Financial institutions are required to follow specific laws and regulations related to the opening and maintaining of accounts as well as the monitoring of accounts and transactions. While details of these requirements vary by country, banks must comply with the banking regulations applicable in the jurisdictions in which they operate, and are often called upon to cooperate with law enforcement. Today, common banking regulations include:
- Screening accounts and transactions against lists of prohibited parties,
- Making efforts to determine the true identities of customers, and
- Monitoring for suspicious account activity.
Filtering for Prohibited Parties
Financial institutions are often required to filter accounts and transactions against lists of prohibited parties promulgated by regulators or law enforcement authorities in the jurisdictions in which they operate. These lists are continuously updated, and it is generally the responsibility of each financial institution to check existing and new account holders against these lists. Banks operating in the U.S. are required to check accounts and transactions against the “Specially Designated Nationals and Blocked Persons List” promulgated by the U.S. Treasury – Office of Foreign Assets Control, routinely referred to as the OFAC list. In the U.S., banks are expected to freeze and report transfers/transactions and accounts involving parties added to the OFAC list; in general, banks are not required to block transfers or accounts involving parties that are not on this list.
Know Your Customer Regulations
“Know Your Customer” (KYC) regulations refer to the standards that financial institutions must adhere to when maintaining accounts and opening new ones. While KYC regulations vary by country, in general banks are required to check the names of potential customers against government prohibited party lists, obtain identification information from potential customers and make efforts to determine the true identity of customers.
Monitoring for Suspicious Activity
In addition to checking for prohibited parties, financial institutions are required in some countries to continually monitor for suspicious account activity. In the U.S. for example, FinCEN defines suspicious or unusual activity to include transactions that involve at least $5,000 and are suspected to be:
- Obtained from illegal activity or intended to conceal assets derived from illegal activity,
- Designed to evade reporting requirements of the Bank Secrecy Act (BSA),
- Transacted with no business or lawful purpose, or
- Transacted in a way in which the customer does not normally engage, or in a way in which there is no reasonable explanation for the transaction after examining available facts.
SWIFT and Correspondent Banking
In order for money to move efficiently through the international financial system, banks maintain correspondent relationships with other banks to enable the movement of funds to locations where a particular bank may not have a presence. Transactions passing between banks generally utilize commonly known as SWIFT. This automated process enables large volumes of quick and secure transactions and provides essential details on the originators, the beneficiary of the transaction and the routing information. Financial institutions are then obligated to filter these transactions under the applicable laws of the countries in which they operate.
In the U.S., Section 312 of the USA PATRIOT Act requires a bank to identify the owners of certain non-U.S. banks for which correspondent facilities are being provided. In July 2002, FinCEN issued an Interim Rule implementing, for certain financial institutions, the correspondent and private banking provisions of Section 312. In January 2006, FinCEN issued final rules requiring special due diligence with respect to correspondent banking.
Regulations in Jordan, Lebanon and the Palestinian Territories
Arab Bank has been diligent in implementing, and then updating as necessary, policies and procedures concerning Anti-Money Laundering and Countering the Financing of Terrorism in the various jurisdictions in which it operates, including in Jordan, Lebanon and the Palestinian Territories—jurisdictions where the banking services at issue in the litigation primarily took place.
The Central Bank of Jordan (CBJ), which first began operating in 1964, is responsible for supervising all banks operating in Jordan, including Arab Bank. It does so through on-site and off-site supervision to ensure that banks are obeying applicable compliance and banking laws and regulations. The CBJ is committed to suppressing money laundering and the financing of terrorism, and as part of that effort it continually issues and revises compliance related directives to banks operating in Jordan.
The Bank’s branches in Lebanon are governed by the Lebanese Central Bank-Banque du Liban (BDL) and are subject to the consolidated supervision exercised by the Central Bank of Jordan. BDL’s mission includes taking the steps necessary to ensure the safety of the Lebanese financial sector and its protection against money laundering and terrorist financing. Lebanon also joined the Arab Convention for Combating Terrorism issued by the Arab Interior and Justice Ministers Councils in Cairo in 1998, and in 2003, the Egmont Group, an international group of financial intelligence units dedicated to improving cooperation in the fight against money laundering and financing of terrorism.
Banks operating in the Palestinian Territories are regulated and supervised by the Palestinian Monetary Authority (PMA), the central bank of the Palestinian Territories, and are subject to the consolidated supervision of the Central Bank of Jordan.
The PMA has received substantial assistance from the Jordanian Government through the Central Bank of Jordan, as well as the United States Government through the United States Agency for International Development (USAID), who assisted the PMA in designing the Bank Supervision Department, which is responsible for carrying out the PMA’s bank supervisory functions. With the help of USAID, the PMA also established a financial intelligence unit in 2003, known as the Financial Follow-Up Unit, which is responsible for monitoring transfers and payments through the Palestinian banking system to ensure adherence to requirements of combating money laundering and preventing the financing of terrorism. The Palestinian government has also passed numerous laws, regulations and provisions seeking to combat money laundering and terrorist financing.