Kathmandu. The Securities Board of Nepal (SEBON) has issued a new directive to prevent money laundering and terrorist financing. SEBON has issued the ‘Prevention of Money Laundering and Terrorist Financing Directive, 2083’. It includes the identification of customers, monitoring of transactions and suspicious activities.
According to SEBON’s instructions, if securities of Rs 10 lakh or more are traded once or repeatedly in a single day, the concerned institution will have to submit a report to the Financial Information Unit within 15 days of the transaction. Such a report should be sent electronically.
The directive provides that the identity and details of the customer should be verified and recorded. The customer’s name, date of birth, citizenship or national identity card number, address, PAN number, bank account, profession, income and investment details should be kept as per the requirement. When dealing with a company or institution, the real beneficiary, the owner and the controlling person should also be identified. There is a provision to keep the details of the guardian in the account of the minor.
The transactions of politically influential people, their family members and close associates will be monitored as high risk. Foreign politically influential persons and those holding important positions in international organizations will also be subject to surveillance. Public records and available information should be examined to identify such persons and their records should be kept for at least 10 years after the date of leaving office or terminating their business relationship. The details of the national identity card should be updated in the concerned account within six months from the date of issuance of the directive.
The organization should conduct a risk assessment on the basis of customer, turnover, geographical region, products, services and medium of transaction. On the basis of risk, customers should be divided into high, medium and low categories and monitored. The details of high-risk customers should be updated at least once a year and an institutional risk assessment report should be prepared during the first quarter of each fiscal year. There is also a provision for an annual review of such an evaluation by an independent third party.
Unusual electronic transactions, assets of customers, transactions that may be related to corruption or tax evasion, relationships with high-risk countries, cash-based businesses, and the use of new financial technologies or tools should be considered as risk indicators. Evidence to confirm the source of funds and the purpose of the transaction will be obtained from high-risk customers. Approval from senior management will be required to establish or maintain a business relationship with such customers.
If there is a transaction or activity that may be related to money laundering or financial investment in terrorist activities, the concerned entity should investigate and submit a suspicious transaction report or suspicious activity report to the Financial Information Unit. Such a report should be sent through the prescribed system as soon as possible. In case of any suspicious transaction, the report should be submitted within three days. If there is a situation where suspicious information can be reached to the customer, the report should be submitted without proceeding with the identification process.
The activities of making business payments from the personal account of the unrelated person or using the personal savings account for business transactions should also be monitored. The payment between the securities institution and the customer should be done by cheque or electronic in the name of the person receiving the account. If the money has come from the account of the unrelated person, the reason and relationship should be investigated.
The directive states that regular secondary market transactions in the name of minors, transactions without change of actual ownership, transactions prohibited by securities laws, transactions related to securities related offences, transactions related to right shares, transactions related to right shares and large volume transactions outside the trading system should be monitored. The organization can also put other transactions under special surveillance on the basis of risk.
The organization will have to formulate separate policies and procedures to prevent the financial investment in the manufacture and expansion of terrorist acts and weapons of mass destruction. According to the list and sanctions provisions made public by the Ministry of Home Affairs and the United Nations Security Council, customers, real beneficiaries, owners and transactions will have to be examined. Money, assets, securities and accounts of the listed individuals, groups or organizations will have to be frozen in accordance with the law. Information regarding the withholding or release should be given to the board within three days and a copy of it should be sent to the Financial Information Unit. The relevant legal procedures and orders will have to be followed while releasing the property.
The Financial Action Task Force will have to exercise extra caution in transactions related to countries identified as high-risk or require additional oversight. The directive also includes a provision for continuous monitoring in accordance with Chapter 6A of the Prevention of Money Laundering Act and related regulations.
The organization should implement internal policies, procedures and control systems related to the prevention of money laundering and terrorist financing and appoint a compliance officer at the management level. The details of the compliance officer should be made available to the board and the financial information unit and updated as needed. The directors, top management and employees should be given training or orientation every year and the code of conduct should be enforced. Internal and external audits should also include whether these provisions have been complied with.
According to the directive, the organization has to submit the half-yearly report to the board within 15 days of the expiry of the relevant period and the annual report within two months of the end of the financial year. The audit or test report regarding compliance has to be prepared within six months of the end of the financial year.
If the directive is violated, action and fine can be taken as per the prevailing law and applicable rules. The concerned organization should be given at least 15 days to present its opinion before taking action or imposing a fine. If the response received is not satisfactory, action can be taken as per the law.
The board has issued a new directive repealing the previous directive on the prevention of money laundering and financing of terrorist activities in the year 2076. The new provision aims to make the real identity of the customer, source of funds, purpose of the transaction and monitoring of suspicious financial activities more systematic in the securities market.
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