Financial Institutions are faced with the threats of money laundering and terrorist financing. So, the inherent risk of all the deposit accounts shall be categorized into 3 different categories; High Risk, Medium Risk and Low Risk based on their risk profile considering certain indicative criteria to avoid money laundering and other compliance risk.
I. Low Risk: Individuals and entities whose identities and sources of income can be easily identified and transaction on accounts maintained by such customer is done from legal sources or from sources known to the Bank or transaction is done in the account within threshold limit set by regulating authority from time to time shall be categorized as "Low Risk".
Some of the indicative list of Low Risk Customers:
·Institutions that regularly publish their financial statements for general public.
·Institutions that are regulated and supervised by their regulator and supervisor.
·Public limited companies enlisted for share transaction in Security Exchange
·Entities that are exempted from the threshold transaction reporting by FIU if such entities are not considered as high risk.
·Government bodies, government owned companies, regulatory and supervisory bodies, semi government corporations, Banks and Financial Institutions licensed by central bank etc.
·Salaried employees whose salary is clearly defined during account opening and conducting transaction justified by the salary structure.
·Customers maintaining average balance of less than XXX million within a year whose KYC requirement is fulfilled as per regulatory requirement and total daily turnover is less than threshold limit of XXX amount set by regulator.
·Self-employed individuals whose income statement justifies the transaction on account maintained by such individual.
·Borrowing Customers with pass loan category.
·Others as determined by central bank or appropriate authorities and concerned financial institution from time to time.
II. Medium Risk: Customers who are conducting normal nature of transactions but lack sufficient information and documents for categorizing under 'Low Risk' shall normally be categorized as medium risk customer. Besides, all customers who do not fall under the category of either High Risk or Low Risk profile shall also be categorized as Medium risk.
Some of the indicative list of Medium Risk Customers are:
·Firms, companies, institutions or businesses which are not regulated however tax clearance is up-to-date regularly.
·Firms, companies, institutions or businesses which are not bound to publish the financial statements.
·Firms or individuals that conduct transactions mostly in cheque.
·Non-profit making national and international organizations with clearly justifying sources and usage of fund; and employee of these organizations.
·Cash intensive businesses such as restaurants, departmental stores etc.
·Transactions of non-financial institutions like real estate dealers, second hand items dealers, jewelry shops, dealers in high value commodities, travel agencies, money transfer agencies etc.
·Others as determined by central bank or appropriate authorities and concerned financial institution from time to time.
III. High Risk: Customers that are likely to pose a higher risk to the banks and financial institution depending on their background, nature of activity, sources of funds etc. can be categorized as high risk.Some of the indicative list of High Risk Customers are:
·Customers having unusual amount of transaction in account.
·Any related person who is suspected for directly or indirectly assisting terrorism, terrorist activities, terrorist organizations, organized crimes, illicit drugs and any other criminal activities. Normally the Bank should not establish business relationship with such customers.
·Firms, companies, organizations, agencies or entities, established and being operated without Regulatory or supervisory Authority.
·Customers, whose accounts opened (or request for account opening) without presence of the account holder. Non-face to face customers, if any,
·Persons who have been generally known through public medium to be involved in Money Laundering and other financial crimes.
·Person(s), who have been understood / heard to be involved in evading or misappropriating tax, customs, fees or any other revenue.
·Persons/Entities involved in frequent Cross-border transactions.
·Resident of the country, which is classified as non-cooperative country by Financial Action Task Force (FATF).
·Nationals of a country, which has not adopted necessary standards of AML/CFT.
·Citizens or institutions of the country which is not serious on the matters of customer identification.
·Citizens or institutions of a country on which the United Nations or any Inter Governmental International Organizations has imposed sanctions or warns.
·Persons/entities warned by the regulatory authority of various nations.
·Casinos and other entities involved in gambling/lottery business.
·Customer who fails to meet the Due Diligence requirement of the Bank.
·Customer, for whom the Bank has reported a suspicious transaction/activity report for any valid reason.
·Customers for whom the Bank has received “Rokka or hold” order from court/Financial Information Unit (FIU) /Central Bank/Revenue Inland Department (RID)/Money Laundering Investigation Department (MLID) or any competent authority.
·Persons/entities whose transactions are suspicious on the basis of Bank’s normal course of business.
·Person, Entity or beneficial owner of such entity, whose name is exposed in public media for the involvement in any type of illegal activity.
·Persons of Non – Cooperative or Watch List Countries as prescribed by the UN, FATF, US Treasury or similar organizations from time to time
·Shell Companies (i.e. companies without a physical presence), Shell Banks, Off-Shore banks and financial institutions.
·High Risk Countries: Any individual and corporate accounts opened from high risk countries that include drug-Producing Nations, Drug Transshipment Countries, Drug-Using Countries, Secrecy Jurisdictions and Tax Havens, particularly those that Grant Off-Shore Banking Licenses, Countries Identified by Financial Action Task Force on Money Laundering (FATF) as Non-Cooperative Jurisdictions, Countries with a High Degree of Public Corruption, Countries Linked to Terrorist Financing etc.
·High Risk Industries: Those industries/businesses that have high cash turnover; have been exploited by organized crime; involve money transmission; or which have a reputation for links to corruption, Non-bank financial institutions (e.g. money changers, foreign exchange houses), Casinos, Import/export companies (e.g. shipping & trading), Car/boat/plane dealerships (including second hand dealers), Security brokers/dealers, Leather goods stores, Art & antique dealers, Pawn shops, Sole practitioners (small little known law or accountancy firms), Off-shore corporations etc.
·High Risk Services: Electronic Banking that permits Customers Direct On-line Access to transact, Services to Public Figures and Related Individuals, Private Investment Companies, Funds payable-Through Accounts, Trusts, International Correspondent Banking Activity, Transactions Involving a Financial Intermediary, where the Primary Beneficiary or Counter party is Undisclosed.
·High Risk Products: Any Product which allows Customers to readily convert cash to Monetary Instrument; Any Product or Service which allows a Customer to readily move value from one Jurisdiction to another, and which conceals the source of those funds whether the Products or Services the Client is asking for, makes sense given the nature of their account or business.
·Politically Exposed Persons (PEPs): PEPs are the individuals who have/had occupied higher rank in politics, government, administration, business as well as in social and financial sectors. The indicative lists of Politically Exposed Persons (PEP) are-- Administrators/Politicians: Incumbent ministers, Central Working Committee members, District President and Secretaries of all major political parties; Both lower and upper house parliamentarians; Cabinet Secretaries, Chief District Officers, Regional Administration Officers, Municipality Mayors, Election Commissioner, Auditor General, Attorney General, Chief of Central Investigation for Abuse of Authority, Judiciary: Appellate and Supreme Court judges, District Judges, Army: Colonel and above, Police: Superintendent of Police and above; Government Entities/Corporations/Institutions: Chairman, Chief Executive Officers, Chief Financial Officers; Immediate family of Politically Exposed Person, the person’s parents, siblings, spouse, children, in-laws, Grandparents and grandchildren; Close associate of Politically Exposed Person, A person who maintains close relationship with the PEP and includes a person who is in a position to conduct substantial domestic and international financial transaction on the PEP’s behalf.
·Others as determined by central bank or appropriate authorities and concerned financial institution from time to time.
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Disclaimer:Banking is the series of article in which I will attempt to highlight on some of the most important subject matters affecting banking business and its associates.The views expressed herein is just the personal perspective of writer and doesn’t reflect opinion of whatsoever organization he is currently engaged with.
