Know Your Customer (KYC) Anti-Money ... - Prabhu Bank · Dinesh Thakali Chief Operating Officer...

Know Your Customer (KYC)

&

Anti-Money Laundering (AML) Policy – 2014

(3rd Revision in May 2019)

Version History

AML Policy Approved on 2014

1st Amendment Approved on 2016

2nd

Amendment Approved on 2017

KYC Manual Approved on 2014

1st Amendment Approved on 2016

2nd

Amendment Approved on 2017

3rd

Amendment merged both of AML Policy and KYC Manual and renamed as Know Your

Customer (KYC) & Anti-Money Laundering (AML) Policy. The core purpose of both

documents is to lay down a framework for prevention of money laundering and combating

financing of terrorism, and provides guidelines on AML/CFT compliance across the Bank

functions. Therefore, it is required to merge for several good reasons to avoid duplicate, overlap

and make short text etc.

S. No. Version Approving Authority Date of Approval

1 1st Board of Directors (150th Board ) 12 June 2019

KYC & AML Policy 2014 –3rd

Amendment 2019 Page 3

Approval Sheet

Name/ Designation Signature Date

Prepared by

Binay Ghimire

Manager AML

Reviewed & Supported by

Surendra Chand

Head Compliance


Chiranjivi B.C.

Chief Risk Officer


Dinesh Thakali

Chief Operating Officer

Supported by

Mani Ram Phokhrel

Chief Business Officer

Supported by

Ashok Sherchan

Chief Executive Officer

Supported by

Assets (Money) Laundering

Prevention Committee

Approved by

Board of Directors



Contents

1. Preliminary ................................................................................................................ 9

2. Background................................................................................................................ 9

3. Introduction ............................................................................................................... 9

4. Objectives of the Policy .............................................................................................. 9

5. Policy Framework and Applicability ...................................................................... 10

5.1 Domestic Framework................................................................................................. 10

5.2 International Framework (FATF Recommendations) .................................................. 10

5.3 Scopes and Applicability............................................................................................ 11

6. Definitions and Explanations of Terms used in the Policy ...................................... 11

7. KYC, Money Laundering and Financing of Terrorism .......................................... 15 7.1 Know Your Customer (KYC) .................................................................................15

7.2 Money laundering (ML) .........................................................................................15

7.3 Financing of Terrorism ...........................................................................................16

7.4 Impact of Money Laundering and Financing of Terrorism .......................................16

7.5 Possible Sources of Criminal Wealth ......................................................................16

7.6 Money Laundering Process.....................................................................................17

7.7 Methods of Money laundering ................................................................................18

8. Governance, Oversight, Structure and Roles/Responsibilities ................................ 19 8.1 Board of Directors (BODs) .....................................................................................19

8.2 Asset (Money) Laundering Prevention Committee (ALPC) .....................................19

8.3 Chief Executive Officer (CEO) ...............................................................................19

8.4 Senior Management................................................................................................20

8.5 Compliance Officer ................................................................................................20

8.6 AML/CFT Officer ..................................................................................................21

8.7 Branch Manager and Branch Level KYC/AML Officer ...........................................22

8.8 Individual Employees .............................................................................................23

8.9 Control Functions of Internal and External Auditors ................................................23

9. KYC Policy Guidelines ........................................................................................... 23 9.1 Customer Identification Procedures (CIP) ...............................................................23

9.2 Customer Acceptance policy (CAP)........................................................................25

9.3 Monitoring of Transactions .....................................................................................26

9.4 Risk Management ..................................................................................................27

9.4.1 Risk Identification, Evaluation and Risk Details ......................................................28

9.4.2 Risk Grading of Customer Accounts .......................................................................28



9.4.2.1 Low risk transactions / relationship (Category A) ....................................................28

9.4.2.2 Medium Risk Transactions / relationship (Category B) ............................................29

9.4.2.3 High Risk Transactions / relationship (Category C) .................................................30

9.4.3 Residual Guideline for Risk Grading.......................................................................31

9.4.4 Monitoring Frequency of Risk Grading Accounts ....................................................31

9.4.5 Risk Based Approach (RBA) ..................................................................................32

9.4.5.1 Inherent Risk..........................................................................................................32

9.4.5.2 Control Assessment ................................................................................................34

9.4.5.3 Residual Risk .........................................................................................................34

10. Customer Due Diligence (CDD)............................................................................... 34

10.1 Simplified Customer Due Diligence (SCDD) ..........................................................35

10.2 Standard Customer Due Diligence ..........................................................................36

10.3 Enhanced Customer Due Diligence (ECDD) ...........................................................36

10.4 Ongoing customer due diligence (OCDD) and Periodic Review ..............................37

11. Beneficial Owner (BO)............................................................................................. 37

11.1 Identification process of Beneficial Owners ............................................................38

11.2 Verification process of Beneficial Owners ..............................................................38

11.3 Identification process of Beneficial Owners in case of Natural Person......................39

12. Politically Exposed Persons (PEPs) ......................................................................... 39 12.1 Domestic and Foreign PEPs....................................................................................39

12.2 PEPs “Close Family Members” and “Close Associates ” .........................................39

12.3 ECDD Procedure for PEPs .....................................................................................40

12.4 High net worth individuals (HNI) ..........................................................................41

13. Reporting Requirements.......................................................................................... 41

13.1 Threshold Transaction Limit .......................................................................................41

13.2 Suspicious Transactions ..............................................................................................41

13.3 Electronic Reporting System (go AML Reporting Module) ..........................................42

13.4 Annual AML/CFT self-Assessment Report .................................................................42

13.5 Semi-annual AML/CFT related data and statistic .........................................................42

14. KYC Process ............................................................................................................ 42

14.1 Broad Provisions.........................................................................................................42

14.2 Obtaining information and documents .........................................................................44

14.3 Transactions through Bank Account ............................................................................44

14.4 Introduction of Accounts .............................................................................................45

14.5 Obtaining Credit Information ......................................................................................45



15. Account Opening Process ........................................................................................ 46

15.1 Account Opening Form & KYC enquiry form .............................................................46

15.2 Account Opening Procedure of Natural Person (including joint accounts) ....................46

15.3 Account Opening Procedure of Legal Person ...............................................................47

15.4 Verify the validity of the documents as applicable: ......................................................48

15.5 Subsidiary Account.....................................................................................................49

15.6 High Risk Accounts ....................................................................................................49

15.7 Non Face-to-Face Accounts ........................................................................................49

15.8 Anonymous Accounts & Relationship with Shell Bank ................................................49

15.9 Frequent closing & re-opening of Accounts .................................................................50

15.10Recording Details in CBS ..........................................................................................50

15.11Source of Funds/Wealth .............................................................................................50

15.12Responsibility ............................................................................................................50

16. Account/Transaction Activities Monitoring ............................................................ 51

16.1 Cash Deposit /Payment/Cheque Encashment Mechanism.............................................51

16.2 Transactions of Non- Accountholders..........................................................................51

16.3 Management of Dormant /Passive /Inactive/ WAUN Account .....................................52

17. Correspondent Banking and relationships .............................................................. 53

18. Relationship with different organization ................................................................. 54

19. Wire Transfer .......................................................................................................... 54

19.1 Provision Regarding Wire Transfer .............................................................................54

19.2 Domestic wire transfer ................................................................................................54

19.3 Cross Border Wire Transfer ........................................................................................55

20. Trade Based Money Laundering (TBML) .............................................................. 55

21. Sanction Screening Policy ........................................................................................ 56

22. Resubmission policy ................................................................................................. 56

23. FATCA..................................................................................................................... 56

24. Employee Education, Trainings and Customer Awareness .................................... 57

24.1 Coverage areas of AML & CFT basic training .............................................................57

24.2 Responsibilities of Training & Awareness ...................................................................57

24.3 Customer Awareness ..................................................................................................57

25. Know Your Employee (KYE) .................................................................................. 58

26. Maintenance of secrecy ............................................................................................ 58

27. Record Retention ..................................................................................................... 58

28. Offence and Punishment.......................................................................................... 59



29. Clarification and Exception ..................................................................................... 59

30. Review/Amendment ................................................................................................. 59 Annexure- A ......................................................................................................................60

Annexure- B ......................................................................................................................69

Annexure- C ......................................................................................................................70

Annexure- D ......................................................................................................................71

Annexure- E.......................................................................................................................72

Annexure- F .......................................................................................................................74

Annexure- G ......................................................................................................................75

Annexure- H ......................................................................................................................78

Annexure- I ........................................................................................................................84



Abbreviations

ALPC Assets (Money) Laundering Prevention Committee

AML Anti Money Laundering

APG Asia Pacific Group on Money Laundering

BCBS Basel Committee for Banking Supervision

BFI Bank and Financial Institution

BO Beneficial Owner

BOD Board of Directors

CAP Customer Acceptance Policy

CBS Core Banking Software

CDD Customer Due Diligence

CIP Customer Identification Procedures

CFT Combating Financing Terrorism

ECDD Enhanced Customer Due Diligence

EU European Union

FATF Financial Action Task Force

FATCA Foreign Account Tax Compliance Act

FIU Financial Information Unit

HMT-UK Her Majesty's Treasury-United Kingdom

HNI High Net-worth Individual

HRO High Ranking Official

IMF International Monetary Fund

KYC Know Your Customer

KYE Know Your Employee

ML Money Laundering

NRB Nepal Rastra Bank

OCDD Ongoing customer due diligence

OFAC Office of Foreign Assets Control

PEP Politically Exposed Person

RBA Risk Based Approach

SCDD Simplified Customer Due Diligence

STR Suspicious Transaction Report

TBML Trade Based Money Laundering

TF Terrorist financing

TTR Threshold Transaction Report

UN United Nations

WAUN Whereabouts unknown



KYC & Anti-Money Laundering (AML) Policy–2014

(3rd Amendment on May 2019)

1. Preliminary

a. Short Title: This Policy is called “KYC & Anti Money Laundering (AML) Policy

2014 - 3rd Amendment on 2019”.

b. Commencement: The Policy shall come into implementation immediate of the

approval of Board of Directors.

2. Background

With the increase money laundering activities, terrorism, drug/human trafficking,

embezzlement is increasing across the globe, which has been a serious concern to the

Banks and Financial Institutions (BFIs).Banks and financial institutions are an

essential part of financial system. Along with the growth in scope of Banking

business, many allegations and revelations is facing by banking industry especially in

area of money laundering and terrorism financing. Moreover, government is

pursuing the reform of regulatory structure and also cracking down on tax evasion to

recover the revenue. The stringent provisions made in laws and directives reflect the

seriousness of the issue.

In order to prevent the Bank from being used for money laundering and financing of

terrorism activities/purposes, the Prabhu Bank has formulated the above said policy

with intend to laid down the appropriate framework for effective compliance of

Assets (Money) Laundering Prevention Act, 2008 (2064), Assets (Money) Laundering

Prevention Rule, 2016 (2073) and Directives issued by Financial Information Unit (FIU)

and Nepal Rastra Bank from time to time.

3. Introduction

Money laundering has been defined metaphorically as “cleaning of the money” is the

process whereby true origin and ownership of the fund is disguised. In other words, under

money laundering process, identity of illegally possessed money is changed so that it

appears to have originated from a legitimate source. The source of such illegal income

may include terrorism, organized crime, fraud, etc. Money laundering is a major concern

to the governments and regulatory authorities all over the world as it poses great threat to

the local / international economy and Bank & Financial Institutions (BFIs) could be used

as a intermediary for channeling the illegal or criminal engaged money into the financial

system. The simplest way to clean the illegally earned money is to bring such money into

the financial system through different means such as cash deposits, remittances, e-cards,

drafts, electronic transfers, loan repayments and other financial instruments.

4. Objectives of the Policy

The purpose of this policy is to prevent the entry of illegal money into the financial

system. The Policy further enables the Bank to know/understand the customers and their



financial dealings better and manage the risks prudently. The following objectives have

been set while formulating this policy:

a. To lay down a framework to be implemented by the Bank in order to safeguard it

against being used for money laundering and financing of terrorism.

b. To ensure full compliance by the Bank with all applicable legal and regulatory

requirements pertaining to money laundering and financing of terrorism.

c. To enable the Bank to verify the bona-fide identification of customers and beneficial

owners and their financial dealings, which in turn would help the Bank to get

information of transactions, monitor and manage risk prudently.

d. To provide a board framework for formulation and implementation of various

procedural guidelines that is required for AML/CFT & KYC compliance.

The focus of the policy is on obtaining comprehensive information regarding new

customers at the initial stage and that of existing customers over a predetermined

period, thereby establishing the bona-fides of customers opening accounts and/or

conducting transactions and identifying and keeping a watch on high value transactions

and those of suspicious nature, as well as reporting them to Law Enforcing/ Regulatory

authorities, as and when required.

5. Policy Framework and Applicability

The Bank shall follow the applicable domestic as well as international legal framework in

relation to AML/CFT. It is obligation to comply with the applicable legal and regulatory

laws, rules and regulations of the own country. In addition, Nepal has to follow standards

prescribed by FATF as an obligation of member country of Asia Pacific Group on

Money Laundering, which is a FATF style regional body.

5.1 Domestic Framework

The applicable major domestic legal frameworks pertaining to AML/CFT are as

follows:

Assets (Money) Laundering Prevention Act, 2008 (2064) (2nd amendment 2070)

Assets (Money Laundering Prevention Rule,2016 (2073)

Unified Directives No. 19 on AML/CFT issued by Nepal Rastra Bank

Directives on Anti-Money Laundering and Combating Financing in Terrorism

Guidelines for Threshold Transaction Reporting (TTR) and Guidelines for Detecting

Suspicious Transactions issued by Nepal Rastra Bank and Financial Information Unit

(FIU).

Directives issued by FIU to implement United Nations Security Council‟s Resolutions

1267 & 1373.

5.2 International Framework (FATF Recommendations)

Being the member country of Asia Pacific Group on Money Laundering, Nepal

has to implement FATF recommendations as required or applicable. The

Financial Action Task Force (FATF) is an independent inter-governmental body



that develops and promotes policies to protect the global financial system against

money laundering, terrorist financing and the financing of proliferation of

weapons of mass destruction. The FATF Recommendations are recognized as the

global anti-money laundering (AML) and counter-terrorist financing (CFT)

standard. FATF Forty Recommendations revised and adopted in 2012 along with

FATF Nine Special recommendations (40+9 recommendations) set out a

comprehensive and consistent framework of measures which countries should

implement in order to combat money laundering and terrorist financing, as well

as the financing of proliferation of weapons of mass destruction. Countries have

diverse legal, administrative and operational frameworks and different financial

systems, and so cannot all take identical measures to counter these threats. The

FATF Recommendations, therefore, set an international standard, which

countries should implement through measures adapted to their particular

circumstances. Recommendations of FATF and other functional bodies like

Asia/Pacific Group on Money Laundering (APG), International Monetary Fund

(IMF) and World Bank shall be taken into cognizance by the Bank as applicable.

Further, the standards prescribed by United Nations and Basal Committee for

Banking Supervision (BCBS) shall also serve as the basis for the Bank for

combating money laundering and terrorist financing where mandatory/applicable.

5.3 Scopes and Applicability

This policy is applicable to all branches/units/department and subsidiaries of the

Bank and the contents of the policy shall always be comprehended auto-corrected

with the amendments/revisions/modifications which may be advised by NRB, FIU-

Nepal and / or by Assets (Money) Laundering Preventions Act/ Assets (Money

Laundering Prevention Rule or by Bank through internal circulars from time to time.

6. Definitions and Explanations of Terms used in the Policy

Unless otherwise specifically indicated, the following definitions and explanation of the

terms used in the “Know Your Customer & Anti- Money Laundering (AML) policy -

2014” shall have the following meaning(s):

i. Customer

Purpose for this policy, a “Customer” is defined as a person or entity that maintains or

attempts to establish business relationship or conducts or intends to conduct any

transaction with the Bank.

The following person or entity also falls under the ambit of customer.

A person or entity that maintains an account and/or has a business relationship with

the Bank.

A Beneficial Owner- a person or an entity on whose behalf the account is maintained.

Beneficiaries of transactions conducted by professional intermediaries, such as Stock

Brokers, Chartered Accountants, and Solicitors etc. as permitted under the law.

Any person or entity connected with a financial transaction which can pose

significant reputation or other risks to the bank, say, a wire transfer/remittance or



issue of a high value demand draft as a single transaction.

ii. Transaction

Any agreement made in order to carry out any economic or business activities and the

term also means the purchase, sale, distribution, transfer or investment and possession of

any assets, or any other acts as follows:

Establishing business relationship,

Opening of an account,

Any deposit or collection, withdrawal, exchange or transfer of funds in any currency,

whether in cash or by cheque, payment order or other instruments or by electronic or

other non-physical means.

Use of any type of safe deposit locker,

Entering/establishing into any fiduciary relationship,

Any payment made or received in satisfaction, in whole or in part, of any contractual or

other legal obligation,

Establishing or creating a legal person or legal arrangement or

Such other act as may be designated by the Government of Nepal by publishing a

notice in the Nepal Gazette.

iii. Beneficial Owner (BO)

“Beneficial Owners” or ultimate Beneficial Owners refer to those natural persons who,

directly or indirectly, own or controls or directs or influences a customer, an account, or

the person on whose behalf a transaction is conducted, or exercises effective control over

a legal person or legal arrangement or remains as an ultimate beneficiary or owner of

such activities.

iv. Politically Exposed Person (PEP)

Politically Exposed persons are individuals who are or have been entrusted with

prominent public function in the country or abroad. Politically Exposed Person (PEP)

includes Domestic PEPs, Foreign PEPs, e.g., Heads of States/Governments, senior

politicians, senior government/judicial/military officers, senior executives of state-owned

corporations, important political party official etc. It further denotes the person specified

as PEP by Government of Nepal by publication through Nepal Gazette at the

recommendation of National Coordination Committee.

v. Customer Due Diligence

“Customer Due Diligence” is a process by which the Bank collects, independently

verifies and analyzes the information about a customer that enables the Bank to assess the

extent to which the customer exposes it to a range of risks especially the risk of money

laundering and terrorist financing. If CDD leads to a high risk determination, the Bank is

required to conduct an Enhanced Due Diligence

vi. Transaction Monitoring

The automated or manual process of monitoring transactions after their execution in

order to identify unusual transactions, including monitoring single transactions as well as



transaction flows, for subsequent review and, where appropriate, reporting to authorities.

vii. Non-face- to-face customers

“Non-face-to-face customers” mean customers who open accounts without visiting the

branch/offices of the Bank or meeting the officials of Bank.

viii. Walk-in-Customers

The customers who intend to conduct a transaction or establish any type of business

relation with the Bank without having his/her/own account with the Bank.

ix. Private Banking

Private Banking is the provision of services by a bank to high net worth individuals and

where a minimum number/value of assets under management is a requirement.

x. Precious metals and stones

According to the IMF, there is no unique definition of precious metals and stones.

However, in general, precious stones will include diamonds, emeralds, sapphires and

rubies and precious metals are comprised of gold, silver, platinum and platinoid metals.

xi. Wire Transfer

“Wire transfer” means a transaction carried out, directly or through a chain of transfers,

on behalf of an originator person (both natural and legal) through a bank by electronic

means with a view to making an amount of money available to a beneficiary person at a

bank.

xii. Name Screening

The screening of customer (as well as Staff members or Third Party Service providers)

names against lists provided by relevant competent authorities both at initial on-boarding

and at the any time during the relationship.

xiii. Transaction Screening

The sanctions screening of transactions including the parties involved in the

transactions. These are typically cross-border outward and inward payments, stocks,

bonds, securities in general, as well as loans.

xiv. Watch List

Watch list is a compiled list where the financial institutions document the

institutions/individual/others that are not designated but might present financial crime

risks. This may include lists used for transaction screening only or for screening all

customer, staff and third party service provider records.

xv. Sanctions List

Any of the lists of specifically designated nationals or designated or sanctioned

individuals or entities (or equivalent) issued by any governmental or international

sanctions authority. Economic and/or trade-based measures taken by a government or

international body to promote foreign policy or national security goals against certain



jurisdictions or targeted individuals or entities. Examples of authorities that implement

sanctions include, but are not limited to, the U.S. Treasury Department‟s Office of

Foreign Assets Control (OFAC), the Council of the European Union, HM Treasury‟s

Office of Financial Sanctions Implementation and United Nations Security Council.

xvi. Correspondent Banking

The provision of Banking services by one financial institution (correspondent Bank) to

the customer of another financial institution (respondent Bank). These services may

include cash/funds management, international wire transfers, drawing arrangements for

demand drafts and mail transfers, payable-through accounts, cheques clearing etc.

xvii. Respondent Bank

A Bank that uses the services of another Bank called a correspondent bank for

performing certain services, e:g check clearing and collection, purchase and sale of

foreign exchange etc.

xviii. Nested (downstream) correspondent banking

A nested or downstream correspondent banking relationship is an arrangement where

the respondent bank provides downstream correspondent banking services to the other

Banks and Financial Institutions and processes these transactions through its own

correspondent account.

xix. Payable-through Accounts

Payable-through accounts means an account maintained at the correspondent bank by the

respondent bank which is accessible directly by a third parties to effect transactions on its

own (respondent bank‟s) behalf. In other words, the institution providing the

correspondent banking with the full range of services allows its correspondent banking

clients‟ accounts to be accessed directly by the customers of that correspondent.

xx. Shell Entity

Shell entity means a firm/company that has no active business and usually exists only in

name as a vehicle for another company‟s business operations. In essence, shells are

corporations that exist mainly on paper, have no physical presence, employ no one and

produce nothing. They are frequently used to shield identities and/or to hide money.

xxi. Shell Bank

A Bank that has no physical presence in the country in which it is incorporated and

licensed, and which is unaffiliated with a regulated financial group that is not under any

regime of effective regulation and supervision.

xxii. Offshore Entity

The term offshore entity has two definitions depending on its perspective. From the

standpoint of the principals of the company, it is a company that has been filed outside

of the country where its principals (officers, directors, shareholders, members, partners

etc) reside. From within its country of formation, it is a company that has been formed



for the purpose of operating outside of the jurisdiction where it was originally filed.

xxiii. Offshore Bank

An offshore bank is a bank located in a jurisdiction different from that where its

depositors reside. Offshore banks usually prohibit the bank from establishing business

activities in the jurisdictions of establishment. An account held in a foreign offshore

bank is often described as an offshore account.

xxiv. FATCA

“FATCA” means Foreign Account Tax Compliance Act of the United States of America

(USA) which, inter alia, requires foreign financial institutions to report about financial

accounts held by U.S. Taxpayers or foreign entities in which U.S. Taxpayers hold a

substantial ownership interest.

7. KYC, Money Laundering and Financing of Terrorism

7.1 Know Your Customer (KYC)

“Know Your Customer (KYC)” is a process of identifying the customer, verifying their

identity, monitoring their transactions and reviewing their profiles based on risk based

approach and adopting necessary measures to protect the Bank from being the vehicle

of money laundering. It is the documented norms for the Bank which enables it to

acquire the information pertaining to its customers/clients and the legitimacy of its

business/transactions so as to prevent potential risks. It requires due diligence that the

Bank must implement to identify its clients and obtain relevant information as detailed

as possible pertaining to the dealings or doing business or financial transactions with

them. It is the measures implemented to validate the legitimacy of the customers‟

transactions and their information.

In this regard, it is absolutely imperative to know clearly the customer identity, source

of fund/assets and nature of transaction. Proper documentation for the KYC should be

a pre-condition.

7.2 Money laundering (ML)

Money laundering is the process by which criminals attempt to hide and disguise the

true origin and ownership of the proceeds of criminal activities, thereby avoiding

prosecution, conviction and confiscation of criminal funds.

Difference between money laundering and terrorist financing is that the funds

involved may originate from legitimate sources as well as criminal activities. Such

legitimate sources may include donations or gifts of cash or other assets of

organizations, such as foundations or charities that, in turn, are utilized to support

terrorist activities or terrorist organizations. That is known as terrorist financing

though having legitimate source.

Terrorist financing involves the solicitation, collection or provisions of funds with the

intention that they may be used to support terrorist acts or organizations. Funds may

stem from both legal and illicit sources. More precisely, according to the International

Convention for the Suppression of the Financing of Terrorism, a person commits the



crime of financing of terrorism “if the person by any means, directly or indirectly,

unlawfully and willfully, provides or collects funds with the intention that they should

be used or in the knowledge that they are to be used, in full or in part, in order to carry

out” an offense within the scope of the Convention.

The primary goal of individuals or entities involved in the financing of terrorism is

therefore not necessarily to conceal the sources of the money but to conceal both the

financing and the nature of the financed activity.

A technique that is used to conceal the source of money is termed as money

laundering with ultimately used for terrorist financing. Funds used to support terrorism

may be originated from legitimate sources, criminal activities or both. Both kind of

activities are under the Bank's close monitoring and controlling.

7.3 Financing of Terrorism

Terrorist financing involves the solicitation, collection or provisions of funds with the

intention that they may be used to support terrorist acts or organizations. Funds may

stem from both legal and illicit sources. More precisely, according to the International

Convention for the Suppression of the Financing of Terrorism, a person commits the

crime of financing of terrorism “if the person by any means, directly or indirectly,

unlawfully and willfully, provides or collects funds with the intention that they should

be used or in the knowledge that they are to be used, in full or in part, in order to carry

out” an offense within the scope of the Convention.

The primary goal of individuals or entities involved in the financing of terrorism is

therefore not necessarily to conceal the sources of the money but to conceal both the

financing and the nature of the financed activity.

7.4 Impact of Money Laundering and Financing of Terrorism

The consequences of money laundering could be extremely serious and can affect

the financial system of the Bank as well as country as a whole. All concerned

should, therefore, fight against it collectively. A few examples of its effect could

be as follows:

Volatility of capital flows and exchange rates due to un-anticipated cross border

asset transfers.

Unexplained, unusual and rapid changes in supply and demand of money.

Contamination in the legal financial transactions thereby affecting on whole

economy.

Increase in illegal activities due to increased cash flow and thereby affecting the

society.

Liquidity risks to the Bank on account of large deposits / withdrawals in cash.

7.5 Possible Sources of Criminal Wealth

As money laundering is a necessary consequence of almost all profit generating

crime, it can occur practically anywhere in the world. Generally, money launders

tend to seek out areas in which there is a low risk of detection due to weak or

ineffective anti-money laundering programs. Because the objectives of money

laundering is to get the illegal funds back to the individual who generated them,



launderers usually prefer to move funds through areas with stable financial

systems. Therefore, Banks have been the targets for money launderer.

The following, but not limited to, could be the sources of criminal wealth

generation:

Terrorism, Drug / Human/ Human organs Trafficking, Illegal arms trade,

Smuggling, including movement of nuclear materials

Other organized crime

Corruption/Embezzlement /Tax evasion

Counterfeiting, including making of imitation and copies of original

products/goods

Facilitating illegal immigration

Homicide, theft, fraud, forgery including computer/ electronic/ software/

hardware fraud.

Offence relating to Nature conservation and forestry, Cooperatives, Banking,

Ancient Monuments/Art and Antique

Investment in terrorist activities

Offence relating to Foreign Exchange

Other Offences prescribed by Nepal Government under any other law or

Treaty/Convention to which the Country is a party.

7.6 Money Laundering Process

The following are the basic possible process used for money laundering depends

on the available laundering mechanisms and the requirements of the criminal

organizations:

1. Placement

2. Layering 3. Integration

Out of the above steps, Money Laundering may occur separately,

simultaneously or in phases overlapping one another. In all the three steps, the

money gathered illegally is brought into the financial system through financial

institutions. The steps are elaborated below in details:

1. Placement: In the initial or placement stage of money laundering, the

launders introduces his illegal money into the financial system. This might be

done by breaking up large amounts of cash into less conspicuous smaller

sums that are then deposit directly, into a bank account, or by purchasing a

series of monetary instruments (cheques, money orders, etc.) that are then

collected and deposited into accounts at another location.

The physical disposal of cash proceeds derived from illegal activity could be

done through:

a. Depositing a large amount of cash in numerous small amount

b. Investing in shares and other investments products like real state

c. Mingling of illegal cash with deposits from legitimate business

d. Exporting Cash



e. Using illegal cash to buy high value goods, property or business assets

2. Layering: Layering is the practice of separation of illegal money from its

original source by creating complex layers of financial transactions to

disguise the original source of the fund. After the funds have entered the

financial system, the second - or layering – stage take place. In this phase, the

launderer engages in a series of conversions or movements of the funds to

distance them from their source. The funds might be channeled through the

purchase and sales of investment instruments, or the launderer might simply

wire the funds through a series of accounts at various banks across the globe.

This use of widely scattered accounts for laundering is especially prevalent in

those jurisdictions that do not co-operate in anti-money laundering

investigations. In some instances, the launderer might disguise the transfers as

payments for goods or services, thus giving them a legitimate appearance.

A few examples are:

a. A company may route money through its accounts showing the sales

proceeds of fake invoices

b. A customer may incur a large credit card debt from an account and repay

the loan from the illegal source.

c. Customer can open a fixed deposit (from the money earned illegally) in a

bank and avail loan against it.

d. Cash deposited in overseas banking system

e. Resale of goods/assets

3. Integration: Having successfully processed his criminal money through the first

two phases of the money laundering process, the launderer then moves them to

third stage – integration – in which the funds re-enter the legitimate economy.

The launderer might choose to invest the funds into real estate, luxury assets, or

business ventures. So that no one would suspect its origins.

7.7 Methods of Money laundering

a. Legitimate Business/Commingling of Funds: (Criminals take over and/or invest

in businesses that customarily handle a high cash-transaction volume mixing the

illicit proceeds with that of the legitimate business).

b. Reverse flip: (A money launderer may find a property seller who agrees to a

reported purchase price well below the actual value and then accepts the

difference "under the table".)

c. Loan back: (A criminal provides an associate with a specific amount of

illegitimate money and the associate provides a "loan or mortgage" back to the

criminal for the same amount with all the necessary "loan and/or mortgage"

documentation)

d. Frequent account closing

e. Shell Company: (a company that is incorporated but has no significant assets or

operations / presence)

f. The use of Conduit Account

g. Underground or Parallel Banking System (Individual or Institution involved



massively in informal lending and borrowing giving room to money laundering)

h. Use of the new payment technologies like Smart Cards, Online Banking and

Electronic Cash etc.

The Bank should be more vigilant and should administer the robust controlling,

monitoring and reporting system to prevent money laundering and financing of

terrorism. The Bank is exposed to several risks if it fails to prevent the Bank being

used for M/L and F/T activities.

8. Governance, Oversight, Structure and Roles/Responsibilities

In order to effective management of money laundering/ financing of terrorism risk,

the Bank shall be carried out the following role and responsibilities of various

authorities in regard to AML/CFT compliance:

8.1 Board of Directors (BODs)

The Board of Directors shall be responsible for formulate internal policy/ procedure

and ensuring the appropriateness, sufficiency and effectiveness of the policy adopted

by the bank based on the overall risk level of the bank on prevention of money

laundering and financing of terrorism. Also, the board shall ensure that the policy/

procedure is comprehensive for key business and support functions, and establish a

method for monitoring compliance of the same. The Board shall review of the report

submitted by AML/CFT Committee of the Board in regard to AML/CFT compliance

and activities carried out thereon.

8.2 Asset (Money) Laundering Prevention Committee (ALPC)

There shall be a Board level committee called “Assets Laundering Prevention

Committee (ALPC)” to review an effective implementation of bank‟s AML & CFT

compliance program. Which shall to assist the Board of Directors in fulfilling its

oversight on Bank‟s compliance with the requirements of AML & its regulations.

The Committee should seek report on activities carried out by the compliance

department relating to AML/CFT and discuss on the Assessment, Measurement,

Monitoring and Control of various Risks relating to money laundering and

financing of terrorism and make necessary recommendations to the Board, as

appropriate.

Recommend the BOD for the formulation of Policies and Structures in line with

the provision of NRB Directives, Guidelines and Appropriate Practices for

Management of risk relating to Money Laundering.

Understand ML & TF risk of the bank, take measures to mitigate those risk.

Ensure compliance of AML & CFT program.

8.3 Chief Executive Officer (CEO)

Chief Executive Officer is the head of the management which shall be primarily

responsible for the implementation and ensure effective compliance of the

AML/CFT Policies/procedure and guidelines of the Bank/Regulators. The

illustrative but not exhaustive roles and responsibilities of Chief Executive Officer

of the Bank related to this Policy are as bellows.



The CEO shall ensure that the bank has all required procedural guideline in place

to effectively achieve the objectives of this policy.

Make clear indication of balance between business risk and mitigating measures

ensuring compliance at all times,

Ensure the autonomy of the designated officials related to AML & CFT. The

CEO shall promote compliance as a culture and consider AML/CFT compliance

as a basic ethic of doing business.

All the procedural guideline containing the controls, monitoring and reporting

procedures will be approved by the CEO.

The CEO shall also ensure that sufficient resources and required access to

information, documents and staffs have been arranged to carry out compliance

functions efficiently and effectively.

8.4 Senior Management

Ensure the adequacy of Bank's policy or strategy to prevent ML & TF,

Emphasize on effective implementation of bank‟s AML & CFT compliance

program,

Allocate the point of contact for clarification in case of any ambiguity arise,

Allocate enough human and other logistics to effective implementation of AML &

CFT compliance program,

Be responsive of the level of money laundering and terrorist financing risk where

the bank is exposed,

8.5 Compliance Officer

The Bank shall appoint Head of compliance department as a compliance officer,

who shall be senior level officer to function as a focal point and implementation of

this policy, Acts, rules and regulations, and directives from regulatory body

regarding Anti-Money Laundering and Combating Financing of Terrorism.

The Bank shall report name, address, qualification, contact number, email address

etc of the compliance officer to FIU-Nepal and report all such details of new

incumbent in case of change. The Bank shall ensure following functions, rights and

duties of the compliance officer and required resources for the same:

Major role/ responsibilities of Compliance Officer

To ensure compliance with Assets (Money) laundering prevention Act, Assets

(Money) Laundering Prevention Rules and Nepal Rastra Bank‟s Directive. It is

to ensure that the bank does not cross the lines drawn by laws, rules and

regulations.

Independent on submission of STR/TTR and any document or information to

FIU. He/she shall maintain the confidentiality of STR/TTR and any document

or information required by laws and instructions by FIU.

Maintain the day-to-day operation of the bank‟s AML&CFT compliance.

Shall be liable to CEO, Board Committee or BOD for proper functioning of

department.

Ensuring submission of periodical reports to the Top Management /Board level



committees/Board.

Ensure that corrective actions have taken by the bank to address the deficiency

identified by the FIU or NRB.

Drafting policy, procedures and guideline for effective compliance of

AML/CFT provisions and NRB Directives.

Recommending for departmental punitive action to the officials or employees

who do not submit data, information, details, records or documents sought in

the course of fulfilling the obligations as per the AML/CFT provisions and

NRB Directives.

Compliance Officer shall be supported by necessary number of officers and staff

posted at Compliance Department. In the course of discharging duties by

Compliance Officer, he/ she shall regularly consult CEO and other officer in regard

to AML/CFT related issues, its compliance status and initiatives to be taken for

improving the same

8.6 AML/CFT Officer

There shall be an AML/CFT unit leaded by AML/CFT officer to support

compliance officer. The AML/CFT Officer posted at Compliance Department shall

have the responsibility of ensuring KYC/AML/CFT policy of the Bank along with

the AML/CFT provisions and NRB Directives.

Major role/ responsibilities of AML/CFT Officer

Overall monitoring of implementation of Bank‟s AML/CFT policy.

He/she shall monitor the compliance status of AML/CFT provisions, obtain

information/report from the branches/extension counters, analyze the same and

report to Compliance Officer

He/she shall regularly consult Compliance Officer in regard to AML/CFT

matters and perform all other AML/CFT/Compliance related functions as

assigned by Compliance Officer and/or deemed necessary.

Officer AMLCFT and compliance functionaries shall regularly monitor the

transactions/ customer activities/KYC status and communicate to the concerned

employees, regional office, departments/branches/extension counters in regard

to unusual transactions/suspicious activities and shall advise concerned

employees/ branches/ offices for submission of related documents/information

where required.

While making any such correspondence/ communication, they shall ensure, on

their part as well as on the part of the concerned, that there is no tipping off.

Analyzing and investigating the information related to suspicious and unusual

activities received from departments, officials and employees.

Timely submission of Threshold Transaction Reports (TTRs) and Suspicious

Transaction Reports (STRs) to FIU.

Seeking for and obtaining the service of experts from any department/officials

and/or necessary data, information, details or documents from concerned

employee of the Bank.

Interaction with KYC Officers in Branches/Offices/Departments for ensuring



full compliance with the Policy.

Updating the list of predicate offenses under the laws and circulating to the

Branches/Extension Counters.

Performing other KYC/AML/CFT compliance related functions as prescribed

by FIU-NRB from time to time.

8.7 Branch Manager and Branch Level KYC/AML Officer

Branch Manager and KYC/AML Officer of Branch are the officials assigned for

effective management of Money Laundering and Financing of Terrorism risks in the

branch with direct reporting to AML/CFT Officer for AML/CFT related issues.

Branch Manager and KYC/AML Officer of Branch is the ultimate authority at

operating unit to ensure that AML/CFT provisions as per prevailing rules and

regulations and bank‟s internal policy and procedures are complied with at the

concerned branch/ extension counter. He/ she shall scrutinize the account opening

request of the customer and ensure that the relevant KYC information/documents are

obtained from the customers so as to identify and verify the customer and beneficial

owners, proper due diligence has been carried out, sanction screening has been

conducted, necessary approval has been obtained from higher authority where

required and all other AML/CFT guidelines have been complied with before

establishing business relation.

He/she shall ensure that the transactions of the customers are being monitored and

all unusual/ suspicious transaction/ activity have been reported. He/she shall have to

certify regarding compliance with KYC/AML/CFT guidelines and reporting of

unusual /suspicious activity/transactions. He/she shall further ensure that inquiry/

investigation about any customer and reporting of unusual / suspicious activity/

transaction are not tipped off by the concerned employees to any customer, unrelated

staff or any other party as the same is punishable act.

Major responsibilities of BM and Branch Level KYC/AML Officer

Branch KYC/AML Officers shall be responsible for ensuring proper

implementation of control, and monitoring and reporting procedure across the

branch under their control to prevent ML/CFT.

Branch KYC/AML Officers shall act as focal point of contact for matters relating

to AML/CFT. Liaison between Compliance Department and the Branch for AML /

CFT related task / activities.

Responsible for executing the duties as required by various guidelines framed

under this policy from time to time.

Other major duties shall be as follow:

To interview the potential customer

To verify the introductory reference/customer details / profile.

KYC Compliance Related Responsibility.

Customer Due Diligence (CDD)/Enhanced Customer Due Diligence

(ECDD) related responsibility.

Suspicious Transaction / Activity Reporting Responsibility.

Other roles and responsibilities of Branch KYC/AML officers shall be

covered in their job description.



8.8 Individual Employees

It shall be the responsibility of every individual employee of the bank to remain

vigilant to the possibility of money laundering / terrorist financing risks through use

of bank‟s products and services. All the staffs of the bank shall adhere code of

conduct relating to prevention of money laundering and combating financing

terrorism. Compliance is the responsibility of each employee in their normal course

of assignment of their business.

8.9 Control Functions of Internal and External Auditors

8.9.1 Internal Audit

Bank‟s Internal Audit will provide an independent evaluation of compliance with

AML/CFT Policy including legal and regulatory requirements in regard to

AML/CFT. Internal Auditor shall carry out audit of AML/CFT compliance status at

the branches at least once a year or at more frequent intervals. During the audit, they

shall specifically check and verify the AML/CFT procedure along with the

forms/formats being used at the branches and comment on the lapses observed in

this regard. A copy of the report in regard to status of AML/CFT compliance at

branches shall also be provided to Compliance Department by Internal Audit

8.9.2 External Audit

External auditor may also play an important role in reviewing the adequacy of AML

& CFT controls by communicating their findings and recommendations to

management via a letter, which accompanies the audit report. External auditor would

be risk-focus while developing their audit programs and conducts intensive reviews

of higher risk areas where controls may be deficient. External auditors may report

incidences of suspected criminal activity uncovered during audits in its audit report.

9. KYC Policy Guidelines

KYC policy incorporates the following four key parameters:

Customer Identification Procedures (CIP)

Customer Acceptance Policy (CAP)

Monitoring of Transactions

Risk Management.

9.1 Customer Identification Procedures (CIP)

Customer Identification Process (CIP) is a critical part of the Customer Due Diligence

process. It is essential to establish the true identity of the customers and be assured that

the customers are not involved in any kind of money laundering and terrorist activities.

Customer identification means identifying the customer and verifying his/her identity

by using reliable, independent source documents, data or information. The spirit of

Customer Identification is to ensure and keep in records the proper identities of the

prospective customers/customers and verify the purpose of their intended relationship

with the Bank.

Sufficient information needs to be obtained to the satisfaction, which is necessary to

establish, the identity of each new customer, whether regular or occasional, and the



purpose of the intended nature of banking relationship. Satisfaction means to be able to

satisfy the competent authorities that due diligence was observed based on the risk

profile of the customer in compliance with the extant guidelines in place.

The customer Identification Procedures are to be carried out at the following

stages:

a. While establishing a banking relationship.

b. When relationship manager/officer feels it is necessary to obtain additional

information from the existing customers based on the conduct or behavior of

the account.

c. Customer Identification shall also be carried out in respect of non-account

holders approaching bank for transaction of walk-in customers.

d. When signatories change, care should be taken to ensure that the KYC of any

new signatories has been updated.

e. Identification Process of Ultimate Beneficial Owner:

The beneficial owner is an individual or entity that enjoys the benefits of owning

an, regardless of whose name the title of the property or security is in. When

establishing relationship with customer, the Bank shall verify the identity the

natural person behind the transactions for example: who owns, controls or on

whose behalf the transaction is being done etc. It shall be based on the

existing legal and regulatory framework.

Customer identification is an essential part of KYC & CDD measures. For the

purpose of this Policy, CIP includes:

The first requirement of Customer Identification Procedures (CIP) is to be

satisfied, that a prospective customer is actually who he/she claims to be. The

second requirement of CIP is to ensure that sufficient information is obtained on

the identity, purpose and nature of their banking relationship. This would enable

risk profiling of the customer and expected or predictable pattern of transactions.

Customer‟s identity shall be verified through reliable documents, i.e. documents

issued by competent authorities. The identification documents include all

documents deemed necessary by the Directives of NRB/FIU and the KYC and

AML/CFT framework of the country. For a customer that is not a natural person, it

has to be ensured that it is a legal entity and is engaged in legitimate activities.

Basic information regarding the customer‟s identification, addresses, relationships,

occupations and sources of income/fund, expected income, expected

turnovers/transactions and purpose of establishing a relationship with the Bank

needs to be acquired.

The ownership and control structure of the customer (in case of a legal entity) and

the natural person(s) who have ultimate control over the management and decision

making shall be identified. Identifications and other documents and information

deemed necessary by Directives of NRB/FIU and the KYC and AML/CFT

framework of the country needs be obtained and verified for joint applicants,

beneficial owners, power of attorney holders and nominees, wherever applicable.

The customer or its agent should be physically present at the Bank and have a face-

to-face communication with the designated staff at the branch of the Bank while



establishing a banking relationship. Required copy documents should be verified

with the originals and self-attestation from customer should be sought.

Beneficial owners and those who have control over funds including for legal

persons as trusts, nominees etc. shall be identified. If the names of third persons are

being used to conceal the identity of beneficial owners, all endeavors shall be made

to understand the same and to ensure that it is appropriately reported. The Bank

need to identify the ultimate beneficiary owner up to the level of natural persons

exercising control over the legal person by the means of ownership interests/chain

of control/holding senior positions etc.

Names of the applicants shall be searched in the lists of Politically Exposed

Persons (PEPs) and sanctions list. A database containing High Risk Persons

including PEPs and High Ranking Officials (HROs) and sanctioned

entities/individuals shall be made available to search before opening and during

maintenance of accounts.

9.2 Customer Acceptance policy (CAP)

The Bank shall accept those customers request to establish the business

relationship only if it shall comply with provisions in the Act, Rules, Directives,

policy and Manual. The Customer Acceptance Policy ensures that only those

customers whose identity and purpose of opening accounts or performing

transactions can be duly established and verified as legitimate by conducting due

diligence appropriate to their risk profile/services required would be accepted. The

Bank shall may deny the request of the customer to open the amount and/or

establish the business relationship if it could not identify and verify the customer‟s

identification.

The guidelines for Customer Acceptance Policy (CAP) for the Bank are as below

mentioned:

i. No account should be opened in anonymous or fictitious/benami name.

ii. The Bank should not allow the opening of or keep any anonymous account or in

fictitious name or account on behalf of other persons whose identity has not been

disclosed or cannot be verified.

iii. The Bank shall not establish relationship and do not transactions with Shell Companies

and shall not be associated with entities located in non-cooperating countries or those

sanctioned by agencies that the Bank refers to. Also, the Bank shall check customers‟

database with the sanctions List on a regular basis. Account of sanctioned

person/entity, if found being maintained, shall be blocked/closed and be informed to

FIU.

iv. The Bank shall not provide sub-correspondent banking activities (nested accounts) to

other banks. Bank shall not allow direct use of its correspondent account by third

parties (payable through account).

v. No account would be opened, if Bank is unable to apply appropriate customer due

diligence measures i.e. Bank is unable to verify the identity and / or obtain documents

required as per the risk categorization due to non-cooperation of the customer or non-

reliability of the data / Information furnished to the Bank.

vi. Before opening a new account, necessary documents scrutiny process shall be



conducted. On boarding customer names must be screened against sanction list and

PEPs list. So as to ensure that the identity of the customers/entities/persons associated

with the entities does not match with any person with known criminal background or

with closed/expired entities such as individual terrorists or terrorist organizations etc.

Accounts of persons having relationships with banned entities such as individual

terrorists or terrorist organizations/FATF Non Cooperative Countries etc. shall not be

opened. Watch list / Sanction List/List of Non cooperative Countries published by

UN/EU/USA/Other International Authorities shall be one of the sources to identify the

same.

vii. Customer on whose behalf (i.e. Beneficial Owner), the accounts are maintained and

operated; such information needs to be obtained while accepting the customer and

capture the same in Bank‟s CBS.

viii. Accounts of persons who have been convicted and are in jails can be opened with

suitable safeguards decided on case to case basis. However, it should be ensured that

banking facilities are not denied, for genuine purposes, merely for the reason that

criminal charges have been labeled against them or they have undergone some form of

punishment in the past. Therefore, it should be decided on case to case basis.

ix. For online account opening process, any transaction or service shall be permitted only

after the customer reports in person (face-to-face) at the respective branch or to the

authorized agent/sub-agent/representative of the bank and the required documents are

duly acquired and verified by the designated staff/agent/sub-agent/representative of the

Bank within prescribed time frame. Notarization/attestation of required

documents/information from competent authorities/Notary Public and/or diplomatic

missions abroad can also be accepted. If the customer fails to do so, the account shall be

closed.

x. Customers shall be accepted after verifying their identity as laid down in customer

identification procedures. Documentation requirements Policy on KYC Norms and

AML Measures and other information shall be collected keeping in view the

requirements of AML Act, and instructions/guidelines issued by NRB / Bank from time

to time.

xi. No transaction shall be carried out related to virtual currency/crypto currency

xii. No transaction shall be carried out related to online gambling

xiii. Multiple accounts of same natured shall not be opened in name of natural person.

9.3 Monitoring of Transactions

The customer transaction monitoring system is the screening mechanism of

account/transactions to ensure that the accounts or transactions are conducting a valid

legitimate purpose and by no means are used in money laundering and terrorist

financing or any other illegitimate activities. It helps to know the customers and to

detect unusual or suspicious activities .The extent of monitoring of accounts and

transactions shall be guided by the degree of risk associated with the

accounts/transactions and the anomaly in the transactions with respect with the KYC

declarations of the customers.

Ongoing monitoring is an essential element of effective KYC procedures. Risk can be

effectively controlled and reduced only if an understanding of the normal and



reasonable activity of the customer is available to identify transactions that fall outside

the regular pattern of activity. However, the extent of monitoring shall depend on the

risk sensitivity of the account.

Some of areas need to attention to monitor customer transactions

Special attention shall be paid to all unusually large complex transactions and having

unclear economic and business purposes.

Transactions conducted in relatively large amount of cash/swift and conducted

unnaturally (i.e. structuring and smurfing) shall attract special attention.

Very high account turnover inconsistent with the size of the balance maintained may

indicate that funds are being 'washed' through the account.

Monitoring if the same person remitting funds to more than one beneficiary and vis

a vis same beneficiary receiving funds from different senders, person trying to wire

money out of the country without proper identification, supporting documents

and/or purpose, cash and cross border transactions reasonably suspected to have

been conducted with the purpose of evading the threshold reporting etc.

For accounts/transactions that are in higher risk category needs to be monitored

closely.

A dedicated team under KYC/AML/CFT unit under Compliance Department for

carrying out monitoring AML/CFT functions of the bank. Though the department

analyzes the alerts on transactions handled across the Bank with the help of auxiliary

software called AML solution system, also the arrangement is in place to monitor the

transactions and generate reports on manual basis.

Promptly in order to ascertain these alerts as suspicious transaction within the

specified time frame. However, the concerned functionaries should not tip off the

customer and/or divulge the information called for by compliance department to the

customer concerned /others, nor should the transactions in account being investigated

should be stopped/restrained. It is reiterated that the communications/investigations

are of strictly confidential nature and are required to be handled tactfully.

9.4 Risk Management

Absence or inadequacy or non-adherence of KYC standards which may exposed to

various risks like Reputation Risk, Compliance Risk, Operational Risk, and Legal

Risk. The Risk management is to be compliant with the KYC and AML/CFT related

Policies, Guidelines and practices. The threats of identity disguise, money laundering

and terrorist financing shall be eliminated to the possible extent through effective

CDD programs and procedures.

The Bank should maintain “Customer Risk Profile” both for new as well as existing

customers based on the declaration/ information furnished by the customer during the

course of business relationship, so as to understand customer‟s intended relationship

with the Bank.

The customer risk profile would give an idea as to what type of transactions /

activities are expected in the account. This information is valuable for monitoring the

activities in the account. Based upon the information given by the customer and



recorded in the Customer Profile regarding his/ her occupation/ activity/ source of

funds etc., a “threshold limit” in each particular account is to be determined.

For Risk Management, the Bank shall devise a risk based approach where all

customers shall be categorized as Low, Medium and High risk category, based on the

assessment and risk perception of the Bank.

9.4.1 Risk Identification, Evaluation and Risk Details

Bank shall identify and evaluate the risk of Money (assets) laundering or terrorist

activities based on customer (nature and type), scope of transactions geographical

location, profession or business, service or product, distribution channel etc.

While identifying and evaluating the risk assessment, the Bank shall consider the

findings of national and regulatory risk assessment.

9.4.2 Risk Grading of Customer Accounts

The bank shall follow three levels risk grading system, all customer accounts and

relationships shall be graded into low, medium and high risk accounts at the time

of accounts opening according to the assessment of level of KYC based risk they

carry and same shall be inputted in Bank‟s core banking System as per code (HR

for high risk account, MR for medium risk account & LR for lower risk account)

to identify the risk through the system itself. CSD staffs shall mandatory choose

the given options while opening the account on the basis of the risk associated in

account. Such risk categorization shall be same with one mentioned under KYC

enquiry form.

Periodical reviews of all accounts regarding its risk categorization have to be

carried out at the prescribed intervals. It is to be noted that the Risk Grade may go

up and down based on the account monitoring. In such case and even in case

where the Risk Grade does not move at all, the same has to be marked/recorded in

the KYC enquiry form along with reason and date but without tempering the

previous Risk Grade. Any up or down grading shall require approval from BM/BI

or designate and same has to be implemented in system too. Further, care must be

taken that the Risk Grading done by the Bank, being strictly confidential, shall not

be disclosed to the customers, neither to unrelated staffs.

Risk categorization should be based on the factors like location/territory/working

area, nature/type of business/occupation, customer, product or service, transaction,

channel etc. It is to be specifically noted that risk categorization is meant for

proper monitoring of accounts and does not reflect in any way on the account

holders.

The processes of KYC risk categorization for accounts/relationships belonging to

different lines of business are explained below which is illustrative only:

9.4.2.1 Low risk transactions / relationship (Category A)

Individuals (other than High Net Worth) and entities, whose identity and source of

income, can be easily identified, and customers in whose accounts the transactions

conform to the known profile, may be categorized as low risk.



The following customers/beneficiaries are under Low Risk Grade:

a. Accounts of Government/Statutory/Semi-government bodies/ corporations

/agencies,

b. Public Limited Companies listed with Nepal Stock Exchange,

c. Banks and Financial Institutions under Nepal Rastra Bank's regulation,

d. Foreign Banks and Financial Institutions which are not from non-cooperative

/watch list countries,

e. Those customers, whose information is available in public domain,

f. All other relationships with borrowing facilities for which the KYC process is

completed in the loan/limit approval process. The Credit Application (CA)

needs to certify that required KYC process has been completed and all

relevant documents have been obtained,

g. International non-government organizations, International charity

organizations, UN bodies, International development agencies,

Embassies/diplomatic missions/consulate offices (except those of non-

cooperative and watch list countries/high risk countries),

h. Social security allowances/grants/supports/reliefs and by Government of

Nepal,

i. Salaried employees /pensioners whose income structures are well defined,

j. People belonging to lower economic strata of the society whose accounts

show small balances and low turnover,

k. All such accounts/customers as classified by Financial Information Unit

(FIU) Nepal as Low Risk Accounts/customers etc.

l. Except in the situation of falling under High or Medium Risk Grade;

transaction related with other person, institution for whom FIU has not

required reporting of threshold transaction,

9.4.2.2 Medium Risk Transactions / relationship (Category B)

Customers that are likely to pose a higher than lower risk to the bank may be

categorized as medium risk, depending on customer‟s background, nature and

location of activity, country of origin, sources of funds and client profile etc.

The following customers/transactions are under this Risk Grade :

a. Transaction which may happen due to massive use of technology. For example

Debit Card, e-Banking, Mobile Wallet etc.

b. Transaction of Firm, Company, Institution or business person who do not

require disclosing or who do not disclose self-financial condition regularly,

c. Transaction of nonprofit oriented domestic and foreign Non-Governmental

Organization and relating to persons associated with it,

d. Transaction with National security bodies.(Nepal Army, Police forces),

e. Individual/person engaged in sole proprietorship small/medium size Business,



f. All other accounts which do not fall in either Low Risk Accounts/Relationship

categories or High Risk Accounts/Relationship should be categorized as

Medium Risk Accounts/Relationship,

g. All such accounts/customers as classified by Financial Information Unit (FIU)

Nepal as Medium Risk Accounts/customers etc.

9.4.2.3 High Risk Transactions / relationship (Category C)

Customers who are likely to pose a higher than medium risk should be

categorized high risk depending on the background, nature and location of

activity, country of origin, sources of funds, customer profile, etc. Customers

requiring high level of monitoring are categorized as high risk.

The following customers/transactions are under this Risk Grade:

a. Transaction and transaction relating to directly or indirectly assisting

terrorism, terrorist activities, terrorist organization, organized crime, narcotic

drugs or any other type of criminal activities,

b. Nepali or foreign citizens who are categorized as PEPs and, as far as

information is available, their family, close relative or firms, company or

association/institution associated with them,

c. Transaction of business or business persons who are involved in cash

intensive business of bullion dealers (including sub-dealers) & jewelers,

Casino, Land & Building (Real Estate Business),Travel Agencies, should be

categorized as High Risk,

d. Those who are engaged in certain professions where money laundering

possibilities are high e.g. antique dealers (individuals and entities), Money

Services Bureau (entities–non employees of these entities) and dealers in

arms etc.

e. Trusts, charities, NGOs and organizations receiving donations,

f. Transaction which could happen non-face to face,

g. Transaction with offshore bank and financial institution,

h. Transaction of non-resident customer (Other than Nepali)

i. High Net-worth Individuals (HNI).

j. Transaction with the Citizen or other person or Institution of the Country

which is banned or warned financially by United Nations or other

International Organization,

k. Customers covered in mass media as involved in money laundering and other

financial crime,

l. Understood/heard to be involved in evasion/misappropriation of tax, custom,

fees or other revenue and other persons involved in any way with them,

m. Transaction with domicile or others of the country determined to be non-

cooperative by Financial Action Task Force or Citizens or others of the

Country which has not followed the required standard to stop financing in

terrorist activities,

n. Transaction with Country, Citizen or Organization of the Country which is

not cautious in knowing customers (KYC),



o. Transaction relating to those who are warned by the Regulators of different

Nations,

p. All deposit accounts (including accounts used for servicing of consumer loan

accounts) of persons/institute involved in activities/businesses considered to

be particularly vulnerable to money laundering risk such as network

marketing.

q. Fraudulent transaction or suspicious fraudulent transaction or attempt of

fraudulent transaction reported in the past etc.

r. Business where transaction frequently happens in cash

s. Any doubtful and unclear transactions of account holder, where the ultimate

beneficiary‟s involvement is hidden.

t. Companies having close family shareholding or beneficial ownership.

u. Firms with „sleeping partners‟.

v. All such accounts/customers as classified by Financial Information Unit

(FIU) Nepal as High Risk Account/customers.

9.4.3 Residual Guideline for Risk Grading

The primary guideline of risk grading is given to above (referred to 9.4.2) is the

major guideline and residual guideline below is applicable for remaining event not

covered by primary guideline.

Without diluting the customer/transaction categorically kept under the respective

Risk Grading as above, for other customer/transaction, which does not fall under

any of the above category specifically, the following shall be a basis to grade the

Risk:

a. Low Risk: Debit or credit summations of Individuals below Rs.10

million and Organizations, Business Enterprises and

Companies below Rs.20 million yearly,

b. Medium Risk: Debit or credit summations of Individual above Rs.10 million

and below Rs. 20 million and Organizations, Business

Enterprises and Companies above Rs. 20 million and below

Rs.30 million yearly,

c. High Risk: Debit or credit summations of Individuals above Rs 20

million and Organizations, Business Enterprises and

Companies above Rs. 30 million yearly.

Clarification: For existing accounts summation for last year will be considered and

for new accounts projected level will be considered. Loan accounts and other accounts

related with the loans & Balance transfer from main account to nominee account at the

time of maturity, (i.e. Fixed Deposit amount transfer to nominee account after

maturity) shall not be considered for this process.

9.4.4 Monitoring Frequency of Risk Grading Accounts

The Bank shall collect and update the customer‟s information continuously and shall

ensure that Risk Grading of all customer accounts should be in tacked. Periodic

reviews and renewals (Low, Medium and High-Risk Customers) must review and



conduct the process of customer due diligence (CDD) as per following frequencies.

I. High-risk accounts: All the accounts/relationships under high risk category

should be reviewed at least one in a year.

II. Medium-risk accounts: All the accounts/relationships under medium risk

category should be reviewed at least in every 3 years.

III. Low-risk accounts: All the accounts/relationships under low risk should be

reviewed at least in every 5 Years.

IV. For those low risk customers/accounts, who have to follow Simplified AOF/

KYC standard and have annual turnover below Rs 1 lakh (<100,000), the review

period shall be at least once in every 8 years.

9.4.5 Risk Based Approach (RBA)

A risk based approach is a process that helps to identify potential high risks of

money laundering and terrorist financing and develop strategies to mitigate them.

The following are the steps applicable under RBA.

Recognize the existence of risk(s)

Undertake an assessment of the risk(s)

Develop strategies to manage and mitigate the identified risks.

Once the Bank has identified the risk, the second step of the risk

assessment/evaluation process entails a more detailed analysis of the data

obtained during the identification stage in order to more accurately assess

ML/TF risk. For this purpose, The Bank have to develop risk identification and

analysis procedure to assess the level of risk exposure considering product and

customer risk from the AML/KYC point of view and derive appropriate

security measures from the analysis.

9.4.5.1 Inherent Risk

A Bank is required to assess the risks inherent in its business, taking into account

risk factors including those relating to its customers, countries or geographical areas

in which it operates, products, services, its transactions and delivery channels. In

order to identify bank‟s inherent risks, assessment across the following four major

inherent risk categories is commonly undertaken, although other factors may also

be considered:

1. Geography/Country Risk

2. Customer Risk

3. Product & Service Risk

4. Delivery Channel Risk

The following are more specific inherent risks which need to monitor /control and

mitigate them effectively. Inherent risk refers to risk that exists before the

application of controls or mitigation measures.

Geography/Country Risk

Not all countries carry the same risks and Bank need to be aware of the specific

risk environments .Country risk, in conjunction with other risk factors, provides



useful information as to potential money laundering and terrorist financing risks.

Country risk is not solely related to the country of origin of a customer. The Bank

shall take into account that a customer may have business interests in or relevant

links to a country that may signify that the customer should be placed in a high risk

category. Bank should identify domestic and international geographic locations

that may pose a higher risk to its AML/CFT compliance program. Each case

should be evaluated individually when assessing the risks associated with doing

business, such as opening accounts or facilitating transactions, in certain

geographic locations.

There are several factor that determine higher risk possession for example,

Countries subject to sanctions, embargoes or similar measures issued by the

United Nations/EU/USA or FATF;

Countries identified by credible sources (e.g. FATF, FATF-style national

authorities or other recognized evaluation bodies) as lacking adequate money

laundering laws and regulations;

Countries identified by credible sources as providing funding or support for

terrorist activities and having significant level of corruption or other criminal

activities.

Customer Risk

This risk should be assessed for the purposes of identifying the inherent money

laundering risk of Bank‟s client base and business relationship. A Bank shall

determine, based on its own criteria, what risks a particular customer poses.

Certain customers and entities may pose specific risks depending on the nature of

the business, the occupation of the customer, the nature of anticipated transaction

activity and as prescribed based on the KYC/AML policy and regulatory

guidelines, the Bank shall determine whether a particular customer poses a higher

risk of money laundering and terrorist financing or not. Determining the potential

money laundering and terrorist financing risks posed by a customer, or category

of customers, is critical to the development of an overall risk framework to the

Bank.

Product and Service Risk

Products and services offered by the Bank may pose a higher risk of money

laundering or terrorist financing depending on the nature of the specific

product or services. Such products and services may facilitate a higher degree

of anonymity, or involve the handling of high volumes of currency or

currency equivalents. Therefore, product design process of the bank shall

duly consider AML risk factor while designing the risky product. The product

risk is vulnerability and certain products are naturally more attractive to money

launderers than For example, a checking account offers more scope for

laundering than a fixed-term deposit. Factors such as the availability and

flexibility of a product could make it inherently risky from a money- laundering

perspective.

In undertaking product and service risk assessment, the bank is required to list all



its products, identify Inherent Risks, Rationale, Mitigation/ Controls, Scores,

Weights used and the Residual Risk.

Delivery Channel Risk

The Bank is providing the various modes of transaction and distribution (delivery

channels) of its products and services. Some delivery channels may be more

susceptible to ML/TF risk. Consequently it should be assessed whether, and to

what extent, the method of delivery, such as non-face-to-face or the involvement

of third parties, including intermediaries and agents, could increase the inherent money laundering risk.

In undertaking this type of assessment, the Bank is required to list all delivery

channels, identify Inherent Risks, Rationale, Mitigation/ Controls, Scores,

Weights used and the Residual Risk.

9.4.5.2 Control Assessment

Mitigating controls in form of AML/CFT policies, procedures and processes are

assessed for each business line and enterprise-wide in terms of design and

operating effectiveness and measuring the exposure to ML/TF through an

assessment of the mitigating controls.

The Bank shall follow the considerable effective assessment of the mitigating

controls.

AML/CFT Roles and Responsibilities

Training and Awareness

Enterprise-Wide Risk Assessment and Risk-Based Approach

Pre-screening and Customer Due Diligence

Suspicious Activity Report/Suspicious Transaction Report Filing

AML/CFT Self-Assessment Process

9.4.5.3 Residual Risk

Once both the inherent risk and the effectiveness of the internal control

environment been considered, the residual risk should be determined. Residual risk

is the risk that remains after controls are applied to the inherent risk. It is

determined by balancing the level of inherent risk with the overall strength of the

risk management activities/controls. The residual risk rating is used to indicate

whether the ML/TF risks within the institution are being adequately managed.

Inherent risk is typically defined as the level of risk in place in order to achieve an

entity‟s objectives and before actions is taken to alter the risk‟s impact or

likelihood. Residual Risk is the remaining level of risk following the development

and implementation of the entity‟s response

10. Customer Due Diligence (CDD)

Customer Due Diligence is the process where customer‟s pertinent information,

profile is collected for identifying, evaluating the customers and assessment of risk as



part of know your customer (KYC) process, allowing banks to better identify, manage,

and mitigate the AML related risks. The level of due diligence is based on the risk

level of the customer and thus there may be various levels of due diligence prescribed

by the regulators or decided by the bank.

Customer Due Diligence is mostly required at the initial phase of customer onboarding

process for establishing business relations as well as it is equally important for

ongoing due diligence process for existing customers to maintain/update customer

information.

Therefore the Bank conduct customer due diligence for broad reasons:

Identifying the customer and verifying its identity.

Identifying the beneficial owner and taking reasonable measures to verify its

identity.

Understanding the purpose and intended nature of the business relationship .

Conducting ongoing due diligence.

Customer Due Diligence (CDD) is the step to be taken by Bank to identify the

customers based on;

a. Information and documents submitted by customers

b. Information available in the public domain and data/ information obtained from a

reliable and independent source.

c. Interaction with the customer and monitoring the transactions and activities

(monitoring is applicable in case of existing customer)

The Bank takes following steps to identify the customers

10.1 Simplified Customer Due Diligence (SCDD)

As mandatory part of CDD process, the Bank shall follow the Simplified

Customer Due Diligence (SCDD) approach for those customers who fall under

lower risk and where information on the identity of the customer and the

beneficial owner of a customer is publicly available, or where adequate checks

and controls exist elsewhere in national systems. In such circumstances, it

could be reasonable to apply simplified CDD measures when identifying and

verifying the identity of the customer and the beneficial owner.

The Bank has to develop the separate Accounting Opening and KYC Firm for

low risk category based customer as per NRB Directive issued by regulator.

However, the bank shall continue to use the standard Accounting Opening and

KYC Firm for customer Identification process where it is applicable.

Examples of customers or accounts or transactions for whom/ which

simplified CDD measures could apply are:

Customer identified as low risk category

Bank and Financial Institutions Licensed and supervised by NRB

Public companies listed with the stock exchange

Accounts of Government/Statutory/Semi-government bodies/ corporations

Accounts opened/ maintained for executing programs at local level for social

and economic benefit of Nepalese Nationals, upon prior approval of Nepal

Rastra Bank. However, such approval shall not be required if such programs



are launched for the period of 3 months or lesser.

People belonging to lower economic strata of the society whose accounts show

small balances and low turnover,

Customers conducting annual transaction below of Rs. one lacs

The bank shall apply customer due diligence measure based on risk assessment,

thereby applicable format for Simplified Customer Due Diligence (SCDD) is to

follow as prescribed below Annexure-C and D as appropriate.

10.2 Standard Customer Due Diligence

The Bank shall adopt the standard customer due diligence approach for the

customers who/which fall under moderate/medium risk for the identification and

verification of the customers.

The Bank shall follow Standard Customer Due Diligence as prescribed below

Annexure-C and D as appropriate.

10.3 Enhanced Customer Due Diligence (ECDD)

Enhanced Customer Due Diligence is required to be exercised when

establishing business relationship or conducting transaction with the following

customers:

Customer identified as high and medium risk category

Politically Exposed Persons (PEPs) and associated with PEPs

Customers doing massively transactions through electronic channel

High Net worth Customers

Customer having suspicious activity

Customers having basis to believe to have involvement on assets laundering

and terrorist activities

Customer who conducts complex, unusual large transactions and unusual

patterns of transactions or which have no apparent economic or visible lawful

purpose

Customers from the high risk countries having high corruption, tax evasion

and other criminal activities.

Customers having large cash volume of transactions

Customer of FATF non cooperative jurisdictions

Customer convicted on predicate offences and financial crime

Designated Non-Financial Businesses and Professions (DNFBPs) i.e.

Casinos, Real Estate Agent, Dealers in precious metals and stones &

Lawyers, Notaries, other independent Legal professionals and accountants.

Customer from UN/US/EU sanctioned countries

While carrying Enhanced Customer due Diligence (ECDD) with respect to

the customers, the following measures shall be adopted.

To obtain proof of identity as mentioned in this policy and NRB Directives

of all family members, including minors, of such customers.

Obtaining or collecting addition information in relation to customer,



beneficial owners and related persons.

Obtaining additional information in relation to business relation, transaction

and background, nature and purpose of the same.

To adopt all reasonable measures to identify the sources of fund and assets of such

customers. To satisfy this requirement the Branches may obtain documents

evidencing sources of funds/asset (e.g., copy of tax clearance certificate,

sell/purchase deed (Rajinama), salary sheet, pension proof, contract paper, etc.) or

obtain customer's declaration in regard to legitimacy of the sources of funds/assets.

Carrying out additional searches (e.g. verifiable adverse media searches) to inform

the individual customer risk assessment.

To carry out ongoing monitoring.

In order to complete the verification of Enhanced Customer due Diligence (ECDD)

process is to follow as prescribed below Annexure-E

10.4 Ongoing customer due diligence (OCDD) and Periodic Review

The Bank should follow ongoing customer due diligence (OCDD) of existing

customers in order to ensure that their transactions are consistent with the Bank‟s

knowledge of the client, his business and risk profile and where necessary, the

source of funds.

Ongoing customer due diligence shall be regularly reviewed even after the

completion of account opening or the commencement of any kind of relationship

with the customer. The frequency of review shall be based on the level of risk

associated with the kind of relationship maintained by the customer and such review

will be recorded in the concerned customer file. High risk customer relationship and

transaction of high volume and close to threshold, for instance, will be reviewed at

more frequent will be reviewed at more frequent interval than the medium and low

risk relationships.

11. Beneficial Owner (BO)

When establishing relationship or conducting transaction with the customer, the Bank

shall identify the beneficial owner and take all reasonable steps to verify the identity.

The term "Beneficial Owner" has been defined as the natural person who ultimately

owns or controls a legal entity and/or the natural person on whose behalf the business is

being conducted. It also includes those persons who exercise ultimate effective control

over a legal entity or who ultimately enjoy a share of its profits. The terms „ultimately

owns or controls‟ and „ultimate effective control‟ refer to situations in which

ownership/control is exercised through a chain of ownership or by means of control

other than direct control.

The ownership and control structure of the customer (in case of a legal entity) and the

natural person, who have ultimate control over the management and decision making,

shall be identified. Identifications and other documents and information deemed

necessary by Directives of NRB/FIU and the KYC and AML/CFT framework of the

country needs be obtained and verified beneficial owners, power of attorney holders

and nominees, wherever applicable.



11.1 Identification process of Beneficial Owners

To identify of Beneficial Owners, the following two criteria have to be

followed.

The Ownership threshold approach

Each Individual (natural person) who owns 10% or more of equity interests in

the legal entities or ultimate holding company. Depending on the ownership

structure of the legal entity, the Bank may identify maximum up to ten

individuals under the ownership criteria.

Shareholders who exercise control alone or together with other shareholders,

including through any contract, understanding, relationship, intermediary or

tiered entity (a majority interest approach).

If a trust owns, directly or indirectly, 10% or more of the equity interest of a

legal entity, the beneficial owner for the purposes of the ownership criterion

is the trustee.

If an exempt entity is an owner, not required to identify/verify natural

persons behind entity.

The Control criteria

Each Individual (natural person), who exercises significant managerial control

over the legal entity.

The natural person(s) who is responsible for strategic decisions that

fundamentally affect the business practices or general direction of the

legal person.

The natural person(s) who exercises executive control over the daily or

regular affairs of the legal person through a senior management position,

such as a Board of Directors, chief executive officer (CEO), managing

or executive director, or president.

The Bank must identify at least one beneficial owner under the control

criteria for each legal entity customer.

11.2 Verification process of Beneficial Owners

The Bank shall take the declaration of each customer about

beneficiaries/ultimate beneficiaries at the time of customer on-boarding process

and subsequent periodic reviews at the time of ongoing due diligence process.

The Bank shall identify beneficial ownership by either obtaining a certification

from the individual opening the account on behalf of the legal entity customer,

or by obtaining the information from the customer through other means (so long

as the individual certifies the accuracy of the information). In case of

diversified/ hidden beneficial owners, transaction conducting on behalf of

others, in such case, the Bank should take reasonable measures to verify the

identity of the relevant natural person through other means such as personal

connections to persons through enhanced customer due diligence process.

Understand the ownership and control structure of the customer- shareholdings

and subsidiaries pattern.



Natural person who, directly or indirectly, owns or controls or directs or

influences a customer, an account, or the person on whose behalf a transaction

is conducted- Direct /Indirect Investment..

Fund Diversify from any sole proprietor/partnership/company to non-related

person.

11.3 Identification process of Beneficial Owners in case of Natural Person

When a natural person seeks for request to establish relationship in his/her own

name, the Bank should inquire whether such person is acting on his own behalf.

If such person responds affirmatively, then, in the ordinary case, it is reasonable

to presume that he/she is the beneficial owner.

Moreover, relationship has been established, subsequent activity in the account

may become inconsistent with the originally anticipated account activity in

which event further due diligence may be warranted, including further inquiry

as treated beneficial ownership.

However, there might be a case of account holder and account operator is

different person other than close family relations .Which may be doubtful

request so that special attendance is require before establishment of relationship

and as well as in process of due diligence.

12. Politically Exposed Persons (PEPs)

Politically Exposed Person is an individual who is or has been entrusted with a

prominent public function. Politically Exposed Persons (PEPs) are the high ranked

persons they can impact on national policies and rules, while exercising the power and

authority by virtue of their position and the influence. Due to their position and

influence, it is recognized that many PEPs are in positions that potentially can be

abused for the purpose of committing money laundering (ML) offences and related

predicate offences, including corruption and bribery, as well as conducting activity

related to terrorist financing .

The term “PEP” generally includes a current or former senior National/Foreign

political figure, their immediate family members, and their close associates. Anti-

Money laundering Act defines PEP as a person who holds, or has held at any time in

the last 5 year.

12.1 Domestic and Foreign PEPs

The definition of PEPs covered both of domestic and foreign PEPs. The Bank should

access the risk posed by PEPs regardless of whether they are domestic or foreign and

apply commensurate due diligence standards. Typically, foreign PEPs may pose a

higher risk compared to domestic Peps. However, both of domestic and foreign

PEPs must be identified (screening) during the onboarding process and subsequent

periodic reviews at the time of ongoing due diligence process.

12.2 PEPs “Close Family Members” and “Close Associates ”

PEPs may abuse their power and position for their personal gain an advantage by

use of close (immediate) family members or close associates to conceal funds or



assets that have been misappropriated as a result of abuse of their official position,

or resulting from bribery and corruption. It is therefore

Apply ECDD to an immediate family member, or a close associate, of PEPs.

An “immediate family member” of PEP includes any of the following persons:-

Spouse

Children of the PEP, Spouse of the child , Cohabitant of a child

Parents of PEP

Siblings of the PEP

Person who is considered to be the equivalent to a spouse;

Cohabitant (domestic partner)

Any other family member of the PEP who is of a prescribed class

A “Close associate” is defined any of the following persons:-

Any individual who has joint beneficial ownership of a legal entity, or a

legal arrangement, or close business relationship, with PEP;

Any individual who has sole beneficial ownership of a legal entity or legal

arrangement set up for the actual benefit of PEP.

Close business colleagues

Personal advisors, in particular persons acting in a financial fiduciary

capacity

12.3 ECDD Procedure for PEPs The Bank shall verify the identity of the person and seek information about the

source of fund before accepting the PEP as a customer. The Bank shall gather

sufficient information on any person/customer of this category intending to

establish a relationship and check all the information available of such person in the

public domain after completing customer screening process. The account of PEPs

and their family members and close relatives as far as identified, shall be subject to

enhanced CDD measures including enhanced monitoring on an ongoing basic.

The Bank identify whether any of their customer is PEP, Once identified, banks

need to apply enhanced CDD measures. Moreover, the Bank needs to perform the

following procedures.

a. Banks have to adopt the Risk Based Approach to determine whether a customer

or the real beneficial owner of an account is PEP.

b. Sanctioned screening process should apply to identify the customer names and

associated details against PEP information during the customer relationship.

c. Such account will be subject to enhanced monitoring ongoing basis.

d. Mechanism to identify of family associated persons, close relative or firms,

company or institution associated with PEP.

e. In the event of existing customer or a beneficial owner of an existing account

known to be PEP or subsequently becoming a PEP, approval from Senior

Management Level official (COO) or Head Compliance shall be obtained.

f. Mechanism to identify of inclusion and exclusion of PEPs, as and when occurred.



12.4 High net worth individuals (HNI)

High net worth individual (HNI) is those persons or a family with net worth

above a certain figure. Although there is no precise definition of how rich

someone must be to fit into this category. However, the Bank has define the

ceiling of HNI net worth having more than Rs 100 million for purpose of due

diligence.

Enhance Due Diligence is specifically designed for dealing with high net worth

customers and large transactions. Because these customers and transactions pose

high risk risks to the Bank,

13. Reporting Requirements

In line with regulatory requirement, the BFIs are compelled to reporting of Threshold

Transaction (TTR) and Suspicious Transactions Report (STR) to FIU

(Nepal).Therefore Bank is required to furnish information relating to STR and TTR, if

there is a reasonable ground to believe that the transaction involve proceeds of money

laundering irrespective of the amount of transaction and / or the threshold limit.

Similarly, the Bank shall provide AML/CFT related annual self-assessment report and

semi-annual offsite report to NRB Supervision Department.

For internal purpose, the AML unit shall be prepared the quarterly AML update status

report and submitted to Board level committee Asset (Money) Laundering Prevention

Committee (ALPC) as well as Board.

13.1 Threshold Transaction Limit

To prevent from the money laundering activities the Bank shall monitor the

threshold transaction limit. Currently per day cash transaction volume is found to be

equal to or in excess of Rupees one million Similarly, inward /outward foreign

currency payments or cross border wire transfer or any other type of transfer is found

to be equal to or in excess of Rupees one million. And cash transaction related to

exchange facility of foreign currency equal to or in excess of Rupees 0.5 million in

the account of any person or entity either by single or by a series of transactions in a

day.

Such Threshold Transaction Report (TTR) report shall be submitted within 15

days from the date of transaction to Nepal Rastra Bank, Financial Information

Unit (FIU) as per Annexure-F. This is subject to change as per Government &

Regulatory Guideline to be issued from time to time.

13.2 Suspicious Transactions

It requires lots of skill, judgment and common sense of the staff of the Bank &

system in place to identify the suspicious transactions as it can vary from one

transaction to another based upon all the circumstances surrounding the

transactions. For example, transaction by one customer may be normal because

of the knowledge about that customer while similar transactions by another

customer could be suspicious.

Many factors are involved in determining whether the transactions are



suspicious including the amount of transactions, actual beneficiary of the

transactions, capability of the beneficiary earning or receiving that level of

amount, type of transactions, frequency of deposits and withdrawal in large

amount generally in round figures, destination of transactions, source of funds,

etc. Therefore, due care should be given while establishing the account

relationship, account should be opened or deposit should be accepted by

fulfilling all the procedures relating to KYC and it should be monitored on a

regular basis.

Such Suspicious Transaction Report (STR) should be prepared and submitted to

FIU -Nepal as soon as possible (within 3 days of begin aware of or having reliable

source/basis for doubt) as per Annexure-G

13.3 Electronic Reporting System (go AML Reporting Module)

The FIU-Nepal has now developed a new Information Technology tool, which

shall be used in submitting reports electronically using a web based interface

instead of the existing process of submitting reports. Therefore, Bank should

have to preparation for platform or database creation for electronic upload of

reports.

13.4 Annual AML/CFT self-Assessment Report

As per requirement of Asset (Money) Laundering Prevention Act 2008 and

Asset (Money) Laundering Prevention Rule 2016 and the requirements of the

NRB supervision reporting guideline, it is required to submit annual AML/CFT

Self-Assessment Report to Nepal Rastra Bank Supervision Department.

The purpose of the report is to corrective measure to evaluate itself, to assess the

sufficiency and effectiveness of AML/CFT program and to take corrective

action in areas of non-compliance.

13.5 Semi-annual AML/CFT related data and statistic

The Bank shall provide AML/CFT related semi-annual summary report to NRB

Supervision Department. The comprehensive data shows the trend and indication

ideally focus on those business areas and processes that are more/less vulnerable to

ML/FT risks.

14. KYC Process

14.1 Broad Provisions

The KYC process has been formulated as a basic tool to fight against money

laundering activities. The key objective of KYC is to establish identity of the

prospective customer and verify source of funds which will supplement to

achieve the objective of Anti Money Laundering Policy. KYC process has set

procedures to enable the staff to know about the customer in detail including their

identity, addresses, legal status, existing business and likely transactions to be

carried out using the Bank and identify the suspicious transactions, if any, carried

out.



Primarily, staff at the Customer Service Department or sales staff of deposit or

credit products or Branch Managers are responsible for interviewing the

prospective customer and obtain sufficient information on the reputation of the

client, legitimacy of the business and nature and source of activity expected in the

account. No branch shall establish relationship until the identity of the potential

customer is satisfactorily known. Similarly, if any existing customers do not

support in furnishing the information relating to KYC, the respective branch

should not accept such customer or initiate the process to stop business

relationship in case of existing relationship and report such account as suspicious.

Some customers despite having proper source of income hesitate to disclose the

source of income and furnish other details. In such a situation, the customer

should be educated properly so that they do not feel embarrassed and furnish the

information. If required they should be introduced with other senior staff of the

Branch or Branch Manager so that they feel comfortable to furnish the

information. The staff dealing with customer should get the information by

having simple conversation and should not present him/her as if Journalist or

Investigator while asking for the information.

The Bank, while getting identification of the customer, shall require the person

establishing business relationship or having transactions with the Bank to submit the

documents as follows:

i. In case of a natural person his/her name, family surname, copy of citizenship,

passport, voters ID, driving license etc. including other necessary documents

evidencing his/her permanent residential address and profession/business.

ii. Finger Print of natural person and account operator in case of legal person to be

obtained at the time of account opening with the exception of minors.

iii. While relationship maintaining with the followings entities/institutions, only detail

KYC of account operator is sufficient for customer identification processing. No

require of detail due diligence of the following institution as well as beneficial

owner.

Nepal government, office or entity under Nepal government or any office,

company, organization, institution partially or substantially owned by Nepal

government.

Entities established under special statutes or under especially promulgated the

statutes

Banks and Financial Institutions under Nepal Rastra Bank's regulation

Public of insurance companies listed with Nepal Stock Exchange

United Nations, office under the said institution and specialized agencies of

this organization and international organizations, diplomatic mission

embassies

iv. Government accounts can be operated by its permanent staff, by providing its official

IDs. This shall be treated as authorized identity.



v. In case of Local Consumer Committee, the account can be open based on

recommendation of local government office. Furthermore minute of account opening

and KYC of account operator & committee members must be obtained.

vi. Countries and customers listed as high risk due to corruption, tax evasion and other

crimes to be evaluated on time-to-time on the risk sensitive basis and to prepare a

list of such countries.

vii. Verify beneficial Owners: A person who exercise ultimate effective control over a

legal person, and individuals who hold a proportionate interest of 10% or more

through ownership in the intermediate or ultimate holding company. Data‟s of

beneficial owner to be updated electronic mode and to be analyzed as when

required.

viii. In case of natural person, the real beneficiary is different person other than close

family relations .Which may be doubtful so that special attendance is require before

establishment of relationship and as well as in process of due diligence. In case

of legal person except provided in (iii) copy of the document certifying

incorporation, establishment or registration of the institution, documents that

presenting name, surname, address, profession, business of board of directors and

executive director or proprietor of firm or partners of partnership firm,

ix. In case of business relation or transactions to be established or made on behalf of

someone else, documents relating to principal's identity, address including power of

attorney clarifying his/her business,

x. Other documents as prescribed by the NRB, FIU and other regulatory authorities

from time to time.

14.2 Obtaining information and documents

Bank obtains information and documents at the time of opening of accounts,

extending credit facilities, issuing drafts or transferring the fund through TT/Swift or

receiving funds through draft, TT/Swift or other means of fund transfer or

doing any kind of transactions relating to money or its substitute and transactions

relating to Letter of Credit and other various transactions.

"Transaction" means any act or agreement made in order to carry out any

economic or business activities and also includes the transactions of purchase, sale,

distribution, transfer or investment and possession of any assets.

14.3 Transactions through Bank Account

i. Bank shall encourage the customers to execute all the transactions through Bank

account as far as possible. However, the Bank may accept the request from non-

account holder customer, of which upon submission of proper identification with

following the simplified KYC process.

ii. Fund transfer up to the threshold (as directed by NRB) can be entertained without

routing through Bank account only upon submission of proper identification to

withdraw the fund by the beneficiary. If it is beyond the threshold set by Central

Bank (Nepal Rastra Bank) or government for payment of inward remittance should

be made through account payee cheque only if the customer (beneficiary) has not

maintained the account with the paying Bank.



Verification / Certification of Copy Documents

i. Copy documents must be self-attested by the holder (and the owner, if different

from the holder).

ii. Copy documents must be verified by the authorized Bank official

confirming/seeing with originals.

iii. Copy of identification documents are to be marked "Verified with Original"

after seeing original by authorized officials of the Bank.

iv. Documents submitted, including the identification documents, must be clear,

legible and valid.

v. Following bank officials are authorized to verify copy documents:

a. Staff at Customer Service Department

b. Staff at cash department (verification of payee‟s ID for cash payment

only)

c. ARM/RM (Credit Departments)

d. Staff of Deposit Marketing Department

e. Staff of Trade Finance

f. Staff of ADC Department

g. Branch Managers

h. Operations In-charges / Managers

i. Other staff above Supervisor level

vi. The Bank will accept copy documents verified by following external

persons/parties:

a. Notary Public or Law Books Management Committee.

b. Officials of Diplomatic Missions (embassies/consulates etc – with seal)

c. Corresponding/Agency banks (subject to verification of signature and

with seal)

d. Direct Sales Agents or external company/party appointed by the Bank

(subject to verification of signature).

14.4 Introduction of Accounts

i. All customer accounts should be introduced by existing customers or as

specified below:

a. Existing Account holder (subject to signature verification)

b. Other banks (subject to signature verification/seal)

c. Gazette Officers of Government of Nepal (with seal)

d. Introduction by Corresponding/Agency banks via letter (subject to signature

verification) or authenticated SWIFT

ii. Branch Managers and their delegates/designates are authorized to waive the

requirement of account introduction on case to case basis, record of such waiver

however should be mentioned in the application itself and signed by the authorized

official.

14.5 Obtaining Credit Information

Credit information (KYC) should compulsorily be obtained while extending the

credit facilities to any individual, firm, company or organization.



15. Account Opening Process

15.1 Account Opening Form & KYC enquiry form

Complete account opening form along with other KYC information as necessary

details for all new accounts based on the discussion/interview with the customers

shall be filled-up and obtained. No account shall be opened without obtaining

complete KYC information and documents along with completely filled-up account

opening form. Bank shall also obtain detail information along with documents of

actual owner, if found suspicious activity of the customer with high profile

personality before establishing relationship.

The required information and documents shall be obtained as per outlined in

Annexure–A, based on the type of customers in order to identify them. In line

with the annexure A, the bank shall be developed and designed printed format of

the Account Opening Form/ KYC enquiry forms, which shall be main source of

entire customer profile.

15.2 Account Opening Procedure of Natural Person (including joint accounts)

i. Obtain complete Account Opening Form and KYC

ii. Check and verify the following matters:

a. Date: The date of account opening

b. Name: Should exactly match with the Identification Certificate, i.e. Citizenship

Certificate, Passport, Voter ID, Driving License etc.

c. Proof of Identity: The details mentioned in the account opening form should be

verified with the original Identification Certificate. However, other information of

customer/signatory/beneficial owner can be obtained through electronic media

(except where customer has to self-present to provide information) in the course of

client identification.

d. Nationality and date of birth: Should be verified with Identification Certificate.

e. Identification Documents expiry date , if any: e.g. Expiry date of license, passport

etc.

f. Photograph: Should be latest one which matches with the appearance of the

customer.

g. Type of A/C and Currency: It should be clearly mentioned type of account and

currency.

h. Registered/Correspondence Address: Both of address is compulsory, registered

address is permanent and correspondence address is that address where customer can

be easily communicated. If the customer declared correspondence address is

different than registered address, it is better to ask for the proof of address like

Utility Bill, Rental Agreement etc.

i. Location Map of Accountholder residence: Customer should draw a clear

understandable current residence map with mention the nearest prominent place.

j. Contact Details: The contact details like telephone number, cell phone number, email

address, fax numbers, etc should be obtained so that the customer could be contacted

comfortably at the time of requirement.

k. Three generation and undivided family member details



l. Occupation and employment Details: Specific occupation and Employer should be

mentioned.

m. Source of Income: Income source should be mentioned by the intending

accountholder compulsorily. If the staffs processing for KYC observe any doubt, the

matter should be referred to higher official for further understanding.

n. Expected Turnover: It is mandatory to mention the expected annual turnover in the

account and the transaction in all account must be within the amount mentioned as

expected turnover.

o. Mode of account operations in case of joint accounts: If Joint account is to be

opened it should clearly be mentioned about how the account is operated.

p. Nominee: In case the individual customer opening the individual account wish to

keep nominee, must clearly mention the nominee detail. Otherwise, the blank space

must be crossed. KYC information along with identification document of nominee

must be attested by the accountholder and signature verification must be done by the

staff. Other general procedures regarding nominee will be in line with account

operation manual.

q. Signature of Applicant on the account opening form: The applicant should sign on

every page of the application.

r. Finger Print of Applicant on the account opening form: The applicant should

provide the finger print at the time of account opening.

s. Beneficiary’s information: When a natural person request to establish relationship

in his/her own name, the Bank should take declaration about any beneficiary owner

or ultimate controller of the sources.

t. Identification of PEPs: If PEPs category customer request to establish relationship,

details of their family members and close relatives as far as identified.

u. Sanctioned Check: Staff has to check the database maintained for the PEPs and

Sanctioned List before opening the account. It has to be recorded in account opening

form evidencing that it was checked with signature.

15.3 Account Opening Procedure of Legal Person

i. Obtain complete Account Opening Form

ii. Check and verify, including others, the following on the account opening

a. Date: The date should be of account opening date.

b. Name: Name mentioned in the account opening form should exactly match with the

registration documents.

c. Registration Details: Where the customer is an institution, one certified copy each of

the registration documents are to be obtained for customer identification.

d. Documents expiry date: Check the renewal date, such as sole

proprietorship/partnership firms, TAN, foreign exchange license etc

e. Registered/Correspondence Address: The detail of office address should be covered

the Principal business place and corresponding mailing address or if any corporate

office.

f. Location Map of Accountholder residence: The institutional customer have to draw

a clear understandable current main office map with mention the nearest prominent



place.

g. Contact Details: The contact details like telephone number, cell phone number,

website, fax numbers, etc. should be obtained so that the customer could be

contacted comfortably at the time of requirement.

h. Specimen signatures: Specimen signatures should be carefully checked and the

name of the authorized persons should be matched with that of minutes. Check that

the authorized signatories appointed/designated by the board are in accordance with

the Constitution/ Memorandum & Articles of Association/ Partnership Deed.

i. Finger Print of account operator: Finger print of account operator should take at

the time of account opening.

j. Expected Turnover: It is mandatory to mention the expected annual turnover in the

Account Opening Form and the transaction in all the account must be within the

amount mentioned as expected turnover.

k. Mandatorily obtain audited financial statements: At the time of account opening,

the Bank must obtain audited financial statement from companies/firms/entities and

management prepared financial statements from those firms/entities which are not

compelled to audit scope. However, at the time of customer due diligence or annual

review process of the customer, the above said documents may not require for all

type of customer except high risk category.

l. Mandatorily obtain tax clearance certificate/ self-tax assessment: At the time of

account opening, the Bank must obtain tax clearance certificate/self-tax assessment

of the immediately preceding fiscal year in case of legal entities.

(Firms/Companies/other entities). However, at the time of customer due diligence or

annual review process of the customer, the above said documents may not require

for all type of customer except high risk category

m. In case of companies, KYC of director, account operator, CEO and major

stakeholder (having stake of 10% or more) is required.

n. In case such major stake holder is not a natural person, then KYC of shareholders

having share of 10% or more of the holding company is to be obtained.

15.4 Verify the validity of the documents as applicable :

Business entities need to be registered with Company Registrar Office or

Department of Commerce or Department of Cottage and Small Scale Industries or

Local Government or Division Corporate Office or their respective office as

applicable.

a. Registration/PAN Certificates/Operating License.

Few example of operating license requiring entities:

BFIs: Nepal Rastra Bank

Insurance : Insurance Board

Medicine: Department of Drug Administration

Manufacturing Industry: Department of Industry

Press & Publication: District Administration Office

Tours & Travels: Department of Tourism

Remittance/Money Exchange: Nepal Rastra Bank



Schools/College: Education Dept. /Office or Universities.

Aviation: Civil Aviation Authority of Nepal

Hydro: Nepal Electricity Authority

FM Radio: Department of Information & Communication

Telecommunication: Telecommunication Authority etc

b. Check that the authorized signatories appointed/designated by the board are in

accordance with the Constitution/ Memorandum & Articles of Association.

c. The names and the stamp on the Specimen Signature Card as per the Board

Resolution.

d. The introducer‟s signature if the account has been introduced by an account holder.

Verify Name, designation and stamp if account is introduced by a government

officer.

e. Copies of documents in case of institutions/ firms registered outside Nepal must be

notarized by Public Notary or Banks.

f. After completion of verification of account opening documents as described above,

proceed for completing KYC Enquiry Form.

15.5 Subsidiary Account

Following procedures should be fulfilled for opening the Subsidiary

Account:

i. Receive the account opening form

ii. Fulfill all the procedures as opening the master account (Refer above).

15.6 High Risk Accounts

High Risk accounts shall be opened only with the written consent of Head-

Compliance or Chief Operating Officer (COO). Enhance Customer Due

Diligence (ECDD) process shall be conducted for those customer who falls under

high risk category. Transactions in high risks accounts must be monitored closely

and any suspicious transaction must immediately be reported to AML Unit. The

branches shall use the Annexure-B for approval from Head Office for high risk

account.

15.7 Non Face-to-Face Accounts

Non face-to-face accounts shall not be opened. The intending account holder

should put his/her signature in the account opening form / specimen signature

card in front of the Bank official. However, verification of documents by officers

of correspondent banks/agents whose signatures are verifiable by the Bank can

be acceptable in exceptional instances.

15.8 Anonymous Accounts & Relationship with Shell Bank

Bank shall not open any anonymous accounts and shall not establish relationship

with shell bank. Bank shall also not open the account mentioning the number

only. Bank shall not allow opening fictitious account and account of shell bank.

No account is opened in anonymous or fictitious/benami name.



15.9 Frequent closing & re-opening of Accounts

If any customer open the accounts and closes after a few months and opens

again a fresh account and if such tendency is continued, such customer should

be kept under suspicious accounts list and be monitored closely. An

understanding of the reason for such request must be recorded in writing and

kept in the customer's file.

15.10 Recording Details in CBS

Every details of account holder like Citizenship Number or Passport Number or

Voter ID Number or Driving License Number, date of Birth (DOB),

Nationality, Father or Mother Full Name, Issue or Expiry date of ID, Permanent

address or employer address and information of other product availed by

customer etc. have to be properly recorded in the CBS while opening account.

No account should be opened or operated where KYC information is not

updated in CBS. Branch Manager should make sure that information is updated

on every newly opened account on end of the day.

15.11 Source of Funds/Wealth

At the time of KYC enquiry, the interviewer shall establish the source of

funds/wealth of customers. A valid source of funds/wealth could be:

Employment Income/Funds (Salary/Allowances/Bonus/Pension/Provident

Fund/Retirement Fund / Loan, etc.

Rental Income/Business

Business Income

Income from investments (interest/dividend etc)

Inherited wealth (Ancestral)

Income from self-employment (business/services/contract/consultancy/

professional services etc)

Valid remittances from abroad (salary, fund transfers by family/relatives,

sponsors etc)

Sale of assets/properties/goods/commodities/shares etc

Local and foreign remittances by family members/relatives or sponsors

Business cash flow transactions (sales, borrowing, loan repayment,

commissions, refunds etc).

Donation/Gift/Reward

Repayment received

15.12 Responsibility

The responsibility of conducting KYC enquiry and completing the required

documentation shall generally be of staffs engaged on account opening, his/her

supervisors and Branch Manager. Respective relationship manager, marketing

staffs, or other relevant staffs may support for obtaining KYC information

marketed or come through them specially credit clients and corporate clients.

Operations Department and AML/KYC unit shall ensure the execution of due



KYC procedures and documentations on regular basis. The Bank has to complete

the task of identification process of customer and reasonable measures have to

establish to find out the factual customer relationship with beneficial owners of

the accounts.

Similarly AML Unit shall periodically monitor the compliance status and make

updates the status to the respective branches and departments for needful action or

corrections.

16. Account/Transaction Activities Monitoring

A permanent monitoring of customer‟s accounts /activities shall be put into

implementation to deduct unusual/suspicious activities/transactions. Bank shall initiate

for the comprehensive automated monitoring on the transaction monitoring.

16.1 Cash Deposit /Payment/Cheque Encashment Mechanism

i. An identification document & purpose must be obtained for third party cash

deposit is required for any transaction that is above of Rs one Lakh (>100,000).

ii. If the customer himself/herself presented for cash deposit of Rs ten Lakh (= >1000,

000) and above must be obtained the sources of fund of deposit.

iii. If the customer himself /herself or 3rd party customer presented for cash withdrawal

where amount is less than Rs ten Lakh (<1000, 000). As far as possible, the bank

have to follow the practice of conformation taken from account holder for cash

payment above of Rs five Lakh (>500,000) to mitigate the possible risk.

iv. Any Payment of Rs ten Lakh (= >1000, 000) and above should be paid through

account payee cheque or credit to related account only. However, those cherub

issued in favor of non-individual (firm, company, institution or any offices) should

be account payee only irrespective of value.

v. In case of genuine requirements for the cash payment of Rs ten Lakh (= >1000,

000) and above, that should be entertainment along with an application and

indemnity letter from customer staying within NRB/internal guideline.

16.2 Transactions of Non- Accountholders

Non-accountholder customers are those who do not maintain an account with the

Bank but avail of services over the counter, such as outward remittance, Foreign

Exchange, FCY encashment and purchase of travel card, etc. Exception to

detailed KYC process is allowed for non-customer transactions staying within the

Central Bank Circulars in regard to foreign currency transactions. Over the

counter transactions and it must be ensured by following the simplified KYC

process that details such as name, telephone number and address of the applicant

are correctly recorded on the transaction application forms.

It should be discouraged for entertaining the transactions above Rs one million to

the non- accountholder customers. Operations In-charges / Managers / Branch

Managers may allow above Rs one million also but after the obtainment of

documents as required by statutory/regulatory directives, including “self-

declaration” from depositor for transactions. Above exception is not applicable if



it is observed that frequent repeated transactions, although totaling below Rs one

million in a day in a branch, are being requested by the same person/party.

16.3 Management of Dormant /Passive /Inactive/ WAUN Account

In view of the increase in the number of the unclaimed deposit accounts with banks

year after year and the inherent risk associated with such account, considering the

fact, the bank should have to play a more pro-active role in finding the whereabouts

of the account holders whose accounts have remained inoperative.

Furthermore, the segregation of the dormant natured accounts is from the point of

view of reducing risk of frauds, record keeping and periodic review of accounts.

The classification is only to bring to the attention of dealing staff, the increased risk

in the account. The transaction may be monitored at a higher level both from the

point of view of preventing fraud and making a Suspicious Transactions Report.

However, the entire process should remain un-noticeable by the customer.

Therefore, the following guideline has been rolled for management of the dormant

and unclaimed accounts.

i. Dormant (Debit Restricted) accounts-An account is considered dormant/passive, if

there have been no initiated customer transactions/activities in savings natured

account for an unbroken period of 3 years constitutes dormancy and unbroken period

for 6 months constitutes dormancy for current and call natured accounts. In case of

dormancy, the customer shall not be able to use ATM card, issue cheques or transact

in the account without reactivating it. The bank policy makes to account inactive to

safeguard money from any risk of fraudulent transactions.

ii. Revival of Dormant (Debit Restricted) accounts – Dormant accounts shall be

activated only after approval subject to a written application being submitted by the

customer to re-activate the account and the bank being satisfied with regard to the

genuineness of the application. However, in case of KYC information is not

sufficient or need to update, in such situation the bank may asked for due diligence

as per risk category of the customer. Due diligence means ensuring the identity of

the payee/customer based on latest KYC documents (branches shall obtain latest

address proof, id proof, passport size photograph and profile),verification of the

signature, genuineness of the transaction etc.

iii. WAUN (Whereabouts unknown) accounts In case the whereabouts of the

customers are not traceable for longer period, the bank should have to contact the

persons who had introduced the account holder. If there is no introduced person, in

such case the concern staff of the bank is responsible for contacting the account

holder telephonically in case his telephone number / Cell number has been

furnished, otherwise, the bank have to deliver the letter on his/her corresponding

address.

iv. Management of WAUN (Whereabouts unknown) accounts -Those accounts

which have not been operated upon over a period of ten years should be segregated

and maintained in separate ledgers and same should be published in every 5 years

on the national newspaper and bank website. In addition to that, the Bank has to

reporting to Central Bank on every year.

v. Unclaimed Accounts: Accounts shall be classified as unclaimed account if the



same is not operated for 20 years and more from the date of last operation.

Similarly, term deposit account shall be classified as unclaimed deposit if the same

is not renewed / withdrawn after 20 years or more from the date of maturity.

Balance of such accounts shall be transfer to the banking development fund at

Nepal Rastra Bank and same notice with detail information should be published on

website of bank for public information.

17. Correspondent Banking and relationships

Correspondent banking is the provision of banking services by one bank (the

correspondent bank) to another bank (the respondent bank). Large international banks

typically act as correspondents for several other banks around the world. Respondent

banks may be provided with a wide range of services, including cash/fund management,

international wire transfers, cheque clearing, and foreign exchange services. The Bank

shall take the precautions while entering into a correspondent banking relationship.

Transactions conducted through correspondent banking relationships need to be

managed taking a risk-based approach. "Know Your Correspondent" procedures should

be established to ascertain whether the Correspondent Bank or counter-party is itself

regulated for money laundering prevention and, if so, whether the correspondent is

required to verify the identity of their customers as per Financial Action Task Force

(FATF) standards.

It would be the bank‟s policy to obtain sufficient information about correspondent

banks to understand the nature of their business & activities. When considering entering

into a cross-border correspondent banking relationship, the bank shall carry out due

diligence measures i.e. ownership, Management Structure, major business activities,

customers, purpose of the Account, location, etc. In addition, research will be

conducted from publicly available information on the correspondent bank's business

activities, their reputation, and quality of supervision and whether the institution has

been subject to a money laundering or terrorist financing investigation or any regulatory

action. Due Diligence of Correspondent Banking Relationship shall be performed as per

the enclosed questionnaire in Annexure –H

In case of, the Bank is providing nested correspondent accounts to the other BFIs shall

ensure that its respondent banks have KYC/AML policies and procedures in place and

apply enhanced 'due diligence' procedures for transactions carried out through the

correspondent accounts.

If the is Bank providing nested correspondent Banking services (payable-through-

accounts) to other domestic BFIs to facilitate as their own client activities or

correspondent accounts that are used by third parties to transact business on behalf of

respondent bank, in such case, special attention must be paid and a level of care has to

be given in establishing relationship with local BFIs especially with the following

information.

a. Registration documents / Operating License

b. Completed AML questionnaire/ Wolfsburg questionnaire

c. List of Board of Directors & Management Profile

d. Ownership Structure



e. Latest Audited Financial

f. AML Policy & Procedure

g. US Patriot Act Certification Other registration or certification from local or

international agencies like: FATCA Status etc.

18. Relationship with different organization

To establish relationship with different local entities like: Money Changers, Money

Remitters / Transferors, Travel agents, Casinos, Co-operatives, Lawyers / Notaries /

Lekhapadi Professionals, Auditors, NGO/INGO, Real estate companies, Precious metals

and stones and jewelers traders, Securities firm, Charities etc, that are directly indirectly

regulated based on their transaction nature, declaration regarding implementation of

KYC/AML act, policy and procedure.

19. Wire Transfer

The Bank is using wire transfers method for transferring funds between bank accounts.

Wire transfers include transactions occurring within the national boundaries of a country

or from one country to another. As wire transfers do not involve actual movement of

currency, they are considered as a rapid and secure method for transferring value from

one location to another

19.1 Provision Regarding Wire Transfer

The Bank shall obtain details information of originator and verify it's

authentication for all type of wire transfer. Following details shall be considered as

complete information of originator:

a. Name of originator,

b. Account number or unique transaction identification number,

c. Address or date of birth & birth place or citizenship number or national

identification number or customer identification number.

d. Name and account number of beneficiary and unique transaction identification

number in case of none account holder.

e. Before establishing any relationships or cross border payment, the Bank shall

check / conduct screening of the customer status/ transactions with help of

automated screening software.

19.2 Domestic wire transfer

Domestic wire transfer means any wire transfer where the originator and receiver are

located in the same country. It may also include a chain of wire transfers that takes

place entirely within the borders of a single country even though the system used to

affect the wire transfer may be located in another country.

As per rule of NRB, domestic wire transfers above Rs 60,000/-(Rupees Sixty

Hundred Thousand) shall be payment through bank account, in case of below the

threshold, the beneficiary can received the cash from any branches with providing

complete information originator as well as beneficiary (i.e. name; address and contact

number etc.)



If the Bank has reason to believe that a customer is intentionally structuring wire

transfers to below Rs 60,000/- (Rupees Sixty Thousand) to several beneficiaries in

order to avoid reporting or monitoring, the Bank shall insist on complete customer

identification before effecting the transfer. In case of noncooperation from the

customer, efforts shall be made to establish his identity and Suspicious Transaction

Report (STR) shall be made to NRB –FIU.

19.3 Cross Border Wire Transfer

Cross-border transfer means any wire transfer where the originator and the

beneficiary bank or financial institutions are located in different countries. It may

include any chain of wire transfers that has at least one cross-border element.

Accordingly, Bank shall ensure that all wire transfers are accompanied by the

following information:

All cross-border wire transfers must be accompanied by accurate and meaningful

originator information.

Information accompanying cross-border wire transfers must contain the name and

address of the originator and where an account exists, the number of that account.

In the absence of an account, a simplified KYC must be obtained.

Bank shall compulsorily identify the details of originators in case of payment made

through cross border wire transfer of Rs. 75,000.00 or more. The Bank may provide

relaxation in obtaining detail specified as above, in case of cross border wire transfer

of below Rs. 75,000.00.

20. Trade Based Money Laundering (TBML)

Trade Based Money Laundering (TBML) has been recognized as one of the main

methods by which proceeds of crime and unaccounted money may be moved cross-

border by criminal organizations and terrorist financiers for disguising its origin and

integrating into formal economy. In TBML, the process by which criminals use a

legitimate trade involves a number of schemes in order to complicate the

documentation of legitimate trade transactions; such actions may include moving illicit

goods, falsifying documents, manipulation of description of goods, over/under

shipments or no shipment, misrepresenting financial transactions, and

under/over//multiple invoicing the value of goods.

The following are the some of major prevention and awareness guidelines as

recommendation by Financial Action Task Force (FATF).Therefore, the Bank shall set

out a comprehensive and consistent framework of measures which countries should

implement in order to combat money laundering and terrorist financing in trade

business activities.

i) Assessing the adequacy of a Bank‟s systems for managing the risks associated with

trade finance activities, including whether the bank effectively identifies and

monitors its trade finance portfolio for suspicious or unusual activities, particularly

those that pose a higher risk for money laundering.

ii) Determining whether a bank‟s system for monitoring trade finance activities for

suspicious activities, and for reporting suspicious activities, is adequate, given the

bank‟s size, complexity, location, and types of customer relationships.



iii) Sample testing trade finance accounts with a view to verifying whether the bank is

meeting its customer due diligence, record keeping, monitoring and reporting

obligations.

iv) The Bank shall check/conduct screening of customer status/transactions with help

of automated software.

v) Providing AML training to trade services departments and personnel.

21. Sanction Screening Policy

The Bank shall not establish any kind of relationship (customer, employee, vendor,

consultant, service provider, business partner, etc.) with sanctioned individuals/entities

listed in the Sanction List published by UN, OFAC, EU, HMT-UK etc. Sanction

screening shall be the integral part of due diligence process and thus the sanction

screening shall be conducted while updating identity and conducing further due

diligence. For effective implementation of AML and CFT, Bank uses the automated

screening mechanism that could prohibit any listed individuals or entities to enter into

the banking channel. Screening shall be conducted to each of individuals or entities prior

to establish any relationship with them or whenever there is any material change in the

legal entity like change in BOD members, change in shareholding pattern, change in

management team, and change in signatory etc.

The objective of this policy is to ensure regulatory compliance and to establish an

internal framework that minimizes the risk of sanctions breaches .The Bank shall ensure

that screening has been done on:

a. International relationship or transaction,

b. Opening any account or establishing relationship domestically,

c. Transactional review,

d. CDD and PEPs monitoring,

e. Listing & de-listing process

The Bank is committed, with all applicable laws and regulations of country as well as

international norms of financial market. The Bank fulfills the requirements set out in

such laws and regulations so as to ensure that the Bank is not used to facilitate financial

crime.

22. Resubmission policy

Once the transaction is rejected by Bank due to sanctions/money laundering/terrorist

financing concerns that should not attempt to resubmit the same transaction after

stripping off information. The Bank shall maintain the separate record of such rejected

transactions and raise the STR to FIU.

23. FATCA

FATCA (Foreign Account Tax Compliance Act) enacted in US related with the tax

compliance with the financial assets held outside of United States. Reporting under

FATCA is mandatory to U.S. Persons. FACTA rules include extensive criteria that

banks will have to use to screen all of their clients to determine which ones appears to

be U.S. Persons.



NRB also have brought regulatory provisions for FATCA registration and reporting

requirements. Accordingly Bank shall be registered under FATCA do according on

information sharing whenever needed.

24. Employee Education, Trainings and Customer Awareness

The Bank shall ensure full KYC of its employee incumbents and every employee

of the bank shall have at least basic AML & CFT training that should cover all the

aspects of AML & CFT measures in Nepal. Relevant provision of Acts, Rules

Circulars, and Guidelines, regulatory requirements, suspicious transaction or

activity reporting should be covered in basic AML & CFT training course. To keep

the employees updated about AML & CFT measures, bank shall conduct

refreshment training programs of its employees on a regular basis.

24.1 Coverage areas of AML & CFT basic training

1. An overview of AML & CFT initiatives,

2. Relevant provisions of Money Laundering Act of Nepal,

3. Regulatory requirements as per FIU-Nepal circular, guidelines, directives,

4. STR and TTR reporting procedure,

5. Ongoing monitoring and sanction screening mechanism.

6. Role of employees having different responsibility such as Teller, CSD

officer, Relationship Manager, Operations In charge, Branch Manager for

effective KYC / AML policy compliance.

24.2 Responsibilities of Training & Awareness

I. Compliance Department shall be responsible for conducting regular training and

awareness to Branch Managers / Operations In-charges / Managers/Others as

appropriate.

II. Regular trainings shall be conducted by designing annual training calendar. All

the information regarding the training shall be recorded appropriately.

III. Central Operation Department and COO shall ensure the compliance of AML and

KYC to the Bank as per primary lines of responsibilities.

IV. Branch Managers/Operations In-charges shall be responsible for providing

training to the staff working under them for meticulous implementation.

Internal Audit Department shall be responsible for ensuring the audit of

implementation of KYC process effectively.

24.3 Customer Awareness

The Bank recognizes the need to spread awareness on KYC, Anti Money

Laundering measures and the rationale behind them amongst the customers and

shall take suitable steps for the said purpose. The customer awareness materials on

KYC/AML measures, role and responsibilities of customers in this regard will be

displayed on the bank‟s website and/or in the form of poster/display boards etc. At

the time of KYC interview and account opening process, details information shall

be provided to the customer regarding the AML/CFT. Bank shall also take the mass

media under Corporate Social Responsibility (CSR) regarding the money



laundering and terrorist financing.

25. Know Your Employee (KYE)

Lots of instances are come into ahead about the involvement of employees in

fraudulent transactions and in most cases in association with customers. Therefore,

the Bank shall arrange adequate screening mechanism as an integral part of

recruitment /hiring process of staffs. Related policies, procedures, job descriptions,

internal controls, approval levels, levels of authority, compliance with personnel laws

and regulations, code of conduct/ethics, accountability, dual control and other

deterrents shall be firmly in place. KYE requirements shall be included in the Bank's

HR By-Laws.

Before assigning an employee in a particular job or desk, banks shall ensure that

the employee shall have necessary orientation on AML & CFT lessons for the

particular job or desk.

Head Human Resources shall ensure that proper methodologies shall be followed as

Know Your Employee (KYE) mechanism to ensure that unwanted individuals do not

have access to the Bank by way of employment. Head HR will also ensure that any

prima facie suspicious activity/behavior from AML/CFT (Countering Financing of

Terrorism) angle is reported to the Execution Officer/Compliance Department for

finalization and reporting to FIU wherever required.

Staff Accounts are to be treated as customer accounts for KYE and on-going

monitoring purposes.

Head HR shall be responsible for ensuring regular monitoring of staff accounts.

26. Maintenance of secrecy

Confidential customer information may be communicated only to those persons who

need to know it for a legitimate business purpose. Any staff, official or representative

of bank thereof shall not disclose any information that is provided to the Financial

Information Unit (FIU) nor divulge the facts/confidentiality of the

report/document/statement that has come into knowledge during investigation and

enquiry or during the execution of own duties to any other persons including the

customers through any means except under the circumstances as may be required under

the prevailing laws. The loss of confidentiality of information could place at risk to law

enforcement investigation or violation of the prevailing laws and imposed punishment

to the bank or concern staffs.

27. Record Retention

Records must be kept of all transaction data and data obtained for the purpose of

identification, as well as of all documents related to money laundering topics (e.g. files

on suspicious activity reports, documentation of AML account monitoring, etc.). Those

records must be kept for a period of minimum 5 years from the date of cessation of

relationship.



28. Offence and Punishment

Most of global incidents in banking industries related to fine are relevant to AML

failures. The most commonly publicized penalties for compliance failure are monetary

fines. In this regard, the NRB has also imposed financial penalty and punishment to

Bank as well as employees. Therefore it is essential that all staff members are fully

aware of the processes/procedures set out in this Manual and AML Policy to implement

it meticulously.

Referred to NRB Directives #19(20.2) imposed financial penalties for non-compliance

of provision of Assets (Money) Laundering Preventions Act, 2008 (2064, 2nd

amendment 2070)", "Assets (Money Laundering Prevention Rule, 2016 (2073) and

other related international practices, guidelines and recommendations related with KYC

and AML/CFT.

29. Clarification and Exception

The CEO has the authority to clarify any kinds of clarification on this Manual and may

approve any exception in the same manner. Compliance officer support and take

initiation for such clarification facilitation.

30. Review/Amendment

Bank shall review/ amend the policy as and when required due to changes

assumptions/rules and regulations.

]



Annexure- A

Require information /documents for Account Opening Process

Documents/Information to be obtained

1. Account Type: Individual/Joint Accounts for Nepali Citizens

1. Full Name

2. Gender

3. Date of Birth

4. Nationality

5. Detail Permanent/Registered address

6. Details Residential/ Correspondence address

7. Minimum one valid identification document required from below listed documents

I. Citizenship

II. Passport

III. Voter‟s Identity

IV. Driving License

8. In case minors

I. Birth Registration Certificate / Minor Certificate

II. Identification of the guardian/conservation any one from below listed documents

a. Citizenship

b. Passport

c. Voter's Identity

d. Driving License

9. In case of non-citizenship holder of Nepali- the recommendation letter from Rural

Municipality/Municipality/Sub-Metropolitan City/Metropolitan City is required.

10. Permanent account Number (PAN) Certificate if required

11. Full detail of three generation and information of undivided family members.

12. Name, Address, Contact Number, Position, expected annual income/remuneration and

other related information is required in case of employed /self employed

13. Required Documents

a. Recent Passport size Photograph(s)

b. Copy of Identification documents

c. Copy of staff ID card (If employed)

d. A copy of permanent account Number (PAN) Certificate if available

e. Copy of Birth Certificate (In case of minor)

f. Other any required documents

14. In case of material difference is observed in customer identification process, the

applicant‟s present image/photograph is not similar or difficult to identify as compared

with image / photograph of valid identification document which is provided by an

applicant. In such situation the bank may require additional latest valid document to

verify the identification process.

15. Self-delegation from account holder, if PAN, Telephone number, email, profession is not

available.



16. Address Verification document (document evidencing the confirmation of the address.

Such documents could be: Utility Bill, if required road map of the client's resident to be

prepared after visiting to the customer‟s resident, Polling ID card, Land Ownership

Registration Certificate, self-drawn location map by the customer)

17. For those customers who have to follow Enhance Customer Due Diligence (ECDD)

process need to provide the identification documents of undivided family members any

one from below listed documents.

a. Citizenship

b. Passport

c. Voter‟s Identity

d. Birth Certificate (In case of minor)

18. In case of refugees, need to provide ID card issued by Nepal Government or other

authorized agencies

19. In case of minor account is operating with guardian‟s relationship, such minor account

shall have to be updated and customer due diligence shall have to carried out

immediately as soon as possible as the minor attains the age of majority.

20. Occupation /Business Details

21. Source of Fund

22. Annual Income

23. Annual expected turnover in account

24. Completed Account Opening Form

25. Completed KYC Enquiry Form

2. Account Type: Sole Proprietorship/ Partnership Accounts

1. Name & Address of the firm

2. Full address of registered Office

3. Full address of corporate Office

4. Copy of Registration Certificate or Certification of Incorporation

5. Copy of Tax Registration Certification or PAN as applicable

6. Business/Nature of Business

7. Business areas

8. Details address of major Branches/ offices if any


10. Details information of proprietor, partner & account operator (Three generation details,

individual information, permanent/corresponding address, email, phone/cell number,

designation, occupation etc)

11. Recent photograph and proof of identity of any one of the following valid document

of proprietor, partners & account operator

a. Citizenship

b. Passport

c. Voter's Identity

d. Driving License

12. Latest audited financial statement and management prepared financial statements from

those firms/entities which are not compelled to audit scope.

13. Tax clearance certificate/ self-tax assessment of the immediately preceding fiscal year



14. Copy of Partnership Deed (for Partnership Accounts)

15. Power of Attorney for account operation in case of Partnership Account, if applicable

16. Operating License (for example: for Pharmacy, Contractors etc.)



19. Other any required documents

3. Account Type: Private and Public Limited Companies

1. Company's Name

2. Full address of Registered Address

3. Full address of Corporate Office




7. Business areas



10. Details information of Directors, Executive Committee Members, Chief executive and

account operator (Three generation details, individual information,

permanent/corresponding address, email, phone/cell number, designation, occupation

etc.)

11. Details information of major shareholder having stake of 10% or more (Three

generation details, individual information, permanent/corresponding address, email,

phone/cell number, designation, occupation etc.)

12. If there is no natural person that controlled by legal entity, key persons involved in the

operation and management of such entity shall have to be identified. And detail

information of such legal entity‟s shareholders having stake of 10% or more is to be

obtained. (Three generation details, individual information, permanent/corresponding

address, email, phone/cell number, designation, occupation etc.)


of directors, chief executives & account operator

a. Citizenship

b. Passport

c. Voter's Identity

d. Driving License

14. Mandatory obtain latest audited financial statements at the time of customer

onboarding. However, at the time of customer due diligence or annual review process

of the customer, the above said documents may not require for all type of customer

except high risk category.

15. Mandatory obtain tax clearance certificate/ self-tax assessment of the immediately

preceding fiscal year at the time of customer onboarding. However, at the time of

customer due diligence or annual review process of the customer, the above said

documents may not require for all type of customer except high risk category.

16. Name and address of foreign holding company in case of subsidiary company

17. Board Resolution for account opening & Power of Attorney for Account Operations



18. Board decision in regard of authority delegation to Chief executive or any other officer

for financial transactions

19. Copy of Memorandum and Articles of Association

20. Copy of Operating License, if applicable

21. NRB Foreign Exchange Permit for FCY accounts




25. No regulatory requirement to provide registration Certificate or Certification of

Incorporation for those institutions established under provision of especial Act

4. Account Type: Clubs, Associations, Committee, Society, NGOs

1. Name

2. Full Address (At the time of registration )

3. New Address (In case of address change/other than registered address )




7. Business areas



10. Details information of Chief executive and account operator (Three generation details,


designation, occupation etc.)

11. Detail information of Member of Executive Committee, Trustee, Controller,

Conservation/Shelter (Three generation details, individual information,


etc.)

12. Recent photograph and proof of identity of any one of the following valid document of

directors, chief executives & account operator.

a. Citizenship

b. Passport

c. Voter's Identity

d. Driving License

13. Latest audited financial statement

14. Copy of Registration Certificate

15. Copy of Constitutional Documents

16. Power of Attorney regarding account operation and financial transactions

17. Member of Executive Committee decision for account opening

18. Operating License, if applicable






5. Account Type: Cooperatives

1. Name of the Institution

2. Full address of Registered Address

3. Full address of Corporate Office

4. Copy of Certificate of Registration/Incorporation.



7. Business areas



10. Details information of Directors, Chief executives and account operator (Three

generation details, individual information, permanent/corresponding address, email,

phone/cell number, designation, occupation etc.)


of directors, chief executives & account operator

a. Citizenship

b. Passport

c. Voter's Identity

d. Driving License



14. Bylaw (Biniyam) of the institution


16. Board decision for account opening & Power of Attorney regarding account operation

and financial transactions


18. Completed KYC enquiry form

19. Other any required document

6. Account Type: Public and Private Trust (Guthi)

1. Name of the Trust






7. Business areas



10. Details information of Trustee/Executive Committee Members, Chief executive,

account operator (Three generation details, individual information,


etc.)


of Trustee/Executive Committee Members, Chief executive, account operator



a. Citizenship

b. Passport

c. Voter's Identity

d. Driving License


13. Tax clearance certificate of the immediately preceding fiscal year

14. Copy of Constitution

15. Copy of Trust Deed

16. Copy / Certified Extract of Board / Committee Resolution

17. Board of Trustee decision for account opening & Power of Attorney regarding

account operation and financial transactions




7. Account Type: School/College

1. Name






7. Business areas



10. Details information of Directors, Executive Committee Members (including Principal),

Chief executive, account operator. (Three generation details, individual information,


etc.)


of Chief executive, account operator

a. Citizenship

b. Passport

c. Voter's Identity

d. Driving License




15. Copy / Certified Extract of Board / Committee Resolution

16. Board decision for account opening & Power of Attorney regarding account operation

and financial transactions

17. Certificate of Approval of Institution/Affiliation (operating License).






8. Account Type: International Non-Governmental Organizations (INGOs),

Development Agencies/Organizations, Bilateral, Multilateral Organizations .

1. Name

2. Full Address (At the time of registration)





7. Business areas



10. Detail information of Directors, Trustee, Controller, Conservation/Shelter, Chief

Executive, Country Representative and account operators (Three generation details,


designation, occupation etc.)


of Chief executive, Country Representative & account operator

a. Citizenship

b. Passport

c. Voter's Identity

d. Driving License



14. Copy of agreement with Social Services National Coordination Committee /Social

Welfare Committee (if applicable)

15. Copy of agreement with Nepal Government (if done)

16. Reference letter from related Country or Embassy ( for those international

Organization who are not granted approval from Nepal Government)

17. Registration documents and Constitution of the organization,

18. Mandate given by the organization for opening an account and transaction





9. Account Type: Foreign Individuals

1. Full Name

2. Nationality

3. Permanent & Correspondence address of Foreigner

4. Contact address in Nepal

5. Family member details

Regulatory Requirement -Full name of father and mother or any of both of them

Other family details- Full name and address of grandfather and spouse

6. Copy of valid Visa & Passport



7. Detail information of Visa & Passport

8. Employment details (if employed)

9. Reference letter from employer (if employed) In case of Non passport holder of Indian

citizens, other authenticated identification documents issued by Indian Government is

required (Subject to bank„s satisfaction). If, necessary, the bank may demand for

letter/registration proof from Indian embassy as well.

10. Birth Certificate (in case of minor) along with identification of the guardian who will

operate the account.

11. Refugee card issue by GoN in case of refugee

12. Recent Photograph



15. Other any required document

10. Account Type: Foreign Companies

1. Company's Name

2. Full address of Registered Address in Foreign Country

3. Full address of Corporate Office in Foreign Country

4. Full address of Foreign Company in Nepal

5. Kind of foreign company operating in Nepal (Branch , Liaison, Project or any

other)Copy of Registration Certification or Certification of Incorporation

6. Copy of Registration or Certification of Incorporation in Nepal ,if any


8. Business areas


10. Yearly expected turnover in account


12. Board Resolution for account opening & Power of Attorney for Account Operations

13. Details of personal information of foreign company‟s director & Chief executive

(Name, permanent/corresponding address, email, phone/cell number, designation,

Spouse name, Father name, Grandfather name)

14. Details of personal information of Country Representative or account operator (Name,

permanent/corresponding address, email, phone/cell number, designation, Spouse

name, Father name, Grandfather name)

15. Copy of identification document, citizenship/passport and recent photograph of two

main officials of foreign company, Country Representative and account operator.



18. Board decision in regard of authority delegation to Chief executive or any other officer

for financial transactions

19. Full Address of Contact Person in Nepal,

20. Completed account opening form





11. Account Type: Diplomatic Mission /Embassy

1. Name

2. Full Address

3. A letter from Embassy/Mission to open account

4. Power of Attorney

5. Name, address, telephone number of account operators

6. Copies of identification document and photograph of account operators



12. Account Type: Non Resident Nepali (NRN)

1. Full Name

2. Gender, Date of Birth and Nationality

3. Complete Permanent address in foreign country, residential and correspondence

address of Nepal

4. Full name of father and mother or any one of them

5. Name of grandfather

6. Name of spouse for married status

7. Copy of valid passport

8. A copy of income sources documents

9. Appointment letter/agreement letter of employer (if employed)Birth Certificate (in case

of minor) along with identification of the guardian who will operate the account

10. Recent Photograph

11. NRN Identity Card




13. Account Type: Consumer Committee

1. Name & Full Address

2. Minute copy of consumer committee construction and committee resolution regarding

bank account open.

3. Recommendation letter from local government office for account open.

4. Type of Transactions


6. Recent photograph and proof of identity of any one of the following valid document of

account operators.

a. Citizenship

b. Passport

c. Voter's Identity

d. Driving License

7. If consumer committee is registered ,copy of registration certificate





Annexure- B

Format to obtain approval for account opening of high risk category

…………………Branch

To

From Branch Manager

Date DD/MM/YYYY

Subject Seeking for approval to open account high risk account

Seeking your approval to open high risk category account of below mentioned customer

which has been verified/ identified based on information provided by customer.

Proposed Customer Name:

Customer Detail Information:

Risk Category of Account:

Reasons for high risk:

Initiation to risk mitigates:

Comment from Head Office:

Placed for approval

……………………. ……………………

Branch Manager Approving Official

Name: Name:

Date: Date:

Note: Approval may be obtained through email covering the contents mentioned in the body

of this format.



Annexure- C

Customer Identification and Verification for Natural Person

Applicable for Simplified and Standard Customer due Diligence Process

S.n Documents Prior to A/C Opening Yes No N/A Remarks

1 Is PEPs List and screening process against sanction list (UN,

OFAC, EU and HMT List) been checked?

2 Has been verified the self-attested Proof of identity

(including additional identification documents) along with

original copy?

3 Has proper registered and corresponding address been

mentioned by the prospective customer?

Does the registered address mentioned in the form match

with identification document provided?

If not, have the proof of address verifying document been

taken?

4 Does the date of birth mentioned in the account opening form

match with identification document?

5 Has recent Photographs/ Location Map/Thumb Print been

taken?

6 If there any beneficial owner?

If there is beneficial owner, have KYC information and

identification Document of owner been obtained?

7 Has power of attorney / mandate been given?

If power of attorney is given to operate the account by others,

has the required information and identification document of

mandate been submitted?

Has relationship between mandatory and mandate been

disclosed?

8 Has there any nomination in the account and relationship

between account holder and nominee been mentioned?

Has the identification document of nominee provided?

9 Has customer disclosed the occupation?

Has customer disclosed the source of fund /expected annual

income & estimate annual transactions in the account?

10 Has risk category been derived? Mention the risk category in

remarks column.

11 Is there any pending to complete KYC Process?

If yes, why account should be open?

When KYC shall be completed? please mention in remarks

12 Other Observations:

All Formalities done and Account Opening is complete

……………… ……………… Processed By: Reviewed By:



Annexure- D

Customer Identification and Verification for Institutions

Applicable for Simplified and Standard Customer due Diligence Process

S.n Documents Prior to A/C Opening Yes No N/A Remarks

1 Is PEPs List and screening process against sanction list (UN,

OFAC, EU and HMT List) been checked?

2 Has been verified the self-attested Proof of registration

documents (firm/company/institution) along with original

copy?

3 Has proper registered and corresponding address been

mentioned by the prospective customer?

Does the registered address mentioned in the form match

with identification document provided?

If not, have the proof of address verifying document been

taken?

4 Is the establishment date mentioned in the account opening

firm matched with registration document?

5 Is board resolution/Power of attorney has been checked?

6 Obtain latest audited financial statements at the time of

customer onboarding?

7 Obtain tax clearance certificate/ self-tax assessment of the

immediately preceding fiscal year at the time of customer

onboarding?

8 Have the required KYC & Proof of identity document

including recent photographs of BODs/CEO/Executive

Committee/Account operators been submitted?

Are there any controlling authorities (beneficiary owner) to

the firm/company /institutions?

If there are controlling owners, have the KYC information

and identification of those owners been obtained?

9 Are BODs/CEO/Executive Committee/Account operators of

Firm/Company /Institution has disclosed their occupation?

10 Has customer disclosed the source of fund /expected annual

income & estimate annual transactions in the account?

11 Has risk category been derived? Mention the risk category in

remarks column?

12 Is there any pending to complete KYC Process?

If yes, why account should be open?

When KYC shall be completed? please mention in remarks

13 Other Observations:

All Formalities done and Account Opening is complete

……………… ………………

Processed By: Reviewed By:



Only for use of the Bank for high risk account/customer

Period Cover From ………………….To…………………

Customer Name:-

Deposit

Type

Main

code

No of DR

Transaction

No of CR

Transaction

Amount of DR

Transaction

Amount of CR

Transaction

Remarks

Reason for considering ECDD Process (Please tick () as appropriate

Domestic PEPs

International PEPs

Family Member of PEPs

Associated (Relationship with) PEPs

Non-residence customers

Customers believed involving in ML/TF (Regulatory Blocked)

Relationship with the person in the sanction list

High net worth individuals (HNI) -Annual turnover more than Rs 100M

Business bullion dealers (including sub-dealers) & jewelers, Casio, Land

& Building, Travel Agencies,

Complex Transactions ( Multiple layer of transactions )

Residual Grading - Annual turnover above

Rs 20 M for Individual

Rs 30 M for institution

Compliance reviewed (STR raised account)

KYC Pending Status

Others (Specify)

Status of account (Please tick () as appropriate

Account Status Blocked Debit Restricted KYC Pending Regulatory Blocked

Previous Risk Status (Please tick () as appropriate

Previous Status High Risk Medium Risk Low Risk New Account

Due Diligence carried out details in addition to the process outlined in Annexure - C or D

S.N Information Yes No Remarks

1. Is the customer Politically Exposed Persons (PEPs)? If yes,

information and documents relating to the family members and close

associates has been obtained?

2. Is the customer ultimate beneficial owners of the account? If No, who

controls the account.

Annexure- E

Customer Identification and Verification

Applicable for Enhance Customer due Diligence (ECDD) Process



3. Is the customer linked to higher-risk countries or Business Sectors?

4. Are KYC documents complete with latest KYC Form & Formalities?

5. Are the transactions normal as per the customer status as presented

while opening account?

6. Is income source disclosed by customer at the time of deposit

transaction?

7. Does Business nature of customer justify the transactions number and

volume?

8. Is the account Frequently opened and closed by the customers?

9. Is branch convenience with client dealing and transactions nature?

10. Is client or its transactions notified or observed as suspicious?

11. Are the frequencies of transactions justifiable?

12. Is customer transferring amount from one account to another

frequently with the aim of concealing/layering the transaction?

13. Is customer conducting transaction below threshold limit (Rs 7 toRs

9.99 lakh a day) regularly with the aim of escaping from TTR?

14. Have the customer documents periodical relevance like: registration,

audited financials, license etc updated up to this year?

15. Are you comfortable to continue business with the customer in terms

of AML and Suspicious transactions status?

16. Is the account duly approved by competent authority while opening? If

Yes, who has approved?

Remarks if any:-

……………… ……………… ………………

CSD Staff/In charge Operation In charge Branch Manager

Prepared By Reviewed & Supported BY Approved By



Annexure- F

Threshold Transaction Report (TTR) Submission

Name of Reporting Bank:

Signature

(Compliance Officer or authorized officer)

Name:

Designation:

Phone:

Email:

Fax:

Date:

S.N.

Name and

address of the

person holding

account

(including legal)

Branch Date of

Transaction

Nature of

Transaction

Account

Type & No

Amount

Involved

Source

of Fund Remark



Annexure- G

Suspicious Transaction Report (STR)

A. Reporting Institution :

1. Name of the Institution/Branch:

B. Details of Customer :

1.a.Name of Main account holder a.

b. Suspected beneficial Owner

2. a. Permanent Address:

b. Present Address:

3. Profession (As per KYC):

4. Nationality :

5. Other account(s) number (if any):

6. Other business (if any):

7. a. Citizen No./ PP No./ other ID No/ Regd,

b. Issue Date & Place

c. Issuing Agency/ Authority

8. a. Father's Name

b. Mother's Name

c. Spouse Name

d. Grand Father

e. Chairman/ MD/ Proprietor

9. Date of birth ( Natural Person)/

Date of establishment (Legal Person):

a.

b.

b.

a.

a.

b. c. a. b. c. d. e.



C. Detail of Customers :

1. Account Number:

2. Nature of the account: (Current/savings/loan/other, pls. specify)

3. Nature of ownership: (Individual/proprietorship

/partnership/ company/other, pls. specify)

4. Names of Prop./ Directors/ Partners etc.

5. Date of A/C opening

6. Other account(s) number (Related Parties):

D. Transactions

a. Transaction Detail(Account wise)

Account No Year Total DR

Amount

Total Trans

Amount

Total CR

Amount

Closing Balance

Total up to Date

Please fill the transactions from opening to present date, Total of Dr. & Cr, (No & Amount) Exclude the return cheques/reverse entries /any other correcting items

b. Details of Top 10 depositors (Last One Year)

S.N. Date Cheque/Voucher No Depositors Amount Remarks

c. Details of Top 10 withdrawals (Last One Year)

S.N. Date Cheque/Voucher No Payees Amount Remarks

d. Details of Loan and any other business and transactions with BFFs

e. Person and Transaction Tree and Map

1. 2.

3.



E. Reason for considering the transactions as unusual /suspicious?

Summary of suspicious activities:

Analysis of Examination:

Possible Linkage:

F. Reason for considering the transactions as unusual /suspicious?

Summarize characterization of suspicious activity/please specify the typologies (As per

Act and FATF Guideline)

a. Corruption/Gratuity g. Identity Theft

b. Cheque fraud h. Terrorist Financing

c. Tax evasion i. Structuring

d Loan fraud j. Mysterious Disappearance/behavior

e. False statement k. Counterfeit instrument

f. debit/ credit or

other card fraud l. Misuse of Position or Self

Others (Please Specify: ………………………………

G. Has the Bank/FI taken any action in this context? Give details.

]

Signature (Compliance Officer or Authorized Officer) :

Name :

Designation:

Phone:

Fax :

Email

Date:



Annexure- H

AML Questionnaire for Correspondent Banking

Questionnaire for Correspondent Banking

PART I -GENERAL INFORMATION

A) Name of Institution:

B) Registration No. and date of registration

/incorporation certificate

C) Authority issuing registration/incorporation

certificate

D) Registered Address

E) Address of Head Office/Corporate Office (If

different from registered office)

F) Contact No.

G) E-mail:

H) Website:

I) Banking License Number, date & Issuing

authority

J) BIC Code/SWIFT Code

K) Principal Place of Business

L) Nature of business & principal Business activity

M) Number of Domestic and Foreign branches

N) Name of Subsidiaries/Affiliates (If Any):

O) Name and Website of regulatory bodies which

you are supervised and monitored by:

P) Name and address of your External Auditors

PART II –AML/CFT COMPLIANCE REPORTING OFFICER

A) Name:

B) Address :

C) Office Contact No:

D) Mobile No:

E) E-mail:



PART III –OWNERSHIP STRUCTURE, MANAGEMENT AND BOARD

A) Is your institution publicly held or privately-owned?

B) Is your institution listed in any stock exchange? YES NO

C) If Yes, Please provide the name of stock exchange

and symbol of exchange

D) Is there any individual who is an ultimate beneficial

Owner* of your institution?

*Natural person who holds a proportionate interest of at least 10% shareholding or exercises effective management control over the Institution

E) List of shareholders who hold 10% or more of your institution

Name No of Shares %

F) Please provide the list of Board of Directors:

Name Designation Passport No Date of Birth Nationality

G) Please provide the list of Management Team:

Name Designation Passport No Date of Birth Nationality



H)

Please confirm whether any of the principal owners or

members of Board and Management Team of your institution

are Politically Exposed Persons?

Y Yes No

PART IV- GENERAL AML POLICIES, PRACTICES & PROCEDURES :

GENERAL AML POLICIES YES NO REMARK

Has the Country in which you are located established laws

designed to prevent money laundering?

Does your bank maintain physical presence in the licensing

country?

Has your institution developed written policies documenting the

processes that they have in place to prevents, detect and report

suspicious transactions' that has been approved by senior

management/board.

In addition to inspections by the government

supervisors/regulators, does the FI client have an internal audit

function or other independent third party that assesses AML

policies and practices on a regular basis?

Does the your institution have a legal and regulatory

compliance program that includes a designated officer that is

responsible for coordinating and overseeing the AML

framework?

Does the institution have a policy prohibiting

accounts/relationships with shell banks? (A shell bank is

defined as a bank incorporated in a jurisdiction in which it has

no physical presence and which is unaffiliated with a regulated

financial group.)

Does the institution have record retention procedures that

comply with applicable law? If yes how long?

Has your institution been subject to any investigation,

indictment, conviction or civil enforcement action related to

money laundering and terrorism financing in the past five years.

Does your country adhere to the 40 anti-money laundering

recommendations and 9 special terrorist financing

recommendations developed by the financial action task force

(FATF)?

Does your institution have policies that cover relationship with

sensitive customers including Politically Exposed Persons

(PEPs), their relatives and close associates?



Does the AML policies and practices being applied to all

branches and subsidiaries of your institution both in the home

country and in locations outside of that jurisdiction?

Does your institution have an established audit and compliance

review function to test the adequacy of AML and terrorist

financing procedures?

PART-V- Know Your Customer, Due Diligence and Enhanced Due Diligence

Has your institution implemented systems for identification of

its clients while establishing business relation including account

opening by obtaining all required information, details and

documents of natural person as well as legal entities and their

beneficial owners that is sufficient for customer due diligence

and risk assessment ?

Does your Institution have a risk-based assessment of its

customer base and their transactions?

Does your institution have procedures to establish a record for

each client noting their respective identification documents and

know your client information collected at account opening? Are

copies of identification documents retaining in your possession

for reference?

Does your institution have policies covering relationships with

Politically Exposed Persons (PEP‟s), their family and close

associates?

Does your institution take steps to understand the normal and

expected transactions of its customers based on its risk

assessment of its customers based on its risk assessment of its

customers?

Does your institution maintain accounts relating to high risk as

that of jewelries, MSB‟s, Charities, Trusts, and Casinos etc.? If

Yes, how frequently is Enhanced Due Diligence done?

………..

Does your institution have anonymous numbered accounts?

Do you search your customer account database for persons and

entities named under a particular sanction programme?

Part VI- Reportable transactions and prevention and detection of transactions

with illegally obtained funds.

Does your institution have policies for the identification and

reporting of transactions that are required to be reported to the

regulatory authorities?



Does your institution screen transactions for clients or

transactions the financial institutions deems to be of

significantly high risk that special attention to such customer or

transactions is necessary prior to completing any such

transaction?

Does your institution have procedures to identify transaction

structured to avoid large cash reporting requirements?

Does your institution have policies to reasonably ensure that

they will not operate with or on behalf of shell bank thought

any of its account?

Part VII -Transaction Monitoring

Does the institution have a monitoring program for suspicious

or unusual activity that covers funds transfers and monetary

instruments (such as travelers checks, money orders, etc.)?

Do you have filter the cross border payment for the persons and

entities named under a particular sanction programme? If yes

please state the types of payments and/or messages to which the

filtering process applies:

payments & Messages:

Outbound Payments & Messages:

Both Inward Payments and Outward Payments.

Does the institution screen payment messages against names

which are on sanctions lists? If so, which lists? Which sanctions

programs does the Bank follow (e.g. UN, OFAC, EU, HMT,

AUSTRAC etc.)?

Does the institution have an automated transaction monitoring

system which looks at patterns of suspicious transactions?

Part VIII- AML Training

Does your institution provide AML training to relevant

employees that include identification and reporting of

transactions that must be reported to government authorities,

examples of different forms of money laundering involving the

bank products and services and internal policies to prevent

money laundering?

Does the FI retained records of its training sessions including

attendance records and relevant training material used?

Does your institution communicate new AML related laws or

changes to existing AML related policies or practices to

relevant employees?

Is there any specialized training on AML to other persons or

areas of the Bank?



What training methods are used (face-to-face, web based,

video)?

Part IX Documents to be enclosed for support

Copy of Institution‟s Certificate of Incorporation

Copy of Institution‟s Banking License

Copy of Institution‟s Memorandum of Association & Article of Association

Latest Audited Financial Statements of the Institution

Copy of Institution‟s AML/CFT Policy/Guidelines

Copy of Institution‟s USA Patriot Act certification

Copy of Institution‟s FATCA declaration

Copy of Institution‟s duly furnished Wolfsberg AML Questionnaire

Identification document of Board of Directors and Top Management

Part X Detail of Authorized Person

Name of Authorized Signatory

Position

Name of Institution

Address

Telephone No

Email

Signature & stamp

Date



Annexure- I

Indicative list of Unusual/suspicious Activity/ Transactions

The list of suspicious activity/ transactions provided here is not exclusive and staff members

would always be expected to monitor transactions of all types which pass through their

desks. However, it may be one that is inconsistent with a client‟s known business,

profession or activity/trade he/she carries on amount of judgment and vigilance over and

above the normal precautions they would take for completing transactions. The

understanding of customer‟s identity vis-à-vis his stated norms of dealings, services, etc.

would also have a bearing on transactions before they are viewed as suspicious transactions.

The key to detect such suspicious activity/ transactions is to knowing sufficiently about

client to recognize that a transaction/or series of them is unusual. Reasonable grounds to

suspect is determined more by reasonable circumstances, including normal business

practices and systems than automated system depending on the industry. It may vary from

business to business, Customer to Customer, place to place, and system to system.

A. Knowledge of Reporting or Record Keeping Requirements

1. Customer attempts to convince to you, not to complete any documentation required

for the transaction.

2. Customer makes inquiries that would indicate a desire to avoid reporting.

3. Customer has unusual knowledge of the law in relation to suspicious transaction

reporting.

4. Customer seems very conversant with money laundering or terrorist activity

financing issues.

5. Customer is quick to volunteer that funds are “clean” or “not being laundered.”

6. Customer appears to be structuring amounts to avoid record keeping, Customer

identification or reporting thresholds.

7. Customer appears to be collaborating with others to avoid record keeping, Customer

identification or reporting thresholds.

8. Customer performs two or more cash transactions within 24 hours where each

transaction is just below the threshold.

9. Customer shows uncommon curiosity about internal systems, controls and policies.

B. Identity Documents

1. Customer provides doubtful or vague information.

2. Customer produces seemingly false identification or identification that appears to be

counterfeited, altered or inaccurate.

3. Customer refuses to produce personal identification documents.



4. Customer only submits copies of personal identification documents.

5. Customer wants to establish identity using something other than his or her personal

identification documents.

6. Customer‟s supporting documentation/application lacks important details such as a

phone/cell number.

7. Customer inordinately delays presenting corporate documents.

8. All identification presented is foreign or cannot be checked for some reason.

9. All identification documents presented appear new or have recent issue dates.

10. Customer presents different identification documents at different times.

11. Customer alters the transaction after being asked for identity documents.

12. Customer presents different identification documents each time a transaction is

conducted.

13. Customer provides false information or information that is unreliable.

14. Customer spells his or her name differently from one transaction to another.

C. Cash Transactions

1. Customer starts conducting frequent cash transactions in large amounts when this has

not been a normal activity for the Customer in the past.

2. Customer frequently exchanges small bills for large ones.

3. Customer uses notes in denominations that are unusual for the Customer, when the

norm in that business is different.

4. Customer presents notes that are packed or wrapped in a way that is uncommon for

the Customer.

5. Customer deposits musty or extremely dirty bills.

6. Customer makes cash transactions of consistently rounded-off large amounts.

7. Customer consistently makes cash transactions that are significantly below the

reporting threshold amount in an apparent attempt to avoid triggering the

identification and reporting requirements.

8. Customer presents uncounted funds for a transaction. Upon counting, the Customer

reduces the transaction to an amount just below that which could trigger reporting

requirements.

9. Customer conducts a transaction for an amount that is unusual compared to amounts

of past transactions.

10. Customer frequently purchase foreign currency drafts or other negotiable

instruments with cash when this appears to be outside of normal activity for the

Customer.

11. Customer asks you to hold or transmit large sums of money or other assets when this

type of activity is unusual for the Customer.



12. shared address for individuals involved in cash transactions, particularly when the

address is also for a business location does not seem to correspond to the stated

occupation (for example, student, unemployed, self-employed, etc.)

13. Stated occupation of the Customer is not in keeping with the level or type of activity

(for example a student or an unemployed individual makes daily maximum cash

withdrawals at multiple locations over a wide geographic area).

14. Cash is transported by a courier.

15. Large transactions using a variety of denominations.

D. Economic Purpose

1. Transaction seems to be inconsistent with the Customer‟s apparent financial standing

or usual pattern of activities.

2. Transaction appears to be out of the normal course for industry practice or does not

appear to be economically viable for the Customer.

3. Transaction is unnecessarily complex for its stated purpose.

4. Activity is inconsistent with what would be expected from declared business.

5. A business Customer refuses to provide information to qualify for a business discount.

6. No business explanation for size of transactions or cash volumes.

7. Transactions of financial connections between businesses that are not usually

connected (for example, a food importer dealing with an automobile parts

exporter).

8. Transaction involves non-profit or charitable organization for which there appears to

be no logical economic purpose or where there appears to be no link between the

stated activity of the organization and the other parties in the transaction.

E. Address

1. Customer does not want correspondences to send to home address.

2. Customer repeatedly uses an address but frequently changes the names involved.

3. Customer‟s home or business telephone number has been disconnected or there is no

such number when an attempt is made to contact Customer shortly after opening

account.

4. Normal attempts to verify the background of a new or prospective Customer are

difficult.

5. Customer uses aliases and a variety of similar but different addresses.

6. Customer hesitates to provide his easy address and contact.

F. Physical backgrounds and Personal behaviors



1. Customer has only vague knowledge of the amount of a deposit.

2. Customer presents confusing details about the transaction or knows few details about its

purpose.

3. Customer appears to informally record large volume transactions using unconventional

bookkeeping methods or “off-the-record” books.

4. Customer appears to be acting on behalf of a third party, but does not tell you.

5. Customer is nervous, not in keeping with the transaction.

6. Customer is involved in activity out-of-keeping for that individual or business.

7. Customer insists that a transaction be done quickly.

8. Inconsistencies appear in the Customer‟s presentation of the transaction.

9. The transaction does not appear to make sense or is out of keeping with usual or

expected activity for the Customer.

10. Customer attempts to develop close rapport with staff.

11. Customer pays for services or products using financial instruments, such as money

orders or traveler's cheques, without relevant entries on the face of the instrument or

with unusual symbols, stamps or notes.

G. Criminal backgrounds

1. Customer admits or makes statements about involvement in criminal activities

2. Customer is accompanied and watched.

3. Customer is nervous, not in keeping with the transaction.

4. Customer over justifies or explains the transaction.

5. Customer is secretive and reluctant to meet in person.

6. Information that a Customer is the subject of a money laundering or terrorist financing

investigation.

7. Information that a Customer is suspected of being involved in illegal activity.

8. A new or prospective Customer is known to you as having a questionable legal

reputation or criminal background.

9. Customer offers money, gratuities or unusual favors for the provision of services that

may appear unusual or suspicious.

10. Transaction involves a suspected shell entity (that is, a corporation that has no assets,

operations or other reason to exist).



H. Transactions Involving Accounts

1. Customer appears to have accounts with several financial institutions in one area for

no apparent reason.

2. Customer conducts transactions at different physical locations in an apparent attempt

to avoid detection.

3. Opening accounts when the Customer‟s address is outside the local service area.

4. Opening accounts in other people‟s names.

5. Opening accounts with names very close to other established business entities.

6. Attempting to open or operating accounts under a false name.

7. Account with a large number of small cash deposits and a small number of large cash

withdrawals.

8. Funds are being deposited into several accounts, consolidated into one and

transferred outside the country.

9. Customer frequently uses many deposit locations outside of the home branch

location.

10. Multiple transactions are carried out on the same day at the same branch but with an

apparent attempt to use different tellers.

11. Activity far exceeds activity projected at the time of opening of the account.

12. Establishment of multiple accounts, some of which appear to remain dormant for

extended periods.

13. Account that was reactivated from inactive or dormant status suddenly sees

significant activity.

14. Reactivated dormant account containing a minimal sum suddenly receives a deposit

or series of deposits followed by frequent cash withdrawals until the transferred sum

has been removed.

15. Unexplained transfers between the Customer‟s products and accounts.

16. Large transfers from one account to other accounts that appear to be pooling money

from different sources.

17. Multiple deposits are made to a Customer‟s account by third parties.

18. Deposits or withdrawals of multiple monetary instruments, particularly if the

instruments are sequentially numbered.

19. Frequent deposits of bearer instruments in amounts just below the threshold.

20. Unusually large cash deposits by a Customer with personal or business links to an

area associated with drug trafficking.

21. Regular return of cheques for insufficient funds.

22. Correspondent accounts being used as “pass-through” points from foreign

jurisdictions with subsequent outgoing funds to another foreign jurisdiction.



23. Multiple personal and business accounts are used to collect and then funnel funds to

a small number of foreign beneficiaries, particularly when they are in locations of

concern, such as countries known or suspected to facilitate money laundering

activities.

24. Customer appears to have recently established a series of new relationships with

different financial entities.

I. Extra-territorial Transactions

1. Customer and other parties to the transaction have no apparent ties to Nepal.

2. Transaction crosses many international lines.

3. Use of a credit card issued by a foreign bank that does not operate in Nepal by a

Customer that does not live and work in the country of issue.

4. Cash volumes and international remittances in excess of average income.

5. Excessive demand for migrant remittances from individuals or entities based on

migrant worker population.

6. Transactions involving high-volume international transfers to third party accounts in

countries that are not usual remittance corridors.

7. Transaction involves a country known for highly secretive banking and corporate law.

8. Transactions involving any countries deemed by the Financial Action Task Force as

requiring enhanced surveillance.

9. Foreign currency exchanges that are associated with subsequent wire transfers to

locations of concern, such as countries known or suspected to facilitate money

laundering activities.

10. Deposits followed within a short time by wire transfer of funds to or through locations

of concern, such as countries known or suspected to facilitate money laundering

activities.

11. Transaction involves a country where illicit drug production or exporting may be

prevalent, or where there is no effective anti-money-laundering system.

12. Transaction involves a country known or suspected to facilitate money laundering

activities.

J. Transactions Related to Offshore Business Activity

For any individual or entity that conducts transactions internationally should consider the

following indicators:

1. Accumulation of large balances, inconsistent with the known turnover of the

Customer‟s business, and subsequent transfers to overseas account(s).

2. Frequent requests for traveler's cheques, foreign currency drafts or other negotiable

instruments.



3. Loans secured by obligations from offshore banks.

4. Loans to or from offshore companies.

5. Offers of multimillion-dollar deposits from a confidential source to be sent from an

offshore bank or somehow guaranteed by an offshore bank.

6. Transactions involving an offshore “shell” bank whose name may be very similar to the

name of a major legitimate institution.

7. Unexplained electronic funds transfer by Customer on an in-and-out basis.

8. Use of letter-of-credit and other method of trade financing to move money between

countries when such trade is inconsistent with the Customer‟s business.

9. Use of a credit card issued by an offshore bank.

K. From a separate perspective

1. Personal Transactions

a. Customer appears to have accounts with several financial institutions in one

geographical area.

b. Customer has no employment history but makes frequent large transactions or

maintains a large account balance.

c. The flow of income through the account does not match what was expected based on

stated occupation of the account holder or intended use of the account.

d. Customer makes one or more cash deposits to general account of foreign

correspondent bank (i.e., pass-through account).

e. Customer makes frequent or large payments to online payment services.

f. Customer runs large positive credit card balances.

g. Customer uses cash advances from a credit card account to purchase money orders or

drafts or to wire funds to foreign destinations.

h. Customer takes cash advance to deposit into savings account.

i. Large cash payments for outstanding credit card balances.

j. Customer makes credit card overpayment and then requests a cash advance.

k. Customer visits the safety deposit box area immediately before making cash deposits.

l. Customer wishes to have credit and debit cards sent to international or domestic

destinations other than his or her address.

m. Customer has numerous accounts and deposits cash into each of them with the total

credits being a large amount.

n. Customer deposits large endorsed cheques in the name of a third-party.

o. Customer frequently makes deposits to the account of another individual who is not an

employer or family member.

p. Customer frequently exchanges currencies.



q. Customer frequently makes automatic banking machine deposits just below the

reporting threshold.

r. Customer‟s access to the safety deposit facilities increases substantially or is unusual in

light of their past usage.

s. Many unrelated individuals make payments to one account without rational

explanation.

t. Third parties make cash payments or deposit cheques to a customer‟s credit card.

u. Customer gives power of attorney to a non-relative to conduct large transactions.

v. Customer has frequent deposits identified as proceeds of asset sales but assets cannot

be substantiated.

w. Customer acquires significant assets and liquidates them quickly with no explanation.

x. Customer acquires significant assets and encumbers them with security interests that

do not make economic sense.

y. Customer requests movement of funds that are uneconomical.

z. Customer makes unusually large bill payments.

aa. High volume of wire transfers are made or received through the account.

2. Corporate and Business Transactions

a. Accounts are used to receive or disburse large sums but show virtually no normal

business-related activities, such as the payment of payrolls, invoices, etc.

b. Accounts have a large volume of deposits in bank drafts, Manager‟s cheques, money

orders or electronic funds transfers, which is inconsistent with the customer‟s business.

c. Accounts have deposits in combinations of monetary instruments that are atypical of

legitimate business activity (for example, deposits that include a mix of business,

payroll, and social security cheques).

d. Accounts have deposits in combinations of cash and monetary instruments not normally

associated with business activity.

e. Business does not want to provide complete information regarding its activities.

f. Financial statements of the business differ noticeably from those of similar businesses.

g. Representatives of the business avoid contact as much as possible, even when it would

be more convenient for them.

h. Deposits to or withdrawals from a corporate account are primarily in cash rather than in

the form of debit and credit normally associated with commercial operations, without

necessary information.

i. Customer maintains a number of trustee or customer accounts that are not consistent

with that type of business or not in keeping with normal industry practices.

j. Customer operates a retail business providing cheque-cashing services but does not

make large draws of cash against cheques deposited.



k. Customer pays in cash or deposits cash to cover bank drafts, money transfers or other

negotiable and marketable money instruments.

l. Customer purchases cashier‟s cheques and money orders with large amounts of cash.

m. Customer deposits large amounts of currency wrapped in currency straps.

n. Customer makes a large volume of seemingly unrelated deposits to several accounts

and frequently transfers a major portion of the balances to a single account at the same

bank or elsewhere.

o. Customer makes a large volume of cash deposits from a business that is not normally

cash-intensive.

p. Customer makes large cash withdrawals from a business account not normally

associated with cash transactions.

q. Customer consistently makes immediate large withdrawals from an account that has

just received a large and unexpected credit from abroad.

r. Customer makes a single and substantial cash deposit composed of many large bills.

s. Small, one-location business makes deposits on the same day at different branches

across a broad geographic area that does not appear practical for the business.

t. There is a substantial increase in deposits of cash or negotiable instruments by a

company offering professional advisory services, especially if the deposits are

promptly transferred.

u. There is a sudden change in cash transactions or patterns.

v. Customer wishes to have credit and debit cards sent to international or domestic

destinations other than his or her place of business.

w. There is a marked increase in transaction volume on an account with significant

changes in an account balance that is inconsistent with or not in keeping with normal

business practices of the customer‟s account.

x. Asset acquisition is accompanied by security arrangements that are not consistent with

normal practice.

y. Unexplained transactions are repeated between personal and commercial accounts.

z. Activity is inconsistent with stated business.

aa. Account has close connections with other business accounts without any apparent

reason for the connection.

bb. Activity suggests that transactions may offend securities regulations or the business

prospectus is not within the requirements.

cc. A large number of incoming and outgoing wire transfers take place for which there

appears to be no logical business or other economic purpose, particularly when this is

through or from locations of concern, such as countries known or suspected to

facilitate money laundering activities.



3. Transactions for Non-Profit Organizations

a. Inconsistencies between apparent modest sources of funds of the organization (e.g.,

communities with modest standard of living) and large amounts of funds raised.

b. Inconsistencies between the pattern or size of financial transactions and the stated

purpose and activity of the organization.

c. Sudden increase in the frequency and amounts of financial transactions for the

organization, or the inverse, that is, the organization seems to hold funds in its

account for a very long period.

d. Large and unexplained cash transactions by the organization.

e. No names and other details of donors available.

f. Large number of non-profit organizations with unexplained links.

g. The non-profit organization appears to have little or no staff, no suitable offices or

no telephone number, which is incompatible with their stated purpose and financial

flows.

h. The non-profit organization has operations in, or transactions to or from, high-risk

jurisdictions.

4. Electronic Funds Transfers, or Remit or Transmit Funds

a. Customer is reluctant to give an explanation for the remittance.

b. Customer orders wire transfers in small amounts in an apparent effort to avoid

triggering identification or reporting requirements.

c. Customer transfers large sums of money to overseas locations with instructions to the

foreign entity for payment in cash.

d. Customer receives large sums of money from an overseas location and the transfers

include instructions for payment in cash.

e. Customer makes frequent or large funds transfers for individuals or entities that have

no account relationship with the institution.

f. Customer receives frequent funds transfers from individuals or entities who have no

account relationship with the institution.

g. Customer receives funds transfers and immediately purchases monetary instruments

prepared for payment to a third party which is inconsistent with or outside the normal

course of business for the customer.

h. Customer requests payment in cash immediately upon receipt of a large funds transfer.

i. Customer instructs you to transfer funds abroad and to expect an equal incoming

transfer.

j. Immediately after transferred funds have cleared, the customer moves the funds to

another account or to another individual or entity.



k. Customer shows unusual interest in funds transfer systems and questions the limit of

what amount can be transferred.

l. Customer transfers funds to another country without changing the currency.

m. Large incoming wire transfers from foreign jurisdictions are removed immediately by

company principals.

n. Customer sends frequent wire transfers to foreign countries, but does not seem to have

connection to such countries.

o. Wire transfers are received from entities having no apparent business connection with

customer.

p. Size of funds transfers is inconsistent with normal business transactions for that

customer.

q. Rising volume of remittances exceeds what was expected from the customer when the

relationship was established.

r. Several customers request transfers either on the same day or over a period of two to

three days to the same recipient.

s. Different customers request transfers that are all paid for by the same customer.

t. Several customers requesting transfers share common identifiers, such as family name,

address or telephone number.

u. Several different customers send transfers that are similar in amounts, sender names,

test questions, free message text and destination country.

v. A customer sends or receives multiple transfers to or from the same individual.

w. Stated occupation of the customer or the customer‟s financial standing is not in

keeping with the level or type of activity (for example a student or an unemployed

individual who receives or sends large numbers of wire transfers).

x. Migrant remittances made outside the usual remittance corridors.

y. Personal funds sent at a time not associated with salary payments.

z. Country of destination for a wire transfer is not consistent with the nationality of the

individual customer.

aa. Customer requests transfers to a large number of recipients outside Nepal who with no

specified or clear relation or purpose.

bb. Customer does not appear to know the recipient to whom he or she is sending the

transfer.

cc. Customer does not appear to know the sender of the transfer from whom the transfer

was received.

dd. Beneficiaries of wire transfers involve a large group of nationals of countries

associated with terrorist activity.

ee. Customer makes funds transfers to free trade zones that are not in line with the

customer‟s business.



5. Businesses who Provide Loans

a. Customer suddenly repays a problem loan unexpectedly.

b. Customer makes a large, unexpected loan payment with unknown source of funds, or a

source of funds that does not match what you know about the customer.

c. Customer repays a long term loan, such as a mortgage, within a relatively short time

period.

d. Source of down payment is inconsistent with borrower‟s background and income.

e. Down payment appears to be from an unrelated third party.

f. Down payment uses a series of money orders or bank drafts from different financial

institutions.

g. Customer shows income from “foreign sources” on loan application without providing

further details.

h. Customer‟s employment documentation lacks important details that would make it

difficult for you to contact or locate the employer.

i. Customer‟s documentation to ascertain identification, support income or verify

employment is provided by an intermediary who has no apparent reason to be

involved.

j. Customer has loans with offshore institutions or companies that are outside the

ordinary course of business of the customer.

k. Customer offers you large dollar deposits or some other form of incentive in return for

favorable treatment of loan request.

l. Customer asks to borrow against assets held by another financial institution or a third

party, when the origin of the assets is not known.

m. The loan transaction does not make economic sense (for example, the customer has

significant assets, and there does not appear to be a sound business reason for the

transaction).

n. Customer seems unconcerned with terms of credit or costs associated with completion

of a loan transaction.

o. Customer applies for loans on the strength of a financial statement reflecting major

investments in or income from businesses incorporated in countries known for highly

secretive banking and corporate law and the application is outside the ordinary course

of business for the customer.

p. Down payment or other loan payments are made by a party who is not a relative of the

customer

The End!



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