Central Bank of Lebanon Circular No. 604: KYC and AML/CFT Requirements for Credit Institutions under Articles 183 and 184 of the Money and Credit Law

Central Bank Circular No. 604
For Persons Governed by the Provisions of Articles 183 and 184 of the Money and Credit Law "Credit Institutions"

Issued on December 23, 2021
Governor of the Central Bank of Lebanon
Riad Salameh

Circular No. 13387 amending the base Circular No. 12174 dated January 21, 2016 Whereas the Governor of the Central Bank of Lebanon is vested with the powers under Articles 70, 79, 183, 184, and 200 of the Money and Credit Law; Whereas he is vested with powers under Law No. 44 dated November 24, 2015 regarding the identification of funds and combating money laundering and terrorist financing, specifically its aforementioned article; Whereas he is vested with powers under the base Circular No. 12174 dated January 21, 2016 regarding the Know Your Customer (KYC) procedures and the provisions of Articles 183 and 184 of the Money and Credit Law; Whereas he is vested with powers under Circular No. 7818 dated May 18, 2001 and its amendments regarding the internal regulations for financial operations and banking institutions for the identification of funds and combating money laundering and terrorist financing; Whereas he is vested with the recommendations of the Financial Action Task Force (FATF); Whereas he is vested with the resolutions of the Monetary and Credit Council of the Central Bank of Lebanon taken in its meeting held on December 15, 2021; Has decided as follows:

Article 1: A new Article 12 bis is added to Circular No. 12174 dated January 21, 2016, with the following text:
"Article 12 bis (Amended):
First: The following terms are defined as follows:

• Customer: A natural or legal person, regardless of its nationality or legal status (Legal Arrangement) such as Trusts, unincorporated associations, mutual funds, cooperatives, non-profit organizations, charities, foundations, etc.
• Beneficial Owner: The ultimate natural person(s) who directly or indirectly owns or controls the Customer and/or on whose behalf a transaction is being conducted. Cases of indirect ownership/control include those through successive layers or via other means of indirect control.
  Second: Credit institutions shall, in particular, refrain from maintaining anonymous or nominal accounts, adopt clear procedures for account opening, apply enhanced due diligence (EDD) procedures to customers and beneficial owners, verify the identity of permanent and occasional clients, residents and non-residents, determine the ownership structure/control mechanism for legal persons/entities, identify the purpose/nature of transactions and account types, and obtain necessary information regarding the purpose. They shall determine the beneficial owner, source of funds, and financial operations or beneficiaries, particularly in the following cases:
• Transactions or account openings exceeding their normal scope.
• Multiple transactions executed consecutively with each other, totaling 10,000 USD or its equivalent, on the same account or across multiple accounts for one person.
• When there is doubt regarding a customer's attempt to identify funds or engage in money laundering/terrorist financing.
  Third: Once the beneficial owner is determined, credit institutions shall apply enhanced due diligence procedures to customers as follows:

1. For legal persons/entities, determine the beneficial owner(s) by taking the following measures:
   a. Identify natural person(s) who directly or indirectly own or control 20% or more of the capital/shareholding of the legal person. b. If there is doubt whether the person(s) in (a) are the beneficial owner, or if multiple natural persons own 20% or more of the capital/shareholding, identify all such natural persons exercising control over the legal person through other means (holding majority voting rights, appointment rights, or at least most signing powers on the administrative board or equivalent).
   c. If no natural person is identified as per (a) and (b), apply necessary measures to identify and determine the natural person(s) holding senior management positions.
2. For legal arrangements (Trusts), identify the beneficial owner(s) as:
   • The Settlor;
   • The Trustee;
   • The Protector;
   • The Beneficiary(ies), or where the legal arrangement is established for the benefit of a specific class of persons.
   • Any other natural person exercising actual control over the Trust through direct/indirect ownership or other means.
     The definitions in (a) shall follow the terminology in the glossary of the 40 FATF Recommendations.
     For other legal arrangements (excluding Trusts), identify natural persons holding similar positions to those specified in (a) of paragraph 2.
3. Once the beneficial owner is determined, credit institutions shall apply enhanced due diligence procedures to customers as specified in those issued by the Special Investigation Unit.
   Fourth: Credit institutions shall verify the identity of customers and beneficial owners by requiring employees to obtain the following required documents/data:
4. For natural persons: a copy of the passport or, at minimum, an ID card or residence permit.
5. For legal persons/entities: a certified copy of the commercial register or articles of association, certificate of registration, power of attorney, charter showing ownership/share distribution (direct/indirect), and a list of authorized signatories, along with copies of documents for legal representatives, directors, and natural persons who directly/indirectly own/control the entity or exercise actual control over its management.
6. If transactions are conducted through a non-professional agent, an attested copy of the power of attorney and supporting documents must be provided. Enhanced due diligence procedures shall also apply to non-professional agents as stipulated in the second paragraph of this article.
   Fifth: Credit institutions shall retain documents for customers and beneficial owners (Owner Beneficial), including full name, address of residence, registered business address for legal persons (or main location if different), profession, financial status, and all supporting documents used for verification. Account files shall be kept for five years from account closure or transaction completion, and all supporting documents for operations for five years from transaction completion. Records may be stored electronically if accessible for inspection and audit purposes. Sixth: Credit institutions shall perform enhanced due diligence procedures stipulated in the second paragraph of this article in a timely manner for customers and beneficial owners, before account opening, transaction execution, business establishment, or transaction completion, as well as through ongoing monitoring. Seventh: Credit institutions shall apply enhanced due diligence procedures to clients continuously, without adding excessive information to the approved customer form (Form KYC), resulting from variables that may affect the customer's status or occur during transactions, leading to changes in the customer's or beneficial owner's profile. They shall provide specific forms for implementing these obligations. Eighth: In cases where the customer is not the beneficial owner, or if the customer states that the beneficial owner is located abroad, the customer shall specify the beneficial owner's name, nationality, residence, profession, and financial status information. A copy of the attestation and beneficial owner details shall be retained for the period specified in this article. The agent's assessment of the beneficial owner's status shall be based on, but not limited to:
   a. When appointing an agent for a non-professional person (non-lawyer, financial agent, etc.), it shall be clear whether the agent's authority covers all transactions. b. When transactions are conducted through institutions or front companies.
   c. If the customer's financial status is inconsistent with the transaction amount being executed.
   d. If the agent, within his professional practice, receives relevant warning indicators.
   The Special Investigation Unit may cancel the agent's decision if it has reasonable or objective confirmations/doubts that transactions are related to money laundering, terrorist financing, or terrorism. In cases of suspected money laundering/terrorist financing where the agent has justified reasons to believe enhanced procedures will be effective, he may continue transactions until cancellation. Ninth: Credit institutions shall take appropriate measures to identify money laundering/terrorist financing risks, assess and prioritize them, and adopt a risk-based approach (Based Risk Approach) to classify customers and operations into low, medium, or high risks. Customer risk, country risk, and service/product risk shall be considered. They shall develop policies and procedures for risk control (Risk Control Based), including, at minimum, for customers, beneficial owners, politically exposed persons (s’PEP), and their family members/associates, and high-risk operations. They shall adopt risk scoring systems, enhanced policies/procedures for risk management and mitigation:
   a. Deposits/transactions and ongoing enhanced monitoring of customer relationships. b. Obtaining more detailed information for customers and beneficial owners (Increased Level KYC), particularly regarding source of funds.
   c. Obtaining senior management approval for transactions or ongoing customer relationships commensurate with risk levels.
   d. Periodic review of customer relationships. e. Ongoing comparison with adopted peer classifications (Peer Comparison). f. Establishing a system to determine if the customer or beneficial owner is politically exposed (s’PEP).
   They shall consider the duration of the customer relationship and transaction quality.
   They may use information agencies for required procedures and adopted classifications.
   Senior management shall adopt specific policies based on this article to classify/manage risks and determine control procedures implemented by responsible parties.
   Risk assessment results shall be documented, updated as needed, and retained to provide required information to competent authorities.
   Tenth: Credit institutions shall establish an internal control system (System Control Internal) and appoint a Compliance Officer at the management level, possessing sufficient expertise in money laundering/terrorist financing identification and combating. His duties shall include:
7. Developing procedures for money laundering/terrorist financing identification, considering the circular's provisions regarding agents and relevant departments, preparing customer forms (Form KYC) as per the seventh paragraph of this article, and submitting them to senior management for approval.
8. Monitoring operations executed after establishing customer relationships to ensure consistency between executed transactions and the institution's customers, their profiles, and represented risks. If necessary, verify source of funds.
9. Ensuring that obtained documents/data/information for enhanced due diligence are continuously updated and appropriate, particularly regarding high-risk customer profiles, maintaining records, and submitting required periodic reports to senior management.
10. Applying enhanced due diligence procedures to existing customers at appropriate times based on customer profile and risk, considering whether procedures were correctly applied and data sufficiency.
11. Monitoring the proper application and effectiveness of money laundering/terrorist financing identification procedures, including accounts (utilizing specialized information agencies if warning indicators appear), maintaining records, and submitting periodic reports to senior management.
12. Applying enhanced procedures proportionate to risk levels for existing customers and operations with natural/legal persons (including financial institutions) from FATF member countries, which have adopted such procedures later. They may, where necessary, use the electronic website of the Special Investigation Unit or periodic special meetings for this purpose.
13. Monitoring money laundering/terrorist financing identification at the group level, including all branches and affiliated entities predominantly owned by the group. This shall include policies/procedures for information sharing regarding customers, money laundering/terrorist financing risks, exchanging customer/account/operation data from branches/entities at the group level for identification purposes (including analytical reports and unusual transaction reports). Branches/entities shall receive compliance officer information aligned with risks, analyzing reports/unusual operations.
    Eleventh: Credit institutions shall organize a centralized database for aggregated information related to money laundering/terrorist financing operations, including at least names published by the Special Investigation Unit and their corresponding accounts, amounts, and agent assessments. The database shall be continuously updated. Twelfth: Credit institutions shall, in particular:
14. Continuously monitor any updates on the official website of the Internal Security Forces (www.isf.gov.lb) regarding specified names listed in the attached lists concerning beneficial/legal persons and relevant entities, linked to money laundering/terrorist financing. This is done by applying decisions of the Information Agencies and reporting to the Special Investigation Unit, or those related to fund freezing/accounts/operations with such names or other assets linked to them. If any doubt exists (direct/indirect, known/unknown), the Special Investigation Unit shall be notified within 48 hours via email with relevant information.
15. The Special Investigation Unit may cancel decisions if there is a conflict between one of its clients' names and specified/attached list names in paragraph 1 of the twelfth article.
    Thirteenth: Credit institutions shall:
16. Establish standards for integrity, dispute resolution, and efficiency in human resource deployment.
17. Continuously train employees or involve responsible staff in courses, seminars, and lectures related to money laundering/terrorist financing identification.
18. Employees, under the responsibility of managers, shall cooperate with the Special Investigation Unit upon inquiry or audit, unless a decision is issued otherwise by the Authority.
19. At minimum, branches/entities operating abroad predominantly owned by Lebanese credit institutions shall apply the procedures stipulated in this circular. If conflicting with local laws/regulations, they may apply additional appropriate risk management procedures for money laundering/terrorist financing and cooperate with the Special Investigation Unit.
20. Ensure that third parties are subject to regulation and supervision, comply with FATF standards for enhanced due diligence and record-keeping, and can provide customer/beneficial owner information without delay. All parties dealing with responsible third parties shall bear the ultimate responsibility for enhanced due diligence procedures, whether domestic or foreign, considering FATF recommendations.
21. Identify and assess money laundering/terrorist financing risks arising from new products, high-risk practices (new service delivery methods), or technology usage. Risk assessments shall be conducted before launching products/practices/technologies, with appropriate mitigation measures adopted.
22. Apply the thirteenth recommendations to the Financial Action Task Force, taking necessary measures and immediately freezing funds/accounts/operations related to names or other assets. The Special Investigation Unit shall be notified within 48 hours via email with relevant information, and cancellation decisions may be issued. Risk assessments shall also be conducted.
23. Provide the Special Investigation Unit with a copy of the annual report prepared by the authorized representative, verifying money laundering/terrorist financing identification procedures implemented in the concerned institution and compliance with these procedures.
    Fourteenth: Credit institutions shall consider the following indicators as examples, if not specified, indicating a probability of money laundering/terrorist financing:

• Cash transaction amounts exceeding one limit within a short period from obtaining the cash amount.
• Cash payments made by third parties.
• Deposit sizes for cash payments inconsistent with the customer's financial status.
• Type and amount of cash consistent with customer expectations or differing from their usual nature.
• Cash transactions granted appropriately.
• Cash amounts transferred to accounts outside Lebanon.
• Clear distinction between the cash beneficiary and the account holder/beneficial owner.
• Unclear sources for cash payments.
• Customer's willingness to obtain cash despite having other income sources and not needing it for its purpose.
• Customer's inquiries unrelated to adopted monitoring procedures.
• Cancellation of cash transactions upon the customer providing additional documents/information."

Article 2: This circular applies from its publication date.
Article 3: This circular is effective as of the date of issuance, December 23, 2021.
Governor of the Central Bank of Lebanon
Riad Salameh