Financial embargoes and assets freezing: Comments and recommendations by the NBB
Financial institutions are subject to certain obligations regarding financial embargoes and assets freezing. This web page sets out (i) the context of financial embargoes and assets freezing measures, (ii) the different financial embargo and assets freezing mechanisms that financial institutions must comply with, (iii) the obligation to have a monitoring system, (iv) the other organisational and operational measures that financial institutions must take with regard to financial embargoes and assets freezes, (v) the practical implementation of freezing measures and the consequences thereof, in particular the obligation to report to the FPS Finance - Treasury Department and (vi) the internal control measures recommended by the NBB in this area.
Non-life insurance companies’ attention is drawn to the fact that the obligations regarding embargoes and asset freezing apply to any natural and legal person regardless of the scope ratione personae of the Anti-Money Laundering Law. Some of the measures included on this web page are thus also applicable to non-life insurance companies.
Embargo and assets freezing measures are taken as part of financial sanctions regimes. Financial sanctions are restrictive measures taken against governments of third countries, natural persons, legal persons or de facto groups, in order to put an end to certain types of criminal behaviour.
A financial sanctions regime is an instrument used by international or European institutions or the Belgian government for various purposes, including foreign policy, the fight against terrorism and its financing or the fight against the proliferation of weapons of mass destruction.
Although financial institutions must comply with all financial sanctions, this web page focuses mainly on financial embargoes and assets freezing measures related to the fight against terrorism and its financing, and to the fight against the proliferation of weapons of mass destruction. For the specific due diligence obligations relating to the fight against the proliferation of weapons of mass destruction, see the page Due diligence on business relationships and occasional transactions and detection of atypical facts and transactions, where it is recalled that transactions that could be related to the proliferation of weapons of mass destruction should also be considered atypical because of the intrinsic characteristics of these transactions or of the persons acting as customers, agents, beneficial owners or counterparties in these transactions, in particular because of their links with the countries concerned or with persons or entities known to be involved in the proliferation of weapons of mass destruction.
The term “financial embargo" is generally understood to mean a restrictive measure or a sanction taken against a country at the national and/or international level for various reasons, as explained above. The term "assets freeze" refers to a temporary restriction of the right of ownership of a natural or legal person in the context of the fight against terrorism or the proliferation of weapons of mass destruction.
Embargo and assets freezing measures must be implemented by financial institutions as soon as they enter into force. They create an obligation of result on their part. Unlike other provisions of the Anti-Money Laundering Law, the application of embargo and assets freezing measures is not subject to a risk-based approach.
Attention is also drawn to the fact that violations of embargoes and assets freezes may give rise to criminal sanctions and that the Law of 13 May 2003 relating to the implementation of restrictive measures adopted by the Council of the European Union against some states, persons and entities also provides for sanctions in case of infringements of European regulations and decisions. . Since the entry into force of the Law of 2 May 2019 containing various financial provisions, the General Treasury Administration of the FPS Finance is competent to identify and record any infringements of financial restrictive measures. While the identification of such infringements does not fall within the NBB's legal competence, it is nevertheless incumbent on it, as the supervisory authority designated by the Anti-Money Laundering Law, to ensure that the financial institutions within its competence have developed and implement policies, procedures and internal control measures that are efficient and commensurate with their nature and size, in order to comply with the mandatory provisions on financial embargoes, as required by Article 8 § 1, 3°, of the Anti-Money Laundering Law (see point 3 below).
2. Overview of the different financial embargo and assets freezing mechanisms to be complied with
International organisations and authorities such as the United Nations and the European Union, and national authorities may impose restrictive measures on countries, organisations, legal persons or natural persons involved in or suspected of violating human rights or international law, criminal acts, terrorism, money laundering, etc.
Financial institutions must comply with the financial embargoes and assets freezing measures imposed by (i) the United Nations (provided that the resolutions concerned have been declared enforceable in Belgium), (ii) the European Union and (iii) the Belgian legislator.
2.1. The United Nations Security Council Resolutions
Pursuant to Chapter VII of the Charter of the United Nations (peacekeeping missions), the United Nations Security Council (hereinafter referred to as UNSC) may adopt resolutions in the event of any threat to the peace, breach of the peace, or act of aggression, in order to provide for financial embargo or assets freezing measures.
The UNSC resolutions on sanctions are transposed into European law by the European Union and are thus directly applicable in Belgium. Since the entry into force of the above-mentioned Law of 2 May 2019, the freezing measures provided for by the UNSC resolutions must be implemented immediately in Belgium, without their first having to be confirmed by ministerial order (as was previously the case) or a European regulation (see point 2.2. below). The Minister of Finance also issues a ministerial decree to require the persons subject to the Anti-Money Laundering Law to implement the UNSC freezing measures "without delay".
The adoption of a UNSC resolution is published on the United Nations website. Such resolutions are also published on the Treasury's website. Financial institutions are therefore encouraged to regularly consult the list of relevant UNSC resolutions on the Treasury’s website.
2.2. The European regulations on restrictive measures
In the context of the Common Foreign and Security Policy, the European Union adopts European regulations:
- to transpose into European law the UNSC resolutions setting out financial embargo and assets freezing measures to be imposed; and
- to impose freezing measures autonomously, independently of any action taken by the United Nations.
2.3. National list of persons or entities subject to freezing measures
UN Security Council Resolution 1373(2001) calls on all countries to freeze the funds and economic resources of persons and entities who commit or attempt to commit terrorist offences or who participate in of facilitate the commission of terrorist offences. In addition to Regulations 2580/2001 and 881/2002 and Common Position 2001/931/CFSP, Belgium has taken steps to draw up a national list.
In this respect, a consolidated national list of persons and entities whose assets or economic resources have been frozen in the context of AML/CFT has been drawn up pursuant to the Royal Decree of 28 December 2006 relating to specific restrictive measures against certain persons and entities within the framework of the fight against terrorism financing, ratified by Article 155 of the Law of 25 April 2007 containing various provisions. This Royal Decree requires all funds and economic resources of the persons and entities included in this national list to be frozen and prohibits funds or economic resources to be made available, directly or indirectly, to such persons or entities.
This national list is available on the Treasury’s website. It applies to financial institutions governed by Belgian law (i.e. which are established in Belgium). Parent companies under Belgian law that are at the head of a group as defined in Article 4, 22°, of the Anti-Money Laundering Law should also ensure that all other institutions of this group take into account the national list of the Member State or third country where they are established. This provision is subject to any intragroup outsourcing agreements stipulating that the parent company will carry out the screening for each of these institutions.
2.4. Derogations granted by the Treasury
The General Administration of the Treasury may grant exemptions from financial sanctions upon request. For more information on this subject, see the Treasury’s website.
3. Obligation to have a monitoring system
Pursuant to Article 8, § 1, 3°, the obliged entities should develop and implement policies, procedures and internal control measures that are efficient and commensurate with their nature and size in order to comply with the mandatory provisions on financial embargoes.
In accordance with Article 23 of the Anti-Money Laundering Regulation of the NBB, financial institutions should set up a monitoring system to monitor compliance with the binding provisions concerning financial embargoes and assets freezes.
3.1. Expectations of the NBB regarding the monitoring system
The monitoring system must screen customer databases and transactions involving the receipt or provision of funds, financial instruments or economic resources, to detect whether a customer or the beneficial owner of one of the above-mentioned transactions is subject to an assets freezing measure.
Pursuant to Article 23 of the Anti-Money Laundering Regulation of the NBB, this monitoring system should:
- cover all customers’ accounts and contracts and all their transactions;
- allow rapid detection of any infringements of the provisions on embargoes and freezing of assets or detection in real time whenever these provisions require it;
- be automated, unless the financial institution can demonstrate that the nature, number and volume of transactions to be monitored do not require it; and
- be subject to an initial validation procedure and a regular review.
The NBB also draws the attention of the financial institutions to the following:
3.1.1 Freeze lists to be taken into account
The monitoring system should take into account all the financial embargo and freezing mechanisms described in point 2 above. The list used by the monitoring system should therefore be updated very regularly and whenever a new person or entity is added in accordance with the rules laid down in the procedure for monitoring transactions with a view to complying with financial embargo and assets freezing obligations. The AMLCO must therefore provide for a legal follow-up to monitor changes to the lists of financial embargoes and assets freezes. If the financial institution has branches abroad, these branches should comply with the local regulations on assets freezing. In that case, the group's parent company may also take into account the freeze lists of countries with which it has a branch-type link.
3.1.2. Setting up of the monitoring system
The monitoring system should make it possible to detect:
on the one hand, customers, agents and beneficial owners whose identification data are identical to the available identification details, including aliases, of a person or entity that appears on an official list of sanctions applicable in Belgium; and
- on the other hand, the counterparties of outgoing financial transactions carried out by a customer or an agent whose surname, first name or alias or company name are identical to the data included in an official list of sanctions applicable in Belgium (N.B.: the NBB also considers it useful that the monitoring system allows for the detection of the originators of incoming financial transactions. If it appears that the originator (and only the originator) of the incoming financial transaction is included on an official list of sanctions applicable in Belgium, the execution of the incoming financial transaction would not lead to assets being made available to such a person or entity and therefore would not infringe the rules on financial embargoes and assets freezing; however, from the perspective of ML/FT prevention, such a transaction should be considered as atypical or even suspicious and a review of the risk profile of the customer and related persons may be required, where appropriate accompanied by a reporting of suspicions to CTIF-CFI - see point 5.4. below).
The NBB therefore recommends that financial institutions avoid basing their monitoring system on an exact match type reconciliation function and that they should determine what they deem to be a reasonable level of similarity. As an indication, it is noted that in practice, the most frequently used level of similarity is 85%.
3.1.3. Scope of the monitoring system
The screening mechanisms of the monitoring system should make it possible to detect funds, financial instruments and economic resources that:
- belong to or are owned by a listed person or entity;
- are held or controlled by a listed person or entity;
- are made available, directly or indirectly, to a listed person or entity.
3.1.4. Frequency of the screening
Financial institutions should carry out a screening before entering into a business relationship and before carrying out an occasional transaction, as well as when carrying out transactions involving third parties, such as, in particular, transfers of funds to third parties ordered by their customers or the receipt of transfers of funds executed by a third party on behalf of their customers.
Financial institutions should also recheck their customer databases when new persons or entities are added to the existing assets freeze lists.
3.2. Analysis of alerts generated by the monitoring system
The purpose of the analysis of the alerts is to determine whether the person or entity detected by the monitoring system is the person who is subject to a freezing measure or a homonym of that person.
There is homonymy when:
the spelling of the surname and first name or alias or corporate name is identical to that of the listed person or entity, including where the surname is not distinguishable from the first name;
the spelling of the surname and first name or alias or corporate name differs from that of the listed person, due in particular to different transcriptions from the same foreign alphabet, but sounds similar.
3.2.1. Role of the AMLCO
The AMLCO should, under his responsibility, put in place a process to analyse, as quickly as possible, alerts generated by the monitoring system. To this end, one or more persons from the AMLCO team should be appointed to carry out this task. If necessary, in case the AMLCO works alone, this function may be delegated to an AMLCO correspondent in an operational department, who will work under the responsibility of the AMLCO. The NBB insists that, where this possibility is availed of, the AMLCO remains fully responsible for all tasks related to the analysis of alerts generated by the monitoring systems, even where these tasks are delegated to an AMLCO correspondent in an operational department.
3.2.2. Steps to be taken in the event of an alert
The AMLCO must define in a procedure the steps to be taken in the event of an alert (see point 3.2. below). This procedure should include in particular:
the comparisons to be made to identify cases of homonymy;
the data that must be collected to allow the alerts to be processed adequately;
the modalities of the reporting to the FPS Finance - Treasury Department,
In the course of processing an alert, the AMLCO may contact the FPS Finance - Treasury Department, but this exchange of information is to be distinguished from the formal reporting mentioned in point 5 below.
3.2.3. Suspension of the execution of all transactions
In the event of an alert, financial institutions should suspend the execution of all transactions to or from a person or entity that may be listed, until the alert has been processed. This suspension may be subject to conditions such as the provision, by the customer, of additional information or the provision of documentation on the proposed transactions or the counterparties involved.
4. Other organisational and operational measures to be taken
The NBB recommends that, in order to be able to comply with their obligations with regard to financial embargoes and assets freezes, financial institutions also take the following measures:
- Integration of embargo and assets freeze aspects into their customer acceptance policy;
- Formalisation of one or more monitoring procedures for financial embargoes and assets freezes;
- Establishment of an operational system for the effective and immediate freezing of assets
4.1. Customer acceptance policy
The NBB expects each financial institution to clearly state in its AML/CFTP policy adopted pursuant to Article 8 of the Anti-Money Laundering Law which objectives it sets itself in complying with the mandatory provisions on financial embargoes and freezing of assets.
In practice, as indicated on the page Policies, procedures, processes and internal control measures, the NBB recommends that financial institutions set out in the "customer acceptance policy" section of their AML/CFTP policy the basic principles that should be included in the procedures for implementing the mandatory financial embargo provisions that apply when entering into a relationship. The customer acceptance policy should enable each financial institution to ensure that it complies with its obligations with regard to financial embargoes, including its obligations with regard to the freezing of the assets of certain persons and entities as part of the fight against terrorism.
This implies, in particular, that it should be verified whether the customer, his agents or beneficial owners do not appear on the relevant embargo lists.
4.2. Development of one or more monitoring procedures for financial embargoes and assets freezes
Financial institutions should put in place one or more procedures for monitoring transactions with a view to complying with financial embargo and assets freezing obligations.
As indicated on the page Policies, procedures, processes and internal control measures, this or these procedure(s) shall cover at least the following aspects with regard to financial embargoes and assets freezes:
they organise the analysis, initial validation and regular review process, in accordance with Article 23 of the Anti-Money Laundering Regulation of the NBB, of the system implemented for monitoring the transactions;
they specify the procedures for regularly updating the lists of persons subject to financial embargo and assets freezing measures, as applied by the system implemented for monitoring the transactions;
they organise in a precise and detailed manner the process for analysing as soon as possible, under the responsibility of the AMLCO, the alerts generated by the systems for monitoring the transactions in order to ensure their relevance ;
- they organise in a precise and detailed manner, in the event of alerts whose relevance has been demonstrated:
the process for the immediate freezing of the assets concerned;
the procedures for notifying the competent service of the FPS Finance of the assets freeze; and
the subjection of the transaction concerned and, where applicable, of the business relationship within the framework of which the transaction took place, to a review under the responsibility of the AMLCO to determine whether they also generate suspicions of ML/FT.
4.3. Establishment of an operational system for the effective and immediate freezing of assets
The AMLCO should set up an operational system that allows to effectively freeze, with immediate effect, the assets of the customer concerned. In addition, financial institutions should ensure that this blocking system can also be activated when a correspondent bank with which they cooperate, detects a potential violation of an embargo or assets freeze.
5. Practical implementation of freezing measures
If the analysis of the alert leads the AMLCO to conclude that the customer or beneficiary of a transaction is subject to a financial embargo or assets freeze, this has several consequences.
5.1. Prohibition to enter into a relationship
Financial institutions may not enter into a relationship with a person or entity subject to a financial embargo or assets freezing measure.
5.2. Prohibition on assets being made available
Implementing a freezing measure implies freezing all assets of the listed customer. Transactions aimed at making assets available to a third party may not be carried out. The term "assets" is defined broadly and covers funds, financial instruments and economic resources. The term "economic resources" refers to all assets of any kind, whether tangible or intangible, movable or immovable, which are not funds but can be used to obtain funds, goods or services.
For bank-type financial institutions, this implies that the accounts of listed customers must remain inactive. In the case of financial institutions within the insurance industry, the performance of life insurance contracts must be frozen in any phase of the contract, save where only the insured is a listed person, as the insured neither pays nor receives funds.
5.3. Immediate reporting to the FPS Finance - Treasury Department
The NBB stresses that where a financial institution applies an assets freezing measure, it should contact the FPS Finance - Treasury Department immediately (cf. the Treasury’s website or using the following e-mail address: [email protected]).
Financial institutions are expected to do this as soon as possible and, in any case, as soon as the analysis of the alert has demonstrated that the person or entity detected is indeed the person or entity that is subject to a freezing measure.
The NBB recommends that this reporting be made by the AMLCO. In that case, the AMLCO provides the General Administration of the Treasury with all the information at its disposal, so as to enable it to carry out the necessary verifications (for example: a copy of the identity card or passport of the person concerned, reference to the Regulation or Decision which imposes the sanction and which includes the name of the person or entity that is subject to the sanction, etc.).
5.4. Review of the risk profile of a listed customer and of the persons related to him, and, if necessary, reporting to CTIF-CIF
Financial institutions should review the risk profile of customers included in a list of embargoes or assets freezes and of the persons related to them. They should implement appropriate due diligence measures with respect to the customer concerned and the persons related to him and should carry out a thorough examination of previously executed transactions, and, more broadly, of the functioning of all business relationships with the listed person or entity, which may be aimed at making funds, financial instruments or economic resources available to the listed person or entity or may be related to money laundering, terrorist financing or the financing of the proliferation of weapons of mass destruction. If the review of the customer’s risk profile leads to a decision to terminate the business relationship, such decision may under no circumstances have the effect of returning the assets subject to the freezing measure to the customer.
Besides the assets freezing measure and its notification to the FPS Finance - Treasury Department, it may also be necessary to report a suspicion to CTIF-CFI (see the page Reporting of suspicions).
5.5. Lifting of financial embargo and assets freezing measures
If a financial embargo and assets freezing measure can be lifted, the financial institution should contact the FPS Finance - Treasury Department without delay to determine the concrete measures that should be taken.
6. Internal control measures
Financial institutions are expected to monitor periodically and on an ongoing basis that the policies and procedures for financial embargoes and assets freezes that have been validated are properly complied with and that the processes for implementing organisational and operational obligations related to financial embargoes and assets freezes are adequate.
With regard to the system for monitoring financial embargoes and assets freezes, the NBB recommends that the internal audit function pay particular attention to:
- the effectiveness of the monitoring system, taking into account in particular the number of alerts generated;
- the effectiveness of the process for analysing alerts generated by the system, taking into account the number of cases of information being reported to the FPS Finance - Treasury Department;
- the adequacy of the human and technical resources made available to the AMLCO for analysing the alerts generated by the monitoring system.