CCL Regulatory Update: Middle East Edition - December 2016
MENA Publications, Written by Carwyn Evans
22/01/2017

1.0 DFSA LATEST DEVELOPMENTS

1.1 DFSA Make Amendments to Legislation
1.2 DFSA Hold Cyber-Risk Outreach Session

2.0 MIDDLE EAST REGULATORY UPDATES

2.1 Agreements Signed Between India and Qatar
2.2 Islamic Banks Urged to Become More Risk Aware
2.3 MoU Signed Between Middle Eastern Stock Exchanges
2.4 New Bank Account Opening Regulations for UAE

3.0 INTERNATIONAL DEVELOPMENTS

3.1 FATF Report on the US
3.2 FATF Report on Switzerland
3.3 European Commission Approve Anti-Tax Evasion Measures
3.4 India and Indonesia Make Financial Crime Combating Agreements
3.5 HMRC Develop Online System for AML
3.6 European Commission’s CTF Proposals

4.0 FINANCIAL CRIME

4.1 Axis Bank Limited Freeze Suspicious Accounts
4.2 UBS Involvement in Fraudulent Network

5.0 ENFORCEMENT ACTION

5.1 Two Financial Institutions Fined by FINRA

5.2 NYSDFS Fine Intesa Sanpaolo
5.3 Two Financial Institutions Fined by MAS
5.4 Two Financial Institutions Fined by SARB
5.5 DBS Hong Kong Employees Reprimanded for Misuse of Personal Data
5.6 Two Financial Institutions Fined by FINRA

1.0 DFSA LATEST DEVELOPMENTS

1.1 DFSA Make Amendments to Legislation

Further to the June and September 2016 editions of our Middle East Regulatory Updates, the Dubai Financial Services Authority (DFSA) has made substantial amendments to the following Rulebooks and Guidance Instrument which will come into effect on February 1st 2017:

AMI GEN
AML GLO
AUD IFR
CIR MKT
CMC PIB
COB REC
FER REP

For support analysing, interpreting and then applying these changes to your  compliance framework, please contact CCL. Please also bear in mind that changes may have been made to the legislation originally proposed in the relevant consultation papers 106,107, and 108.

1.2 DFSA Hold Cyber-Risk Outreach Session

The Dubai Financial Services Authority (DFSA) hosted an outreach session last month on cyber-risks. Discussions were held with regards to emerging trends, as well as techniques for detecting and preventing cyber-attacks. The DFSA also communicated that it expected Firms to take risk-mitigating action not only with regards to their own cyber-security arrangements but those of their third-party providers too. Given the steady rise in cyber-crime, the DFSA made clear that cyber-risk management resourcing should be a focal point for Firms and that it should be on the agenda of both governing bodies and senior management.

Further information

If you would like to discuss these latest developments in more detail, please contact:
Carwyn Evans (CEvans@cclcompliance.com)


2.0 MIDDLE EAST REGULATORY UPDATES

2.1 Agreements Signed Between India and Qatar

A number of bilateral agreements were made between India and Qatar last month. This included a resolution to work collaboratively against money laundering and terrorist financing. Additionally, a Memorandum of Understanding was signed for cooperation in combating cybercrime, as well as a joint venture to bolster investment revenue.

2.2 Islamic Banks Urged to Become More Risk Aware

The Governor of the Central Bank of Bahrain has urged Islamic banks to strengthen their risk-management practices as they – in particular because of their generally small size – face challenges in the current, unreliable economic climate. Mr. Rasheed Mohammed Al Maraj went on to explain that this means that procedures should be maintained, that companies should have an acute awareness of the risks and weaknesses to which their businesses are exposed, and that stringent mitigating systems and controls need to be established and frequently stress-tested. He also expressed that it was important for firms to understand that having risk awareness does not mean firms should become risk-averse.

2.3 MoU Signed Between Middle Eastern Stock Exchanges

A Memorandum of Understanding (MoU) has been signed between Nasdaq Dubai and the Amman Stock Exchange for cooperation in facilitating the exchange of information, the sharing of expertise and to implement dual listings.

2.4 New Bank Account Opening Regulations for UAE

The UAE Central Bank has issued new regulations which require banks to review the personal identification of individuals (and retain a ‘true copy’) attempting to open a bank account. It is this name which should be used for the account opening and it is now strictly prohibited for banks to “open accounts with assumed names or numbers”.

Further information
If you would like to discuss these updates in more detail, please contact:
Christopher Hobbs (CHobbs@cclcompliance.com)


3.0 INTERNATIONAL DEVELOPMENTS

3.1 FATF Report on the US

Following an assessment of the US’ anti-money laundering (AML) and counter-terrorism financing (CTF) framework, the Financial Action Task Force (FATF) has released a report which details its findings. Predominantly positive, the evaluation concluded that the US has established a sufficiently robust legal regime to manage the substantive financial risks to which it is exposed as a by-product of the dollar’s “global dominance”.

Further to this, and as well as recognising the progress it has made in AML and CTF measures, FATF noted the effectiveness of the country’s authorities and dedicated agencies, the success of which is derived from their fundamental quality of coordination and a cross-agency approach to combating financial crime.

In addition, FATF commended the US’ use of financial sanctions to inhibit criminals from accessing the world’s financial system.

This having been said, FATF also pointed to some areas for improvement such as the country’s:

  • Limited oversight of investment advisers, lawyers, accountants, real-estate agents, and trust and company-service providers; and
  • Lack of, and poor access to, beneficial ownership information.

3.2 FATF Report on Switzerland

The Financial Action Task Force (FATF) has conducted an assessment of the anti-money laundering (AML) and counter-terrorism financing (CTF) regime in Switzerland, deeming it to be generally proficient. The international body recognised the improvements that the European country has made in legislative reforms and the output from its enforcement authorities. However, FATF did report that these authorities needed to address some identified weaknesses in their suspicious activity reporting and that the country should remedy the AML/CTF statutory application deficiencies that have recently led to the imposition of misconduct sanctions.

3.3 European Commission Approve Anti-Tax Evasion Measures

Tax authorities in the European Union will now be granted access to invaluable information following a decision last month by the European Commission (EC). Access to customer due diligence and beneficial ownership information will help member states to identify and prevent incidences of tax evasion, a generally recognised predicative offence to money laundering. This legislation should come into effect by January 2018.

3.4 India and Indonesia Make Financial Crime Combating Agreements

At a meeting between leaders from India and Indonesia last month, it was resolved that the two sides would work together to improve efforts combating terrorism financing, money laundering, cybercrime and other related, illegal activity.

3.5 HMRC Develop Online System for AML

Her Majesty’s Revenue and Customs (HMRC) – a UK Government department – is developing an online system to complement anti-money laundering (AML) supervision. Testing of the new platform has indicated that it will:

  • better meet customer needs;
  • allow all HMRC registrations, renewals, updates and payments to be made online; and
  • reduce errors and ‘rejected’ applications as these will be flagged instantly by the new system, thus avoiding forms being returned for re-submission.

3.6 European Commissions’s CTF Proposals

Following a terrorist attack on a Berlin Christmas market in December, the European Union (EU) is once again looking at ways to block off avenues for terrorism financing. The most recent proposal of the European Commission (EC) seeks a “tightening of controls on cash and precious metal transfers from outside of the EU”. This would include checks on prepaid cards entering the region and would bestow greater powers to authorities, permitting them to seize cash or precious metals that come in below customs’ declarable value – providing they have suspicion of criminal activity.

Other counter-terrorism financing (CTF) suggestions include:

  • Setting up an EU-focused ‘Terrorist Finance Tracking Programme’ which would grant authorities extensive powers to monitor bank transfers made by the public;
  • Implementing rules for freezing “terrorist financial resources” and confiscating assets from individuals who are associated with criminals;
  • Implementing common standards in the EU so comparative gaps between countries’ legislations cannot be exploited;
  • Improving information sharing capabilities; and
  • Imposing identification requirements for transactions of EUR 150 or more, made with prepaid cards.

Further information
If you would like to discuss these updates in more detail, please contact:
Nigel Pasea (NPasea@cclcompliance.com)


4.0 FINANCIAL CRIME

4.1 Axis Bank Limited Freeze Suspicious Accounts

Axis Bank Limited (India) has suspended some of its accounts and submitted reports to the Indian Financial Intelligence Unit after having been alerted to suspicious activity by its employees. This rigorous adoption of compliance procedures has subsequently led to further investigation by financial crime agencies.

4.2 UBS Involvement in Fraudulent Network


The French National Financial Prosecutor has alleged that UBS France, UBS Switzerland and six former bankers have approached wealthy individuals in France (without authorisation to do so) and persuaded them to place their assets in Switzerland – whether declared or not. It is further claimed that this movement of funds was disguised using “double accounting methods” and that there is proof enough to demonstrate complicity by UBS France. It has been be alleged that as much as 80% of the EUR 13 billion of capital held by UBS Switzerland, belonging to French clients, is undeclared.

Further information
If you would like a more detailed discussion on these or other enforcement actions, please contact:
Carwyn Evans (CEvans@cclcompliance.com)


5.0 ENFORCEMENT ACTION

5.1 Two Financial Institutions Fined by FINRA

The US Financial Industry Regulatory Authority (FINRA) has fined Credit Suisse Securities (USA) LLC USD 16,500,000 as a result of anti-money laundering (AML) failures. It was reported that there were unaddressed deficiencies in the suspicious activity reporting of brokers and inadequacies in the systems the company used for monitoring transactions.

In a separate case last month, FINRA also fined Citi International Financial Services (CIFS) USD 5,750,000 for inadequate AML systems. The regulator identified that the firm had failed to appropriately mitigate the heightened risks posed by its non-US securities operations, which ultimately facilitated currency conversions. As such, FINRA deemed that CIFS’s framework was not befitting of its business and that the company had failed to sufficiently monitor suspicious transactions.

5.2 NYSDFS Fine Intesa Sanpaolo

The New York State Department of Financial Services (NYSDFS) has fined the New York branch of Intesa Sanpaolo USD 235,000,000 due to anti-money laundering and bank secrecy law breaches. The regulator found that the bank’s subpar transaction monitoring had failed to identify suspicious activity involving shell companies. Furthermore, it was reported that staff were being trained to actively carry out and cover up Iranian transactions with possible links to sanctioned entities.

As part of the enforcement action, the bank has agreed to update its compliance policies and obtain an independent consultant who will review transactions conducted since 2014 to uncover anymore negligent behaviour, and resultant legislatively non-compliant activity.

5.3 Two Financial Institutions Fined by MAS

The Monetary Authority of Singapore (MAS) fined both Standard Chartered Singapore and Coutts & Co last month for anti-money laundering breaches in connection with the 1MDB saga. The penalties levied were SGD 5,200,000 and SGD 2,400,000 respectively.

MAS has stated that it found ‘significant lapses’ in the customer due diligence and on-going monitoring procedures at Standard Chartered which was attributed to inadequate policies, lack of oversight and poor understanding of money laundering risks.

At Coutts, the firm’s failure to aptly conduct enhanced due diligence on politically exposed persons caused the regulator to take enforcement action.

5.4 BSI Bankers Held Personally Accountable in 1MDB Saga

Three ex-BSI bankers have been found guilty – as the 1MDB scandal continues – on numerous charges including forgery, witness-tampering and not registering suspicious transactions with the regulator. Ensuing fines and prison sentences have been imparted with more expected as additional charges of money-laundering and cheating are brought before the court this year.

5.5 Two Financial Institutions Fined by SARB

The South African Reserve Bank (SARB) has fined the Johannesburg branch of Société Générale and Absa Bank Limited ZAR 2,000,000 and ZAR 10,000,000 respectively. The penalties were the result of the following anti-money laundering and counter-terrorism financing failures:

Absa Bank Limited – weaknesses in transaction monitoring systems; and
Société Générale – inadequate customer due diligence information and maintenance thereafter.

5.6 DBS Hong Kong Employees Reprimanded for Misuse of Personal Data


Twenty employees of DBS Hong Kong have been approached by the Independent Commission Against Corruption in connection with an investigation relating to the illegal processing of customers’ personal data, by an unauthorised call centre in China. Both the Hong Kong Monetary Authority and the Monetary Authority of Singapore (DBS’ home state financial regulator) have been made aware of the case and are expected to carry out their own studies, potentially leading to further enforcement action and/or fiscal fines.

Further information
If you would like a more detailed discussion on these or other enforcement actions, please contact:
Carwyn Evans (CEvans@cclcompliance.com)

Carwyn Evans

Director, Consultancy
Dubai