Abstract: Measures to prevent and combat money laundering according to the Circular guiding the Law on Anti-Money laundering and the impact of this Circular on financial and non-financial organizations.
Key words: #law_on_anti_money_laundering #measure #compliance #requirement #reporting #KYC #KYB #customer_due_diligence #law_firm
Recently, the State Bank of Vietnam has just issued Circular 09/2023/TT-NHNN (“Circular 09/2023”) guiding the implementation of a number of regulations of Law on Anti-Money Laundering, which was promulgated on November 15, 2022 (“Law on AML 2022“). The Circular details the criteria, methods of assessing money laundering risks as well as details of anti-money laundering (“AML“) measures of the reporting subjects as outlined below.
First of all, financial entities subject to reporting obligations are supplemented under Law on AML 2022 are:[1]
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- Organizations providing intermediary payment services;
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- Organization providing securities brokerage;
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- Organization providing securities investment fund, manages securities investment portfolio.
For the group of non-financial organizations, the Law on AML 2022 does not change much, the remarkable is it removed organizations and individuals providing investment trust services out of application scope.[2]
Measures to prevent and combat money laundering specified in the Law on AML 2022 of the reporting entities consist of:
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- Identifying customer, including Know-your-customer and Know-your-business process, which requires reporting subjects to collect customer information, update and verify customer information, assess money laundering risks and classify customers, monitor transactions customer translation;[3]
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- Developing internal regulations on prevention and combat of money laundering with all the main contents as prescribed and depending on each subject, high-value transactions and suspicious transactions must be reported;[4]
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- Application of interim measures.[5]
1. Identifying customer:
For customer identification, in addition to customer due diligence stipulated in Law on AML 2022, Circular 09/2023 stipulates that reporting entities must collect assessment data from January 1 to December 31 every year to conduct a money laundering risk assessment. The criteria for assessing the risk of money laundering rely on the business environment and business activities of the reporting entities. The method of assessing money laundering risk is scoring method.[6] Based on the assessment results, the reporting entities shall develop and promulgate a risk management process, which is a mandatory content in internal regulations on anti money laundering.
The risk management process must comprise of the following clauses:[7]
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- Determining the scope and objectives of money laundering risk management activities;
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- Identifying and evaluating the level of impact of money laundering risks at such entity;
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- Classifying customers according to low, medium, and high money laundering risk levels based on certain factors;
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- Processing to identify and evaluate money laundering risks before providing new products, services or applying new technology;
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- Risk management process for implementing, rejecting, suspending, post-transaction control or reviewing and reporting suspicious transactions;
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- Applicable measures corresponding to customers’ money laundering risk levels, including frequency of updating and verifying customer identification information; transaction monitoring.
Regarding measures to classify customers, Circular 09/2023 guides the applicable measures to 3 customer groups stated by the Law on AML 2022.[8]
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- For customers with a low level of risk: the reporting entity can apply mitigation measures such as not collecting information about the purpose and nature of the business relationship; reducing the frequency of information updates; reducing the level of transaction monitoring;
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- For customers with average level of risk: applying customer identification measures as prescribed in the Law on AML 2022 and Decree 19/2023/ND-CP;
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- For customers with a high level of risk: the reporting entity must strengthen the measures, namely increasing the level of transaction approval management; collecting, updating, and verifying additional customer information; enhancing monitoring of transactions; increasing the frequency of updating customer identification information.
2. Internal regulations on anti money laundering and statutory report obligation:
Pursuant to Circular 09/2023, the must-have provisions in internal regulations on money laundering prevention and combat are as follows:[9] customer identification process and steps; money laundering risk management process as stated in Section 1; regulations on information storage and security; regulations on application of temporary measures; regulations on reporting and providing information of reporting entities to state agencies; regulations on personnel recruitment include training in basic knowledge of anti money laundering; training and fostering professional skills in anti money laundering; internal compliance control on anti money laundering; responsibilities of individuals and relevant departments in preventing and combating money laundering.
The reporting entities must provide professional training in anti-money laundering for managers and employees; review and update internal regulations on prevention and combat of money laundering annually; appoint a person or a contact point responsible for anti-money laundering and register information of this person or department to the competent authority, and at the same time must notify the competent authority in writing if this information changes.
In addition, Circular 09/2023 also stipulates the obligation to report electronically or in paper to a specialized agency on anti money laundering as soon as these transactions are performed or discovered these transactions:
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- High-value transactions.
Accordingly, the high value transaction that must be reported is from VND 400,000,000 and over.[10]
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- Suspicious transactions.[11]
Signs of suspicious transactions have been introduced in the Law on AML 2022.[12] Notably, the Law on AML 2022 gives suspicious signs corresponding to the areas of activity of the reporting entities. For example, suspicious signs in the field of banking, payment intermediaries, insurance, …. Particularly for the reporting group that is an organization/individual providing accounting and legal services, and establishing a business, it is necessary to consider basic suspicious signs when representing clients in transactions and providing services through the review, collection and analysis of information.
With a suspicious transaction report, the specialized anti-money laundering agency will confirm in writing that it has received the report within 5 working days.
Accordingly, the specific reporting entity is the organization participating in the money transfer transaction, including the originating financial institution, the intermediary, and the beneficiary. The level of transaction value to be reported is also specified in Circular 09/2023, except for the case of financial intermediaries, which is:[15] (i) for transactions that all financial institutions Participation in Vietnam: from VND 500,000,000 or over or foreign currency of equivalent value; and (ii) for a transaction in which one of the financial institutions participating in the transaction is located outside the territory of Vietnam: from USD 1000 or over or a foreign currency of equivalent value.
Additionally, Circular 09/2023 also guides the must-have information required in reporting electronic money transfer transactions.[16]
3. Interim measures:
Although Circular 09/2023 does not mention interim measures, the Law on AML 2022 already governs the measures to prevent money laundering that financial institutions and non-financial institutions can apply. They are are: (i) delaying transactions; (ii) freezing accounts, sealing, freezing or seizing assets. In addition, the Law on AML 2022 also stipulates corresponding requirements and time bar for applying these measures.[17]
Basically, Vietnam’s anti-money laundering measures are common measures in the world, based on the recommendations of the Financial Action Task Force but have been customized to consistent with practice in Vietnam. It is worth noting that Circular 09/2023, when specifying anti-money laundering measures from the Law on AML 2022, also sets compliance requirements for reporting entities, requiring them to review and conduct customer diligence, assess risks and report (if necessary) throughout the process of providing services to customers.
However, there lies concerns that the obligations set out by Circular 09/2023 may conflict with ethical and professional rules for reporting entities (for example, rules to keep customer information undisclosed), weakening the independence and objectivity in the services provided by the reporting subject and eroding the relationship between the reporting entities and the customer – which are rules that are strictly binding and attached to the substance of service provided by the reporting entity.
[1] Law on Anti-Money Laundering 2022, Article 4.1
[2] Law on Anti-Money Laundering 2022, Article 4.2
[3] Law on Anti-Money Laundering 2022, Chapter II, Section 1
[4] Law on Anti-Money Laundering 2022, Chapter II, Section 2
[5] Law on Anti-Money Laundering 2022, Chapter II Section 4
[6] Circular 09/2023/TT-NHNN, Article 3
[7] Circular 09/2023/TT-NHNN, Article 4.1
[8] Circular 09/2023/TT-NHNN, Article 4.2, Article 4.4 và Article 4.5
[9] Circular 09/2023/TT-NHNN, Article 5
[10] Decision 11/2023/QĐ-TTg, Article 3
[11] Circular 09/2023/TT-NHNN, Article 6 và Article 7
[12] Law on Anti-Money Laundering 2022, Article 27, Article 28, Article 29, Article 30, Article 31, Article 32, Article 33
[13] Law on Anti-Money Laundering 2022, Article 34 và Circular 09/2023/TT-NHNN, Article 8
[14] Circular 09/2023/TT-NHNN, Article 9.5
[15] Circular 09/2023/TT-NHNN, Article 9.1
[16] Circular 09/2023/TT-NHNN, Article 9.3
[17] Law on Anti-Money Laundering 2022, Chapter II Section 4
