Designated Non-Financial Business and Profession (DNFBP)

What is a DNFBP?

A Designated Non-financial Business or Profession or DNFBP is one that operates as a non-financial entity in the market. These types of businesses are often suspected for money laundering and subsequent terrorist funding because of the nature or transactions they incorporate. Since the Cayman Islands is an infamous tax haven, people carrying out businesses or professions from there are categorised as DNFBP.

How To Categorize DNFBPs?

For Individuals
Listed below are the criteria which can be used to identify a person as a DNFBP:

• Brokers and real estate agents dealing with transactions through which customers buy or sell property
• Dealers of luxury items, gold, jewellery, artwork, expensive artefacts, precious ornaments, metals and stones
• Insolvency practitioners, directors and secretaries of a company or someone acting as nominee shareholder
• Tax advisors, lawyers, external auditors, and independent legal service providers
• Gambling platforms, casinos, and e-betting websites

For Entities
When it comes to businesses or professions, the following are some key features that define DNFBPs:

• Legal businesses under sole proprietorship, law and notary firms, providers offering audit and accounting services
• An individual professional entity acting as a formation agent providing corporation services
• A business providing registered offices, accommodation services, business addresses, partnership arrangements and legal assistance
• Trusts, non-governmental organizations, and foundations working with minimum to no financial assistance from the state

What are some risks associated with DNFBPs?

Listed below are AML/CFT preventive measures for DNFBPs outlined by the Inter Monetary Fund (IMF):

• There are various DNFBPs offering a wide range of services to customers. Along with the different nature of businesses, there are numerous risks and loopholes of associating ties with such entities. Since DNFBPs are not much aware of how to tackle financial issues, business associates and partner entities should carry out proper KYC due diligence before acquiring their services.
• Usually, DNFBPs are not obligated by law to record financial information of clients such as transactions, bank statements, credit scores, etc. They are required to report any suspicious customer behavior to Financial Intelligence Units (FIUs) operating in the country. They can, however, provide necessary information for prosecuting organized criminal offenses.
• In some countries, DNFBPs are not obligated to carry out standard Customer Due Diligence (CDD), and follow reporting requirements or even keep financial records for their customers. In order to address these concerns, these businesses should implement better internal controls to streamline due diligence procedures throughout the organization.
• As a rule of thumb, DNFBPs are not directed to develop robust internal controls mechanisms or devise formal policies and procedures. Not only that, most entities believe that frequent employee training and compliance with AML/CFT requirements is not necessary. This lack of preventive measures creates greater complexity when it comes to dealing with financial crime at a global level.

How are DNFBPs Regulated?

The compliance landscape for DNFBPs is determined keeping in view how credit unions and financial organizations are regulated. Depending upon the jurisdiction they are operating in, regulations are tailored to meet anti money laundering obligations and to mitigate financial fraud. DNFBPs are subject to regulatory obligations like KYC and AML compliance just like banks and other organisations operating in the legal financial system. 

Suggested Reads:

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