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UNDERSTANDING ANTI-MONEY LAUNDERING, COUNTER - TERRORIST FINANCING COMPLIANCE REQUIREMENTS

ASTANA FINANCIAL SERVICES AUTHORUTY

SESSION OBJECTIVE

An overview of Astana International Financial Centre (AIFC) Anti-Money Laundering and Counter - Terrorist Financing (AML/CTF) Regulations and Requirements

A Centre Participant should exercise due care toensure that it does not provide services to, orotherwise conduct business with, a personengaged in money laundering, terrorist financingor the financing of weapons of mass destruction.

MONEY LAUNDERING

Money laundering is the process of making illegally-gained proceeds (i.e., "dirty money") appear legal (i.e., "clean"). Typically, it involves three steps: placement, layering, and integration. First, the illegitimate funds are furtively introduced into the legitimate financial system. Then, the money is moved around to create confusion, sometimes by wiring or transferring through numerous accounts. Finally, it is integrated into the financial system through additional transactions until the "dirty money" appears "clean.“

United States Treasury Department

FINANCING OF TERRORISM

Terrorism financing refers to activities when any person by any means, directly or indirectly, unlawfully and willfully, provides or collects funds with the intention that they should be used or in the knowledge that they are to be used, in full or in part, in order to carry out an act of terrorism.

International Convention for the Suppression of the Financing of Terrorism

ANTI-MONEY LAUNDERING, COUNTER - TERRORIST FINANCING

LEGISLATIVE AND REGULATORY ACTS (AML ACTS)

The Law of the Republic of Kazakhstan on Counteracting

legalisation (laundering) of proceeds obtained through

criminal means and financing of terrorism (AML Law)

The Criminal Code of the Republic of Kazakhstan

Astana International Financial Centre Anti-Money Laundering,

Counter - Terrorist Financing and Sanctions Rules

The Resolution of the Government of the Rep. of Kazakhstan “On approval

of the Rules for the provision by reporting entities of data and

information on transactions subject to financial monitoring and the signs of

determining a suspicious transaction”

The Order of the Minister of Finance “On approval of the List of documents required for customer

due diligence by entities of financial monitoring”

The Order of the Minister of Finance “On approval of the list of the offshore zones for the purposes of the Law of

the Republic of Kazakhstan on Counteracting legalization (laundering) of proceeds obtained through criminal

means and financing of terrorism”

The Order of the Minister of Finance “On approval of the

requirements to financial monitoring entities on training and education of employees”

Offences and punishments

Criminal Code of the Republic of Kazakhstan

• A fine

• A custodial sentence and/or

• Confiscation of assets

Article 218. Money

Laundering

• A custodian sentence and

• Confiscation of assets.

Article 258. Financing of

Terrorism

Astana Financial Services Authority

• Financial Services

• Capital Market Activities

• Ancillary Services

Astana Financial Services Authority

• Regulation

• Control

• Supervision

Aml Acts Apply To

• Authorised Firm

• Authorised Market Institution

• Designated Non-Financial Businesses and Professionals

• Registered Auditor

Money Laundering Reporting Officer

Implementation of AML

requirements

Appropriate level of

Seniority

Compliance Oversight

Independence to act in the

Role

A Centre Participants AML/CTF obligations

MAJOR AML/CTF COMPONENTS

AML Regulations

Risk-based approach

Record keepingTraining and awareness

Review and assessment of AML systems and controls

Money Laundering Reporting

Officer

Know your business

Know your customer

Specious transactions

Know your transactions

Products

Delivery channels

Geography

Customers

Transactions

CDD

Enhanced CDD

Sanctions screening:

counterparty

Threshold transaction monitoring

and reporting

Suspicious transaction monitoring

Constant sanctions screening: customer and UBO

Investigation

Reporting to the FIU

Reporting to the AFSA

On-going CDD

Risk-based Approach

Identify AML Risks

Assess the risks

Establish and maintain

procedures

Mitigate and manage the

risks

Risk management

Record keeping

Regular review

Continuous process

Risk-based Approach

Business risk assessment

Customer risk assessment

A Centre Participant must:

• (a) undertake a risk-based assessment of every customer

• (b) assign the customer a risk rating proportionate to the customer's money laundering risks

The customer risk assessment must be completed prior to undertaking Customer Due

Diligence for new customers, and where, for an existing

customer, there is a material change in circumstances.

Customer Due Diligence

High risk

Medium risk

Low risk

Enhanced Due Diligence

Standard Due Diligence

Simplified Due Diligence

A Centre Participant must apply Customer

Due Diligence measures

when it is establishing a business relationship

with a customer

after establishing a business relationship

with a customer

Customer Due Diligence

Identity of the customer

Beneficial owners

Sources of funds

Sources of wealth

Customer Identification Information

For A Natural Person

✓Full name (including any alias)

✓Date of birth

✓Nationality

✓Legal domicile

✓Current residential address (not a P.O. box)

Customer Identification Information For a Legal

Person

✓Full business name and any trading name✓Registered or business address✓Date of incorporation or registration✓Place of incorporation or registration✓A copy of the certificate of incorporation or

registration✓A valid commercial or professional licence✓The identity of the directors, partners, trustees

or equivalent persons with executive authorityof the legal person✓A certified copy of the trust deed to ascertain

the nature and purpose of the trust anddocumentary evidence of the appointment ofthe current trustees

Enhanced Customer Due Diligence

Verification

Approval of Senior Management

On-going Customer

Due Diligence

Ensure transactions consistency with the

customer and its business

Enquire background and purpose of

transactions

Study complex and unusual transactions

Study transactions wit no apparent or

visible economic or legitimate purpose

Review and update CDD information

Review the AML risk of the customer

Politically Exposed Person

➢Increase the degree and nature of monitoring of the business relationship

➢Approval of senior management to commence a business relationship with the customer

Prohibitions

In failure to conduct CDD do not

carry out a transaction

open an account or otherwise provide a service

otherwise establish a business relationship orcarry out a transaction

do

✓ terminate or suspend any existing businessrelationship with the customer

✓ return any monies or assets received from thecustomer

✓ make a SAR if necessary

In failure to identify beneficial owners do not

establish a business relationship with a customer

Prohibitions

Do not establish or maintain abusiness relationship with aShell Bank

Do not tip off thecustomer that he is or mightbe the subject of a suspicion

Sanctions Screening

1. Committee on financial monitoring of the Ministry of Finance of the Republic

of Kazakhstan Lists

2. The United Nations Security Council Sanctions

Appropriate steps according to AML Law in

case of hits against Sanctions Lists

Links To The Sanctions Lists

• http://kfm.gov.kz/ru/the-list-of-organizations-and-individuals-associa/

• https://www.un.org/sc/suborg/en/sanctions/un-sc-consolidated-list

Steps in case of hits against

Sanctions Lists

➢ Suspend debit operations on banking account of such organization or individual, as well as on banking accounts of a client, the beneficiary owner of which is such individual

➢ Suspend the execution of instructions on payment or money transfer without the use of the banking account of such individual, as well as instructions of a client, the beneficiary owner of which is such individual

➢ Block securities in a system of registers of securities holders and accounting system of nominal holding of such organization or individual on separate accounts, as well as on separate accounts of the client, the beneficiary owner of which is such individual;

➢ Refuse to conduct other operations with money and (or) other property committed by such organization or individual, or in their favor, and equally by a client, the beneficiary owner of which is such individual, or in his (her) favor

➢ File a report to the FIU

Reporting Obligations

Threshold TransactionSuspicious

transaction/activity

Threshold Transaction Monitoring

Subject to the algorithms of

threshold transaction monitoring procedures:

Transaction type(article 4 of AML Law)

Transaction amount

Suspicious Transaction Monitoring

Subject to the algorithms and

sensitivity of suspicious transaction monitoring

procedures:

Transaction amount

Transaction frequency

Transaction purpose

Customer behavior and profile

Transaction counterparty

How to identify a Suspicion?

Screen transactions for suspicious indicators

Ask the customer appropriate questions

If the activity is consistent with the customer profile?

Evaluate all information: Is the transaction suspicious?

FINAL PROVISIONS

Record keeping

AML Training

Audit obligations

AFSA AML Return

Frequently Asked Questions

1. Where to find a list of suspicious activity indicators associated with money laundering and terrorist financing?

The list is approved by the Resolution 1484, however it should not be consideredexhaustive. The Centre Participant should maintain its own list in accordance withthe Participant’s experience and knowledge. The Centre Participant shouldunderstand that the high-risk and non-cooperative countries, countries, commonlyassociated with international crime, high level of corruption, terrorist activities ordrug trafficking, and PEPs might expose the Participant’s business to engaging inmoney laundering or terrorist financing.

2. What questions should be raised to the customer?

Ask the customer about the purpose of the transaction and related documents toverify the truth of the statement and to consider whether the transaction amountsatisfies, to a reasonable and legitimate explanation, the activity. Ask the customerabout identities of connected counterparties and information about theirbusinesses. If the customer refuses, hesitates, is unwilling to answer the questions,becomes defensive and non-cooperative, decides to terminate the businessrelationship, this may indicate a suspicion.

3. When to submit a Threshold Transaction Report to the FIU?

No later than one business day after the date of the transaction.

4. When to submit a Suspicious Transaction Report to the FIU?

For the purpose of prevention and suppression of the facts of legitimization(laundering) of incomes received by illegal means, and financing of terrorism, uponrecognition of a transaction as suspicious, the Centre Participant must report onsuch transaction to the FIU immediately before its conduct; the report onsuspicious transactions that may not be suspended shall be provided by the CentreParticipant to the FIU no later than three hours after their commission or withintwenty four hours from the date of detection of such operations. The report ontransaction recognized as suspicious after its commission shall be provided by aCentre Participant to the FIU no later than one business date next to the date ofrecognition of such transaction as suspicious.

5. What to Report in a Transaction Report to the FIU?

All reports to the FIU must be submitted in electronic XML format and in a formwith the logical and structural fields formats in accordance with Annex 1 to theRules for the provision by entities of financial monitoring of data and informationon transactions subject to financial monitoring.

This form of the report includes the following sections of information:

▪ Information on report itself (number, date and etc.);

▪ Information about reporting entity;

▪ Information about transaction;

▪ Information on transaction participant(s).

The Centre Participant should write about the reason why the transaction issuspicious in the field of additional information of the form (that is in informationabout transaction section).

6. What a Request on additional information?

The Centre participant may receive a request on additional information from theFIU. The number of days during which the Centre participant should answer will begiven in the request itself.

See more on:

1. http://adilet.zan.kz/rus/docs/P1200001484

2. http://adilet.zan.kz/rus/docs/V1500011569

7. How to submit a Transaction Report to the FIU?

Transaction reports can be made in one of the following ways:

• by web-based portal of the FIU, technology of manual input WEB-CFM;

• by the designated software of the FIU, technology of manual inputARM-CFM;

• any other software, provided that it supports the predefined XMLformat, and structural and logical rules of the reports.

8. How to obtain an access to the web portal of the FIU?

To register and send the reports through the web portal of the FIU, the CentreParticipant needs to obtain an electronic digital signature of the NationalCertification Authority of the Republic of Kazakhstan and have an internetconnection.

A video tutorial on how to register and fill the reports on the web portal of the FIUcan be found on the FIU official website.

See more on:

1. http://kfm.gov.kz/ru/to-help-sps/sdvo/web-sps.html

2. http://www.pki.gov.kz/index.php/ru/poluchenie-klyuchej-etsp?id=129

3. http://kfm.gov.kz/ru/to-help-sps/video-gallery/video-tutorial-on-registration-and-filling-of-for.html

9. Where a designated software of the FIU can be downloaded?

The designated ARM-SFM software of the FIU can be downloaded from the FIUofficial website.

See more on:

1. http://kfm.gov.kz/en/to-help-sps/sdvo/awp-sps.html

10. How to work with the designated software of the FIU?

While using the designated ARM-SFM software or any other software, which

supports pre-defined XML format of the reports, a Centre Participant needs to

obtain an electronic digital signature, to work in the transport system FASTi, from

the Republican State Enterprise on the Right of Economic Management the

“Kazakhstan Interbank Settlement Center of the National Bank of the Republic of

Kazakhstan” Certification Authority and install a special transport software VIDO

(or use a designated API) and cryptographic software Tumar CSP.

The Centre Participant needs to configure all the needed software so to be able to

generate and send reports to the FIU and receive notifications and requests on

additional information from the FIU.

See more on:

1. http://www.kisc.kz/english/ca/general.html

2. http://www.kisc.kz/fasti/vido.html

3. https://ca.kisc.kz/webra/res-open/devinfo.htm

4. http://www.kisc.kz/english/fasti/index.html

11. What if the FIU rejects my report?

The FIU while accepting the reports verifies if the form has been filled withaccordance with structural and logic controls.

If the report has been rejected by the FIU, the Centre Participant must send a fixedreport, while preserving the same number of the report and the same date whichwas filed initially, no later than one business day after the Centre Participantreceives an electronic notification of rejection.

See more on the defined XML formats of notification of acceptance, notification onrejection and requests for additional information from the FIU:

1. http://adilet.zan.kz/rus/docs/P1200001484

2. http://adilet.zan.kz/rus/docs/V1500011569

For more information please contact us:

Address8 Kunayev Street, Astana, Kazakhstan

Financial Conduct Divisionaml@afsa.kz