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+Introduction : General

 Criminals, money launderers and terrorist financiers succeed in their illegal
activities because they are able to sanitize, move and conceal illegitimate funds. For
this, they use financial institutions, designated non-financial businesses and
professions(DNFBPs) and other trade or charity based channels.
 Weak AML/CFT policies and procedures assist such criminals to expand their
 Such environment helps them to abuse the system and adds further to their engagements
in tax evasion, corruption, drug trafficking, exploitation and illicit trafficking of
human beings, smuggling, arms trafficking, terrorism, etc.
 Money laundering and financing of terrorism can occur in any country. Such activities
have adverse economic and social consequences to all the countries and the impact is
severe for developing countries.

Introduction :Roles
 With the financial cost of non-compliance on AML/CFT going up substantially in
recent times, combined with the loss of reputation, this is a very critical area which
cannot be neglected any more.
 Compliance on risk based approach, as expected by the international standards and
domestic laws, requires in-depth knowledge, skill and instruments systematized
within an institution.
 Employees working in financial institutions and designated non-financial businesses and
professions (DNFBPs) play a critical role in identifying, monitoring and detecting such
illegal activities by staying informed, vigilant and reporting suspicious activities or
transactions to the related government authority.
 So, it is critical to ensure that you and your team understand the facts and spirit behind
AML/CFT regulations and how it should influence day-to-day behaviour at the
 Hence, the Fintelekt Course and Certification in AML/CFT provides the essential
knowledge from an educational, regulatory and ethical perspective, and includes an
assessment to determine if the officials of the Reporting Entities (REs) have indeed
understood the key aspects of AML/CFT regime.

Introduction : Institutions
Following financial and non-financial institutions are required to implement AML/CFT
preventative measures in a robust manner. Effective training is the cornerstone for such
successful implementation.

 Banks, money remitters, exchange houses, institutions providing services of
financial leasing, lending, financial commitment or guarantee;

 Institutions issuing and managing different means of payment;
 Institutions trading in different types of financial or money market instruments or
 Institutions engaged in insurance services, securities related industries like mutual
funds, commodities, brokering, portfolio managers;
 Institutions like designated non-financial businesses and professions (DNFBPs) such as
casinos, independent legal and accounting professionals, real estate agents, precious
metal and stones dealers, trust and company service providers, and
 Non Profit Organizations (NPOs) and others as applicable.

These institutions are normally classified as Reporting Entities (RE) in this regime.

Expected Results
By the end of the course, you will be able to:

 Gain knowledge on the fundamentals of AML/CFT regime.
 Understand AML/CFT compliance modalities and risk based approach.
 Comprehend the instruments to detect and report Suspicious Transactions.

Objectives of AML/CFT Regime
The objectives of AML/CFT Regime are as follows:

 Protecting the financial system
 Preventing criminals from enjoying the proceeds of crimes

 Preventing criminals to build formidable economic powers and challenge the

Financial Action Task Force (FATF) and
other International Initiatives
 Over the years, many international efforts have been made to combat the threat of money
laundering and terrorist financing. These initiatives include the efforts of UNO and other
regional organizations, World Bank, IMF, ADB, OECD, Egmont Group of FIUs and
FATF and FATF Style Regional Bodies (FSRBs) (Currently 8 FSRBs are working
 The Financial Action Task Force (FATF) was established at the G-7 Summit in Paris in
1989, as an inter-governmental body to develop a co-ordinated international response to
the threats of ML/TF/PF. It is basically the standard setting and compliance monitoring
body. It had issued 40+9 Recommendations on ML/TF in 1990 and 2001, which now
have been combined and revised as the FATF Standards of ML/TF/PF 2012. FATF has
36 members and numbers of international and regional observers.

The Asia/Pacific Group on Money
Laundering (APG)
 APG is an autonomous FSRB founded in 1997 in Bangkok, Thailand and now
consists 41 members and numbers of international and regional organizations as
observers. Some of the key international observer organizations include Financial Action
Task Force, International Monetary Fund, World Bank, OECD, United Nations Office on
Drugs and Crime, Asian Development Bank, etc.
 APG members and observers are committed to the effective implementation and
enforcement of AML/CFT international standards, in particular the Revised FATF
Recommendations. All SAARC countries are members of the APG.

Money Laundering
 “Money Laundering” is the process by which illegal funds and assets are converted into
legitimate funds and assets.
 Every year, huge amount of funds are generated from illegal activities. These funds are
mostly in the form of cash.
 Criminals who generate these funds need to bring them into the legitimate financial
 Illegal, or “dirty money” is put through a cycle or series of transactions or “washed”, to
convert the money to “clean” or “legal” money.
 Thus the dirty money has to pass through different stages before it gets clean.

The different stages of money laundering are:

1.Placement: Illegal funds or assets are first brought into the financial system. This placement
makes the funds more liquid. Money launderers place illegal funds using a variety of techniques
like, depositing cash into bank accounts or purchasing insurance products and using cash to
purchase assets.

2.Layering: To conceal the illegal origin of the placed funds and thus make them more useful,
the funds have to be moved, dispersed and disguised. This activity is known as “layering”. At
this stage, money launderers use many different techniques to layer the funds like, using multiple
banks and accounts, having professionals act as intermediaries and transacting through
corporations and trusts. This helps the launderers to disguise the origin of the funds.

3.Integration: The last stage of the money laundering process is called “integration”. The
“cleaned” funds can now be made available for investment in legitimate or illegitimate
businesses. Thus, the original “dirty” money has achieved the appearance of legitimacy.

Terrorist Financing
Terrorist financing means providing financial support to terrorists or terrorist organizations to
enable them to carry out terrorist acts. Terrorist funding or assisting terrorist is one of the
predicate offences of money laundering.

Key features of terrorist financing are:

 Remittances to and from unrelated parties from high risk geographies, followed by
withdrawal or transfer to different parties in small values.
 Withdrawal in cash or through cards in small values at high risk centers and merchant
 Support to terrorist organization, individual or group for their initiatives, acts and
 Undue use of Non Profit Organizations (NPOs) or charities.

Insurance Board. Seizing.Legal Framework of AML/CFT in Nepal  Asset (Money) Laundering Prevention Act. . Securities Board and other Regulators  FIU Directives on STR and TTR  Other laws relating to the business of the REs and investigations. Freezing) Rules. 2009  Asset (Money) Laundering Prevention (Listing. 2013  Regulatory Directives such as from Nepal Rastra Bank. etc. 2008  Asset (Money) Laundering Prevention Rules.

Investigation. Supervisory. 2008  Objective: to provide for prevention of money laundering and terrorist financing.  Enactment : 14 Magh. Technical Sub-Committees The Regulatory Bodies:  The Nepal Rastra Bank (NRB)  The Securities Board of Nepal (SEBON)  Insurance Board  Department of Cooperatives  Regulators for other FIs or DNFBPs Law Enforcement and other Competent Authorities  Financial Information Unit (FIU)  Department of Money Laundering Investigation (DMLI) . International Cooperation. 2008)  First amendment: 2011  Second amendment as an Ordinance in 2013 and as an Act in 2014 (Nepali Year 2070)  Jurisdiction: Nepal and may extend globally if the proceeds or person has connection. AML/CFT Related Authorities in Nepal Policy and Coordination Mechanisms:  National Coordination Committee (Chaired by the Secretary. Ministry of Finance)  Implementation Committee (Chaired by the Deputy Governor)  Legal.Asset (Money) Laundering Prevention Act. 2064 (28 January.

 Forgery. illegal restraint or hostage-taking. National park and wild animals. FATF has listed the designated categories of predicated offences.  Commission for the Investigation of the Abuse of Authority (CIAA)  Nepal Police  Revenue Investigation Department (RID)  Tax. which includes: 1.  Any kinds of sexual exploitation including the children.  Environmental crime. but they include at least all FATF designated offences.  Piracy.  Kidnapping.  Theft or robbery.  Counterfeiting and piracy of products. . Nepal has adopted a list-based approach.  Forest.  Disruptive (terrorist) act and terrorism.  Ancient monument conservation. illegal copy or theft of products. grievous bodily injury.  Extortion.  Illicit trafficking in stolen and other goods. Different countries have different practices such as threshold.or list-based or blanket approaches.  Illicit trafficking in arms and ammunition.  Insider Dealing and Market Manipulation in securities and commodities . excise and revenue).  Corruption and bribery.  Smuggling (including custom.  Fraud.  Illicit trafficking in narcotic drugs and psychotropic substances.  Murder.  Counterfeiting of coin and currency. or imitation. Customs and Immigrations authorities  Prosecutors and the Courts  MLA Central Authority  Assets Recovery Authority Predicate Offence/s Offences that are committed to illegally earn/generate money or income or property are predicate offences.Any offence under the prevailing laws:  Participation in an organized criminal group and racketeering.  Trafficking in human being and migrant smuggling in any form.  Tax (including direct and indirect).

would have constituted an offence. insurance. foreign exchange. donation. and it becomes necessary for the institutions to educate their customers and train their employees about their objectives of the AML/CFT programme.  Citizenship. which.  Communication. Fundamental Roles of Reporting Entities Here are the roles that have to be fulfilled by the Reporting Entities(REs):  Customer Due Diligence  Compliance and Risk based approach  Monitoring  Reporting  Systematic development  Customer Education/ Employee’s Training and Hiring  Every RE must abide by the AML/CFT policies. compliance staff and staff dealing with new customers. 3. negotiable instruments.  Election.  Hiring of Employees: .Offence of terrorist financing pursuant to section 4.  Real estate and property.Any other offence as designated by the Government of Nepal by publishing a notice in the Nepal Gazette. finance. medicine. partnership.  Customer Education:  REs must prepare specific literature and pamphlets to educate customers about the objectives of the AML/CFT programme.  Transportation. advertising. broadcasting. consumer protection. supply.An offence under a law of a foreign State.  Firm. health. foreign employment. gambling. (2) or (3). in relation to act or omission under paragraph (1). or 4. banking.  Money.  Employees Training:  REs must have an ongoing employee training programme to adequately train its staff and to have different focuses for front-line staff. had they occurred in Nepal. competition.  Black marketing. association. immigration and passport. company. education.  Lottery. cooperatives. 2.

e.   Know Your Customer  Definition of Customer A customer is generally defined as a person or entity:  Who maintains an account and/or has a business relationship with the REs. the beneficial owner).  REs should have an adequate screening mechanism in place as an integral part of the personnel recruitment or hiring process to ensure that criminals are not allowed to misuse financial institutions.  On whose behalf the account is maintained (i. .

while making a wire transfer or issuing a high value demand draft. chartered accountants. Type of Customers  Natural Persons  Legal Persons as follows: .  Connected with the RE and who can pose significant reputation or other risks. solicitors etc. for example.  Beneficiaries of transactions conducted by professional intermediaries.  Who receives services or requests for services from RE. as permitted under the law.  Who attempts to establish a business relationship or conduct a transaction. such as stock brokers.

The KYC process normally has four key elements. .Four Key Elements of KYC Policy Know Your Customer (KYC) is the process used by the REs to verify the identity of their clients. which in turn allows the institutions to intercept any fraudulent dealing. It allows the institutions to know and understand their customers and their transactions better.

unusually large transactions and all unusual pattern.Customer Acceptance Policy:  No anonymous/ fictitious accounts  Risk assessment and categorization of customer into Low. Medium or High risk  Not to open an A/C and close an existing A/C where the bank is unable to apply appropriate Customer Due Diligence(CDD) measures  Name screening against negative lists Customer Identification Procedure:  Identification and verification of customer  Verification of customers from original and other reference documents  Periodic updates of customer identification data Transaction Monitoring:  Threshold based monitoring : mix of automated and manual triggers  Special attention to all complex. with no apparent economic or visible lawful purpose  Attention to large transactions inconsistent with normal & expected patterns  Review of AML risk categorization  Ongoing monitoring of high risk customers and Enhanced Customer Due Diligence(ECDD) Risk Management:  Assessment of Risks  Board approved AML/CFT Policy  Management oversight on policy implementation .

cannot be verified /assured or for whom sufficient information to form a customer risk profile cannot be gathered. Rules and regulatory Directives. it is mandatory to procure the proof of identity and address. or information collected under the CDD process should be kept up to date and relevant by undertaking reviews of existing records at appropriate times. as required in the Acts. . Independent internal audit and compliance function for evaluating and ensuring adherence to the AML/CFT Policies and procedures  New Customer Acceptance  When entering into a relationship with new customers. In such cases REs should consider to file a suspicious transaction report if necessary.   Maintenance of Customer Information on an Ongoing Basis  REs must gather and maintain customer information on an ongoing basis. Documents. data.  REs should not accept as customers those persons whose identity and beneficial owner(s).

 Economic sanctions are affected through blocked assets controls. these may be guided by their local regulatory norms.  OFAC is not applicable to institutions and entities that have no direct or indirect US relationship.  The purpose is to prevent economic support to terrorist and protecting national and international security interests.  UN and some other domestic and international organizations maintain a list of designated terrorist or terrorist organizations. unless the activity is otherwise authorized by OFAC under general or specific license.  Screening  REs should screen the names of customers and beneficiaries against the negative list. it should be aware that doing business with any OFAC sanctions target country (including government agencies) is strictly prohibited. trade embargoes. If RE has a branch or headquarters or any business existence or presence (including ADR listing) in the United States.  The Office of Foreign Assets Control (OFAC) of the US Department of the Treasury administers and enforces certain economic and trade sanctions based on US foreign policy. search for similar names and freeze the fund if so found. travel bans and other commercial and financial restrictions.  Understanding Beneficial Ownership  Beneficial Owner means the natural person/s who ultimately own or control a customer and/or the person on whose behalf a transaction is being conducted. It also incorporates .  REs are required to go through the list.

The distinction is important because the focus of anti-money laundering guidelines is on the person who has the ultimate level of control or entitlement. entity or arrangement. those persons who exercise ultimate effective control over a legal person.  The term Beneficial Owner is important to understand because a person in whose name an account is opened with an institution may not necessarily be the person who ultimately controls or is entitled to the funds or investments.   Key Differences between Money Laundering and Terrorist Financing .

including beneficial owners.  Gathering information on customers and beneficial owners and creating a customer risk profile. CDD should be applied on risk basis.  Maintaining customer and beneficial owner information on an ongoing basis. and  Monitoring customer’s transactions and relationship with the customer on an ongoing basis.  Applying established customer acceptance policies to new customers. which must include enhanced CDD for higher risk customers and may include simplified CDD for lower risk customers. .  Customer Due Diligence (CDD) Conducting CDD by all REs includes:  Identifying customers.

The decision to open an account for a person suspected to be PEP should be taken at a senior level as per the institution’s Customer Acceptance Policy. Heads of States or of Governments. .Politically Exposed Persons (PEP) Politically exposed persons are individuals. senior executives of state-owned corporations or important political party officials. who are or have been entrusted with prominent public functions in a foreign country. senior politicians. The identity of the person should be verified and information about the sources of funds should be known before accepting the PEP as a customer.. Reporting institutions should gather sufficient information about any prospective customer of this category before establishing a relationship and check all the information available about the person in the public domain. e.g. senior government/ judicial/ military officers.

Enhanced CDD for Higher Risk Customers Reporting institutions shall apply enhanced CDD for customers that are likely to pose a higher risk of money laundering or terrorist financing (“enhanced CDD") including for “politically exposed persons” (PEPs) and “non-face-to-face” customers. Enhanced CDD should be applied to higher risk customers at each stage of the CDD process. . Enhanced CDD should include reasonable measures to establish the source of wealth. No higher risk customer should be accepted as a customer unless a senior member or institution's management has formally accepted the relationship with this type of customer. source of funds of customers and monitor the background and purpose of the relationship and transactions.

current residency..  higher risk for other reasons based on relevant information such as jurisdictions identified as having high levels of corruption.  a politically exposed person ("PEP") or linked to a PEP.  a legal person or arrangement whose ownership structure is complex with no visible economic or lawful purpose.  a non-resident.  a legal person or arrangement that is a personal asset holding vehicle. Relevant factors in determining if a customer is of high risk include instances where the person (natural or legal) is:  establishing customer relationship other than “face to face”.  engaged in a business that is particularly susceptible to money laundering or terrorism financing. and  jurisdictions involved in cash intensive business activities. and previous residency of the person suggests greater risk of money laundering or terrorist financing.  a high net worth individual. or if the nationality.Enhanced CDD for Higher Risk Customers: Contd. Non face-to-face transactions referred to in Sub-clause (4) of this Clause include but are not limited to: .  a company with nominee shareholders or shares in bearer form. especially if the potential customer is a private banking customer or the source of funds or source of wealth is unclear.  connected with jurisdictions that lack proper standards in the prevention of money laundering or terrorist financing.

Enhanced CDD for Higher Risk Customers: Contd. Enhanced CDD procedures for non-face to face transactions may include:  certification of documents presented by a notary or other reliable person.  business relationships concluded over the Internet or by other means such as through the post.  transmission of instructions or applications via facsimile or similar means.  telephone banking.  services and transactions over the Internet.  use of ATM machines.. Procedures for determining who is a PEP may include:  seeking relevant information from the potential customer.  requisition of additional documents to complement those that are required for face to face customers.  referring to publicly available information.  development of independent verification measures and/or contact with the customer. if available. and  making payments and receiving cash withdrawals as part of electronic point of sale transaction using prepaid or re-loadable or account-linked value cards. and  making access to commercial electronic databases of PEPs. .

or where adequate checks and controls exist elsewhere in national systems. Transaction Monitoring Monitoring of Transaction means having an understanding of the normal and reasonable activity of the customer. The general rule is that customers must be subject to the full range of customer due diligence measures as provided in the laws. simplified measures may be employed.Simplified CDD for Lower Risk Customers Reporting institutions may apply simplified customer due diligence procedures upon undertaking a documented risk assessment of the customer relationships. including by examining the reports. In certain circumstances where the risk of money laundering or terrorist financing is lower. institutions should take into account the information available on whether these countries adequately apply the international standards on AML/CFT. where information on the identity of the customer and the beneficial owner of a customer is publicly available. as determined by a risk assessment undertaken by the institutions. assessments and reviews published by FATF. . They shall make the documents of the procedures and the risk assessment available to Regulators and other competent authorities upon request. World Bank or regulators. In determining this. so as to have the means of identifying transactions that fall outside the regular pattern of activity. International Monetary Fund. Non-resident and foreign entities may only qualify for reduced CDD if they are located in a jurisdiction that is implementing effectively the international standards on AML/CFT. FSRBs such as APG.

address (or other identifying information normally recorded by the intermediary):  The nature and date of the transaction. evidence for prosecution of criminal activity. and  The type and identifying number of any account involved in the transaction. both domestic and international. if necessary. the institution must monitor both the account and the account holder. Necessary components of transaction records include. Record-Keeping and Retention Reporting entities must ensure that all records of transactions or business relationships. This requirement applies regardless of whether the account or business relationship is ongoing or has been terminated. . but not limited to:  Customer (and beneficiary’s) name.  The type and amount of currency involved. Transaction records should be sufficient to permit reconstruction of individual transactions so as to provide. are retained for at least five years following completion of the transaction or end of the business relationship (or longer if requested by a competent authority in specific cases and upon proper authority).While a customer approaches a financial institution to open a new account.

Deputy Governor from Nepal Rastra Bank. Nepal Police. Secretary from the Commission for the Investigation of the Abuse of Authority.Financial Information Unit (FIU) The Financial Information Unit (FIU) is Nepal's financial intelligence unit. Threshold or Cash Transactions within 15 days of such transactions. Inspector General of Nepal Police. Home Affairs. Reporting to FIU-NEPAL 1. Suspicious Transaction Reports within 3 days of arriving at a conclusion that the transaction is suspicious. 2008 under the section 9 of the Assets (Money) Laundering Prevention Act. 2. The FIU is also assigned to function as the secretariat of the National Coordination Committee constituted as a standing committee under the coordination of Secretary of Ministry of Finance including the Secretaries from Ministries from Law and Justice. Threshold or Cash Transactions includes: . analyzing and disseminating financial information and intelligence on suspected money laundering. 2008 with the Nepal Rastra Bank (the central bank) as an independent unit. It is a central. processing. Office of the Prime Minister and Council of Ministers. national agency responsible for receiving. Deputy Attorney General from the Office of the Attorney General. terrorist financing and related crimes to the Investigation Agencies like DMLI. CIAA. RID and other competent authorities including foreign FIUs. The Chief of FIU works as the Secretary of the committee. The FIU was established on 21 April. Foreign Affairs. Chief of DMLI as members.

 Casinos are required to submit threshold transaction report of NPR 1 million or more of any person either by single or multiple transactions through any mode in a day.000 in life insurance and NPR 3. . Suspicious transactions A “Suspicious Transaction” means a transaction or attempt:  That gives rise to a reasonable ground of suspicion that it may involve proceeds of an offence. money remitters and exchange houses are required to submit the report of the following transactions: o Credit and debit transaction of NPR 1 million or more in the account of any person or entity particularly of cooperative. regardless of the value involved  Appears to be made in circumstances of unusual or unjustified complexity  Appears to have no economic or legal rationale or bonafide purpose  Gives rise to a reasonable ground of suspicion that it may involve financing of activities relating to terrorism. NGOs either by single or multiple transactions through any mode in a day.00. FIs.000 in non-life insurance in a year. private company.00. o Exchange transactions of NPR 5.  Cooperatives are required to submit credit and debit transaction of NPR 1 million or more in the account of any person.  Banks. o Payment of remittance of NPR 1 million or more by any person or entity to any person or entity through single or multiple transactions in a day.00.  Precious metal and stones business persons are required to submit threshold transaction report of NPR 1 million or more of any person either by single or multiple transactions through any mode in a day.  Land Revenue Offices of the Government are required to submit real estate transactions ofNPR 10 million or more in a day by any person.  Insurance business persons are required to submit threshold transaction report of premium payment of more than NPR 1.000 or more provided to any person or entity through single or multiple transactions in a day.  Securities business persons or the Office of the Company Registrar are required to submit threshold transaction report of the transaction of NPR 1 million or more of any person either by single or multiple transactions through any mode in a day.

.No “Tipping Off” When an institution identifies a suspicious transaction. The customer should not know which particular employee has identified the suspicious transaction or undertaken any action on the account. no internal mail should be forwarded to the customer that might give him an indication that his account is under surveillance. the customer should not be “tipped off” or informed that:  His account is being monitored  Disclosure has been made to designate authority  There is an element of suspicion on the account/transaction In this process. the customer should not be informed that discreet enquiries for transactions have been triggered from the AML unit. Also.

Hence.Wire Transfers Wire transfers offer a quick way to transfer money from one party to another. the ordering institution must include either:  full originator information in the message or payment form accompanying the wire transfer. a unique reference number. except in the circumstances provided for batch transfers. Banks and financial institutions must ensure that for all wire transfers. or  the originator’s account number. .  Name of beneficiary and account number or in the absence of an account number. For cross-border wire transfers (including batch transfers and transactions using a credit or debit card to effect a funds transfer). in the absence of the address. the ordering bank or financial should be required to include full originator information in the message or payment form accompanying the wire transfer. Full originator information includes:  Name of the originator. financial institutions need to exercise great caution while effecting wire transfers. they obtain and maintain full originator information and verify that the information is accurate and meaningful. a unique reference number. a unique identifier. the citizenship or national identity number or customer identification number or date and place of birth. For domestic wire transfers. where no account number exists.  Account number of the originator or in the absence of it.  Originator’s address or. within the message or payment form.

banks and financial institutions shall obtain the full information of such card holders. If the wire transfer is deemed to be suspicious. phishing and identity theft).g. minus a commission payment. Banks and financial institutions should ensure that non-routine transactions are not batched where this would increase the risk of money laundering or terrorist financing. Beneficiary banks or financial institutions must identify and handle wire transfers that are not accompanied by complete originator information on the basis of perceived risk of money laundering and terrorist financing. In a money mule transaction. these third parties may be innocent. an individual holding a bank account is recruited to receive cheque deposits or wire transfers and then transfer these funds to accounts held on behalf of another person or to other individuals. In some cases. “Money Mules” could be used by criminals to launder the proceeds of the fraudulent schemes (e. while in others they may be working in connivance with the criminals. Such criminals gain illegal access to deposit accounts by recruiting third parties to act as “money mules”.For wire transfers including transactions using a credit or debit card as a payment system to effect a money transfer or using any kind of cards. then it should be reported to the FIU. Money Mules In money laundering. . If a cross-border wire transfer is contained within a batch transfer it should be treated as wire transfer.

 Customer receives unapproved foreign remittance in Non-Profit Organization (NPO) account.  Customer is being investigated for offences related to criminal activities or terrorist financing.g.  Address provided by the customer found to be non-existent.  Customer is not staying at the address provided during account opening.Financial institutions are. Some of these are listed here:  Customer did not open account or buy a financial product after being informed about KYC requirement.  Customer is hurried or nervous. periodical updation of customer identification data and monitoring of transaction in order to protect themselves and their customers from misuse by such fraudsters. Indicative Alerts There are numerous indicators that may act as “red flags” for institutions to identify potential money laundering or terrorist financing activity.  Customer name matches in media reports related to criminal activities or terrorist financing.  Customer gives false identification documents or documents that appear to be counterfeited. foreign documents. therefore.  Customer uses complex structures where it is difficult to identify the beneficial owner. e. .  Identity documents presented are not verifiable. altered or inaccurate. advised to strictly adhere to the guidelines on KYC/CFT. possibly false or inconsistent.  Customer provides information that seems minimal.

 Complaint received from any member of the public for abuse of account for committing fraud.  Customer wants to pay premium or invest often via cash or cash in large amount.  Customer applies for insurance policies/investments beyond his apparent need or economic profile. including cross-border referral. intermediaries.  Customer opts for termination of policies and refunds under unusual circumstances.  Customer changes the information provided after more detailed information is requested.  Multiple customers arrive together.  Customer offers different identifications on different occasions with an apparent attempt to avoid linkage of multiple transactions.  Early claim is received for no substantial reasons. other institutions.  Customer tries to convince you to avoid reporting anything about him to the authorities.  Customer is taking instructions from someone else for conducting transactions.e. but pretend to ignore each other.  Customer submits frequent requests for change in addresses.  Customer whose identify matches with any person whose name figures in the list of banned persons or entities released by the regulator.  Customer wants to pay premium or invest via multiple demand drafts or with numbers of cash transactions.  Customer avoids making transactions at branches near his stated address. Indicative Alerts Specific to Insurance and Mutual Funds Persons who sell insurance products or mutual funds should be aware of these indicative alerts which depict potential suspicious behaviour.  Customer requests for assignment of insurance policy or investment to an unrelated person or entity. the amounts or frequency or the stated reason of the transaction does not make sense for that particular customer. subsidiaries or business associates.  Business transactions are conducted through personal accounts.  Customer seems to be acting on behalf of the third party and does not know about the exact amount of money involved in the transaction.  Transaction is unnecessarily complex for its stated purpose. .  Transaction involves movement of funds which is inconsistent with the customer’s business.  Customer submits multiple Free Look cancellation/redemption requests within a month.  Customer wants to know whether he can immediately take a loan against the insurance policy/investment.  Customer is over cautious in explaining genuineness of the transaction.  Transaction has no economic rationale i.  Customer could not explain source of funds satisfactorily.  Customer is accompanied by unrelated individuals.  Alert raised by agents.

 A request for issuance of marine transit export policy is received by the same insured under cost-plus-freight basis where the premium is paid by cash or a combination of cash and demand drafts on three or more occasions in a financial year.00.  Customer wishes to overpay premium via cash or demand draft and then request for a refund of the excess amount through an instrument or transfer.  Customer hesitates to disclose details about the payee.  Customer insists on anonymity and is reluctant to provide identifying information.  Customer wishes to send money transfer on behalf of another person or entity. Additional Indicative Alerts.  Customer wants to send money to a charity or trust.  Customer is receiving money transfers from unrelated parties often and for no apparent reason.  An adverse media report appears in a newspaper or television or radio or any other media about an existing policy holder/investor. seemingly fictitious information.  Requests for re-assignment of marine transit insurance policies are received in favour of exporter.  A notice of enquiry is received from an enforcement authority.Money Transfer or Remittance Here are now the additional red alert indicators for person undertaking money transfer or remittance. calling for information about any policy holder/ investor. Nepalese Sanction Regime: Regulatory Regulators are empowered:  to issue directives  to make institutional risk profile  to adopt strategic supervision and inspection instrument Regulators are mandated to take the following regulatory actions against REs for non- compliance:  to fine from NPR 1 million to NPR 50 million for FIs and NPR 1.000 to NPR 10 million for other REs  to impose full or partial restriction on the business .  It is established that one customer has submitted different KYC documents and taken different policies/investments in different versions of names to avoid clubbing of policies/investments in a single name. or provides minimal.

 to suspend or cancel registration/permission/license  to impose other appropriate sanctions. and  Confiscation of proceeds or corresponding value. and  Confiscation of proceeds or corresponding value.  KYC procedures enable REs to know and understand their customers and their financial dealings better. and  Fines up to 10 times of the proceeds Terrorist Financing: Confiscation of proceeds or corresponding value. FIU is authorised to fine up to NPR 1 million for failure to report identified Suspicious Transaction Reports(STR)/Threshold Transaction Reports(TTR). and  Mandatory fines (two times of the proceeds) Terrorist Financing: 3 to 20 years imprisonment. . and  Fines five times of the proceeds Corporate Criminal Liability (legal persons) Money Laundering: Confiscation of proceeds or corresponding value. Nepalese Sanction Regime: Criminal Natural Person Money Laundering: 2 to 10 years imprisonment.  AML Guidelines prevent REs from being abused by criminal elements for money laundering or terrorist financing or other illigal activities. and  Fines up to 25 times of the proceeds Compensation or recovery of loss License revocation. other barriers and liquidation Key Takeaways Let’s have a recap of the key takeaways of this course.

 Provide AML/CFT training to staff.Includes governance by the Board of Directors and ongoing internal audits. benami account to be opened.  Customer Identification Procedure.  Retain all customer records (identify records for a period of five years after the relationship has ended. transaction records for a period of five years after the transaction has been executed).  Prepare specific literature and pamphlets to educate customers about the objectives of KYC program.  Report all suspicious profiles and transactions to the FIU.No fictitious. Financial Institutions are required to:  Implement the AML and CFT program.  Risk Management.  Implement procedures to identify and verify a customer’s identity before offering a product or service to the customer.  Have an adequate screening mechanism as an integral part of recruitment and hiring process of personnel to ensure that criminals are not allowed to misuse financial channels. medium and high risk based on AML risk and client names should be screened against negative lists.  Monitoring of Transactions.  Conduct ongoing customer due diligence to monitor customers and their transactions.The institution must have a system in place for the detection of transactions inconsistent with expected activity.  Case Studies  . the four key elements of KYC are:  Customer Acceptance Policy.Include client identification verification on a risk- based approach.In line with regulatory guidelines. Customers must be categorized into low.

He also requests you to issue him a letter stating that the bank is willing to do so.Banking Case Study 1 M/s XYZ Private Limited has recently opened an account with your bank. What course of action should you adopt from the following options?  Target the customer for your month end target  Ask the customer to meet the private banking officials  Decline the customer’s request  Report to AML team Case 1 Resolution . The officer/Director of the company enquires with you whether you would accept a deposit of NPR 500 million which they are going to receive from a venture capital fund.

he has been receiving large value inward remittances on a weekly basis from high risk locations/countries. ABC opened a savings account six months ago with the bank. This is followed by immediate transfers to various accounts/cash withdrawals leaving small or nil balances in the account. What is happening in the account? . In recent days.Banking Case Study 2 Mr. There are no other receipts/payments in the account.

Case 2 Resolution Banking Case Study 3 .

On checking with the customer discreetly. The teller informs the branch manager about this unusual activity. persons other than the account holder or his family members frequently visit the branch for making withdrawals. It has been observed that in recent times. the customer informs the branch manager that he has allowed certain persons to use his account for conducting transactions. What type of case is this? Case 3 Resolution .A tour operator has been holding a savings account with a bank in a small town for the last one year.

She is employed with a Fortune 500 company. XYZ aged about 45 years. She has also linked her Demat and Investment A/c to her salary account. shares and cash withdrawals through the ATM. XYZ reveal that the source of funds is from the sale of property and subsequent investment in a new property. has been operating a salary account with the bank for last six years.Banking Case Study 4 Ms. What course of action is to be adopted? . There is a sudden cheque deposit of NPR 8 million in the account followed by a subsequent debit also by cheque. Inquiries with Mrs. Transactions in her account reveal investments in mutual funds.

it was a new partnership firm. As declared at the time of account opening. . engaged in fabric related activities.Case 4 Resolution Banking Case Study 5 An entity has a banking relationship from June 2012. The client was introduced by another entity also having a relationship with the bank and was confirmed to be in a related business. Individuals and entities related to the above client also have relationship with the bank.

each for amounts less than NPR 8. What is happening in the account? Case 5 Resolution .There were several credits through cheques.50. there were similar transactions and again several credits through cheques for such amounts.000. There after within a few days.

His transactions in the corporate A/C are minimal. The Director of the company also opens his and his family members' individual A/Cs with the same bank or FI and conducts a number of transactions. What course of action is to be adopted? Case 6 Resolution .Banking Case Study 6 A company opens a current A/C with the purpose of conducting business transactions.

he would instead prefer to pay the premium either in cash or through a demand draft. he discloses that even though he has a bank account. During the course of the discussion. Is this a suspicious transaction? . ABC comes into your branch and asks for information on purchasing a life insurance policy. He also enquires about how soon he would be allowed to cancel the policy and get a refund in case he changes his mind later.Insurance Case Study 1 Mr. instead of giving a cheque for the premium.

What should Ms. a jewellery shop owner approaches Ms. She accepted two cheques from different accounts along with the basic documents required and the policy was issued. J applied for cancellation of policy and received a cheque of NPR 4. a life insurance agent to buy a policy.000. J. He was interested in purchasing a long term Unit Linked Single premium product. with single premium remittance of NPR 5.000.00. he will pay the premium from two different accounts. A that due to insufficient balance in his business account. Ms. During the Free look period.70. A do? . Mr. J was a prime suspect in the smuggling of diamonds case revealed a few days back. A. He informed Ms.Case 1 Resolution Insurance Case Study 2 Mr. After a few days. A heard the news on television that Mr.

Case 2 Resolution Insurance Case Study 3 .

A applied for a life insurance policy. along with top ups of NPR 25.000. on the basis of which his policy gets issued.000.Mr.000. He then pays his premiums regularly. All these top ups are paid via demand drafts. His monthly salary is NPR 30.000. Is there anything suspicious in this case? Case 3 Resolution Insurance Case Study 4 . sometimes overpaying. He then gets refund of excess premium paid via cheques. with a half yearly premium of NPR 25.NPR 50.

thereby being paid for losses they did not suffer. These farmers would not report the sales of the “hidden” tobacco and then apply for crop insurance claims. MNO was an agent for a cigarette manufacturer. He conducted trading activities with farmers in cash to help the farmers in hiding their production. This way both the parties were earning profits illegally. MNO then resold the “hidden” tobacco to the cigarette manufacturer at a much higher price.Mr. What could have been done to avoid this scenario? Case 4 Resolution . Mr. and operated as an independent tobacco broker.

Mutual Fund Case Study 1 Ms. LMN. What should you do? . She makes regular purchases and redemptions from and to various bank accounts in her name. a 30 year old woman who is working with a bank has a folio with your mutual fund company.

Case 1 Resolution Mutual Fund Case Study 2 .

He appears curious about the KYC requirements and asks if we can invest without KYC. he would like to open a folio without PAN. What should you do? Case 2 Resolution . he refused to open a folio. he discloses that even though he has a PAN.Mr. During the course of the discussion. When he was told that KYC is mandatory. MNO comes into your branch and asks for information on opening a folio with your Mutual Fund Company.

There is a sudden purchase transaction of NPR 8 million in the account. has been operating a folio with us for the last six years. ABC reveal that the source of funds is from the sale of property. Inquiries with Mr. ABC aged about 45 years. What course of action is to be adopted? . He is employed with a Fortune 500 company. Transactions in his folio reveal investments in mutual funds through SIPs (Systematic Investment Plans) and lump sum purchases in various equity schemes.Mutual Fund Case Study 3 Mr.

Case 3 Resolution Assessment Homepage You have come to the end of the course. out of which you need to answer 12 correctly to pass. You . Now you need to appear for the assessment. The assessment consists of 15 questions.

All the best! . To take the assessment.will get 20 minutes to attempt the assessment and you will be given 2 attempts to clear it. click the “NEXT” tab.