Money Laundering and Proceeds of Crime Regulations 2010

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MONEY LAUNDERING AND PROCEEDS
OF CRIME REGULATIONS 2010

Money Laundering and Proceeds of Crime
Regulations 2010 Arrangement of Regulations





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MONEY LAUNDERING AND PROCEEDS OF CRIME
REGULATIONS 2010

Arrangement of Regulations
Regulation

PART I - PRELIMINARY 5
1 Short Title .................................................................................................... 5
2 Interpretation ................................................................................................ 5
3 Policies and Practices ................................................................................. 7
4 Extraterritorial Application ........................................................................... 7

PART II – RISK BASED CUSTOMER DUE DILIGENCE 7
5 Application of CDD ...................................................................................... 7
6 Identification of Customers............................................................................... 8
7 Beneficial Owner ......................................................................................... 9
8 Delayed Verification .................................................................................. 10
9 Establishment of Customer Profile .............................................................. 10
10 Reliance on Intermediaries ............................................................................. 10
11 Acceptance of New Customers ................................................................... 12
12 Customer Information ..................................................................................... 12
13 Monitoring of Customer Transactions ........................................................... 12
14 Termination of Customer Relationship .......................................................... 13
15 Enhanced CDD ......................................................................................... 13
16 Simplified CDD .............................................................................................. 13
17 Wire Transfers ................................................................................................ 13
18 Cross Border Correspondent Banking ................................................................. 15

PART III – RECORD KEEPING AND RETENTION 16
19 Transaction Records ................................................................................ 16

Arrangement of Regulations
Money Laundering and Proceeds of Crime

Regulations 2010





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20 Other Records and Data ........................................................................... 17

PART IV – SUSPICIOUS TRANSACTION REPORTS 17
21 Reporting Suspicious Funds or Transactions ............................................... 17
22 Prohibition on Tipping Off .......................................................................... 18
23 Currency Transaction Reporting ....................................................................... 18

PART V – INTERNAL PROCEDURES, POLICIES AND CONTROLS 21
24 Internal Procedures, Policies and Controls........................................................... 21
25 Non face-to-face transactions and new technologies ........................................... 22
26 Branches and subsidiaries ............................................................................... 22



SCHEDULE 24

PART A: DELAYED VERIFICATION 24

PART B: ENHANCED CDD FOR HIGHER RISK CUSTOMERS 24

PART C: SIMPLIFIED CDD FOR LOWER RISK CUSTOMERS 25



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MONEY LAUNDERING AND PROCEEDS OF CRIME
REGULATIONS 2010

MONEY LAUNDERING AND PROCEEDS OF CRIME ACT 2000

IN EXERCISE of the powers contained in section 80 of the Money laundering
and Proceeds of Crime Act 2000, the Attorney General, with the consent of
Cabinet, makes the following regulations -

PART I - PRELIMINARY

1 Short Title

These Regulations may be cited as the Money Laundering and Proceeds of Crime
Regulations 2010.

2 Interpretation

For the purposes of these Regulations:

“CDD” means Risk-Based Customer Due Diligence, and includes:
(a) identification of customers, including beneficial owners of the formal

customer;
(b) gathering of information on customers to create a customer profile;
(c) application of acceptance policies to new customers;
(d) maintenance of customer information on an ongoing basis;
(e) monitoring of customer transactions; and
(f) rules on wire transfers and correspondent banking.

“FATF 40” means the Financial Action Task Force Recommendation 40;

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“FATF 9” means the Financial Action Task Force Special Recommendation
9;

“Act” means the Money Laundering and Proceeds of Crime Act 2000, as
amended;

“Attorney-General” means the Attorney-General appointed pursuant to the
Constitution of the Kingdom of Tonga;

“batch transfers” means a transfer comprised of a number of individual wire
transfers that are being sent to the same financial institutions, but may not be
ultimately intended for different persons;

“control” means:

(a) the power, directly or indirectly, to direct the management or policies of
a financial institution or cash dealer; or

(b) to vote 10% or more of any class of voting shares of a financial
institution or cash dealer;

“cross-border transfer” means any wire transfer where the originator and
beneficiary institutions are located in different jurisdictions. This also refers
to any chain of wire transfers that has at least one cross-border element;

“domestic transfer” means any transfer where the originator and beneficiary
institutions are located in the same jurisdiction. This refers to any chain of
wire transfers that takes place entirely within the borders of a single
jurisdiction, even though the system used to effect the wire transfer may be
located in another jurisdiction;

“ identify” means to ascertain the full name, address, nationlity, occupation,
business or principal activity;

“ institution affiliated party” means any director, officer, employee or person
who:

(a) owns or controls a financial institution or cash dealer; or

(b) participates in the conduct of the affairs of a fin ncial institution or cash
dealer;

“ intermediary” means a person relied on by a financial institution or cash
dealer to perform some of the elements of the CDD process or to introduce
business to the financial institution or cash dealer;

“ legal arrangement” refers to express trusts or other similar arrangements;

“ legal persons” refers to bodies corporate, foundations, partnerships, or
associations, or any similar bodies that can establi h a permanent customer
relationship with a financial institution or otherwise own property;

“politically exposed person” means any person who is or has been entrusted
with a prominent public function in a foreign country, including, but not
limited to Heads of State or of government, senior p liticians, senior

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government, judicial or military officials, senior executives of state-owned
companies, and important political party officials. Family members and close
associates who have business relationships with such persons are also
included herein;

“regulated institution” means a financial institution or cash dealer as defined
in the Act; and

“wire transfers” means any transaction carried out on behalf of an originator
person (both natural and legal) through a financial institution by electronic
means with a view to making an amount of money avail ble to a beneficiary
person at another financial institution. The originator and beneficiary may be
the same person.

3 Policies and Practices

(1) Financial institutions shall adopt and implement policies and practices to deter
and prevent money laundering and terrorist financing in accordance with these
Regulations.

(2) Policies and practices under sub-regulation (1) shall include:

(a) CDD;

(b) record-keeping and retention;

(c) reporting of suspicious transactions to the Transaction Reporting
Authority; and

(d) internal procedures, policies, and controls to ensure compliance with
these Regulations.

4 Extraterritorial Application

(1) Financial institutions shall ensure that the requirements of these Regulations
are also applied by their branches and subsidiaries located outside of the
Kingdom.

(2) Any local prohibition on the application of these Regulations to such branches
or subsidiaries shall be reported to the Transaction Reporting Authority.

PART II – RISK BASED CUSTOMER DUE DILIGENCE

5 Application of CDD

CDD shall be applied on a risk basis, which shall inc ude enhanced CDD for higher
risk customers and simplified CDD for lower risk customers.

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6 Identification of Customers

(1) For the purposes of this Regulation “customers” include persons who are, or
who seek to be:

(a) in a business relationship;

(b) engaged in one or more occasional transactions when the total value of
the transactions equals or exceeds $10,000;

(c) carrying out wire transfers as provided in Regulation 17; and

(d) engaged in any business or transaction in any instance where there is a
suspicion that the person is involved in money laundering or terrorist
financing with the financial institution.

(2) Financial institutions shall not keep anonymous accounts or accounts in
obviously fictitious names.

(3) Financial institutions shall ensure that they know the true identity of their
customers.

(4) In order to ensure proper customer identification, the financial institution shall
identify and verify the identity of the customer at any time that:

(a) the person applies for a business relationship;

(b) the person seeks to engage in a threshold occasi nal transaction;

(c) the person seeks to carry out a wire transfer;

(d) the person engages in a suspicious activity; and

(e) where doubts have arisen as to the veracity or adequacy of previously
obtained identification data on the person.

(5) For customers who are physical persons, the financial institution shall verify
identity required using reliable, independent source documents, data, or
information as provided in the Schedule to these Regulations.

(6) For customers who are legal persons or legal arrangements, the financial
institution shall obtain and verify:

(a) the customer’s name and legal form, including by o taining proof of
incorporation or similar evidence of establishment or existence;

(b) the names and addresses of members of the customer’s controlling
body;

(c) legal provisions that set out the power to bind the customer;

(d) legal provisions that authorise persons to act on behalf of the customer;
and

(e) the identity of the physical person purporting to act on behalf of the
customer, using source documents as provided in sub-regulation (4).

(7) Legible file copies shall be made of the relevant identification.

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7 Beneficial Owner

(1) For the purposes of this regulation “family member” includes brothers and
sisters, whether by the whole or half blood, spouse, ancestors, and lineal
descendants.

(2) The financial institution shall take reasonable:

(a) measures to determine if a customer is acting on behalf of one or more
beneficial owners; and

(b) steps to verify the identity of the beneficial owner by using relevant
information or data obtained from a reliable source such that the
financial institution is satisfied that it knows the identity of the
beneficial owner.

(3) For life and other investment-linked insurance, the beneficiary under the
policy shall be identified and verified.

(4) (a) No further identification is necessary, forpublic companies or other
legal persons or legal arrangements quoted on an exchange regulated by
law, and certain non-resident public companies subject to adequate
regulatory disclosure requirements and quoted on a foreign exchange
approved for this purpose by the Transaction Reporting Authority that
is subject to adequate supervision in a jurisdiction hat is implementing
effectively the FATF 40 and FATF 9.

(b) In determining if there has been effective implementation in the
jurisdiction, financial institutions shall take into account the
information available on whether these countries adequately apply the
FATF 40 and FATF 9, including by examining the reports and reviews
prepared by the Financial Action Task Force, International Monetary
Fund, and World Bank publications.

(5) For other customers that are legal persons or legal arrangements, the financial
institution shall take reasonable measures to understand the ownership and
control structure of the customer, including the ultimate natural person who
owns or controls a legal person, including natural persons with a controlling
interest as described in this regulation.

(6) With respect to companies, limited partnerships, or similar arrangements,
identification shall be made of each natural person that:

(a) owns, directly or indirectly, 25 percent or more of the vote or value of
an equity interest; and

(b) exercises management of the company, limited partnership or similar
arrangement.

(7) With respect to a trust or similar arrangements, identification shall be made of
the settlor, trustee, and beneficiary whose vested int rest is 10 percent or more
of the value of the trust corpus.

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(8) Identification of other natural persons is not required.

(9) In determining indirect ownership of equity interests -

(a) an equity interest held by a company, limited partnership, or similar
arrangement and by a trust shall be considered as being owned
proportionately by its shareholders, partners, or vested beneficiaries;
and

(b) an equity interest held by a family member shall be considered as also
being owned, in its entirety, by each family member.

(10) Legible copies shall be made and retained of the relevant information.

8 Delayed Verification

(1) (a) Financial institutions may apply to the Trans ction Reporting Authority
for authorisation to delay completion of the customer identification
process in Regulations 6 and 7.

(b) Permission may be granted by the Transaction Reporting Authority
only if the financial institution presents a procedure that complies with
these Regulations.

(2) Financial institutions may delay verification only if verification occurs as
soon afterwards as reasonably practical, the delay is essential to not
interrupting the normal course of business, and the money laundering and
terrorist financing risks are effectively managed.

(3) Procedures to manage risk concerning delayed customer identification shall
include a set of measures such as a limitation of the number, types or amount
of transactions that can be performed to enhance the monitoring of
transactions under Part IV of these Regulations.

9 Establishment of Customer Profile

(1) A financial institution shall create a profile for each customer of sufficient
detail to enable it to implement the CDD requirements of these Regulations.

(2) The customer profile shall be based upon sufficient knowledge of the
customer, including the customer’s proposed busines with the financial
institution, and where necessary the source of customer funds.

10 Reliance on Intermediaries

(1) (a) Financial institutions may apply to the Trans ction Reporting Authority
for authorisation to rely on intermediaries such as tru t or company
service providers to perform the duties in Regulations 6 and 7.

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(b) Permission may be granted by the Transaction Reporting Authority
only if the financial institution presents a plan of internal policies and
practices that comply with these Regulations.

(2) Financial institutions may rely upon intermediaries that are also financial
institutions.

(3) (a) Financial institutions may rely upon non-resident intermediaries if the
financial institution is satisfied that the third party is adequately
regulated and supervised and has measures in place to comply with the
CDD requirements in these Regulations.

(b) This requirement will be satisfied if the non-resident intermediary is
subject to money laundering and terrorist financing policies comparable
with the FATF 40 and FATF 9, is subject to licensing and supervision
to enforce those policies, has not been subject to any material
disciplinary action that calls into question its execution of those
policies, and is located in a jurisdiction that is implementing effectively
the FATF 40 and FATF 9.

(c) In making this determination, financial instituons shall take into
account the information available on application and adequacy of
implementation of the FATF 40 and FATF 9 to entities n individual
countries.

(4) (a) In each instance of reliance on intermediaries, the financial institution
shall immediately obtain from the third party the information required
in Regulations 6 and 7.

(b) While it is not necessary to obtain copies of related documents,
financial institutions shall take adequate steps to atisfy themselves that
copies of identification data and other relevant documentation relating
to the information obtained under sub-regulation (3) will be made
available without delay.

(5) Financial institutions may not rely upon intermdiaries identified by the
Transaction Reporting Authority as non-complying with the FATF 40 and
FATF 9, or intermediaries for whom the financial inst tution has independent
credible reason to believe are not complying with the FATF 40 and FATF 9.

(6) (a) The ultimate responsibility for implementation of the customer due
diligence requirements of this Regulation remains with the financial
institution.

(b) Compliance will be assumed if the financial institution adequately
executes the Transaction Reporting Authority approved plan of internal
policies and practices that comply with this Regulation.

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11 Acceptance of New Customers

(1) Financial institutions shall not accept as customers those persons whose
identity and beneficial owner as required in Regulations 6, 7 and 8 cannot be
assured or for whom sufficient information to form a customer profile cannot
be gathered and in such cases financial institutions shall determine if they
shall file a suspicious transaction report as provided in Part IV.

(2) It is important that the policy on acceptance of new customers is not so
restrictive that it results in a denial of access by the general public to financial
services, especially for people who are financially or socially disadvantaged.

12 Customer Information

(1) Financial institutions shall gather and maintai customer information on an
ongoing basis.

(2) Documents, data, or information collected under the CDD process shall be
kept up to date and relevant by taking reviews of existing records at
appropriate times.

13 Monitoring of Customer Transactions

(1) Financial institutions shall monitor ongoing customer transactions.

(2) Monitoring shall include the scrutiny of customer transactions to ensure that
they are being conducted according to the financial institution’s knowledge of
the customer and the customer profile and, where nec ssary, the source of
funds, and may include predetermined limits on amount of transactions and
type of transactions.

(3) Financial institutions shall:

(a) pay special attention to all complex, unusual large transactions, or
unusual pattern of transactions that have no visible economic or lawful
purpose;

(b) examine as far as possible the background and purpose of such
transactions and set forth their findings in writing;

(c) keep such findings available for examination by the Transaction
Reporting Authority, auditors, and any other competent authorities, for
a minimum of five years; and

(d) in such cases, determine if they shall file a suspicious transaction report
as provided in Part IV.

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14 Termination of Customer Relationship

If the financial institution is unable to comply with the CDD required for a customer
it shall terminate the customer relationship and determine if it shall file a suspicious
transaction report as provided in Part IV.

15 Enhanced CDD

(1) Financial institutions shall apply enhanced CDD for customers that are likely
to pose a higher risk of money laundering or terrorist financing including
politically exposed persons.

(2) Enhanced CDD shall:

(a) include reasonable measures to establish the source of wealth and
source of funds of customers; and

(b) be applied to higher risk customers at each stage of the CDD process.

(3) No higher risk customer shall be accepted as a customer unless a senior
member of the financial institution’s management has agreed.

16 Simplified CDD

(1) (a) Financial institutions may apply to the Trans ction Reporting Authority
for authorisation to apply a simplified customer due diligence
procedure.

(b) Permission will be granted by the Transaction Reporting Authority only
if the financial institution presents a procedure that complies with this
Regulation.

(2) The general rule is that customers shall be subject to the full range of
customer due diligence measures as provided in this Regulation.

(3) In certain circumstances where–

(a) the risk of money laundering or terrorist financing is lower;

(b) information on the identity of the customer and the beneficial owner of
a customer is publicly available; or

(c) adequate checks and controls exist elsewhere in nat onal systems;

simplified measures may be employed.

17 Wire Transfers

(1) Financial institutions shall ensure, that for all wire transfers, ordering persons
obtain and maintain full originator information and to verify that the
information is accurate and meaningful.

(2) Full originator information includes:

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(a) the name of the originator;

(b) the originator’s account number or a unique refr nce number if there is
no account number; and

(c) the originator’s identification card number or address.

(3) For cross-border wire transfers, including batch ransfers and transactions
using a credit or debit card to effect a funds transfer, the ordering financial
institution shall be required to include full originator information in the
message or payment form accompanying the wire transfer, except in the
circumstances provided in this Regulation for batch transfers.

(4) For domestic wire transfers, including transactions using a credit or debit card
as a payment system to effect a money transfer, the ord ring financial
institution shall include either:

(a) full originator information in the message or payment form
accompanying the wire transfer; or

(b) only the originator’s account number or, where no account number
exists, a unique identifier, within the message or payment form.

(5) Sub-regulation (4)(b) may be used only if full originator information can be
made available to the beneficiary, financial institution and the Transaction
Reporting Authority within three business days of receiving a request.

(6) If a cross-border wire transfer is contained within a batch transfer and is sent
by a financial institution, it may be treated as a domestic wire transfer
provided the requirements for domestic wire transfers are met.

(7) The financial institution shall ensure that non-r utine transactions are not
batched where this would increase the risk of money laundering or terrorist
financing.

(8) Each intermediary in the payment chain shall maintain all the required
originator information with the accompanying wire tansfer.

(9) (a) Financial institutions may apply to the Trans ction Reporting Authority
for authorisation to exempt wire transfers below $3000 from the
requirements of sub-regulations (3) and (4).

(b) Permission may be granted by the Transaction Reporting Authority
only if the financial institution presents a procedure that complies with
this Regulation.

(10) (a) Beneficiary financial institutions shall identify and handle wire
transfers that are not accompanied by complete originator information
on the basis of perceived risk of money laundering and terrorist
financing.

(b) Procedures to address these cases shall include the financial institution
first requesting the missing originator information from the financial
institution that sent the wire transfer.

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(c) If the missing information is not forthcoming, the financial institution
shall consider whether, in all the circumstances, the absence of
complete originator information creates or contributes to suspicion
about the wire transfer or a related transaction.

(d) If the wire transfer is deemed to be suspicious, then it shall be reported
to the Transaction Reporting Authority under Part IV.

(e) In addition, the financial institution may decide not to accept the wire
transfer.

(f) In appropriate circumstances, beneficiary financi l institutions shall
consider restricting or terminating business relationships with financial
institutions that do not comply with this Regulation.

18 Cross Border Correspondent Banking

(1) For the purposes of this Regulation “correspondent banking” means the
provision by one bank to another bank of credit, deposit, collection, clearing
or payment services.

(2) (a) Banks shall develop and implement policies and procedures concerning
correspondent banking.

(b) In order to provide correspondent banking servic s, a bank shall first
assess the respondent’s controls against money laundering and terrorist
financing and determine that they are adequate and effective.

(c) Banks shall gather sufficient information about respondent banks to
understand their business and determine from publicly available
information the reputation of the institution, quality of supervision, and
whether it has been subject to a money laundering or terrorism
financing investigation or regulatory action.

(d) A bank shall in general establish or continue a correspondent
relationship with a foreign bank only if it is satisfied that the bank is
effectively supervised by the relevant authority.

(e) A bank shall not establish or continue a correspondent banking
relationship with a bank incorporated in a jurisdiction in which the bank
has no presence and which is unaffiliated with a regulated financial
group.

(f) A bank shall not enter into a correspondent banking relationship
without first seeking the prior approval of the Trans ction Reporting
Authority.

(3) The information to be collected under sub regulation (2)(c) may include, but
is not limited to:

(a) details about the respondent bank’s management;

(b) major business activities, where it is located;

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(c) its money laundering and terrorist financing prevention efforts;

(d) the system of bank regulation and supervision in the respondent bank’s
country; and

(e) purpose of the account.

(4) (a) A bank shall pay particular attention when maintaining a correspondent
banking relationship with banks incorporated in jurisdictions that do not
meet international standards for the prevention of m ney laundering
and terrorist financing.

(b) Enhanced due diligence will generally be required in such cases,
including obtaining details of the beneficial ownership of such banks
and more extensive information about their policies and procedures to
prevent money laundering and terrorist financing.

(5) A bank shall develop and implement policies andprocedures concerning the
ongoing monitoring of activities conducted through such correspondent
accounts.

(6) (a) Particular care shall also be exercised where the bank’s respondent
allows direct use of the correspondent account by third parties to
transact business on their own behalf.

(b) A bank shall be satisfied that the respondent bank has performed the
customer due diligence required in the Regulations f r those customers
that have direct access to the accounts of the corrspondent, and that the
respondent is able to provide relevant customer identification
information on request of the correspondent.

PART III – RECORD KEEPING AND RETENTION

19 Transaction Records

(1) (a) Financial institutions shall ensure that all necessary records on
transactions, both domestic and international, are retained for at least
seven years following completion of the transaction, r longer if
requested by a competent authority in specific cases nd upon proper
authority.

(b) This requirement applies regardless of whether t account or business
relationship is ongoing or has been terminated.

(2) Transaction records shall be sufficient to permit econstruction of individual
transactions so as to provide, if necessary, evidence for prosecution of
criminal activity.

(3) A transaction record shall include:

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(a) customer’s and beneficiary’s name, address or other identifying
information normally recorded by the intermediary;

(b) the nature and date of the transaction;

(c) the type and amount of currency involved; and

(d) the type and identifying number of any account involved in the
transaction.

20 Other Records and Data

(1) Financial institutions shall ensure that all necessary records on the
identification data, account files and business correspondence for at least
seven years are kept, following the termination of an account or business
relationship, or longer if requested by a competent authority in specific cases
upon proper authority.

(2) All customer and transaction records and information shall be made available
on a timely basis to the Transaction Reporting Authori y and other domestic
competent authorities upon request by the appropriate authority.

PART IV – SUSPICIOUS TRANSACTION REPORTS

21 Reporting Suspicious Funds or Transactions

(1) Financial institutions shall report to the Trans ction Reporting Authority
when the entity suspects or has reasonable grounds to suspect that funds are:

(a) related to money laundering, terrorist financing, a serious offence or the
proceeds of a criminal offence including tax matters; or

(b) linked or related to, or to be used for terrorism, terrorist acts, by an
individual terrorist, terrorist organizations or terorist financing;

(2) (a) All suspicious funds and transactions, including attempted transactions,
shall be reported.

(b) The requirement to report is not otherwise limited.

(3) Suspicious Transaction Reports shall:

(a) be submitted as soon as possible but no later than three working days
after forming that suspicion and wherever possible fore the
transaction is carried out; and

(b) contain all relevant information concerning thefunds or transaction in
accordance with the Schedule to these Regulations.

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(4) (a) Financial institutions shall pay special atten ion to all complex, unusual,
large transactions, or unusual pattern of transactions that have no
visible economic or lawful purpose.

(b) Financial institutions may examine as far as posible the background
and purpose of such transactions and set forth their find ngs in writing.

(c) Financial institutions shall keep such findings available for examination
by the Transaction Reporting Authority, auditors, and any other
competent authorities, for a minimum of seven years.

(d) In such cases, financial institutions shall determine if they should file a
suspicious transaction report.

22 Prohibition on Tipping Off

Financial institutions, their directors, officers and employees, permanent and
temporary, shall not disclose that a Suspicious Transaction Report or related
information is being reported or provided to the Transaction Reporting Authority.

23 Currency Transaction Reporting

(1) Every financial institution shall obtain the requisite information and file with
the Transaction Reporting Authority reports of trans ctions in currency to the
extent and in the manner herein required.

(2) For the purposes of obtaining, information and reporting under this regulation,
a transaction in currency is:

(a) a deposit, withdrawal, exchange of currency, or other payment or
transfer;

(b) involving currency of any country of a value greater than $10,000:

(i) in a single transaction; or

(ii) in multiple transactions taken by or on behalf of a single person
within a 24 hour period when aggregated.

(3) Prior to concluding any transaction in currency all financial institutions shall
obtain and verify the following information:

(a) the name, address, citizenship/residency status, social security number
or passport number and occupation/business or princi al activity of
each person conducting or involved in a transaction or on whose behalf
a transaction is conducted;

(b) the nature and date of the transaction;

(c) the type and identification numbers of all accounts involved;

(d) the type and amount of currency involved; and

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(e) names of officers, employees and agents and methods used to verify the
information required by this sub-regulation.

(4) Financial institutions shall satisfy the requirement to verify information under
sub-regulation (3) by obtaining from and examining:

(a) from individuals, original official unexpired documents bearing a
photograph or reasonable alternative;

(b) articles of incorporation, charters, or their equivalents, or any other
official documentation establishing that it has been lawfully registered
and is in existence at the time of identification and which delineates the
powers of their legal representatives; and

(c) the appropriate documentation for all persons acting, or appearing to act
in a representative capacity including all the beneficiaries.

(5) Financial institutions shall comply with the following procedures:

(a) information regarding transactions in currency ot otherwise exempted
pursuant to sub-regulations (7), (8) and (9) shall be reported by
completing a Currency Transaction Report form (CTR) pursuant to the
CTR’s instructions, and collecting and maintaining supporting
documentation as required by sub-regulation (3);

(b) the CTR shall be filed with the Transaction Reporting Authority, as
indicated in the instructions to the CTR; and

(c) the CTR shall be filed no later than ten (10) working days after the date
of transaction in currency.

(6) A financial institution shall maintain a copy of any CTR filed and the original
or a microfilm, electronic or other copy or reproduction, or business record
equivalent of any supporting documentation of a CTR for a period of seven
years from the date of filing the CTR. Supporting documentation shall be
identified, and maintained by the financial institution as such, and shall be
deemed to have been filed with the CTR. A financial institution shall make all
supporting documentation available to the Transaction Reporting Authority
and any appropriate law enforcement agencies upon request.

(7) A transaction to which a financial institution is a party is eligible for
exemption if:

(a) the other party to the transaction is a governmnt agency of the
Kingdom; and

(b) the amount of currency involved in the transaction does not exceed an
amount that is reasonably commensurate with the lawfu business
activities of that agency.

(8) A transaction is eligible for exemption if the transaction is between a financial
institution and another financial institution.

(9) A transaction is also eligible for exemption if:

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(a) the transaction is between a financial institution and another person (in
this sub-regulation called the “customer”);

(b) the customer has had, at the time when the transaction takes place, an
account verified pursuant to sub-regulation (3) of the Act with the
financial institution for one year;

(c) the transaction consists of a deposit into, or a withdrawal from, an
account maintained by the customer with the financil institution;

(d) the transaction does not involve any party representing anyone in a
representative capacity;

(e) the customer carries on a commercial enterprise, other than business
that includes the selling of vehicles, vessels, aircr ft, real estate
brokerage, mobile home dealers, accountants, lawyers, doctors,
pawnbrokers, insurance companies, trade unions, and auctioneers;

(f) the account is maintained for the purposes of that business; and

(g) the amount of currency involved in the transaction does not exceed an
amount that is reasonably commensurate with the lawfu business
activities of the customer.

(10) A record of each exemption granted under this regulation and the reason
therefore shall be kept by a financial institution n an exemption registry.

(11) For an exempted transaction between a financial institution and a government
agency of Tonga under sub-regulations (7)(a) and (b), the exemption registry
shall include the reason for the exemption and the names and addresses of the
financial institution or cash dealer and government agencies involved in the
transaction.

(12) For exempted transactions between a financial institution and a customer, as
defined in this regulation, the exemption registry shall include the following
information:

(a) the reason for exemption;

(b) the customer’s name, business or residential address, and his
occupation, business or principal activity;

(c) a statement whether the exemption covers deposits, w thdrawals or
both;

(d) a signed statement by the customer that states the following:

(i) the party believes that the transaction is eligible for exemption
under sub-regulation 9(g); and

(ii) the information provided by the party to the institution in relation
to the transaction is, to the best of his knowledge and belief, true
and correct;

(e) the name and title of the person making the decision to grant the
exemption; and

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(f) any other information mandated by the Transaction Reporting
Authority.

(13) An exemption can apply to a class of transactions between a financial
institution and eligible parties designated under sub-regulation (9). For class
transactions, the exemption registry shall also include, in addition to the
requirements of sub-regulation (12), the following:

(a) the range of the amounts of currency involved in the class of
transactions;

(b) the range amount of the class of transactions;

(c) the period during which the class of transactions is to be exempt; and

(d) any other information mandated by the Transaction Reporting
Authority.

(14) Financial institutions or cash dealers shall monitor the exemptions they have
granted on a continual basis. A change in circumstances may warrant removal
from the registry or require amending the exemption record in the registry. In
addition to monitoring, each financial institution shall commission an annual
review of its exemption registry. A financial institution shall contact each
customer who has an exemption to determine whether there is a change in the
customer’s situation since the last date of review.

(15) The Transaction Reporting Authority shall have the right to review the
exemption registry at any time.

(16) The Transaction Reporting Authority may, by appropriate order, direct the
deletion of any exemption.

PART V – INTERNAL PROCEDURES, POLICIES AND
CONTROLS

24 Internal Procedures, Policies and Controls

(1) (a) Financial institutions shall adopt and implement internal procedures,
policies, and controls to ensure compliance with this Regulation.

(b) At a minimum, this shall include management arrangements to
implement the regulations, including the designation of a compliance
officer at the management level.

(c) The compliance officer and other appropriate staff shall have timely
access to customer identification data and other CDD information,
transaction records, and other relevant information.

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(d) The compliance officer shall have the authority to act independently
and to report to senior management above the compliance officer’s next
reporting level or the board of directors or equivalent body.

(2) Financial institutions shall:

(a) acquaint themselves with relevant information on the prevention of
money laundering and terrorist financing;

(b) maintain an adequately resourced and independent audit function to test
compliance (including sample testing) with these procedures, policies
and controls;

(c) establish ongoing employee training to ensure that employees are kept
informed of new developments, including information current
money laundering and terrorist financing techniques, methods and
trends and that there is a clear explanation of all aspects of money
laundering and terrorist financing laws and obligations, and in
particular, requirements concerning CDD and suspicious transaction
reporting; and

(d) establish screening procedures to ensure appropriate standards when
hiring employees.

25 Non face-to-face transactions and new technologi es

Financial Institutions shall have policies in place and take such measures as are
needed to prevent the misuse of technological developments in money laundering or
terrorist financing schemes

26 Branches and subsidiaries

(1) Financial institutions shall ensure that their foreign branches and subsidiaries
observe anti-money laundering and counter financing of terrorism measures
consistent with the requirements in the Kingdom and the FATF
Recommendations.

(2) Financial institutions shall pay particular attention to this principle with
respect to branches and subsidiaries in countries that do not or insufficiently
apply the FATF Recommendations.

(3) Where the minimum anti-money laundering and counter financing of
terrorism requirements of the Kingdom and the host c untry differ, branches
and subsidiaries in host countries shall apply the higher standard to the extent
that the host country laws and regulations permit.





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(4) Financial institutions shall inform the Transaction Reporting Authority when
a foreign branch or subsidiary is unable to observe appropriate anti-money
laundering and counter financing of terrorism measure because this is
prohibited by host country laws, regulations or other measures.





Made at Nukualofa this 20th day of October 2010.





Attorney General

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SCHEDULE

(Regulation 6(5), 21(3)(b))

PART A: DELAYED VERIFICATION

1 Examples of situations where it may be essential ot to interrupt the course of the
normal conduct of business are:

(a) non face-to-face business;

(b) securities transactions; and

(c) life insurance in relation to identification and verification of the beneficiary
under the policy, which may take place after the business relationship with the
policy holder is established, but in all such cases, identification and
verification shall occur at or before the time of payout or the time when the
beneficiary intends to exercise vested rights under the policy.

PART B: ENHANCED CDD FOR HIGHER RISK CUSTOMERS

2 Relevant factors in determining if a customer is higher risk include if the person is:

(a) establishing customer relations other than “face to face”;

(b) a non-resident, or if the nationality, current residency, and previous residency
of the person suggests greater risk of money laundering or terrorist financing;

(c) connected with jurisdictions that lack proper standards in the prevention of
money laundering or terrorist financing;

(d) a politically exposed person or linked to a politically exposed person;

(e) a high net worth individual, especially if the potential customer is a private
banking customer or the source of funds is unclear;

(f) engaged in a business that is particularly susceptibl to money laundering or
terrorism financing;

(g) a legal person or arrangement that is a personal asset holding vehicle;

(h) a legal person or arrangement whose ownership structure is complex for no
good reason;

(i) a company with nominee shareholders or shares in bearer form; and

(j) higher risk for other reasons based on relevant information.

3 Non-face to face transactions include but are not limited to:

(a) business relationships concluded over the internet or by other means such as
through the post;

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(b) services and transactions over the internet including trading in securities by
retail investors over the internet or other interactive computer services;

(c) use of Automated Teller Machines;

(d) telephone banking;

(e) transmission of instructions or applications via facsimile or similar means;
and

(f) making payments and receiving cash withdrawals as part of electronic point
of sale transaction using prepaid or re-loadable or account-linked value cards.

4 Enhanced CDD procedures for non-face to face transactions may include:

(a) certification of documents presented;

(b) requisition of additional documents to complement those that are required for
face to face customers; and

(c) development of independent contact with the customer.

5 Procedures for determining who is a politically exposed persons may include:

(a) seeking relevant information from the potential customer;

(b) referring to publicly available information; and

(c) making access to commercial electronic databases of politically exposed
persons.

6 In applying enhanced CDD, financial institutions shall take care not to engage in
unlawful discrimination on the basis of race, colour, religion, or national origin.

PART C: SIMPLIFIED CDD FOR LOWER RISK CUSTOMERS

7 Examples of customers, transactions, or products where the risk may be lower
include:

(a) other financial institutions;

(b) non-resident financial institutions that are subject to adequate regulation and
supervision as limited by Regulation 16;

(c) public companies, other legal persons or legal arrangements quoted on an
exchange regulated by the Transaction Reporting Authority, and certain
public companies quoted on a foreign exchange approved for this purpose by
the Transaction Reporting Authority that is subject to adequate supervision
and providing the company is subject to adequate regulatory disclosure
requirements;

(d) domestic government administrations or enterprises, and certain foreign
government administrations or enterprises;

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(e) life insurance policies where the annual premium is no more than $1,000 or a
single premium of no more than $2,500;

(f) insurance policies for pension schemes if there is no urrender clause and the
policy cannot be used as collateral;

(g) pension, superannuation, or similar scheme that provides retirement benefits
to employees, where contributions are made by way of deduction from wages
and the scheme rules do not permit the assignment of a member’s interest
under the scheme;

(h) beneficial owners of non-resident pooled accounts, provided they are subject
to adequate regulation and supervision; and

(i) small scale accounts and micro-credit accounts withan annual turnover of
under $200.

8 (a) Non-resident and foreign entities described in 7(b), (c), (d), and (h) may only
qualify for reduced CDD if they are located in a jurisdiction that is
implementing effectively the FATF 40 and FATF 9.

(b) In making this determination, financial instituons shall take into account the
information available on whether these countries adequately apply the FATF
40 and FATF 9, including by examining the approved list provided by the
Transaction Reporting Authority and reports, assessm nts, and reviews
published by FATF, International Monetary Fund, and World Bank
publications.

9 Simplified CDD measures are not acceptable whenever a customer has been
identified by the Transaction Reporting Authority as non-complying with the FATF
40 and FATF 9, or for which the financial institution has independent credible
reason to believe customers are not complying with the FATF 40 and FATF 9, or for
any reason that there is suspicion of money launderi g or terrorist financing or
specific higher risk scenarios apply.

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