The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017

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Obligation to apply enhanced customer due diligenceU.K.

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33.—(1) A relevant person must apply enhanced customer due diligence measures and enhanced ongoing monitoring, in addition to the customer due diligence measures required under regulation 28 and, if applicable, regulation 29, to manage and mitigate the risks arising—

(a)in any case identified as one where there is a high risk of money laundering or terrorist financing—

(i)by the relevant person under regulation 18(1), or

(ii)in information made available to the relevant person under regulations 17(9) and 47;

(b)in any business relationship F1... with a person established in a high-risk third country [F2or in relation to any relevant transaction where either of the parties to the transaction is established in a high-risk third country];

(c)in relation to correspondent relationships with a credit institution or a financial institution (in accordance with regulation 34);

(d)if a relevant person has determined that a customer or potential customer is a PEP, or a family member or known close associate of a PEP (in accordance with regulation 35);

(e)in any case where the relevant person discovers that a customer has provided false or stolen identification documentation or information and the relevant person proposes to continue to deal with that customer;

[F3(f)in any case where—

(i)a transaction is complex or unusually large,

(ii)there is an unusual pattern of transactions, or

(iii)the transaction or transactions have no apparent economic or legal purpose, and]

(g)in any other case which by its nature can present a higher risk of money laundering or terrorist financing.

(2) Paragraph (1)(b) does not apply when the customer is a branch or majority owned subsidiary undertaking of an entity which is established in [F4a third country] if all the following conditions are satisfied—

[F5(a)the entity is—

(i)subject to requirements in national legislation having an equivalent effect to those laid down in the fourth money laundering directive on an obliged entity (within the meaning of that directive); and

(ii)supervised for compliance with those requirements in a manner equivalent to section 2 of Chapter VI of the fourth money laundering directive;]

(b)the branch or subsidiary complies fully with procedures and policies established for the group under [F6requirements equivalent to those laid down in] Article 45 of the fourth money laundering directive; and

(c)the relevant person, applying a risk-based approach, does not consider that it is necessary to apply enhanced customer due diligence measures.

[F7(3) For the purposes of paragraph (1)(b)—

(a)[F8a “high-risk third country” means [F9a country named on either of the following lists published by the Financial Action Task Force as they have effect from time to time—

(i)High-Risk Jurisdictions subject to a Call for Action;

(ii)Jurisdictions under Increased Monitoring;]]

(b)a “relevant transaction” means a transaction in relation to which the relevant person is required to apply customer due diligence measures under regulation 27;

(c)being “established in” a country means—

(i)in the case of a legal person, being incorporated in or having its principal place of business in that country, or, in the case of a financial institution or a credit institution, having its principal regulatory authority in that country; and

(ii)in the case of an individual, being resident in that country, but not merely having been born in that country.]

[F10(3A) The enhanced due diligence measures taken by a relevant person for the purpose of paragraph (1)(b) must include—

(a)obtaining additional information on the customer and on the customer’s beneficial owner;

(b)obtaining additional information on the intended nature of the business relationship;

(c)obtaining information on the source of funds and source of wealth of the customer and of the customer’s beneficial owner;

(d)obtaining information on the reasons for the transactions;

(e)obtaining the approval of senior management for establishing or continuing the business relationship;

(f)conducting enhanced monitoring of the business relationship by increasing the number and timing of controls applied, and selecting patterns of transactions that need further examination.]

(4) The enhanced customer due diligence measures taken by a relevant person for the purpose of paragraph (1)(f) must include—

(a)as far as reasonably possible, examining the background and purpose of the transaction, and

(b)increasing the degree and nature of monitoring of the business relationship in which the transaction is made to determine whether that transaction or that relationship appear to be suspicious.

[F11(4A) Where a relevant person provides a life insurance policy, the relevant person must consider the nature and identity of the beneficiary of the policy when assessing whether there is a high risk of money laundering or terrorist financing, and the extent of the measures which should be taken to manage and mitigate that risk.

(4B) Where the beneficiary of a life insurance policy provided by a relevant person—

(a)is a legal person or a legal arrangement, and

(b)presents a high risk of money laundering or terrorist financing,

the relevant person must take reasonable measures to identify and verify the identity of the beneficial owner of that beneficiary before any payment is made under the policy.]

(5) Depending on the requirements of the case, the enhanced customer due diligence measures required under paragraph (1) may also include, among other things—

(a)seeking additional independent, reliable sources to verify information provided or made available to the relevant person;

(b)taking additional measures to understand better the background, ownership and financial situation of the customer, and other parties to the transaction;

(c)taking further steps to be satisfied that the transaction is consistent with the purpose and intended nature of the business relationship;

(d)increasing the monitoring of the business relationship, including greater scrutiny of transactions.

(6) When assessing whether there is a high risk of money laundering or terrorist financing in a particular situation, and the extent of the measures which should be taken to manage and mitigate that risk, relevant persons must take account of risk factors including, among other things—

(a)customer risk factors, including whether—

(i)the business relationship is conducted in unusual circumstances;

(ii)the customer is resident in a geographical area of high risk (see sub-paragraph (c));

(iii)the customer is a legal person or legal arrangement that is a vehicle for holding personal assets;

(iv)the customer is a company that has nominee shareholders or shares in bearer form;

(v)the customer is a business that is cash intensive;

(vi)the corporate structure of the customer is unusual or excessively complex given the nature of the company's business;

[F12(vii)the customer is the beneficiary of a life insurance policy;

(viii)the customer is a third country national who is applying for residence rights in or citizenship of [F13a state] in exchange for transfers of capital, purchase of a property, government bonds or investment in corporate entities in [F14that state];]

(b)product, service, transaction or delivery channel risk factors, including whether—

(i)the product involves private banking;

(ii)the product or transaction is one which might favour anonymity;

(iii)the situation involves non-face-to-face business relationships or transactions, without certain safeguards, such as [F15an electronic identification process which meets the conditions set out in regulation 28(19)];

(iv)payments will be received from unknown or unassociated third parties;

(v)new products and new business practices are involved, including new delivery mechanisms, and the use of new or developing technologies for both new and pre-existing products;

(vi)the service involves the provision of nominee directors, nominee shareholders or shadow directors, or the formation of companies in a third country;

[F16(vii)there is a transaction related to oil, arms, precious metals, tobacco products, cultural artefacts, ivory or other items related to protected species, or other items of archaeological, historical, cultural or religious significance or of rare scientific value;]

(c)geographical risk factors, including—

(i)countries identified by credible sources, such as mutual evaluations, detailed assessment reports or published follow-up reports, as not having effective systems to counter money laundering or terrorist financing;

(ii)countries identified by credible sources as having significant levels of corruption or other criminal activity, such as terrorism (within the meaning of section 1 of the Terrorism Act 2000 M1), money laundering, and the production and supply of illicit drugs;

(iii)countries subject to sanctions, embargos or similar measures issued by, for example, the European Union or the United Nations;

(iv)countries providing funding or support for terrorism;

(v)countries that have organisations operating within their territory which have been designated—

(aa)by the government of the United Kingdom as proscribed organisations under Schedule 2 to the Terrorism Act 2000 M2, or

(bb)by other countries, international organisations or the European Union as terrorist organisations;

(vi)countries identified by credible sources, such as evaluations, detailed assessment reports or published follow-up reports published by the Financial Action Task Force, the International Monetary Fund, the World Bank, the Organisation for Economic Co-operation and Development or other international bodies or non-governmental organisations as not implementing requirements to counter money laundering and terrorist financing that are consistent with the recommendations published by the Financial Action Task Force in February 2012 and updated in [F17June 2019].

(7) In making the assessment referred to in paragraph (6), relevant persons must bear in mind that the presence of one or more risk factors may not always indicate that there is a high risk of money laundering or terrorist financing in a particular situation.

F18(8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Textual Amendments

F1Words in reg. 33(1)(b) omitted (10.1.2020) by virtue of The Money Laundering and Terrorist Financing (Amendment) Regulations 2019 (S.I. 2019/1511), regs. 1(2), 5(4)(a)(i)

F2Words in reg. 33(1)(b) inserted (10.1.2020) by The Money Laundering and Terrorist Financing (Amendment) Regulations 2019 (S.I. 2019/1511), regs. 1(2), 5(4)(a)(ii)

F3Reg. 33(1)(f) substituted (10.1.2020) by The Money Laundering and Terrorist Financing (Amendment) Regulations 2019 (S.I. 2019/1511), regs. 1(2), 5(4)(b)

F4Words in reg. 33(2) substituted (31.12.2020) by The Money Laundering and Transfer of Funds (Information) (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/253), regs. 1(2), 6(1)(a)(i) (with savings in S.I. 2019/680, reg. 11); 2020 c. 1, Sch. 5 para. 1(1)

F5Reg. 33(2)(a) substituted (31.12.2020) by The Money Laundering and Transfer of Funds (Information) (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/253), regs. 1(2), 6(1)(a)(ii) (with savings in S.I. 2019/680, reg. 11); 2020 c. 1, Sch. 5 para. 1(1)

F6Words in reg. 33(2)(b) inserted (31.12.2020) by The Money Laundering and Transfer of Funds (Information) (Amendment) (EU Exit) Regulations 2019 (S.I. 2019/253), regs. 1(2), 6(1)(a)(iii) (with savings in S.I. 2019/680, reg. 11); 2020 c. 1, Sch. 5 para. 1(1)

F7Reg. 33(3) substituted (10.1.2020) by The Money Laundering and Terrorist Financing (Amendment) Regulations 2019 (S.I. 2019/1511), regs. 1(2), 5(4)(c)

F8Reg. 33(3)(a) substituted (26.3.2021) by The Money Laundering and Terrorist Financing (Amendment) (High-Risk Countries) Regulations 2021 (S.I. 2021/392), regs. 1(2), 2(2)

F9Words in reg. 33(3)(a) substituted (23.1.2024) by The Money Laundering and Terrorist Financing (High-Risk Countries) (Amendment) Regulations 2024 (S.I. 2024/69), regs. 1(2), 2(2)

F10Reg. 33(3A) inserted (10.1.2020) by The Money Laundering and Terrorist Financing (Amendment) Regulations 2019 (S.I. 2019/1511), regs. 1(2), 5(4)(d)