Guide on Combating Money Laundering, Terrorism Financing and Proliferation of Weapons for Stockbrokers and Portfolio Management Companies Acting on Behalf of Third Parties

GUIDE
Guide on Combating Money Laundering, Terrorism Financing and Proliferation of Weapons for Stockbrokers and Portfolio Management Companies Acting on Behalf of Third Parties April 2018

PREAMBLE
Legal References of the Guide

• Organic Law No. 2015-26 of August 7, 2015 on Combating Terrorism and Repressing Money Laundering;
• Government Decree No. 2018-1 of January 4, 2018, on implementing procedures for resolutions adopted by competent UN bodies related to combating terrorism financing;
• Minister of Finance Order dated March 1, 2016, fixing the amounts stipulated in Articles 100, 107, 108, 114 and 140 of Organic Law No. 2015-26 of August 7, 2015 on combating terrorism and repressing money laundering.
• Council of the Financial Market Regulation regarding practical measures for combating money laundering, fighting terrorism financing and proliferation as referenced by the Minister of Finance Order dated January 19, 2017 and amended by the Minister of Finance Order dated March 6, 2018.
• Decisions of the Tunisian Financial Analysis Commission (CTAF) No. 2017-1, 2017-2 and 2017-3 of March 2, 2017.

What is the objective of this guide?
The present guide aims to raise awareness among professionals about the problem posed by money laundering and terrorism financing, and to guide them in implementing practical measures to combat these two forms of financial crime, in accordance with the legislative and regulatory provisions governing the matter. The guide also presents practical measures regarding the fight against proliferation and the financing of proliferation of weapons of mass destruction.

Which institutions are concerned by this guide?

• Stockbrokers;
• Portfolio management companies acting on behalf of third parties.

Legal definition of money laundering (Article 92 of Organic Law No. 2015-26):

• Any intentional act aimed at any means of falsely justifying the illicit origin of movable or immovable property or revenues derived directly or indirectly from any crime or offense punishable by imprisonment of three years or more, as well as any offense sanctioned under the customs code.

• Any intentional act aimed at placing, depositing, concealing, disguising, administering, integrating or conserving the proceeds derived directly or indirectly from the aforementioned offenses, as well as attempt, complicity, incitement, facilitation, or providing assistance in committing them.

• The money laundering offense is independent of the principal offense regarding its constitution. It is proven by the existence of presumptions and sufficient evidence regarding the illegal origin of the property subject to money laundering.

• The provisions of the preceding paragraphs apply even if the offense from which the laundered money originates was not committed on Tunisian territory.

Legal definition of terrorism financing (Article 98 of Organic Law No. 2015-26):

• All forms of support and financing for persons, organizations or activities related to terrorist offenses provided by Law No. 2015-26 and other illegal activities, whether granted directly or indirectly, through natural or legal persons, regardless of their form or object, even if the purpose pursued is non-profit.

What is money laundering in practice?
Money laundering is the act of concealing the origin of illicit funds by granting them a legal basis, so that these funds ultimately appear to have been acquired legally and are not subject to laws penalizing revenues from delinquent or criminal activities. The money laundering techniques generally occur in three stages:

• Placement, which consists of introducing illicit funds into the financial system either by physical or electronic transfer.
• Layering (or stacking), which consists of concealing the illicit source of funds by creating an entanglement of complex financial operations to blur the verification trail. For example, dispersing funds across numerous investments or transferring them between several branches of the same financial institution or among several institutions in various countries.
• Integration, which consists of reintroducing funds with concealed origins into legitimate economic activities (e.g., making certain non-monetary assets such as securities liquid) to give the funds a legitimate appearance.
  These three stages are also found in terrorism financing schemes, except that stage 3 (integration) involves distributing funds to terrorists and supporting organizations, whereas in money laundering, integration of illicit funds occurs within legitimate economic activities.

PROVISIONS OF THE GUIDE
Preliminary Chapter - Definitions
For the purposes of this manual, the following terms are understood as:
1° The concerned institutions:

• Stockbrokers;
• Portfolio management companies acting on behalf of third parties.
  2° Client: the client of the institutions, whether habitual or occasional, natural person or legal entity. An occasional client is considered any person who approaches the institutions to prepare or execute a one-off transaction or operation. A one-off transaction or operation is one that does not result in the establishment of an account opening or management agreement. 3° Legal entity: any entity endowed with its own resources and an autonomous patrimony distinct from that of its members or partners, even if legal personality has not been granted to it by a special text. 4° Reliable and independent sources: central or local official authorities or financial institutions established in a country applying international standards for combating money laundering and fighting terrorism financing sufficiently. 5° Electronic transfer: any fund transfer operation by electronic means within the meaning of Law No. 2005-51 of June 27, 2005 on electronic fund transfers. 6° Financial Action Task Force (FATF): an intergovernmental body with objectives including the development of standards and promotion of policies regarding combating money laundering and fighting terrorism financing. 7° CTAF: the Tunisian Financial Analysis Commission. 8° Designated person or entity: any natural or legal person or entity designated for the application of targeted financial sanctions related to financing the proliferation of weapons of mass destruction under United Nations Security Council resolutions and listed on lists established by the competent national authority with legal authority. 9° Targeted financial sanctions: this term refers to both the freezing of funds and other assets, as well as prohibitions aimed at preventing funds and other assets from being made available, directly or indirectly, to or for the benefit of a designated person or entity. 10° Competent national authority with legal authority: the national authority or authorities designated by law and responsible for implementing and enforcing targeted financial sanctions.

Chapter 1. Basic Principles of Combating Money Laundering and Terrorism Financing
The general obligation to guard against money laundering and terrorism financing by exercising constant vigilance over operations and transactions concluded for the benefit of clients is broken down into various more detailed obligations imposed on the concerned institutions, namely:

• The obligation to identify and verify the identity of their clients, which logically extends to identifying and verifying the identity of beneficial owners of the operation or transaction and updating identification data;
• The obligation to pay particular attention to unusual operations and transactions, as well as the obligation to detect operations and transactions tainted by suspicion of money laundering or terrorism financing;
• The obligation to actively and usefully cooperate with the Tunisian Financial Analysis Commission (CTAF) by declaring all detected suspicious operations or transactions and responding to its information requests regarding declarations;
• The obligation to retain documents related to identification and operations performed.
• Satisfying all these obligations generally requires:
• that the concerned institutions have adequate organizational and internal control procedures;
• and that their staff or representatives are adequately aware of the importance of combating money laundering and terrorism financing, and possess the necessary knowledge to cooperate constructively in this fight, notably through continuing education programs.

Chapter 2. Identification of clients, agents and beneficial owners and verification of their identities:

• "Identifying clients, agents and beneficial owners" is understood as collecting their identification data.
• "Verifying the identity of clients, agents and beneficial owners" is understood as comparing these identification data with a reliable and independent source of information (official documents) capable of confirming or refuting them.
• The identification and verification of the identity of the client, their agents and beneficial owners must be performed when:
   The business relationship is established or
   the occasional operation performed has a value equal to or greater than ten thousand dinars.
   The operation includes an electronic transfer regardless of the amount.
   There is suspicion of money laundering or terrorism financing, or doubts regarding the accuracy or relevance of previously obtained client identification data.
   The concerned institutions must in all cases refrain from opening anonymous or fictitious name accounts.
   They must also refrain from receiving cash funds with a value equal to or greater than five thousand dinars, even through multiple deposits that may be linked. They must also refrain from receiving checks or bank transfers not issued by the client or their representative.

Section 1. Documents used for identification:

1. For natural persons

• Full name, date and place of birth, as well as nationality,
• Identity card or passport number, their issue and validity dates,
• Effective residence address including postal code, telephone number, and email address if applicable,
• Profession and its address,
• Objective of the business relationship and its nature,
• A specimen signature.
  The aforementioned data are verified in particular based on the national identity card for Tunisians, and an official recognized identity document containing a photo, address, and holder's activity for foreigners.

2. For legal entities

• Date of incorporation, trade name or denomination, legal form and corporate object,

• Registration number in the commercial register and tax identifier,

• Registered office address including postal code, telephone and fax numbers, and email address. When main activities are not exercised at the registered office, the effective operating address should be indicated,

• Capital distribution,

• Identity of its directors and persons authorized to commit the entity on its behalf, with the obligation to collect the aforementioned natural person data regarding them,

• Identities and addresses of principal shareholders whose participation in the company's capital amounts to at least 40%, and persons who control it when it is a company, or if it is an entity other than a company, the identity of the founders and persons exercising effective control or who are beneficial owners, with the obligation to collect the aforementioned natural person data regarding them,

• Objective of the business relationship and its nature.
  The aforementioned data are verified in particular based on the articles of association, an extract from the commercial register, a deed of incorporation, and any equivalent official document or other document emanating from reliable and independent sources, when the legal entity is registered abroad.

Section 2. Copies of official documents:

• The copy of the official document that the concerned institutions are required to obtain may be taken on paper or electronic media. This alternative applies to all official documents used. These copies are retained in a file specific to each client, and their conformity with the original is certified by the agent responsible for the client.
• However, the concerned institutions are encouraged to rapidly transition from recording client identification data by photocopy to systematic electronic recording of these data, in an adequately secured environment.

Section 3. Case of agents:

• Without prejudice to client identification, the identification of persons acting in any capacity on behalf and for the account of the client must be carried out.
• The concerned institutions also review the representation powers of the person acting on behalf of the client and verify them using documents capable of providing proof, from which they obtain copies. These include in particular:
• legal representatives of incapable clients;
• persons authorized to act on behalf of clients under a general or special power of attorney;
• persons authorized to represent clients that are legal entities, funds or other non-legal structures in their relations with the concerned institution.

Section 4. Case of beneficial owners:

• The concerned institutions must identify and take all reasonable measures to verify the identity of the person or persons for whom the transaction or operation is performed, particularly in case of doubt regarding whether the clients act on their own account or with certainty that they do not act on their own account.

• In this regard, the concerned institutions must take into account the following guiding principles:

• The beneficial owner is a natural person. They are not necessarily the declared beneficiary of the operation or transaction. It is important to clearly distinguish these two concepts.

• The beneficial owner is not necessarily the client, whether the latter is a natural person, legal entity or legal structure.

• The beneficial owner and the beneficiary may, in some cases, be the same person, for example when the beneficial owner of a client issuing an electronic transfer is also its recipient.

• A business relationship, operation or transaction with an occasional client may conceal one or more beneficial owners.

• Certain business relationships or operations with occasional clients reveal that the beneficiary and the beneficial owner are not distinct.

• In all cases, the following are considered beneficial owners:

• The natural person or persons who ultimately own/control the client, whether the latter is a natural person, legal entity or legal structure.

• The natural person, in law or in fact, on whose behalf the operation(s) is/are performed.

• The natural person or persons who ultimately exercise effective control, in fact or by law, over a legal entity or legal structure.

• The following are considered beneficial owners when the client is a company:

• The natural person or persons who directly or indirectly hold 40% of the company's capital shares or voting rights, and failing that, capital shares or voting rights conferring effective control over the company.

• The natural person or persons who exercise, by any other means, in fact or by law, a power of control over the management, administration or direction bodies, or over the general assembly or the functioning of the company.

• The following are considered beneficial owners when the client is a legal entity other than a company (e.g., association, foundation or economic interest group):

• The natural person or persons who, by virtue of a legal act designating them for this purpose, are destined to become holders of at least 25% of the assets of the legal entity.

• The natural person or persons, in fact, holding at least 25% of the assets of the legal entity.
  In general, the concerned institutions must identify the beneficial owner(s) among the natural person or persons who would exercise by any other means, in fact or by law, a power of control over the management, administration or direction bodies, or over the general assembly or the functioning of the legal entity.

• The following are considered beneficial owners in the case of earmarked patrimony subject to foreign law, such as trusts and fiducies and other similar structures:

• The natural person or persons who, by virtue of a legal act designating them for this purpose, are destined to become holders of at least 25% of the assets transferred to an earmarked patrimony subject to foreign law.

• The natural person or persons, in fact, holding at least 25% of the assets of an earmarked patrimony subject to foreign law.

• The natural person or persons who belong to a group in whose interest an earmarked patrimony subject to foreign law was constituted, when the beneficial natural persons have not yet been designated.
  In general, the concerned institutions must identify the beneficial owner(s) among the natural person or persons who would exercise by any other means, in fact or by law, a power of control over the earmarked patrimony subject to foreign law. Banks, financial institutions, lawyers, insurance companies, investment firms and accountants must, when acting in the capacity of fiduciary or trustee, declare their status as fiduciary or trustee to the concerned institution upon establishing the business relationship or executing an operation/transaction. For the proper execution of the above provisions, the aforementioned terms are understood as follows:

• Earmarked patrimony: patrimony earmarked for the creation of a trust or other legal structures.

• Trust/Fiducie and similar legal structures: the operation by which one or more settlors transfer present or future assets, rights or securities, or a set of assets, rights or securities, to one or more trustees who, holding them separate from their own patrimony, act for a determined purpose for the benefit of one or more beneficiaries.

Also included in the category of earmarked patrimony subject to foreign law are all other similar legal structures functioning on the same model, such as "el wakf" or "el habouss".

• The trust/fiducie contract or other similar structure involves three persons:

• the settlor: a natural or legal person who owns a patrimony and decides to transfer ownership of one or more of their assets for a determined purpose.
• the fiduciary/trustee: the person who receives ownership of the transferred assets and must administer and manage them according to the mission assigned by the settlor. Nevertheless, the transferred assets do not enter the fiduciary's personal patrimony. They constitute a patrimony called "earmarked patrimony". The fiduciary or trustee may be a bank, financial institution, lawyer, insurance company, investment firm or accountant.
• the beneficiary: a natural or legal person for whose benefit the purpose of the trust is realized. They may be the settlor or the fiduciary.

Section 5. Identification measures specific to combating terrorism financing:
The concerned institutions must take necessary measures to verify, when establishing the business relationship or executing an occasional transaction/operation and subsequently on a periodic basis, that the client or beneficial owner does not appear on the list of persons or organizations whose link to terrorist crimes is established by competent international bodies or by the national commission against terrorism provided for in Article 66 of Organic Law No. 2015-26 of August 7, 2015 on combating terrorism and repressing money laundering. They must also proceed to freeze the assets belonging to the persons or organizations referred to in the first paragraph of this article and make the corresponding declaration, in accordance with the provisions of Article 103 of Law No. 2015-26 of August 7, 2015 on combating terrorism and repressing money laundering.

Section 6. Identification measures specific to combating proliferation and financing the proliferation of weapons of mass destruction:
The concerned institutions do