discrimination legislation in the envisaged scenario is unfounded.

The Sanctions Commission further observes that the credit institution retains nationality as a risk criterion when the business relationship is directly established with a natural person.

The breach reproached to the credit institution lies at the level of its client acceptance policy and is of a structural nature. The fact that taking into account the nationality of the manager and beneficial owner of the SPRL would not, by itself, have led to a different risk assessment is therefore irrelevant.

Regarding the credit institution's objection that this article of the regulation is too imprecise and, consequently, does not satisfy the clarity and predictability requirements of the principle of legality of offenses, the Sanctions Commission rejects it for the same reasons as those indicated above regarding the first complaint.

As a result of all this, the Sanctions Commission holds the violation of Article 26 of the regulation to be established.

C.3. Breach of the duty of vigilance (Article 14, § 1, of the Law and Article 32 of the Regulation)

The auditor argues that Articles 14, § 1, of the Law and 32 of the Regulation obligate the credit institution to conduct its own analysis of atypical operations presenting a money laundering risk: notwithstanding the existence of an obligation of means, the institution must, in a risk-based approach, proactively identify such operations. To this end, it has access to reliable sources of information, notably the activity reports of the CTIF, which, at the time of the facts, reported indicators of atypical cash deposits such as those noted in the case at hand (2011 activity report, p.58 - see also CTIF, indicators of money laundering operations, NL 1175 January 2012 - indicators to which financial professions should pay particular attention). Furthermore, the potentially suspicious nature of split but linked operations is recognized in the legislation itself (Article 7, § 1, a) of the Law and Article 5, § 4, of Regulation No. 1781/2006 of November 15, 2006, O.J. EU, L No. 345 of December 8, 2006, p.1).

However, in this case, none of the rules of the monitoring system ( ... ) triggered an alert and failed to detect the atypical characteristics of the cash deposit operations followed by corresponding transfers to the SPRL's bank account, whether due to their nature, their split and repeated amount, or their simultaneity. The system put in place thus proved deficient.

For the auditor, Articles 14, § 1, of the Law and 32 of the Regulation are sufficiently clear; they could not enumerate exhaustively the criteria on which the second-line monitoring system must be based, otherwise it would not be able to adapt to the evolution of money laundering practices and the specific risk profile of each institution.

The auditor further observes that the credit institution decided to adapt its monitoring system to detect atypical operations such as those in this case - which clearly shows that the scope of the aforementioned articles is sufficiently clear and predictable for a prudent and diligent credit institution.

At the hearing, the representative of the NBB management committee rallied to this point of view.

The credit institution first observes that none of the indicators noted by the auditor in his report appear among the risk criteria referred to in Article 32 of the Regulation or even as examples of increased risk situations proposed as indicative by the FATF. Pursuing it on this basis is therefore contrary to the principle of legality of offenses. At most, there is an obligation of means on its part, which it defends against having transgressed.

It adds that, regardless, its second-line monitoring system was performing and cites as proof that during the considered period, this system generated several thousand alerts analyzed by its AML department, that no fewer than 1,781 CTIF declarations were made and 1,756 contractual relationships with clients were terminated, that there were several criteria specifically targeting cash operations but none had detected the SPRL's atypical operations - 'these operations skirted the rules without triggering an alert', according to the testimony of the anti-money laundering manager (institution's file - item 17) - which proves that it was an exceptional case illustrating that no system, however performing, allows detecting all anomalies. Admittedly, such a system is evolutionary and perfectible but, from this point of view too, no reproach can be addressed to it since it adapted its monitoring system to detect atypical money laundering operations such as those in this case and in any case, the failure to detect the SPRL's atypical operations by the second-line monitoring system did not prevent a collaborator from its fraud management service from detecting them during a control ( ... ).

The NBB Sanctions Commission considers it incomprehensible and constituting proof of a serious malfunction, that the credit institution's second-line monitoring system proved powerless to detect a money laundering operation as characteristic as the one in this case, consisting of repeated cash deposits made during the same day and over a very short period of time, using exclusively automated teller machines for this purpose, deposits followed the same day or the next day by a national transfer of a global amount almost equivalent, executed, with rare exceptions, directly online.

The auditor's analysis of transactions executed on the SPRL's account is enlightening in this regard. This analysis also reveals that, apart from some minor expenses, this account recorded no other operations than those. This is not the credit institution's doing, but a succession of operations - no fewer than 2,403 - which spanned a period from April 12, 2013, to June 4, 2014, i.e., over 11 months, and concerned a cumulative amount of more than 11 million euros (Auditor's Report, Nos. 64 to 67, pp.27 to 45, and Nos. 80 to 87, pp.52 and 59, and the three summary 'slides' made available to the Sanctions Commission and the parties at the beginning of the hearing and annexed to the hearing record).

The Sanctions Commission also notes that none of the rules of the monitoring system ( ... ), nor the three identified by the anti-money laundering manager nor the other rules regarding which the auditor inquired, proved capable of detecting atypical operations such as those in this case. According to the head of the credit institution's anti-money laundering division, putting in place rules that address the cumulation of a cash deposit followed by a national transfer did not appear justified at the time (Auditor's Report - AUD 25: letter of July 8, 2015, from the credit institution to the auditor).

That the system delivered a significant number of alerts during the concerned period changes nothing and does not exclude that other atypical money laundering operations of the same type as those executed by the company could have been detected if the system had not had this flaw.

Admittedly, the suspicious transactions were ultimately discovered by the credit institution and the system was reformed to take into account the so-called 'smurfing' practice, but only in June 2014, and not following an alert generated by the monitoring system in force at the time, but following a control carried out by the fraud management service, and then, on the basis of reliable information provided by official sources, they could - and should - have been detected earlier by an efficient monitoring system (see, in addition to the sources mentioned above by the auditor, the mention in the CTIF report of October 3, 2014, of the meeting of November 20, 2012, with the management of the credit institution's compliance service - auditor's report, item AUD.4.2).

As for the alleged lack of clarity and predictability of Articles 14, § 1, of the Law and 32 of the Regulation, the Sanctions Commission rejects the objection for the same reasons that led it to dismiss it above during the examination of the first two complaints.

As a result of all this, it considers that the credit institution failed in the duty of vigilance imposed by said articles.

C.4. Obligation to declare to the CTIF (Article 25 of the Law)

Article 25 of the Law obligates the organization that has knowledge of a fact that could be an indicator of money laundering to inform the Financial Information Processing Cell (CTIF) immediately.

The auditor interprets the aforementioned Article 25 to mean that the fact in question can, notably, consist, as in this case, in a set of operations, taken separately, which did not arouse suspicion but which, due to their repetitive nature, are an indicator of money laundering, and that the lateness of the declaration must be assessed based on the time elapsed between the moment the organization had knowledge of the fact and the moment it made the declaration, and not, as the credit institution argues, starting solely from the moment

1

National Bank
OF BELGIUM
SANCTIONS COMMISSION

where the analysis of the information collected by the organization

1

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following suspicious operations creates in the MLRO a suspicion justifying a declaration to the CTIF.

According to the auditor, no account can be taken of the culpable delay in detecting the suspicious transactions. In this regard, the auditor emphasizes that it took more than 2,403 cash deposit operations distributed over 11 months, for a total amount of 9,831,805 euros, before the credit institution detected the said operations on April 11, 2014, and deduces that the declaration made on that date is manifestly late.

The credit institution argues that due to the lack of a general description in the legislation of the notion of 'suspicious transaction', it is up to the credit institution to assess the moment at which one or more operations acquire a suspicious character and that, in the absence of a fixed deadline, the declaration must be made as soon as possible given the circumstances.

It distinguishes two steps to assess the moment at which the declaration should be made: (i) the existence of an atypical operation that implies an obligation to gather, collect, and analyze information, and (ii) the degree of analysis necessary to identify, gather, verify, and analyze facts and relevant elements to make a detailed, complete, and coherent declaration to the CTIF.

In this case, a suspicious transaction having been reported on April 11, 2014, to the AML division by the 'fraud management service', information was collected regarding the SPRL and based on this, the decision was made to declare the facts to the CTIF and terminate the relationship with the SPRL (auditor's file - AUD 7.22). The delay of one and a half months between April 11 and June 2, 2014, can be considered appropriate and reasonable.

The representative of the NBB management committee estimated at the hearing that the credit institution failed in its obligation to declare immediately to the CTIF prescribed by Article 25 of the Law.

The Sanctions Commission considers that Article 25 of the Law covers not only the isolated fact that could be an indicator of money laundering but also a set of operations, none of which, taken separately, would have aroused suspicion but which, due to their repetitive nature, appear suspicious (Doc.par!. Senate, S.E.1991-1992 report, doc. No. 468/2, p.30) and that the organization, as a professional, is able to give concrete content to money laundering practices and its obligations in this matter. Reference is made in this regard to the previous considerations concerning the principle of legality of offenses. As for the term 'immediately', it must be understood in its usual sense, meaning 'right after' (that the organization had knowledge of the fact) (Le Robert French Language Dictionary).

The Sanctions Commission considers that it cannot follow the credit institution's subjective conception according to which the deadline for making the declaration only runs from the moment the organization has acquired personal conviction that the facts constitute money laundering, but rather from the moment when objectively it should have, as a reasonable professional, detected the suspicious transactions and declared them to the CTIF. In this instance, the practice should have been detected much earlier and declared well before June 11, 2014, to the CTIF.

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SANCTIONS COMMISSION

It follows that the obligation to declare immediately prescribed by Article 25 of the aforementioned Law has been transgressed.

D. SANCTION

D.1. Administrative Fine

In the event that the Sanctions Commission decides to impose a fine under Article 40 of the Law, the credit institution insists that at all stages of the investigation, it fully cooperated with the auditor and spontaneously drew the lessons from this case to adapt its second-line device. Moreover, it derived no advantage from the money laundering operations.

The representative of the NBB management committee having, at the hearing, proposed to set the amount of the fine in a range of 250,000 to 500,000 euros, the credit institution estimated that a fine of this amount would be totally disproportionate and advanced a maximum amount of 10,000 euros.

Article 36/11, § 4, of the Organic Law states: "Unless additional or different criteria are fixed by specific Laws, the amount of the fine is fixed based on the severity of the breaches committed and in relation to the advantages or profits potentially derived from these breaches."

The Sanctions Commission considers that, under this legal provision, it is necessary to take into account, on the one hand, the severity of the breaches committed resulting from their cumulative character as well as the number, repetition, importance, and duration of the money laundering operations, and, on the other hand, the advantages that the credit institution could have derived from maintaining the business relationship with the client for some eleven months and the lateness of updating its automatic monitoring system.

To fix the amount of the fine, one must also take into account the absence of prior conviction for facts of the same nature and the circumstance that after the admittedly late detection of money laundering and the malfunction of its detection system, the credit institution voluntarily made the necessary corrections to it. However, its loyal collaboration in the investigation cannot be considered a mitigating circumstance, as such collaboration from a bank is entirely normal.

For these reasons, the Sanctions Commission decides that a just application of the law requires imposing an administrative fine of 250,000 euros on the credit institution.

D.2. Publication of the Decision

Pursuant to Article 36/11, § 6, of the Organic Law, the Sanctions Commission's decisions are published on the NBB website in a named manner unless this publication risks compromising the stability of the financial system or an ongoing investigation or criminal procedure, or causing disproportionate harm to the persons concerned or the institutions to which these persons belong.

The representative of the NBB management committee is of the opinion that, given the severity of the facts, it would be appropriate to proceed with the named publication of the decision.

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The credit institution pleads good faith. A named publication of the decision would, for the same reasons as those mentioned above, be totally disproportionate.

The Sanctions Commission considers that the aforementioned legal provision applies the principles of personalization and proportionality of the sanction to the form - named or anonymized - of the publication.

It considers that if there is no risk in this case of compromising the stability of the financial system or an ongoing investigation or criminal procedure, publishing the decision in a named manner on the NBB website would risk causing disproportionate harm to the reputation of the credit institution and the personnel of its AML division.

As a result, it decides to publish this decision in an anonymized manner on the NBB website.

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20/22

National Bank of Belgium

Commission of Sanctions

DECISION

The Commission of Sanctions of the National Bank of Belgium, having deliberated in plenary session,

rules as follows:

The procedure is regular and, consequently, there is no reason to reject the auditor's reply;

declares established against the credit institution the breaches of:

• The obligation of identification prescribed by Article 12 of the Regulation of the Banking, Finance and Insurance Commission of 23 February 2010 relating to the prevention of money laundering and terrorist financing;
• The obligation to provide for an adequate client acceptance policy imposed by Article 26 of the same Regulation;
• The duty of vigilance referred to in Article 14, § 1, of the Law of 11 January 1993 relating to the use of the financial system for the purpose of money laundering and terrorist financing;
• The duty of vigilance prescribed by Article 14, § 1, of the aforementioned Law and Article 32 of the aforementioned Regulation;
• The obligation to report to the CTIF (Financial Intelligence Processing Unit) under Article 25 of the aforementioned Law;

as these various texts were applicable at the time of the facts;

for all these breaches, imposes on the credit institution an administrative fine of 250,000 (two hundred fifty thousand) euros;

decides to publish this decision in a non-named manner on the website of the National Bank of Belgium;

rules that this decision will be, in accordance with Article 36, § 5, of the Law of 22 February 1998 establishing the organic statute of the National Bank of Belgium, notified to the credit institution by registered letter, which will indicate the avenues of appeal;

rules that this decision will be, in accordance with Article 36, § 6, of this same law, communicated to the Management Committee of the National Bank of Belgium prior to its publication.

Brussels, 20 April 2017

[Signature]

L. ROBERT ANDERSEN,
PRESIDENT

FILIP VAN VOLSEM, DIRK SCHOETERS,
MEMBER MEMBER

HENRI BARTHOLOMEEUSEN,
MEMBER

HERMAN MATTHIJS,
MEMBER