Anti-Money Laundering
Part I
Omani law mandates filing of suspicious activity report
By Jose Chacko, Partner-Forensic Technology Services, Crowe Oman
It is necessary to assess client due diligence to the extent to which a business is exposed to money laundering and terrorist financing risks. In the Sultanate, as per the law, all entities are required to submit Suspicious Activity Reports (SAR) to Financial Intelligence Unit (FIU) if there are any suspected regulatory violations or any potential money laundering or terrorist financing activities.
National Centre for Financial Information (NCFI) is the legal entity established under the law to receive suspicious activity reports.
As per the law, various supervisory authorities are Central Bank of Oman, Capital Market Authority, Ministry of Commerce and Industry, Ministry of housing, Ministry of social development and Ministry of justice. National Committee can designate any other party as a supervisory authority for anti-money laundering and combating the financing of terrorism (AML/CFT) laws.
This is to be done when there are reasonable grounds for suspicion and should be done within the specified time frame as per guidelines. Suspicious Activity Report can be initiated during customer onboarding stage, regular ongoing due diligence, while doing sanction screening or during normal operations. It is your responsibility to block economic crimes by filing SAR.
In some jurisdictions, it is referred to as Suspicious Transaction Report - STR or Suspicious Matter Report-SMR. Suspicious Activity is defined as a transaction that is inconsistent with a customer’s known legitimate line of business or personal activity for the kind of business or account.
Any entity that fails to submit Suspicious Activity Reports to the regulators will face punitive measures as per the law in the Sultanate. The reports are to be submitted when there are reasonable grounds for suspicion and should be done within the specified time frame as per guidelines.
Financial Action Task Force (FATF) is an inter-governmental policy making body that sets Anti Money Laundering (AML) standards and counter terrorist financing measures worldwide. FATF issues international standards towards AML/CFT controls. In almost all countries FATF’s 40 recommendations plays a key role in forming their country’s respective AML laws. Its recommendations do not have the force of law.
But when it is adopted to a country’s laws, it is legally binding. FATF develops annual typology reports showcasing money laundering and terrorist financing trends and methods worldwide. The FATF conducts peer reviews of each member through mutual evaluations to assess levels of implementation of the FATF Recommendations. This exercise will assess the effectiveness of measures to combat money laundering and terrorism financing.
According to FATF, countries should establish local Financial Intelligence Units (FIU) to receive analyze and disseminate the suspicious activity reports to the concerned authorities. (To be continued)
- The writer is Partner-Forensic Technology Services, Crowe Oman. He can be contacted over [email protected]
Part II
What should be included in a Suspicious Activity Report?
By Jose Chacko, Partner-Forensic Technology Services, Crowe Oman
As mentioned in the previous article, the National Centre for Financial Information (NCFI) is the authorized entity entrusted with the task of analysing the suspicious activity reports (SAR) received from various entities and disseminate this information to the Royal Oman Police and the public prosecution for further action, in accordance with its requirements.
Normally, a Suspicious Activity Report contains the name, identity, contact details of the person suspected and a description of the suspicious activity. The reporting person/ entity should have reasonable grounds to believe that there exists some element of suspicious activity or economic crime. And the contents differ from one jurisdiction to another.
While saying that, the person filing the suspicious activity report need not necessarily know what criminal activity the customer/individual/organization might be involved in or from where the suspected funds came from. The only requirement is that there should be a reasonable ground to believe that there is a certain suspicion. If you don’t know someone’s identity you should include a detailed description of the person suspected, photographs from CCTV or other equipment, if available and also an explanation to why there is a suspicion. It can include identifiable marks or noticeable mannerisms with the suspected person.
The conversation between the suspected persons can also be included in the SAR. This will help the law enforcement to register the case for investigation and follow up. The entity can ask more questions on the identity or the sources of funds without tipping off the subject. On submitting a SAR, NCFI may ask more questions or clarification about the report or about a particular transaction. The information you provide may help the authorities to detect and prevent serious crime.
Customer due diligence and KYC
As per FATF recommendations, entities should perform Customer Due Diligence. The method and the periodicity may differ as per jurisdictions. Customer due diligence procedures to be started when a customer initiates a business relation with the entity or even before that. First thing is to determine a customer’s identity. This may be finding customer’s name, any family name and identity of the customer from individually verifiable documents. This is popularly known as Know Your Customer (KYC) verification.
When we are look at the recent regulatory fines for banks and financial institutions, most of the anti-money laundering violations are due to the inadequate KYC follow ups. KYC helps manage risks and helps to understand customer behaviors. When the entity is looking into the customer identity, it is important to look into the real beneficial owner of a particular transaction. Risk Assessment is an integral part of the process and the entity has to decide on what kind of due diligence is to be performed.
When we discuss about KYC norms, Know Your Employees -KYE is also important. For acquiring a better knowledge and understanding of the employees of an institution for the purpose of detecting conflicts of interests, money laundering, past criminal activity and suspicious activity, KYE practices are used.
Reportable entities
As per typology reports, various kinds of entities are more vulnerable to money laundering and terrorist financing risks. The list include banks, casinos, offshore corporations and Banks located in Tax/Banking havens, Embassies, Money Service Businesses including currency exchange houses, money remitters, check cashers, virtual currency exchanges, car, boat and plane dealerships, Used-car and truck dealers and machine parts manufacturers, Professional service providers (attorneys, accountants, investment brokers and other third parties who act as financial liaisons for their clients), Travel agencies, Broker/dealers in securities, Jewel, gem and precious metals dealers, Import/export companies and Cash-intensive businesses like restaurants, retail stores, parking lots etc.
As the above list is not an exhaustive list, many other types of businesses not listed could also be used to launder money and to intermediates terrorist financing.
Banks and other financial institutions have comparatively better controls through the enactment of various laws and regulations. The launderers look for better opportunities in other sectors like non-financial entities and other businesses and professions. Designated non-financial businesses and professions includes casinos, real estate agents, dealers in precious metal and precious stones, gate-keepers namely lawyers, notaries, legal professionals and accountants mainly those who prepare or carry out certain duties on behalf of clients. (To be continued)
- The writer is Partner-Forensic Technology Services, Crowe Oman. He can be contacted over [email protected]
Part III
A robust system to counter money laundering, terrorist funding
By Jose Chacko, Partner-Forensic Technology Services, Crowe Oman
The Sultanate’s Anti-Money Laundering Law (AML) together with Penal Code and other laws mandate extensive requirements and enable wide-ranging actions with National Committee for Combating Money Laundering, constituted with high-level representatives from relevant Ministries, Regulators and Law Enforcement Authorities.
The AML and combating the financing of terrorism (CFT) law of 2016, in line with the international standards, was enacted with wider powers to combat money laundering and Terrorism financing in various sectors of the economy. National Committee for Countering Money Laundering and Terrorism financing is the apex body to regulate AML/CFT in Oman.
National Centre for Financial Information (NCFI) is the legal entity established under the law to receive suspicious activity reports. As per the law, various supervisory authorities are Central Bank of Oman, Capital Market Authority, Ministry of Commerce and Industry, Ministry of housing, Ministry of social development and Ministry of justice. National Committee can designate any other party as a supervisory authority for AML/CFT.
These authorities give constant guidelines and regulations to control money laundering and terrorism financing. The Central Bank of Oman is the supervisory authority for licensed Financial Institutions covering banks, finance and leasing companies, and money exchange business while the Capital Market Authority supervises the regulated entities like securities and insurance sector. All the supervisory authorities have the power to conduct onsite inspections and are generally thorough in covering the prudential health of the entities.
According to Article 4 of the Act, all non-financial institutions and professions are covered under Designated Non-Financial Business and Professions (DNFBPs) group and covers all the so called gate-keepers. Gatekeepers are deemed to have a particular role in identifying, preventing and reporting money laundering and terrorism financing.
Another category of entities covered under the law are Nonprofit Associations and Entities (NPOs) Any organized group established in accordance with the provisions of the law on non-governmental organizations for the purpose of raising or spending funds for charitable, religious cultural social educational cooperative or any other purpose including foreign branches of international nonprofit association and entities are covered under this group.
All obligations applicable to financial institutions under the AML/CFT Law are also applicable to DNFBPs and other not for profit organizations. Besides being subject to obligations under the AML/CFT Law, real estate brokers, dealers in precious metals and stones and accountants are subject to a decision by the Ministry of Commerce and Industry which partially covers the requirements of identification of clients, record keeping, reporting suspicious transactions, the use of modern technologies, training and other requirements.
Whereas the CMA is supervising the companies operating in the field of securities and insurance companies, it issued instructions for the implementation of the Anti-money Laundering and Combating Financing Terrorism Law for insurance companies vide Decision No. E/3/2020, and instructions to the companies operating in the field of securities vide Decision No. E/4/2020. CMA also established Anti-money Laundering/Combating Financing Terrorism Department (AML/CFT) to oversee, audit and ensure compliance of all the companies regulated by the CMA with the laws, regulations and directives related to anti-money laundering and combating financing terrorism.
Existing regulations for the DNFBP sector do not address the requirement to provide a designated staff responsible for AML/CFT compliance. The requirement of establishing policies and procedures shall be emphasized along with the training and awareness requirement to regulated entities.
The mutual evaluation for Oman by the Financial Action Task Force (FATF) is expected in 2021/22 which aims to assess the status of the country in combatting money laundering and terrorism financing threats. The international community has recognized the role of FATF in protecting the integrity of the financial system.
- The writer is Partner-Forensic Technology Services, Crowe Oman. He can be contacted over [email protected]