The mitigation of money laundering risks plays an important role in assisting the Central Bank of Lebanon in achieving its objectives of preserving market confidence and promoting and maintaining the efficiency, transparency and integrity of the Lebanese financial sector. Also, it aims to deter criminals from using the products, services and network of Bank of Beirut for laundering the proceeds of their crimes.
In this respect, Bank of Beirut is committed to fighting money laundering and combating terrorism financing by adopting and maintaining policies, procedures, systems and controls.
Also, we strongly believe that stringent “Know Your Customer” (KYC) measures have particular relevance to safety and due diligence in that they help to protect the Bank’s image by reducing the likelihood of becoming a vehicle for, or a victim of, financial crime and, as a result, suffer reputation damage.
Therefore, Bank of Beirut KYC policy needs to be enforced in a way so that we only bank with customers, whose sources of funds can be reasonably established to be legitimate, therefore, obstructing the utilization of our Bank as a vehicle to clean illegal funds and compromising its integrity.
Responsibility for this task lies with each and every individual in the Bank, especially when considering a customer for acceptance before entering into a relationship, and when handling each customer’s business during the life of the relationship.
Introduction
In recent years, worldwide efforts to combat money laundering and the financing of terrorism have assumed heightened importance. Money laundering and terrorism financing are global problems that not only threaten security, but also compromise the stability, transparency, and efficiency of financial systems, thus undermining economic prosperity.
Money laundering and terrorist financing operations use sophisticated techniques, which may involve different types of financial institutions, multiple financial transactions, the use of intermediaries, such as financial advisers, accountants, shell corpora¬tions and other service providers, transfers to, through, and from different countries, and the use of different financial instruments and other kinds of value-storing assets.
The absence of, or a lax or corrupt, anti-money laundering regime in a particular country permits criminals and those who finance terrorism to operate, using their financial gains to expand their criminal pursuits and fostering illegal activities such as corruption, drug traf¬ficking, illicit trafficking and exploitation of human beings, arms trafficking, smuggling, and terrorism.
Money laundering is the process by which proceeds from a criminal activity are disguised to conceal their illicit origins. Basically, money laundering involves the proceeds of criminally derived property rather than the property itself. The financing of terrorism is the financial support, in any form, of terrorism or of those who encourage, plan, or engage in terrorism. Less simple, however, is defining terrorism itself, because the term may have significant political, religious, and national implications from country to country. Money laundering and terrorist financing often display similar transactional features, mostly having to do with concealment.
The negative economic effects of money laundering and terrorist financing on economic development are difficult to quantify, yet it is clear that such activity damages the financial-sector institutions that are critical to economic growth, reduces productivity in the economy's real sector by diverting resources and encouraging crime and corruption, which slow economic growth, and can distort the economy's external sector -international trade and capital flows- to the detriment of long-term economic development.
Lebanese Laws and Regulations
Lebanese Law No. 318 – Fighting Money Laundering
On April 20, 2001, the Lebanese Parliament passed Law No. 318 on Fighting Money Laundering, which criminalizes money laundering, defines fines and sanctions, and creates a framework for lifting banking secrecy.
Law No. 318 is the main legislation applicable in Lebanon and related to Anti-Money Laundering. Under the provisions of this law, any person who undertakes money laundering operations or intervenes or participates in such operations will be punishable by imprisonment for a period of three to seven years, and by fine of no less than twenty million Lebanese pounds. The “Law” considers that “helping a person involved in the crime to dodge responsibility” falls within the category of money laundering crimes.
The Law mentions another kind of sanction which goes from two months to one year in prison or a fine not exceeding ten million Lebanese pounds or by either penalties, applicable in case of disclosure of information that may prejudice money laundering investigation to any person including the customer involved and applicable in case of failure to reporting immediately to the special investigation commission any suspicious transaction.
The Parliament then approved Law No. 32 in October 2008, which expanded the scope and authority of investigators to include funds originating from corruption activities into money laundering cases.
Predicate Offense
The predicate offenses which would constitute Money Laundering under the Lebanese Law include:
- Growing, manufacturing or trading of narcotic drugs,
- Participating in organized criminal groups,
- Terrorist acts,
- Illicit arms trading,
- Embezzlement of public or private funds,
- Counterfeiting money, credit cards, debit cards, charge cards or any official document or commercial paper including checks.
Money Laundering Offense
As per the Lebanese Law, Money laundering is any act committed with the purpose of:
- Concealing the real source of illicit funds, or giving, by any means, a false statement about the said source.
- Transferring or substituting funds known to be illegal for the purpose of concealing or disguising their source, or helping a person involved in the offence to dodge responsibility.
- Acquiring, holding or using illicit funds, or investing such funds in purchasing movable or immovable assets, or in carrying out financial operations, while being aware of the illicit nature of these funds.
Central Bank Regulations
Banque du Liban (BDL) – the Central Bank of Lebanon is an autonomous authority which regulates and grants licenses to all banks and financial institutions and is responsible for safeguarding the soundness of the banking sector. Financial institutions and banks are subject to the provisions of the 1956 Law on Banking Secrecy, as well as the 2001 AML Law No.318, which clarifies the BDL powers to "require financial institutions to identify all clients, maintain records of customer identification information, request information about the beneficial owners of accounts, conduct internal audits, and exercise due diligence in conducting transactions for clients."
BDL Regulations with respect to AML are mainly outlined in Circular No. 83 - Regulations on the Control of Financial and Banking Operations for Fighting Money Laundering” dated September 17, 2003, which mainly includes the following:
- Control on financial operations for fighting Money Laundering;
- Checking the clients’ identity, determining the economic right owner and the consequences of non-verification;
- The obligation to control certain operations;
- Committees and administrative units responsible for controlling Money Laundering.
Special Investigation Commission (SIC)
SIC – Lebanon's Financial Intelligence Unit (FIU) was established under Law No. 318 as an independent legal entity with judicial status. Its mandate is to investigate Money Laundering operations, and to monitor compliance with the rules and procedures stipulated by this law. This is done by fostering interagency and global cooperation for fighting domestic and international Money Laundering crimes.
The SIC investigates reported suspicious transactions, with a proactive approach in applying the provisions of law 318. Cases considered by SIC as Money Laundering are deferred to the judicial authorities and to other concerned parties, as specified in the said law. Consequently, banking secrecy is lifted on the accounts involved.
SIC is the sole authority in Lebanon with the exclusive right to lift banking secrecy, and has been active in providing support to international criminal case referrals as well. The SIC is member of Egmont Group since July 23, 2003.
Anti Money Laundering Responsibilities
Compliance Function
Bank of Beirut has created an independent Compliance Function having a formal status within the bank to give it the appropriate standing, authority and independence. The mission of the Compliance Function is to ensure that the Bank's Group is complying with laws, regulations, rules, internal policies and procedures, and the code of conduct applicable to its banking activities. This typically includes specific areas such as the prevention of money laundering and terrorist financing.
AML Compliance Committee
Bank of Beirut has established AML Compliance Committee responsible for overseeing the Bank’s anti-money laundering policies and procedures and their implementation, as well as the application of Law No. 318 – Fighting Money Laundering and BDL Circular 83 regarding Regulations on the Control of Financial and Banking Operations for Fighting Money Laundering, in addition to various SIC circulars.
Head of Compliance
A Group Head of Compliance has been appointed with an overall responsibility for coordinating the management of the Group’s compliance risk, supervising the activities of other compliance function staffs within the group, ensuring that the bank is complying with relevant laws and regulations and that any new procedure is in line with all the jurisdictions where it operates.
AML Compliance Officer
Compliance Officers are responsible for ascertaining that concerned officers are complying with the procedure guide on the implementation of legal and regulatory requirements for fighting money laundering, review periodically the effectiveness of the procedures on fighting money laundering, propose amendments, and report the results of their compliance efforts.
Branch Compliance Officer
Compliance Officers who reside in the branches have a reporting line to the branch manager but also have a reporting line through to the Compliance Department with regard to their compliance responsibilities. The Branch Compliance Officers are responsible for implementation of AML requirements in the branch, by verifying the completeness and accuracy of information in the context of customers’ identification, by monitoring transactions on accounts particularly cash transactions, transfers, and any other account-related operations, and by investigating and reporting any suspicious case to the Compliance Department.
Customer Identification & Due Diligence Procedures
The basis of all procedures for the prevention of money laundering and terrorist financing is collecting and maintaining sufficient information about a customer and making use of that information for the purposes of customer identification. It is the most effective weapon against the possibility that the services provided by banks are used for illegal purposes.
In addition to minimizing the risk of a bank’s services being used for illicit activities, collecting and maintaining sufficient information on a customer’s identity allows the early detection and recognition of suspicious transactions/activities and protects the bank from possible fraud and the underlying risks on their financial robustness and reputation.
Know Your Customer (KYC)
Customer identification procedures and due diligence measures apply on any natural person, or legal entity whether it is a company or an institution of any kind, a non-profit organization or association. These measures comprise the following:
- identifying and verifying the customer's identity on the basis of documents, data or information issued or obtained from a reliable and independent source;
- identifying the beneficial owner who ultimately owns or exercises control over the customer;
- collecting information on the purpose and intended nature of the business relationship;
Bank of Beirut takes reasonable measures to identify its customers at the outset of the relationship. As a general rule, a business relationship is never established until the identity of a potential customer is satisfactorily established and verified. Also, customer identification and due diligence procedures do not only apply to new customers but also at appropriate times to existing customers, depending on the level of customer's risk or when there are doubts about the veracity or adequacy of previously obtained customer identification documents, data or information.
Updating of Customers' Identification Information
Bank of Beirut is not only satisfied with customers' identification at the outset of the relationship, but this exercise extends over the lifetime of the relationship to ensure that its customers' identification records remain completely updated with all relevant identification elements and information throughout the business relationship. In this respect, Bank of Beirut examines and checks on a regular basis the validity and adequacy of the customer identification data and information it maintains.
Beneficial Owner Identification
Beneficial Owner is defined as the natural person(s) who ultimately owns or controls a customer and/or the person on whose behalf a transaction is being conducted. It also incorporates these persons who exercise ultimate effective control over a legal person or arrangement.
A distinction is made between the person in whose name an account is opened and the person who ultimately controls the funds or who is entitled to such funds. The importance of this distinction resides in the necessity to focus, from AML perspective, on the person who has control or entitlement.
Bank of Beirut requests a written statement about the beneficial owner at the outset of the relationship, as well as for any transaction carried out by customers and for which the bank has doubt about the economic right owner, or when customer declares that the true beneficiary of the transaction is a third party.
Screening of Customers
Bank of Beirut adopts interdiction software for screening of prospective and existing customers, beneficial owners, shareholders, directors, authorized signatories, etc. against local watch list (SIC list) and international watch lists such as those issued by OFAC, EU, UN, Interpol, etc. This filtering would ensure that none of the prospective customers approaching the bank to open an account is blacklisted, as well as ensure that none of our existing customers is showing on any watch list.
Proxy Holders
Special attention is given to accounts opened or activated by power of attorney, especially when there is no reasonable relationship that justifies the proxy operation between the account holder and the proxy holder who, for instance, is not the customer’s lawyer, professional advisor, consultant, etc.
Due diligence is exercised over both customer and proxy holder by obtaining the necessary identification documents, in addition to maintaining a special register that records the names of persons with power of attorney who are entitled to open accounts and/or activate them, along with the relation between the account holder and the power of attorneys.
Politically Exposed Persons (PEPs)
Politically Exposed Persons are individuals and their immediate family members who are or have been entrusted with prominent public functions including Head of States or government, senior politicians, ministers, deputies, and important political party officials. The “immediate family” of a senior political figure typically includes the figure’s parents, siblings, spouse, and children.
Bank of Beirut determines through electronic database whether the customer is PEP or not, and the decision for establishing a business relationship with a PEP is taken by the bank's Senior Management.
The Bank considers PEPs as high risky customers due to the risk of abusing their public power for their own illicit enrichment, and using the bank as conduits for their illegal activities, including corruption, bribery, and money laundering. Therefore, PEPs accounts are subject to enhanced due diligence.
Correspondent Banking
Respondent Banks (Vostro Accounts)
Bank of Beirut maintains accounts for correspondent banks based in various foreign jurisdictions, which take advantage of services and products delivered by the bank. The services provided mainly include deposit accounts, international funds transfers, checks clearing, foreign exchange services, overnight investments, loans, and letters of credit.
Certain jurisdictions are internationally recognized as having inadequate anti-money laundering standards, insufficient regulatory supervision. Other jurisdictions such as members of FATF have more robust regulatory environment.
Therefore, Bank of Beirut evaluates the degree of risk presented by the jurisdiction in which the respondent bank is based by gathering sufficient information about its respondent banks to understand fully the nature of their business, and determine from publicly available information their reputation, in addition to assessing their Anti Money Laundering and Terrorist Financing controls and whether they have been subject to a money laundering or terrorist financing investigation or regulatory action. A senior management approval is obtained before entering into any relationship.
Our policy is not to deal with shell banks. A Shell Bank is a bank that: (i) does not conduct business at a fixed address; (ii) does not employ one or more individuals on a full time business at this fixed address; (iii) does not maintain operating records at this address; and (iv) is not subject to inspection by the banking authority that licensed it to conduct banking activities.
Correspondent Banks (Nostro Accounts)
Bank of Beirut establishes multiple correspondent relationships throughout the world in order to engage in international financial transactions where it does not have a physical presence.
The Bank provides its correspondent banks with any document/information required for due diligence exercise. Such information includes filling-in AML Questionnaire, bank’s ownership, shareholders, directors, etc., in addition to information about specific transactions carried out with correspondent banks.
Ongoing Monitoring of Customers and Transactions
Transaction monitoring has long been an area of focus for regulators and banks. The legal framework and AML requirements in most jurisdictions are based on a regime for reporting suspicious activity to law enforcement. Accordingly, most banks have developed systems and controls to monitor transactions and escalate unusual or suspicious activities.
Bank of Beirut considers transaction monitoring as an integral and fundamental link to a strong AML compliance program and an essential aspect of effective KYC procedures. Thus, the Bank conducts ongoing monitoring of the business relationship including scrutiny of transactions undertaken throughout the course of the relationship to ensure that the transactions being conducted are consistent with data and information in respect of the customer, the business and the risk profile of the customer, including the source of funds as well as ensuring that the documents, data or information held are kept up-to-date.
Automated Solution
Bank of Beirut adopts an automated solution for customers' transactions monitoring. This solution provides the possibility of automatically creating an expected trend for all customers' accounts based on historical data. Any unusual transaction that exceeds the customer's expected trend generates alert in the system for investigation by concerned parties. The software also offers a large number of reports for detection of activities that might involve money laundering.
Cash Transactions Monitoring
Large cash deposits from illicit activities are considered to be one of the most popular methods of money laundering. Therefore, the most effective way to prevent money laundering as well as to recognize money laundering activities is originated at the initial placement stage when criminals attempt to deposit cash derived from illegal activities into the financial system.
Consequently, Bank of Beirut implements appropriate internal procedures for the acceptance and control of cash deposits for amounts exceeding USD 10,000 or the equivalent in any other currencies. In particular, the Bank implements procedures, on a risk sensitive basis, to ascertain the source and origin of cash and establish as to whether the level and nature of transaction is consistent with the activities and the business profile of the customer.
Wire Transfers
Funds transfers may present a heightened degree of risk, depending on such factors as the number and dollar volume of transactions, geographic location of originators and beneficiaries, in addition to being used by criminals mainly at the layering stage of money laundering to move funds from one jurisdiction to another.
In relation to the above, Bank of Beirut complies with local and international requirements on information that should accompany the wire transfer. Complete information should include accurate information about the originator and the beneficiary (full name and address, account number as well as information about the details of payment of the funds transferred).
On the other hand, and due to the high risk involved with wire transfers, Bank of Beirut screens originators, beneficiaries, and free text messages in real time prior to execution. Screening is done against local and international watch lists. Dealing with positive matches depends on which list the name appears.
Risk Based Approach
Bank of Beirut adopts a risk-based approach to fighting money laundering and terrorist financing, in compliance with BDL Circular 190 issued in May 2009, and in accordance with international anti-money laundering and counter-terrorism financing guidance and recommendations.
It is well understood that the continuing threat of money laundering through financial institutions is most effectively managed by understanding and addressing the potential money laundering risks associated with customers and transactions. This will allow us to focus on those customers and transactions that potentially pose the greatest risk of money laundering/terrorist financing, and will result in the application of appropriate due diligence when entering into a relationship, and ongoing due diligence and monitoring of transactions throughout the course of the relationship.
Our risk assessment takes into consideration (1) Country/Geographic risk, 2) Customer risk, and (3) Product/Service risk. Based on the risk weights assigned to customers, a risk scoring of High, Medium, or Low is adopted. The due diligence and controls exercised depend on customer’s risk.
Retention Period
Copies of customer identification documents are retained by the Bank for at least five years after an account is closed and all financial transaction records are also retained for at least five years after the transaction has taken place.
Reporting of Suspicious Cases
Under the Law 318, it is an offence for any person who acquires knowledge or reasonable suspicion that another person is engaged in money laundering or terrorist financing, not to report to SIC the said information, as soon as is reasonably practical, after it comes to his attention.
Bank of Beirut satisfies this legal obligation of reporting suspicious activities which might involve possible money laundering. The detection by staffs of any suspicious transaction should prompt further investigation and constitute a valid cause for seeking additional information and/or explanations as to the source and origin of the funds, the nature and business/commercial purpose of the underlying transaction, and the circumstances surrounding the particular activity.
The reporting obligation and investigation carried out by the Bank and the SIC are absolutely confidential. All staff are refrained from notifying or drawing the attention of the customers that their accounts are subject to investigation, until the SIC decides to lift the banking secrecy. Disclosing information that may prejudice money laundering investigation is considered a serious offence under Law No. 318.
Employees Anti-Money Laundering Training
Training has long been recognized as a key element of an effective anti money laundering (AML) compliance program. Lebanon has codified this requirement under Circular No. 83 by requiring financial institutions to establish compliance programs with training components.
There is a growing commitment at Bank of Beirut to train staff on combating money laundering and terrorist financing, since we believe that well-trained and vigilant staffs remain the first line of defense in monitoring transactions and identifying suspicious activities.
Our training program aims at educating staff on the latest developments in anti-money laundering and terrorist financing including the practical methods and trends used by criminals for this purpose.
Independent Testing
The compliance function and the audit function at Bank of Beirut are segregated in order to ensure that the activities of the compliance function are subject to independent review. The audit function, of course, keeps the compliance informed of any audit findings relating to compliance.
In order to ensure that the Bank is properly implementing the provisions of the anti-money laundering policies and procedures, the Internal Audit includes in their audit program a systematic methodology for the review and assessment of internal AML control procedures, to determine whether the internal control system is adequate and effective, and to ensure compliance with Central Bank regulations, particularly BDL Circular 83 regarding Regulations on the Control of Financial and Banking Operations for Fighting Money Laundering.