What is a DNFBP?
DNFBP stands for "Designated Non-Financial Business or Profession"(DNFBP). Certain types of "non-financial" businesses have been identified as being susceptible to money laundering and terrorist financing due to the nature of their business and the transactions that they may conduct. The following class of persons whose business or profession is carried on in or from the DIFC is a DNFBP:
- Real estate developers and agents that carry out transactions with a customer involving the buying or selling of real property;
- Dealers in precious metals and dealers in precious stones;
- Dealers in any saleable item of a price equal to or greater than USD $15,000 high-value goods;
- Law firms, notary firms and other independent legal businesses;
- Accounting firms, audit firms or insolvency firms;
- Company service providers that carry out any of the following activities for a customer:
i. acting as a formation agent of legal persons;
ii. acting as (or arranging for another person to act as) a director or secretary of a company, a partner of a partnership, or a similar position in relation to other legal persons;
iii. providing a registered office, business address or accommodation, correspondence or administrative address for a company, a partnership or any other legal person or arrangement;
iv. acting as (or arranging for another person to act as) a nominee shareholder for another person; or
- Sole Trader
Why are DNFBPs being registered by the DCI?
The DCI was designated as the supervisory body for the DNFBPs effective March 2nd 2017 and is authorize to regulate institutions and individuals who conduct financial or non-financial services in the Cayman Islands to ensure they are compliant with recommendations of the FATF relating to AML/CFT. Money launderers and terrorist financiers are continuously looking for new methods of disguising their funds; they will actively seek to exploit weaknesses in AML systems and controls and will gravitate to countries and financial systems with weak or ineffective controls. Importantly, it is not just the financial sector which is at risk of being misused by money launders and terrorist financiers. The non-financial sector (DNFBP) including jewelers, dealers in high value goods, lawyers, accountants, real estate developer/agents, company service providers are also vulnerable. The DCI, therefore, has put in place measures to prevent and deter money laundering by requiring DNFBPs to be registered with the DCI and to have systems and controls in place to scrutinize transactions and report suspicious behaviour. DNFBPs are also required to comply with specified sections of the AMLRs.
What is FATF?
(A) The Financial Action Task Force (FATF) is an independent inter-governmental body that develops and promotes policies to protect the global financial system against money laundering, terrorist financing and the financing of proliferation of weapons of mass destruction.
What is money Laundering?
Money laundering describes the method by which criminals process money obtained from their criminal activities ("dirty") to look legitimate ("clean"). They aim to introduce their "dirty money" into the financial system without detection or arousing suspicion. Once their "dirty money" is in the financial system, it can be transferred between different bank accounts or financial products in The Cayman Islands or abroad, or used to purchase goods and services. The aim of money laundering is to make this "dirty money" look like it has come from a legitimate source, and therefore difficult to connect the money with its criminal past.
What is Terrorist Financing? (A)
Terrorist Financing is the financial support of terrorists, or those who encourage, plan or engage in terrorism.
Terrorist financing may involve funds raised from legitimate sources, such as personal donations and profits from businesses and charitable organizations. It may also be drawn from criminal sources, such as the drug trade, the smuggling of weapons and other goods, fraud, kidnapping or extortion. People who finance terrorism often use similar methods and tools to those used for money laundering.
What is an AML/CFT programme
An AML/CFT programme sets out a reporting entity’s internal policies, procedures and controls to detect money laundering and financing of terrorism and to manage and mitigate the risk of it occurring. The programme must be in writing and be based on its risk assessment.
Certain elements of a programme are specifically required by the regulations, including:
- Vetting senior managers and AML staff;
- Training senior managers and AML staff;
- Customer Due Diligence, including enhanced CDD and simplified CDD;
- Reporting suspicious transactions;
- Monitoring and record keeping; and
- Monitoring and managing compliance with the AML/CFT programme.
Risk-based systems and controls should be based on the nature, size and complexity of a reporting entity’s business, along with any money laundering and financing of terrorism risks it may face.
What is Risk Assessment?
Reporting entities are required to assess the money laundering and financing of terrorism risk that they may reasonably expect to face in the course of their business. In making this assessment, the regulations requires that a reporting entity considers:
- The nature, size and complexity of its business;
- The products and services it offers;
- The methods by which it delivers products and services to its customers;
- The types of customers it deals with;
- The countries it deals with;
- The institutions it deals with;
- Any guidance material produced by supervisors; and
- Any other factors that are set out in regulations.
Reporting entities should consider whether any of their products involve new or developing technologies that may favour customer anonymity. The regulations also specify that reporting entities should consider particular activities, such as wire transfers and correspondent banking relationships.
What is customer due diligence?
Customer Due Diligence (CDD) involves:
- 1.Gathering information about customer identity; and
- 2.Verifying a customer's identity, to ensure the customer is who they say they are.
In many cases, reporting entities also need to establish the identity of the beneficial owner, meaning the person who ultimately controls the customer.
What is ongoing customer due diligence?
Ongoing Customer Due Diligence means regularly reviewing customer information and having systems to conduct account monitoring. This is required for all customers, including existing customers.
What are PEPs?
"Politically-Exposed Persons" (PEPs) are individuals who, by virtue of their position in public life, may be vulnerable to corruption. The New Zealand legislation currently limits this concept to foreign PEPs, and does not include domestic (New Zealand-based) PEPs. Reporting entities are required to give specific consideration to the risks involved with PEPs and so should:
- Have procedures in place to determine whether a customer, or a beneficial owner of a customer, is a PEP or a close associate of a PEP;
- Obtain senior management approval for establishing or maintaining business relationships with PEPs;
- Take reasonable measures to establish the source of wealth and source of funds of PEPs; and
- Conduct enhanced, ongoing monitoring of the business relationship.
Basic obligations imposed on reporting entities include:
Assessing the money laundering and financing of terrorism risk that it may reasonably expect to face in the course of its business; establishing, implementing and maintaining an AML/CFT Programme (procedures, policies and controls) to detect, manage and mitigate the risk of money laundering and the financing of terrorism; customer due diligence (identification and verification of identity) and ongoing CDD; suspicious transaction reporting; and record keeping.
What are the AML/CFT supervisory body looking for?
The AML/CFT supervisors are focusing on whether the reporting entity has an appropriate and reasonable risk assessment, and an AML/CFT programme that reflects and controls those risks. The AML/CFT supervisors take a risk-based approach to supervision - selecting from the supervision and enforcement tools available. Supervision will take into account the nature of the business and the risks that each reporting entity is managing.