Capital Market Authority: New Guide

Background

In 2002, Egypt issued its first Money Laundering Prevention Law. This was in response to the growing concern worldwide to the issue of money laundering which led the group of industrialized countries to set up a high-level committee called Financial Action Task Force («FATF»). Originally Egypt was included in FATF’s List of Non-Cooperative Countries. But following the passing of the Law, its Executive Regulations and the setting-up of the Money Laundering Prevention Unit within the Egyptian Central Bank, Egypt was removed from the list in 2004 and continues to be an adherent to the international norms of money laundering prevention. These norms and guidelines continue to be amended and updated in response to international consultation and adoption of best practices. And accordingly, national regulatory authorities are required to continue to update their regulatory standards to respond to those norms. In January 2003, the Egyptian Capital Market Authority had issued general rules concerning the application of anti-money laundering principles to securities companies (CMA Decree Number 4 of 2003). In response to new guidelines issued by FATF, the Capital Market Authority abrogated the 2003 Decree and issued – on August 27th 2008 – new guidelines for securities companies.

Who is Addressed by the Rules?

The new rules apply to:

• «Securities Companies» in accordance to their definition in the Capital Market Law. This means all companies requiring a license under Article 27 of Law Number 95 of 1992, and this includes companies operating in brokerage, fund management, portfolio management, underwriting, credit rating, bond dealing, etc.

• Companies under Law Number 146 of 1988 («Companies Working in the Field of Receiving Funds in Order to Invest them»). This simply refers to companies that were reorganized after the fall-out of the Islamic Investment Companies in the late 1980s.
• Securitization companies.

It is important, however, to note that the above entities represent all companies falling under the jurisdiction of supervision of the Capital Market Authority. This does not mean that other companies and activities in the financial domain will not be subject to the new guidelines. However, these will be subjected to similar guidelines thorough their own regulators. For example, banks will be addressed by similar guidelines already issued earlier this year by the Central Bank of Egypt.

Compliance Officer

Each of the Companies subject to the Rules must have a designated competent officer with responsibility for ensuring that the institution is adequately complying with the requirements to combat money laundering and terrorist financing. It is imperative that the company notifies both the Capital Market Authority and the Anti- Money Laundering Unit if another member of staff fills in this position – permanently or temporarily. The Compliance Officer must enjoy a number of rights and guarantees:

• Total freedom in pursuing his/her mission.
• Adequate means and methods needed to achieve his/her goals.
• Access to transaction records, identification data obtained through the corporate due diligence process, account files and business correspondence, and other records, documents or information, held or maintained by the institution.
• Total confidentiality with regards to his/her activities.

In addition, the Compliance Officer is responsible for:

• Investigating all unusual activities within the institution as well as any suspicious transactions that could potentially relate to money laundering.
• Notifying the Anti-Money-Laundering Unit when suspected cases arise.
• Advising the institution on improving its policy towards combating money laundering to ensure that its at its maximum efficiency and effectiveness.
• Systematically reviewing the effectiveness of the company’s systems for combating money laundering and terrorist financing on a regular basis.
• Establishing ongoing employee training to ensure that employees are kept informed of new developments, including information on current money laundering and terrorist financing techniques, methods and trends; and that there is a clear explanation of all aspects of anti-money laundering/combating the financing of terrorist laws and obligations, and in particular, requirements concerning corporate due diligence and suspicious transaction reporting.
• Issuing an annual report to the company’s Board of Directors highlighting and commenting on all the updates on individual cases and operations as well as all efforts to fight off these corrupt activities. It is then imperative that this report be sent to both the Authority and the Unit alongside any comments, decisions and issues brought up by the BOD. This report should have a clear outline of the efforts and achievements concerning unusual or suspected cases; the way the company has responded to global audits of other organizations combat­ing money laundering highlighting both points of weakness and strength; risk assessment reports and updates on the latest internal policy changes relevant to anti-money laundering and combating terrorist financing. A thorough explanation of the training programs and how they’re working in order to prevent corruption should also be present.

Notification Procedures

All institutions subject to the Rules are required to notify both the Authority and Unit on all complex, unusual large transactions, or unusual patterns of transactions, that have no apparent or visible economic or lawful purpose clearly indicating the rationale behind the particular suspicion. All sources and evidence must be available if called upon by a higher authority. The most important documents are: the initial contract, identification data and all other documents pertaining to the suspected case.

Archiving and Document Preservation

Copies of any documents relating to anti-money laundering measures and policies must be kept. These include transaction records, identification data, account files and business correspondence, files pertaining to the training anti-money laundering/combat terrorist funding scheme. Institutions are required to maintain all necessary records on transactions, both domestic and international, for at least five years following completion of the transaction. This requirement applies regardless of whether the account or business relationship is ongoing or has been terminated.

Internal Procedures

Institutions should be establish and maintain internal procedures, policies and controls to prevent money laundering and terrorist financing, and to communicate these to their employees. These procedures, policies and controls should cover record retention, the detection of unusual and suspicious transactions and the reporting obligation. Written rules and regulations should be established outlining the duties of the employees’ roles in combating terrorist funding and money laundering.

Training

Staff should be provided with adequate and relevant training to ensure they are properly equipped to combat money laundering and terrorist financing. They should be up to date on all aspects and developments in the techniques of anti-corruption and should be aware of the local, regional and global trends of this particular issue. Training schemes should be established in all branches and should be supervised by the Compliance Officer.

General Indicators of Money Laundering

Financial institutions should be wary of a number of features which could potentially indicate money laundering or terrorist financing. These include:

• Anonymous accounts or accounts in fictitious names, especially customers who provide insufficient (or fraudulent) identification.
• Customers who have difficulty describing their financial activities or cannot submit reasonable proof.
• Customers who show an unusual curiosity about the institution’s anti-money laundering schemes and procedures or an excessively nonchalant stance towards the potential risks of investment.
• Accounts that deal with unusually large funds.
• Constant and or/sudden fluctuations in accounts.

Application

The new Rules shall be notified to the institutions which are subject t its provisions by the Capital Market Authority. Each institution should, within fifteen days of such notification, send back to the CMA the following:

1. An undertaking that it shall apply the new rules with utmost care and diligence as well as the Know-Your-Client Rules issued by the Unit.
2. The name of the qualified Compliance Officer (and deputy if any) responsible for anti-money laundering and combating terrorist financing.
3. A copy of all of new procedures pertaining to the implementation of the measures, rules and regulations that deal with the new Rules. Institutions should also be committed to follow up any new measures that the authority suggests.
4. An undertaking to organize training schemes for employees of different level, as well as attending training workshops organized by the Anti-Money Laundering Unit and the Authority.
5. An undertaking to combat money laundering in the most professional manner, particularly thorough the application of the Know-Your Customer Rules.

The new regulations will apply to all financial institutions (and branches), provided that it falls in line with the laws of the host country. Where a conflict between host and home country rules arises, the stricter rules should be applied and the institution should notify the Authority.