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20 February, 2020
Given the recent myriad of directives, presidential order, guidance and sector-specific instructions issued in Myanmar in the last quarter of 2019, which build on the underlying Anti-Money Laundering Law 2014 (AML Law) and the Anti-Money Laundering Rules 2015 (AML Rules), reporting organisations need to analyse the applicable provisions carefully and ensure they are properly implementing the necessary policies, procedures and controls. Beware: failure to understand and comply with these extensive preventive and reporting obligations can result in imprisonment of up to 3 years and fines.
Are you a reporting organisation?
You need to consider prudently whether you are a reporting organisation, depending on the activities you perform. Reporting organisations include ‘banks and other financial institutions’, such as microfinance institutions, insurance companies, finance companies, securities exchange companies and money changers, as well as ‘designated non-financial businesses and professions’, which include (among others) lawyers, accountants, company service providers, real estate agents, dealers in precious metals and precious stones, and casinos.
Policies, procedures and controls
Consistent with international standards, reporting organisations must develop and implement internal policies, procedures and controls to effectively manage and mitigate money laundering and terrorism financing risks.
A key component is the requirement to conduct risk assessments, to identify and understand the risk of money laundering and financing of terrorism within your organisation. You need to consider the size, scope and geographic coverage of the business, your customers, transactions, products, services and delivery channels, as well as the risks arising from new activities.
Adopting a risk based approach, enhanced risk management, mitigation and customer due diligence is required where the risk of money laundering or terrorism financing is identified as high, while simplified measures suffice where a customer’s level of risk is identified as low, provided there is no suspicion of money laundering or terrorism financing.
Customer due diligence
You need to know when and how you are required to conduct the necessary measures – at all ‘appropriate times’ and on an ongoing basis. You must identify the customer and any ‘beneficial owners’, and verify their identity. You need to understand exactly what this entails. As part of scrutinising the necessary information obtained from the customer, you have to compare this with the records at the Directorate of Investment and Company Administration (DICA) – and ‘confirm’. If the customer is a company or other ‘legal person’ or ‘legal arrangement’, you must comply with additional requirements, including to understand its ownership and control structure, the purpose and intended nature of the business relationship, and to verify the authority of the instructions. Further requirements apply if the customer is incorporated overseas. Are you currently complying with all these requirements, mindful of the ‘Myanmar-specifics’ which may not necessarily be satisfied by a group’s global compliance policies?
Beneficial ownership
Customer due diligence can only play a meaningful role in combatting money laundering and terrorism financing if you ascertain who the customer’s real underlying owners are. Reporting organisations must identify the ultimate ‘beneficial owners’, and determine which natural person(s) (ie humans) exercise ultimate effective control over the legal entity, directly or indirectly, whether through ownership, voting rights or other means. You need to understand what analysis is required under the Myanmar-specific provisions to determine ‘control’, bearing in mind that the threshold differs depending on the sector. Whereas most reporting organisations should apply the 25% threshold stipulated in the AML Rules, banks are required to apply a lower threshold of 20%. Consistent with international standards, banks are generally subject to more stringent customer due diligence obligations, as stipulated in Central Bank of Myanmar Directive No. 18/2019.
As part of Myanmar’s steps towards a more efficient anti-money laundering regime, DICA recently issued Directive No.17/2019, requiring all companies (and other legal persons or legal arrangements) incorporated in Myanmar, to obtain information on their beneficial ownership and submit this information to DICA and the Inland Revenue Department. For such beneficial ownership disclosure purposes, a lower threshold of 5% applies. While the 5% mirrors the threshold for disclosure of beneficial ownership of companies operating in extractive industries in Myanmar (pursuant to Myanmar’s measures to comply with its Extractive Industries Transparency Initiative obligations), by international standards a 5% disclosure threshold for companies outside of the extractive industries sector, is low. The requirement that all companies (not merely in extractive industries) should obtain information on their beneficial ownership, is in line with current international trends, and helps enable competent authorities to access beneficial ownership information promptly, in the interests of combatting money laundering and tax evasion. It is hoped that due consideration will be given to what is required for an effective system and that the necessary legislative framework will be implemented to properly facilitate beneficial ownership disclosure.
Enhanced measures
Certain circumstances demand more stringent preventive measures, including enhanced customer due diligence, senior management’s prior approval, enhanced ongoing monitoring and, in certain cases, identifying source of wealth and source of funds.
This applies where any foreign ‘politically exposed person’ (known as a PEP) is involved, whether as the customer or a beneficial owner, and in the case of a ‘high risk’ domestic or international PEP. Additional measures are also required, inter alia, where a transaction lacks any apparent or visible economic or lawful purpose, involves countries considered to have insufficient protective measures against money laundering and terrorism financing, or is cross-border.
Customer due diligence is not a one-off exercise, but requires ongoing monitoring of transactions to determine if they are consistent with the reporting organisation’s knowledge of the customer, its business activities, risk profile and, if necessary, the source of funds.
What happens if there are grounds for suspicion?
As a reporting organisation, you need to be aware of your obligations in the event that you are unable to complete the necessary customer due diligence requirements. You need to know when you have a statutory obligation to file a suspicious transaction or suspicious activity report with the Financial Intelligence Unit (FIU), while exercising caution so as not to fall foul of the ‘tipping-off’ prohibitions (which can also result in imprisonment of up to three years/and or a fine).
Additional reporting obligations
Myanmar’s anti-money laundering regulations not only require reporting where there is suspicion that money laundering or financing of terrorism may be involved, but Myanmar imposes an additional obligation on reporting organisations to report to the FIU if the transaction amount is MMK 100 million or more (for a Myanmar currency transaction or a property transaction) and US$10,000 or more (for a foreign currency transaction), whether by a single or several linked transactions – even if there is no suspicion.
Compliance management
Implementation of the necessary anti-money laundering measures within your reporting organisation will involve your senior management, as well as your mandatory compliance officer. In addition to ensuring ongoing training for your employees, have you arranged the necessary independent audits to check whether your measures are compliant and effective? It is advisable to ensure that your measures are fully compliant, including with the extensive record keeping obligations, in particular as the FIU and competent regulatory authorities may come knocking at your door to conduct inspections.
For further information, please contact:
Tom Platts, Partner, Stephenson Harwood
tom.platts@shlegal.com
