RESOURCES
Overview
Financial Action Task Force
An important global body that sets standards for AML/CFT measures is the which was established in 1989 and headquartered in Paris. Money laundering was an important financial issue in 1989 and it spurred the creation of this organisation. After the major 9/11 terrorist attacks, counter terrorist financing was added as another key focus of FATF. The recent spate of terrorist attacks renewed its focus to counter terrorist financing.
FATF sets the global policy for AML/CFT to bring about a coordinated global effort to tackle these key issues in nations around the world. Australia held the presidency in 2015 and made important progress globally on action taken against terrorist financing. South Korea is the current president in 2016 and is focusing on helping countries to enhance their counter terrorist financing efforts.
The FATF Plenary brings together various member countries thrice yearly to set policies called Recommendations. The FATF Secretariat monitors the actual implementation of these Recommendations and identify new threats to the financial system.
Countries that are weak in their AML/CFT implementation would be called upon publicly by the FATF Plenary to make the necessary progress. For instance, Japan was called upon in 2014 for its lack of AML/CFT progress since its commitment in 2008.
FATF maintains a list of nations that is officially known as High Risk and Non Cooperative Jurisdictions. Once countries are on this list, they are penalized by other jurisdictions with higher banking transaction cost. Most of the jurisdictions covered by this white paper have at some time been placed on this list. Under the guidance of the FATF, however, the general global trend is towards tougher compliance enforcement under the AML and CFT, so as to be taken off this grey list.
The FATF’s decision making body, the FATF Plenary, meets three times per year. FATF Plenary in seccion, February 2012
Main Laws Governing Compliance For Money Changers
Before we move into the details and peculiarities of each jurisdiction, here is an overview of compliance laws in each jurisdiction. These laws are mainly focused on the responsibilities of money changers to do Know Your Client (KYC) checks which essentially requires money changers to conduct identity verification for their clients in accordance to AML/CFT measures. These eight jurisdictions are indexed according to the complexities as surveyed by professional service firm TMF Group. A higher index represents a less complex jurisdiction.
| No. | Jurisdiction | TMF Complexity Index | Main Regulator | Official Names For Money Changers | Main Law(s) For Money Changers |
|---|---|---|---|---|---|
| 1 | Indonesia | 2 | Non-Bank Money Exchange Provider (Non Bank KUPVA) | BI Regulation Number 16/15/ PBI/2014 dated 11 September 2014 | |
| 2 | Thailand | 9 | Authorized Money Changers | ||
| 3 | Malaysia | 15 | Bank Negara Malaysia (BNM) | Money Services Business (MSB) | Money Services Business Act 2011 |
| 4 | India | 25 | Authorized Money Changer (AMC) | Foreign Exchange Management Act 1999 | |
| 5 | Singapore | 42 | Money Changing Business | ||
| 6 | Australia | 87 | Money Exchange Business/ Cash Dealer | ||
| 7 | Hong Kong | 89 | Custom & Excise Department | Money Services Operators (MSO) | Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance, Chapter 615 |
| 8 | New Zealand | 91 | Money Changers | Anti-Money Laundering and Countering Financing of Terrorism Act 2009 |
In other words, Indonesia is the most complex and New Zealand has the most straightforward legal environment.
The main laws listed here would provide guidelines to the basic regulations money changers must adhere to such as licensing fees, amounts that trigger enhanced record keeping AML/CFT laws, suspicious transaction reporting and other relevant regulatory requirements.
All these should be second nature to existing money changers, and anyone looking to enter the industry should examine these laws carefully. Hence, the minute details are not covered in this white paper. Besides these main regulators, businesses should also be aware that there are other regulators which are introduced in the following sections.
Tracking Official Designations
The main regulators of each jurisdiction determine the official names of money changers. Money changers should be aware of their official designation because this will allow them to see if they are affected by changes to the law. For instance, Australia’s Financial Transaction Reports Act 1988 regulates both bullion sellers and cash dealers.
The knowledge that you are known as a ‘cash dealer’ would indicate if future amendments would apply to you. The regulator, AUSTRAC, also refers to money changers as ‘money exchange business’ and this knowledge is useful when periodic circulars are released.
Lastly, the main legal instrument that empowers the regulator are presented for you here. However, this may not be the only law that matters to money changers. Depending on the nature of the offense, money changers are also subjected to criminal laws. This white paper is not meant to be a comprehensive overview of the compliance requirements, but serves as a guideline on compliance for money changers. The recent developments of each jurisdiction that are worth noting for money changers is also highlighted. If you have any concerns, you should consult your legal advisers.
Triggering Amounts For Record Keeping
Different jurisdictions have their own sensitivities regarding the amount which triggers record keeping for AML/CFT purposes. These amounts are set to deter and detect money laundering and yet not burden money changers with too much administrative work. This is a fine balance that is adjusted periodically.
| No. | Jurisdiction | Local Currency (As of 03 May 2016) | USD or Equivalent (As of 03 May 2016) | Documents Needed | Effective Date |
|---|---|---|---|---|---|
| 1 | Indonesia | ~ IDR $329,874,925925 | $25,000 (Previous: $100,000) | Document supporting underlying transaction such as health treatment and school tuition fees | 28 Aug 2015 |
| 2 | Thailand | ~ THB $174,712 | $5,000 | Passport or other travel documents | 11 Aug 2004 |
| 3 | Malaysia | MYR$3,000 | ~ USD$759 | Particulars of customers and duplicate copy of identification documents | 26 Aug 2011 |
| 4 | India | R$50,000 | ~ USD$753 | Identity Proof | 1 Jul 2013 |
| 5 | Singapore | SGD$5,000 | ~ USD$3,714 | Identity Card or Passport with full name, address, date of birth and nationality | 1 Jan 2006 |
| 6 | Australia | AUD$10,000 | ~ USD$ 7,539 |
| 12 Dec 2008 |
| 7 | Hong Kong | HKD$8,000 | ~ USD$ 1,031 | Identity Card and record of transaction | 20 Dec 2006 |
| 8 | New Zealand | NZD$10,000 | ~ USD$ 6,981 | Identity and source of funds | 30 Jun 2013 |
Guidelines For Identifying Risk
These guidelines are meant to help money changers identify money laundering (ML) activities and are not meant to be comprehensive. Money changers need to understand that money laundering comes in the three stages of placement, layering and integration.
Placement is the introduction of illegal money from its source into the financial system. Layering is the separation of the illegal money from its source. Integration is the introduction of the ‘clean’ money back into the financial system. Money changers should know that they are most vulnerable to being targeted by criminals at the placement stage. Criminals might smuggle foreign currencies and present them at money changing outlets to introduce or ‘place’ illegal money into the financial system.
This will expose money changers to legal liabilities. However, money changers can safeguard themselves by spotting common tell tale signs such as:
1. Problems with Identification
If customers are exchanging money above the trigger amount, they will have to produce their passport or national identification document.
If money changers encounter issues where such customers are unable to produce valid identification documents and corresponding verification details or if they can’t recognize the person in the photo as the client standing in front of them, there is reason to suspect illegal activity.
2. Strange Behaviour
If a client is being overly friendly or aggressive, then it might be a sign of money laundering. For instance, a client might threaten a money changer verbally when asked for identification documents.
Conversely, a client might provide small gifts such as food or gift vouchers to gain favour and get money changers to waive checks.
3. Comfortable with High Fees
Another sign of possible suspicious activity is if a money changer is aware that their rates are significantly higher than most of the money changers for a particular currency pair, yet the client is comfortable to exchange a significant amount of money with them regularly without complaints
Other reasons that can trigger suspicion could be the type of currency the client is interested in exchanging, the nationality of the customer and even the mode of currency delivery. Money changers have to assess each situation accordingly to determine what constitutes a suspicious transaction. If there is any reason to be suspicious of clients, money changers are required to report them to the local authorities in accordance to accepted local regulatory reporting standards.
Highlights Of Each Jurisdiction
Each legal jurisdiction has their own current challenges which would alter their compliance landscape. The daily operational challenges of a money changer are many and this white paper breaks down the implications for you. This will allow you to be more agile in responding to the changing compliance landscape and get ahead of the regulatory curve.
The relevant sections of the laws on AML/CFT which money changers should be aware of are also highlighted.
