Knowledge Sharing Program

For Customer Service Department

2077/02/16

Topics: AML/CFT/KYC

AML/CFT: Simply Tauko Jogau Abhiyan Ho

1. NRB Provision on Non Compliance of AML/CFT/KYC.

 Minimum 10,00,000 to Maximum 5 Crore
 Impressments for 2 years to 10 years

Non Compliance
 An employee found to have violated this procedure may be subject to disciplinary action, as
per the provisions in the prevailing GMBF employee bylaw.

2. Meaning of Money Laundering (ML)

Money laundering is the process by which criminals disguise the original ownership and control of
the assets earned through illegal activities and get it appeared to have derived from a legitimate
source.

3. Money Laundering is a process whereby

 Converting money from illegal activities to be legal from illegal source.
 Dirty money is made to look clean
 Criminals attempts to hide and disguise the true origin and ownership of the fund.

4. Meaning of Anti Money Laundering

Anti-money-laundering refers to a set of procedures, laws and regulations designed to stop the
practice of generating income through illegal actions or from money laundering.

5. What is Black Money?

 Income illegally obtained or not declared for tax purposes.
 Money earn from corruption, tax evasion, terrorism, organized crime, fraud, drug trafficking,
smuggling (alcohol, arms), human trafficking, Kidnapping, gambling, robbery, counterfeiting,
bogus involving, misappropriation of public funds etc are black money.

6. Do you have Black Money?

7. Impact of non-compliance of AML/CFT

• Failure to comply with AML laws and regulations and breaches of financial sanctions can have
serious consequences such as Penalizing fines, criminal proceedings and damaged reputations
• It can lead to serious damage to a financial institution’s credibility and performance.
8. Source of Money Laundering (ML)
 Major source of money laundering are corruption, tax evasion, terrorism, organized crime, fraud,
drug trafficking, human trafficking etc.
 The money earn from above sources is called “Dirty Money”
 The simplest way to clean the illegally earned money is to bring-in such money to the financial
system through different means such as
 Deposits of cash,
 Traveler’s cheques,
 Drafts, electronic transfers and other financial instruments.

9. Stages of Money Laundering

• Placement
• Layering
• Integration

10. Know Your Customer

• KYC is the process of a business verifying the identity of its clients.
• Knowing a customer is a important tool for AML/CFT.
• Insufficient analysis and knowledge about customer before establishment of relationship and
transaction attracts the financial institution to the risk of inadvertently promoting or assisting to
illegal activities.
• The inadequacy of KYC standards can subject financial institution to serious risk, especially
reputational, Operational, Legal and Financial Risk.

11. Purpose of KYC in Financial Institution

• To establish procedures to verify the identification of individuals or corporate or other
institutional accounts.
• To detect suspicious transaction.
• To establish process and procedures to monitor high value and suspicious transactions.
• Establish systems for conduction due diligence and reporting of such activities.

12. What is SCDD/CDD/ECDD?

Simplified CDD (Low Risk)

a. Bank and Financial Institutions Licensed and supervised by Nepal Rastra Bank
b. Saving and current account having annual turnover of less than Rs. 1.00 lacs.
c. Public companies listed with the stock exchange regulated by Securities Board of Nepal
d. Government Offices and government entities.
e. Annual Turnover of transactions up to NPR 100,000.
f. Entity publicly publishing their details
g. Entities, which are governed, supervised.
h. Person, organization or transactions done by them which are not classified in high risk customer
or suspicious customer and customers whose threshold transaction reporting has been waived
by the FIU.
 i. Transactions classified as low risk by the reporting entity.
j. Customers apart from high and medium risk customers.

Customer Due Diligence (CDD) (Medium Risk)

1. Annual Turnover of transactions above 1 lacs to 10 crore.
2. Saving and current account having annual turnover above 2 crore to 10 crore.
3. Establishing business relationship.
4. Medium and moderate risk account holder.
5. Firm, company or organizations that need not or do not publish their financial position.
6. Customers conducting transactions done mostly in cash and which seem suspicious.
7. Non-financial organizations like those involved in casino, land and house sale/ purchase,
valuable stones, travel agency.
8. Other organizations thought appropriate by the reporting entity.

Enhance Customer Due Diligence (ECDD) (High Risk)

1) Annual Turnover of the transactions above NPR 10 crore
2) The customer having net worth above NPR 10 crore.
3) The customer falling under high risk category
4) Foreign and Domestic PEPs, their family members and related persons/parties
5) The customers specified as High Risk Persons by National Risk Evaluation Report.
6) Customers who use high risk instruments and services
7) Customer involving in private banking
8) Customers not having the explicit source of the assets/funds
9) Legal Person having complex nature ownership structure without discernible financial and legal
objectives
10) Persons from the countries, which are known for excessive corruption
11) Non-face to face customers
12) Persons from the countries, which are known for not complying with the international standards
formulated for AML and CFT.
13) Persons involving in the business which are prone to Assets Laundering and Terrorist Financing.
14) Persons and organizations, which requires categorizing as High Risk customers based on the Act,
Rules and Directives.
15) Customers involving in the excessive cash using business
16) Other customers, which pose high risk to the Institution.
17) Customer who conducts complex, unusual large transactions and unusual patterns of
transactions or which have no apparent economic or visible lawful purpose,
18) PEP, his/her family member and person associated with PEP,
19) Customer consuming high risk products and services,
20) Customer suspected of Money Laundering, Terrorist Financing or other offence
21) Customers dealing in transactions directly or indirectly related with terrorism.
22) Individuals who are high class people in terms of politics, business, finance, administration area
or their family members/ relatives or associations in other words Politically exposed persons
(PEPs).
23) Firm, company, organization, entity who do not have their governing authority.
24) Some examples are as follows.
a. Trusts
b. Money Transfers
c. Clubs
 25) Associations (E.g. Nepal Egg Producer Association), Federations (E.g. Federation of Nepal
Beekeepers), Society (E.g. Adarsha Youth Society, Nepal Cancer Relief Society), Kendra (Marwari
Sewa Kendra)
26) ToleBikash/SudharSamitis, UpabhoktaSamitis and similar other Samitis/Samuhas/Samaj
27) Committees (E.g. Area Development Committees, Community Development Committees etc.)
28) Temple, Masjid, Monastery, Madarsa, Church and similar other religion based organizations.
29) NGO and INGO.
30) Foreigners belonging to the country which has not fulfilled the activities to prevent money
laundering and terrorism or which has been banned for any financial transaction or warned by
UNO or international governmental organizations or customers of countries listed as non-
cooperative by Financial Action Task Force.
31) Customers who are popular for being involved in money laundering or financial crime or those
known to have defaulted to pay or fraud done in connection with tax, custom, fee or other similar
amount
32) Transactions done with offshore bank or financial institution.

13. Who are PEPs?

Domestic PEPs are:
• President
• Vice-President
• Prime Minister and Ministers
• Parliamentarians
• Officials of the constitutional bodies
• Official remained in the special class or equal to special class or their senior officials of the
government of Nepal
• Judge if the Appellate Court and their seniors
• Senior politicians above the central member of any national party
• Senior executives of any institution partially or fully owned by the government

Foreign PEPs are:

• Heads of State or of government
• Senior politician
• Central member of national political party
• Senior government, judicial or military official
• Senior executives of state owned corporations of a foreign country.

Process for PEPs

• Categorized as High Risk if the customer is found to be PEPs
• Fill up the ECDD form
• Citizenship/ID copy of family members must be obtained
• Documents evidencing business/profession of the client must be obtained
• Documents evidencing source of income and fund must be obtained
14. What are the proofs of Identification Documents?
• Nepali Citizenship Certificate or National ID Card
• Passport
• Driving License
• In the case of Refugees; Refugee Identity Card issued by Government of Nepal
• In the case of Indian nationals, Certificate of Registration of Indian National issued by
Embassy of India (EOI)
• Note: Other documents like Passport and Driving License shall have expiry dates so it is
better to obtained Citizenship Certificate.

15. What are the proofs of address verification documents?

Proof of address verification: Any one or more of the following evidencing permanent and
residential address
• Recently Paid Water Bill
• Recently Paid Electricity Bill
• Recently Paid Telephone Bill
• (IV) Voters ID (Only if it contains the current address)
• Migration Registration Certificate
• Land Ownership Registration Certificate (Lalpurja)
• PAN Card
• Salary slip
• Income/Wealth Tax Assessment Order
• For the applicant residing on rent; name, address and phone no of the house owner and, if
possible, copy of lease agreement.
• Bank account statement
• Letter from reputed employer
• Letter from any recognized Government authority having proper and verifiable record of
issuance of such certificates.
• Voter ID card (only if it contains the current address)
• If the applicant is a practicing professional like lawyer, auditor, chartered accountant, engineer,
doctor, etc., a copy of license issued by the competent authority.
• For the applicant residing on rent; name, address and phone no of the house owner.

16. Who is beneficial owner?

"Beneficial owner" means a natural person who, directly or indirectly, owns or controls or
directs or influences a customer, an account, or the person on whose behalf a transaction is
conducted, or exercises effective control over a legal person or legal arrangement or remains as
an ultimate beneficiary or owner of such activities.
17. How to classify the customer as Low Risk, Medium Risk & High Risk?
Risk Categorization
Risk Form to be filled
Low Risk Simplified CDD
Medium Risk CDD
High Risk CDD and ECDD both

18. “Suspicious Transaction” means a transaction, including an attempted transaction, whether or

not made in cash, which to a person acting in good faith;
 Gives rise to a reasonable ground of suspicious that it may involve proceeds of an
offenses specified in law and regulations, regardless of the value involve.
 Seeks to conceal or disguise the nature or origin of funds derived from illegal activities
 Appears to have no economic rationale or bona-fide purpose
 Appears to be in circumstances of unusual, or unjustified complexity
 Appears to be deviated from profile, character and financial status
 Seems to be made with the purpose of evading the legal and regulatory reporting
requirements
 Found to be conducted to support the activities relating to terrorism

19. What is Terrorist Financing?

• Terrorist financing provides funds for terrorist activity.
• The main objective of terrorist activity is to cause substantial property or human damage or
seriously interfering with or disrupting essential services, facilities or systems.
• There are two main sources of terrorist financing
• Financial support from countries, organizations or individuals and revenue generating
activities that may include criminal activities.
• The second source, revenue generating activities may involve drug trafficking, human
smuggling, theft, robbery and fraud to generate money.
• Funds raised to finance terrorism usually have to be laundered and thus anti money
laundering process in banks and other reporting industries are important in the identification
and tracking of terrorist financing activities.
• FI shall build measures to monitor, identify and report such funds received or sent using the
banks system.
• GUFL shall take caution while doing transaction, account opening or carrying banking
activities if in any circumstances the name of any banned organization or individual
(involved in terrorist activities) appear as payee/endorsee/applicant and report of such
transaction as and when detected.
20. What is Shell bank?
• Shell bank is a financial institution which does not have a physical presence in any county and
does not have any actual place of business in any country.
• So it is impossible to regulate them or ensure they are not violating AML regulation. FI shall
not establish any business relation with shell bank or any FI who has business relation with
shell bank.

21. With whom not to Carry out Transactions:

We shall not open a bank account or continue business relationship or conduct transaction with
the following customers:-
• Customer who cannot provide documents, information and details required for the customer
identification and verification process defined herein.
• Documents, information and details provided appear conflicting to the identity of the
customer
• Individual or entity listed in the sanction list of the Department of Money Laundering
Investigation, Government of Nepal, United Nations, OFAC, etc.

22. TIPPING OFF

Tipping off is the providing the unauthorized information to the customer. For example,
mentioning to the customer that the Institution has sent the suspicious transaction report about
him/her/them to the regulator or law enforcement agency is taking actions against them.