AML/CFT Controls and Responses to Covid-19 Pandemic

With the ongoing Covid-19 pandemic and the impact to the global and regional markets, Labuan FSA understands the challenges faced by reporting institutions (RIs) including in effecting their AML/CFT systems and controls during this challenging times. Notwithstanding this, the Authority expects that RIs to continuously honour their AML/CFT obligations as mandated by Labuan laws and regulations. This includes RIs ensuring that their systems and controls remain effective in detecting and addressing the money laundering and terrorism of financing (ML/TF) risks, accordingly.

Where there is a short-term impact on RI’s ability to meet a particular obligation, the RI concerned should maintain a record of the circumstances, the risk assessment that has been performed as well as any mitigation measures being taken.

A. AML/CFT Monitoring of Emerging Risks & Threats Arising from COVID-19

As part of AML/CFT risk monitoring, RIs are required to be vigilant to the current market environment with regard to the heightened risks and threats facing their businesses. In this regard, RIs may refer to the COVID-19-related Money Laundering and Terrorist Financing Risks and Policy Responses issued by FATF in May 2020 in relation to the challenges, good practices and policy responses to new money laundering and terrorist financing threats and vulnerabilities arising from the COVID-19 crisis.

FATF COVID-19-related Money Laundering and Terrorist Financing Risks and Policy Responses

The paper, among others, cited two top risks that have been observed or may occur during the pandemic which relate to firstly, Fraud and secondly, Cybercrime.

In dealing with the AML/CFT risks and threats, RIs are expected to maintain a set of effective controls and measures which include but not limited to:

Undertaking or updating the RI's risk assessment;
Ongoing monitoring for new threats and risks;
Ensuring that cohesive fraud control as part of the RI's policies and procedures, including continuing efforts to prevent cybercrime;
Continuing effecting comprehensive onboarding controls to identify and verify individuals and businesses, including the beneficiary's account details as a means to prevent fraud taking place; and
Strengthening, where relevant, the fraud prevention clauses in application forms during onboarding and processes (including call scripts). This is particularly important during the current situation where personal data may be used illegally for fraud or scam.

B. Advice on Customer Due Diligence (CDD) Measures

In the current pandemic situation, it may be more difficult for the industry to apply the conventional customer identification processes in line with the CDD requirements. With the current movement restrictions imposed, RIs will not be able to meet the customers face-to-face to obtain their original identity documents. In addition, customers may not be able to provide the certified copies of their documents to the RIs.

The AML/CFT regime in Labuan also prescribes a risk-based approach to ongoing CDD and account monitoring. This means that for current customers, reporting entities can implement simplified due-diligence where they have the discretion to not necessarily sight certain documents based in certain circumstances, depending on the reporting entity’s assessment of ML/FT risks.

In the current situation, RIs may encounter difficulties in undertaking ongoing CDD as in normal business circumstances. To address this, where relevant, RIs may apply a risk-based approach instead as recommended by FATF and provided by the Guidelines on Risk-Based Approach (RBA) for the Purpose of Anti-Money Laundering and countering the Financing of Terrorism (AML/CFT). For example, RIs may:

Accept scanned copies of documents as an interim measure, with the originals to be sighted at a reasonable later time; and
Leverage on technology solutions to verify the identity of a client, including but not limited to, biometric technologies, which is able to verify the client's identity effectively.

C. Reminder on Suspicious Transaction Report (STR) Lodgement Obligations

RIs are reminded to continuously abide by the requirement under the Sectoral Guidelines on Anti-Money Laundering and Counter Financing of Terrorism to promptly submit STRs for any transactions whether actual, attempted or proposed transaction (regardless of amount) that fit the following criteria:

Transactions that appear unusual;
Transactions that have no clear economic purpose;
Transactions that appear illegal;
Transactions that do not commensurate with the customer's profile or business activities;
Transactions that involve proceeds from an unlawful activity; or
Transactions that indicate that customers are involved in ML/FT activities.

Labuan FSA deems the STR reporting as mandatory and critical to ensure that the ongoing vigilance and monitoring of ML/FT risks in Labuan IBFC remain effective.

21 May 2020