On 13 November 2019, the Microfinance Supervisory Committee under the Ministry of Planning and Finance released Directive No. 2/2019 on Customer Due Diligence for Anti-Money Laundering and Combatting the Financing of Terrorism (“Directive”). This Directive must be followed by Microfinance Institutions (“MFIs”) operating in Myanmar and is aimed at strengthening reporting requirements for suspicious transactions and ensuring stricter compliance for MFI activities.
The Directive outlines key regulatory measures and methods of risk assessment which must be adhered to:
- MFIs must be extra cautious when providing financial services and engaging in transactions involving individuals using unidentifiable, indistinguishable, fictitious or false names or symbols;
- MFIs should conduct periodic money laundering and terrorist financing risk assessments on all transactions they participate in;
- At all times, MFIs are to maintain up-to-date written records of all risk assessments undertaken, visible evidence pertaining to risks (if any) and other related information which is to be made available to the relevant authorities upon request;
- Due diligence must be conducted by MFIs as per the Anti-Money Laundering Law 2014 on existing accounts and customers as well as new accounts on the basis of products, services and risk profile;
- MFIs should be extra cautious about unusually large and complex transactions and transactions lacking clear commercial or legal purposes;
- Transactions involving nations recognized as lacking clear laws or regulations on money laundering or terrorist financing are to be closely monitored;
- MFIs must specifically regulate customers or beneficial owners deemed to be domestic or foreign politically exposed persons and/or internationally politically exposed persons as defined under the Anti-Money Laundering Law 2014. Before entering into business relations with such individuals, the amount and source of funds should be properly identified;
- MFIs are expected to monitor and verify new products, services and business practices and conduct risk assessments prior to launching such products or services;
- Before entering into a business relationship with a cross-border party, MFIs must collect information to understand the nature of the foreign party’s business from an anti-money laundering and terrorism financing perspective;
- MFIs must establish the veracity of originator and beneficial owner information in the case of wire or electronic transfers and also abide by Directive No. 18/2019 issued by the Central Bank of Myanmar (“CBM”) on Customer due diligence related to anti-money laundering and countering terrorism financing by banks and financial institutions licensed and supervised by the CBM;
- To the maximum extent possible, MFIs must ensure that their foreign branches and majority-owned subsidiaries apply anti-money laundering and combating terrorism financing measures consistent with the home country’s requirements; and
- Any suspected illegal activity relating to money or property transactions must be reported to the Financial Intelligence Unit (“FIU”).
The Directive categorizes levels of risks related to money laundering and terrorist financing and outlines appropriate measures to combat them:
- For risks identified as high, enhanced due diligence is to be conducted to determine whether the transactions are unusual or suspicious. Enhanced due diligence is to be carried out under the following circumstances:
(i) before establishing a relationship with or providing microfinance services to a client or conducting transactions for a customer;
(ii) if a single or several connected transactions to be carried out by a new customer are above the maximum amount prescribed by the Central Body formed under the Anti-Money Laundering Law 2014;
(iii) before electronic fund or domestic and international wire transfers are performed for a customer;
(iv) if there is sufficient doubt about the authenticity of the previously received customer identification data; and
(v) general suspicion that a transaction is somehow associated with money laundering or terrorist financing.
- If the level of risk is determined to be low, simplified due diligence is to be conducted. However, if the value of a transaction, though initially unknown, subsequently exceeds the threshold set by the Central Body, enhanced due diligence should be undertaken.
- Additionally, MFIs must carry out ongoing due diligence on their customers in respect of every business relationship to verify transactions, identify the source of funds and determine that the transactions are conducted with the customer’s knowledge.
MFIs’ operating and supervisory systems must be modified to give effect to this Directive’s guidelines. They must designate a compliance officer at the senior management level whose powers and functions have been specifically outlined.
The possibility of money laundering and terrorist financing activities in Myanmar has long called for a move by the government to take policy decision in this regard. The Ministry of Planning and Finance in turn has finally issued this much overdue Directive compelling MFIs to regulate their business framework and institute stricter checks and balances in terms of their customers’ transactions. This directive aims to regulate and reduce a severe and longstanding menace and is a welcome step towards regulating financial transactions undertaken by MFIs.
The information provided in this email is for information purposes only, and is not intended to constitute legal advice. Legal advice should be obtained from qualified legal counsel for all specific situations.
Deputy Managing Director
Head of Banking & Finance Practice
Partner & Managing Director
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