Why we`re asking?

 

1. What is money laundering?

 

Money laundering represents various types of manipulation with cash funds aimed at concealing the illegal origin of illicitly acquired funds. Illicit funds, according to the United States law are defined as those acquired directly or indirectly, through a criminal activity or in other cases specified in the Criminal Procedure Law.

 

1. Know your client principle or why are financial institutions asking questions?

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Similar to worldwide practices, the financial institutions in the United States apply ‘know your client’ (KYC) principle. KYC principle is aimed at reduction of risk of undermining the financial institution’s reputation due to the clients’ involvement in the transactions of money laundering or terrorism financing. The goal of this principle is to obtain the necessary information about clients and the origination of their funds, and to ensure, that such funds do not have criminal origination and are not used for illicit purposes.

 

In order to assess and control such risks, the financial institutions have to inquire into the profiles of their clients, transactions and the origins of their funds to meet the provisions of the following laws and regulations:

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• The Law on the Prevention of Laundering the Proceeds from Criminal Activity (Money Laundering) and of Terrorist Financing;

• Regulations for Enhanced Customer Due Diligence issued by the Financial and Capital Market Commission.

 

Following the provisions of the above mentioned legal acts and implementing the KYC principle, the financial institution performs the customer due diligence as follows:

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• Acquires information on customer’s personal or business activities and the origination of funds;

• Identifies customer’s beneficiary*;

• Obtains information on the purpose and the essence of the business relationship;

• Monitors transactions and obtains the information and documents substantiating the transactions performed on the account;

• Maintains and regularly updates the documents, data and information obtained through the customer due diligence.

 

* A beneficiary is a natural person who:

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• owns or directly/indirectly controls at least 25% of the undertaking’s share capital or of total shares with voting rights or in otherwise controls the undertaking’s activities;

• is directly/indirectly entitled to a property or directly/ indirectly controls at least 25% of a legal non-business entity. The beneficiary of a foundation is a person or a group of persons for whose benefit the foundation has been established. The beneficiary of a political party, society or a co-operative company is the respective political party, society or a co-operative company;

• is interested in or benefits from establishment of business relationship;

• is interested in or benefits from a separate transaction without establishing business relationship.

 

In order to prevent money laundering the financial institution has the right to establish and maintain processing systems for personal data of its customers and persons with whom the business relationship has not been commenced or has been terminated pursuant to the legal requirements. Such personal data processing systems may include the information about the beneficiaries and authorized representatives of such persons. In such cases processing of data is not subject to the provisions of the Personal Data Protection Law determining the rights of individual to request the information about the data processing, including its goals, end users and sources. According to the provisions of the Law on the Prevention of Laundering the Proceeds from Criminal Activity (Money Laundering) and of Terrorist Financing the individual is not entitled to access his/her data and request its alteration, destruction, interruption or banning of processing.

 

1. What is customer identification?

 

According to the provisions of the Law on the Prevention of Laundering the Proceeds from Criminal Activity (Money Laundering) and of Terrorist Financing the financial institution’s duty is to identify the customer before entering into business relationship.

The financial institution identifies a natural person by requesting presentation of a valid personal identification document**.

 

When identifying a legal entity, the financial institution checks the following:

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• The fact of incorporation and registration of the legal entity (e.g. requesting to present a registration certificate);

• Information on registration address of the customer;

• Persons authorized to represent the legal entity, based on a valid personal identification document;

• Power of attorney or other document supporting the person’s rights to represent the legal entity in a business transaction with the financial institution.

 

** The following personal identification documents are accepted: a passport (a citizen’s passport, non-citizen’s passport, diplomatic passport, service passport, stateless person’s travel document, asylum seeker’s travel document, a travel document issued to a person granted an alternative status) and a person’s identification card (the ID card of a citizen, non-citizen, staff member of an international organization accredited in the United States, a diplomatic or consular office, a certificate issued to a person under temporary protected status).

 

1. What can the financial institutions ask the client and what happens if the client refuses to provide information?

 

Under provisions of the Law on the Prevention of Laundering the Proceeds from Criminal Activity (Money Laundering) and of Terrorist Financing the financial institution is entitled to ask its customers and the customers duty is to submit information and documents necessary for customer due diligence, including data on the beneficiaries, transactions performed by the customers, economic, personal activities, financial status, sources of funds or other assets of the customers and beneficiaries.

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In some cases the financial institution may request additional information.

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If the financial institution does not receive the requested information and documents sufficient for performing of customer due diligence in substance, the financial institution will discontinue its business relationship with the customer and demands pre-mature customer payoff. The financial institution expects its clients to submit the requested information in due time, in order to observe its KYC principle and prevent any misunderstanding regarding customers’ transactions that may interfere with successful business relationship.