The December 13th circular by the Hong Kong Securites and Futures Commission notified firms of three changes: changes to the US Executive Order 13224 sanctions lists, changes to UN Al-Qaida Sanctions Committee sanctions listings, and the repeal of the asset-freezing part of the UN Liberian sanctions program. It also notes that the arms embargo still applies to Liberia.
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United Nations Al-Qaida Sanctions Committee Web Notices
Mr. Watchlist assumes this is the last one of the year…
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Press Releases Suspicious Internet banking mobile application (Apps) related to Chong Hing Bank Limited The Hong Kong Monetary Authority (HKMA) wishes to alert members of the public to a press release issued by Chong Hing Bank Limited on suspicious Apps, which has been reported to the HKMA. Hyperlink to the press release is available on the HKMA website for ease of reference by members of the public.
Anyone who has provided his or her personal information to the Apps concerned or has conducted any financial transactions through the Apps should contact the bank concerned using the contact information provided in the press release, and report to the Police or contact the Cyber Security and Technology Crime Bureau of the Hong Kong Police Force at 2860 5012.
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Press Releases Fraudulent website related to Fubon Bank (Hong Kong) Limited The Hong Kong Monetary Authority (HKMA) wishes to alert members of the public to a press release issued by Fubon Bank (Hong Kong) Limited on fraudulent website, which has been reported to the HKMA. Hyperlink to the press release is available on the HKMA website for ease of reference by members of the public.
Anyone who has provided his or her personal information to the website concerned or has conducted any financial transactions through the website should contact the bank concerned using the contact information provided in the press release, and report to the Police or contact the Cyber Security and Technology Crime Bureau of the Hong Kong Police Force at 2860 5012.
Hong Kong Monetary Authority
10 December 2015
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An interesting peek behind the curtain at the Financial Crimes Enforcement Network, or FinCEN. They're proposing beefing up the CDD rules to require beneficial owner identification for all new legal entities of every owner of 25% or more. Because the cost impact is significant (estimated to be $100 million per year to institutions), they not only had to issue a regulatory impact assessment, they also had to assess the need for some regulatory flexibility. On that second note, while many smaller institutions will be affected, the impact on each is not significant enough to warrant flexibility (i.e. Big number spread out over a lot of institutions ends up not being much cost per institution).
Now, the regulatory impact assessment is a lot meatier (33 pages). Mr. Watchlist will spend some of his vacation time looking at it a bit more but what he's seen so far is fascinating – there are estimates of how much reduction in “illicit activity” (most notably drug trafficking money laundering, it appears) is necessary to justify the rule change, and what the actual estimates are for the reduction.
It's nice to see that a cost-benefit analysis is part of the deal – sometimes, you wonder if, in the pursuit of greater compliance, the bottom line impact is even considered. It's nice to see that, at least in the AML world, that it is.
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Some tidbits from AUSTRAC's web pages (courtesy of the e-news newsletter), which were recently updated. Here's how they define “prominent public functions” (a cornerstone of many PEP definitions):
This term relates to functions which may exist at the Commonwealth, state and territory levels or their foreign equivalents. The meaning of 'prominent' may be determined through the size of the function in relation to the number of affected persons, the budget and its relevant powers and responsibilities.
The 2012 FATF Recommendations provide examples of positions which are covered, such as Heads of State or of government, senior politicians, senior government, judicial or military officials, senior executives of state-owned corporations, important party officials, or, in relation to international organisations, directors, deputy directors and members of the board or equivalent. The FATF provides further detail in its guidance, Politically Exposed Persons (Recommendations 12 and 22).
Such positions commonly hold specific powers in relation to approving government procurement processes, budgetary spending, development approvals and government subsidies and grants.
And here is their guidance on how local or municipal officials should be treated:
It is noted that although FATF considers that a prominent public function may extend to the municipal or local government level, it is generally considered that this will only apply to persons who have the substantive powers (as noted above) relevant to this level of government.
The definition of 'domestic politically exposed person' in the AML/CTF Rules limits such persons to those who hold a position in an 'Australian government body', which is defined in the AML/CTF Act as extending to the Commonwealth, state or territory levels. This definition does not capture the local government or municipal level.
This is not the case with the definition in the AML/CTF Rules of 'foreign politically exposed persons' who hold positions in a 'government body', which is defined more broadly in the AML/CTF Act to include the 'government of part of a country'.
Although foreign PEPs are characterised as being of high ML/TF risk under Part 4.13 of the AML/CTF Rules, reporting entities may consider foreign officials at the local or municipal level as being PEPs only if they hold the substantive powers as noted above.
Accordingly, domestic customers of reporting entities at the local government or municipal level and who would otherwise be considered PEPs if they were foreign customers, are not required to be treated as PEPs under Part 4.13 of the AML/CTF Rules. However, the normal obligations relating to customer identification in Chapter 4 and ongoing customer due diligence in Chapter 15 will apply to such persons.
The Department of Foreign Affairs and Trade's Heads of Government List provides details on the names and titles of heads of state, heads of government, foreign ministers, trade ministers and in some case, ministers responsible for development assistance.
And on how soon after leaving office someone can stop being considered a PEP:
As described above, a PEP is someone who occupies a prominent public position. Once a person no longer holds that position, they are no longer considered a PEP. However, a reporting entity should continue to apply a risk-based approach to determine whether an existing customer who is no longer a PEP should continue to be treated as a high-risk customer.
Higher risk PEPs are also more likely to continue to pose a ML/TF risk after they cease holding a public position. As such, reporting entities may choose to undertake enhanced customer due diligence (ECDD) for a longer period for a former PEP under the ECDD provisions in Chapter 15 of the AML/CTF Rules.
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AUSTRAC e-news December 2015 issue
Back in mid-2014, when he was merely the OFAC Director (he has since been promoted to Acting Undersecretary of the Office of Terrorism and Financial Intelligence, or TFI), Adam Szubin wrote two blog posts entitled “Sanctions 101.” It had some really useful information, including how some of the designation process happens. So, Mr. Watchlist, in the interest of giving a good behind the scenes look at OFAC, will share pieces of the two blog posts. Here's Part 1:
Who is responsible for implementing and enforcing sanctions at the Treasury Department?
The Treasury Department’s Office of Terrorism and Financial Intelligence (TFI) harnesses intelligence, policy, regulatory, and enforcement capabilities with the twin missions of (1) defending the U.S. and global financial systems against abuse and (2) using financial intelligence and authorities to combat those who threaten our nation’s security and core objectives.
The Office of Foreign Assets Control, or “OFAC,” is the sanctions office within TFI. OFAC administers and enforces the financial sanctions at the heart of so many U.S. national security policies today. When deployed effectively, these tools can disrupt weapons of mass destruction procurement rings, suffocate narcotics and criminal cartels, degrade the capabilities of terrorist groups, and alter the decision making of threatening regimes.
How are new sanctions programs created?
The International Emergency Economic Powers Act and other legislation provide the President with the authority to deploy and enforce financial sanctions in response to specified or declared national emergencies. These authorities then allow the President to prohibit or restrict transactions and freeze property to confront the declared emergency. The funds or relevant property of the designated person stay in the hands of the bank, company, or individual that reported them to the Treasury but must be strictly maintained consistent with OFAC regulations.
Typically, the President will delegate new sanctions authorities to the Treasury Department through the signing of an Executive Order. At that point, OFAC will issue regulations and guidance that further explain the obligations and parameters of the sanctions and set out how licenses can be sought to authorize transactions that would otherwise be prohibited.
How does OFAC develop targets for sanctions?
Where so directed by statute or an Executive Order, OFAC will gather information and build cases against those contributing to the national emergency. To do so, OFAC draws on information provided by law enforcement and intelligence agencies, foreign governments, United Nations expert panels, and any other reliable information it can obtain. Similar to the way a prosecutor prepares an indictment, OFAC will then assemble all of the relevant information and draft an evidentiary memorandum that sets out why the agency has concluded that the targeted person meets the criteria specified in the sanctions authority. This information gathering phase is intensive and can be quite time consuming, as OFAC will only move a case forward upon solid information from reliable sources. Our cases are then reviewed by attorneys at the Treasury Department and the Justice Department. Before taking action, we coordinate closely with a number of government agencies – including the State Department, the intelligence community, and others – to ensure that our actions are consistent with and complement other U.S. government activities. Once our case is complete, I sign what is known as a designation memorandum, designating the target(s) for sanctions. The action is given public effect by placing the target(s) on OFAC’s List of Specially Designated Nationals (“the SDN list”).
How can someone know which individuals or entities are sanctioned?
OFAC’s SDN list, which currently includes nearly 6,000 sanctioned individuals and entities, is frequently updated. All updates are immediately disseminated via RSS feed and through our website and published in the Federal Register. All U.S. financial institutions and other holders of relevant assets must block them immediately and have up to 10 days to report those blocked assets to OFAC. If you have questions about whether an individual or entity is listed on OFAC’s SDN list, OFAC hosts a flexible online SDN search tool, which allows for searches based on partial names and other limited information.
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