Guidelines for Anti-Money Laundering and Counter-Terrorist Financing Procedures for Banks

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Guidelines for Anti-Money Laundering and Counter-Terrorist Financing Procedures for Banks 2017

Table of Contents

Item No.	Page
Table of Contents.............................................................. 2
Definitions............................................................. 3
Chapter One: Overview............................................. 5
Chapter Two: Internal AML/CFT Measures. 15
Chapter Three: Risk-Based Approach............................. 25
Chapter Four: Customer Due Diligence................................. 30
Chapter Five: Ongoing Monitoring................................... 51
Chapter Six: Suspicious Transaction Reports...................................... 55
Chapter Seven: Record and Data Retention.......................... 71
Chapter Eight: Training and Qualification...................................... 74
Chapter Nine: Electronic (Wire) Transfers ...................... 78
Chapter Ten: New Payment Products and Services....................... 85
Chapter Eleven: Correspondent Banks............................. 93
Chapter Twelve: International Security Council Decisions...................... 99

Definitions

1. The words and expressions used in this guideline shall have the meanings specified below, unless the context indicates otherwise:
   Law: Law Decree No. (20) of 2015 concerning the prevention of money laundering and terrorist financing, and its amendments issued by Law Decree No. (13) of 2016.
   Unit: The Financial Monitoring Unit.
   Committee: The National Committee for Anti-Money Laundering and Counter-Terrorist Financing.
   Supervisory Authority: The authority entrusted by laws with supervision and oversight of financial institutions, non-financial businesses, and professions.
   Palestinian Monetary Authority (PMA): The Palestinian Monetary Authority.
   Politically Exposed Person (PEP): A person, their family members, and close associates who hold or have held public political offices or senior positions in Palestine or abroad, including political party leaders, judges, members of the Legislative Council, public prosecution officials, state-owned company executives, heads of institutions/associations/charities, authorities under the State of Palestine or other countries, and heads/representatives of international organizations. Customer: A person who has a business relationship with any financial institution, non-financial business, or profession. Occasional Customer: A customer who does not have a continuous business relationship with the bank. Beneficial Owner: The natural person who ultimately owns or controls a customer or an account on behalf of whom a transaction is conducted, or the person who exercises effective final control over a legal entity or manages it. Business Relationship: The relationship arising between the customer and the bank, relating to the banking activities and services provided by the bank to its customers. Due Diligence: Identifying the customer's identity, legal status, activities, and source of funds; determining the purpose and nature of the business relationship and the beneficial owner (if any); verifying all such information; continuously monitoring transactions conducted within a continuous business relationship by any means specified in relevant legislation, plus identifying the nature and purpose of future relationships between the bank and the customer. Executive Committee for UN Security Council Resolutions: A committee formed by state decree, responsible for implementing resolutions issued by the United Nations Security Council under Chapter VII, relating to counter-terrorist financing and the prohibition of financing weapons of mass destruction. Shell Bank: A bank that has no fixed place of business to receive customers, employs fewer than three actual staff members, does not maintain records for its operations, and is subject to inspection by a specialized regulatory or supervisory authority in the country of establishment or another country. Electronic Transfer: Any transfer process conducted by a bank using electronic means on behalf of the transferor, whereby funds are sent to another bank where they can be received by the transferee, regardless of whether the transferor is the same person as the transferee.
2. The definitions contained in Law Decree No. (20) of 2015 concerning the prevention of money laundering and terrorist financing, and the instructions issued thereunder, shall apply wherever they appear in this guideline.

Chapter One
Overview
1.1 Introduction
This guideline aligns with the Financial Action Task Force (FATF) recommendations and interpretive notes, as well as all relevant legislation and instructions concerning the prevention of money laundering and terrorist financing, without contradicting any new legislation or instructions issued subsequently.
1.2 Pursuant to Law Decree No. (20) of 2015 concerning the prevention of money laundering and terrorist financing, the following authorities have been granted specific powers and competencies:
First: Obligations of Supervisory Authorities

1. The supervisory authority and the specialized authority oversee compliance by financial institutions, non-financial businesses, and professions with Articles (4, 5, 6, 7, 8, 9, 10, 11, 12) and Chapter Five of Law Decree No. (20) of 2015 concerning the prevention of money laundering and terrorist financing, as well as related regulations and instructions.
2. Without prejudice to the provisions of the Law, the supervisory authority shall:
   a- Establish necessary procedures for owning, managing, or participating directly or indirectly in the management, regulation, or operation of a financial institution or non-financial business/profession. b- Regulate and supervise financial institutions to ensure compliance with duties specified in Articles (4, 5, 6, 7, 8, 9, 10, 11, 12) and Chapter Five of Law Decree No. (20) of 2015, including on-site inspections. c- Issue instructions to assist financial institutions and non-financial businesses/professions in complying with duties specified in Articles (4, 5, 6, 7, 8, 9, 10, 11, 12) and Chapter Five of Law Decree No. (20) of 2015. d- Cooperate with other specialized authorities, exchange information with them, and provide assistance in investigations and legal proceedings related to money laundering crimes and predicate offenses. e- Enhance internal cooperation based on standards or objectives set by the Committee regarding reporting of suspicious transactions, in accordance with national and international existing standards, as well as those enforced in the future. f- Ensure that financial institutions, their foreign branches, and subsidiaries implement procedures stipulated in the Law to the extent permitted by the legislation of those countries. g- Promptly notify the Unit about any information regarding operations or facts suspected to involve money laundering, terrorist financing, or any predicate offenses. h- Retain statistical data on measures taken and penalties imposed in the context of implementing Article (13) of the Law.
3. Supervisory and specialized authorities shall adopt a risk-based approach, identify and understand money laundering and terrorist financing risks, establish policies and procedures, verify financial institutions' or non-financial businesses'/professions' compliance with the risk-based approach, and submit measures taken under this paragraph to the Committee.

Second: Powers of the National Committee for Anti-Money Laundering and Counter-Terrorist Financing The Committee is responsible for:

1. Formulating general policies to combat money laundering, terrorist financing, and the prohibition of financing weapons of mass destruction.
2. Establishing policies guiding the Unit's work and ensuring its operational independence.
3. Coordinating with the specialized authority to ensure effective implementation of policies and procedures facilitating information flow between the Unit and specialized authorities.
4. Cooperating with the supervisory authority to ensure compliance by supervised entities with Law provisions.
5. Keeping pace with international and regional developments in combating money laundering and terrorist financing.
6. Representing the State of Palestine in international forums related to combating money laundering or terrorist financing.
7. Coordinating with specialized authorities to prepare periodic reports issued under Committee instructions.
8. Submitting annual reports related to combating money laundering, terrorist financing, or predicate offenses to the President of the State.
9. Granting administrative and financial privileges to Unit employees based on the Director's proposal, in accordance with applicable systems.
10. Reviewing specific information held by the Unit to verify its sound operation.
11. Utilizing experts and specialists as deemed appropriate.
12. Appointing the Unit Director, proposed by the Committee Chairman, for a (5) year term renewable once, and appointing qualified Unit staff, while approving the organizational structure.
13. Preparing necessary regulations to implement Law provisions and submitting them to the Council of Ministers for issuance.
14. Issuing necessary instructions to implement Law provisions.
15. Conducting money laundering and terrorist financing risk assessments, including identifying and evaluating these risks, establishing policies and strategies, issuing necessary instructions, obtaining all information from supervisory and specialized authorities, and taking necessary measures to mitigate risks.
16. Identifying countries considered high-risk by the Unit and determining necessary measures toward those countries.
17. Approving the analytical and statistical report on money laundering and terrorist financing trends.

Third: Powers of the Financial Monitoring Unit (FMU) The FMU shall, upon reasonable grounds for suspicion that a transaction involves money laundering, terrorist financing, or any predicate offense:

1. Submit reports on transactions suspected to involve money laundering, terrorist financing, or any predicate offense to the Deputy Attorney General for necessary precautionary measures.
2. Submit its report to the Assistant Deputy Attorney General attached to the Anti-Corruption Authority, if the predicate offense falls within corruption crimes.
3. FMU reports referenced in Article (31) of the Law are considered official and constitute evidence as stated therein.
4. The FMU may refer results of information analysis regarding proceeds from suspected money laundering, terrorist financing, or predicate offenses to specialized authorities if necessary, providing them with such information.
5. The FMU may provide any specialized authority, upon request, with information related to the results of analysis and collection indicating that a financial transaction involves money laundering, terrorist financing, or any predicate offense. Such information is provided only with the FMU's approval of the request.
   The FMU shall exercise the following competencies:
6. Receive and request information from entities subject to Law provisions regarding transactions suspected to involve money laundering, terrorist financing, or any predicate offense specified in Article (3) of the Law.
7. Analyze information referenced in paragraph (1) of Article (23) of the Law.
8. Receive daily paper and electronic reports from financial institutions regarding domestic or foreign financial transactions, according to instructions issued by the Committee.
9. The Director and staff of the Unit shall have judicial police authority when performing their duties according to Law provisions.
   1.3 This guideline applies to all banks operating in the State of Palestine and licensed by the Palestinian Monetary Authority, as well as branches of Palestinian banks operating abroad to the extent permitted by prevailing laws and regulations in those countries.
   1.4 This guideline was issued based on Law Decree No. (9) of 2015 concerning banks, Law Decree No. (20) of 2015 concerning the prevention of money laundering and terrorist financing, its amendments by Law Decree No. (13) of 2016, Instructions No. (2) of 2016 concerning the prevention of money laundering and terrorist financing for banks, and Presidential Decree No. (14) of 2015 concerning the implementation of Security Council resolutions. The PMA issued this guideline to instruct banks, as published in the Official Gazette (Instructions No. 2016/03, later referenced as Instructions No. 2016/02), following PMA circular No. (2016/105) dated June 15, 2016.
   Objectives: Protect the banking sector from money laundering and terrorist financing, enhance its stability, and provide banks with:
   -1 Basic information on money laundering and terrorist financing, including a summary of key legislative provisions governing AML/CFT operations.
   -2 Practical guidelines and directives to assist banks in developing their policies, procedures, and internal control systems regarding AML/CFT.
   1.5 All banks operating in Palestine shall:
   a. Consider the bank's conditions, risks, organizational structures, nature of operations, scope and complexity of activities, and associated risks when applying the guideline. b. Exercise necessary professional care and find appropriate internal methods to comply with legislative and regulatory AML/CFT requirements, not relying solely on this guideline's directives, which are not exhaustive lists of possible compliance methods.
   c. Document cases deviating from the guideline's directives, supported by logical circumstances preventing the application of one or more directives, and justify them to the PMA when necessary.
   1.6 The PMA may impose one or more supervisory measures based on its legal authority if banks violate the directives in this guideline.
   1.7 The PMA shall review the extent to which this guideline aligns with its objectives and issue necessary amendments if required.
   1.8 Money Laundering and Terrorist Financing Crimes:
   a- A person commits money laundering if they perform any of the following acts, knowing that the funds constitute proceeds from a crime:

• Substituting, transferring, or moving funds to conceal or disguise their illicit origin, or to assist a person involved in the predicate offense from legal consequences.
• Concealing or disguising the true nature, source, location, disposition, movement, ownership, or rights related to funds, knowing they constitute proceeds from a crime.
• Acquiring, possessing, or using funds, knowing at the time of receipt that they are proceeds from a crime to conceal or disguise their illicit origin.
• Participating, assisting, instigating, conspiring, advising, facilitating, colluding, covering up, or attempting any acts specified in Article (2) of Amended Law Decree No. (13) of 2016.
  b- Knowledge, intent, or purpose are inferred as essential elements from factual and objective circumstances to prove the hidden source of proceeds, without requiring conviction of the predicate offense. c- Money laundering applies to proceeds from any predicate offenses, whether committed inside or outside Palestine, provided the act is criminalized under the law of the country where it occurred. Money laundering applies to persons who committed any of those crimes. d- A person commits terrorist financing if they intentionally, directly or indirectly, provide or collect funds from a legitimate or illegitimate source with the purpose of using them, or knowing they will be used wholly or partially by a terrorist entity/organization, for terrorist acts. e- Any act specified in paragraph (d) above constitutes terrorist financing even if the terrorist act has not occurred or funds have not been actually used, provided they are linked to a specific terrorist act regardless of the country where it occurred or was attempted. f- Any person is prohibited from:
• Recruiting, organizing, transporting, supplying, or equipping foreign terrorist fighters, and financing their travel and activities.
• Traveling or attempting to travel from Palestine to any foreign country for committing, planning, participating in, or preparing terrorist acts, or receiving/undergoing training.
• Providing or collecting funds with the purpose or knowledge that they will be used to finance travel of foreign fighters, or organize/facilitate their travel.
• Entering or transiting through Palestine for purposes related to terrorist acts.
  1.9 Money laundering involves numerous processes requiring attention to signs of potential criminal activity. The three stages are:
  a- Placement: Begins with introducing cash proceeds from specified crimes into the banking system. b- Layering: Obscures the relationship between funds and their illicit sources through successive financial and banking transactions. c- Integration: Merges laundered funds into the economy, making it difficult to distinguish them from legitimately sourced funds. Note: Money laundering may not pass through all three stages.
  1.10 Terrorists and terrorist organizations require financial support to achieve criminal objectives, attempting to conceal and disguise their internal links, relationships, and funding sources. They seek to launder funds financing their activities regardless of source, enabling use without attracting authority attention.

2. Relevant International Legislation and Standards for AML/CFT Environment Management
   2.1 Financial Action Task Force (FATF) International Standards: The FATF is an intergovernmental body established in 1989 to issue international AML standards, expanding its scope in October 2001 to include counter-terrorist financing.
   2.1.1 The FATF monitors countries' compliance with international AML/CFT standards to ensure efficient application through assessment missions and follow-up on corrective actions from evaluations.
   2.1.2 The FATF periodically issues a list of high-risk and non-compliant countries, requiring enhanced due diligence measures for financial transactions executed to or from those countries on behalf of natural or legal persons, and correspondent relationships with financial institutions residing in those countries.
   2.1.3 The FATF includes many countries with significant economies and has developed a global cooperation network to facilitate knowledge and experience exchange among member states.
   2.1.4 As a member of the Middle East and North Africa Financial Action Task Force (MENAFATF), Palestine applies AML/CFT requirements according to FATF recommendations. Compliance with international standards is essential for maintaining Palestine's reputation and international financial activities.
   2.1.5 Issuances and guidelines from the Basel Committee on Banking Supervision.
   2.2 Law Decree No. 20 of 2015 and its amendments, related instructions, Presidential Decree No. 14 of 2015, and instructions from the National Committee for AML/CFT and the PMA constitute the relevant legislation. Accordingly:
   a. Bank boards of directors and all staff must fully understand their responsibilities within the legislative framework. b. Money laundering and terrorist financing crimes are defined, with legislation listing acts considered offenses by perpetrators.
   c. The Law Decree on AML/CFT imposes customer identification requirements based on risk levels and record retention.
   d. The PMA is granted supervisory authority to ensure bank compliance, adopt a risk-based approach, identify/understand risks, establish necessary policies/procedures, regulate financial institutions, and issue instructions. e. The Financial Monitoring Unit receives and requests information from supervised entities (paper/electronic reports), holds powers to suspend suspected transactions for three working days, and provides information upon reasonable suspicion. f. Article (11) of the Law requires banks to implement appropriate programs to prevent money laundering, terrorist financing, or predicate offenses. g. Paragraph (8) of Article (6) requires banks to adopt a risk-based approach to avoid and reduce money laundering and terrorist financing risks. h. Chapter Six outlines penalties for perpetrators, with specific fines, imprisonment, or asset confiscation per crime.

Chapter Two
Internal AML/CFT Measures
2.1 All necessary measures must be taken to ensure adequate protection mechanisms against money laundering and terrorist financing risks, preventing violations of relevant legislation. This requires the bank to apply appropriate internal policies, operational procedures, control tools, and customer acceptance procedures, collectively termed "AML/CFT Systems."
2.2 AML/CFT systems must be sufficient and appropriate, considering risk factors which may include product/service type, distribution channels, customer types/categories, and geographic regions/countries.
2.1 Product/Service Risk: Bank must consider characteristics of provided products/services and evaluate their susceptibility to money laundering and terrorist financing. This requires assessing risks for new products/services before customer offering, especially those potentially misusing advanced technology or facilitating concealment of money laundering/terrorist financing. Additional control procedures and tools must be ensured to manage and mitigate associated risks.
2.2 Distribution Channel Risk: Bank must evaluate exposure of service/product distribution channels to money laundering and terrorist financing. Channels may include internet, postal, or telephone sales/account opening without physical customer presence. Distribution channels also include using intermediaries to sell products/services, which increases risk due to indirect transactions.
2.3 Customer Risk: Bank must consider several factors when evaluating customer risk, such as identifying customers and their activities, plus other information indicating higher risk levels. Caution is required for corporate customers with legal forms enabling individuals to manage properties/real estate while controlling them implicitly and/or operating in economic sectors more prone to corruption. Examples include:
a- Companies that can be formed without providing or disclosing ownership or senior management identities. b- Certain institutions/associations where actual owners or senior managers cannot be verified or confirmed. c- Companies issuing bearer shares. The bank must also consider risks inherent in customers' activities and the extent to which their activities may naturally contain criminal operations.
2.4 Country Risk: Bank must pay special attention to countries or geographic regions characterized by high organized crime levels, greater susceptibility to corruption and other predicate offenses, and lacking adequate systems to prevent and detect money laundering and terrorist financing.
3. Automated Systems and Programs
Automated information systems used by the bank must enable tracking of financial movements according to customer risk levels, ensuring timely provision of necessary reports and information to the AML/CFT Compliance Officer for monitoring and analyzing customer-specific data and operations. These systems must be linked from account opening through inquiry, verification, financial transaction execution, and database building, enabling at minimum:
a- Customer risk classification with indicators for adjusting customer risk levels, linking customer classification to transaction volume and nature. b- Data provision on customers, risk levels, products/services, and transaction periodicity. c- Handling large/complex transactions and tracking operations. d- Screening customer databases for changes in customer classification against international watchlists. e- Monitoring customers' financial movements, relationships with beneficiaries, and changes in transaction nature/volume. f- Providing indicators for suspicious transactions requiring tracking/analysis to prevent money laundering/terrorist financing, with specific monitoring/classification indicators for abnormal transactions. g- Extracting sufficient accurate information on changes in nature/volume of normal transactions, customer risk levels, monitoring financial operations, and providing early warning indicators for tracking operations under multiple scenarios. h- Granting appropriate authorities to the AML/CFT Compliance Officer to use systems/programs for monitoring, follow-up, and supervision, enabling utilization of system outputs and extraction of necessary reports for supervision/follow-up at transaction, account, and customer levels. i- Flexibility, upgradability, and developability of AML/CFT operations.