AML/CFT from

Supervisors Perspective
Pradeep Bhattarai
Act. Deputy Director
Nepal Rastra Bank

Areas of Supervision
Compliance Management
Customer Due Diligence
Risk Assessment
Special Issues
Special Monitoring Issues
Reporting
Record Keeping
Independent Auditing
Training and AML/CFT Awareness

Compliance Management
Compliance Officer of Managerial Level ?
Has AML/CFT compliance been an integral part

of compliance program?
Is there Internal AML/CFT policy and
Procedure? If yes, does it addresses all the
obligations of bank?
Is there effective implementation of the policy
and procedure?
Power of the Compliance Officer and
Compliance Department

Customer Due Diligence?

1. Identification and verification of Customer
2. Identification and Verification of Beneficial

Owner
3. Establishing Intended Nature and Purpose of
Business Relationship
4. Conducting ongoing Due Diligence and Scrutiny
of the relationship
5. Customer Acceptance Policy

Identification and
Verification
of
Customer
Anonymous Account?
What is identified? [name, address, present address,

occupationetc]
How is it verified?
Checking against international and national terrorist
/sanction list?
Are proper documents used for verification?
Identification and verification in all type of account ?
Compliant with schedule 1 of Directive No. 19 of
Unified Directives?

Identification and
Verification
of
Beneficial
Does Bank have any policy and procedure on
identification
and verification of beneficial owner?
Owner
(BO)

Is definition BO compliant with the legal definition?

"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.

Are people holding 10% more shares treated as

beneficial owner?

BO
What if beneficial owner of a legal person is

another legal person?

Does the bank identify and verify the BO of
that another legal Person?
PEPS as BO?

Purpose and Nature of

Business Relation
How is purpose and nature verified?
Type of a/c, monthly turnover, type of customer?
Is there mechanism in place to detect

transaction that contradicts with the purpose

and nature identified?
How is it being done?
What are the common nature and purpose of the
transactions of the customer with the bank?
Measures adopted to verify information in case
of transactions not matching the purpose?

Ongoing Due Diligence

How often the transaction of customer

monitored and scrutinized in its entirety?

How often for high risk, medium risk and low
risk?
How often are the records and information
updated?
Any STRs reported as a result of scrutiny and
monitoring of transaction?
Any a/c closed because records could not be
updated or any report submitted?

Customer Acceptance
Policy
Is there any customer acceptance Policy?
Who do you accept as your customer and who

dont accept?
Any Document threshold?
Any business type?

Timing of CDD
establishing business relationship
opening an account,
carrying out occasional transactions above a threshold as

may be prescribed,
carrying out wire transfers by electronic means,
there is suspicious about the veracity or adequacy of
previously-obtained customer identification information,
there is suspicion of money laundering or terrorist
financing,
at any time of transaction in relation to the high risked
and politically exposed person,
in any other situations as prescribed by the Regulator

Risk Assessment
High, medium and low risk categories
Customer Risk on the basis of assigned risk

weights of
Business of customers
Geography (high risk jurisdiction)
products, services, delivery channel

Product risk prior to the launch of products

Every identified risk to be addressed with

counter measures
Every AML measures to be risk based.

Ultimate responsibility
for CDD rests with the
institution doing the
business.

Special Issues
Politically Exposed Persons
Cross Border Correspondent Banking
Wire Transfer
Non-Face to Face Transaction

Politically Exposed
Persons
Family Member and Associates are also PEPs.
International PEPs: any person who is or

has been entrusted with a prominent function

by an international organization as a member
of senior management, or a director, deputy
director, member of the board or in an
equivalent position

PEPs
Foreign PEPs: 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
Domestic PEPs: any politically exposed person of
Nepal who is or has been in the post of special
class or equal to special class or above that class
of the Government of Nepal, judge of the Appellate
Court and above, senior politician, central member
of national political party or senior executives of
any institution partially or fully owned by the state

PEPs
Does BFI determine if the customer is a PEP?
Does BFI determine if a BO of a customer is a

PEP?
How does BFI determine?
Who approves a/c opening of PEPs? [at least one
step higher than the usual a/c opening officer]
Is a PEP treated as high risk customer?
Are measures applied to determine the source of
fund of PEPs?
Does BFI apply ECDD and enhanced monitoring
for PEPs?

Cross Border
Correspondent Banking
Correspondent banking is the provision of banking

services by one bank (the correspondent bank) to

another bank (the respondent bank) in another
country.
Large
international
banks
typically
act
as
correspondents for thousands of other banks around
the world. Respondent banks may be provided with a
wide range of services, including cash management
(e.g. interest-bearing accounts in a variety of
currencies), international wire transfers cheque
clearing, payable-through accounts and foreign
exchange services.

Cross Border
Correspondent
Banking:
a) Gather sufficient information about the
respondent institution and its business
What
to do?
activities.
b) Information on reputation, supervision,
c) Assess the respondents AML/CFT controls,

and ascertain the they are adequate and

effective
d) CDD of customer for payable through
account.
e) approval from senior management

Wire Transfer
Identification and verification of originator and

beneficiary?
Account number of unique reference no of
originator ?
Originators address or, in the absence of the
address, the citizenship or national identity
number or customer identification number or date
and place of birth, ( may not apply for amount
below Rs 75000.00 ?
No identification and verification if customer is
existing customer ?

New Technology and Non

Face
to
Face
Transaction
Risk assessment of non-face to face
transaction and new technology ?
Any measures to mitigate risk?
Risk ratings of the non-face to face product?

Special Monitoring Issues

Monitoring of transaction from countries with

low AML/CFT compliance?

Monitoring of large, complex and unusual
transaction?
Special attention to any particular type of
transaction?

Reporting
Regular reporting of TRR?
Any STRs reported?
Any attempted STRs reported?
Timely reporting?
Grounds of STRs mentioned in the internal

procedure?
Process for identifying, detecting and
reporting STRS and TTRs ?
Awareness among staff about STRs?
Reporting exemptions considered?

Record Keeping and

Retention
Record of reported and unreported transaction
Record to be kept in such a way that the record

can be used as an evidence, if required, by the

prosecutorial authority
Limited and controlled access to the records.
Name, address of the customer, nature and
date of transaction, type (denomination) and
amount of currency involved
Correspondences to the customer, if any.
Record for at least 5 years.

Independent Auditing
Is there independent audit of AML/CFT

compliance?
Has internal audit mentioned anything about
AML/CFT compliance?
Who does auditing?
Is there management influence on the
auditor?
Previous audit reports?

Training and AML

Awareness
Is it part of regular internal training program?
How often AML/CFT training are given?
How many staff are given this training?
Subject matter of the training?
Qualified trainers?
Is AML/CFT included in curriculum for new

recruitment as well as for any internal exams for

promotion?
Training and AML/CFT exposure of the
compliance officers, branch managers and other
staff?

Thank
You