Anti-Money laundering – Central Bank of Kuwait – Circular to all local banks dated 23 October, 2002

Instructions No. (2/SB/92/2002)
Concerning Anti-Money Laundering &
Countering the Financing of Terrorism (AML/CFT) Operations

Introduction:

Money laundering and the financing of terrorism are disturbing phenomena daunting concerned international institutions*, and all the countries of the world, due to their devastating economic, social and political impacts. As a result, the world community has exerted significant efforts to curb these operations and mitigate their effects. These efforts led to the adoption of a number of relevant standards and recommendations. The above-mentioned international institutions follow up efforts of various countries to ensure adherence to the said standards and recommendations, and take measures against non-compliant countries.

The banking and financial institutions are the most targeted by money launderers and terrorists to conceal their identity and the sources of their funds. Therefore, all units under the supervision of CBK should realize the dangers associated with money laundering operations and financing of terrorism, and take necessary precautions to prevent themselves from being exploited in carrying out such operations, and totally comply with local and international requirements in this regard to avoid the negative impact on the State of Kuwait on the one hand and on its banking and financial institutions on the other hand.

In view of the above, and in accordance with Law No. 32 of the year 1968 concerning currency, the Central Bank of Kuwait and organization of the banking business, Law No. 35 of the year 2002 concerning combating money laundering operations, and relevant ministerial decisions and international resolutions on countering the financing of terrorism, banks operating in the State of Kuwait shall abide by the following:

  • Banks shall not maintain or open any anonymous accounts or accounts in false or symbolic names. These accounts include all kinds of accounts offered by banks, such as current, savings, trust, various types of deposits, financial and investment portfolio accounts and other accounts.
  • Banks shall have a written policy that is endorsed by the board of directors and includes the minimum information and data that should be obtained prior to approval of opening accounts for customers. This information and data include identity of the customer, his profession or business, sources of income, purpose of opening the account, etc.
  • Banks shall not open any of the accounts mentioned in item (1) above unless copies of official identification documents are obtained as follows:
    • Civil Identification Card (CID) for Kuwaiti individuals and non-Kuwaiti individuals resident in the State of Kuwait, provided the card is valid
    • Travel document for non-Kuwaiti individuals and non-residents, provided it is valid
    • icense issued by the Ministry of Commerce & Industry to a proprietary establishment, in addition to the Civil Identification Card (CID) of the owner of the establishment, provided it is valid
    • Articles of association and memorandum of association, attested by competent State bodies, for all companies, provides these documents are valid
    • Confirmatory papers, attested by competent State bodies, for non-resident institutions and companies

    For customers not mentioned above, banks shall have to obtain approved official identification documents attested by competent official authorities or bodies that issue these documents

  • For walk – in – customers, those who do not have accounts or an existing relationship with the bank and request a service or a deal or a transaction with the bank (such as currency exchange, remittance abroad, rental of a safe deposit box, or other services), the bank shall obtain, before carrying out these services and transactions, the identification documents as mentioned above in item (3). The bank shall refrain from carrying out the transaction in case a copy of the customer’s identification document is not obtained.
  • Banks shall ensure the following for all new accounts of various types as well as for existing accounts:
    • For individual customers, an affidavit shall be obtained upon opening the account stating that the customer himself is the beneficiary owner of the account opened in his name.
    • Where a customer opens an account on behalf of another party, documents supporting the nature and scope of legal representation shall be obtained. This applies to accounts opened by lawyers or law offices on behalf of their clients, whereby banks shall have to obtain the name(s) of client(s) who are the beneficiary owner(s) of these accounts supported by necessary legal documents.
    • For corporate bodies, their existence, their premises and the names of their authorized managers should be verified. Also, it should be verified that persons representing the institution/ company have proper legal authorization according to valid official documents. The identity of those authorized persons should be verified as well.
    • For companies managing and/or maintaining trust fund, banks shall take necessary measures to verify that these companies are licensed to manage and/or maintain trust funds and that they are legally bound to verify the identity and the businesses of their clients whose funds they manage or maintain.
    • In case of a doubt that the customer is not operating the account for himself but rather on behalf of someone else, and if the customer does not respond to the bank’s demand for provision of legal documents revealing the real beneficiary owner of that account, the bank shall have to immediately close the account taking into consideration any mandatory obligations or legal measures that need to be observed.
  • Banks should regularly update the basic information on their customers and the businesses thereof to take note of any significant changes in these information. It is important that banks verify, using appropriate means, the information provided by the customers, and that these banks have written policy on these update and verification methods, endorsed by their boards of directors.
  • Records should be kept of all papers and documents relating to transactions carried out by banks locally or externally, including copies of identity cards of customers and documents supporting transactions and correspondence, for a period of at least five years from transaction date. These records should include all basic information on these transactions such as the amount of transaction, currency or currencies involved, relevant parties, type of transaction and its purpose, and other data and information.
  • For all kinds of accounts, deals or contracts that have been closed, completed or matured by banks, records thereof should be kept for five years from the date of closure, completion or maturity.

  • Sufficient care shall be taken to identify risks involved in usage of modern technologies in money laundering and the financing of terrorism operations. In particular, in hiding the identity of transactor and the sources of funds in the transaction. Appropriate measures shall be taken when necessary to prevent usage of such methods. In this regards, banks shall abide by the following:
    • For internal and external electronic remittances, remittance documents shall include the name of the remitter person or entity, his account number (in case remittance is made from an account) or the identity card number (in case remittance is not made from an account), the amount, name and address of beneficiary person / entity, his account number (in case remittance is made to an account). In case these information are not available, banks shall not carry out the remittance.
    • For on-line or internet transactions, these instructions shall be followed especially with regard to the personal identity and basic customer information.
  • When banks carry out transactions on their own account or on behalf of their clients through foreign correspondents, dealing should be limited to correspondents properly licensed to carry out such transactions by official authorities in countries where these correspondents are located.
  • Banks shall pay extra special attention to large and complex operations and deals, and all kinds of extraordinary deals that have no apparent or visible economic or lawful purpose, are inconsistent with the customer’s business or the average credit and debit amounts in his accounts, or give rise to suspicion about their nature, objectives or sources of funds. In particular, the recurring large cash amounts which owners try to exchange or remit internally or abroad.
  • In above cases, the bank shall set aside the funds related to the suspicious transaction in a suspense account for not more than two working days during which it shall carry out an investigation and gather information on the suspicious transaction and the parties involved, and record its results in writing.

    In case it is revealed to the bank that the investigated transaction and the funds involved therein are clean and justified by supporting documents, the bank shall carry out the transaction according to usual banking practice.

    If the investigation results confirm doubts about the transaction and the involved funds, the bank shall notify the Public Prosecution about the details of the suspicious transaction, while simultaneously sending a copy of the notification and its details to CBK for information.

    In any case, the bank shall prepare a report with full details of the transaction and the bases of its decision to allow the transaction or forward it to the Public Prosecution, taking into account the total responsibility borne by the bank for its decision and the effects thereof, as it may be held accountable by competent authorities if found negligent in taking appropriate measures to ascertain the soundness of the transaction subject to investigation.

  • Connected to item (10) above, in case the bank has doubts about an operation or account or activity of a customer, and when such doubts require and investigation by the bank to ascertain their seriousness by obtaining documents or evidence in support of these doubts, and when this requires the unawareness on the part of the relevant customer of the bank’s investigation process until its conclusion, bank officers and employees shall not caution that customer and relevant parties about bank’s moves.
  • Measures indicated in items (10) and (11) above shall apply to all transactions the bank suspects to be money laundering or the financing of terrorism, regardless of the size of involved funds.
  • All banks shall actively coordinated amongst themselves with regard to suspicious transactions that are sought with any of them, and the method of warning other banks and relevant parties. In this regard, banks shall immediately hold a meeting upon receiving such information to coordinate their response.
  • To strengthen their internal control systems, banks shall abide by the following:
    • Draw up a policy and clear and meticulous procedures endorsed by the board of directors. These should include bank’s policy with regard to (AML / CFT) operations in line with local legislation, relevant ministerial decisions and CBK instructions in this respect. It should also include a clear definition of these operations, their various patterns, and ways of their detection and tracking, in addition to the minimum of measures to be taken by concerned employees upon detection of any suspicious case of above operations.
    • External auditor’s report on internal control systems of a bank shall include an explicit opinion on the bank’s adherence to local laws, ministerial decisions and CBK instructions related to (AML/CFT) operations, as well as on the bank’s adherence to its own policies and controls in this regard.
    • New job applicants shall be screened to avoid appointment of any new employee who is suspicious in any way and could involve the bank in money laundering operation and financing of terrorism.
  • Legal action shall be taken against and appropriate penalties shall be imposed upon any staff member of the bank, including the CEO, his deputies and assistants as well as board chairman and members, who is proved to be negligent in discharging his specific responsibility of application of bank policy and measure with regard to (AML/CFT) operations, and CBK shall be notified about the details of the instance attributed to the staff or board member along with a summary of bank measures in this regard.
  • Each bank operating in the State of Kuwait shall set up a dedicated independent unit/department directly linked to the chairman of the bank’s board, and staff it with a cadre highly qualified and experienced in the fields related to money laundering and the financing of terrorism. The main mission of this unit/department shall be verification of bank’s adherence to laws, ministerial decisions and CBK instructions, as well as to policies, controls and procedures set by the bank to combat money laundering, and the financing of terrorism operations.
  • Policies and training programs related to (AML/CFT) operations shall be developed to include, at least, the following:
    • Chairman and board members should be fully aware of the risks of money laundering operations and the financing of terrorism, and shall adopt policies, controls and procedures that prevent exploitation of the bank in letting through such operations.
    • Regular reports shall be submitted to the board of directors by the concerned body (mentioned in item 15) on the adherence of the bank to local and international requirements in the area of (AML/CFT) operations, including a statement of all suspicious cases that were detected, their implications and developments and measures taken in that regard, for follow up and instruction.
    • Newly appointed employees in the bank shall participate in training programs that explain all matters related to money laundering and the financing of terrorism operations, and ways of combating them.
    • Training programs shall be organized regularly to inform concerned employees about recent developments in money laundering and the financing of terrorism operations, and ways of combating them in order to improve their capabilities and efficiency in detection and tracking such operations, and countering them.
    • All officers and bank staff, including the CEO, his deputies and assistants, and department managers, shall be informed about all local and international requirements regarding (AML/CFT) operations, including local legislation and supervisory regulation and related penalties. They shall also be informed about the procedures to be followed in case of detection of any suspicious operation of money laundering or the financing of terrorism.
    • Attached guidelines manual for detection of patterns of money laundering operations and the financing of terrorism, shall be used and referred to when setting precautionary procedures for combating such operations, as a minimum requirement. The bank shall have its own manuals for detecting the patterns of above mentioned operations, taking into account the size of the bank and the diversity of its services. It is also important to regularly update such manuals.
  • Taking into account the provisions of Article 14 of Law No. 35/2002 concerning combating money laundering operations that exonerates natural persons who report suspicions transactions in good faith, the CBK stresses that no action whatsoever shall be taken against bank employees who report a suspicions transaction in good faith even if the reported transaction is later found to be sound.
  • These instructions shall apply to all local and external branches and subsidiaries of banks, especially which operate in countries that do not adhere to international decisions and recommendations in this regard. Banks shall ensure, by an appropriate method, the adherence of these branches and companies to these instructions.
  • In this context, special and extraordinary care shall be taken in dealing with any person or entity of the above indicated countries to ensure soundness of these dealings. Banks shall prepare written policies sanctioned by their boards of directors for dealing with people and entities of the said countries and the extra precautionary procedures applicable in this regard.

  • Provisions of these instructions shall apply to chairmen and board directors. As well as to bank staff of all occupational levels.
  • Banks shall submit to CBK a statement of all cash transactions that equal or exceed the equivalent of KD 3000, whether the transaction concluded in KD or in foreign currency, according to the attached form. Needless to mention that a cash transaction is any transaction involving receipt of cash by the bank.

    All local government entities are excluded from reporting. A bank may seek CBK approval to exclude any other entity form reporting provided that it submits a written request including reasons and justifications for the exclusion. Such exclusion may not be applied by the requesting bank until it receives a written approval from the CBK to that effect.

    The said statement according to the attached form shall be submitted to the CBK on a quarterly basis, starting from the quarter ending on 31/12/2002, within 15 days at most from the reference date of the statement.

    The statement shall be prepared on the official letter-head papers of the bank and signed by the CEO, and submitted along with a magnetic disc that has the said statement stored on it.

  • With respect of cash transactions, whether equivalent to KD 3000 or more, or less than this limit, it is needless to mention that all banks shall take necessary care to ensure that such transactions are free from suspicion especially when these transactions do not conform with the customer’s business or previous transactions, or are repeated by the customer in short intervals.
  • Banks shall submit to CBK copies of their policies as endorsed by their boards of directors on (AML/CFT) operations, especially the policies mentioned above in items 2.6 and 3 of these instructions, within three months at most from the date these instructions come into effect. Any amendments made to these policies shall be immediately notified to CBK.
  • CBK instructions No. 2/SB/50/97 dated 17/11/1997 issued to all local banks regarding combating money laundering and suspicious operations shall continue to be in effect until 30/11/2002 and shall stand cancelled as of 1/12/2002.
  • These instruction shall be in effect as of 1/12/2002.

22/10/2002

Guidelines Manual of
Suspicious Transactions Typologies

First: Money Laundering Using Cash Transactions:

  • Unusually large cash deposits made by individuals or companies, whose businesses are normally generated through cheques and other instruments.
  • Large increases in cash deposits made by individuals or companies without apparent reasons, especially if these deposits are transmitted out of the account to an entity not related to the customer shortly after placing the deposit.
  • Customers depositing cash amounts through many deposit slips, so that each deposit is insignificant or inconspicuous, while the total sum of these deposits form a large amount.
  • Corporate accounts where most deposit or withdrawal transactions are cash based, instead of the typical credit and debit forms of commercial transactions (such as cheques, letters of credit, IOUs, withdrawal vouchers).
  • Customers constantly depositing cash amounts to cover bank cheques, fund transfers, or negotiable and marketable financial instruments.
  • Customers seeking to exchange large amounts of small denomination bank notes for large denomination ones.
  • Repeated cash transfers from one currency into another, where customer’s business does require such operations.
  • Branches that have more than usual cash transactions, when head office data reveal a decrease in cash transactions.
  • Customer deposits that include cash notes and fake documents.
  • Customers transferring large amounts to or from locations outside the State, with instructions of cash payment.
  • Large cash deposits made through electronic devices to avoid direct contact with bank staff.

Second: Money Laundering Using Bank Accounts:

  • Customers seeking to maintain a number of ordinary or trust accounts inconsistent with their business.
  • Customers having various accounts, deposit cash amounts in each of them so that the in total these deposits become a large amount.
  • Accounts of individuals or companies showing no regular banking activity in practice, or any economic activity that requires banking services, however, these accounts are used for depositing or withdrawing large amounts with no apparent purpose, or link to account owner or/and to his business.
  • Unwillingness to provide ordinary information upon opening an account, by presenting minimum information, fallacious information, unverifiable information or information that require costly verification.
  • Customers having accounts with many banks in the same region.
  • Cash settlement between external payments (payment orders, transfers) and customer balances on the same day or on a previous day.
  • Depositing large-amount cheques from third parties endorsed in favor of the customer.
  • Large cash withdrawals from a previously dormant account, or from an account that was recently credited with unexpectedly large amounts from abroad.
  • Increased use of electronic instruments for depositing in an account, and sudden increased movement in that account.
  • Representatives of companies avoid meeting with bank officers.
  • Huge increase in cash deposits, or negotiable instruments by institutions or companies using their clients accounts or trust accounts, especially if these deposits are immediately transferred from accounts where deposits were made to other accounts.
  • Customer slackness in using his credit balances and available banking services in a profitable manner (such as to avoid incurring high commissions or profit mark-ups on large financing operations, despite the availability of credit balances in this accounts).
  • Many individuals depositing funds in one account, with no appropriate explanations or justifications.

Third: Money Laundering Using Financial Transactions Associated with Investment Activities:

  • Purchase of securities to be kept with the bank is safe custody, when such as action appears inconsistent with the customer’s known financial position.
  • Back to back deposit / finance transactions with subsidiaries or affiliates of financial institutions located and operating in regions renowned for narcotics trade.
  • Applications from customers or portfolios to purchase or sell investment instruments or services (whether foreign currency or securities), where the source of customer’s funds is not known, or the sources of funds are inconsistent with his known business.
  • Large settlements made in cash for sale and purchase of securities.
  • Purchase and sale operations of securities without specific purposes, or made in unusual circumstances.

Fourth: Money Laundering via International Activities Outside the Country:

  • Introduction of a client to a bank by external institutions located in a country notorious for production and trafficking of narcotics.
  • Use of letters of credit and other means of trade finance, to move funds from one country to another, when the activity mentioned in the letter of credit does not relate to the business of the customer.
  • Customers paying/receiving large funds on a regulars basis, via cash payment or transfer by fax/telex, with no evidence of legitimacy of funds, besides being linked to operations with countries notorious in drugs production and trafficking, or linked to banned terrorist organizations or countries considered tax havens.
  • Accumulation of large balances, inconsistent with the normal turnover of the customer, which are later transferred to an account or accounts held by others outside the State.
  • Transfer operations to or from a customer without passing through any of his accounts with the bank.
  • Repeated and regular demand for travelers’ cheques or foreign currency drafts.
  • Repeated and regular deposits of travelers’ cheques or foreign currency drafts in a customer’s account.

Fifth: Money Laundering Involving Employees and Agents of Financial Institutions:

  • Changes in the life-style and characteristics of staff (such as adoption of an extravagant life-style, and avoidance of vacations or holidays).
  • Sudden changes in staff duties or performance of agents (such as unexpected and marked expansion of an agent’s business).
  • Transactions with an agent, where the identity of the final beneficiary or counter party is unknown, in contradiction with the norms of such transactions.

Sixth: Money Laundering via Secured or Unsecured Transactions:

  • Sudden and unexpected repayment of indebtedness that was previously subject of complex problems.
  • Applications for finance against assets held by another financial institution or third party, when the source of these assets is unknown, or inconsistent with the business of the customer or his apparent position with the bank.
  • Applications made by customers on behalf of their financial institutions to arrange deals in which the financial participation of the customer is not apparent nor specified, especially when the deal involves real estates or private properties.

Seventh: Money Laundering via Electronic Payment Instruments:

  • Repeated withdrawal of large amounts of funds by plastic cards (such as credit cards) in spite of high commission charged on such withdrawals, and cash repayment of outstanding obligations.
  • 2) Giving sufficient care to electronic operations and transfers made by on-line means or the internet, by installing programs to properly verify and monitor such operations.

22/10/2002