Amicable settlement proposed by the NBB Board of Directors and accepted by BANK X

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Amicable settlement proposed by the NBB Board of Directors and accepted by BANK X This amicable settlement, reached taking into account the auditor's report dated 18 August 2016, was proposed by the Board of Directors 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 establishing the organic statute (hereinafter "the Act of 22 February 1998") of the National Bank of Belgium (hereinafter the "NBB"); Having regard to the decision of the NBB Board of Directors 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 preventing the use of the financial system for money laundering and terrorist financing (hereinafter, "the Act of 11 January 1993") following certain banking transactions carried out by one of its clients; Having regard to the investigative acts performed by the auditor; Having regard to the fact that BANK X had the opportunity to, in accordance with Article 36/9, § 2 of the Act of 22 February 1998, formulate its comments on the 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 of Directors; Having regard to Article 36/10, § 3 of the Act of 22 February 1998 which allows the Board of Directors 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 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 on the basis of which credit institutions must establish appropriate and suitable procedures to determine whether a client is a politically prominent person (hereinafter "PEP") and, depending on the risk sensitivity, apply enhanced customer due diligence measures in situations that, by their nature, may contain 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 on the basis of which credit institutions had a transitional period of one year after the entry into force of the legislative amendment of 18 January 2010, i.e., until 4 February 2011, to take appropriate and suitable measures in light of the risk to identify politically prominent 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") on the basis of which credit institutions are obliged, within a time limit determined according to the risk, to verify and, if necessary, update the data constituting the risk profile of clients with whom they have a business relationship, when they have indications that these data are no longer up-to-date, in order to fulfill their ongoing vigilance obligation; Having regard to Articles 12, § 3, paragraph, 6, 4° and 14, §§ 1 and 2 of the Act of 11 January 1993 on the basis of which credit institutions must exercise enhanced vigilance regarding their business relationships with PEPs and ensure careful investigation of transactions carried out by PEPs and, if necessary, the origin of the funds in light of the knowledge they have of their client and their profile, and with particular attention, investigate transactions that, by the nature of the transactions or by their unusual character considering among other things the activities of the client, the accompanying circumstances of the transactions, or the status of the person involved, 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 on the basis of which the vigilance that credit institutions must exercise regarding the transactions of their clients 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, based on appropriate criteria made available by the credit institutions, detect atypical transactions, devote specific attention to them, and draw up a written report which they submit to the anti-money laundering officer of the institution; 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 provide written reports on the detected atypical transactions to be submitted to the anti-money laundering officer; Having regard to Articles 23 and 24 of
the Act of 11 January 1993 on the basis of which credit institutions, when they know or suspect that a transaction to be carried out is related to money laundering or terrorist financing, must report this to the CFI before carrying out the transaction or, insofar as reporting 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 € 139,290. In addition, during the same period, a number of 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 (with these transactions, descriptions were included as “consultancy fee for preparation of development and natural resource management in [land 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 prominent person:
2. Mr. A, a citizen of land B, was on 27 July 2004, the time of the start of the business relationship with BANK X, a member of the Parliament of land B. He remained a parliamentarian until March 2007, after which he was a minister from October 2008 to May 2011. Subsequently, from May 2011 to October 2012, he was a parliamentarian again. From October 2012, he was a minister again, until May 2015. He had his domicile in land 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 was maintained 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 prominent person (PEP) living abroad, in accordance with Article 12, § 3, paragraph 1, 1° of the Act of 11 January 1993. During this period, he held a prominent public function within the meaning of Article 12, § 3, paragraph 2, 1° and 2° of the Act of 11 January 1993, namely the function of parliamentarian (July 2004 - March 2007 and May 2011 - October 2012) and that of minister (October 2008 - May 2011 and October 2012 - May 2015). BANK X, however, only designated Mr. A as a PEP in its systems on 30 October 2013. The corresponding increase in the risk profile awaited even longer, 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 multiple opportunities after the start of the business relationship to actually 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 nothing;
• following the meeting between BANK X's first-line employee and Mr. A on 5 December 2011, several emails were sent between this first-line employee and BANK X's central AML Unit. 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, following 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, whereby credit institutions had until 4 February 2011 the time to identify politically prominent persons among their clients existing on 5 February 2010. From the information submitted by BANK X in this file, it appears that the credit institution did not set up a separate exercise or specific project for this, but included the detection of PEPs among its existing clients in the exercise of its vigilance obligation. The fact is that BANK X did not detect Mr. A as a PEP during this transitional 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 stated above, the latter only occurred on 24 May 2014.
3. From the foregoing, it must be concluded that BANK X did not do enough following the entry into force of the legislative amendment of 18 January 2010 to introduce appropriate and suitable procedures in light of the risk to determine whether a client or his ultimate beneficiary is a politically prominent person. The latter is required, however, to apply enhanced customer due diligence measures depending on the risk sensitivity in situations that, by their nature, may contain a higher risk of money laundering or terrorist financing, such as business relationships with PEPs. Credit institutions had a transitional period of one year after the entry into force of the legislative amendment of 18 January 2010, i.e., until 4 February 2011, to take “appropriate and suitable measures” in light of the risk to identify politically prominent 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 regulation, but included the execution of its obligations in this regard in the execution of its vigilance obligation. This, however, 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 effort and not an obligation of result does not detract from this. BANK X did not meet this obligation of effort given the following elements:

• from the information submitted by BANK X, it does not appear 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 vigilance obligation regarding business relationships with politically prominent persons:

4. Regarding the revision of the risk profile, the investigation shows that BANK X was aware during the investigated period 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, during the period December 2011 – January 2012, following a visit by Mr. A to BANK X's 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 to a revision of Mr. A's (standard) risk profile during the investigated period.
   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 up-to-date.
5. Furthermore, it appears that from December 2011, in BANK X's first-line supervision, partly on the indication of BANK X's central AML Unit, clarity existed regarding the increased risk Mr. A represented at the AML level. This prompted the first-line employee, however, to request documents from Mr. A proving the source 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 credited to Mr. A's accounts were numerous and involved significant amounts;
• the cash transactions were made on Mr. A's accounts, a PEP from land B, a country that was designated as a “high risk” country within BANK X during the investigated period;
• at the time of the cash deposits, there was no clear economic explanation for these transactions;
• the documents submitted by Mr. A to prove the source of the funds did not conclusively show 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 agreements, should have at least raised the question of the possibility of corruption.
  ii. the consultancy agreement with Company Z, established in the Seychelles, concerns extraction in land B. This should have raised the question of whether this structure corresponded to an economic reality and whether this was not a structure with a shell company from an offshore area whose bank account (at a bank in Mauritius, also an offshore) 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 wondered whether this consultancy agreement served solely to meet his request at the end of 2011 to credit Mr. A's accounts only by transfer and not by cash deposit.

6. BANK X's first-line employees adopted an insufficiently critical attitude regarding the content of the documents submitted by Mr. A and which were intended to justify 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 source of the funds credited to Mr. A's accounts and prompted him to take further action. From the file, it does not appear, however, that the first-line employee reported to BANK X's AML Unit the transactions on Mr. A's accounts, which had an atypical character not refuted by the content of the justification documents submitted by Mr. A.
   BANK X's first-line supervision therefore functioned insufficiently.
7. Regarding second-line supervision, the investigation 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 investigated period. These alerts, however, 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 the instruction of the Liège Public Prosecutor's Office. This analysis, moreover, did not concern all nine alerts in the automated monitoring system, but only the four alerts dated after 1 September 2012, since the time-limited 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 they were created in the automated monitoring system, BANK X did not act in accordance with its own internal procedural regulations regarding the prioritization of handling alerts in the automated monitoring system. These regulations were included in the bank's second-line procedure during the investigated period 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 then only for a portion of these alerts. Furthermore, there is the fact that BANK X's central AML Unit was aware at the latest in December 2011 of the increased risk Mr. A represented at the AML level, as evidenced by the email correspondence conducted at that time between the first-line employee and BANK X's central AML Unit, which clearly pointed out several risk factors. Nevertheless, the central AML Unit did not take initiatives to investigate the alerts subsequently created in the automated monitoring system following transactions on Mr. A's accounts, at the time they were created 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 submitted 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 stated above (see para. 5), these transactions should have been considered atypical. Moreover, at the time of the report to the CFI, almost two years had passed since the email correspondence between the first-line employee and BANK X's central AML Unit in which the increased AML risk Mr. A represented was pointed out. Also, at that time, more than one year had passed since the time Mr. A last submitted justification 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 investigation and which confirm the factual elements described; Considering that BANK X provided full cooperation in the course of the investigation and acknowledged the factual elements described above; Considering that an amicable settlement allows for a quick and definitive resolution of the procedure instituted against BANK X; Considering that the amount of the amicable settlement must be proportional to the nature of the facts; For these reasons, the Board of Directors 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 context of this amicable settlement are collected for the benefit of the Treasury by the General Administration of Collection and Recovery of the FPS Finance.