Amicable Settlement Proposed by the Board of the NBB and Accepted by BANK X

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Amicable settlement proposed by the Board of the NBB and accepted by BANK X This amicable settlement, reached with due regard to the auditor's report dated 18 August 2016, was proposed by the Board of the National Bank of Belgium to BANK X on 30 August 2016, and was accepted by the latter on 16 September 2016.

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Having regard to Articles 36/9 and 36/10 of the Act of 22 February 1998 laying down the organic statute (hereinafter referred to as "the Act of 22 February 1998") of the National Bank of Belgium (hereinafter referred to as the "NBB"); Having regard to the decision of the Board of the NBB of 29 April 2014, applying Article 36/9, §1, first paragraph of the Act of 22 February 1998, to order the auditor to conduct an investigation in the interest and against BANK X regarding serious indications of violation of the provisions of the Act of 11 January 1993 on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing (hereinafter, "the Act of 11 January 1993") in relation to certain banking transactions carried out by one of its clients; Having regard to the investigative acts carried out by the auditor; Having regard to the fact that BANK X had the opportunity, in accordance with Article 36/9, § 2 of the Act of 22 February 1998, to formulate its comments on the auditor's preliminary factual findings communicated to it by letter of 10 June 2016; Having regard to the content of the comments that BANK X submitted to the auditor on 18 July 2016; Having regard to the auditor's report dated 18 August 2016, which was submitted to the Board; Having regard to Article 36/10, § 3 of the Act of 22 February 1998, which allows the Board to propose an amicable settlement and, if its proposal is accepted, to publish it in a non-nominative manner on the NBB website; Having regard to the fact that the final report of the auditor, together with the proposal for an amicable settlement, was submitted to BANK X.

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Having regard to Article 12, § 3, paragraph 6, 1° of the Act of 11 January 1993, under which credit institutions must implement appropriate and suitable procedures to determine whether a client is a politically exposed person (hereinafter "PEP") and, depending on the risk sensitivity, apply enhanced customer due diligence measures in situations that, by their nature, may entail a higher risk of money laundering or terrorist financing;

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Having regard to Article 44, paragraph 3 of the Act of 11 January 1993, under which credit institutions had a transition period of one year following the entry into force of the legislative amendment of 18 January 2010, i.e., until 4 February 2011, to take appropriate and suitable measures to identify politically exposed persons among their clients existing on 5 February 2010 and to apply the specific measures referred to in Article 12, § 3, paragraph 6 of the Act of 11 January 1993; Having regard to Article 30 of the CBFA Regulation of 23 February 2010 concerning the prevention of money laundering and terrorist financing (hereinafter, "the Regulation of 23 February 2010"), under which credit institutions are required to verify and, where necessary, update the data constituting the risk profile of clients with whom they have a business relationship, within a timeframe determined according to risk, when they have indications that such data are no longer current, in order to fulfill their ongoing duty of vigilance; Having regard to Articles 12, § 3, paragraph, 6, 4° and 14, §§ 1 and 2 of the Act of 11 January 1993, under which credit institutions must exercise enhanced vigilance regarding their business relationships with PEPs and ensure careful scrutiny of transactions carried out by PEPs and, where applicable, the origin of funds, in light of their knowledge of their client and their profile, and must specifically investigate transactions that, by their nature or unusual character given inter alia the client's activities, the accompanying circumstances of the transactions, or the status of the person concerned, they consider particularly susceptible to money laundering or terrorist financing, and must draw up a written report on this investigation; Having regard to Articles 31, paragraph 2 and 32 of the Regulation of 23 February 2010, under which the vigilance that credit institutions must exercise regarding their clients' transactions must be expressed at two levels, namely first-line and second-line supervision. Based on these provisions, credit institutions must organize appropriate first-line supervision, i.e., supervision by employees of the credit institution who are in direct contact with clients, whereby these employees detect atypical transactions based on appropriate criteria made available by the credit institution, pay specific attention to them, and draw up a written report which they submit to the institution's anti-money laundering compliance officer; credit institutions must supplement this first-line supervision with second-line supervision, which uses an automated monitoring system that must meet certain specific requirements and which must deliver written reports on the detected atypical transactions to the anti-money laundering compliance officer; Having regard to Articles 23 and 24 of the Act of 11 January 1993, under which credit institutions, when they know or suspect that a transaction to be carried out is related to money
laundering or terrorist financing, must notify the Financial Intelligence Processing Unit (CFI) before carrying out the transaction or, if notification before the execution of the transaction is not possible, immediately after the execution of the transaction;

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Considering that the investigation in the interest and against has led to the following findings:

1. The facts under investigation relate to transactions carried out during the period from 1 January 2010 to 15 November 2013 on the current and savings accounts held by Mr. A at BANK X. More specifically, regular cash deposits were made on these accounts during the aforementioned period, totaling an amount of € 139,290. In addition, during the same period, several credit transactions were made on Mr. A's accounts. Specifically, these involved six incoming international transfers from an account held by Company Z in the Seychelles at Bank Y in Mauritius, for a total amount of USD 350,000 (these transactions included descriptions such as "consultancy fee for preparation of development and natural resource management in [Country B]") and two incoming transfers via Western Union Retail Services Belgium SA for a total amount of € 29,938.08 (with the respective descriptions "paiement d’un montant de 15.243,44 au nom de monsieur A" and "20000 USD 15/07/2013").
   Client acceptance policy and identification as a politically exposed person:
2. Mr. A, a national of Country B, was on 27 July 2004, at the time the business relationship with BANK X began, a member of the Parliament of Country B. He remained a Member of Parliament until March 2007, after which he was a Minister from October 2008 to May 2011. Subsequently, from May 2011 to October 2012, he was again a Member of Parliament. From October 2012, he was Minister again until May 2015. He had his domicile in Country B throughout the entire described period (July 2004 – May 2015).
   Upon accepting Mr. A as a client in 2004, BANK X assigned him a standard risk profile. This profile remained unchanged until 24 May 2014, when it was changed to "very high" following an automated risk profile determination.
   During the aforementioned period, Mr. A therefore had to be considered continuously as a politically exposed person (PEP) residing abroad, in accordance with Article 12, § 3, paragraph 1, 1° of the Act of 11 January 1993. Indeed, during this period, he held a prominent public office within the meaning of Article 12, § 3, paragraph 2, 1° and 2° of the Act of 11 January 1993, namely the office of Member of Parliament (July 2004 - March 2007 and May 2011 - October 2012) and that of Minister (October 2008 - May 2011 and October 2012 - May 2015). However, BANK X only designated Mr. A as a PEP in its systems on 30 October 2013. The corresponding increase in the risk profile was even longer delayed, namely until 24 May 2014. The fact that Mr. A was not designated as a PEP in BANK X's systems for years is striking, given that the credit institution had concrete opportunities on several occasions after the start of the business relationship to detect this PEP status and designate Mr. A as such in its administrative systems:

• on 19 October 2007, BANK X screened its entire client base against WorldCheck. Despite the fact that Mr. A was already designated as a PEP in WorldCheck at that time, BANK X stated that this exercise yielded no results;
• following the meeting between the first-line employee of BANK X and Mr. A on 5 December 2011, several emails were sent between this first-line employee and the central AML Unit of BANK X. This correspondence clearly mentions Mr. A's PEP status. Thus, the first-line employee mentions Mr. A's political functions in his email of 13 December 2011. In her reply of 16 December 2011, the central AML Unit explicitly points out Mr. A's PEP status as one of the elements contributing to him representing an increased AML risk. Nevertheless, as a result of this correspondence and the factual indication of Mr. A as a PEP, BANK X did not proceed to qualify Mr. A as a PEP in its administrative systems;
• on 5 February 2010, the Act of 18 January 2010 entered into force, resulting in credit institutions having until 4 February 2011 to identify politically exposed persons among their clients existing on 5 February 2010. The information provided by BANK X in this file shows that the credit institution did not set up a separate exercise or specific project for this purpose, but included the detection of PEPs among its existing clients in the exercise of its duty of vigilance. The fact is that BANK X did not detect Mr. A as a PEP during this transition period and did not designate him as such in its systems.

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Furthermore, the detection of Mr. A as a PEP and his registration as such in BANK X's systems on 30 October 2013 did not immediately result in Mr. A being placed in an increased risk category. As indicated above, the latter only occurred on 24 May 2014.
3. From the foregoing, it must be concluded that BANK X did not do what was necessary following the entry into force of the legislative amendment of 18 January 2010 to implement appropriate and suitable procedures to determine whether a client or his ultimate beneficial owner is a politically exposed person. The latter is required to apply enhanced customer due diligence measures depending on risk sensitivity in situations that, by their nature, may entail a higher risk of money laundering or terrorist financing, such as business relationships with PEPs. Credit institutions had a transition period of one year following the entry into force of the legislative amendment of 18 January 2010, i.e., until 4 February 2011, to take "appropriate and suitable measures" to identify politically exposed persons among their clients existing on 5 February 2010 and to apply the specific measures referred to in Article 12, § 3, paragraph 6 of the Act of 11 January 1993. BANK X did not set up a concrete project to meet its obligations under this transitional provision, but included the execution of its obligations in this regard in the execution of its duty of vigilance. However, this did not result in BANK X identifying Mr. A as a PEP in its systems by 4 February 2011.
The fact that the obligation to determine whether a client belongs to one of the categories listed in Article 12, § 3, first paragraph, of the Act of 11 January 1993 entails an obligation of means and not an obligation of result does not detract from this. BANK X did not comply with this obligation of means given the following elements:

• the information provided by BANK X does not show that the bank conducted a check after 19 October 2007 to determine whether Mr. A qualified as a PEP;
• BANK X did not introduce a specific procedure or set up a specific project in 2010, upon the entry into force of the legislative amendment of 18 January 2010, to detect PEPs among its existing client base;
• by the end of 2011 at the latest, information was available to the first- and second-line employees of BANK X indicating that Mr. A should be considered a PEP. Based on this information, no action was taken to formally designate Mr. A as a PEP.
  Enhanced duty of vigilance regarding business relationships with politically exposed persons:

4. Regarding the revision of the risk profile, the investigation shows that BANK X was aware during the period under investigation of Mr. A's PEP status and had indications that Mr. A represented an increased risk, as well as that certain employees of BANK X recognized this. Thus, in the period December 2011 – January 2012, following a visit by Mr. A to the BANK X agency, email correspondence took place between the first line and the central AML Unit, in which this increased risk was discussed. These indications and knowledge, however, did not lead during the period under investigation to a revision of Mr. A's (standard) risk profile.
   It must therefore be established that BANK X did not proceed to update Mr. A's risk profile when it had indications that this profile was no longer current.
5. Furthermore, it appears that from December 2011, clarity existed at BANK X's first-line supervision, partly on the initiative of BANK X's central AML Unit, regarding the increased risk that Mr. A represented in terms of AML. This prompted the first-line employee to request documents from Mr. A proving the origin of the funds, but the first-line employee ultimately took no action when he received the requested documents.
   Nevertheless, these documents should have raised questions in the first-line employee regarding the economic basis and legitimacy of the transactions, for the following reasons:

• the cash deposits crediting Mr. A's accounts were numerous and involved significant amounts;
• the cash transactions were made on Mr. A's accounts, a PEP from Country B, a country that was designated as a "high risk" country within BANK X during the period under investigation;
• at the time of the cash deposits, there was no clear economic explanation for these transactions;
• the documents provided by Mr. A to prove the origin of the funds did not unequivocally demonstrate the legitimate origin of the funds:
  i. the installed system whereby petroleum companies pay bonuses to an interministerial commission and to individual ministers upon concluding contracts should have at least raised questions about the possibility of corruption.
  ii. the consultancy agreement with Company Z, established in the Seychelles, relates to extraction in Country B. This should have raised the question of whether this structure corresponded to an economic reality and whether this was not a structure involving a shell company from an offshore area whose bank account (at a bank in Mauritius, also an offshore jurisdiction) was used as a pass-through account. Moreover, large amounts were paid to Mr. A based on the consultancy agreement for consultancy services that were not clearly described in the agreement. Finally, the first-line employee should have questioned whether this consultancy agreement was not solely intended to meet his request at the end of 2011 to credit Mr. A's accounts only by transfer and not by cash deposit.

6. The first-line employees of BANK X adopted an insufficiently critical attitude towards the content of the documents provided by Mr. A, which were intended to substantiate the transactions on Mr. A's accounts at BANK X. The content of these documents should have raised questions in the first-line employee regarding the legitimacy of the origin of the funds crediting Mr. A's accounts and prompted him to take further action. The file does not show, however, that the first-line employee reported the transactions on Mr. A's accounts, which had an atypical character not rebutted by the content of the substantiating documents provided by Mr. A, to the AML Unit of BANK X.
   BANK X's first-line supervision therefore functioned insufficiently.
7. Regarding second-line supervision, the investigation conducted shows that the aforementioned cash transactions and international deposits on Mr. A's accounts at BANK X generated nine alerts in the automated monitoring system, BANK X's automated monitoring system, during the period under investigation. However, these alerts were not investigated by BANK X's second-line employees at the time they were created in the automated monitoring system. They were only analyzed for the first time as part of the compliance investigation that BANK X conducted from late October 2013 to mid-November 2013 following the blocking of Mr. A's current account on instructions from the Liège Public Prosecutor's Office. This analysis did not concern all nine alerts in the automated monitoring system, but only the four alerts dated after 1 September 2012, since the retrospective investigation only went back to that date due to the procedures used by BANK X in compliance investigations.
   By not investigating the aforementioned alerts at the time of their creation in the automated monitoring system, BANK X did not act in accordance with its own internal procedural rules regarding the prioritization of the handling of alerts in the automated monitoring system. These rules were included in the bank's second-line procedure during the period under investigation and distinguished between alerts based on several risk criteria, such as the risk profile of the client's country, the risk associated with the country from which an incoming international transfer is executed, etc. BANK X only proceeded to analyze these alerts as part of the compliance investigation running from late October 2013 to mid-November 2013, and even then, only for a portion of these alerts. Furthermore, the central AML unit of BANK X was clearly aware by December 2011 at the latest of the increased risk that Mr. A represented in terms of AML, as evidenced by the email correspondence conducted at that time between the first-line employee and the central AML Unit of BANK X, in which several risk factors were clearly pointed out. Nevertheless, the central AML Unit did not take initiatives to investigate the alerts subsequently created in the automated monitoring system regarding the transactions on Mr. A's accounts at the time of their creation in the automated monitoring system. From the foregoing, it must be established that BANK X's second-line supervision functioned insufficiently. Reporting obligation to the CFI:
8. BANK X made a report to the CFI on 15 November 2013, following the investigation that BANK X had conducted in the preceding weeks. At that time, more than three years of cash deposits and international incoming payments from Company Z had already taken place on Mr. A's accounts. As indicated above (see margin no. 5), these transactions should have been considered atypical. Moreover, at the time of the report to the CFI, nearly two years had passed since the email correspondence between the first-line employee and the central AML unit of BANK X in which the increased AML risk represented by Mr. A was pointed out. Also, at that time, more than one year had passed since the time when Mr. A last provided substantiating documents to the first-line employee.
   Consequently, BANK X's report to the CFI was not made in a timely manner.

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Having regard to the statements of BANK X recorded during the course of the investigation, which confirm the factual elements described; Considering that BANK X has provided full cooperation in the course of the investigation and has acknowledged the factual elements described above; Considering that an amicable settlement allows for a swift and final resolution of the procedure instituted against BANK X; Considering that the amount of the amicable settlement must be proportionate to the nature of the facts; For these reasons, the Board of the NBB proposes to BANK X, as an amicable settlement within the meaning of Art. 36/10, § 3 of the Act of 22 February 1998, the payment of the sum of € 250,000;

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In accordance with Art. 36/10, § 3 of the Act of 22 February 1998, the amicable settlement is published in a non-nominative manner on the NBB website, and the amounts paid in the framework of this amicable settlement are collected for the benefit of the Treasury by the General Administration of Collection and Recovery of the FPS Finance.