Central Bank of Libya

P.O. Box 1103 Telegraphic Address: Misrifya - Tripoli - Libya

Reference: A.R.M.N / 1054

Circular A.R.M.N. No. (2012/7) Date: 27 Rabi' al-Awwal 1433 AH Corresponding Date: 19 February 2012 AD

To: General Managers of Commercial Banks To: Heads of Temporary Administrative Committees of Commercial Banks To: General Manager – Libyan Foreign Bank To: General Managers of Specialized Banks (Agricultural Bank – Development Bank – Savings and Real Estate Investment Bank – Rural Bank) To: General Manager of Safa Company and Financial Services

Subject: Anti-Money Laundering and Counter-Terrorist Financing Policies and Customer Due Diligence

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Based on the provisions of Article (56), Item 2, Paragraph (2) of Law No. (1) of 2005 concerning Banks.

And in implementation of the provisions of Law No. (2) of 2005 concerning the Prevention of Money Laundering and its Executive Regulations.

In addition to Circular No. (1) of 2002 concerning procedures to combat money laundering, approved by Circular Letter A.R.M.N. No. (85) dated 05 June 2002, and Circular A.R.M.N. No. (2007/2) dated 27 February 2007 concerning the implementation of Customer Identity Verification (KYC) results.

And to Circular Letter No. (2002/14) dated 28 January 2002 concerning providing the Banking and Currency Control Department with information on any cases of embezzlement, forgery, or fraud suffered by banks, and Circular Letter No. (2002/87) dated 13 June 2002 concerning continuing to provide the Banking and Currency Control Department with information related to cases of forgery and embezzlement, with the data being comprehensive regarding the names of persons who carried out such operations and any available information about them.

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As Principle (18) of the Basel Committee on Banking Supervision's Principles for Effective Banking Supervision requires, banks must ensure compliance with establishing and applying sound policies and procedures for customer identification, ensuring the establishment and consolidation of ethical standards relevant to the financial sector, and preventing the exploitation of banks locally or internationally to evaluate criminal activities, including identifying activities suspected of being related to criminal operations or violating prevailing legislation, and reporting them to the competent authorities, as well as informing the Banking and Currency Control Department and the Main Financial Intelligence Unit at the Central Bank of Libya about suspicious operations, in addition to cases of fraud, forgery, and embezzlement suffered by banks, which expose the safety and reputation of banks to danger.

Principle (18) of the Basel Committee on Banking Supervision's Principles for Effective Banking Supervision also requires that banks, within the policies they apply for customer identification, be obligated to sign and file information with relevant parties within the bank's system, and that this information be unified and linked with the bank's General Risk Management. The policies related to customer identification and anti-money laundering must include procedures related to due diligence requirements regarding correspondent banks with which the bank deals.

To facilitate the task of banks in developing the required policies and procedures, reference can be made to the general guidelines outlined as follows:

First - Definitions:

• The following entities and expressions have the meanings assigned to each of them when they appear in these instructions.

Money Laundering:

As stated in Law No. (2) of 2005.

Suspicious Transactions:

Any transactions that are believed, for justified reasons, to relate to the proceeds of one of the crimes stipulated in Article (2), Item (Second), Paragraph of Law No. (2) of 2005 concerning the Prevention of Money Laundering.

Banking Relationship:

The relationship that arises between the bank and the client and relates to the activities and services the bank provides to its clients.

Central Bank of Libya P.O. Box 1103 Telegraphic Address: Misrifya - Tripoli - Libya

Ongoing Relationship:

The banking relationship that is expected, upon its establishment, to extend over a period of time and involve multiple transactions.

Client:

The natural or legal person for whom the bank opens an account or provides a service.

Occasional or Transient Client:

The client who does not have an ongoing relationship with the bank and whose dealings are non-recurring or irregular (a client who does not hold an account with the bank).

Beneficial Owner:

The natural person who has the real interest in the existing relationship between the bank and the client or for whom the transactions are carried out, including legal or natural persons who exercise control over the legal person.

Politically Exposed Persons (PEPs):

Persons who hold or have held a high public office in a foreign country, such as a head of state, head of government, prominent politician, judge, military officer, or high-ranking government official or prominent figures in a political party, including the first-degree family members of these persons at a minimum.

Non-Citizen Individuals:

Non-citizen individuals refer to individuals of Arab and foreign nationalities whose main residence center, or centers of business or economic activity, are abroad, and who work or are present in Libya on a non-permanent basis, regardless of the duration of their stay.

Financial Institution:

Financial establishments licensed to practice their activity by the Central Bank of Libya, including any bank, financing company, financial market, exchange house, financial or monetary intermediary, or others. It also includes financial, commercial, and economic establishments licensed to practice their activity by other authorities, such as insurance companies, service offices, and others.

Non-Profit Entity:

Any body established in accordance with the provisions of relevant laws, the primary purpose of which is to provide charitable or social services without aiming to generate profit, capture it, or achieve personal benefit through its activity.

Correspondent Banks:

Banks through which one or more services are provided to the banker or other institutions, such as money transfer and foreign currency services.

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Central Bank of Libya P.O. Box 1103 Telegraphic Address: Misrifya - Tripoli - Libya

Shell Bank:

The bank that is characterized by the following:

(1) It has no fixed place of business to receive clients.

(2) It does not keep records of its transactions.

(3) It is not subject to inspection by a competent supervisory authority, whether in the country where it was established or in any other country.

Second - Customer Due Diligence Requirements:

General Rules:

• Customer due diligence refers to identifying the client and the beneficial owner, verifying their identity, and monitoring transactions continuously within the framework of an ongoing relationship, in addition to identifying the nature of the future relationship between the bank and the client and offering it.

• Dealing or entering into financial relationships with persons of unknown identity or with fictitious or pseudonymous names is prohibited.

• Banks and financial institutions must take customer due diligence procedures before or during the establishment of an ongoing relationship or when executing transactions on behalf of occasional clients.

• In the event that the bank is unable to fulfill customer due diligence procedures, it must not open the account or enter into any banking relationship with the client or execute any transactions on their behalf.

• Verification procedures may be deferred until after the establishment of the ongoing relationship as follows:

  (a) This must happen as soon as possible.

  (b) It must be necessary to avoid interrupting the normal flow of business.

  (c) Effectively control money laundering risks, and in the event that the bank is unable to fulfill verification procedures subsequently, it must terminate this relationship and inform the Main Financial Intelligence Unit thereof.

• Due diligence must be taken towards existing clients on the basis of relative importance, for example, when executing a large transaction or when a tangible change occurs in the way the account is managed or when the bank realizes that it does not have sufficient information about the current client.

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# Central Bank of Libya

P.O. Box 1103
Telegraphic Address: Misrifya - Tripoli - Libya

- Banks and financial institutions must update customer identity information periodically, at most every five years, or when reasons arise to do so, in the event that the bank has doubts about the accuracy of the information previously obtained.

**Third - Customer Identity Verification and Identification Procedures:**

The bank and financial institution must put in place systems and policies sufficient to identify the client's identity and verify its accuracy, in accordance with the general rules agreed upon in Item (Second) of these instructions, such that these systems and policies include the following:

1. Objectives of the customer identity policy.
2. Scope of application of the customer identity policy, including:
   - Natural person.
   - Legal person.
   - Non-profit entity.
3. Criteria for the bank's acceptance to deal with clients and establish a banking relationship and determination of non-acceptance cases.
4. Customer identity verification requirements, including:
   - Information and documents required from the client.
   - Procedures for identifying the beneficial owner of the account.
   - Procedures related to specific cases with high money laundering and terrorist financing risks.
   - Verification of the information and documents provided.
5. Due diligence procedures.
6. Review and periodic update process for the information and documents provided.
7. Procedures followed in documenting documents and information (for a period of no less than five years).

**Fourth - Client Policies and Procedures According to Account Risk Levels:**

1. Classification of clients according to the risk level of their accounts.
2. How to deal with high-risk accounts.
3. Identifying and monitoring suspicious transactions, especially for high-risk clients.

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# Central Bank of Libya

P.O. Box 1103
Telegraphic Address: Misrifya - Tripoli - Libya

**Fifth - Correspondent Bank Identity Verification Procedures:**

Each bank must apply correspondent bank identity verification procedures and their activities, and ensure upon first dealing with them that they have an actual existence, and search for information about these banks to understand the nature of their work and the supervision they are subject to. The board of directors' approval must also be obtained before establishing a relationship with correspondent banks, and the bank must refrain from dealing with the following banks:

- Banks that do not have appropriate controls to combat money laundering and terrorist financing.
- Banks that are not subject to appropriate supervision by supervisory authorities.
- Shell Banks.

**Sixth - Policies, Procedures, and Controls for Combating Money Laundering and Preventing Terrorist Financing:**

Banks and financial institutions must put in place a suitable internal system that includes policies, procedures, and controls for combating money laundering and preventing terrorist financing, such that this system includes the following:

1. A clear policy for combating money laundering and terrorist financing, approved by the Board of Directors.
2. Procedures to prevent money laundering and terrorist financing.
3. Money laundering and terrorist financing indicators and methods.
4. Supervision procedures for financial transactions and cases that may contain money laundering and terrorist financing through the following banking services:
   - Opening accounts.
   - Account dealing.
   - Transfers.
   - Cash.
   - Credit facilities.
   - ATMs.
   - Letters of credit.

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Central Bank of Libya P.O. Box 11103 Telegraphic Address: Misrifya - Tripoli - Libya

• Electronic banking services.
• Suspended and approved accounts.
• High-risk countries.

5. Procedures for reporting suspected cases.
6. A mechanism to verify compliance with instructions, policies, and procedures related to combating money laundering and terrorist financing and the effectiveness of the policies and procedures followed, by:
   • Money Laundering Monitoring Unit.
   • Compliance Unit.
   • Internal Audit Department.

Sixth: - The existence of suitable information systems that allow for the identification, analysis, and monitoring of the following:

1. High-risk accounts.
2. Suspected cases.
3. Investigation of information regarding specific accounts.
4. Unusual transactions on certain accounts.

An integrated information system must also be developed to keep records and documents related to customer due diligence, as well as records and evidence supporting ongoing relationships and financial transactions, for a period of at least five years from the date of execution of the transaction or termination of the relationship.

Third: - Training: Anti-money laundering and counter-terrorist financing policies must include the following: • Training courses and the training policy followed by the bank to train its employees at various levels, to increase their awareness and culture regarding Know Your Customer (KYC) rules and money laundering and terrorist financing operations, how to detect and report them, and how to deal with suspected clients.

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Central Bank of Libya P.O. Box 11103 Telegraphic Address: Misrifya - Tripoli - Libya

And since the national legislation governing banking and financial work requires the development and application of these policies to ensure the safety of banking work and protect it from risks related to money laundering and terrorist financing, all banks are requested to work on establishing systems, policies, and procedures regarding due diligence and combating money laundering and terrorist financing, guided by the general guidelines reviewed in this circular, and to present them to the Central Bank of Libya, within a period of six months from the date of issuance of this circular.

May you remain in high esteem.

Dr. Mohamed Abdeljalil Abustina Director of Banking and Currency Control Department

Copies to:

• His Excellency the Governor
• His Excellency the Deputy Governor
• His Excellency the Auditor General's Office Deputy
• His Excellency the Deputy Minister of Finance
• His Excellency the Director of the Main Intelligence Unit - Central Bank of Libya
• His Excellency the Director of the Legal Department - Central Bank of Libya
• To the General Managers of Compliance Units in Commercial Banks
• To the Banking Follow-up and Compliance Monitoring Department - Central Bank of Libya

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