Financial Institutions (Anti-Money Laundering) Regulations

a transaction which is incompatible with the financial institution's knowledge and experience of the customer in question or with the purpose of the business relationship.

to require financial institutions to establish and maintain specific policies and procedures to guard against the use of the financial system for the purpose of money laundering; (b) to enable financial institutions to recognise suspicious transactions and to provide an audit trail of transactions carried out by customers who come under investigation; (c) to require financial institutions to submit reports and to disclose information on suspicious transactions; and (d) to check the negative social, economic and political effects of money laundering and the financing of terrorism which include-

the use of safe custody facilities; and (e) large cash transactions.

customer identification requirements and procedures which lay down all information necessary to establish to the financial institution's satisfaction the identity of each new customer, the purpose and intended nature of the business relationship and ensure that customer records remain up-to-date and relevant;

on-going monitoring of accounts and transactions which is able to detect unusual or suspicious patterns of activities and those activity that do not appear to make economic or commercial sense, or those unusually large transactions that are not consistent with the normal and expected transactions of the customer; and (d) risk management procedures which include proper management oversight, systems and controls, segregation of duties, training and other related policies.

it is reasonably capable of establishing that the applicant for business is the person he or she claims to be; and

the financial institution which obtains the evidence is satisfied, in accordance with the procedures established by the financial institution, that it does establish that fact.

provide training to all staff dealing with customers or their transactions on a general appreciation of the background to money laundering and on the required reporting of any suspicious transactions.

suspension or restriction of lending and investment operations;

suspension of opening of letters of credit or issuance of guarantees;

suspension of acceptance of new deposits;

suspension or removal from office of the erring director, officer or employee of the financial institution; declaration of the relevant director(s) or of the financial institution as not fit and proper persons for purposes of the Act.

A financial institution shall institute effective procedures for obtaining satisfactory evidence of the identity of applicants for accounts and other customers transacting business with the institution including obtaining information about name, permanent address, date of birth and occupation.

Positive identification should be obtained from documents issued by official or other reputable sources such as passports or identity cards, drivers licence, or a voter's roll card.

A financial institution shall check the address of the applicant by appropriate means, such as recent utility or rates bills (electricity, telephone, water, satellite T.V. bills), government or local authority bills, Bank Statement, drivers licence, Passport and by checking the voters roll maintained by the Electoral Commission.

An introduction may be obtained if the prospective customer is unable to provide a valid address document. Introductions could be acceptable from the prospective customer's employer, existing financial institutions' customer, member of the financial institutions' staff, registered accountant, lawyer/advocate, clergyman, headmaster and doctor or any other acceptable person or method of identification.

In the case of corporate applicants, a financial institution shall obtain satisfactory evidence of the identity and profile of the principal shareholders, directors and authorized signatories and of the nature of the business. The guiding principle is to establish that it is safe to enter into a business relationship with the company concerned.

Before a business relationship is established, a financial institution shall take measures by way of a company search or other commercial enquiries to ensure that the applicant company has not been, or is not in the process of being dissolved, struck off, wound- up or terminated. In addition, if a financial institution becomes aware of subsequent changes to the company structure or ownership, or suspicions are aroused by a change in the profile of payments through a company account, the financial institution shall initiate fresh inquiries in the changes made. (c) The following documents or information shall be obtained in respect of corporate applicants for business which are registered in Uganda (comparable documents, preferably certified by qualified persons such as lawyers, notaries public or accountants in the country of registration should be obtained for those applicants which are not registered in Uganda)- (i) certificate of incorporation and business registration certificate; (ii) memorandum and articles of association; (iii) resolution of the board of directors to open an account and to confer authority on those who will operate it; (iv) result of a search of the file of the company at the Companies Registry;

evidence that the individual representing the company has the necessary authority to do so should be sought and retained;

In the case of accounts to be opened for clubs, societies and charities, an institution should satisfy itself as to the legitimate purpose of the organization by requesting a copy of its constitution. Satisfactory evidence should be obtained of the identity of the authorized signatories who are not already known to the institution in line with the requirements for individual applicants. (b) The prospective customer must be in possession of one or more of the following- (i) Trust Deed (where available); (ii) Certificate of Registration / Trading; (iii) Constitution of the clubs, societies and charities; (iv) headed paper; and (v) VAT Registration Number and receipt (where applicable);

In the case of partnerships and other unincorporated businesses whose partners are not known to the financial institution, satisfactory evidence should be obtained of the identity of at least two partners and all authorized signatories in line with the requirements for individual applicants. (b) In cases where a formal partnership arrangement exists, a mandate from the partnership authorizing the opening of an account and conferring authority on those who will operate it should be obtained. For a prospective partnership business, the prospective customer must be in possession of a Partnership Deed.

A financial institution shall take notice of the potential for abuse by money launderers of shell companies (legal entities through which financial transactions may be conducted but which have no business substance in their own right) and should therefore be cautious in their dealings with them.

In keeping with the "Know Your Customer" principle, institutions should obtain satisfactory evidence of the identity of beneficial owners, directors and authorized signatories of shell companies.

A financial institution shall always establish, by confirmation from an applicant for business, whether the applicant is acting on behalf of another person as trustee, nominee or agent (especially where it involves a Trust, nominee and fiduciary accounts which are a popular vehicle for criminals wishing to avoid identification procedures and mask the origin of the criminal money they wish to launder). (b) Any application to open an account or undertake a transaction on behalf of another person without applicants identifying their trust or nominee capacity should be regarded as suspicious and may lead to enquiries as to the underlying principals and the nature of the business to be transacted. (c) A financial institution shall obtain satisfactory evidence of the identity of trustees, nominees and authorized signatories and of the nature of their trustee or nominee capacity and duties by, for example, obtaining a copy of the trust deed. Enquiries shall also be made of the extent to which the applicant for business is subject to any official regulation. (d) Particular care shall be taken in relation to trusts created in all jurisdictions. (e) Where the intermediary is a firm of lawyers or accountants, their professional codes of conduct may preclude the firms from divulging information to the financial institution concerning their underlying clients. It may therefore be onerous for a financial institution to establish the identity of the person(s) for whom a lawyer or accountant is acting. The financial institution shall not be precluded from making reasonable enquiries about transactions passing through client accounts that give cause for concern or from reporting those transactions if any suspicions are aroused.

Whenever possible, applicants for opening accounts should be interviewed personally. (Any mechanism that avoids face-to-face contact between a financial institution and an applicant inevitably poses difficulties for customer identification and produces a loophole that money launderers may wish to exploit). (b) Care shall be taken when dealing with accounts opened by post, or from coupon applications, to ensure that the identities of the applicants are obtained as much as possible. (in case of a local applicant, account opening by post should not be permitted.)

A financial institution shall request applicants to call on one of their branches for account opening. (d) For overseas applicants in a country where the financial institution does not have a presence, the application should be submitted through a correspondent bank in that country or a bank which can be relied upon to undertake effective identification procedures on behalf of the financial institution.

Where transactions are undertaken by a financial institution for non- account holders of that financial institution such as requests for telegraphic transfers, or where funds are deposited into an existing account by persons whose names do not appear on the mandate of that account, care and vigilance are required. (b) Where the transaction involves large sums of cash, or is unusual, the applicant shall be asked to produce positive evidence of identity from the sources set out above and in the case of a foreign national, the nationality recorded. Copies of the identification documents should be kept on file.

A financial institution shall take the necessary precautions in relation to requests to hold boxes, parcels and sealed envelopes in safe custody. (b) Where such facilities are made available to non-account holders, the identification procedures set out in this Schedule should be followed.

A financial institution shall gather sufficient information about their respondent banks to understand fully the nature of the respondent's business. Factors to consider include; information about the respondent bank's management, major business activities, where they are located and its money laundering prevention and detection efforts; the purpose of the account; the identity of any third party entities that will use the correspondent banking services and the condition of bank regulation and supervision in the respondent's country. (b) A financial institution shall refuse to enter into or continue a correspondent banking relationship with a bank incorporated in a jurisdiction in which it has no physical presence and which is unaffiliated with a regulated financial group (i.e., shell banks).

Unusually large cash deposits made by an individual or company whose ostensible business activities would normally be generated by cheques and other instruments.

Substantial increases in cash deposits of any individual or business without apparent cause, especially if such deposits are subsequently transferred within a short period out of the account or to a destination not normally associated with the customer. (c) Customers who deposit cash by means of numerous credit slips so that the total of each deposit is not remarkable, but the total of all the credits is significant.

Company accounts whose transaction, both deposits and withdrawals, are denominated in cash rather than the forms of debit and credit normally associated with commercial operations (such as cheques, Letters of Credit, Bills of Exchange, etc.). (e) Customers who constantly pay-in or deposit cash to cover requests for banker's drafts, money transfers or other negotiable and readily marketable money instruments.

Customers who frequently seek to exchange large quantities of low denomination notes for those of higher denomination.

Branches that have a great deal more cash transactions than usual. (Head Office statistics should detect aberrations in cash transactions.)

Customers whose deposits contain counterfeit notes or forged instruments.

Customers transferring large sums of money to or from overseas locations with instructions for payment in cash.

Large cash deposits using night safe facilities, thereby avoiding direct contact with the financial institution.

Purchasing or selling of foreign currencies in substantial amounts by cash settlement despite the customer having an account with the financial institution. (l) Customers making large and frequent cash deposits but cheques drawn on the accounts are mostly to individuals and firms not normally associated with their retail business.

Customers who wish to maintain a number of trustee or clients' accounts which do not appear consistent with their type of business, including transactions which involve nominee names. (b) Customers who have numerous accounts and pay in amounts of cash to each of them in circumstances in which the total of credits would be a large amount. (c) Any individual or company whose account shows virtually no normal personal deposit or business related activities, but is used to receive or disburse large sums which have no obvious purpose or relationship to the account holder and/or his business (e.g. a substantial increase in turnover on an account). (d) Reluctance to provide normal information when opening an account, providing minimal or fictitious information or, when applying to open an account, providing information that is difficult or expensive for the institution to verify. (e) Customers who appear to have accounts with several financial institutions within the same locality, especially when the institution is aware of a regular consolidation process from such accounts prior to a request for onward transmission of the funds. (f) Matching of payments out with credits paid in by cash on the same or previous day. (g) Paying in large third party cheques endorsed in favor of the customer. (h) Large cash withdrawals from a previously dormant/inactive account, or from an account which has just received an unexpected large credit from abroad.

Greater use of safe deposit facilities by individuals. The use of sealed packets deposited and withdrawn.

Companies' representatives avoiding contact with the branch.

Substantial increases in deposits of cash or negotiable instruments by a professional firm or company, using client accounts or in-house company or trust accounts, especially if the deposits are promptly transferred between other client company and trust accounts.

Customers who decline to provide information that in normal circumstances would make the customer eligible for credit or for other banking or financial services that would be regarded as valuable.

Large number of individuals making payments into the same account without an adequate explanation.

Customers who maintain an unusually large number of accounts for the type of business they are purportedly conducting and/or use inordinately large number of fund transfers among these accounts.

High velocity of funds through an account, including low beginning and ending daily balances, which do not reflect the large volume of money flowing through an account.

Multiple depositors using a single deposit account.

Purchasing of securities to be held by the institution in safe custody, where this does not appear appropriate given the customer's apparent standing.

Back to back deposit/loan transactions with subsidiaries of, or affiliates of, overseas financial institutions in known drug trafficking areas.

Requests by customers for investment management services (either foreign currency or securities) where the source of the funds is unclear or not consistent with the customer's apparent standing.

Larger or unusual settlements of securities transactions in cash form.

Buying and selling of a security with no discernible purpose or in circumstances that appear unusual.

Customers introduced by an overseas branch, affiliate or other bank based in countries where production of drugs or drug trafficking may be prevalent.

Use of Letters of Credit and other methods of trade finance to move money between countries where such trade is not consistent with the customer's usual business.

Customers who make regular and large payments, including wire transactions, that cannot be clearly identified as bona fide transactions to, or receive regular and large payments from countries which are commonly associated with the production, processing or marketing of drugs.

Building up of large balances, not consistent with the known turnover of the customer's business, and subsequent transfer to account(s) held overseas.

Unexplained electronic fund transfers by customers on an in and out basis or without passing through an account.

Frequent requests for traveller's cheques, foreign currency drafts or other negotiable instruments to be issued.

Frequent paying in of traveller's cheques, foreign currency drafts particularly originating from overseas.

Numerous wire transfers received in an account where each transfer is below the large cash reporting requirement in the remitting country.

Customers sending and receiving wire transfer to/from financial haven countries, particularly if there are no apparent business reasons for such transfers or such transfers are not consistent with the customers' business or history.

Changes in employee characteristics, such as lavish life styles.

Any dealing with an agent where the identity of the ultimate beneficiary or counterpart is undisclosed, contrary to normal procedure for the type of business concerned.

Request to borrow against assets held by the financial institution or a third party, where the origin of the assets is not known or the assets are inconsistent with the customer's standing.

Request by a customer for a financial institution to provide or arrange finance where the source of the customer's financial contribution is unclear, particularly where property is involved.

A customer, who is reluctant, fails, refuses to state a purpose of a loan or the source of repayment, or provides a questionable purpose and/or source.