Financial institutions are observed to be most vulnerable to unauthorized transaction scams. Therefore, when it comes to the implementation of anti-money laundering checks, these institutions are the primary focus in countering illicit activities. However, another group of professionals and sectors are also actively involved in enhancing the AML efforts. These are known as the Designated Non-Financial Businesses and Professions (DNFBP).
According to some recently conducted surveys, the insurance intermediaries are considered to be some of the essential entities. Approximately 22.8 thousand insurance entities were obligated to the AML guidelines to counter unauthorized operations. DNFBPs are obligated in terms of FATF requirements to integrate strategies that counter financial crimes.
What is DNFBP FATF?
DNFBP stands for Designated Non-Financial Businesses and Professions which is a list of industries and professions which are from the financial sector but they are inclined to be used in financial related fraud like money laundering or financing of terrorism. These are individuals who include real estate agents, accountants, lawyers, notary public, dealers in gemstones, etc. Because many of their clients are engaged in business that entails transactions that involve large amounts of money or valuable property, stock, or data that they do not want to be disclosed, they are a preferred target for criminals who want to launder their money. This appears to compromise the efficiency of the existing financial systems and poses major challenges for the economy.
To overcome these threats, the FATF has put out regulation standards meant to improve the integrity of DNFBPs. Such guidelines include the standards on customer identification and verification, ongoing monitoring of suspicious transactions activity and reporting of such activities. In this way, through these measures, the FATF guarantees that DNFBPs effectively contribute in the identification and combating of illicit financial activities worldwide, alongside with FI and LEA.
Classifications of DNFBP in Banking
According to the FATF regulatory requirements, the DNFBPs are entities that are not the primary providers of financial services but are somehow associated with monetary and asset distributions. Some of the most renowned DNFBPs are:
- The independent law enforcement agencies that regularly provide legal solutions are one of the most common DNFBP entities.
- Tax advisors and non-financial accountants deal with the monitoring of various transactional records, which is crucial for guiding businesses about tax regulations.
- The entities and organizations involved in various real estate property transactions are the most vulnerable to money laundering operations.
- Insurance brokers and law enforcement institutions actively distribute various intangible services to various entities in real-time.
DNFBP Money Laundering Challenges Faced by Various Entities
The DNFBPs, due to their non-financial operations, are facing several challenges while navigating the criminal activities that result in money laundering practices. Some of the industrial complexities faced by the DNFBPs are:
- The DNFBPs are faced with several regulatory rules due to their exposure to domestic and foreign activities. These entities struggle to abide by the latest rules and regulations.
- These entities are required to combat customer screening checks by enabling the integration of customer due diligence checks.
- The non-financial businesses face security concerns when it comes to record-keeping operations. Therefore, an emphasis on encrypted transaction monitoring checks is required to abide by the data protection laws in real-time.
DNFBP Guidelines Formulated by FATF
FATF is an essential regulatory body that emphasizes the integration of several recommendations to control the DNFBP’s operational efficiency. These are:
- Under the 12th recommendation formulated by the FATF department, non-financial businesses and professions are required to screen the customer’s transactional activities and ID profiles through enhanced due diligence measures. Transaction screening and client diligence checks help organizations examine whether the underlying individual’s transactions exceed the defined thresholds or not.
- The 16th recommendation requires law enforcement entities and accountants to abide by the reporting guidelines to identify high-risk operations. The professionals and company coordinators are assisted in reporting the unregistered and unauthorized transactions to the higher authorities.
Indispensable Obligations Regarding DNFBP AMLC Guidelines
The DNFBPs are subjected to diverse threats, ranging from unauthorized transactional concerns to unmonitored terrorist financing activities. Based on the jurisdiction in which certain entities are operating, several obligations are actively implemented. The DNFBPs are assisted in stimulating the ID profile assessment and risk monitoring of clients. Additionally, an emphasis on the reporting of malicious transactional practices is prompted to establish risk-free financial operations.
According to the FATF regulatory guidelines, several designated compliance officers and examiners are to be appointed to ensure adherence to AML checks. By ensuring these checks, businesses can actively counter money laundering and relatively risky operations. Moreover, the regulatory bodies are suggested to conduct enhanced due diligence screening of entities who are prominently renowned and hold influential positions.
DNFBP Examples – A Practical Overview
Over the past few years, DNFBPs are easily targeted by different types of offences and scams among other crimes. For instance, DNFBPs have been used in North Korea to bypass sanction control and conduct other prohibited operations. Likewise, the metals and precious stones industry has been hosting many unauthorized funding operations with criminals using the industry’s value to facilitate money laundering.
In the United States, the real estate sector was previously constrained by insufficient or ineffective transaction reporting systems. This created a regulation loophole that saw politically exposed persons (PEPs) perpetrate massive malice financial crimes thus negatively affecting the stability of the country’s economy. To eliminate such abuses, it is obligatory to follow the requirements of AML legislation and to comply with FATF recommendations in the process of functioning of DNFBP.
Concluding Remarks
Due to their susceptibility to financial cons conducted by impersonators, designated non-financial businesses and professions (DNFBPs) must follow the FATF recommendation and comparable AML rules. The following regulations assist to develop proper identification and monitoring procedures, thus, DNFBPs may identify people, who have no rights to access their services, and avoid their misuse. With regards to both high-risk and low-risk entities, DNFBPs are able to manage the risk associated with unlawful subjects including money laundering and financing of terrorism and with reference to global standards. As such DNFBPs do not only protect their business from legal bodies, but also prevent the international financial system from negative influences, which makes their business ethical and secure.
