Central Bank of Lebanon Circular No. 523: Amendment to the Regulations on the Control of Financial and Banking Operations for Fighting Money Laundering and Terrorist Financing

Circular No. 523

For Banks and Financial Institutions

We enclose herewith a copy of Intermediary Decision No. 13093 dated 7/8/2019 concerning the amendment of the system for the control of financial and banking operations for fighting money laundering and terrorist financing, attached to the Basic Decision No. 7818 dated 18/5/2001, subject of the Basic Circular No. 83.

Beirut, 7 August 2019

Governor of the Central Bank of Lebanon

Riad T. Salam

Intermediary Decision No. 13093

Amendment of the "System for the Control of Financial and Banking Operations for Fighting Money Laundering and Terrorist Financing"

The Governor of the Central Bank of Lebanon,

Pursuant to the provisions of Law No. 44 dated 24/11/2015 on the fight against money laundering and terrorist financing, particularly Article 4 thereof,

Pursuant to Basic Decision No. 7818 dated 18/5/2001 and its amendments concerning the system for the control of financial and banking operations for fighting money laundering and terrorist financing,

And pursuant to the powers vested in the Governor by the principle of continuity of the public service,

Decides as follows:

Article 1: The text of Article 2 of the "System for the Control of Financial and Banking Operations for Fighting Money Laundering and Terrorist Financing" attached to Basic Decision No. 7818 dated 18/5/2001 is repealed and replaced by the following text:

"A bank shall not enter into a correspondent relationship with a shell bank or continue such a relationship,

When establishing relationships with a foreign correspondent bank, it must be ensured that it has an actual presence, based on documentary evidence obtained, in addition to not dealing with shell banks, having a good reputation, being subject to good supervision, and adopting adequate and effective procedures to combat money laundering and terrorist financing.

In addition to the foregoing, the bank shall apply the following procedures:

1. Obtaining approval from senior executive management before establishing relationships with correspondent banks.
2. Verifying the nature of the activity of the foreign bank with which it deals ('Bank Respondent').
3. Determining the responsibility of each of the bank and the foreign bank with which it deals ('Respondent Bank').
4. Taking steps to reach a self-assessment, regarding the payment accounts (Accounts Through Payable) opened for it by foreign correspondent banks, that these banks have fulfilled their due care obligations towards customers who have direct access to the correspondent bank's accounts, and ensuring that the latter is able to provide relevant due care information upon request."

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Article 2: The beginning of paragraph (2) of Article 3 of the "System for the Control of Financial and Banking Operations for Fighting Money Laundering and Terrorist Financing" attached to Basic Decision No. 7818 dated 18/5/2001 is repealed and replaced by the following text:

"2. Banks, each in respect of its own affairs, must refrain from holding anonymous accounts or accounts in fictitious names, and must adopt clear procedures for opening accounts, and apply due care procedures which include verifying the identity of each of its permanent and occasional customers, residents and non-residents, and determining the nature of their work, understanding how the ownership structure of legal persons and/or how control over them is exercised, and understanding and determining the purpose of the transaction and/or of opening the account and the type of any of them and the 'Beneficial Owner', sources of funds, and monitoring operations continuously, especially in the following cases:"

Article 3: The text of both paragraph (3) and paragraph (5) of Article 3 of the "System for the Control of Financial and Banking Operations for Fighting Money Laundering and Terrorist Financing" attached to Basic Decision No. 7818 dated 18/5/2001 is repealed and replaced by the following text:

"3. The employee responsible for executing the operation must apply due care procedures, including verifying the customer's identity, regardless of the value of the operation, if it is observed that multiple operations are conducted in amounts less than the minimum mentioned in paragraph (2) of this Article, and their total reaches or exceeds 10,000 L.L. or its equivalent, on the same account or on multiple accounts for one person, or if there is suspicion that a customer is attempting money laundering or terrorist financing."

"5. The bank must retain information about the customer and the beneficial owner, particularly their full name, place of residence address, and profession, and about their financial status, and copies of all documents relied upon for verification, and account files for a period of five years minimum after closing the account or ending the business relationship, and all documents related to all operations, including commercial correspondence and results of any analysis conducted, for a period of five years minimum after completing the operation, such that these records can serve as evidence for legal action against criminal activity if necessary."

Article 4: Paragraph (7) is added to Article 3 of the "System for the Control of Financial and Banking Operations for Fighting Money Laundering and Terrorist Financing" attached to Basic Decision No. 7818 dated 18/5/2001, the text of which is:

"7. When opening numbered deposit accounts for their customers in accordance with Article 1 of the Bank Secrecy Law dated 3/9/1956, banks must use numbers and/or letters exclusively for the designation of these accounts, refrain from using aliases, and apply all due care procedures regarding them."

Article 5: The following paragraph is added to Article 5 of the "System for the Control of Financial and Banking Operations for Fighting Money Laundering and Terrorist Financing" attached to Basic Decision No. 7818 dated 18/5/2001:

"- It has reasonable grounds to believe that the implementation of due care procedures will alert the customer to the bank's suspicion regarding money laundering or terrorist financing, and in this case, the bank is permitted to cease these procedures."

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Article 6: The text of paragraph (1) of Article 7 of the "System for the Control of Financial and Banking Operations for Fighting Money Laundering and Terrorist Financing" attached to Basic Decision No. 7818 dated 18/5/2001 is repealed and replaced by the following text:

"1. The bank must apply enhanced due care procedures, including requesting information from the customer about the sources and destination of funds, the subject of the operation, the identity of the beneficiary, and the beneficial owner, when the operation involves the following characteristics:
a) The operation is conducted under unusual conditions of complexity, and the bank must assess these circumstances not only by looking at the type and nature of the operation, but also by looking at its apparent goal. b) The operation appears to have no economic or legitimate purpose, especially due to the discrepancy between the operation and the customer's professional activity or even between it and their habits or personality. c) One of the parties to the operation is a national of a country or resident in a country that does not apply the recommendations of the Financial Action Task Force (FATF) or applies them inadequately, and this is verified through periodic review of the FATF website after each of its general meetings."

Article 7: The text of paragraph (b) of Article 8 of the "System for the Control of Financial and Banking Operations for Fighting Money Laundering and Terrorist Financing" attached to Basic Decision No. 7818 dated 18/5/2001 is repealed and replaced by the following text:

"b) That the units and departments referred to in Article 11 of this system monitor the opened accounts and operations conducted for them, through specialized software programs that allow monitoring of accounts and operations, which are subject to the indicators mentioned above, based on customer profiling, and to extract periodic reports from them (daily, weekly, monthly, annual)."

Article 8: The text of paragraph (b) of paragraph (1) of Article 9 of the "System for the Control of Financial and Banking Operations for Fighting Money Laundering and Terrorist Financing" attached to Basic Decision No. 7818 dated 18/5/2001 is repealed and replaced by the following text:

"b) Politically Exposed Persons (PEPs) - definition by the Financial Action Task Force."

Article 9: The text of the clause "secondly" of Article 9 of the "System for the Control of Financial and Banking Operations for Fighting Money Laundering and Terrorist Financing" attached to Basic Decision No. 7818 dated 18/5/2001 is repealed and replaced by the following text:

"Secondly: Establishing risk-based control measures and procedures (Risk Based Control):
Adopting, as a minimum and in respect of customers, 'beneficial owners', their family members, politically exposed persons, and their close associates, and operations classified as 'high risk' (High Risk Scoring), the following enhanced measures and procedures:

1. Increasing awareness of the importance of strict monitoring and giving it priority, and conducting continuous enhanced monitoring of the business relationship.
2. Obtaining from the customer more detailed information and 'beneficial owners' regarding the identification of the source of their wealth (Increased KYC Levels).
3. Obtaining senior management approval to deal with or continue dealing with the customer and to execute operations, commensurate with the determined risk level.
4. Conducting periodic reviews of the customer relationship (Periodic review of relationship).
5. Conducting continuous comparison with the adopted peer classification (Peer Comparison).
6. Establishing an appropriate system to determine if the customer or 'beneficial owner' is a politically exposed person."

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Article 10: Paragraph (c) is added to paragraph (2) of Article 11 of the "System for the Control of Financial and Banking Operations for Fighting Money Laundering and Terrorist Financing" attached to Basic Decision No. 7818 dated 18/5/2001, the text of which is:

c) "Verification of the application of anti-money laundering and terrorist financing programs at the group level, including all branches and subsidiaries in which the group holds a majority, and these programs must include the following measures:

• Policies and procedures for exchanging information related to due care towards customers and money laundering and terrorist financing risks.
• The obligation to provide information related to customers, accounts, and operations from branches and subsidiaries at the group level, when necessary for the purposes of combating money laundering and terrorist financing; and this information must include analytical reports and reports on activities that appear unusual. Furthermore, branches and subsidiaries must receive such information at the group level from the 'Verification Unit' in a manner consistent with risk, analyzing information and reports and unusual operations.
• The obligation to provide adequate guarantees regarding confidentiality and the use of exchanged information, including guarantees against informing or alerting the customer."

Article 11: The text of paragraph (5) of Article 11 of the "System for the Control of Financial and Banking Operations for Fighting Money Laundering and Terrorist Financing" attached to Basic Decision No. 7818 dated 18/5/2001 is repealed and replaced by the following text:

"5. Regarding the responsibilities of the Transfer Department Manager:
a) Auditing transfers received into the customer's account, especially electronic transfers that do not include the name of the ordering customer (customer ordering) or the name of the beneficiary (customer Beneficiary) at a specific frequency, and accounts through which multiple or unusual transfer operations are conducted, and verifying the legitimacy of these transfers and the validity of their sources. b) Informing the 'Verification Unit' through the branch's operations monitoring manager of any transfer that he suspects involves suspicious operations that may constitute money laundering or terrorist financing. c) Retaining for a period of not less than five years a register containing all information attached to incoming transfers from abroad that cannot be sent when the bank conducts a domestic transfer in Lebanon related to the incoming transfer."

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Article 12: The text of paragraph (c) of paragraph (6) of Article 11 of the "System for the Control of Financial and Banking Operations for Fighting Money Laundering and Terrorist Financing" attached to Basic Decision No. 7818 dated 18/5/2001 is repealed and replaced by the following text:

"c) Informing the 'Verification Unit' through the branch's operations monitoring manager of cash deposit operations that are suspected to be related to money laundering or terrorist financing and for which supporting documents (Documents Supporting) cannot be obtained."

Article 13: The text of paragraph (d) of paragraph (8) of Article 11 of the "System for the Control of Financial and Banking Operations for Fighting Money Laundering and Terrorist Financing" attached to Basic Decision No. 7818 dated 18/5/2001 is repealed and replaced by the following text:

"d) His personal conduct of periodic visits to the customer to inspect their business, evaluate their account movements, and prepare a report on this, and sending a copy to the 'Verification Unit' if the report indicates unusual operations."

Article 14: The text of Article 12 of the "System for the Control of Financial and Banking Operations for Fighting Money Laundering and Terrorist Financing" attached to Basic Decision No. 7818 dated 18/5/2001 is repealed and replaced by the following text:

"First: Each bank must:

1. Organize a centralized database of aggregated information related to money laundering and terrorist financing operations, which must include, at a minimum, the names circulated by the 'Special Investigation Authority' and the names of accounts suspected and reported by the bank, and it must inform the 'Special Investigation Authority' of any accounts opened directly or indirectly or through a representative of these persons, unless a decision from the 'Special Investigation Authority' states that there are currently no serious grounds justifying the suspicions raised regarding any of these persons.
2. Train employees continuously and involve program training managers and concerned employees in study circles, seminars, and lectures related to this topic to constantly stay updated on methods of combating money laundering and terrorist financing.
3. Not close any suspected account before referring to the 'Special Investigation Authority'.
4. Keep a special register of the names of persons who open or investigate accounts under a power of attorney, including the determination of the relationship between the principal and the agent.
5. Impose high standards of integrity, honesty, and competence when hiring human resources.
6. Require employees, under penalty of responsibility, to maintain absolute confidentiality and not inform the customer or allow them to be informed, or inform other parties, that the bank has informed or will inform the 'Special Investigation Authority' in case of confirmations or suspicions of money laundering or terrorist financing operations, or when the 'Special Investigation Authority' requests or audits their operations or accounts, before a decision is issued by the latter to lift bank secrecy on these accounts and inform interested parties.

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7. When using the services of intermediaries such as (Introducers & Brokers), a third party that is part of the same financial group, or when relying on third parties, the bank must not deal with intermediaries who do not meet the standards required of banks and financial institutions towards their customers, and must obtain from them immediately the required information based on the due care principle and copies of documents upon request, with the bank being ultimately responsible for these measures. Additionally, when dealing with third parties located outside Lebanon, caution must be exercised and information taken into account regarding the risk level of the countries in which they are located, especially those that do not apply the recommendations of the Financial Action Task Force or apply them inadequately.
8. Keep and update a special register including the names of 'beneficial owners' identified for each 'customer/natural person', and only when there is a discrepancy between the customer and the 'beneficial owner', and for 'customer/legal person'.
9. Identify and assess money laundering and terrorist financing risks that may arise from developing new products and new professional practices, including new means of service delivery, and those arising from the use of new technologies or under development related to all new and existing products, and conduct a risk assessment before launching these products or practices or technologies or using them, and take appropriate measures to manage and reduce these risks.

Second: Branches and subsidiaries operating abroad in which Lebanese banks hold a majority must adopt, as a minimum, the procedures stipulated in this system. If this is impossible due to conflict with the laws and regulations applicable in the location of the branch or subsidiary, the bank must inform the 'Special Investigation Authority' thereof.

Third: Each Lebanese bank must apply due care procedures to customers of any of its branches abroad when executing an operation or opening a Lebanese account for any of these customers, even if these branches abroad also conduct due care procedures."

Article 15: This Decision shall take effect immediately upon its issuance.

Article 16: This Decision shall be published in the Official Gazette.

Beirut, on 7 August 2019
Governor of the Central Bank of Lebanon

Riad T. Salam