Obligation to Perform On-going Monitoring
AML/CFT procedures set out what on-going monitoring is to involve:
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Scrutinising transactions undertaken throughout the course of a business relationship to ensure that the transactions being conducted are consistent with the relevant person’s knowledge of the customer, including the customer’s business and risk profile.
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Keeping documents, data or information up to date and relevant by undertaking reviews of existing records, particularly in relation to higher risk categories of customers.
AML/CFT procedures require a relevant person to apply on-going monitoring throughout the course of a business relationship.
AML/CFT procedures require a relevant person to establish and maintain appropriate and consistent policies and procedures for the application of CDD measures, having regard to the degree of risk of money laundering and the financing of terrorism. The policies and procedures referred to include those:
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Which provide for the identification and scrutiny of:
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Complex or unusually large transactions;
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Unusual patterns of transactions, which have no apparent economic or lawful purpose; or
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Any other activity, the nature of which causes the relevant person to regard it as particularly likely to be related to money laundering or the financing of terrorism.
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Which determine whether:
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Business relationships or transactions are with a person connected with a country or territory in relation to which the FATF has called for the application of enhanced CDD measures; or
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Business relationships or transactions are with a person:
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subject to measures under law applicable in Jersey for the prevention and detection of money laundering,
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connected with an organization that is subject to such measures, or
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connected with a country or territory that is subject to such measures.
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AML/CFT procedures explain that “scrutiny” includes scrutinising the background and purpose of transactions and activities.
Scrutiny of Transactions and Activity
Scrutiny may be considered as two separate, but complimentary processes:
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Firstly, a relevant person monitors all customer transactions and activity in order to recognise notable transactions or activity, i.e. those that:
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Are inconsistent with the relevant person’s knowledge of the customer (unusual transactions or activity);
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Are complex or unusually large;
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Form part of an unusual pattern; or
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Present a higher risk of money laundering or financing of terrorism.
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Secondly, such notable transactions and activity are then examined by an appropriate person, including the background and purpose of such transactions and activity.
In addition to the scrutiny of transactions, as required by AML/CFT procedures, AML/CFT Codes of Practice require a relevant person to also scrutinise customer activity (though this will already be the effect of policies and procedures required by AML/CFT procedures. This is particularly relevant where a business relationship does not involve transactions, e.g. where a relevant person gives investment advice or acts as a director to a company, but will be relevant also in a transaction-based business relationship.
A relevant person must therefore, as a part of its scrutiny of transactions and activity, establish appropriate procedures to monitor all of its customers’ transactions and activity and to recognise and examine notable transactions or activity.
The capturing of sufficient information about a customer will allow a relevant person to prepare and record a customer business and risk profile which will provide a basis for recognising notable transactions or activity.
Unusual transactions or activity, unusually large transactions or activity, and unusual patterns of transactions or activity may be recognised where transactions or activity are inconsistent with the expected pattern of transactions or expected activity for a particular customer, or with the normal business activities for the type of product or service that is being delivered.
Where a relevant person’s customer base is homogeneous, and where the products and services provided to customers result in uniform patterns of transactions or activity, e.g. deposit-taking activity, it will be more straightforward to establish parameters to identify usual transactions and unusual activity. However, where each customer is unique, and where the product or service provided is bespoke, e.g. acting as trustee of an express trust, a relevant person will need to tailor monitoring systems to the nature of its business and facilitate the application of additional judgement and experience to the recognition of unusual transactions and activity. For such businesses, appropriate staff training in the recognition of unusual transactions and activity is vital, and will often already be necessary in order to satisfy fiduciary responsibilities placed on the relevant person under other legislation. For example, the approval of a transaction for a discretionary trust will involve two or three senior people in a person carrying on trust company business.
Higher risk transactions or activity may be recognised by developing a set of “red flags” or indicators which may indicate money laundering or financing of terrorism, based on a relevant person’s understanding of its business, its products and its customers (i.e. the outcome of its business risk assessment).
Complex transactions or activity may be recognised by developing a set of indicators, based on a relevant person’s understanding of its business, its products and its customers (i.e. the outcome of its business risk assessment).
External data sources and media reports will also assist with the identification of notable transactions and activity.
Where notable transactions or activity are recognised, such transactions or activity will need to be examined. The purpose of this examination is to determine whether there is an apparent economic or visible lawful purpose for the transactions or activity recognised. It is not necessary (nor will it be possible) to conclude with certainty that a transaction or activity has an economic or lawful purpose. Sometimes, it may be possible to make such a determination on the basis of an existing customer business and risk profile, but on occasions this examination will involve requesting additional information from a customer.
Notable transactions or activity may indicate money laundering or financing of terrorism where there is no apparent economic or visible lawful purpose for the transaction or activity, i.e. they are no longer just unusual but may also be suspicious. Reporting of knowledge, suspicion, or reasonable grounds for knowledge or suspicion of money laundering or financing of terrorism is addressed in AML/CFT Procedures.
Scrutiny may involve both real time and post event monitoring. Real time monitoring will focus on transactions and activity when information or instructions are received from a customer, before or as the instruction is processed. Post event monitoring may involve end of day, weekly, monthly or annual reviews of customer transactions and activity. Real time monitoring of transactions and activity will more effectively reduce a relevant person’s exposure to money laundering and financing of terrorism. Post event monitoring may be more effective at identifying unusual patterns.
Monitoring may involve manual and automated procedures. Automated monitoring procedures may add value to manual procedures by recognising transactions or activity that fall outside set parameters. This will be particularly so where a relevant person processes large volumes of customer transactions which are not subject to day to day oversight. However, automated monitoring procedures may not be appropriate in cases where there is close day to day overview of a business relationship, e.g. where a relevant person carries on trust company business, where the subsequent preparation of financial statements and periodic review of a business relationship may be expected to highlight notable transactions and activity.
The examination of notable transactions or activity may be conducted either by customer facing employees, or by an independent reviewer. In any case, the examiner must have access to all customer records.
The results of an examination should be recorded and action taken as appropriate. Record-keeping requirements in relation to the examination of some notable transactions and activity are paramount.
In order to recognise money laundering and financing of terrorism, employees will need to have a good level of awareness of both and to have received training.