S.L. 373.1 Art. 11Enhanced customer due diligence.  

(1) In addition to the requirements under regulation 7, subject persons shall apply enhanced customer due diligence measures in the following situations:

(a) in relation to activities or services that are determined by the Financial Intelligence Analysis Unit to represent a high risk of money laundering or funding of terrorism, having taken into consideration the findings of any national risk assessment and any other relevant factors as may be deemed appropriate;

(b) where, on the basis of the risk assessments carried out in accordance with regulation 5, the subject person determines that an occasional transaction, a business relationship or any transaction represents a high risk of money laundering or funding of terrorism; and

(c) in the cases referred to in sub-regulations (3) to (10).

(2) Subject persons shall ensure that the enhanced customer due diligence measures applied in the cases referred to in paragraphs

(a) and (b) of sub-regulation (1) are appropriate to manage and mitigate the high risk of money laundering or funding of terrorism.

(3) With respect to correspondent relationships with institutions from a country other than a Member State, subject persons shall ensure that –

(a) they gather sufficient information about the respondent institution to understand fully the nature of the respondent’s business and to determine from publicly available information the reputation of the institution and the quality of supervision on that institution,including whether the respondent institution has been subject to any money AND FUNDING OF TERRORISM laundering or funding of terrorism investigation, or regulatory action;

(b) they assess the adequacy and effectiveness of the respondent institution’s measures, policies, controls and procedures for the prevention of money laundering and the funding of terrorism;

(c) the prior approval of senior management for the establishment of new correspondent relationships is obtained;

(d) they clearly understand and document the respective responsibilities of each institution for the prevention of money laundering and the funding of terrorism;

(e) with respect to payable-through accounts, they are satisfied that the respondent institution has verified the identity of and performed on-going due diligence on the customers having direct access to the accounts of the respondent institution and that they are provided with relevant customer due diligence data upon request.

(3a) Where a correspondent relationship as referred to in sub-regulation (3) involves the execution of crypto-asset services as defined in point (16) of Article 3(1) of Regulation (EU) 2023/1114, with the exception of point (h) of such point, with a respondent institution from a country other than a Member State that is providing similar services, including the transfer of crypto-assets, the crypto-asset service provider shall:

(a) carry out the measures referred to in sub-regulation (3), with the reference to "payable-through accounts" in paragraph (e) of the said sub-regulation to be read as a reference to "payable-through crypto-asset accounts";

(b) determine whether the respondent institution is licensed or registered;

(c) document the reasons for the termination of any such relationship where this is attributable to reasons relating to anti-money laundering or countering the funding of terrorism; and

(d) without prejudice to the generality of the obligations arising from other provisions of these regulations:

(i) take into account any information obtained through the carrying out of the measures referred above to implement appropriate measures to mitigate the risks associated with the respondent institution; and

(ii) update any information obtained through the carrying out of the measures referred to above on a regular basis or when new risks emerge in relation to the respondent institution.

(4) Subject persons carrying out relevant financial business shall –

(a) not enter into, or continue, a correspondent relationship with a shell institution;

(b) take appropriate measures to ensure that they do not enter into, or continue, a correspondent relationship with a respondent institution which is known to permit its accounts to be used by a shell institution.

(4a) Crypto-asset service providers shall ensure that the risk management procedures in force in accordance with regulation 5(5)(a) are conducive to identify and assess the risks of money laundering and, or the funding of terrorism associated with transfers of crypto-assets directed to, or originating from a self-hosted address, so that any such crypto-asset service provider applies the necessary measures to mitigate the identified risks including one or more of the following measures:

(a) taking risk-based measures to identify, and verify the identity of, the originator or beneficiary of a transfer made to, or from a self-hosted address or the beneficial owner of such originator or beneficiary, including through reliance on third parties;

(b) requiring additional information on the origin and destination of the transferred crypto-assets;

(c) conducting enhanced ongoing monitoring of those transactions; and

(d) any other measures to mitigate and manage the risks of money laundering and terrorist financing.

(5) Subject persons shall ensure that the risk management procedures maintained in accordance with regulation 5(5)(a) are conducive to determine whether a customer or a beneficial owner is a politically exposed person, and when undertaking occasional transactions for, or establishing or continuing business relationships with politically exposed persons shall:-

(a) require the approval of senior management;

(b) take adequate measures to establish the source of wealth and source of funds; and AND FUNDING OF TERRORISM

(c) conduct enhanced ongoing monitoring of such business relationships.

(6) In addition to the requirements under sub-regulation (5), in case of long-term insurance business subject persons shall take reasonable measures to determine whether the beneficiaries of a policy and, where applicable, the beneficial owner of the beneficiary are politically exposed persons, which measures shall be taken no later than the time of payout or the time of the assignment, in whole or in part, of the policy:

Provided that where the beneficiaries of the policy or, where applicable, the beneficial owner of the beneficiary are politically exposed persons, subject persons shall inform senior management before proceeding with the payout under the policy and shall conduct enhanced scrutiny of the entire business relationship with the policy holder:

Provided further that, where the beneficiaries of a policy or, where applicable, the beneficial owner of the beneficiary are politically exposed persons and the subject person has additional indications of a higher risk of money laundering or funding of terrorism, the subject person shall consider whether it is to submit a disclosure to the Financial Intelligence Analysis Unit in accordance with regulation 15(3).

(7) Without prejudice to the application of enhanced customer due diligence measures on a risk sensitive basis, where a politically exposed person is no longer entrusted with a prominent public function, subject persons shall be required to apply enhanced due diligence measures in accordance with sub-regulations (5) and (6) for at least twelve months after the date on which that person ceased to be entrusted with a prominent public function.

(8) Sub-regulations (5) and (6) shall also be applicable to family members or persons known to be close associates of politically exposed persons, and, for the purposes of this sub-regulation:

"family members" includes:

(i) the spouse, or a person considered to be equivalent to a spouse;

(ii) the children and their spouses, or persons considered to be equivalent to a spouse; and

(iii) the parents.

"persons known to be close associates" means:

(i) a natural person known to have joint beneficial ownership of a body corporate or any other form of legal arrangement, or any other close business relations, with that politically exposed person;

(ii) a natural person who has sole beneficial ownership of a body corporate or any other form of legal arrangement that is known to have been established for the benefit of that politically exposed person.

(9) Subject persons shall, as far as reasonably possible, examine the purpose and background of all transactions that:

(a) are complex;

(b) are unusually large;

(c) are conducted in an unusual pattern; or

(d) have no apparent economic or lawful purpose:

Provided that in such cases subject persons shall increase the degree and nature of monitoring of the business relationship, to determine whether those transactions or activities are suspicious in terms of regulation 15(3).

(10) Where occasional transactions or business relationships or transactions involve non-reputable jurisdictions, subject persons shall:

(a) obtain additional information on the identity of the customer and, where applicable, the beneficial owners;

(b) obtain additional information on the intended nature of business relationships;

(c) obtain additional information on the source of wealth and source of funds of the customer, and, where applicable, the beneficial owners;

(d) obtain information on the purpose of prospective or executed transactions;

(e) obtain the approval of senior management when establishing business relationships, carrying out occasional transactions or continuing business relationships;

(f) conduct enhanced monitoring of business relationships by increasing the frequency of monitoring, and identifying and, where appropriate, examining patterns of transactions that require AND FUNDING OF TERRORISM further scrutiny; and

(g) where applicable, require that the first payment be carried out through a bank account in the customer’s name held with a bank subject to customer due diligence obligations that are consistent with those laid down under these regulations.

(11) Where occasional transactions or business relationships or transactions involve non-reputable jurisdictions in respect of which there is an international call for counter-measures, subject persons shall inform in writing the Financial Intelligence Analysis Unit, and shall apply one or more of the following enhanced customer due diligence measures:

(a) carry out additional customer due diligence measures;

(b) introduce enhanced reporting mechanisms or systemic reporting of transactions;

(c) limit occasional transactions or business relationships involving such non-reputable jurisdictions.

(12) Without prejudice to the provisions of sub-regulation (11), the Financial Intelligence Analysis Unit or the relevant supervisory authority shall, in the situations referred to in sub-regulation (11), apply one or more of the following counter-measures:

(a) refuse the establishment in Malta of branches, representative offices or subsidiaries of persons or entities undertaking activities equivalent to relevant financial business or relevant activity which are situated in such non-reputable jurisdictions, or otherwise take into account the fact that that person or entity is situated in a non-reputable jurisdiction that has deficiencies in its anti-money laundering and counter funding of terrorism regime;

(b) prohibit subject persons from establishing branches or representative offices in such a non-reputable jurisdiction or otherwise take into account the fact that the branch or representative office would be situated in a non-reputable jurisdiction that has deficiencies in its anti-money laundering and counter funding of terrorism regime;

(c) carry out increased compliance monitoring or require increased external audit requirements on branches and subsidiaries, of persons and entities referred to in sub-regulation (11)(a), established in Malta;

(d) require external audit requirements on subject persons forming part of a group in respect of their branches or subsidiaries in such non-reputable jurisdictions; and

(e) require subject persons carrying out relevant financial business to review, amend or terminate correspondent relationships with respondent institutions established in such non-reputable jurisdiction.

(13) The provisions of sub-regulation (12) shall not prejudice the ability of the Financial Intelligence Analysis Unit, or a supervisory authority, acting pursuant to its powers at law, to apply, in the case referred to in this sub-regulation, measures other than those envisaged in that proviso, or to apply measures so envisaged in other situations as deemed appropriate.

(14) When taking any measures as set out in the proviso to sub-regulation (11), the Financial Intelligence Analysis Unit and the relevant supervisory authorities shall take into account, as appropriate, relevant evaluations, assessments or reports drawn up by international organisations, which lay down or monitor adherence with international standards for the prevention of money laundering and for combating the funding of terrorism, in relation to the risks posed by individual third countries, and shall duly notify the European Commission of any measures taken.