Knowledge Base

Compliance
Money Changer
Technology
Security
What is a Sanctions List?

The Sanctions List features a list of designated individuals and entities that every individual should not legally engage in any business or commercial activity with, due to their relations with proliferation of weapons of mass destruction, threats to national security, foreign policy or economy of the country. This requires financial institutions to immediately freeze funds, other financial assets or economic resources of designated individuals and entities. Financial institutions should not enter into financial transactions or provide financial assistance or services in relation to designated individuals, entities or items, proliferation and nuclear, or other sanctioned activities and inform the relevant authority of any fact or information relating to the funds, other financial assets or economic resources owned or controlled, directly or indirectly, by a designated individual or entity.

For instance, Singapore, as a member of the United Nations, implements the Resolutions passed by the United Nations Security Council (UNSC) through domestic laws and money changers alongside with financial institutions that have to adhere to the regulations imposed by the Monetary Authority of Singapore (MAS). Under the MAS Act, a financial institution that contravenes any MAS Regulations is guilty of an offence and will be liable on conviction to a fine not exceeding $1 million.

Individuals should screen their clients against the lists before engaging in any business or commercial activity with them and ensure that they do not deal with designated individuals and entities as defined in the respective regulations promulgated under the regulations imposed by the relevant state authority. For anyone conducting business in Singapore, they may refer here for the list of sanctioned individuals/entities.

What is a Politically Exposed Person?

A politically exposed person (PEP) is defined by the Financial Action Task Force (FATF) as “an individual who is or has been entrusted with a prominent public function. Due to their position and influence, it is recognised that many PEPs are in positions that potentially can be abused for the purpose of committing money laundering (ML) offences and related predicate offences, including corruption and bribery, as well as conducting activity related to terrorist financing (TF).”

There are many individuals that may be considered as a potential PEP in different roles and parties, such as members of parliament in a Legislative Body, Senior Executives in a state-owned enterprises, Board members of financial institutions and many more. A politically exposed person does not always mean an individual who directly holds public office and it also includes their immediate family members, as well as close business associates. Aside from the different local PEP requirements to comply with, defining a PEP may be challenging and each country may have different requirements when doing business in that region. It can be difficult to determine whether customers or beneficial owners are PEPs and/or finding out who are. Assessing their relations as their family members and close associates can be challenging, particularly when dealing with foreign PEPs for whom current information may not be readily available. Hence it is important to stress that Customer Due Diligence (CDD) is essentially important as a source of information for the purpose of determining a customer as a PEP.

What is Anti-Money Laundering?

Anti-money laundering (AML) refers to a set of procedures, laws or regulations designed to curb the practice of generating income through illegal means.

In most cases, money launderers hide their actions through a series of steps that make it look like the money that was generated through the illegal activities was earned legitimately.

To counter this, AML regulations require institutions issuing credit or allowing customers open accounts to complete due-diligence procedures to ensure that these institutions are not aiding in money-laundering activities. The onus to perform these procedures is on the institutions, not on the criminals or the government. Some examples of money laundering can be market manipulation, trade of illegal goods, corruption of public funds and evasion of tax, as well as all activities that aim to conceal these deeds. Financial institutions are expected to comply with AML laws, make sure that clients are aware of these laws and guide people with them without prior active government orders. As a result, the Financial Action Task Force (FATF) was formed to maintain and promote the ethical and economic advantages of a legally credible and stable financial market, to combat against money laundering.

What are Know Your Customer checks?

Know Your Customer (KYC) is a process that involves verifying the customer’s identity to prevent identity theft, financial fraud, money laundering and terrorist financing. The objective of KYC is to enable banks to know and understand their customers better and help them manage their risks prudently. These checks should be conducted in the following instances:

  • when a customer opens a bank account in a bank
  • when a customer applies for a credit card or loan
  • when there are changes in signatories, beneficial owners, etc
  • when the bank feels it necessary to obtain additional information from existing customers based on conduct of the account
  • While investing in a mutual fund

Aside from the above, financial institutions may ask for a mandatory KYC process in other instances too. For money changers, any business or transactions that involve a triggering amount of cash (Eg. SGD$5,000 in Singapore) would require them to record the customer’s identification, and note the amount exchanged together with verifying their required documents.

What is the Financial Action Task Force?

The Financial Action Task Force (FATF), is an intergovernmental organization founded in 1989 on the initiative of the G7 to develop policies to combat money laundering and headquartered in Paris . Since 2001, the function of the FATF was expanded and it now includes acting on terrorism financing as the organisation monitors countries' progress in implementing the FATF Recommendations by ‘peer reviews’ (‘mutual evaluations’) of member countries. As of 2015, FATF consists of thirty-four member jurisdictions and two regional organisations, the EU and the Gulf Co-operation Council. The FATF also works in close co-operation with a number of international and regional bodies involved in combating money laundering and terrorism financing.

The Forty Recommendation and Special Recommendations on Terrorism Financing that was introduced by the organisation, set the international standard for anti-money laundering measures and combating the financing of terrorism and terrorist acts. Countries that are weak in their AML/CTF implementation are called upon publicly by the FATF Plenary to make the necessary progress. This list of countries are referred to as "Non-Cooperative Countries or Territories" (NCCTs), commonly called the FATF Blacklist, who FATF members believe are uncooperative with other jurisdictions in international efforts against money laundering and terrorism financing.

The effect of the FATF Blacklist has been significant, and arguably has proven more important in international efforts against money laundering than has the FATF Recommendations, as a jurisdiction placed on the FATF Blacklist often finds itself under intense financial pressure to step up on their progress, despite the lack of formal sanction imposed.

What is the SDN list?

The Specially Designated Nationals and Blocked Persons ("SDN list") includes over 3,500 names of companies and individuals connected with the sanctions targets, that are based on the sanction programmes implemented by the OFAC. U.S citizens and permanent residents are prohibited from dealing with SDNs wherever they are located and all SDN assets are blocked. Since a number of the named individuals and entities are known to move from country to country and may end up in unexpected locations, it is important to check OFAC's website on a regular basis to ensure that your SDN list is current. This list hence answers the question of “Who do I know who not to do business with?” and U.S entities or individuals or entities are prohibited from transacting with SDNs without a license. OFAC issues two types of licenses that allows parties to engage in activities that would normally be prohibited. “General Licenses” make allowances for all U.S. persons for certain activities while “Specific Licenses” are issued to specific parties for specific transactions. These are granted for a variety of reasons but always require an application to OFAC.

Depending on the program, if the assets of an SDN enter into the U.S. or the U.S. financial system, those assets may simply be rejected or be “blocked.” Alongside with the SDN list, are the Country Sanction programmes, that are organized by country or region, and U.S-based companies should learn about the limitations of doing business with the stated country in the list, as each country has a unique set of restrictions.

What is the US OFAC?

The Office of Foreign Assets Control (OFAC) is a financial intelligence and enforcement agency of the U.S. Treasury Department responsible for the planning and execution of economic and trade sanctions in support of U.S. national security and foreign policy objectives, such as national security goals against targeted foreign countries and regimes, terrorists, international narcotics traffickers, and those engaged in activities related to the proliferation of weapons of mass destruction, and other threats to the national security, foreign policy or economy of the United​ States.

The agency plays a significant role in imposing significant penalties against entities that defy its regulations, including imposing huge fines, freezing of assets, and barring other parties from operating with the US. More notably, OFAC administers and enforces economic sanctions against hostile targets in furtherance of U.S. foreign policy and national security objectives, primarily against countries and groups of individuals, such as terrorists and narcotics traffickers.

OFAC publishes a Sanction list, that features individuals, parties, or countries that U.S. businesses should not legally engage in business with. This applies to all U.S. citizens and permanent residents regardless of their locations, as well as all individuals and entities located in the United States, who must comply and abide with OFAC regulations. OFAC also has jurisdiction over corporations organized under U.S. law, including foreign branches and representative offices abroad. This means that if foreign entities want to do business in the U.S., they need to abide by the regulations set by OFAC and comply with U.S. sanctions.

OFAC administers a number of different sanctions programs and these sanctions can be either comprehensive or selective, using the blocking of assets and trade restrictions to accomplish foreign policy and national security goals.

Penalties for violating OFAC regulations are serious, and they include criminal fines and civil penalties that can be as high as $1 million or twice the gain from the violation – whichever is greater. Individuals who violate these regulations may be subject to prison sentences as long as 20 years.

What is Countering/Combating the Financing of Terrorism Act?

Countering (or Combating) the Financing of Terrorism Act (CFT), refers to the prevention, tracing and recovery of illicitly-acquired assets that are the proceeds of criminal activities, alongside with the disruption and dismantling of the global terrorist financial and criminal laundering operations. This term is often related to AML due to the similarities of the illegal activities and an individual who may be guilty of breaching an AML procedure may be found guilty of violating the CFT Act. In simpler terms, terrorist funding refers to the process by which terrorists fund their operations in order to perform terrorist acts, and while different from money laundering, terrorists often exploit similar weaknesses in the financial system.

Terrorist cells raise and “clean” their money from illegal activities like organized fraud or narcotics, to legitimate funding sources, including charitable organizations or legitimate businesses. With ISIS, and many other terrorist groups, their revenue streams are diversified and far-reaching. Regardless of how they raise their capital, the end goal is to ultimately disguise the funds by exploiting global financial systems.

What Transaction Amount Triggers The Need For Money Changers To Conduct Identity Verification?

The trigger amount for the transaction varies among different jurisdictions. Beyond a certain amount, money changers have to perform the KYC procedures for AML/CTF purposes. There needs to be a balance between detecting money laundering and not burdening the money changers with too much administrative work, hence, these amounts may be adjusted periodically. The amounts in green have been converted into local or US dollars for a fair comparison across these jurisdictions.

No.

Jurisdiction

Local Currency

(As of 04 August 2016)

USD or Equivalent (As of 04 August 2016)

Documents Needed

Effective Date

1

Indonesia

~ IDR 328,749,686

$25,000 (Previous: $100,000)

Document supporting underlying transaction such as health treatment and school tuition fees

28 August 2015

2

Thailand

~ THB 174,682.50

$5,000

Passport or other travel documents

11 August 2004

3

Malaysia

MYR$3,000

~USD$740.49

Particulars of customers and duplicate copy of identification documents

26 August 2011

4

India

R$50,000

~USD$746.69

Identity Proof

1 July 2013

5

Singapore

SGD$5,000

~USD$3727.73

Identity Card or Passport with full name, address, date of birth and nationality

1 January 2006

6

Australia

AUD$10,000

~USD$7609.65

  1. Financial transaction document

  2. Account and Signatory Information (identity)

12 December 2008

7

Hong Kong

HKD$8,000

~USD$1,031

Identity Card and record of transaction

20 December 2006

8

New Zealand

NZD$10,000

~USD$7173.05

Identity and source of funds

30 June 2013