Non-compliance with the identification and identity verification obligation: Comments and recommendations by the NBB
Article 33, § 1, of the Anti-Money Laundering Law describes the consequences of an inability to identify and/or verify the identity of the persons involved in a business relationship or occasional transaction at the time required by the Law or within the time limit set pursuant to the Law.
Since these due diligence obligations must in principle be fulfilled before establishing the business relationship or carrying out the intended occasional transaction, but may in certain specific cases be fulfilled in full or in part after the business relationship has been established (see the page “Time of identification and identity verification”), a distinction should be made between the consequences for future customers and those for existing customers.
1. With regard to future customers
When financial institutions are unable to obtain, by the time determined in Article 30 of the Law, the information that is required by the previously identified ML/FT risk level and that is necessary to identify and verify the identity of their customers and, where appropriate, their agent(s) and beneficial owner(s), they may
- neither establish the intended business relationship,
- nor carry out the transaction concerned.
The identification and identity verification obligations are mostly performance obligations. In that case, the associated legal prohibition takes effect as soon as it appears that the identification or the verification cannot be carried out. However, when the identification and identity verification obligation is a best-effort obligation (see the page “Object of the identification and identity verification”), the prohibition to establish or continue the business relationship or to perform the transaction desired by the customer takes effect when the financial institution is unable, for any reason whatsoever, to take the measures commensurate with the identified risk that are imposed by the Law before the business relationship is established or the occasional transaction carried out.
The refusal to establish a business relationship with a potential customer or to carry out an occasional transaction he wishes to perform, should be properly justified. This refusal may not be a means for the financial institution to discriminate against certain categories of customers (see the page “Due diligence requirements and compliance with other legislations”).
2. With regard to existing customers
When a financial institution has established a business relationship with a customer without having verified his identity or, where appropriate, that of his agent(s) and beneficial owner(s) at the time determined in Article 30 of the Anti-Money Laundering Law because its internal procedures allowed this given the need to not interrupt the conduct of business (see Article 31 of the Anti-Money Laundering Law) and when it is unable to verify the identities of these persons as soon as possible after first contact with the customer, it is legally obliged to terminate this relationship.
However, pursuant to Article 33, § 1, third paragraph, of the Anti-Money Laundering Law, financial institutions may apply restrictive measures as an alternative to ending the business relationship in the specific cases detailed in Article 15 of the Anti-Money Laundering Regulation of the NBB:
- in the case of life insurance policies, the unilateral termination of which is contrary to other mandatory legal or regulatory provisions or public policy provisions, the alternative restrictive measures to be applied consist in refusing payment of any supplementary premium by the policyholder, without prejudice to the consequences attached to non-payment of a premium pursuant to the legal or regulatory provisions (Article 15, first paragraph, 1°, of the Regulation);
It should be noted in this regard that, in accordance with Article 30, third paragraph, of the Anti-Money Laundering Law, the identities of beneficiaries of life insurance policies should be verified at the latest at the time of pay-out of the insurance benefits.
- in the case of loan contracts, the unilateral termination of which would have a severe and disproportionate negative impact on the obliged financial institution, the alternative restrictive measures to be applied consist in refusing to increase the amount lent and ending the business relationship as soon as possible (Article 15, first paragraph, 2°, of the Regulation). Examples of a severe and disproportionate negative impact would be the institution being unable, in practice, to obtain reimbursement of significant amounts or to benefit from the real or personal guarantees associated with the loan. Furthermore, the financial institution should take the first opportunity to terminate the loan without suffering this negative impact.
The NBB considers that the decision to apply alternative restrictive measures should be motivated in writing on a case-by-case basis:
- for restrictive measures as an alternative to terminating a life insurance policy, this motivation should include verification that the current legislation does not authorise the insurance company to terminate the policy unilaterally;
- for measures as an alternative to terminating a loan, the written motivation should include an estimation of the negative impact such a unilateral termination would have on the financial institution, in order to demonstrate its severe and disproportionate nature, and mention which future date or events will enable the institution to end the business relationship as soon as possible without suffering this severe and disproportionate negative impact.
In all these cases, the financial institution should also take the measures necessary to ensure that no other business relationship is established with or occasional transaction carried out on behalf of the customer concerned.
With regard to the business relationship that is subject to the alternative restrictive measures, the financial institution should also exercise enhanced due diligence, in accordance with Article 37, § 2, of the Anti-Money Laundering Law, proportionate to the re-assessed level of risk, in accordance with Article 19, § 2, of the Anti-Money Laundering Law, taking into account that this relationship has not been terminated (see the page “Special cases of enhanced due diligence”). This enhanced due diligence should also enable the institution to ensure that the restrictive measures are actually applied and that any loans will be terminated as soon as possible.
The methods for implementing the alternative restrictive measures should be specified in the financial institution’s internal procedures (see the page “Policies, procedures, processes and internal control measures”).
3. Reporting to the AMLCO
In accordance with Article 46 of the Anti-Money Laundering Law, financial institutions should also examine whether CTIF-CFI should be notified of cases as mentioned above where the identification and/or identity verification obligation could not be fulfilled, if this inability could be an indication of ML/FT.
This implies that this inability should first be established and reported to the AMLCO, the details of which should be specified in the internal procedures adopted by the financial institution pursuant to Article 8 of the Anti-Money Laundering Law (for more information on this subject, see the page “Policies, procedures, processes and internal control measures” and point 1.4 of the page “Due diligence on business relationships and occasional transactions and detection of atypical facts and transactions”).
4. Specific case: electronic money issuer deferring identification and/or identity verification
Where an electronic money issuer decides to make use of the possibility of derogation provided for in Article 32 of the Anti-Money Laundering Law, in compliance with the conditions set out therein, and thus to not identify and/or verify the identity of the customers (and where appropriate, their agent(s) and beneficial owner(s)) who provide them with funds for the issuance of electronic money before the funds concerned have been provided, but to defer fulfilment of these due diligence obligations until a later time (see point 2.2. of the page “Identification and identity verification time”), the electronic money issuer should itself, in its internal procedures, specify the consequences of the inability to identify or verify the identity of the persons involved within the time limit previously determined therein, as the provisions of Article 33 of the Anti-Money Laundering Law do not apply in that case.