Information and Awareness Guide: Combating Money Laundering and Terrorist Financing - Securities Market

Republic of Algeria
Ministry of Finance
Commission for the Organization and Supervision of Stock Exchange Operations (COSOB) Public Relations and Communication Cell

Information and Awareness Guide
"Combating Money Laundering and Terrorist Financing - Securities Market" July 10, 2024

Table of Contents
INTRODUCTION ..................................................................................................................... 3
CHAPTER I: Definition of Specific Terms in the AML/CFT/FP Domain

1. Funds ........................................................................................................................... 3
2. Money Laundering ......................................................................................................... 3
3. Terrorist Financing ....................................................................................................... 4
4. Financing of the Proliferation of Weapons of Mass Destruction ............................. 4
5. Risks Related to AML/CFT/FP ................................................................................... 4
6. Terrorist ........................................................................................................................... 5
7. Terrorist Act ................................................................................................................... 5
8. Specialized Body ............................................................................................................. 5
9. Politically Exposed Person ..................................................................................... 5
10. Beneficial Owner ........................................................................................................... 5
11. Register of Beneficial Owners.................................................................................... 6
12. Risk-Based Approach ...................................................................................... 6
13. Presentation of the Financial Intelligence Unit ...................................................... 6
    CHAPTER II: Suspicious Operations and Persons
14. Suspicious Operations.................................................................................................. 6
15. Politically Exposed Persons ........................................................................... 7
16. Beneficial Owners ................................................................................................. 8
17. Risks Associated with These Practices ............................................................................... 8
    CHAPTER III: How to Identify Suspicious Operations
18. Transaction Monitoring ........................................................................................... 9
19. Risk Profile Assessment ........................................................................................ 9
20. Customer Identity Verification ................................................................................... 9
21. Assessment of Business Relationships .................................................................................... 9
22. Training and Awareness of Personnel : ....................................................................... 9
    CHAPTER IV: System for Reporting Suspicious Operations
23. Purpose of Reporting ......................................................................................................... 9
24. Method of Reporting ......................................................................................................10
25. Processing of the Report by the CTRF ........................................................................10
26. Confidentiality :.................................................................................................................10
    CONCLUSION........................................................................................................................10

3 Information and Awareness Guide (AML/CFT/FP) COSOB/10/07/2024 INTRODUCTION In the current context of combating money laundering (AML), terrorist financing (TF), and the financing of the proliferation of weapons of mass destruction (FP), it is imperative to strengthen our understanding of specific terms and procedures associated with these illicit practices. This note aims to provide essential information to guide you in your obligations as entities subject to the applicable regulations. We will begin by clearly defining the specific terms used in the framework of AML, TF, and FP. By understanding these fundamental concepts, you will be better equipped to identify and report suspicious activities that may occur in your operations. Next, we will present the Financial Intelligence Processing Unit (CTRF) and its role in collecting, analyzing, and sharing information related to illicit activities. As regulated entities, your cooperation with the CTRF is essential to ensure the effectiveness of efforts to combat AML, TF, and FP. We will also emphasize suspicious operations, politically exposed persons (PEPs), beneficial owners, and the risks associated with these activities. A thorough understanding of these elements will help you put in place effective detection and prevention measures. Finally, we will address the procedures for identifying and reporting suspicious operations, as well as the legal obligations incumbent upon your organization regarding reporting and cooperation with the CTRF.

CHAPTER I: Definition of Specific Terms in the AML/CFT/FP Domain
The fight against money laundering (AML) and terrorist financing (TF) involves the understanding of essential specific terms such as:

1. Funds:
   Funds and assets of any nature, including economic resources and virtual financial assets, corporeal or incorporeal, movable or immovable, tangible or intangible, acquired by any means whatsoever, directly or indirectly, and documents or legal instruments in any form whatsoever, including but not exclusively in electronic or digital form, which attest to a right of ownership or an interest in such funds and assets, notably bank credits, checks, traveler's checks, money orders, shares, securities, bonds, bills of exchange, and letters of credit, and any potential interest, dividends, and other revenues or values derived from such funds and assets of any nature or generated by them, and all other assets that could be used to obtain funds, assets, or services.

2. Money Laundering:
   Money laundering is considered to be:

• the conversion or transfer of funds, knowing that they are the direct or indirect proceeds of an offense, with the aim of concealing or disguising the illicit origin of said assets or helping any person involved in the principal offense, following which these assets are recovered, to escape the legal consequences of their acts;
• the concealment or disguise of the true nature, origin, location, disposition, movement, or ownership of funds or rights related thereto, knowing that they are the proceeds of an offense;
• the acquisition, possession, or use of funds by a person who knows, upon their receipt, that said assets constitute the proceeds of an offense;
• participation in one of the established offenses in accordance with this article or any other association, conspiracy, attempt, or complicity by providing assistance, aid, or advice with a view to its commission.

3. Terrorist Financing:
   In the sense of the applicable regulations, terrorist financing is considered to be and is punishable by the penalties provided for in Article 87 bis 4 of the Penal Code, the act by which any person or terrorist organization, by any means whatsoever, directly or indirectly, illicitly and deliberately, provides or collects funds with the intention of using them personally or having them used, in whole or in part, by a terrorist or a terrorist organization, with a view to committing offenses qualified as terrorist or subversive acts, acts provided for and punished by the legislation in force. The offense is committed whether the terrorist act occurs or not, or whether the funds have been or have not been used to commit that act. Terrorist financing is a terrorist act.

4. Financing of the Proliferation of Weapons of Mass Destruction:
   The financing of the proliferation of weapons of mass destruction, notably nuclear, chemical, toxin, bacteriological, or biological weapons, through acts proscribed by Resolution 1540 (2004) and successive resolutions of the United Nations Security Council relating to the prevention, repression, and interruption of the proliferation of weapons of mass destruction and its financing;

5. Risks Related to AML/CFT/FP:
   The risks related to these illicit activities are multiple and affect both financial institutions, businesses, and society as a whole. These risks include:
   a. Legal and Compliance Risks: Subject entities must comply with strict AML/CFT/FP regulations. Non-compliance with these obligations can result in significant sanctions, fines, and sometimes even prison sentences for executives. This also includes the risk of losing operating licenses or professional authorizations. b. Financial Risks: Money laundering and terrorist financing can have a direct impact on the financial health of an institution. Illicit transactions can lead to significant losses, especially if assets must be frozen or confiscated. Furthermore, the reputation of a financial institution can suffer serious damage if it is linked to such practices, which can lead to a loss of confidence from clients and investors.
   c. Operational Risks: The need to put in place effective detection and prevention systems against AML/CFT/FP can represent a significant operational challenge. This requires investments in surveillance technologies, staff training, and internal control and audit procedures. An inadequate system can not only fail to detect illicit activities but also disrupt legal operations and relationships with legitimate clients.
   d. Reputational Risks: Association, even indirect, with money laundering or terrorist financing activities can seriously harm the reputation of an institution or company. This can have lasting consequences on the entity's ability to attract and retain clients, as well as to establish business partnerships. e. Security and Economic Stability Risks: On a larger scale, money laundering and terrorist financing threaten the security and economic stability of countries. They can fuel organized crime, terrorism, and even destabilize entire economies by corrupting key sectors or manipulating financial markets.

6. Terrorist: any person who:
   a. commits or attempts to commit terrorist acts by any means, directly or indirectly, illegally and deliberately; b. participates as an accomplice in terrorist acts;
   c. organizes terrorist acts or instructs others to commit them, contributes to the commission of terrorist acts by a group of people acting for a common purpose when this contribution is intentional and aims to achieve the terrorist act or is provided with knowledge of the group's intention to commit a terrorist act.

7. Terrorist Act:
   Offenses qualified as terrorist acts in accordance with Article 87 bis and following of Section IV bis of Chapter I of Title I of Book Three of the Second Part of the Penal Code and in accordance with the legislation in force as well as the international conventions relating thereto, ratified by Algeria.

8. Specialized Body:
   Refers to the Financial Intelligence Processing Unit (CTRF) provided for by the applicable regulations.

9. Politically Exposed Person:
   Any Algerian or foreigner elected or appointed, who exercises or has exercised, in Algeria or abroad, high legislative, executive, administrative, or judicial functions, as well as senior officials of political parties.

10. Beneficial Owner:
    The natural person(s) who, in fine:
    a. own or control a client, the client's agent, or the beneficiary of life insurance contracts, and/or b. the natural person on whose behalf an operation is carried out or a business relationship is established.

Also included are persons who exercise effective control over a legal entity in the last instance;

11. Register of Beneficial Owners:
    Register established at the National Center of the Commercial Register containing information on the beneficial owners of legal entities under Algerian law.

12. Risk-Based Approach:
    Set of measures and procedures aimed at identifying, assessing, understanding, and mitigating the risks of money laundering, terrorist financing, and financing of the proliferation of weapons of mass destruction.
    This approach includes a set of measures and procedures aimed at identifying, assessing, understanding, and mitigating the risks inherent to these illicit activities. First, it implies a thorough analysis of potential risk factors, such as transaction characteristics, client profiles, and operational contexts. Then, it requires a continuous assessment of these risks, in order to adapt to the evolution of the financial landscape and emerging threats. Moreover, it advocates the implementation of appropriate security measures to mitigate these risks, such as enhanced surveillance policies, customer identity verification procedures, and staff training programs. By adopting a proactive and risk-based approach, financial institutions and businesses can better protect themselves against attempts at money laundering, terrorist financing, and proliferation of weapons of mass destruction, thereby strengthening the security and integrity of the global financial system.

13. Presentation of the Financial Intelligence Unit
    The Financial Intelligence Processing Unit (CTRF) is a specialized body, created next to the Minister of Finance by Executive Decree n°02-127 of April 7, 2002.
    Its missions consist of processing financial intelligence collected through suspicion reports emanating from financial institutions as well as non-financial professions (notaries, lawyers, bailiffs, auctioneers, accountants, statutory auditors, customs brokers, stock exchange intermediaries, real estate agents, car dealerships...), concerning doubtful transactions or operations.

CHAPTER II: Suspicious Operations and Persons
In order to ensure a better understanding and effective management of risks related to money laundering (AML), terrorist financing (TF), and financing of proliferation (FP), this section will highlight essential concepts such as suspicious operations, politically exposed persons, beneficial owners, as well as the risks associated with these practices.

1. Suspicious Operations
   Suspicious operations refer to financial transactions that present unusual characteristics or do not seem to have a legitimate commercial justification. These transactions can include large value fund movements, transfers to unknown destinations, or activities that bypass usual procedures. Early detection and reporting of these operations are essential to prevent money laundering, terrorist financing, and other illicit activities. For a better understanding of suspicious operations in the context of financial market operations, some key indicators can signal money laundering activity such as Client Behavior and Transaction Characteristics:
   a. Client Behavior:

• The client makes transactions in different locations or through different employees.
• The client provides false or misleading information regarding their identity, finances, or activities.
• The client has no apparent knowledge of the stock market or the financial products they buy or sell.
• The client makes transactions that do not correspond to their investment profile or financial objectives.
• The client uses a nominee or a shell company to make transactions.
• The client refuses to provide information on the origin of their funds.
• The client is reluctant to communicate with the Stock Exchange Intermediary (IOB) or to answer questions.
  b. Transaction Characteristics:
• Large and unusual transactions, often made in cash or with monetary instruments.
• Transactions that have no apparent economic purpose or do not correspond to the client's legitimate business activities.
• Transactions involving illiquid or difficult-to-evaluate securities.
  c. Best Practices:
• In case of suspicion of money laundering, regulated entities must report the operation to the CTRF;
• Keep detailed records of all suspicious transactions and cooperate with supervisory authorities in the framework of money laundering investigations.
  Reporting suspicious operations to the CTRF represents a double-edged measure. On the one hand, it combats any criminal financial activity, while offering protection to the declarant, provided that these reports do not harm the process of activities.

2. Politically Exposed Persons:
   Politically Exposed Persons (PEPs) are individuals who hold or have held important political functions, as well as their close associates. Due to their position, PEPs are likely to be used as intermediaries in illicit financial transactions or to conceal ill-gotten assets. Financial institutions must pay particular attention to transactions involving PEPs in order to reduce the risks of corruption, money laundering, and terrorist financing.

3. Beneficial Owners:
   Beneficial owners are the natural persons who ultimately own or control an entity or a financial transaction. Identifying beneficial owners is crucial to understanding the true ownership of assets and preventing attempts at concealment or misappropriation of funds. Regulated entities must implement appropriate verification procedures to determine beneficial owners and ensure transparency in their operations.

4. Risks Associated with These Practices:
   Doubtful transactions, dealing with politically exposed persons, and financing activities whose beneficiaries are effective owners represent significant sources of risk for regulated entities. These risks are generally categorized as being at a very high level. a. Risks Associated with Suspicious Operations:
   Suspicious operations pose a high risk to financial institutions and businesses, as they can be used to conceal illicit activities such as money laundering, terrorist financing, or fraud. The risks include regulatory fines, financial losses, reputational damage, and legal proceedings. These risks are classified as High. b. Risks Associated with Politically Exposed Persons (PEPs):
   Transactions involving PEPs carry an increased risk of corruption, collusion, and money laundering due to their political influence and access to financial resources. Regulated entities must exercise particular diligence when dealing with PEPs to avoid being involved in illicit activities. These risks are classified as High.
   c. Risks Associated with Beneficial Owners:
   Ignorance or concealment of the true beneficial owners can facilitate money laundering, tax fraud, and other illicit activities. Regulated entities must ensure they know the identity of the beneficial owners of their clients and transactions to reduce the risk of involuntary complicity in illegal practices. These risks are classified as Moderate to High depending on the context and sector of activity.

CHAPTER III: How to Identify Suspicious Operations
Identifying suspicious operations related to money laundering (AML), terrorist financing (TF), and financing of proliferation (FP) involves continuous surveillance and careful analysis of financial activities. To minimize these risks, regulated entities can adopt the following methods and indicators:

1. Transaction Monitoring:
   Put in place transaction monitoring systems to detect unusual patterns or behaviors, such as unjustified sources of funds, large value transactions without legitimate commercial motive, or fund movements to unknown destinations (example of funds from stock sale operations or funds that will be invested via participation in companies).

2. Risk Profile Assessment:
   Establish risk profiles for clients and transactions to identify those presenting a high level of AML, TF, or FP risk. This may include examining factors such as the origin of funds, business relationships, and high-risk sectors.

3. Customer Identity Verification:
   Implement rigorous verification procedures (KYC) to confirm the identity of clients.