As part of ongoing efforts to combat money laundering and illicit financial activities, Vietnam is preparing to implement a new set of regulations specifically targeting high-value transactions. These regulations, aimed at strengthening anti-money laundering measures and promoting transparency in financial transactions, will have a significant impact on various sectors, including banking, real estate, and the stock market. This article will delve into the key provisions of the new anti-money laundering regulation in Vietnam and examine the potential implications it may have on high-value transactions within the country.
Background
The National Assembly enacted the AML Law 2022 on 15 November 2022, and it became effective on 1 March 2023. Subsequently, on 27 April 2023, Prime Minister Pham Minh Chinh issued Decision No. 11/2023/QD-TTG, which addressed various high-value transactions necessitating mandatory reporting. The AML Law 2022 introduced additional provisions regarding know-your-customer (KYC) procedures, including the option to verify KYC information through outsourced services, allowing KYC via third parties, and expanding the entities responsible for conducting KYC procedures and the individuals obligated to report anti-money laundering activities to the State Bank of Vietnam.
Know Your Customer (KYC)
The AML Law 2022 introduces specific provisions for identifying customer information, particularly for customers falling under the following categories:
+ Vietnamese nationals
+ Foreign nationals residing in Vietnam
+ Foreign nationals not residing in Vietnam
+ Individuals with dual nationalities
+ Stateless individuals
Additionally, the AML Law 2022 now includes “financial institutions providing intermediary payment services” in the same category as other financial institutions, making them subject to the same KYC procedures. This particular service is highly regarded in Vietnam.
One notable aspect of the AML Law 2022 is the provision for verifying KYC information through outsourced services offered by other organizations operating under Vietnamese laws. However, this arrangement must adhere to the agreement between the parties involved and relevant laws. Financial institutions ensure that the outsourced service provider maintains the required confidentiality of customer information and hold accountability for the outcomes of the KYC verification conducted by the service provider.
Consequently, the AML Law 2022 has created a new service industry for businesses in Vietnam. As per this regulation, service providers involved in “verifying customer identification information” only need to establish and operate under Vietnamese laws to take advantage of these provisions. However, it is important to note that Decision No. 27/2018/QD-TTg, which introduces the Vietnam Standard Industrial Classification System (VSIC), does not have specific regulations for this service. Therefore, guidance from business registration agencies regarding VSIC for this service is necessary to ensure compliance and appropriate categorization.
Third parties can also carry out the KYC procedure, provided they meet certain requirements and criteria
+ They are a financial institution or a relevant non-financial business or profession engaging in customer relationships. This requirement does not extend to outsourcing or agency relationships.
+ If the third party is a foreign entity, it must identify customers in accordance with the provisions of the AML Law or the recommendations of the Financial Action Task Force.
+ The third party must deposit customer identification data and provide them to reporting entities promptly and completely as requested. They must also comply with privacy and information security practices mandated by law.
+ Competent authorities must supervise or monitor the third party.
Furthermore, the AML Law addresses the inconvenience faced by customers who have to undergo KYC procedures multiple times when opening accounts with different credit institutions or using e-wallet services from various intermediaries. Under this law, customers who have already established a relationship with a financial institution only need to undergo the KYC process once. Subsequently, other financial institutions can rely on the initial KYC results for that customer. However, the State Bank of Vietnam and the system of financial institutions need to establish an open data system that enables all banks and financial institutions to access and utilize KYC data for any individual or organization, akin to the existing National Credit Information Center of Vietnam, in order to implement this regulation effectively.
Reporting high-value and suspicious transactions
Regarding reporting requirements, the AML Law 2022 has officially expanded the list of “financial institutions providing intermediary payment services” that are subject to anti-money laundering reporting obligations.
Financial institutions now have the responsibility to report high-value transactions. As per Decision No. 11/2023/QD-TTG, the State Bank of Vietnam requires reporting of transactions valued at 400,000,000 Vietnamese dongs (approximately £12,300) or more, starting from 1 December 2023. Until 30 November 2023, the applicable threshold for high-value transactions is 300,000,000 Vietnamese dongs (approximately £9,900), according to the current regulations.
Furthermore, regulators require financial organizations to report suspicious transactions. Unlike the previous anti-money laundering law, the AML Law 2022 provides clearer guidelines on identifying “suspicious signs”.
In the payment intermediary sector, some examples of suspicious signs include:
+ Rapid deposits and withdrawals from e-wallets
+ High-value transaction volume during the day with low or zero e-wallet balance
+ Sudden large deposits into e-wallets
+ Organizations or individuals actively post instances of their involvement in the creation of illegal assets through publicly posting deposits into or withdrawals from e-wallets, or money transfers between e-wallets.
+ Customers who consistently access e-wallets using login devices or IP addresses from overseas
For banking services, new suspicious signs have been introduced, such as:
+ Customers using personal accounts to conduct transactions related to organizational activities or trade on behalf of others
+ Online transactions carried out through accounts that frequently change login devices or use IP addresses from abroad
However, the banking sector has removed certain suspicious signs.
+ Sudden trading activity without reasonable grounds when the customer’s account has been idle for over a year
+ Lack of transparency regarding the origin of assets used for financial leasing by customers
In the securities industry, there have been changes in suspicious signs as well:
+ Eliminated the sign of “customers transferring securities outside the system without valid reasons”.
+ Foreign investors residing in high-risk money laundering countries or territories have added a new sign to establish securities investment funds and securities investment companies in Vietnam.
Commentary
The implementation of the AML Law 2022 has brought about stricter regulations in various aspects. There are now more barriers and controls for money transfers involving individuals and organizations within Vietnam, as well as transfers between Vietnam and other countries. Popular payment intermediaries, including e-wallets, are now officially required to adhere to KYC procedures and submit reports related to anti-money laundering. Additionally, the AML Law 2022 explicitly outlines specific indicators of suspicious activities in the banking sector that must be reported to the State Bank of Vietnam. On the other hand, the AML Law 2022 also introduces more flexibility in certain areas. For instance:
+ The minimum threshold for reporting high-value transactions has been raised.
+ The KYC process has been streamlined and expedited, ensuring that there is no overlap. Financial institutions can now utilize KYC results obtained from another financial institution for the same customer or use outsourced services to verify KYC information.
However, in order for these new regulations to be effectively implemented, there needs to be support from state management agencies, such as:
The State Bank of Vietnam establishing a centralized KYC data center system that manages customer information for both individuals and organizations. Business registration agencies providing guidance on business registration codes for services involved in the verification of KYC information.
This would enable all financial institutions operating in the market to access and utilize this data, similar to the existing operation of the State Bank of Vietnam’s National Credit Information Center.
Conclusion
In conclusion, the implementation of new anti-money laundering regulations regarding high-value transactions marks a significant step towards strengthening financial transparency and combating illicit activities. The AML Law 2022 introduces stricter reporting requirements for financial institutions, ensuring that transactions above a certain threshold are closely monitored and reported to the appropriate authorities. By raising the minimum threshold and providing clearer guidelines on suspicious activities, this regulation aims to enhance the detection and prevention of money laundering and terrorist financing. With the collaboration of financial institutions, state management agencies, and the support of technological advancements, these new measures contribute to building a more secure and resilient financial system, safeguarding the integrity of transactions and protecting the interests of individuals and organizations involved.
HMLF is always available to offer assistance in understanding the procedures with authorities.
Harley Miller Law Firm “HMLF”
Head office: 14th floor, HM Town building, 412 Nguyen Thi Minh Khai, Ward 05, District 3, Ho Chi Minh City.
Phone number: +84 937215585
Website: hmlf.vn Email: miller@hmlf.vn
