Designated Non-Financial Businesses & Professions (DNFBPs)
DNFBPs are defined as the businesses and professions that do not belong to the traditional financial sector but are prone to the risk of Money Laundering and other financial crime due to their nature. These businesses & professions are subjected to specific regulations for Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF). A comprehensive list of businesses fall under the category of DNFBPs.
Some of them are listed below:
- Accountants and Accounting Firms
- Law firms, Lawerys, Notaries & Independent Legal Professionals
- Real Estate Brokers, Agents and Developers
- Dealers of Automobiles
- Dealers of Precious Metals, Jewels & Stones
- Gambling, Casinos and Gambling Establishments
- Sports & Betting
- Crypto-Fiat Exchanges & VASPs (Virtual Asset Service Providers)
How are DNFBPs at Risk of Money Laundering?
Designated Non-Financial Businesses & Professions (DNFBPs) are highly vulnerable to the risk of Money Laundering. Here are few ways in which DNFBPs are at financial crime risk.
Nature of Transactions
Non-Financial Businesses deal with highly complex transactions involving multiple parties, jurisdictions and costs. This complex nature makes it challenging for the regulators to identify and monitor Suspicious Transactions in DNFBPs. Some examples of non-financial transactions are given below:
- Real-Estate Transactions
- Legal Services payments to lawyers and law firms
- Trust and Company Services
- Professional Consultancy Services Payments
- Notarial Services Payments
Apart from this list, there are multiple transactions that belong to DNFBPs.
Non-Financial Businesses build strong and trusted relationships with clients. Usually, money launderers exploit this relationship and use the DNFBPs for Money Laundering activities.
Inadequacy in AML Measures
DNFBPs might have weak KYC and AML measures that give criminals a hidden path to exploit the loopholes in the compliance system. Lack of AML Ongoing Transaction Monitoring, Lack of AI-based KYC and AML systems, and insufficient due diligence allows Money Launderers to take negative advantage of these inadequacies.
Professional Secrecy, Privacy & Privilege
Mostly, Lawyers, Accountants and Notaries are subjected to confidentiality agreements and other forms of privacy agreements with clients. They are legally bound to keep sensitive information confidential to protect the interests of the client they serve. But money launderers exploit this benefit and use this notion to conceal their illicit activities and inject the criminally earned money into the legal financial system.
How are DNFBPs Regulated?
Primarily, the Designated Non-Financial Businesses and Professions are regulated by the Financial Action Task Force (FATF). These recommendations are the guidelines for Non-Financial Businesses to stay compliant with AML and CTF regulations.
FATF 40 Recommendations 2023 for DNFBPs
Recently, FATF amended its recommendations as the international guidelines and standards for combatting money laundering and countering the terrorism financing. Here is a brief overview of these recommendations pertinent to DNFBPs.
The requirements for DNFBPS and VASPs are introduced through legislation or through law or enforcement. The country/jurisdiction will determine the appropriateness of legal means.
Definition of Law:
The term ‘law’ is defined by FATF as the legislation approved and issued by Parliamentary Process or equivalent process. A law shall be imposed to fulfill mandatory requirements with effectiveness and efficiency in proportionate and dissuasive sanctioning in case of non-compliance.
Definition of ‘Enforceable Means’
Enforceable Means are defined as the guidelines, instructions, documents and other mechanisms to ensure compliance with AML/CTF requirements.
Understanding of Sanctions (Non-Compliance)
DNFBPs and VASPs should have a clear understanding about the sanctions that can be imposed on them due to non-compliance.
Overall, the FATF Recommendations 12, 16, 24, and 25 are aimed towards implementing AML and CTF measures in the Designated Non-Financial Businesses and Professions (DNFBPs).
Download the FATF 40 Recommendations here
Regulatory Compliance to AML and CTF regulations is mandatory for DNFBPs. It is to secure the non-financial businesses and their transactions from the potential threat of money laundering and terrorism financing. Since, the nature of businesses and high level of money involved in the DNFBPs makes them a prime target for criminals, it is important for the owners of such businesses to implement strong KYC and AML procedures.
Also Read: Top 5 Global KYC Standards