Activating the alarm system for suspicious transactions and their parties and their representatives
- Continuation of operational and technical monitoring through systems that provide early warning signals of suspicion.
- Fulfillment of documentation requirements prior to transaction execution, along with record-keeping and risk reporting.
- Strengthening financial institutions’ adherence to the principles underpinning the concept of the beneficial owner.
- Examination of transactions to detect any suspicious behavior, starting from the customer profile to customer activity.
- Enhancing compliance with requirements constitutes a warranted response to the implementation of the Financial Action Task Force (FATF) standards.
Regulatory authorities have emphasized, under the provisions of Law No. (106/2013), that all financial institutions, designated non-financial businesses and professions, must adopt appropriate due diligence measures when executing transactions involving information, evidence, or indicators suggesting that any party to the transaction, or their proxies, are linked to suspicions of money laundering, terrorist financing, or financing of weapons of mass destruction. This contributes to enhancing compliance with anti-money laundering and counter-terrorist financing requirements and represents a warranted response to adhering to the standards of the Financial Action Task Force (FATF).
In this regard, the Central Bank of Kuwait has directed local banks, exchange companies, financing companies, electronic money service providers, electronic payment service providers, and electronic payment system operators to activate continuous monitoring of financial transactions and their parties, while maintaining the early warning system to avoid dealing with suspicious customers, conducting suspicious transactions, or using circumvention methods in exchange activities to legitimize transactions and financial transfers.
This regulatory directive means that local banks, exchange companies, financing companies, electronic money service providers, electronic payment service providers, and electronic payment system operators must continue to monitor and track suspicious transactions and their enhanced parties through a dynamic mechanism. They must not limit themselves to reporting observed suspicions to the Financial Investigations Unit; rather, this must include examining transactions to detect any suspicious behavior, starting from the customer profile, transaction patterns, and characteristics, and refusing to disclose or provide vague answers regarding the source of funds or the economic activity of the suspected behavior.
Enhancing the regulatory, operational, and technical measures taken to ensure the principles underpinning the concept of the beneficial owner, and its identification standards for customers within the framework of implementing due diligence measures by financial institutions/designated non-financial businesses and professions, is consistent with what is mandated by Law No. (106) of 2013 and the Central Bank’s instructions.
Practically, this requires the addressed entities to continue monitoring their operations through advanced early warning systems that provide indicators upon suspicion of money laundering or terrorist financing. This necessitates verifying the efficiency of the electronic systems used for transaction examination and other compliance procedures with prevailing laws and regulations, as well as other preventive measures specified in the guideline.
These additional regulatory moves in this context are part of the regulatory efforts aimed at improving procedures to strengthen the due diligence measures required under Law No. (106) of 2013, as well as the instructions issued by the Central Bank regarding the fight against money laundering and terrorist financing and related instructions.
The law requires financial institutions and specified non-financial businesses and professions to implement comprehensive customer due diligence measures, including record-keeping and reporting of transactions that pose risks to the global financial system, as well as obtaining necessary documentation prior to executing transactions.
As part of these obligations, there is a requirement to identify and verify the beneficial owners (true owners) of their customers. Regulatory authorities must also ensure compliance by the entities under their supervision with these obligations, in an effort to mitigate risks associated with business relationships and transactions involving individuals or financial entities linked to suspicions of money laundering or terrorist financing.
To avoid dealing with suspicious customers, conducting suspicious transactions, or using evasive methods in money transfer activities to legitimize them, the Financial Intelligence Unit’s guidelines and the Central Bank require financial institutions and specified non-financial businesses and professions to monitor high-value repeated transactions that are inconsistent with the customer’s income and profession.
Additionally, they must monitor large cash exchanges for dinars or foreign currencies without a reasonable purpose that raises suspicion, as well as sudden increases in transaction volume and repeated transactions without a reasonable or commercially justified explanation. Such scrutiny should include requiring customers to clarify the source of funds in repeated and large transactions, while continuing to monitor transfers to high-risk areas, conflict zones, or countries known for terrorist activities.
