Anti- in 24 jurisdictions worldwide 2014 Contributing editors: James G Tillen and Laura Billings

Published by Getting the Deal Through in association with:

Anagnostopoulos Criminal Law & Litigation Anderson Mo¯ri & Tomotsune Angara Abello Concepcion Regala & Cruz Law Offices (ACCRALAW) Ashurst Australia AZB & Partners Conlin Bedard LLP Estudio Beccar Varela Financial Action Task Force Gorrissen Federspiel Herdem Attorneys at Law Ivanyan & Partners Knierim | Huber Rechtsanwälte Laurent Lenert, Avocat à la Cour Maestre & Co Advocats Miller & Chevalier Chartered Niederer Kraft & Frey Ltd Quiñones, Ibargüen, Luján & Mata SC Rubio Villegas y Asociados, SC Simmons & Simmons LLP Sjöcrona Van Stigt Advocaten Sofunde, Osakwe, Ogundipe & Belgore Studio Legale Pisano The Law Firm of Salah Al-Hejailan Wilson Harle Zingales & Pagotto Sociedade de Advogados (ZISP Law) CONTENTS

Anti-Money Laundering 2014 Global Overview – The cutting edge: Greece 49 keeping abreast of the global AML/CFT Ilias G Anagnostopoulos and Contributing editors: legal and regulatory landscape 3 Jerina (Gerasimoula) Zapanti James G Tillen and Laura Billings James G Tillen, Laura Billings and Anagnostopoulos Criminal Law & Litigation Miller & Chevalier Chartered Jonathan Kossak Miller & Chevalier Chartered Guatemala 55 Estuardo Mata Palmieri Getting the Deal Through is delighted to FATF: the global standard-setter 5 Quiñones, Ibargüen, Luján & Mata SC publish the third edition of Anti-Money The Secretariat Laundering, a volume in our series of annual Financial Action Task Force India 61 reports, which provide international analysis in key areas of law and policy for corporate Aditya Bhat and Richa Roy Andorra 7 counsel, cross-border legal practitioners and AZB & Partners clients. Marc Maestre Maestre & Co Advocats Italy 71 Following the format adopted throughout Roberto Pisano and Chiara Cimino the series, the same key questions are Argentina 12 Studio Legale Pisano answered by leading practitioners in each Maximiliano D’Auro and Lucía Degano of the 24 jurisdictions featured. New Estudio Beccar Varela jurisdictions this year include Argentina, Japan 80 Germany, Guatemala, and Yoshihiro Kai Turkey. This edition includes a global Australia 19 Anderson Mo¯ri & Tomotsune overview authored by James G Tillen, Philip Trinca and James Morris Laura Billings and Jonathan Kossak of Ashurst Australia Miller & Chevalier Chartered as well as an Luxembourg 85 introduction written by the secretariat of the Laurent Lenert Financial Action Task Force. Brazil 25 Laurent Lenert, Avocat à la Cour Leopoldo Pagotto and Marina Troncoso Esposito Every effort has been made to ensure Mexico 91 that matters of concern to readers are Zingales & Pagotto Sociedade de Advogados covered. However, specific legal advice (ZISP Law) Juan Carlos Partida Poblador, should always be sought from experienced Alejandro Montes Jacob and Marcela Trujillo Zepeda local advisers. Getting the Deal Through Canada 31 publications are updated annually in print. Rubio Villegas y Asociados, SC Please ensure you are referring to the latest Benjamin P Bedard and Paul D Conlin Conlin Bedard LLP print edition or to the online version at www. Netherlands 96 gettingthedealthrough.com. Enide Z Perez and Max J N Vermeij Denmark 38 Sjöcrona Van Stigt Advocaten Getting the Deal Through gratefully Anne Birgitte Gammeljord acknowledges the efforts of all the Gorrissen Federspiel contributors to this volume, who were New Zealand 103 chosen for their recognised expertise. We Gary Hughes and Rachel Sussock would also like to extend special thanks Germany 42 Wilson Harle to contributing editors James G Tillen Daniel Gutman and Christian Rathgeber and Laura Billings of Miller & Chevalier Knierim | Huber Rechtsanwälte Chartered for their assistance with this volume.

Getting the Deal Through London May 2014

Publisher The information provided in this publication is Gideon Roberton general and may not apply in a specific situation. [email protected] Legal advice should always be sought before taking any legal action based on the information Subscriptions provided. This information is not intended to Rachel Nurse create, nor does receipt of it constitute, a lawyer– [email protected] client relationship. The publishers and authors Published by accept no responsibility for any acts or omissions Business development managers Law Business Research Ltd contained herein. Although the information George Ingledew 87 Lancaster Road provided is accurate as of May 2014, be advised [email protected] London, W11 1QQ, UK that this is a developing area. Tel: +44 20 7908 1188 Alan Lee Fax: +44 20 7229 6910 Printed and distributed by [email protected] © Law Business Research Ltd 2014 Encompass Print Solutions No photocopying: copyright licences do not apply. Tel: 0844 2480 112 Dan White First published 2012 [email protected] Third edition ISSN 2050-747X

www.gettingthedealthrough.com 1 CONTENTS

Nigeria 112 Babajide O Ogundipe and Chukwuma Ezediaro Sofunde, Osakwe, Ogundipe & Belgore

Philippines 116 Chrysilla Carissa P Bautista Angara Abello Concepcion Regala & Cruz Law Offices (ACCRALAW)

Russia 124 Vasily Torkanovskiy Ivanyan & Partners

Saudi Arabia 131 Robert Thoms and Sultan Al-Hejailan The Law Firm of Salah Al-Hejailan

Switzerland 135 Adrian W Kammerer and Thomas A Frick Niederer Kraft & Frey Ltd

Turkey 141 S¸afak Herdem Herdem Attorneys at Law

United Kingdom 148 Nick Benwell, Cherie Spinks, Emily Agnoli and David Bridge Simmons & Simmons LLP

United States 156 James G Tillen, Laura Billings and Jonathan Kossak Miller & Chevalier Chartered

2 Getting the Deal Through – Anti-Money Laundering 2014 Miller & Chevalier Chartered GLOBAL OVERVIEW

The cutting edge: keeping abreast of the global AML/CFT legal and regulatory landscape

James G Tillen, Laura Billings and Jonathan Kossak Miller & Chevalier Chartered

The mission of GTDT’s Anti-Money Laundering reference book Laundering Directive, draft legislation that adopts FATF’s revised is to educate both financial institutions (FIs) and multinational and consolidated 2012 Recommendations. Despite the general sense corporations (MNCs) regarding the global network of anti-money that these intergovernmental bodies do not have legal or regulatory laundering and combating of the financing of terrorism (AML/CFT) authority over the global financial world, they serve as an inter- regimes designed to disrupt the flow of illicit financing for criminal national norm that shapes, guides and coordinates each country’s and terrorist individuals and organisations as well as rogue nations. AML/CFT efforts. In previous overviews, we examined the history of the global The normalisation of international regulatory and enforcement AML/CFT legal and regulatory framework that has grown up efforts has become critical in an age in which global financial trans- alongside, and often struggled to keep pace with, the expansion of actions occur in the blink of an eye and technological advances can worldwide capital markets. We discussed the birth in 1974 of the bring actors in undeveloped, unregulated countries access to the Basel Committee, composed of 10 central governors, which most sophisticated financial markets. The need for consistent and develops broad supervisory standards and guidelines for financial focused global efforts is particularly true now that decentralised authorities and recommends best practices. The Committee’s latest and, often, unregulated virtual or digital currencies have gained an set of global standards remains its 2009 guidance, known as ‘Basel international scope and notoriety for facilitating money laundering. III’, which was meant to address the individual and systemic risks in The risks posed by these alternative currency services have forced the financial industry that were exposed during the financial crisis the international AML/CFT community to coordinate their regula- of 2008. We also underscored, as a primary source of AML/CFT tory and enforcement regimes at a level not previously seen on any guidance and reporting, the Financial Action Task Force (FATF), consistent basis. developed in 1989 by the leaders of the G7 Summit as an inter- Perhaps the most high-profileAML enforcement action of 2013 governmental body tasked with the responsibility for examining exemplifies the coordinated efforts across enforcement regimes money laundering techniques and trends, reviewing prior efforts, necessary to counter the threats posed by these new global money and setting out new measures to combat money laundering. FATF’s laundering networks. In May 2013, Liberty Reserve, a Costa Rica- famed ‘40+9 Recommendations’ were revised, simplified, and con- based digital currency service, was shut down by US authorities after solidated into a new guidance publication, ‘FATF Recommendations seven years of operations in which it processed 55 million transac- 2012’, in February 2012 to further strengthen international stand- tions, had more than 1 million users and allegedly laundered more ards for managing the threat posed by money laundering and finan- than US$6 billion in suspected proceeds of crimes. Liberty Reserve cial terrorism activities. The consolidated FATF Recommendations offered its users almost complete by operating through include new focus areas, such as combating the financing of weap- a global network of third-party ‘exchangers’, who would take and ons of mass destruction; expanding the circle of politically exposed make payments directly and then credit or debit the appropriate persons (PEPs) for any given country to include not only foreign, but Liberty Reserve account. These exchangers frequently operated also domestic officials, agents of international organisations, as well as unlicensed money-transmitting businesses in countries without as their family and close associates; and expanding the list of predi- significant government oversight or regulation, such as Malaysia, cate offences for money laundering to include serious tax crimes. Vietnam, Nigeria and Russia. When Liberty Reserve first learned it In addition to the Basel Committee and the FATF, we reviewed was being investigated by US , it reportedly misled other intergovernmental bodies, such as the Egmont Group, which AML officials in Costa Rica and pretended to shut down, only to developed the notion of a centralised, national agency responsible continue operating the business through a set of shell companies for coordinating the analysis and dissemination of financial infor- and accounts maintained in Australia, China, Cyprus, Hong Kong, mation intra-nationally and across borders, known as a financial Morocco, Russia, Spain and elsewhere. US officials used a provision intelligence unit (FIU); the United Nations Convention Against in the USA Patriot Act, section 311 (31 USC, paragraph 5318A), Transnational Organized Crime (Palermo Convention) of 2000; and to target the Costa Rican corporation and other financial institu- the United Nations Convention Against Corruption of 2003, which tions with whom they conducted business. Section 311 grants the urged member states, among other measures, to establish FIUs and US Treasury Secretary the authority to designate a financial institu- work to improve the exchange of information internationally. The tion of ‘primary money laundering concern’ and to require domestic Palermo Convention entered into force on 29 September 2003, and financial institutions and financial agencies to take certain‘special currently has 147 signatories and 179 parties that have ratified, measures’ to address the ‘primary money laundering concern’. accepted, approved or acceded to the Convention. The Convention It was the first time the provision had been used to prosecute a vir- against Corruption entered into force on 14 December 2005, and tual currency provider. The indictment of Liberty Reserve and seven currently has 140 signatories and 170 parties that have ratified, of its principals and employees was the culmination of a multi- accepted, approved or acceded to that Convention. The European agency investigation led in the US by its Global Illicit Financial Team Commission (EC) is also engaged in updating and enhancing AML with the assistance of officials in Costa Rica, the Netherlands, Spain, legislation. In February 2013, the EC published its Fourth Money Sweden and . www.gettingthedealthrough.com 3 GLOBAL OVERVIEW Miller & Chevalier Chartered

In the wake of the indictment of Liberty Reserve, US authorities Effective compliance programmes share 10 fundamental elements also sought to shut down Silk Road, a US$1.2 billion global black that FIs and MNCs can leverage to develop cross-competent market for illegal drugs that primarily used Bitcoin, another digital programmes: currency provider. More recently, in February 2014, Bitcoin’s largest • corporate leadership that prioritises and popularises a company- exchange, the Japanese company Mt. Gox, folded after reportedly wide culture of compliance; losing hundreds of millions of dollars of its customers’ Bitcoins to • a corporate governance structure inclusive of compliance offi- thieves. The fall-out from these highly publicised events led the head cials fluent in AML/CFT and related regulatory environments; of the European Union’s policing agency, , to call for • ongoing compliance analyses that assess the risk inherent in a to be given more powers to identify criminal suspects operating on company’s geographic footprint and business model and are the Internet. The Monetary Authority of Singapore also recently broad enough to encompass AML/CFT and related risk areas; moved to require dealers that buy, sell or facilitate the exchange of • cross-disciplinary compliance policies that are developed, prom- virtual currencies for real currencies to verify the identities of their ulgated and implemented via training on a consistent basis; customers and report suspicious transactions. • methods to identify the multitude of entities and individuals Although Liberty Reserve and Bitcoin have received the most with whom FIs and MNCs directly and indirectly transact, and attention thus far, major internet-based companies such as Facebook, target players who present significant risks in light of AML/CFT eBay, and Amazon have their own versions of virtual money. and related compliance guidelines; Moreover, SecondMarket, the platform known for letting investors • internal reporting mechanisms for employees and relevant third trade shares of Facebook before it went public in 2012, is, at pre- parties to report or otherwise surface AML/CFT and related sent, working on creating a US-based virtual currency exchange with issues, and effective internal protocols that trigger swift action input from regulators. Finally, even major online retailers such as in response to such reports; Overstock.com are beginning to accept digital currency as a method • processes and structures to aggressively monitor and investi- of payment. Consequently, it appears that virtual currencies may gate conduct that implicates AML/CFT and related risk areas; not be a curiosity relegated only to the technophile class. AML/ for example, in-house FIUs to monitor, investigate and analyse CFT enforcement agencies throughout the world have taken notice ‘suspicious activity’, or the establishment of dedicated groups of and are coordinating strategies for protecting consumers from the investigators and compliance personnel focused on AML/CFT pitfalls of virtual currencies and preventing criminal and terrorist and related regulatory burdens; organisations from exploiting these new services. Virtual currencies • processes for expeditiously assessing the magnitude of a particu- may be the new frontier for rapid global commercial transactions; lar compliance allegation and judiciously escalating concerns FIs as well as MNCs cannot afford to ignore the money laundering within the company hierarchy before assessing the implications risks posed by their use. of disclosure required by AML laws; As the rapid ascendancy of virtual currency services indicates, • cross-disciplinary training and certification programmes in state actors are racing to keep pace with the latest AML/CFT threats AML/CFT and related compliance areas; and and they expect FIs and MNCs to do the same. This publication • a commitment to regularly test and audit cross-disciplinary com- is envisioned as an annual update aimed at highlighting the most pliance programmes. serious AML/CFT risks facing FIs and MNCs across the interna- tional spectrum. It is specifically intended to be part of the compliance FIs and MNCs that are able to incorporate these elements into a arsenal that FIs and MNCs use to manage the risks inherent in holistic cross-disciplinary compliance programme will be well doing business across international jurisdictions. It is only part of positioned to manage the regulatory hurdles that countries across the the arsenal because AML/CFT laws are but one of the many com- globe are erecting to staunch the rise of money laundering activities pliance-related regimes that FIs and MNCs must understand as they and combat the financing of terrorism. This publication will go about their daily business. Practically, this means that a siloed continue to be updated annually and its coverage expanded to approach to AML/CFT compliance and related risk areas, such as additional countries so that it may serve as a resource for FI and anti-corruption and trade controls compliance, is no longer viable. MNC compliance departments to use to educate themselves on the Instead, companies doing business across borders would do well latest changes to the AML/CFT regulatory environment throughout to adopt a holistic approach to compliance programmes to keep the world. themselves on the cutting edge of changing financial environments.

4 Getting the Deal Through – Anti-Money Laundering 2014 Financial Action Task Force FATF: THE GLOBAL STANDARD-SETTER

FATF: the global standard-setter

The Secretariat Financial Action Task Force

The Financial Action Task Force (FATF) is the global standard-setter Process of the fourth round of mutual evaluations in the fight against money laundering, the financing of terrorism and Regular follow-up other threats to the integrity of the international financial system. Regular follow-up (two-and-a-half years (two-and-a-half It has set out a series of measures, the FATF Recommendations, Fifth year follow-up after follow-up > years after MER) > > ...> that countries should have in place in order to fight these threats. assessment assessment) Possible re-ratings MER Possible re-rating Possible re-ratings Over 180 countries have built or are in the process of building for TC legal, financial and operational frameworks based on the FATF for TC and for TC

effectiveness >

Recommendations. > > Enhanced follow-up > > Enhanced follow-up ...> The start of the process: the mutual evaluation The FATF determines how well countries have implemented the FATF Standards, which comprise the FATF Recommendations and Ratings their interpretive notes, through the mutual evaluation process. The table of ratings for a country’s compliance with the FATF Assessment teams, made up of legal, financial and law enforcement Recommendations is a key piece of information that is frequently experts, carry out this work. The fourth round of mutual evaluations quoted, long after the completion of the mutual evaluation. In pre- started at the end of 2013 and follows a two-pronged approach. The vious rounds, the table of ratings represented a snapshot of the assessment team looks at whether technical aspects of each of the situation during the time of the mutual evaluation. Subsequent FATF Recommendations are in place. At the same time, the team positive developments in the country’s AML/CFT framework were assesses how effectively the country’s AML/CFT framework meets the acknowledged by the FATF in the published follow-up reports and objectives of an effective system in preventing misuse of its financial statements, but the formal ratings were not adjusted accordingly. system. The mutual evaluation report contains two sets of ratings Regardless of the positive (or negative) developments taking place that reflect the level of compliance in both of these areas. since the mutual evaluation, the country remained associated with the ratings from the time of the evaluation. The procedures for the Beyond the mutual evaluation: the follow-up process fourth round of mutual evaluation now allow the FATF to adjust the Approval of a final mutual evaluation report, while undoubtedly a ratings and thereby clearly acknowledge when a country makes sig- major milestone, is not the end of the process. The FATF has created nificant changes that effectively change its level of compliance with a detailed follow-up process that starts when the mutual evaluation the FATF Recommendations. report has been completed and adopted. This process is a powerful tool for encouraging countries to fully A common assessment methodology implement the FATF Standards. Once the mutual evaluation is over, The FATF Recommendations and assessment methodology are also a country is expected to address the deficiencies that were identified used as the basis for AML/CFT assessments carried out by other in the process. Each country must regularly update the FATF Plenary bodies: the FATF-style regional bodies (FSRBs), the International about steps taken to strengthen its AML/CFT framework, includ- Monetary Fund and the World Bank. All of these bodies work ing changes to laws, regulations, guidance and other measures that towards the common objective of having their evaluations being affect the AML/CFT framework. considered on a par with each other and of consistent quality and Countries found to have significant deficiencies in their AML/ content. There is some flexibility in individual procedures; however, CFT measures are subject to the enhanced follow-up process. They each of the assessment bodies respects a set of minimum procedural are required to report more frequently to the FATF. At the same time, arrangements. The FATF, FSRBs, the World Bank and the IMF have the FATF has other measures designed to maintain high-level politi- developed guidelines for AML/CFT assessments that specify the cal commitment from the country to make the necessary changes mandatory components of mutual evaluations from preparation and to take appropriate action if this commitment is lacking or if of the onsite visit to the follow-up process. These guidelines also insufficient progress is being made. In the most extreme cases, this include a mechanism for reviewing the quality and consistency of all could lead to expelling the assessed country from the FATF. mutual evaluation reports prior to their publication. As was the case during earlier rounds, the publication of the mutual evaluation report, and in particular the table of ratings, cre- Guidance in implementing the FATF Recommendations ates a degree of ‘peer pressure’ that encourages countries to fully Members of the FATF Global Network have committed to imple- implement the FATF Recommendations. Countries are, in effect, menting the FATF Recommendations. The Recommendations them- held accountable for weaknesses in their AML/CFT measures, and selves are accompanied by interpretative notes and a glossary that this is visible to other countries both within the FATF membership help to further clarify some of the technical measures and provide and outside. examples of how the requirements could be applied.

www.gettingthedealthrough.com 5 FATF: THE GLOBAL STANDARD-SETTER Financial Action Task Force

In addition, the FATF has also developed a body of guidance Corruption and best practices to assist countries in the implementation of the By their nature, corruption and money laundering are linked; cor- standards. The FATF is working to update this guidance to reflect ruption offences frequently result in money laundering offences. the changes to the revised FATF Recommendations. As necessary, The use of AML/CFT measures can play an important role in sup- it also plans to continue producing new guidance to address issues porting the fight against corruption. The international community requiring more detailed clarification or that countries have struggled acknowledged this connection when the G20 called upon the FATF to implement during the third round of mutual evaluations. to address corruption in the framework of its work on combating The FATF has developed guidance in the following areas out- money laundering and terrorist financing. The FATF responded lined below. by tightening requirements on politically exposed persons in the 2012 FATF Recommendations. Today, AML/CFT experts and anti- Financial Inclusion corruption experts work closely together to identify issues of mutual In countries where large portions of the population do not have interest and to contribute to corruption-related FATF work, includ- access to regular , implementing the FATF ing specific guidance in this area. Recommendations can be a particular challenge. An overly zealous approach to implementing AML/CFT measures could unintention- Proliferation financing ally result in excluding legitimate business and consumers from the The FATF’s approach to countering proliferation financing focuses financialsystem. The FATF believes that financial inclusion, finan- on assisting countries in implementing the financial provisions cial integrity and financial stability are mutually reinforcing and has contained in the United Nations Security Council Resolutions. developed guidance that assists countries in implementing AML/ The United Nations has taken two separate approaches to non- CFT measures in such a way that they do not impede access to well- proliferation. Its global approach aims to prevent non-state actors regulated financial services for financially excluded and underserved from gaining access to weapons of mass destruction. The other groups. approach targets the proliferation activities of particular states, such In areas where conventional financial services are not easily as Iran and North Korea. accessible, new and innovative payment methods such as mobile The financial measures in Security Council Resolutions are payments and prepaid cards are increasingly used and these services important tools in supporting the investigation of possible prolifera- may facilitate financial inclusion. The FATF acknowledges that these tion activities. Experts from the FATF and relevant UN committees new payment products and services have a potential for being used have worked together to develop a series of best practices papers for money laundering or terrorist financing and therefore need ade- that help countries to apply financial measures for the purpose of quate regulation. Regulation of these new services must take into combating proliferation financing. Specifically, these cover develop- account the impact it might have on financial inclusion. The FATF ing relevant frameworks for domestic cooperation, putting all of the has developed specific guidance in this area. financial provisions of the Security Council Resolutions into place and using targeted financial sanctions related to terrorism and ter- rorist financing.

6 Getting the Deal Through – Anti-Money Laundering 2014 Maestre & Co Advocats ANDORRA Andorra

Marc Maestre Maestre & Co Advocats

Domestic legislation 4 The offence of money laundering What constitutes money laundering? 1 Domestic law The content of article 409 of the Criminal Code has been amended Identify your jurisdiction’s money laundering and anti-money laundering three times since 2005 to include recommendations from suprana- (AML) laws and regulations. Describe the main elements of these tional bodies, following their visits and reports. laws. The definition of money laundering is the acquisition or trans- The main money laundering and anti-money laundering (AML) mission of goods, values or money coming from any major crime, laws in the Principality of Andorra are: which has a minimum penalty of six months’ imprisonment (includ- • the Criminal Code of 2005, with amendments included by Laws ing those acts carried out by gross negligence). The offence also 17/2007, 29/2007, 15/2008, 18/2012 and 18/2013; includes any act that may, actively or passively, hide their origin or • the Law on International Criminal Cooperation and the Fight equivalent, acquisition, possession or use. against Money Laundering or the Products of International There is a list of crimes that may constitute a money laundering Crime of 2000, amended by Laws 28/2008, 4/2011 (LCPI) and offence for which there is no minimum sanction threshold. This list 20/2013: has been significantly increased with the last amendment following • the Decree of 13 May 2009, approving the rules of the Law FATF and MoneyVal recommendations, and now includes crimes on International Criminal Cooperation and the Fight against related to, for example, prostitution, corruption, the illegal traffick- Money Laundering or the Products of International Crime and ing of drugs, intellectual and industrial property infringement, mar- against Terrorist Financing, amended by the Decree of 18 May ket manipulation and use of privileged information, trafficking by 2011. persons and environment or documents falsification. The new content of the Criminal Code also makes a major Money laundering change, in the sense that it does not exclude self-laundering for conversion and transmission acts any longer and, therefore, self- 2 Criminal enforcement laundering acts are only excluded from the money laundering crime Which government entities enforce your jurisdiction’s money for those that have been convicted in relation to the original crime laundering laws? and carry out acquisition, use or possession acts. Enforcement of the AML law is done by the Financial Intelligence Unit (FIU), formerly known as the Money Laundering Prevention 5 Qualifying assets and transactions Unit (modified by Law 28/2008), which reports to the public attor- ney any suspicious activity they may have access to within their Is there any limitation on the types of assets or transactions that can functions. form the basis of a money laundering offence? The police department also investigates money laundering There is no monetary threshold for prosecution and there is also no offences and has a special unit for organised crime and money limitation on the type of assets or transactions that can be the basis laundering crimes. They often also act as judiciary police when so of the money laundering offence. requested by a criminal investigation judge. There should be two specialised judges for such crimes due to their significant importance 6 Predicate offences and complexity. Any crime related to money laundering and, in gen- eral, all white-collar related crimes, should be investigated by spe- Generally, what constitute predicate offences? cialised sections soon. As the predicated offences are described in relation to the penalty contemplated in the Criminal Code, there is a large range of offences that can constitute a predicate offence for money laundering in 3 Defendants Andorra. Can both natural and legal persons be prosecuted for money Some are specifically described (see question 4); the others arise laundering? from a six-month minimum imprisonment penalty threshold. The Criminal Code only considers criminal responsibility for natu- As regards what concerns offences against property (for exam- ral persons and not for legal entities. Even if a company cannot be ple, thefts, robberies, etc), the use of items obtained through such prosecuted, the court can take several decisions related to the future acts should not be considered a predicate offence for money laun- of the company (deciding, for example, on its dissolution or a sus- dering as this conduct has a more specific offence in the Criminal pension of its activities), and can also fine it in the case of money Code. There are, however, no clear court decisions confirming this laundering crimes, among others. interpretation.

www.gettingthedealthrough.com 7 ANDORRA Maestre & Co Advocats

Concerning tax offences, there is only one contemplated in the 10 Limitation periods Criminal Code, the minimum sanction for which is three months, What are the limitation periods governing money laundering therefore, the minimum penalty threshold is not overcome and so prosecutions? this cannot be a predicate offence. Prescription for this kind of offence occurs 10 years from the Article 412 establishes that a money laundering offence is appli- moment the last act is carried out. cable when the predicated offence has been carried out in a foreign country, as long as the predicate offence is a type of crime that also exists in the Andorran Criminal Code. 11 Extraterritorial reach Do your jurisdiction’s money laundering laws have extraterritorial 7 Defences reach? Are there any codified or common law defences to charges of money Andorran laws not only allow prosecution against any person that laundering? commits an offence in the Principality of Andorra for acts carried out within the jurisdiction, but also for connected acts, even if car- There are no specific defences. ried out outside. Offenders can be prosecuted when the offence is committed by 8 Resolutions and sanctions an Andorran national, even if all the acts are carried out outside What is the range of outcomes in criminal money laundering cases? Andorra, provided the offence is also established in the laws of the foreign country where it is performed. This cannot happen if the At present, the Andorran criminal procedure does not allow for any foreign country has already judged this same act. settlement, plea agreements or other similar transactions, and the Finally, recent changes allow prosecution in Andorra when only fast procedure is not applicable to this kind of offence, there- international treaties give competence to Andorran courts, and this fore the only outcome will be a judgment. will also include residents in Andorra even without being nationals. A basic money laundering offence can be punished with between This applies to the following treaties: one and five years’ imprisonment, and a fine of up to three times the • the Council of Europe Convention on the Protection of Children value of the money laundered. If the offence is committed through against Sexual Exploitation and Sexual Abuse, Lanzarote, 25 gross negligence, the penalty can be up to one year’s imprisonment. October 2007; and The penalty will be higher if the offence is committed within • the Council of Europe Convention on Preventing and Combating an organised group, if the subject acts with continuity, or within Violence against Women and Domestic Violence, Istanbul, 11 a banking or financial entity, a real state agency or an insurance May 2011. company. In this situation, the penalty could be between three and eight years’ imprisonment. An additional disqualification for work- AML requirements for covered institutions and individuals ing within a banking, financial, real estate or insurance company can be imposed, lasting for up to 10 years. 12 Enforcement and regulation Which government entities enforce your jurisdiction’s AML regime and 9 Forfeiture regulate covered institutions and persons? Do the AML rules provide Describe any related asset freezing, forfeiture, disgorgement and for ongoing and periodic assessments of covered institutions and victim compensation laws. persons? The judge may adopt, at any time during an internal procedure, The LCPI establishes that the FIU is the independent entity respon- resolutions considered appropriate to ensure the restitution of stolen sible for promoting and coordinating measures to prevent money objects and the preservation of evidences, and secure both civil and laundering and terrorist financing activities. criminal responsibilities that emanate from the crime. At the request Within their mandate, the FIU can issue technical guidance notes of a foreign country that has initiated criminal proceedings and sent to be followed by all covered institutions and persons. a request of seizure, forfeiture or confiscation, the judge may also It is also within their capability to carry out inspections on site order the appropriate precautionary measures, such as blocking or to control the correct implementation and follow-up of the AML freezing accounts, forbidding an operation, or the alienation of any regulations. property that may be subject to further forbidden acts, according to the Andorran or foreign laws. 13 Covered institutions and persons Moreover, at the request of the country, instruments, objects, documents and values may be seized by the Andorran judicial Which institutions and persons must carry out AML measures? authorities and transmitted to the country that has requested it, pro- The AML measures established in the LCPI apply to all financial vided they are of obvious interest in the criminal case. institutions, insurance companies authorised to act within life insur- The other objects, documents or valuable products of a crimi- ance and their insurance brokers and postal agencies that can send nal offence can be immediately restored by the Andorran judicial money, as well as to all professionals, be they personal or corporate authorities to the owners. entities, who, in the course of their activity, realise, control or advise In general, however, the judge will have to freeze any asset that in operations that involve money or assets transactions that may be may arise from a crime, and therefore from any money laundering used for money laundering. In particular, this includes: offence. All goods, values or money related to money laundering • external accountants, tax advisers and auditors; (even in the case of an attempt to commit crime) must be confiscated. • notaries, lawyers and other independent legal professions when Any confiscation derived from a crime that is carried out in they act on behalf of their clients in the following activities: Andorra will be in favour of the Andorran state, except in cases • managing cash, titles or other client’s assets; where there is a specific agreement with another country. • opening and managing bank accounts, saving accounts or titles accounts; • organising the necessary contributions to incorporate or manage companies; and

8 Getting the Deal Through – Anti-Money Laundering 2014 Maestre & Co Advocats ANDORRA

• incorporating or managing companies, trusts or any other office and corporate purpose, a copy of which must be kept, and similar structures, or acting on behalf of their clients in any justification of the identity of the individual who, according to the financial and real state institution; documentation presented, has powers to represent the entity, and of • sellers of high-value articles, such as precious stones and met- the powers granted. Measures must be adopted related to a continu- als, when payments are in cash, and for amounts higher than ous follow-up of the new technologies to avoid them being used for €15,000 or the equivalent in other currencies and when carried money laundering or terrorist financing or to induce a false identifi- out in the same operation or in different operations that may cation of the client for remote operations. seem related; Covered institutions must obtain information on the purpose of • economists, managers and other service providers to companies the business relationship with the customer. The data collected must and trusts not previously mentioned; be updated so that the customers can be correctly identified when • gambling entities; and establishing the business relationship or carrying out a transaction • real estate agents acting in sales and purchasing activities. susceptible to involving money laundering or terrorism financing. To perform the previous obligations, the parties under obligation For legal services, accounting services, tax professionals and audi- must diligently verify the identity of the customer and, if necessary, tors, measures do not apply in cases where information is received the beneficial owners, before establishing any business relation- from clients while determining the legal situation of the client, when ship carrying out a transaction. Notwithstanding this, the identity performing a defence or representation in court procedures or when of the customer and the beneficial owner may be verified after the establishing a strategy to avoid such procedures. first business relationship if this is necessary to avoid obstacles to the carrying out of the transaction, provided that the risk of money laundering or terrorism financing is slight. The identification process 14 Compliance must be conducted as soon as possible thereafter. Do the AML laws in your jurisdiction require covered institutions and Within the scope of life insurance, the verification of identity can persons to implement AML compliance programmes? What are the be done after the policy is contracted, provided that it is done before required elements of such programmes? paying out or at the time the beneficiary intends to exercise rights Aside from the obligation to denounce any suspicious operation to vested under the policy. the FIU, all covered institutions and persons must adopt client due Bank accounts may be opened prior to the identification of the diligence procedures to identify all persons involved in the activities, customer provided that there are safeguards in place to ensure that and their background, together with the operation’s background transactions are not carried out by the customer or on its behalf until and origin of funds. the identification and verification duties have been fully complied Covered institutions and persons must also designate an inter- with. nal body with the responsibility of organising and supervising the In the event that the customer cannot be identified in accordance implementation of the AML law, and with the duty of reporting any with what is mentioned above, the financial parties under obligation suspicious transactions. This internal body needs to be communi- may not establish a business relationship or carry out transactions cated to the FIU. for the customer. Specifically for covered financial institutions, there is an extra The financial parties under obligation must also follow the obligation to contract an external audit annually to certify the com- due diligence procedures with respect to existing customers, at the pliance with AML rules established by LCPI law, and this report will appropriate moment in terms of their risk analysis. need to be submitted to the FIU. The FIU is capable of designing a professional association to 17 High-risk categories of customers, business partners and be the first step in the reporting activity. This faculty has not been transactions used yet. Do your jurisdiction’s AML rules require that covered institutions and persons conduct risk-based analyses? Which high-risk categories are 15 Breach of AML requirements specified? What constitutes breach of AML duties imposed by the law? There are enhanced due diligence measures to be adopted for certain Breaches of the AML law are classified as light, serious and very types of clients that are mainly represented by those clients that have serious. not been identified physically by a personal meeting, or politically Very serious breaches include lack of reporting duties, breach of exposed persons. the prohibition to inform the client of any suspicious activity, or not Also, when Andorran have to establish a professional rela- facilitating information that the FIU may require according to LCPI. tionship with a foreign bank entity to act as correspondent banks or Finally, a light breach includes not reporting to the FIU the peo- financial institutions, additional due diligence measures have to be ple responsible for money laundering or any other infringement of adopted, while working with shell banks is prohibited. the LCPI. Finally, those operations with products that may favour ano- nymity have to be carefully controlled to avoid those being used for money laundering or terrorist financing purposes. 16 Customer and business partner due diligence Describe due diligence requirements in your jurisdiction’s AML regime. 18 Record keeping and reporting requirements The covered institutions and persons must ascertain the identity of their customers and of their beneficial ownership by requesting they Describe the record keeping and reporting requirements for covered present an official document when establishing any business rela- institutions and persons. tionship. If the customer is an individual, the party under obligation Any activity, operation or project of operation related to money must verify the customer’s identity, address and professional activity. or assets, where there is a suspicion of money laundering, needs To this end, the customer must be asked to show an official identity to be reported to the FIU. The report must contain all related document with a photograph, a copy of which must be kept. If the documentation. customer is a legal person, the party under obligation must require After a report of suspicion, any new element that comes to an authentic document accrediting its name, legal form, registered knowledge related to the operation must also be reported. www.gettingthedealthrough.com 9 ANDORRA Maestre & Co Advocats

21 Limitation periods Update and trends What are the limitation periods governing AML matters?

The Andorran FIU has been reinforced in staff and training and, Limitation periods for AML matters are established within three therefore, the team is now more complete. Different professional years, counted from the moment of the breach. If the breach is recur- skills have been incorporated and the team’s capacity to conduct rent then it is counted from the last one. its mandatory objectives is now increased. However, if there have been acts with the aim of disguising the There has been a big effort to inform non-financial breach, the limitation period will increase by up to 10 years. professionals, as their capacity and resources are lower. They were included later in the list of AML-covered persons and institutions, and still need some assistance. The Andorran Bar of Lawyers 22 Extraterritoriality is also assisting in these efforts through internal diffusion and communication and also by specific seminars and conferences Do your jurisdiction’s AML laws have extraterritorial reach? for the different types of professionals covered. Recently, major changes have been made to comply with international standards, Andorran regulations in AML law will apply to any person or com- and some of these changes are about to be implemented, pany conducting business in Andorra, regardless of whether it is a related to measures to prevent terrorism financing and the use of subsidiary or any other kind of situation that relates it to a foreign weapons of mass destruction, as well as information that will have entity. to be published by the FIU. Any covered institution must ensure that any controlled sub- sidiary, or permanent establishment of delegations located outside Andorra, applies similar measures to those established in LCPI. The report must be submitted regardless of the country in which If there is any difference between the legislation of the country the money laundering offence has been or may be committed, or of the foreign entity and the one from the Principality of Andorra, regardless of where the funds come from or go to. then foreign entities should apply the one that is more strict. If for This report must be done prior to realising the transaction, and any reason this is not possible due to foreign law, then the Andorran the FIU has the capacity, if enough evidence exists, to provisionally FIU should be informed. block the transaction for a maximum of five days, during which the transaction must be finally authorised or sent to the public attorney. Civil claims

23 Civil claims and private enforcement 19 laws Enumerate and describe the required elements of a civil claim Describe any privacy laws that affect record keeping requirements, due or private right of action against money launderers and covered diligence efforts and information sharing. institutions and persons in breach of AML laws. The person or entity that reports an operation must not inform the See www.gettingthedealthrough.com. affected client of such report, nor give him or her any details on its situation, unless there is written authorisation from the FIU and no International anti-money laundering efforts responsibility falls on the entity that has reported the activity. Apart from the reporting duty to the FIU, all other confidentiality laws and 24 Supranational rules apply. List your jurisdiction’s memberships of supranational organisations Therefore, a breach of privacy legislation can be done only by that address money laundering. reporting the information the FIU, to which no secrecy rule can be argued. Andorra is party to the FATF-GAFI and the European Council. As Apart from general legal requirements in terms of information with many other European countries, the Committee of Experts and document keeping, the LCPI establishes a duty to all covered on the Evaluation of Anti-Money Laundering Measures and the institutions and persons to keep all the documentation for a period Financing of Terrorism (MONEYVAL) is in charge of the follow-up of five years from the operation (for occasional clients), from the of the country. end of the professional relation or from the report of a suspicious operation to the FIU. 25 Anti-money laundering assessments Among the documents, the covered entity should include infor- Give details of any assessments of your jurisdiction’s money mation about the client’s identity, the nature and date of the trans- laundering regime conducted by virtue of your membership of action, the currency and the amount of the transaction, and the purpose and intention of the commercial relationship with the client. supranational organisations. The last published mutual assessment is dated March 2012, and is available on MONEYVAL’s website. Great improvements have been 20 Resolutions and sanctions noted from the previous report dated 2008. Andorra has amended What is the range of outcomes in AML controversies? What are the the Criminal Code to accommodate the Council of Europe’s Group possible sanctions for breach of AML laws? of States against Corruption’s recommendations included in the The breach of AML measures can constitute a slight, serious and evaluation report resulting from the joint first and second evalu- very serious fault. Sanctions for slight faults are imposed by the FIU, ation rounds. Some of these amendments have an effect on some and can be a warning or a fine from €600 to €6,000. predicated offences of AML. For serious and very serious faults, sanctions are imposed by There have been several amendments to the AML Law and there the government, and they can range from suspension for six months is a further new amendment in progress at the Parliament, which is (serious) to three years (very serious), or fines between €6,001 and expected to be approved soon. €60,000 (serious), or between €60,001 and €600,000 (very serious).

10 Getting the Deal Through – Anti-Money Laundering 2014 Maestre & Co Advocats ANDORRA

26 FIUs • procedures in foreign countries respect fundamental rights guar- Give details of your jurisdiction’s Financial Intelligence Unit (FIU). anteed in the Andorran constitution; • the request may not be contrary to fundamental principles of the Unitat D’intel·ligéncia Financera (FIU) Andorran judicial system; c/o Dr Vilanova 17, 4th floor • there are no elements to consider that the procedure has been Seu Consell General initiated because of political opinions, race, religion, nationality AD 500 Andorra la Vella or through being part of a specific social group; Andorra • all crimes on which the request of collaboration is based are Tel: +376 806 730 considered a crime in Andorra; Fax: +376 828 842 • the same facts have not been judged in Andorra; www.uif.ad • the facts detailed in the cooperation request are serious enough to justify Andorran collaboration; and 27 Mutual legal assistance • the communication of the information request does not affect In which circumstances will your jurisdiction provide mutual legal sovereignty, security, public order or other essential interests of assistance with respect to money laundering investigations? What are Andorra. your jurisdiction’s policies and procedures with respect to requests The judge may require that the other state certify that the informa- from foreign countries for identifying, freezing and seizing assets? tion requested will only be used for the purposes stated in the col- Full collaboration in criminal affairs is provided as long they com- laboration request. ply with LCPI requirements, which, apart from the formal ones, are The last MONEYVAL report mentions the efficiency of the mainly that: international assistance in money laundering cases.

Marc Maestre [email protected]

Baixada del Molí 15 Tel: +376 809 650 Ed Molí II, 1er Fax: +376 809 651 AD 500 Andorra la Vella www.mcadvocats.ad Andorra

www.gettingthedealthrough.com 11 ARGENTINA Estudio Beccar Varela Argentina

Maximiliano D’Auro and Lucía Degano Estudio Beccar Varela

Domestic legislation supersede it. Thus, money laundering is only criminalised at a national level. 1 Domestic law This notwithstanding, enforcement of the ACC and prosecution Identify your jurisdiction’s money laundering and anti-money laundering of any crimes set forth therein is, with some specific exceptions, the (AML) laws and regulations. Describe the main elements of these competence of each province’s judicial system. Regarding money laws. laundering, this crime is not subject to federal jurisdiction and thus Law 25,246, enacted in 2000, was the first to regulate both criminal is prosecuted locally. money laundering (by means of inclusions of specific money laun- dering and terrorism financing offences in the Argentine Criminal 3 Defendants Code (ACC) and anti-money laundering provisions. Can both natural and legal persons be prosecuted for money Law 25,246 has been amended several times, most importantly in 2011 by Law 26,683, which, apart from several changes to the laundering? anti-money laundering sections of the law, included a new chapter to Section 303 is only applicable to offences committed by natural per- the ACC called ‘Crimes against the Economic and Financial Order’, sons. However, section 304 states that when the crimes have been where money laundering is included among other financial crimes. performed on behalf, with the intervention, or in benefit of legal Regarding money laundering, section 303 states that the offence persons, then the entity shall be subject to the alternative or joint of money laundering shall be committed when a person: application of the following sanctions: • a fine of from two to 10 times the value of the involved assets; converts, transfers, administrates, sells, encumbers, disguises or in • a total or partial suspension of activities, which may not exceed any other way introduces into the market assets which proceed from 10 years; a criminally illicit act, with the possible consequence that the origin • suspension of participating in bidding processes for public of said original or any subsequent assets acquires the appearance works or services or any other activity related to the national of legal origin. state, for a period that shall not exceed 10 years; • cancellation of the legal entity when it has been created solely to This section also penalises the person who receives money or other the effect of committing the crimes, or when the commission of assets from the commission of a crime in order to apply them in any such crimes is its main corporate object; of the described transactions. • loss or suspension of any state benefits; and Section 304, in turn, sets forth specific sanctions for cases in • publication of an extract of the verdict at the expense of the legal which money laundering was committed on behalf, with the inter- entity. vention or to the benefit of a legal entity. As for anti-money laundering, Law 25,246, as amended, sets It is important to point out that according to section 304, when forth a list of ‘compelled subjects’ (which involve both public and applying these sanctions, judges must take into account the lack private entities, as well as natural persons) that are obligated to, of compliance of internal rules and procedures, omission of vigi- among other duties, inform suspicious operations to the Financial lance over the activity of the perpetrators, the extent of the damage Information Unit (UIF). caused, the amount of money involved in the commission of the These compelled subjects have three main obligations: crime and the size, nature and economic capacity of the legal entity. • know-your-client (KYC); • to report suspicious operations to the UIF; and 4 The offence of money laundering • no-tipping off. What constitutes money laundering? Money laundering According to section 303 of the ACC, a person shall be deemed to have committed the crime of money laundering if he or she: 2 Criminal enforcement Which government entities enforce your jurisdiction’s money converts, transfers, administrates, sells, encumbers, disguises or in laundering laws? any other way introduces into the market, assets that proceed from a criminally illicit act, with the possible consequence that the origin The ACC is a national law applicable to the entire Argentine of said original or any subsequent assets acquires the appearance territory. The enactment of the ACC is an authority specifically del- of legal origin. egated by the provinces to the national government in the national Constitution, and thus the provinces cannot issue regulations that Section 304 of the ACC sets forth that if any of the crimes described in section 303 have been performed to the benefit of, or with the

12 Getting the Deal Through – Anti-Money Laundering 2014 Estudio Beccar Varela ARGENTINA intervention of, any legal entity, then penalties shall be applied to 7 Defences the entity as well. Are there any codified or common law defences to charges of money As for liability standards, under the ACC, money laundering can laundering? only be committed with wilful misconduct – it is not a crime that can Argentine law does not provide for any codified or common law be committed through negligence. defences to charges of money laundering. Finally, it is worth pointing out that only the perpetrators of the crime can be prosecuted for money laundering; any entities used for the commission of the crime (such as banks, stockbrokers, etc) that 8 Resolutions and sanctions did not take part in the money laundering manoeuvre, cannot be What is the range of outcomes in criminal money laundering cases? subject to criminal prosecution, notwithstanding any administrative The penalties for money laundering are: fines or penalties that may apply if they have failed to comply with • when the assets involved are valued at least 300,000 Argentinian any of their AML obligations. pesos, three to 10 years imprisonment and a fine of two to 10 times the amount of the assets involved; 5 Qualifying assets and transactions • the scale of penalties stated in the first bullet point is increased Is there any limitation on the types of assets or transactions that can by a third of its maximum and half of its minimum amount if: form the basis of a money laundering offence? • the perpetrator performs the act habitually or as part of an association or group formed for the purpose of continually There is no limitation on the types of assets or transactions that can committing these types of crimes; or form the basis of a money laundering offence, as long as these trans- • the perpetrator is a public officer who committed the crime actions can be categorised as one of the classes listed in section 303. in the exercise of or due to his or her role. In this case, the Monetary thresholds only affect the penalties applicable to the public officer shall also be disqualified from public office commission of the money laundering crime; if the money laundering from three to 10 years. In addition, any person who com- offence exceeds 300,000 Argentinian pesos, then the penalty shall be mitted this crime in exercise of any profession that requires of between three and ten years of imprisonment and a fine of two to special qualification shall also be disqualified for the same 10 times the amount of the operation, whereas if the amount of the amount of time; and offence does not exceed the said threshold then the sanction shall be • if the assets are valued at less than 300,000 Argentinian pesos, between six months and three years of imprisonment. then the prison penalty scale shall be between six months and three years. 6 Predicate offences In addition, the person who receives money or other assets that Generally, what constitute predicate offences? proceed from a criminally illicit act in order to apply them to a Pursuant to Argentine law, any ‘criminally illicit act’ can be deemed money laundering scheme shall be sanctioned with imprisonment of a ‘predicate offence’ for money laundering. Violations of tax or cur- between six months and three years. rency exchange laws may amount to criminal offences in certain It is important to point out that the Argentine criminal system cases and, as such, can also serve as predicate offences for money does not allow for prosecutorial discretion and, thus, prosecutors laundering. It is important to point out that since the last reform, are not empowered to bring forward plea bargains, strike deals or money laundering is an independent crime; it was previously regu- any kind of settlements with the defendant. lated under the figure of concealment (and thus depended on the This notwithstanding, the ACC regulates a procedure called a predicate offence). ‘suspension of trial’, which is only applicable for cases in which the As for predicate offences committed abroad, section 303 sub- maximum sanction does not exceed imprisonment for three years section 5 sets forth that the penalties established in section 303 shall (and thus would only be applicable to certain money-laundering be applicable even when the predicate offence was committed out- cases, such as money laundering of assets valued at less than 300,000 side the ACC’s sphere of application, provided that the predicate Argentinian pesos or the acts committed by a person who receives offence is also sanctioned as a crime in accordance to the laws of the assets from a third party to apply them to a money laundering place where such a crime was committed. scheme). This notwithstanding, it is important to point out that Law This suspension of trial has to be requested by the defendant, 25,246 sets forth that the FIU shall be in charge of the analysis, who must offer to undertake reparation of any damages (without treatment and transmission of information in order to prevent the it either implying confession or causing any effects in a civil liability commission of money laundering crimes preferably (and thus, not procedure). The public prosecutor must consent to this request, and exclusively) from the following offences: if the judge finds the request reasonable he or she can suspend the • crimes related to drug sales and trafficking; trial for between one and three years. In the resolution granting the • weapon and drug smuggling; suspension, the judge shall set forth the behaviour rules with which • crimes related to the activities of an aggravated illicit organisa- the defendant must comply during the suspension period. tion (section 210 bis of the ACC), or a terrorist organisation; If the crime for which the defendant is being taken to trial • crimes committed by illicit organisations formed in order to involves the penalty of a fine, the defendant shall have to pay the commit crimes for political or racial motives; minimum fine in order to obtain this benefit. • fraud related to public administration; If, during the period of suspension, the defendant does not com- • bribery, trafficking of influence, embezzling of public funds and mit any crimes, repairs the damages as offered and complies with all illicit remuneration to public officers; the behavioural rules set forth by court, the criminal action shall be • child prostitution and child pornography; extinguished. • terrorism financing; • extortion; • crimes set forth in the criminal tax regime (eg, tax evasion); and • human trafficking.

www.gettingthedealthrough.com 13 ARGENTINA Estudio Beccar Varela

9 Forfeiture most important are the Ministry of Foreign Affairs, the Ministry of Describe any related asset freezing, forfeiture, disgorgement and the Interior, the of Argentina, federal tax authorities, victim compensation laws. public registries of commerce, the Securities Exchange Commission, the National Superintendence of Insurance, general inspection Section 305 of the ACC sets forth that judges can issue any preven- of corporations, the Superintendence of Financial and Exchange tive measures necessary to ensure the custody, administration, con- Entities, public registries of real property and national law enforce- servation, foreclosure or sale of assets that are instruments, products ment authorities. Most of these agencies participate in AML enforce- or proceeds or are related to money laundering crimes. ment and can also issue specific procedural regulations applicable to Additionally, in money laundering operations, and even with- the entities they supervise, but the regulations issued by the UIF shall out the need for a criminal conviction, all assets of a proven illicit always prevail. origin, or related to an illicit material event, shall be forfeited when the defendant cannot be brought to trial due to his or her death or escape, expiration of the statute of limitations or any other reason 13 Covered institutions and persons of suspension or termination of the criminal enforcement action, or Which institutions and persons must carry out AML measures? the defendant has acknowledged the illicit origin or use of the assets. All forfeited assets must be used to repair the damages caused to The institutions and persons that must carry out AML measures, set society, the specific victim or the national state. out in section 20 of the AML Law, are: There are no specific regulations regarding asset freezing for • financial institutions; money laundering operations, the legal framework only provides for • exchange houses and any persons or legal entities authorised by asset freezing in connection with counter-terrorism financing. the Central Bank to operate in currency exchange; • persons or legal entities that exploit gambling games; • stock agents, managing entities of investments funds, agents of 10 Limitation periods the open electronic market and any intermediaries in the pur- What are the limitation periods governing money laundering chase, rent or lending of securities that operate under the scope prosecutions? of an exchange; • brokers registered in the futures and option markets; Money laundering prosecutions are subject to the general rules of • public registries of commerce, agencies of control of legal enti- termination of the criminal action set forth in the ACC. ties, real estate property registries, property registries of motor In that connection, section 59 of the ACC sets forth the reasons vehicles, pledge registries, boat ownership registries and airplane for which a criminal action can be extinguished, the following being registries; applicable to money laundering: • persons or legal entities dedicated to the trading of works of art, • death of the defendant; antiques or other luxury items, stamps or coin investments or to • amnesty; and the export, import, manufacturing or industrialisation of jewel- • expiration of the statute of limitations. lery or goods with precious metals or stones; • insurance companies; As for the statute of limitations, section 62 subsection 2 states that • companies that issue travellers’ , operators of credit or the statute of limitations for crimes with imprisonment penalties is purchase cards; the maximum duration of the penalty, provided that the term cannot • companies dedicated to cash-in-transit services; exceed 12 years nor be shorter than two years. Therefore, the statute • companies that exploit postal services that perform wires or of limitations for the offence of money laundering shall depend on transport of money; which money laundering crime the defendant allegedly committed. • public notaries; • capitalisation or savings entities; 11 Extraterritorial reach • brokers; Do your jurisdiction’s money laundering laws have extraterritorial • the Central Bank of Argentina, the federal tax authorities, the National Superintendence of Insurance, the Securities Exchange reach? Commission, the General Inspection of Justice, the National The ACC mainly follows the territoriality principle, that is, it applies Institute for Associations and Social Economy, and the National to all crimes committed in Argentina, without distinguishing whether Antitrust Court; the criminal perpetrators are Argentine nationals or residents. • insurance producers, consultants, agents, brokers, assessors and This general principle notwithstanding, section 1 of the ACC loss adjusters; sets forth two exceptions to the territoriality rule: it shall be applica- • licensed professionals whose activities are regulated by profes- ble to any crimes whose ‘effects must be produced in the territory of sional councils of economic sciences; Argentina’ and it also applies to ‘crimes committed abroad by agents • legal entities that receive donations or contributions from third or employees of Argentine authorities while performing their duties’. parties; • licensed real estate agents or brokers and entities whose corpo- AML requirements for covered institutions and individuals rate object is real estate brokerage, owned by or administrated exclusively by licensed real estate agents or brokers; 12 Enforcement and regulation • persons or legal entities whose usual activity is the sale or acqui- Which government entities enforce your jurisdiction’s AML regime and sition of cars, trucks, motorcycles, buses and microbuses, trac- regulate covered institutions and persons? Do the AML rules provide tors, agricultural machinery, road machinery, boats, yachts and for ongoing and periodic assessments of covered institutions and the like, aeroplanes and aerodynes; persons? • persons or legal entities that act as trustees, and persons or legal Pursuant to the AML Law, the UIF is the entity that enforces the entities that own or are affiliated with trust accounts, trustors AML regime and issues the regulations applicable to covered insti- and trustees in connection with trust agreements; and tutions and persons (‘compelled subjects’ in the terms of the AML • legal entities that organise and regulate professional sporting Law). The UIF has support from several public entities and agen- activities. cies (some of which are compelled subjects themselves), of which the

14 Getting the Deal Through – Anti-Money Laundering 2014 Estudio Beccar Varela ARGENTINA

It is important to point out that the UIF has issued resolutions regard- must identify the clients by requesting the information stated in the ing the obligations of each of these categories of persons and enti- applicable UIF Resolution, which generally includes, for natural per- ties, which in some cases set forth certain additional requirements sons, personal information such as full name, address, tax registra- to qualify as a compelled subject (eg, for the cases of entities that tion number, etc, and for legal entities, certified copies of by-laws, receive donations or contributions from a third party, Resolution appointment of representatives, contact information and certain 30/2011 sets forth that for such entities to be obligated to have an personal information of the representatives or attorneys-in-fact who AML programme they must receive donations of at least 50,000 will have contact with the compelled subject. Argentinian pesos). Legal entities also have to identify the beneficial owners, which are defined as those individuals that have at least 20 per cent of the capital or rights to vote of the entity or through other means 14 Compliance exercise final, indirect or direct control of such entity. For both types Do the AML laws in your jurisdiction require covered institutions and of clients, the UIF Resolutions generally require the compelled sub- persons to implement AML compliance programmes? What are the ject to obtain sworn statements both of the origin of funds and the required elements of such programmes? condition of the politically exposed person of the client or its repre- Covered institutions must implement measures and policies to pre- sentative. As for clients who are also compelled subjects, they must vent money laundering and terrorism financing that are covered in present a copy of their registration before the UIF and a sworn state- the specific UIF resolutions for each class of compelled subjects. In ment regarding AML compliance. Additionally, compelled subjects general, the AML compliance programme includes: must verify that the client is not included in the list of terrorists pub- • know-your-client procedures, both at the beginning and lished by the UN’s Security Council. These client files must be kept throughout the commercial relationship with the client; updated throughout the entire relationship with the client. • the issuance of an AML manual, which must be known by all In addition, certain compelled subjects have the obligation to employees, kept constantly updated and available to the UIF at set up a ‘client profile’ (a kind of enhanced due diligence) for clients any time; who hire a specific product or surpass a legally established monetary • for those compelled subjects that are organised as legal entities, threshold; in these cases, they must request information and docu- the appointment of a compliance officer, who must be a member ments regarding the client’s economic, financial, asset and fiscal situ- of the senior management of the entity (a member of the board, ation in order to establish an annual amount of the usual operations in the case of corporations); performed by that client. • for certain types of compelled subjects, Resolution 70/2011 sets forth the obligation to perform systematic monthly reports 17 High-risk categories of customers, business partners and based on objective parameters (eg, casinos and other entities transactions that exploit gambling games must report on a monthly basis all prizes granted of over 50,000 Argentinian pesos, irrespective of Do your jurisdiction’s AML rules require that covered institutions and whether said operations are suspicious or not); persons conduct risk-based analyses? Which high-risk categories are • training of all employees on their AML obligations, which must specified? be performed on a regular basis; Pursuant to the Argentine AML regulations, covered institutions and • certain compelled subjects are obligated to perform internal persons must conduct risk-based analyses. The risk-based approach audits on their AML policies and procedures; and is specifically highlighted in the UIF Resolution applicable to finan- • implementation of technological tools to enable successful cial institutions and exchange agencies, which have an obligation to implementation of the AML control programme. set up risk management policies. As for the different categories of increased risk, the UIF In addition, the UIF Resolutions sometimes set forth specific require- Resolutions set forth that compelled subjects must pay special atten- ments for the AML compliance programme for a particular type of tion to the risk entailed in transactions with tax havens and opera- compelled subject (eg, casinos must have a record of prizes granted tions with countries the Financial Action Task Force (FATF) deems above 50,000 Argentinian pesos). as ‘non-cooperative’. The UIF resolutions also establish that when there are elements that may lead a compelled subject to suppose that the clients are not acting on their own behalf, then it needs to take 15 Breach of AML requirements special measures to determine the identity of the client and perform What constitutes breach of AML duties imposed by the law? the applicable know-your-client procedures. The AML law mainly sets forth three types of breaches to AML In addition, pursuant to UIF Resolution 11/2011, compelled duties: subjects must request from all their clients a sworn statement regard- • failure to report a suspicious operation; ing their condition as a ‘politically exposed person’ (PEP). Under • breach of one of the ‘formal’ obligations of the AML Law (eg, Argentine law, the categories of a PEP can be divided into two large failure to issue an AML policies and procedures manual); and groups: foreign PEPs, which are certain foreign officials and their • breach of the confidentiality or a‘no tipping-off’ obligation. spouses, children, parents and ‘close friends’; and local PEPs, which are certain local officials and their spouses, children and parents. See question 20 for the sanctions for breaching any of the obliga- Regarding foreign PEPs, compelled subjects must obtain prior tions referred to above. approval from their compliance officer in order to accept them as clients, reinforce all measures aimed at determining the origin of the funds and carry out a closer, continuous monitoring of the com- 16 Customer and business partner due diligence mercial relationship. As for local PEPs, after having identified them, Describe due diligence requirements in your jurisdiction’s AML regime. in principle compelled subjects are not obligated to carry out any Specific due diligence requirements for clients are set forth in each specific measures unless they understand that dealing with said client UIF Resolution, and vary from compelled subject to compelled entails a specific, higher risk. subject. This notwithstanding, all UIF Resolutions set forth cer- tain common due diligence requirements, such as that at the start of the commercial relationship of the client, the compelled subject www.gettingthedealthrough.com 15 ARGENTINA Estudio Beccar Varela

18 Record keeping and reporting requirements 20 Resolutions and sanctions Describe the record keeping and reporting requirements for covered What is the range of outcomes in AML controversies? What are the institutions and persons. possible sanctions for breach of AML laws? Compelled subjects must report all suspicious operations to the UIF. The range of outcomes is: Pursuant to the AML Law, a ‘suspicious operation’ is: • failure to report an operation is sanctioned with a fine of one to 10 times the amount of the operation, or, if the amount of any transactions, which in accordance to the customs and uses of the operations cannot be determined, from 10,000 to 100,000 the applicable activity, as well as the experience and training of the Argentinian pesos; and persons obligated to inform, are unusual, without economic or legal • as for the breach of one of the formal obligations of the AML justification or with an unusual or unjustified complexity, regard- Law (eg, failure to issue an AML policies and procedures man- less of whether they are performed in an isolated way or repeatedly. ual), since the AML Law does not clearly set forth the penalty, the UIF uses the scale of fines applicable to operation of an inde- The UIF, on the other hand, in its regulations uses two types of defi- terminate amount. nitions: ‘unusual operations’, defined as: In both cases, the fines are applied (on an accumulative basis) to the those attempted or performed operations, whether isolated or compliance officer and the legal entity where the compliance officer repeated, which do not have economic and/or legal justification, do performed its duties. The members of the administrative body of the not correspond with the usual market practices and customs, due to entity are joint and severally liable for the entities fine. These sanc- their frequency, regularity, amount, complexity, nature and/or par- tions are first imposed through an administrative investigation and ticular characteristics. procedure held before the UIF and are appealable to the administra- tive law courts (that is, they are not of a criminal nature). The other is ‘suspicious operations’, which are: The only AML obligation that is of a criminal nature and involves a prison sentence is a breach of the confidentiality or ‘no those attempted or performed operations which, after being identi- tipping-off’ obligation, which is sanctioned with prison for a period fied as unusual, after the analysis and evaluation performed by the of between six months and three years. compelled subject, do not correspond to the licit activities declared by the client or there are doubts on the authenticity, truthfulness 21 Limitation periods or coherence with the documents filed by the clients, generating a suspicion of money laundering, or, even when they are operations What are the limitation periods governing AML matters? related to licit activities, there is a suspicion that they are related or After the enactment of Law 26,683, the statute of limitations for are to be applied to finance terrorism. both failure to report an operation and breach of a formal obliga- tion is of five years from the date of the breach. Consequently, compelled subjects must identify all ‘unusual opera- The statute of limitations for breach of the ‘no tipping-off’ obli- tions’, and are granted a 150-day period from the date the operation gation is determined pursuant to the rules of the general criminal was performed to duly analyse and investigate if the unusual opera- statute of limitations rules (see question 10). tion is a suspicious operation or not. The UIF regulations applicable to each compelled subject set forth the obligation to keep internal records of all detected unusual operations (identifying, if applicable, 22 Extraterritoriality which operations were deemed suspicious and thus reported), with Do your jurisdiction’s AML laws have extraterritorial reach? sufficient information to enable the reconstruction of the operation. The Argentine AML Law does not have an extraterritorial reach; Resolution UIF 3/2014, in addition, sets forth that once the com- it is only applicable to persons and entities located in Argentina. pelled subject has determined that an unusual operation is suspi- However, it is worth pointing out that the local AML Law does cious, it should report it within 30 days (unless the 150-day period apply to any subsidiaries or branches of foreign entities registered ends before such 30 days). in Argentina. Finally, compelled subjects must keep all records for at least 10 years. Civil claims

23 Civil claims and private enforcement 19 Privacy laws Enumerate and describe the required elements of a civil claim Describe any privacy laws that affect record keeping requirements, due or private right of action against money launderers and covered diligence efforts and information sharing. institutions and persons in breach of AML laws. Pursuant to section 14 of the AML Law, the UIF can request infor- Regarding money launderers and breaches by compelled subjects, mation from any public entity, agency, private legal entity or person, there are no specific regulations for bringing forth a civil claim. all of which are obligated to provide such information in the terms Therefore, the general rules of civil liability apply, namely: set forth in the request. In addition, when the UIF is investigating a • a breach of either a legal or contractual obligation (illicit act); report of suspicious operation, compelled subjects must collaborate • the existence of actual damage; and cannot allege against the UIF, any bank, fiscal, stock market, • sufficient causal relationship between the illicit act and the dam- professional secrecy or any contractual confidentiality agreement. age; and • negligence or wilful misconduct on the part of the damaging party.

In addition, it is necessary to point out that since civil liability is of an indemnificatory nature, it necessarily requires the existence of damage to a certain person (and only the said damaged person may bring forth a claim), whereas criminal liability requires the subject to

16 Getting the Deal Through – Anti-Money Laundering 2014 Estudio Beccar Varela ARGENTINA

which states that compliance in good faith of the obligation to Update and trends report a suspicious operation cannot result in any liability of any kind for the informer. There have been very few convictions for money laundering in Argentina. Notwithstanding this, in order to comply with the International anti-money laundering efforts commitment before the FATF, undertaken after the last mutual evaluation, there have been some enforcement efforts in the past few years, such as the reform of the Criminal Code in 2011 and 24 Supranational the creation, in 2012, of the PROCELAC, a special division of the List your jurisdiction’s memberships of supranational organisations Public Ministry of Prosecutors dedicated to economic crimes and that address money laundering. money laundering, which in turn has a special area dedicated to the crimes of money laundering and terrorism financing. Argentina is a full member of both the FATF and the Financial Action As for anti-money laundering, after the last reform in 2011, Task Force on Money Laundering in South America (GAFISUD). In which included new compelled subjects (such as trustees), the UIF addition, the UIF is a member of the Egmont Group. has issued a great number of resolutions regulating the obligations of each compelled subject. In addition, the UIF (in some cases, acting jointly with the applicable regulatory entity, such as the Central Bank, Superintendence of Insurance, etc) is carrying out, 25 Anti-money laundering assessments on a regular basis, inspections of compelled subjects in order to Give details of any assessments of your jurisdiction’s money verify their compliance with the applicable anti-money laundering laundering regime conducted by virtue of your membership of regulations. This increase in AML regulations and enforcement has supranational organisations. increased pressure on companies and financial institutions, which The FATF and GAFISUD released a mutual evaluation report on have responded by implementing or improving their compliance Argentina on 22 October 2010. This was the FATF’s third mutual programmes. These increased AML efforts on the part of the compelled subjects not only seek to avoid the applicable evaluation of Argentina (and the second performed jointly with sanctions, but also avoid the risk to reputation entailed in being GAFISUD). According to the 2010 report Argentina ‘has not made involved in a potential money laundering scheme. adequate progress’ in addressing a number of deficiencies identified at the time of the last report (finalised in June 2004). In June 2011, Argentina made a high-level political commitment have performed the specific act described in the law, irrespective of to work with the FATF to address its strategic AML and CFT defi- whether any repairable damages have been caused. ciencies. In the last update issued by the FATF on its ongoing moni- Also, criminal liability is held to a much higher standard. The toring of Argentina, the FATF stated that while Argentina has taken act may not qualify as money laundering in accordance with the steps towards improving its AML and CFT regime, certain strategic ACC, but if the four rules for civil liability are met, there could be an AML and CFT deficiencies remain. adverse ruling under civil law. In that sense, sections 1101 to 1003 of the Civil Code state that: • if the criminal action was initiated before the civil action, there 26 FIUs shall not be any ruling in the civil procedure before the criminal Give details of your jurisdiction’s Financial Intelligence Unit (FIU). ruling (with the exception of death or absence of the accused, in The UIF was created by the AML law in 2001, and it is a member of which case the criminal action shall not continue but the civil the Egmont Group. Its president is Jose Alberto Sbatella. procedure may); and The contact details are: • if a defendant is found guilty in the criminal proceeding, then the existence of the main event and the guilt of the defendant shall Cerrito 264, 3rd floor be deemed proven in the civil case, whereas, if the defendant is Buenos Aires found not guilty, then the existence of the main event over which Argentina the verdict was given cannot be alleged in the civil trial. Tel:. +54 11 5173 5981 / 89 Fax: +54 11 4384 5981 / 90 Regarding AML compliance liability, it is important to point out www.uif.gov.ar that the Argentine AML Law does include a safe harbour provision,

Maximiliano D’Auro [email protected] Lucía Degano [email protected]

Edificio República Tel: +54 11 4379 6800 / 4700 Tucumán 1, 3rd floor Fax: +54 11 4379 6860 Buenos Aires www.ebv.com.ar Argentina

www.gettingthedealthrough.com 17 ARGENTINA Estudio Beccar Varela

27 Mutual legal assistance As for cooperation with other countries, the UIF has signed In which circumstances will your jurisdiction provide mutual legal memoranda of understanding for the exchange of information assistance with respect to money laundering investigations? What are with Albania, Australia, Belgium, Bolivia, Brazil, Canada, Chile, your jurisdiction’s policies and procedures with respect to requests Colombia, Ecuador, El Salvador, France, Greece, Guatemala, from foreign countries for identifying, freezing and seizing assets? Honduras, Israel, Japan, Macedonia, Mexico, the Netherlands Antilles, Panama, Paraguay, Peru, Poland, Portugal, Romania, The exchange of information between the UIF, the Central Bank, Russia, Serbia, Singapore, Spain, South Africa, the United States and the Superintendence of Insurance and the Securities Exchange Venezuela. Commission, and similar entities from other countries is regulated Regarding requests for asset freezing and other measures, there by UIF Resolution 30/2013. This Resolution mainly states that all are no specific regulations regarding these requests in money laun- requests for information shall be centralised by the UIF. dering cases. The enforcement of said request shall be subject to the existence of specific treaties regarding cooperation in criminal cases with the applicable country.

18 Getting the Deal Through – Anti-Money Laundering 2014 Ashurst Australia AUSTRALIA Australia

Philip Trinca and James Morris Ashurst Australia

Domestic legislation As an overall summary of the scope of the AML Act, it provides for: 1 Domestic law • customer identification and the verification of customer identity Identify your jurisdiction’s money laundering and anti-money laundering where a regulated entity is proposing to commence providing a (AML) laws and regulations. Describe the main elements of these designated service; laws. • obligations with regard to ongoing customer due diligence; In Australia, the active prevention of money laundering and • obligations to create an appropriate AML/CTF programme, the financing of terrorism is dealt with under the Anti-Money which has been prepared by the regulated entity to manage iden- Laundering and Counter-Terrorism Financing Act 2006 (AML Act) tified risks relevant to money laundering and the financing of and the Anti-Money Laundering and Counter-Terrorism Financing terrorism (ML/TF risks); Rules Instrument 2007 (No. 1) (AML Rules) made under section • reporting obligations including the reporting of suspicious mat- 229 of the AML Act. In addition, there is a range of Commonwealth ters, reporting of transactions in cash over a statutory threshold and state and territory legislation that provide legislative prohibi- and reporting of international funds transfer instructions; tions for dealing with the proceeds of crime, whether knowingly, • annual compliance reporting to the regulator; negligently or carelessly. The penalty for knowingly dealing in the • reports about cross-border movements of physical currency or proceeds of crime arises under Division 400 of the Criminal Code bearer negotiable instruments; and Act 1995 (Cth) (Criminal Code). It is 25 years’ imprisonment or a • record-keeping requirements. fine, or both. The laws that impose positive anti-money laundering obliga- These obligations fall on the person providing the designated ser- tions on persons conducting transactions in Australia are primarily vice, who is called a ‘reporting entity’ under the AML Act. (In the the AML Act and its Rules (the AML Laws). The AML Laws are discussion below, we use the term ‘regulated entity’ to describe a Australia’s response to the recommendations of the Financial Action reporting entity.) Task Force on Money Laundering (FATF). The AML Rules provide the detail, or legislative guidance, as to In general terms, the scheme set up by the AML Laws is one that the manner and the extent to which a regulated entity is to under- requires regulated entities: take their compliance with the requirements of the AML Act. • to conduct appropriate customer identification procedures While the AML Act sets out a range of obligations, in many before contracting or transacting with their customers; cases it is more directive than prescriptive. It requires the regulated • to provide ongoing due diligence and monitoring with respect to entity to make decisions on the extent to which it needs to take their customers and their AML risk; and steps to manage a particular risk. This makes compliance with the • to engage in various levels of reporting on transactions that are AML Laws somewhat complicated as it requires each individual thought to be suspicious or are otherwise made relevant by the regulated entity to assess the relevant ML/TF risks to which it is AML Laws. subject throughout its regulated businesses, and in respect of each of its regulated products or services. A regulated entity must, for exam- A person will be regulated under the AML Laws where they provide ple, determine the level of customer identification and verification a ‘designated service’ within the meaning of the AML Act. The list that would be required by reference to the applicable ML/TF risk of the regulated designated services is set out in section 6 of the involved in dealing with that customer, or conducting a requested AML Act. The list of designated services is intended to reflect, and transaction with that customer. Having made such decisions, a regu- be responsive to, the glossary definition of a ‘financial institution’ lated entity is still obliged to conduct ongoing customer due dili- put forward by the FATF. There are 76 different designated ser- gence. Other obligations, such as the reporting obligations, are more vices described in the various tables in section 6. These are divided clearly defined by theAML laws. between different categories of designated services and designated service providers. For each designated service, there is a description Money laundering of the required elements that define the particular type of designated 2 Criminal enforcement service and of the person who is to be treated as the customer of the service, for identification and other relevant purposes. Which government entities enforce your jurisdiction’s money The range of designated services is extensive and largely focused laundering laws? on financial transaction types involving the transfer of money or While the AML Laws deal with the management of a regulated enti- securities, gambling and bullion services. The financial transac- ty’s exposure to ML/TF risk, criminal offences arise where a person tion types range from traditional banking services to the provision deals with the proceeds of crime. Such criminal offences arise under of most forms of finance, remittance arrangements and securities Commonwealth laws and, separately, under state or territory laws transactions. (according to where the offence occurs). www.gettingthedealthrough.com 19 AUSTRALIA Ashurst Australia

The Australian (together with the Commonwealth There are separate offences under Division 400 of the Criminal director of public prosecutions) take on the responsibility for the Code for dealing in money or other property that the person reason- prosecution of crimes under Commonwealth laws, such as under ably believes is the proceeds of crime. Again the maximum penalty Division 400 of the Criminal Code. Where an equivalent law of a is influenced by the amount involved and the level of culpability of state or territory has been breached, it is possible for the offender to the defendant. be prosecuted under the applicable local criminal law by the appli- There are provisions under the Criminal Code to allow a person cable state or territory police (acting on behalf of the Crown). It is who aids, abets, counsels or procures the commission of an offence likely that where a prosecution is brought under Commonwealth by another person to be treated as having committed that same laws, such as for an offence against Division 400 of the Criminal offence as the money launderer and to be punishable accordingly. Code, separate prosecutions will not be brought at a state or terri- tory level. 5 Qualifying assets and transactions Is there any limitation on the types of assets or transactions that can 3 Defendants form the basis of a money laundering offence? Can both natural and legal persons be prosecuted for money A money laundering offence must relate to a dealing with money or laundering? other property. Property is defined to mean real property (land) or The laws of Australia allow both individuals and other legal entities, personal property of every description whether situated in Australia such as corporations, to commit a money laundering offence. Both or elsewhere and whether tangible or intangible. Money or property individuals and other legal entities can be prosecuted for money situated outside Australia may be proceeds of crime or an instru- laundering offences. ment of crime.

4 The offence of money laundering 6 Predicate offences What constitutes money laundering? Generally, what constitute predicate offences? Under the AML Act, money laundering is defined as conduct that In prosecuting an offence for money laundering under the Criminal amounts to: Code it is not necessary to prove the existence of any fault element • an offence against Division 400 of the Criminal Code; in relation to a separate indictable offence under any separate law in • an offence against a law of a state or territory that corresponds Australia. Nevertheless, money laundering will usually be associated to an offence referred to in Division 400 of the Criminal Code; with a separate indictable offence. or • an offence against a law of a foreign country, or a part of a 7 Defences foreign country, that corresponds to an offence referred to in Division 400 of the Criminal Code. Are there any codified or common law defences to charges of money laundering? Division 400 of the Criminal Code makes it an offence to deal with Under section 400.10 of the Criminal Code it is a defence to a crimi- the proceeds of crime (or with money or property that will become nal prosecution for dealing with proceeds of crime of a particular an instrument of crime) in circumstances where the person believes value if the defendant can establish that they had a mistaken belief they are doing so, is reckless in doing so or is negligent in doing so. as to the value of the money or property involved. In the event that ‘Proceeds of crime’ are defined to mean any money or property that such a defence is made out, the offence will be measured according is wholly or partly derived or realised (whether directly or indirectly) to the value of the property that the defendant believed they were by any person from an offence against a law of the Commonwealth, dealing with. a state, a territory or a foreign country that may be dealt with as an indictable offence. A person is to be taken as dealing with money or other property 8 Resolutions and sanctions if the person does any of the following: What is the range of outcomes in criminal money laundering cases? • receives, possesses, conceals or disposes of money or other Where the amount of money involved is greater, the charge will usu- property; ally be brought as an indictable charge seeking a prison term for • imports money or other property into Australia; the offender. Where the amount of money involved is of a lesser • exports money or other property from Australia; or amount (ie, below A$10,000), there is a greater likelihood of a sum- • engages in a banking transaction relating to money or other mary charge being brought and a fine imposed. The annual report of property. the Commonwealth director of public prosecutions for 2012–2013 reported that the director was involved in bringing three indictable The scheme of Division 400 of the Criminal Code sets up a gradu- charges and eight summary charges in that year under the AML Act. ated set of equivalent offences, where the penalty is to be determined There were three indictable offences prosecuted under the Proceeds by reference to the amount involved (or believed to be involved) and of Crime Act 1987. by whether the defendant was acting knowingly, recklessly or negli- gently. At the top end of the scale are offences where the defendant was acting knowingly and where the amount involved is A$1 mil- 9 Forfeiture lion or more. At this level, the penalty is 25 years’ imprisonment or Describe any related asset freezing, forfeiture, disgorgement and a fine of 1,500 penalty units, or both. The maximum penalties are victim compensation laws. graduated downwards for the equivalent offence dealing with lesser There are a range of Commonwealth and state and territory laws sums and according to the culpability of the offender. For exam- dealing with the forfeiture or freezing of assets. ple, the maximum penalty where the amount involved is between Under the Commonwealth Proceeds of Crime Act 2002 A$50,000 and A$100,000 is imprisonment for 15 years, or a fine of (Proceeds of Crime Act): 900 penalty units, or both. There is no minimum amount before an • a freezing order can be made against an account with a financial offence occurs. institution if:

20 Getting the Deal Through – Anti-Money Laundering 2014 Ashurst Australia AUSTRALIA

• there are grounds to suspect that the account balance con- 13 Covered institutions and persons tains proceeds (or an instrument) of certain offences; and Which institutions and persons must carry out AML measures? • there is a risk that the balance of the account will be reduced Regulated entities that must comply with the AML Laws include so that a person will not be deprived of all or some of the banks, credit unions, financiers, financial services providers, pay- proceeds or instruments; ment systems operators, remittance arrangers, currency sellers, per- • a restraining order can be made against property, in relation to sons dealing in securities and derivatives, insurers, superannuation certain offences, on grounds that relate to possible forfeiture or trustees, payroll service providers, currency deliverers, providers of confiscation orders relating to those offences; and deposit and custodial services, bullion dealers and providers of gam- • forfeiture orders can be made, forfeiting property to the bling services. A full list of the categories of regulated entities (called Commonwealth, if certain offences have been committed. ‘designated service providers’) is effectively set out in section 6 of the AML Act. There is also a scheme set out in the Proceeds of Crime Act in which Commonwealth law enforcement agencies can obtain information relevant to these processes. 14 Compliance The Proceeds of Crime Act also allows for pecuniary penalty Do the AML laws in your jurisdiction require covered institutions and orders to be made, ordering payments to the Commonwealth of persons to implement AML compliance programmes? What are the amounts based on the benefits that a person has derived from an required elements of such programmes? offence and (in some cases) the benefits that the person has derived from other unlawful activity. Regulated entities are required to prepare and operate an AML/CTF Similar provisions are found under the state and territory laws. programme. Such a programme is divided into two parts. One part In Victoria, for example, the Confiscation Act 1997 (VIC) provides deals with the customer identification and verification standards for freezing orders to be made, for restraining orders to be made that the regulated entity has decided are appropriate for the regu- against property, and for pecuniary penalty orders in favour of the lated products and services they provide, having regard to the level state of Victoria. of ML/TF risks that they are managing. These customer identifica- tion and verification requirements must meet at least a minimum standard, as set out in the AML Rules. 10 Limitation periods The second part of the AML/CTF programme is to deal more What are the limitation periods governing money laundering generally with the compliance plans of the regulated entity for its prosecutions? ongoing identification and management of ML/TF risk. As a general rule, prosecutions for a criminal offence are not subject to limits on the time within which a prosecution can be brought. 15 Breach of AML requirements There are no specified time limitations on prosecution of the money What constitutes breach of AML duties imposed by the law? laundering offences under the various criminal laws. This is the case A breach of the regulated entities’ responsibilities under the AML under both the Commonwealth law and the laws of the states and Laws can arise in many different ways. The overall nature of the territories. obligations imposed by the AML Laws have been described above. There are some complexities to these laws, including the offence of 11 Extraterritorial reach ‘tipping off’. Do your jurisdiction’s money laundering laws have extraterritorial reach? 16 Customer and business partner due diligence As a general rule, the AML Laws have extraterritorial application. Describe due diligence requirements in your jurisdiction’s AML regime. Under the Criminal Code, the money laundering offences set out A regulated entity is required to set appropriate customer identifica- in Division 400 are potentially applicable: tion and verification requirements, according to the relevant level • where the relevant money laundering activity takes place outside of ML/TF risk applicable to its customer and the designated service Australia; or being provided. The AML Rules set out minimum requirements for • where the relevant money or other property is intended to customer identification, according to the customer type (ie, individ- become, or is at risk of becoming, an instrument of crime in ual, company, trust, etc). The AML Rules set minimum requirements relation to an offence that is an offence against a law of a foreign and it is then the responsibility of the regulated entity to determine country (that corresponds to an offence referred to in Division the additional steps that ought to be taken in the particular circum- 400 of the Criminal Code). stances, having regard to the relevant ML/TF risk involved. The AML Rules provide guidance as to the nature of those potential AML requirements for covered institutions and individuals additional steps. 12 Enforcement and regulation Once a customer has been accepted, a regulated entity still retains ongoing responsibilities with respect to ongoing customer Which government entities enforce your jurisdiction’s AML regime and due diligence. A regulated entity must monitor its customers in rela- regulate covered institutions and persons? Do the AML rules provide tion to its ongoing provision of designated services at or through for ongoing and periodic assessments of covered institutions and a permanent establishment in Australia, with a view to identifying, persons? mitigating and managing ML/TF risk. It must do so in accordance In Australia, the AML Laws are monitored and enforced by the with the AML rules. Australian Transaction Reports and Analysis Centre (AUSTRAC). Regulated entities are required to lodge compliance reports with AUSTRAC on an annual basis.

www.gettingthedealthrough.com 21 AUSTRALIA Ashurst Australia

17 High-risk categories of customers, business partners and Record keeping transactions There are a range of record-keeping obligations under the AML Act. Do your jurisdiction’s AML rules require that covered institutions and The AML Laws require a regulated entity to make a record of its provision of a designated service and to maintain that record for a persons conduct risk-based analyses? Which high-risk categories are period of seven years. specified? Separately, if a customer of the regulated entity gives that entity As set out above, the scheme of the AML Laws is to require the a document relating to the provision of a designated service, the reporting entity to make its own assessment of the level of ML/ reporting entity must retain the document for seven years. TF risk involved in agreeing to deal with a prospective customer A regulated entity must also retain a record of the customer iden- or customer in order to provide a designated service to that per- tification procedure it followed for a given customer, for a period of son, or before conducting an individually regulated transaction seven years after the end of the reporting entity’s relationship with with an existing customer (or other person who will be treated as the relevant customer. a customer by the AML Laws). The regulated entity is effectively A regulated entity must also retain a copy of its AML/CTF required to assess the relevant ML/TF risk as low, medium or high Programme. and to set its response and dealings with the customer accordingly. While the AML Laws provide a framework of requirements that are designed to assist a regulated entity to meet its risk-based obligations 19 Privacy laws under the AML Laws, the overall framework requires the regulated Describe any privacy laws that affect record keeping requirements, due entity to make the risk-based assessments for itself and to then act diligence efforts and information sharing. accordingly. Australia has privacy laws that seek to protect the privacy of indi- viduals. Under the 1988, there are laws with respect to the circumstances in which personal information can be collected, 18 Record keeping and reporting requirements used and disclosed. Disclosure is permitted with the consent of the Describe the record keeping and reporting requirements for covered relevant individual, where the law permits, in certain circumstances institutions and persons. where the disclosure is related to the purpose of collection and the As a regulated entity, the entity will have a range of reporting and individual would reasonably expect the disclosure, and in some record-keeping obligations under the AML Laws. other circumstances. Disclosure between related companies is permitted but the recip- Reporting obligations ient related entity is only permitted to use the information disclosed Under the AML Laws, a regulated entity is obligated to provide for the same purpose that it was collected for by the disclosing entity. reports to AUSTRAC on: • suspicious matters; 20 Resolutions and sanctions • threshold transactions; • international funds transfer instructions; and What is the range of outcomes in AML controversies? What are the • cross-border movements of physical currency and bearer nego- possible sanctions for breach of AML laws? tiable instruments. Where a breach of the AML Laws occurs, the initial discussion of the breach is likely to take place between the regulated entity and A suspicious matter reporting obligation arises, for example, where officers of AUSTRAC. AUSTRAC will assess on a case-by-case basis the regulated entity suspects on reasonable grounds that: what action (if any) it will take regarding individual breaches of the • a relevant person is not the person they claim to be; AML Laws. • information it has concerning the provision (or prospective pro- Depending on the circumstances, the outcome may be a commit- vision) of a designated service may be: ment by the regulated entity to rectify the breach or to take steps to • relevant to the investigation of, or prosecution of a person prevent its reoccurrence, or the provision of an enforceable under- for, an evasion (or attempted evasion) of a taxation law, a taking to similar effect, or a prosecution (where the former actions law of the Commonwealth or of a state or territory; or are not considered sufficient or appropriate byAUSTRAC). • of assistance in the enforcement of the Proceeds of Crime In some circumstances, after having regard to all of the circum- Act or a similar law of a state or territory; or stances, AUSTRAC may consider the issue to the regulated entity of • the provision (or suspected provision) of the designated service a ‘no action’ letter relevant to the breach or the anticipated breach. is preparatory to the commission of a money laundering offence. Generally, AUSTRAC may be prepared to consider the issue of a no action letter where there is doubt about whether a particular act A threshold transaction reporting obligation arises where the des- or conduct would be lawful and where AUSTRAC is of the view ignated service involves the transfer of physical currency, where that enforcement action in relation to that act or conduct would not the total amount of physical currency transferred is not less than advance the policy of the AML Laws. A$10,000. The AUSTRAC CEO has responsibility for monitoring the com- An international funds transfer instruction reporting obliga- pliance of regulated entities with the AML Laws: tion arises where the regulated entity is the sender or recipient of • the CEO may give a remedial direction to a reporting entity that has contravened a civil penalty provision; an international funds transfer instruction transmitted into, or out • on a prosecution by the AUSTRAC CEO, the Federal Court may of, Australia (as the case requires). An international funds transfer grant injunctions in relation to the contravention of any civil instruction is defined as an ‘electronic funds transfer instruction’, an penalty provision; expression that is then further defined. • the Federal Court may order a person who has contravened a With regard to cross-border movements of physical currency, civil penalty provision to pay a civil (pecuniary) penalty; and into or out of Australia, they must be reported where the total • the AUSTRAC CEO may accept enforceable undertakings. amount involved is not less than $10,000. Finally, if a person is asked to produce or declare a bearer nego- The maximum penalty payable by a corporation is A$1.7 million. tiable instrument by a police officer or customs official, when leaving The maximum penalty payable by an individual is A$340,000. In or entering Australia, the officer can require the person to give a any prosecution, a person will not be liable for more than one pecu- report about the instrument to AUSTRAC. niary penalty in respect of the same conduct.

22 Getting the Deal Through – Anti-Money Laundering 2014 Ashurst Australia AUSTRALIA

21 Limitation periods What are the limitation periods governing AML matters? Update and trends

There are no limitation periods provided for in, or in respect of, the 2013 saw another drop in the number of prosecutions under the AML Act. AML Laws. AUSTRAC continues to focus on strategies that are aimed at helping regulated entities to understand and comply with 22 Extraterritoriality their responsibilities under the AML Laws. To do so, AUSTRAC has published its Supervision Strategy, its Enforcement Strategy Do your jurisdiction’s AML laws have extraterritorial reach? and its Intelligence Strategy for 2012–2014. With regard to the The AML Laws are expressed to have extraterritorial application published Enforcement Strategy, AUSTRAC has advised that its (unless there is a contrary intention expressed in a relevant provision strategies will focus on: of the AML Act). This means, for example, that an overseas branch • working with supervisory and compliance teams to identify suitable candidates for enforcement activity; of an Australian bank will still need to comply with the AML Laws • managing a selection of entities to achieve compliance when dealing with a customer in the foreign branch. using persuasive means and AUSTRAC’s formal enforcement powers; Civil claims • working with supervisory and compliance teams and AUSTRAC’s partner agencies to identify providers of designated remittance services whose behaviour would 23 Civil claims and private enforcement give the AUSTRAC CEO grounds to consider either refusing, Enumerate and describe the required elements of a civil claim suspending, cancelling or imposing conditions on their or private right of action against money launderers and covered registration on the Remittance Sector Register; • giving consideration, where appropriate, to seeking restraining institutions and persons in breach of AML laws. injunctions, performance injunctions, the pursuit of civil There is no right of private action by an individual for a breach of penalty orders or referrals of instances of non-compliance with the AML Laws. Where a criminal offence has occurred, the pros- provisions that carry criminal sanctions to the Commonwealth Director of Public Prosecutions; and ecution of that offence can only be undertaken by an authorised • taking enforcement action, where appropriate, against entities government authority. that have failed to comply with their enrolment and remitter A civil claim for a return of assets or other property belonging registration obligations. to a person who is not at fault may be pursued, subject to any over- riding laws of forfeiture. Inquiries concerning AUSTRAC, the legislation it administers, or International anti-money laundering efforts other related information, may be directed to the AUSTRAC help desk at: 24 Supranational List your jurisdiction’s memberships of supranational organisations PO Box 13173, Law Courts that address money laundering. Melbourne VIC 8010 Australia has been a member of the FATF since 1990. It is also a Tel: +61 1300 021 037 (local call cost within Australia) member of Asia/Pacific Group on Money Laundering. Fax: +61 3 8636 0508 [email protected]

25 Anti-money laundering assessments AUSTRAC is a founding member and continuing participant in the Give details of any assessments of your jurisdiction’s money Egmont Group. laundering regime conducted by virtue of your membership of supranational organisations. 27 Mutual legal assistance The FATF conducted an evaluation report on the AML/CTF meas- ures in place in Australia as at March 2005. As this evaluation was In which circumstances will your jurisdiction provide mutual legal conducted before the implementation of the present AML Laws and assistance with respect to money laundering investigations? What are was based on a previous set of laws, the report is now of only limited your jurisdiction’s policies and procedures with respect to requests direct relevance to an assessment of Australia’s current compliance from foreign countries for identifying, freezing and seizing assets? with the FATF Recommendations. Australia is expected to partici- AUSTRAC shares financial transaction information and intelligence pate in the Fourth Round of Mutual Evaluations, with a joint APG/ with many overseas financial intelligence units (FIUs). AUSTRAC FATF mutual evaluation of Australia expected to be conducted in formalises international exchange understandings through memo- August 2014. randa of understanding (MOUs) and exchanges of letters. AUSTRAC has over 50 such arrangements with foreign counterpart agencies. AUSTRAC also fosters bilateral cooperation by supplying a 26 FIUs range of AML/CTF information to international counterparts upon Give details of your jurisdiction’s Financial Intelligence Unit (FIU). request. AUSTRAC has offices in a number of capital cities. Its address in Australia’s mutual legal assistance mechanisms are set out Sydney is: in the Mutual Assistance in Criminal Matters Act 1987 (MACM Act). Operationally, mutual legal assistance is coordinated under Australian Transaction Reports and Analysis Centre the central authority of the Attorney General’s Department. Level 7, Tower A, Zenith Centre Commonwealth, state or territory agencies may seek legal assistance 821 Pacific Highway for a range of criminal, regulatory or revenue matters or be required Chatswood NSW 2067 to provide such assistance as requested. This includes conducting the PO Box 5516 various elements of an investigation including the collection of evi- West Chatswood NSW 1515 dence, taking of statements, and the freezing and seizure of criminal Tel: +61 2 9950 0055 assets or proceeds of crime. Fax: +61 2 9950 0054 www.gettingthedealthrough.com 23 AUSTRALIA Ashurst Australia

Section 34-35M of the MACM Act set out the requirements the information will be used only for the purpose for which it is for receiving and dealing with requests made by foreign countries. communicated to the government of the foreign country; and These provisions provide for enforcement of foreign orders, includ- • it is appropriate, in all circumstances of the case to communicate ing forfeiture orders (which deal with laundered property and pro- the information to the government of the foreign country. ceeds), pecuniary penalty orders, restraining orders, production orders, monitoring orders and search warrants to identify and seize Provisions are also provided under the Mutual Assistance in Business property. Regulation Act 1992 (MABR Act) that allows the Commonwealth Additionally, the AUSTRAC CEO may communicate AUSTRAC regulators (such as the Australian Securities and Investments information to the government of a foreign country if the AUSTRAC Commisson or the Australian Prudential Regulatory Authority), at CEO is satisfied that: the request of a foreign regulator, to arrange for obtaining informa- • the government of the foreign country has given appropriate tion, documents or evidence from a person in Australia to assist a undertakings for protecting the confidentiality of the informa- foreign regulator in the administration or enforcement of a foreign tion, controlling the use that will be made of it and ensuring that business law.

Philip Trinca [email protected] James Morris [email protected]

Level 26, 181 William Street Tel: +61 3 9679 3000 Melbourne Fax: +61 3 9679 3111 Victoria, 3000 www.ashurst.com Australia

24 Getting the Deal Through – Anti-Money Laundering 2014 Zingales & Pagotto Sociedade de Advogados (ZISP Law) BRAZIL Brazil

Leopoldo Pagotto and Marina Troncoso Esposito Zingales & Pagotto Sociedade de Advogados (ZISP Law)

Domestic legislation • services, goods or interests of the federal government or any of its branches; or 1 Domestic law • there is federal jurisdiction over the predicate offence preceding Identify your jurisdiction’s money laundering and anti-money laundering the money laundering crime. (AML) laws and regulations. Describe the main elements of these laws. Everything that falls outside the jurisdiction of the federal courts is In order to comply with international commitments specified in within the jurisdiction of the state courts, where the crime of money the 1988 Vienna Convention, Brazil passed Law No. 9,613 dated laundering took place. Needless to say, it is very hard to draw a clear- 3 March 1998 (the old Law). More recently, Law No. 9,613 was cut line between the federal and state jurisdiction, and quite often amended by Law No. 12,683 dated 9 July 2012 (the new Law), the endless arguments over jurisdiction may be a defence strategy. which has been in force since 10 July 2012, and brought the Brazilian If the jurisdiction is of the federal courts, then the Federal legislation closer to international standards. This is the basic legisla- Police will investigate the facts related to the case and the Federal tion with both criminal and administrative provisions. Besides that, Prosecutor will indict the defendant. Alternatively, if the state courts there is a plethora of regulations issued by several branches of the have jurisdiction over the facts, then the will investigate government, such as: the case and the state prosecutors will indict the defendant. • the Brazilian Financial Intelligent Unit (COAF); • the Brazilian Securities and Exchange Commission (CVM); 3 Defendants • the Brazilian Central Bank; Can both natural and legal persons be prosecuted for money • the Secretariat for Pension Funds (SPC), which is the govern- ment branch in charge of regulating pension funds; laundering? • the Superintendence of Private Insurance (SUSEP), which is the Under the Brazilian legal system, legal persons cannot be criminally government branch in charge of regulating insurance; and prosecuted except for environmental crimes. Only natural persons • the Federal Police. can be held criminally liable for breaking money laundering laws. However, legal persons are subject to administrative liabilities (see Money laundering question 13).

2 Criminal enforcement 4 The offence of money laundering Which government entities enforce your jurisdiction’s money What constitutes money laundering? laundering laws? Under the old Law, criminal liability would arise for money launder- The COAF coordinates the enforcement of anti-money launder- ing whenever the actor concealed or disguised the true nature, origin, ing legislation. The Brazilian Central Bank also plays an important location, disposition, movement or ownership of assets, rights and role in gathering and consolidating the information – the Customer valuables that result directly or indirectly from the following crimes: Registration System, created by the Law, registers every transaction • drug trafficking; made by every customer in all the Brazilian banks on a daily basis • terrorism and its financing; and is accessible by judicial authorities. • weapon smuggling and trafficking; However, the COAF and the Brazilian Central Bank are admin- • extortion through kidnapping; istrative entities that do not criminally enforce the money laundering • crimes perpetrated against the public administration (corrup- laws in the courts. This role belongs to the federal and state prosecu- tion-related offences mostly); tors and judges. • crimes perpetrated against the national financial system; As Brazil is a federation, the jurisdiction to enforce money laun- • crimes perpetrated by a criminal organisation; and dering laws varies, even though there is just a national legislation on • crimes perpetrated by private individuals against the foreign the matter. Complex rules define whether federal or state courts have public administration. jurisdiction to enforce money laundering laws. The Law defines two alternative scenarios where the federal The new Law, which has been in force since 10 July 2012, simpli- courts and prosecutors have jurisdiction. These include scenarios fied the offence of money laundering and criminal liability does not where: require the occurrence of any of the crimes listed above. Criminal • the money laundering violations take place to the detriment of: liability arises simply whenever the actor concealed or disguised the • the financial system; true nature, origin, location, disposition, movement or ownership • the financial-economic order; and of assets, rights and valuables that result directly or indirectly from crime. In other words, any kind of crime may be a predicate offence. www.gettingthedealthrough.com 25 BRAZIL Zingales & Pagotto Sociedade de Advogados (ZISP Law)

Such a broad definition has been raising concerns among criminal • crimes perpetrated against the national financial system; lawyers. • crimes perpetrated by a criminal organisation; and There will be criminal prosecution for the actor who, in order to • crimes perpetrated by private individuals against the foreign conceal or disguise the use of the assets, rights and valuables result- public administration. ing from any criminal offence: • converts illicit assets into licit assets; In principle, the old Law listed every kind of predicate offence • acquires, receives, exchanges, trades, gives or receives as guaran- that may be subjacent to the prosecution for money laundering. If tee, keeps, stores, moves, or transfers any such assets, rights and a crime were not among the eight predicate offences, no criminal valuables; and prosecution would be possible for money laundering. Such a narrow • imports or exports goods at prices that do not correspond to list attracted criticism from the international community. their true value. The new Law, which has been in force since 10 July 2012, sim- plified such an approach and turned every criminal offence into a There will also be criminal prosecution for the actor who, through predicate offence. economic or financial activity, makes use of any assets, rights and Under the old Law, criminal laws of other jurisdictions could valuables that he or she knows are derived from any criminal serve as predicate offences in Brazil as long as the crime fell within offence; and knowingly takes part in any group, association or office one of the predicate offences above. It is important to highlight that set up for the principal or secondary purpose of committing crimes under both the new and the old Laws, prosecution for money laun- of money laundering. dering must take place regardless of prosecution and conviction in Departing from such a legal definition, the state of mind for other jurisdictions. criminal liability to arise requires that the actor has the conscious aim of engaging in concealing or disguising, and anticipates that the 7 Defences attendant circumstances exist (purposefully). The actor may also knowingly be aware that concealing and disguising will result from Are there any codified or common law defences to charges of money his or her conduct. Neither a negligence standard nor strict liability laundering? standard applies for the individual persons to be criminally liable. Not applicable. The defences are decided on a case-by-case basis. Financial institutions and other money-centred businesses can- not be criminally prosecuted or pursued for their customers’ money laundering crimes because there is no criminal liability for legal enti- 8 Resolutions and sanctions ties. On the other hand, their officers and owners can be prosecuted What is the range of outcomes in criminal money laundering cases? criminally to the extent that their conduct may be seen as concealing While the criminal fines are not so high comparatively to other juris- or disguising ‘the true nature, origin, location, disposition, move- dictions, the incarceration period may range from three to 10 years. ment, or ownership of assets, rights and valuables that result directly If the predicate crimes follow a constant pattern or they are com- or indirectly’ from the crimes already mentioned. Considering nei- mitted by a criminal organisation, the jail sanction will be increased ther a negligence standard nor strict liability applies, the officers or by one third to two thirds. A guilty verdict also necessitates the for- directors of a financial institution or other money-centred business feiture to the federal government of any assets, rights and valuables can only be prosecuted criminally if they were knowingly or pur- resulting from any of the predicate offences, provided that the rights posefully involved with money laundering. In this regard, a word of victims and bona fide third parties are not harmed. For proce- of warning is necessary: in the second half of 2012, the Mensalão dural rules on forfeiture, see question 9. trial by the Federal Supreme Court (STF) lowered the standard of By Brazilian standards, these jail terms are a relatively high sanc- evidence required for finding a defendant guilty of money launder- tion, and such a scenario reduces the likelihood that a case does not ing and, as a result, it would come as no surprise if carelessness or end in trial. Money laundering offences shall not be subject to bail negligence of the officer or director of a financial institution or other or temporary release. If the defendants are found guilty, the judge money-centred business could be seen as the conscious aim of engag- shall decide accordingly if he or she may be released pending appeal. ing in concealing or disguising. For further information, see ‘Update The trial will be conducted by a single, professional judge, and not and trends’. by a jury. Whistle-blowing benefits are exceptional under Brazilian crim- 5 Qualifying assets and transactions inal law, and one of the exceptions applies to money laundering. There may be a reduction in the sanction by one-third to two-thirds, Is there any limitation on the types of assets or transactions that can as long as the actor or any other person involved freely agrees to form the basis of a money laundering offence? cooperate with the authorities by providing information that leads The Law does not limit the types of assets or transactions that either to the detection of money laundering and the identification of can form the basis of a money laundering offence. However, there those responsible for it, or to the discovery of assets, rights and valu- have been impressive figures of transactions notified to the COAF: ables that were the object of the crime. Under these circumstances, in 2012, there were more than 1,587,450 notified transactions. the judge may also decide whether to apply the penalty or replace it In practice, this means that there are not so many administrative for the restriction of rights. screenings that criminal enforcers must be selective.

9 Forfeiture 6 Predicate offences Describe any related asset freezing, forfeiture, disgorgement and Generally, what constitute predicate offences? victim compensation laws. Under the old Law, the following were deemed predicate offences: At the request of the prosecutor, or the police having consulted • drug trafficking; the prosecutor within 24 hours, the judge may order the seizure or • terrorism and its financing; detention of assets, rights and valuables that are the object of the • weapon smuggling and trafficking; money laundering and that belong to the defendant or are registered • extortion through kidnapping; under his or her name; the measure is also applicable to third par- • crimes perpetrated against the public administration (mostly ties, who may be in some way involved with money laundering. The corruption-related offences);

26 Getting the Deal Through – Anti-Money Laundering 2014 Zingales & Pagotto Sociedade de Advogados (ZISP Law) BRAZIL judge does not need conclusive evidence to decide on the seizure, Finance and are recruited from reputedly honest civil servants of the indicia are enough for the judge to order the seizure. Of course, the following government branches, which are also involved in enforc- judge may revoke his or her decision as long as the legality about ing the money laundering legislation: the origin of the assets, rights and valuables is confirmed. Partial • the Brazilian Central Bank; revocation is possible, whenever the judge considers that the seized • the CVM; or detained assets, rights or valuables are more than enough to com- • SUSEP; pensate the victim of the precedent offence and pay the criminal • the Ministry of Pension and Welfare; fines. Even so, no revocation shall be analysed if the defendant or • the National Attorney’s Office; the affected third party do not go to court and make presentation • the Internal Revenue Service; to the judge. Whenever the circumstances justify it, the judge shall • the Brazilian ; appoint a trustee to manage the assets, rights or valuables that were • the Federal Police; seized or detained. • the Ministry of Justice; The anticipated sale of the seized or detained assets, rights or • the Ministry of Social Security; valuables is mandatory whenever there are risks of their deteriora- • the Ministry of Foreign Affairs; and tion, their devaluation or their maintenance presents difficulties. The • the Office of Comptroller General. judge can decide for the anticipated sale ex officio, but it can also respond to a request of the Public Prosecutor or the interested party. All these government branches are in one way or another involved After the evaluation of the assets, rights or valuables is made, they in the fight against money laundering. Among quasi-governmental will be auctioned, preferably in electronic manner, for no less than entities, one should mention COCEFI, which is the self-regulatory 75 per cent of their estimated value. body of real estate brokers. At the end of the criminal proceedings, the value may be reverted to the federal or state governments according to the jurisdiction over 13 Covered institutions and persons the offence or reverted to the defendant, if he or she is found not guilty. Which institutions and persons must carry out AML measures? AML measures must be taken by any legal entity or individual engaged in any of the following activities: 10 Limitation periods • the reception, brokerage and investment of third parties’ funds What are the limitation periods governing money laundering in Brazilian or foreign currency; prosecutions? • the purchase and sale of foreign currency or gold as a financial 16 years. asset; and • the custody, issuance, distribution, clearing, negotiation, broker- age or management of securities. 11 Extraterritorial reach Do your jurisdiction’s money laundering laws have extraterritorial Moreover, the following must also carry out AML measures: reach? • stock, commodities and futures exchanges as well as any over- In general, Brazilian criminal legislation has broad provisions the-counter (OTC) negotiation system; regarding extraterritorial reach. Among other possibilities, Brazilian • insurance companies, insurance brokers and institutions courts have jurisdiction over crimes perpetrated abroad under two involved with private pension plans or social security; scenarios: Brazil is committed to sanction the crime by international • payment or administrators and consórcios (con- treaty or the partial or total result of the money laundering offence sumer funds commonly held and managed for the acquisition of takes place or should have taken place in Brazil. Particularly in rela- consumer goods); tion to the new Law, it clearly rules that predicate offences may have • managers or companies that use cards or any other electronic, taken place in other jurisdictions. magnetic or similar means, that allow fund transfers; Moreover, the new Law has extended the duty of carrying out • companies engaged in leasing and factoring activities; anti-money laundering measures to the subsidiaries of legal entities • companies engaged in the distribution of any kind of property located outside Brazil through its headquarters in Brazil in relation (including cash, real estate and goods) or services, or giving dis- to the residents in Brazil. counts for the acquisition of such property or services by means of lotteries or similar methods; AML requirements for covered institutions and individuals • branches or representatives of foreign entities engaged in any of the activities, which take place in Brazil, even if occasionally; 12 Enforcement and regulation • all other legal entities engaged in the performance of activities Which government entities enforce your jurisdiction’s AML regime and that are dependent upon an authorisation from the agencies that regulate covered institutions and persons? Do the AML rules provide regulate the stock, exchange, financial and insurance markets; for ongoing and periodic assessments of covered institutions and • any and all Brazilian or foreign individuals or entities that oper- ate in Brazil in the capacity of agents, managers, representatives persons? or proxies, commission agents, or represent in any other way the The COAF holds an overall coordinating position in the administra- interests of foreign legal entities that engage in any of the activi- tive enforcement. Among COAF’s powers, it can impose administra- ties referred to above; tive fines, receive, examine and identify suspicious activities related • legal entities or individuals that engage in activities pertaining to money laundering, coordinate the cooperation mechanisms in a to real estate, including the promotion, purchase and sale of swift and agile way to fight money laundering, propose measures properties; to streamline the efficiency of the control mechanisms and request • individuals or legal entities that engage in the commerce of jew- banking and financial information about anyone believed to be ellery, precious stones and metals, works of art and antiques; involved in suspicious activities. • individuals or legal entities that trade in luxurious goods or The President of the COAF is nominated by the Brazilian goods with high prices or that intermediate or perform activities President following the recommendation of the Minister of Finance. involving large amounts in cash; All of its eight commissioners are appointed by the Minister of • trade boards and public notaries; www.gettingthedealthrough.com 27 BRAZIL Zingales & Pagotto Sociedade de Advogados (ZISP Law)

• individuals or legal entities that provide, even intermittently, starting point for determining how diligent the investigation should advising, consulting, accounting, auditing or supporting services be. of any kind in the following: Taking one specific regulation for the financial institutions, the • sale of real estate properties, shops or factories or corporate Brazilian Central Bank points out that the main deficiencies are stakes of any kind; related to non-updated registers, lack of information about the cus- • management of funds, securities or any other assets; tomer’s income, non-classification of the client towards the risk, lack • opening or management of current, saving, investment or of visiting the client and bank accounts opened by attorneys who securities accounts; are not checked. For this reason, specific regulations target these • creation, exploitation and management of any kind of legal problems. entity, foundations, trust funds or similar structures; • financial transactions (corporate or real state); and 17 High-risk categories of customers, business partners and • sale or acquisition of rights related any sport or artistic pro- transactions fessional activities; • individuals or legal entities that promote, intermediate, trade, Do your jurisdiction’s AML rules require that covered institutions and represent or negotiate transfer rights of athletes, artists or fairs, persons conduct risk-based analyses? Which high-risk categories are exhibitions or similar events; specified? • legal entities involved in the transportation and safeguarding of The Law does not comprehensively regulate the high-risk categories money; of customer, business partners and transactions. However, the cov- • individuals or legal entities that trade high value of assets of ered institutions and persons must identify the high-risk categories rural or animal origin or that intermediate its trading; and of customers, business partners and transactions in order to take the • the subsidiaries of legal entities mentioned above located outside appropriate measures. This means that the specific regulations shall Brazil through its headquarters in Brazil in relation to the resi- apply to each kind of covered institution and person, depending on dents in Brazil. the circumstances. As regards politically exposed persons (PEPs), there are rules 14 Compliance spread among the several branches of the government involved with the fight against money laundering. Brazilian and foreign public Do the AML laws in your jurisdiction require covered institutions and agents, as well as their relatives and close supporters, deserve special persons to implement AML compliance programmes? What are the attention, particularly in the five years preceding their arrival to a required elements of such programmes? political position. Covered institutions and persons are not directly required to imple- In relation to shell banks, they are theoretically allowed to oper- ment AML compliance programmes. However, the new Law has ate in Brazil. Nevertheless, in practice, the regulations issued by the some requirements that resemble a compliance programme: the cov- Brazilian Central Bank make it almost impossible in practice for ered person must adopt policies, proceedings and internal controls shell banks to operate in the country. compatible with their size and volume of transactions in order to comply with the requests made by the new Law. Moreover, they are 18 Record keeping and reporting requirements also required to keep an updated register with the regulatory body or the COAF. In practice, most of the legal requirements imposed Describe the record keeping and reporting requirements for covered by the old and new Laws can only be effective if a compliance pro- institutions and persons. gramme is implemented. The answers to questions 16, 17 and 18 Beside the documents collected during the customer due diligence, exemplify some of the requirements. Of course, not every covered the Law requires that covered institutions and persons keep up-to- institution or person shall implement every measure, but only the date records of all transactions in Brazilian and foreign currency, ones appropriate to the kind of activities performed. In this regard, involving securities, bonds, credit instruments, metals or any asset the specific regulations may contain additional duties that must be that may be converted into cash exceeding the amount set forth checked. by the authorities. Records should also be made whenever, in the same calendar month, an individual or legal entity executes transac- tions with the same individual, legal entity, conglomerate or group, 15 Breach of AML requirements exceeding the limits set forth by the authorities. What constitutes breach of AML duties imposed by the law? The records must be kept for at least five years from the date There are severe administrative sanctions imposed on the covered that the account is closed or the transaction is concluded; however, institutions or persons in non-compliance with the Law and the the authorities may decide to extend this period at their own discre- regulations. More specifically, the Law sets sanctions for the failures tion. The Brazilian Central Bank keeps centralised registries to build in duty about customer identification, record keeping and reporting a general database with the current-account holders and financial financial transactions. institutions clients, as well as with their representatives. The Law does not address the tipping-off of customers. Of course, the specific regulations may be more burdensome. Nevertheless, tipping off of customers falls within other crimes For example, before the enactment of the Law, the Brazilian Central criminally sanctioned by the Brazilian Criminal Code. Bank had stricter regulations on book-recording (Resolution No. 2,012, 24 November 1993). Moreover, the specific money launder- ing regulations require that financial institutions maintain consoli- 16 Customer and business partner due diligence dated internal controls and records that make it possible to verify Describe due diligence requirements in your jurisdiction’s AML regime. not only precise customer identification, but also the compatibility The Law does not comprehensively regulate the due diligence among the respective customer’s fund transfers, economic activity requirements. It rules that covered institutions and peoples shall and financial standing. identify their customers and maintain up-to-date records in compli- Other notifiable transactions include those where the account ance with the provisions set by the authorities. This means that the holder shows credits or debits that, due to their customary char- specific regulations shall apply to each kind of covered institution acter, value or form, suggest a scheme to defraud the identification and person. In this regard, international best practices are a good mechanisms mentioned in the regulations. For instance, transactions

28 Getting the Deal Through – Anti-Money Laundering 2014 Zingales & Pagotto Sociedade de Advogados (ZISP Law) BRAZIL involving Brazilian and foreign currency, securities, metals and any • a temporary prohibition for up to 10 years on holding any man- other assets that may be converted into money must be notified agement position for covered institutions and persons, applica- whenever amounts are equal to or higher than 10,000 reais. ble whenever there are serious violations or recidivism; and This example shows that there is no generic definition of a sus- • the cancellation of the authorisation to operate, applicable when picious activity. On the other hand, the regulations will determine the recidivism takes place again. what a suspicious activity is for each specific covered institution or person. If the defendants are found guilty, judicial review is possible. Formal and substantial aspects of the proceedings may be challenged in courts. 19 Privacy laws Describe any privacy laws that affect record keeping requirements, due diligence efforts and information sharing. 21 Limitation periods There are no privacy laws that affect the record-keeping require- What are the limitation periods governing AML matters? ments, due diligence efforts and information sharing. Even though As a rule, administrative offences become time barred within five the non-existence of such laws means that the customers’ rights tend years, as long as the facts are not also a criminal offence. If this is the to be protected by the consumer legislation, Complementary Law case, the limitation period shall be the same as the criminal offence No. 105 dated 10 January 2001, which deals with banking secrecy, (see question 10). comprehensively regulates how information exchange should take place. There is clear permission for the COAF and other govern- 22 Extraterritoriality ment branches involved in the fight against money laundering to exchange and require information from covered entities and persons Do your jurisdiction’s AML laws have extraterritorial reach? – the mere notification of a suspicious transaction is not seen as a See question 11. violation of banking secrecy by the financial institution. When violation of the money laundering legislation becomes Civil claims evident, the government authorities must disclose the offence to the prosecutors. In relation to international cooperation, the Brazilian 23 Civil claims and private enforcement Central Bank and the CVM are authorised to enter into agreements Enumerate and describe the required elements of a civil claim with other countries’ central banks and enforcement agencies in or private right of action against money launderers and covered order to cooperate and exchange information for the investigation institutions and persons in breach of AML laws. of activities related to money laundering. Civil claims and private enforcement may be brought by the victims of the predicate offence to money laundering. As a general principle 20 Resolutions and sanctions of law, those who caused harm are obliged to indemnify the injured party. Considering that actors of money laundering are somehow What is the range of outcomes in AML controversies? What are the operating as ‘representatives’ of those who committed the predicate possible sanctions for breach of AML laws? offence, it comes as no surprise that they are obliged to indemnify. Government branches do not need to go to courts to enforce their Even though the principle is simple, there is a great distance decisions since the administrative acts are self-executing. In the between speech and practice. While there have been several suits administrative sphere, covered institutions and persons in violation filed by government entities who suffered damages as a result of cor- of the money laundering legislation will be subject to administrative ruption, the outcome is rather disappointing because the percentage proceedings in which they will be able to submit their defences and of recovered assets is low. Moreover, when one moves away from the produce evidence. At this phase, the defendant will be ensured the government entities that suffered damages, the scenario is even less right of rebuttal and ample rights of defence to the parties concerned. enthusiastic. No monetary thresholds apply and the burden of proof In administrative enforcement, as a rule of thumb, there are no lies with the claimant. The problem regards the limitation period, plea agreements or settlement agreements and there is no prosecuto- which is unclear. Pursuant to the Brazilian Civil Code, private claims rial discretion, regulatory action or similar means. This means that would become time-barred after three years. Nevertheless, when the outcome of the administrative proceeding may be a guilty or not the facts have to be decided beforehand in the criminal courts, the guilty verdict. When the administrative decision is issued, penalties limitation period shall not count until a final criminal decision is may be the following: reached. • a warning, applicable whenever the covered institution or per- son fails to comply with the duties related to due diligence and International anti-money laundering efforts record keeping; • a variable fine, ranging from: 24 Supranational • up to twice the amount of the transaction; List your jurisdiction’s memberships of supranational organisations • up to twice the amount of profits obtained or that would that address money laundering. have been obtained as a result of the transaction; or • up to 20 million reais, applicable whenever the covered insti- Brazil is a member of the following supranational organisations that tution or person negligently or harmfully: address money laundering: • fails to correct the irregularities that led to the warning • the Financial Action Task Force (FATF); within the time limit set forth by the authorities; • the Egmont Group; and • fails to carry out the identification or the record keeping; • the Financial Action Task Force of South America Against • fails to comply, within the stipulated time limit, with the Money Laundering (GAFISUD). requirements to notify transactions; or • disregards the prohibition of being involved in a seri- ously suspicious transaction of money laundering or fails to provide reports;

www.gettingthedealthrough.com 29 BRAZIL Zingales & Pagotto Sociedade de Advogados (ZISP Law)

25 Anti-money laundering assessments Give details of any assessments of your jurisdiction’s money Update and trends laundering regime conducted by virtue of your membership of The new Law reflects the pressure exerted by the international supranational organisations. community to streamline the regulations and enforcement, bringing Brazil was subject to the FATF and GAFISUD Mutual Evaluation Brazil closer to international standards. Shortly after the new Law Reports in 2004 and in 2010, which can be downloaded at: www. was passed on 1 September 2012, COAF Resolution No. 20 came into force with the purpose of helping companies to concentrate coaf.fazenda.gov.br/conteudo-ingles/brazils-mutual-evaluation-and- on clients, products and services that are more prone to money updates. Although there have been improvements since 2004, the laundering. As a result, new activities were brought to the attention 2010 Mutual Evaluation Report of Brazil continues to evidence that of the authorities, such as art dealing, jewellery, precious stones, there are certain aspects that still need to be streamlined, such as factoring, gambling, lotteries and trade in luxury goods such as legal loopholes and poor over lawyers, notaries, other cars, aircraft and yachts. Last, but not least, in the second half of 2012, the Mensalão independent legal professionals, accountants, company service pro- trial at the Federal Supreme Court was being considered a viders, real estate agents or brokers who are natural persons, deal- watershed for money laundering. To put it simply, the case involved ers in precious metals or stones, non-profit organisations and the the embezzlement of public funds to buy political support in the non-criminalisation of terrorism financing as a stand-alone offence. National Congress for the then-Lula government, as well as the coalition parties being paid on a monthly basis to support the Nevertheless, most of these matters have been addressed by the new minority government led by Lula’s party. It was concluded that Law. there was a complex scheme involved, using fictitious and part of the government’s advertising budget. Banks and advertising agencies helped to make the payments in exchange for receiving 26 FIUs government contracts and benefits. The decision dramatically decreased the standard of evidence for finding a defendant guilty Give details of your jurisdiction’s Financial Intelligence Unit (FIU). of money laundering. The COAF is a member of the Egmont Group. Its contact details are:

SAUS – Setor de Autarquias Sul, Quadra 1, Lote 3-A Germany, Mexico, Panama, Paraguay, Portugal, Spain, the United Brasília 70 070-010 States and Uruguay. Brazil In practice, it is unclear when Brazil provides mutual legal assis- Tel: +55 61 2025 4001 / 2025 4002 tance with respect to money laundering investigations, even though Fax: +55 61 2025 4000 the 2010 FATF and GAFISUD Mutual Evaluation Report men- Contact form: www.coaf.fazenda.gov.br/contact-info tioned that the country ‘has implemented measures that enable its competent authorities to cooperate with their foreign counterparts’. 27 Mutual legal assistance The Law is embedded with the idea of international coopera- In which circumstances will your jurisdiction provide mutual legal tion. The Brazilian courts may seize and freeze assets, rights and valuables following a request by a foreign authority if there is an assistance with respect to money laundering investigations? What are international treaty between Brazil and the requesting country. If your jurisdiction’s policies and procedures with respect to requests there is no international treaty between Brazil and the other country, from foreign countries for identifying, freezing and seizing assets? the request may be conceded as long as the country commits to assist The COAF and most of the government branches involved with the Brazil in the future (reciprocity principle). If there is no international fight against money laundering have entered into agreements with treaty regulating how the seized or frozen assets, rights and valu- other FIUs to regulate how the information should be exchanged. ables will be divided, Brazil and the other country will equally share So far, the Brazilian Central Bank has entered into memoranda of assets, rights and valuables. understanding with Argentina, the Bahamas, the Cayman Islands,

Leopoldo Pagotto [email protected] Marina Troncoso Esposito [email protected]

Rua Estados Unidos No. 475 Tel: +55 11 2501 7889 Jardim América Fax: +55 11 4421 1124 São Paulo 01427-000 www.zisplaw.com.br Brazil

30 Getting the Deal Through – Anti-Money Laundering 2014 Conlin Bedard LLP CANADA Canada

Benjamin P Bedard and Paul D Conlin Conlin Bedard LLP

Domestic legislation conjunction with provincial and municipal police forces where such forces are established. The RCMP also coordinates internationally 1 Domestic law with other police forces in its investigations. Identify your jurisdiction’s money laundering and anti-money laundering Various federal agencies receive disclosures from FINTRAC. (AML) laws and regulations. Describe the main elements of these laws. FINTRAC is obligated to disclose to the Canada Revenue Agency The anti-money laundering (AML) regime in Canada is primarily (CRA) if it has information that it has reasonable grounds to sus- governed by two statutes: the Criminal Code of Canada [RSC, 1985, pect is relevant to a tax-related offence under an Act of Parliament. c C-46] (the Code) and the Proceeds of Crime (Money Laundering) FINTRAC must disclose information to the Canadian Security and Terrorist Financing Act [SC 2000, c 17] (the Act). Intelligence Service (CSIS) where it has reasonable grounds to sus- The Act is complemented by five regulations: pect that the information would be relevant to threats to the secu- • the Proceeds of Crime (Money Laundering) and Terrorist rity of Canada. The Canada Border Services Agency (CBSA) receives Financing Suspicious Transaction Reporting Regulations disclosure from FINTRAC in circumstances relevant to its respon- [SOR/2001-317] (STR Reporting Regulations); sibilities and plays a key role in enforcing Canadian AML report- • the Proceeds of Crime (Money Laundering) and Terrorist ing requirements at Canada’s border. FINTRAC must also disclose Financing Regulations [SOR/2002-184] (PCMLTFA information to the appropriate police force where necessary. Regulations); The Public Prosecution Service of Canada (PPSC) is responsible • the Cross-Border Currency and Monetary Instruments Reporting for prosecuting federal criminal offences in Canada. Regulations [SOR/2002-412] (CMI Reporting Regulations); The Office of the Superintendent of Financial Institutions (OSFI) • the Proceeds of Crime (Money Laundering) and Terrorist is the regulator and supervisory authority for federally regulated Financing Registration Regulations [SOR/2007-121] financial institutions. (Registration Regulations); and • the Proceeds of Crime (Money Laundering) and Terrorist 3 Defendants Financing Administrative Monetary Penalties Regulations [SOR/2007-292] (Penalty Regulations) (collectively, Can both natural and legal persons be prosecuted for money Regulations). laundering? Section 462.31 of the Code specifies that ‘[e]very one’ who breaches The Code is the overarching, federal criminal legislation in Canada. it commits an offence. Section 2 of the Code states that ‘every one’ As a constitutional matter, jurisdiction to legislate with respect to includes organisations and defines organisations as including a pub- criminal law (criminal offences and criminal procedure) lies with lic body, body corporate, society, company, firm, partnership, trade the federal Parliament rather than the provincial legislatures. The union or municipality. Code is complemented in AML-related matters by other federal Part 5 of the Act specifies that ‘[e]very person or entity’ can be criminal statutes, such as the Controlled Drugs and Substances Act held responsible for breaching its provisions. Section 2 of the Act [SC 1996, c 19], which addresses, inter alia, forfeiture of ‘offence- defines ‘entity’ as a body corporate, a trust, a partnership, a fund or related property’. an unincorporated association or organisation.

Money laundering 4 The offence of money laundering 2 Criminal enforcement What constitutes money laundering? Which government entities enforce your jurisdiction’s money The Code proscribes money laundering in the following manner: laundering laws? 462.31 Every one commits an offence who uses, transfers the pos- The Financial Transactions and Reports Analysis Centre (FINTRAC) session of, sends or delivers to any person or place, transports, is Canada’s Financial Intelligence Unit (FIU). It reports to Parliament transmits, alters, disposes of or otherwise deals with, in any manner through the Minister of Finance (the Minister). It is independent and by any means, any property or any proceeds of any property from law enforcement agencies, but has various disclosure obliga- with intent to conceal or convert that property or those proceeds, tions to these agencies. knowing or believing that all or a part of that property or of those The administration of the criminal law system in Canada falls proceeds was obtained or derived directly or indirectly as a result of: under the responsibility of the Federal Department of Justice. The (a) the commission in Canada of a designated offence; or minister who is ultimately responsible for this system is the Minister (b) an act or omission anywhere that, if it had occurred in Canada, of Justice. The Royal Canadian Mounted Police (RCMP) is Canada’s would have constituted a designated offence. force. It enforces AML laws across Canada, in www.gettingthedealthrough.com 31 CANADA Conlin Bedard LLP

A breach of section 462.31 requires proof of mens rea by the pros- defence where a reporting entity is prosecuted for an offence com- ecution, as do offences under the Act. Negligence cannot satisfy the mitted by an employee, agent or mandatary. fault requirement for the offence under section 462.31, nor can it Regarding common law defences, in United States of America satisfy the fault requirement for offences under the Act. v Dynar [[1997] 2 SCR 462] the Supreme Court of Canada found A breach of the Act can be designated as a violation or an that impossibility is not a defence to conspiracy to commit money offence, or in some cases can be proceeded with in either manner. laundering. Where the commission of the offence was objectively Where a contravention is classified or pursued as a violation, a strict impossible, conspirators will not be exonerated merely because they liability standard applies and the director of FINTRAC will assess were mistaken in believing that the commission of money launder- any representations made with regard to common law defences or ing had any prospect of success. due diligence on a balance of probabilities. If a person or entity pays the penalty after receiving a notice of violation, it is deemed to have 8 Resolutions and sanctions committed the violation. If no representations are made by the per- son or entity in accordance with the notice, it is deemed to have What is the range of outcomes in criminal money laundering cases? committed the violation and a penalty is imposed by FINTRAC. Under the Code, the offence of laundering proceeds of crime may Laundering proceeds of crime under the Code requires intent be pursued summarily or by indictment. Where pursued by indict- to conceal or convert property or proceeds and knowledge or belief ment, the term of imprisonment may not exceed 10 years. Where that the property or proceeds were derived from an illegal act. Unless the Crown proceeds summarily, the maximum penalty is C$5,000, a the financial institution is complicit to this degree, it cannot be pur- term of imprisonment not exceeding six months, or both. sued under section 462.31 of the Code for a customer’s crimes. There is no formal definition of ‘plea bargaining’ in the Code, however, it is an accepted practice in Canada. Whether to offer a plea bargain is at the discretion of the prosecutor. As noted above, 5 Qualifying assets and transactions the prosecutor also has the discretion to pursue a section 462.31 Is there any limitation on the types of assets or transactions that can prosecution, as well as a prosecution of most of the offences under form the basis of a money laundering offence? the Act, either summarily or by indictment. The Crown will be No. Section 462.31 of the Code states that it can apply to ‘any prop- presumed to proceed by indictment when prosecuting such hybrid erty, or any proceeds of any property’. offences, unless it specifically elects to proceed summarily.

6 Predicate offences 9 Forfeiture Generally, what constitute predicate offences? Describe any related asset freezing, forfeiture, disgorgement and Section 462.31 of the Code states that any ‘designated offence’ is a victim compensation laws. predicate offence to money laundering. Section 462.3(1) of the Code Under Canadian law, conviction of any designated offence (ie, defines the term ‘designated offence’ as referring to any indictable any indictable offence other than those outlined in the Designated offence under any Act of Parliament, other than those prescribed by Offence Regulations) will bring about the forfeiture of property if regulation. The Regulations Excluding Certain Indictable Offences that property fits the definition of ‘proceeds of crime’ in the Code from the Definition of ‘Designated Offence’ [SOR/2002-63] (the and the court is satisfied that the designated offence was committed Designated Offence Regulations) preclude the following Acts from in relation to that property. Conviction of any indictable offence in containing predicate offences to money laundering in Canada: the Code can bring about the forfeiture of any property that meets • the Canada Agricultural Products Act [RSC, 1985, c 20 (4th the definition of ‘offence-related property’. Therefore, forfeiture of Supp)]; property can occur as a result of any predicate offence to money • the Feeds Act [RSC, 1985, c F-9]; laundering, or the money laundering offence itself. A fine or impris- • the Fertilizers Act [RSC, 1985, c F-10]; onment may be imposed in lieu of the forfeiture of property. • the Foreign Publishers Advertising Services Act [SC 1999, c 23]; Property can be ‘frozen’ in Canada through the use of restraint • the Health of Animals Act [SC 1990, c 21]; orders applied to proceeds of crime and offence-related property. • the Meat Inspection Act [RSC, 1985, c 25 (1st Supp)]; Such orders are applied for by the attorney general and issued under • the Nuclear Safety and Control Act [SC 1997, c 9] (except for sections 462.33 and 490.8 of the Code. Restraint orders are valid the indictable offence under section 50); across Canada and can be issued with respect to property situated • the Plant Protection Act [SC 1990, c 22]; and outside Canada. It is an indictable offence in Canada for a person • the Seeds Act [RSC, 1985, c S-8]. subject to a restraint order to knowingly breach that order. Victim restitution is addressed in sections 738 and 740 of the As only the federal government has jurisdiction to legislate with Code, with section 740 requiring a court to give a restitution order respect to criminal law, no provincial offence can be considered a priority over a forfeiture order. Section 462.49 gives a restitution predicate offence to the crime of money laundering. From 2010, as order priority over a forfeiture order in any Act of Parliament. At the a result of an amendment to the Designated Offence Regulations, time of writing, the Canadian government has introduced Bill-C-32, violations of tax and currency exchange laws can serve as predicate which would create a victims’ bill of rights providing victims with a offences to the offence of money laundering. legal right to information, participation, protection and restitution. The Bill would also create an administrative complaint mechanism.

7 Defences Are there any codified or common law defences to charges of money 10 Limitation periods laundering? What are the limitation periods governing money laundering The Act provides that due diligence is a defence to the summary prosecutions? conviction offence of failing to report prescribed transactions (such Section 462.31 in the Code is a hybrid offence, meaning the Crown as transactions over C$10,000) and the hybrid offence of failing to can elect to proceed by summary conviction or by indictment. If report suspicious transactions. Due diligence is also available as a the Crown elects to proceed summarily, there is a general six-month

32 Getting the Deal Through – Anti-Money Laundering 2014 Conlin Bedard LLP CANADA limitation period. If the Crown elects to proceed by indictment, there • accountants and accounting firms (when carrying out certain is no limitation period. activities on behalf of their clients); Under the Act, where the Crown elects to proceed with the pros- • real estate brokers, sales representatives and developers (when ecution of an offence by way of summary conviction, the limitation carrying out certain activities); period is five years. • casinos; • dealers in precious metals and stones; and • public notaries and notary corporations of British Columbia 11 Extraterritorial reach (when carrying out certain activities on behalf of their clients). Do your jurisdiction’s money laundering laws have extraterritorial reach? Subsections (i) and (j) of section 5 of the Act, paired with the An offence under section 462.31 is committed where the predicate Regulations, have the effect of making lawyers subject to certain offence was an act or omission anywhere that would have been a reporting and client identification requirements. However, as a designated offence if it had been committed in Canada. A Canadian result of Federation of Law Societies of Canada v Canada (Attorney court will take jurisdiction where a significant portion of the activi- General) [[2011] BCSC 1270, upheld in 2013 BCCA 147] and ties constituting an offence took place in Canada (Libman v The related injunctions across Canada, the provisions of the Act and Queen, [[1985] 2 SCR 178]). This is otherwise referred to as there Regulations that contain these requirements were rendered inop- being a ‘real and substantial link’ between the offence and Canada. erative insofar as they apply to lawyers. At the time of writing, the Supreme Court of Canada has granted leave to appeal this decision, AML requirements for covered institutions and individuals but has not yet held a hearing. Part 2 of the Act, dealing with reporting of currency and mon- 12 Enforcement and regulation etary instruments, lists in section 12(3) those who must report the Which government entities enforce your jurisdiction’s AML regime and importation or exportation of such currency and monetary instru- regulate covered institutions and persons? Do the AML rules provide ments, and in which circumstances. for ongoing and periodic assessments of covered institutions and persons? 14 Compliance FINTRAC has primary responsibility for the AML regime in Do the AML laws in your jurisdiction require covered institutions and Canada. FINTRAC reports to Parliament through the Minister, persons to implement AML compliance programmes? What are the who is responsible for the majority of the provisions of the Act. required elements of such programmes? The Minister of Public Safety and Emergency Preparedness (PSEC Reporting entities are required to implement an AML compli- Minister) is responsible for sections 24.1 to 39 of the Act, which deal ance programme, in accordance with subsection 9.6(1) of the Act. with ministerial decisions and appeals related to seized currency and Subsection (2) requires the person or entity to develop and imple- monetary instruments; disclosure and the use of information; and ment policies and procedures that will allow it to assess the risk of agreements for the exchange of information. FINTRAC’s mandate is money laundering in the course of its activities. to receive and analyse financial information and to disclose financial Section 71 of the PCMLTFA Regulations gives further detail as intelligence to various investigative bodies where the required legal to what a reporting entity is required to do as part of its compliance thresholds are met. programme. This includes appointing a person to be responsible for The Office of the Privacy Commissioner of Canada (Privacy the programme, developing a written, ongoing compliance train- Commissioner) has authority to audit FINTRAC to ensure that pri- ing programme for all persons authorised to act on its behalf and vacy laws are upheld. Every two years, the Privacy Commissioner reviewing the compliance programme to assess effectiveness every reviews the measures that FINTRAC has in place to protect the two years. information it collects. The Department of Foreign Affairs and International Trade is responsible for Canada’s international AML-related efforts, includ- 15 Breach of AML requirements ing being the primary negotiator for Canada on treaties related to What constitutes breach of AML duties imposed by the law? money laundering. The CBSA plays an important role in enforcing reporting Where a reporting entity contravenes the Act or the Regulations, requirements at Canada’s borders. it has breached its duties and may be subject to a penalty, fine or imprisonment. A ‘violation’ under the Act occurs where a specific contravention 13 Covered institutions and persons is designated as a violation by section 3 of the Penalty Regulations. Which institutions and persons must carry out AML measures? Violations are classified as minor, serious or very serious. Examples of violations are: entering into a correspondent banking relationship Section 5 of the Act lists the persons and entities that are subject to with a shell bank, failure to keep a record of prescribed information the Act’s record keeping, verifying identity, reporting of suspicious in respect of suspected third parties and failure of a person or entity transactions and registration requirements in Part 1 (reporting enti- to include prescribed information in a report. ties). These are (paraphrased): Offences are found in sections 74-77.1 of the Act. Examples of • financial entities such as banks or authorised foreign banks with offences under the Act are: failure to report suspicious transactions, respect to their operations in Canada, credit unions, caisses failure to report a prescribed financial transaction, improper disclo- populaires, financial services cooperatives, cen- sure of information made in a report and providing false or mis- trals (when they offer financial services to anyone other than leading information in an application for registration to FINTRAC. a member entity of the credit union central), trust companies, Each of these offences requires proof of mens rea. companies and agents of the Crown that accept deposit It is a contravention of section 8 of the Act for a reporting entity liabilities; to disclose that they have made a report under section 7 of the Act; • life insurance companies, brokers and agents; however, this contravention requires that the person or entity have • securities dealers; intent to prejudice a criminal investigation. This may be known in • money services businesses; other jurisdictions as ‘tipping off’. • agents of the Crown that sell money orders; www.gettingthedealthrough.com 33 CANADA Conlin Bedard LLP

16 Customer and business partner due diligence measures are necessary in respect of all high-risk clients, activities Describe due diligence requirements in your jurisdiction’s AML regime. or transactions. The amended regulations provide a list of enhanced measures that the reporting entity can choose from in order to com- No financial entity, securities dealer or casino is permitted to open a ply with the regulations, including keeping information in the client new account if it is not able to ascertain the identity of the client for file up to date and conducting enhanced ongoing monitoring. whom it is being opened. When conducting a transaction or opening The regulations prescribe rules for assessing whether a person an account other than a credit card account, a financial entity must for whom a financial entity, life insurance company broker or agent, keep a record of a signature card for each account holder, a copy of or money services business opens an account or carries out an elec- official corporate records containing any provision relating to power tronic transfer of C$100,000 or more, or who is the beneficiary of to bind the corporation with respect to the account, the personal an electronic transfer of more than C$100,000, is a PEFP. Where a information of a client who is not a corporation and the identity of financial entity determines that a person is a PEFP, it must take meas- the intended user of the account. Securities dealers are subject to the ures to establish the source of the funds in question, obtain approval same requirements, as are casinos other than having to disclose the from senior management to keep the account open and monitor the intended use of the account. All three types of reporting entities must activities in the account in order to detect suspicious transactions. take reasonable measures at the time of the opening of the account Under the Act, reporting entities must take certain steps when to determine whether it will be used by or on behalf of a third party. entering into correspondent banking relationships, such as setting If so, the entity must collect information on this third party, includ- out the obligations of each party in writing, obtaining information ing personal information (or corporate information if the client is an about the foreign entity’s activities and obtaining the approval of entity) and the nature of the relationship between the account holder senior management. The reporting entity must also take action to and this third party. determine whether the foreign financial entity has AML laws in With regard to identifying new clients, reporting entities are place, and if it does not, the reporting entity must monitor transac- generally required to ascertain the identity of every person who tions conducted through the relationship. conducts a transaction or who is authorised to give instructions in respect of an account that is being opened. They must also confirm the existence of and collect the name of every corporation involved 18 Record keeping and reporting requirements and confirm the existence of every entity other than a corporation Describe the record keeping and reporting requirements for covered on whose behalf the transaction is being conducted. In the case of institutions and persons. corporations, certain designated entities must obtain the names of all Section 7 of the Act deals with the reporting of suspicious transac- directors and names and addresses of all persons who own or con- tions to FINTRAC. Under this section, every reporting entity must trol 25 per cent or more of the corporation’s shares. This includes assess whether there are reasonable grounds to suspect that a trans- obtaining documentary evidence confirming any beneficial owner- action is related to the commission of a money laundering offence ship information that they have obtained. and must report to FINTRAC within 30 days if such reasonable Recent amendments to the PCMLTFA Regulations have clarified grounds exist. that reporting entities must obtain information on the purpose of a Section 9 of the Act requires all reporting entities to report other business relationship when entering into such a relationship with transactions specified in the regulations. One important require- a client. These amendments also imposed the requirement to con- ment is to keep a ‘large cash transaction record’ of instances where duct ongoing monitoring of such relationships, using a risk-based C$10,000 or more is received from a client in a ‘single transaction’ approach. Such ongoing monitoring was previously only required and to send these reports to FINTRAC. Two or more cash transac- for high-risk clients. tions, which together amount to over C$10,000, will be considered Reporting entities are also under an obligation to take certain to be a ‘single transaction’ where they both occur within less than 24 due diligence measures to determine whether a prospective client hours. Reporting entities are exempted from these requirements if the is a politically exposed foreign person (PEFP), prior to opening an cash is received from another financial entity, or from a public body. account. Financial entities, money services businesses and casinos must also When trusts are involved, Canadian law imposes certain addi- report outgoing electronic funds transfers that amount to C$10,000 tional requirements. Trust companies are required to keep records or more in a single transaction. Casinos must report disbursements regarding the beneficiaries of trusts at the time that the company of C$10,000 or more in the course of a single transaction. becomes trustee, as well as information on the settlor of the trust. When a reporting entity engages in an electronic funds transfer, Trust companies must also collect information on co-trustees. Real which under the Act and Regulations means a cross-border trans- estate brokers or sales representatives must keep a record where they fer or a SWIFT MT 103 message within Canada, it must include determine that an account involved in a transaction is a trust held by the information of the client who requested it in the transfer. This another real estate broker or sales representative. includes the client’s name, address and account number. When a reporting entity receives an electronic funds transfer from outside Canada and this transfer consists of C$10,000 or more in the course 17 High-risk categories of customers, business partners and of a single transaction, this must be reported to FINTRAC within transactions five working days of the transfer. This also applies where the trans- Do your jurisdiction’s AML rules require that covered institutions and fer is for a beneficiary in Canada, unless the transfer contains the persons conduct risk-based analyses? Which high-risk categories are name and address of that beneficiary. FINTRAC is not authorised to specified? receive reports of domestic electronic funds transfers. Reporting entities must, as part of their compliance programme, Money services businesses are required to register with develop procedures and policies to assess the risk of a money laun- FINTRAC and have an ongoing obligation to make sure the infor- dering offence in the course of their activities. In assessing such risk, mation that FINTRAC has regarding their activities is up to date. a reporting entity should consider the customer’s clients and business Registration lasts for a period of two years. relationships, its products and delivery channels, its geographic loca- All reporting entities, where required to keep a large transac- tion record or a suspicious transaction record or both, must also tion and any other relevant factors. Where it is determined that this ascertain the identity of the party with whom that entity conducts risk is high, either through general assessments or ongoing monitor- that transaction. Each type of reporting entity is subject to certain ing, certain enhanced measures must be undertaken. Recent amend- additional identity verification requirements relevant to the activities ments to the PCMLTFA Regulations have clarified that enhanced that it carries out.

34 Getting the Deal Through – Anti-Money Laundering 2014 Conlin Bedard LLP CANADA

19 Privacy laws • the person or entity has repeatedly failed to comply to a signifi- Describe any privacy laws that affect record keeping requirements, due cant degree. diligence efforts and information sharing. Between 30 December 2008 and 21 February 2004, FINTRAC The Privacy Act [RSC, 1985, c P-21] allows every Canadian citi- imposed a total of 37 monetary penalties with a total value of zen or permanent resident to seek a report containing any personal C$1,299,535. information about them that is in the possession of the government, including information contained in a personal information bank or otherwise under the control of the government (Privacy Act, sec- 21 Limitation periods tion 12(1)). Under the Act, officials are not permitted to disclose any What are the limitation periods governing AML matters? information that is included in a report under section 12(1), or any other information obtained under Part 2 of the Act, titled ‘Reporting With regard to a violation under the Act, the limitation period dur- of Currency and Monetary Instruments’. FINTRAC is generally pro- ing which FINTRAC can pursue a claim is two years. With regard to hibited from disclosing information provided to it in reports, or pro- a debt owed as a result of an unpaid penalty under the Act, the limi- vided voluntarily about suspicions of money laundering. However, tation period to recover that debt is five years after the debt became an officer (ie, a customs officer or an RCMP officer) or FINTRAC payable. As mentioned above, the limitation period for summary may disclose these types of information to a police force if he or conviction offences under the Act is five years after the subject mat- she meets the legal threshold of having reason to believe it would ter of the proceedings arose. be relevant to a money laundering investigation. FINTRAC may also disclose to the CRA, the CBSA, the Communications Security 22 Extraterritoriality Establishment and CSIS in circumstances where the information Do your jurisdiction’s AML laws have extraterritorial reach? would be relevant to investigations in their spheres of responsibility. The Personal Information and Electronic Documents Act [SC Wholly-owned subsidiaries of Canadian companies can be subject 2000, c 5] (PIPEDA) governs how private reporting entities are to the Act. This only applies to the entities contained in section 5(a)– permitted to make use of records and information. Under PIPEDA, (g) of the Act and the subsidiary cannot be located in a member individuals have the right to seek information about the existence, country of the Financial Action Task Force (FATF). The subsidiary use and disclosure of their information. Reporting entities are not must also carry out similar activities as those entities described in permitted to collect, use or disclose personal information without section 5(a)–(g) of the Act. If these conditions are met, the subsidiary knowledge or consent, except in certain circumstances. Disclosure to must develop and apply policies with regard to the maintenance of a government institution is permitted, for example, where a report- records prescribed by the regulations, must comply with the verifica- ing entity has reason to believe the information could be useful in an tion of identity requirements in the regulations and must develop a investigation of a breach of laws in Canada or a foreign jurisdiction. compliance programme. Disclosure is also permitted for the purpose of reporting suspicious The subsidiaries described above must also comply with any transactions under the Act. ministerial directive issued in accordance with the Act. In the 2012 case of Jones v Tsige, the Ontario Court of Appeal recognised a new civil cause of action for invasion of privacy known Civil claims as intrusion upon seclusion. In that case, the defendant improperly 23 Civil claims and private enforcement accessed the plaintiff’s banking information repeatedly over a four- year period. The new remedy provides relief for individuals whose Enumerate and describe the required elements of a civil claim banking information has been improperly accessed, even where it or private right of action against money launderers and covered is not published or distributed in any way. Consequently, reporting institutions and persons in breach of AML laws. entities should be aware that liability may arise where information There is no civil cause of action specifically created by Canada’s is improperly accessed. AML laws. Therefore, a plaintiff’s prospects of success would depend very much on the particular facts of their case. The tort of breach of statutory duty is recognised in Canada and can lead to 20 Resolutions and sanctions civil liability for a breach of a penal or other type of statute. To What is the range of outcomes in AML controversies? What are the establish this tort a plaintiff must show that the accident or loss is possible sanctions for breach of AML laws? of the type that the statute sought to prevent (Pugliese v National Under the Act, the maximum penalty for a violation is C$100,000 Capital Comm (1977), [1979] 2 SCR 104), and the plaintiff must where that violation is committed by a person and C$500,000 if be part of the group that the statute aims to protect. These require- committed by an entity. Committing an offence under the Act can ments would be difficult to satisfy for most plaintiffs in the context lead to fines and imprisonment. Most offences under the Act can be of an AML-related claim. proceeded with summarily or by indictment. Individuals may also consider bringing actions for conver- With regard to a violation, where the penalty is not fixed under sion, deceit or conspiracy. However, these actions would be ancil- the Regulations the director of FINTRAC has the discretion to lary to the commission of money laundering and would be highly determine the amount of the penalty. The director may also serve a fact-specific. notice of violation offering to reduce the penalty by half if the person or entity enters into a compliance agreement with FINTRAC with International anti-money laundering efforts respect to the provision that was contravened. In certain cases, FINTRAC will publish the name of the person 24 Supranational or entity subject to a penalty, the relevant business sector, the nature List your jurisdiction’s memberships of supranational organisations of the violation, the city in which the operations are located and the that address money laundering. amount of the penalty. FINTRAC will do this if one of the following Canada is a member of the following organisations: criteria is met: • the FATF; • the person has committed a very serious violation; • the United Nations Office for Drug Control and Crime • the base penalty amount is C$250,000 or more before adjust- Prevention (UNODCCP); ments; or • the Egmont Group of Financial Intelligence Units; www.gettingthedealthrough.com 35 CANADA Conlin Bedard LLP

Update and trends

On 1 February 2014, amendments to the PCMLTFA Regulations requirements and other measures with increasing levels of severity. came into force to improve Canada’s compliance with the FATF As a result of these amendments, Canada has been removed from the recommendations. In a 2008 evaluation by the FATF, Canada was FATF’s regular follow-up process. found to be deficient with respect to FATF customer identification FINTRAC has now twice drawn the ire of the Office of the Privacy and due diligence recommendations. Canada’s position is that these Commissioner of Canada (OPC). The OPC audited FINTRAC in 2009 deficiencies resulted from drafting ambiguities and, therefore, the and published a follow-up audit on 24 October 2013. This most recent amendments simply clarify existing obligations rather than imposing audit criticises FINTRAC for failing to make progress since 2009 on new burdens on reporting entities. However, the requirement to minimising the amount of personal information that it acquires. The conduct ongoing monitoring of all business relationships with clients OPC found that FINTRAC continues to receive and retain too broad a is significant, as such monitoring was previously only required with range of personal information as a result of its receipt of unnecessary respect to high-risk customers. Canada enacted these regulations reports. The audit recommends that FINTRAC do a better job of to avoid being moved from the FATF’s regular follow-up process to assessing reports to identify and dispose of information that it should its enhanced process, which could impose increased reporting not have received. The OPC will follow up with FINTRAC again in 2015.

• the Organization of American States Inter-American Drug recognised in its sixth follow-up report that Canada is now largely Control Commission (OAS-CICAD); compliant with recommendation 5, as a result of amendments to the • the Inter-American Development Bank (IDB); PCMLTFA Regulations that came into force on 1 February 2014. • Interpol; The FATF therefore recommended the removal of Canada from the • the World Customs Organization (WCO); and regular follow-up process. • the Asia/Pacific Group on Money Laundering (APG).

26 FIUs 25 Anti-money laundering assessments Give details of your jurisdiction’s Financial Intelligence Unit (FIU). Give details of any assessments of your jurisdiction’s money FINTRAC laundering regime conducted by virtue of your membership of 24th floor, 234 Laurier Avenue West supranational organisations. Ottawa ON K1P 1H7 The most recent FATF mutual evaluation of Canada was published Canada in 2008. Canada was placed in the FATF’s regular follow-up process [email protected] following this evaluation. Tel: +1 866 346 8722 The FATF evaluation found Canada to be compliant or largely Fax: +1 613 943 7931 compliant with 30 of the FATF’s 40 + 9 recommendations. The eval- www.fintrac-canafe.gc.ca/ uation most notably found Canada to be non-compliant with rec- ommendation 5 and partially compliant with recommendations 23 FINTRAC is a member of the Egmont Group. The permanent and 26. Recommendation 5 addresses customer due diligence and headquarters of the Secretariat of the Egmont Group are located record keeping, including obligations with respect to the verification in Toronto. of customer identity and ongoing due diligence. Recommendation 23 addresses the regulation and supervision of financial institu- 27 Mutual legal assistance tions, including market-entry requirements and coverage of various sectors. Recommendation 26 addresses a member country’s FIU, In which circumstances will your jurisdiction provide mutual legal including sharing intelligence with other authorities, the capacity for assistance with respect to money laundering investigations? What are analysing data received and the incidence of convictions stemming your jurisdiction’s policies and procedures with respect to requests from the FIU’s intelligence. from foreign countries for identifying, freezing and seizing assets? Canada’s AML regime went through significant changes in June The Canadian legislation under which mutual legal assistance 2008, which addressed a number of the FATF’s recommendations in (MLA) is rendered is the Mutual Legal Assistance in Criminal the report. In 2009, the FATF recognised that Canada had demon- Matters Act (the MLACMA). Canada will provide such assistance strated sufficient compliance with recommendations 23 and 26, but upon written request by a state or entity to the Minister of Justice had not yet fulfilled recommendation5. In February 2014, the FATF for the enforcement of a restraint, forfeiture or seizure of property

Benjamin P Bedard [email protected] Paul D Conlin [email protected]

220 Laurier Avenue West, Suite 700 Tel: +1 613 782 5777 Ottawa ON K1P 5Z9 Fax: +1 613 249 7226 Canada www.conlinbedard.com

36 Getting the Deal Through – Anti-Money Laundering 2014 Conlin Bedard LLP CANADA order with respect to property in Canada. The requesting state or Once a request is approved by the Minister of Justice, the pro- entity must be one of Canada’s partners to a treaty that provides for vincial attorney general must be satisfied that the requesting state MLA with respect to the subject matter of the request. The Minister or entity had jurisdiction to charge the person and that the offence of Justice must refuse the request if it would prejudice an ongoing would have been an indictable offence under Canadian law. When proceeding, would prejudice Canada’s security or national interest, the attorney general files the order with the superior court of crimi- would impose an excessive burden on Canada’s authorities or was nal jurisdiction in the relevant province, it is entered as a judgment rendered in order to punish a person for discriminatory reasons. of that court and can be executed across the country.

www.gettingthedealthrough.com 37 DENMARK Gorrissen Federspiel Denmark

Anne Birgitte Gammeljord Gorrissen Federspiel

Domestic legislation 4 The offence of money laundering What constitutes money laundering? 1 Domestic law Money laundering is defined in section 4 of the AML as: Identify your jurisdiction’s money laundering and anti-money laundering (AML) laws and regulations. Describe the main elements of these (1) unlawfully to accept or acquire for oneself or others a share in laws. profits, which are obtained by a punishable violation of law, The Third EU Money Laundering Directive on Measures to Prevent (2) unlawfully to conceal, keep, transport, assist in disposal or in a Money Laundering was implemented in Denmark by the Danish similar manner subsequently serve to ensure, for the benefit of Act 117 of 27 February 2006 (MLA), which came into force on another person, the profits of a punishable violation of law, or 1 March 2006. The MLA has since been amended a couple of (3) attempting or participating in such actions. times to comply with the IMF and the FATF recommendations, as well as the EU rules and regulations primarily within the banking The AML provisions do not cover the natural or legal person who sphere (eg, on cross-border payments, politically exposed persons committed the punishable violation of the law from which the prof- and financial sanctions). The latest amendment was enacted in June its originate. From a criminal law perspective, money laundering is 2013 with effect from 1 July 2013. The latest consolidated act is No. included in section 290 of the Penal Code, which comprises handling 1022 of 13 August 2013. The MLA and guidelines issued by the and receiving stolen goods including the proceeds from criminal Danish Financial Services Authority (FSA) comprise in all material offences. Criminal offences include violation of the Penal Code as aspects the Danish rules on the anti-money laundering arena. The well as violations that, according to special legislation, are a criminal latest guidelines were published by the FSA on 24 April 2013. offence and violations that are correspondingly found to be criminal Separate legislation related to casinos and payment of dues and offences abroad. taxes also contains rules on identification of customers and report- According to the AML, both intentional as well as grossly neg- ing obligations, for example, in respect of suspicious transactions ligent conduct may result in prosecution. It is possible to prosecute, (STRs). for example, financial institutions or other businesses covered by the AML for participation (assisting the offender) in their customers’ Money laundering money laundering crimes if the reporting and customer due diligence obligations laid down under the AML are not, intentionally or due 2 Criminal enforcement to gross negligence, complied with and the customer is found guilty Which government entities enforce your jurisdiction’s money of money laundering. laundering laws?

Money laundering is criminalised at state level and the enforcement 5 Qualifying assets and transactions of the rules is carried out by the state prosecutor for serious economic and international crime, either based on reports made directly by the Is there any limitation on the types of assets or transactions that can providers of financial services or from the supervising authorities. form the basis of a money laundering offence? The Danish FSA attends to the in Denmark and In principle, there is no limitation on the types of financial assets and controls and supervises to ensure the financial institutions adhere transactions that can form the basis of a money laundering offence. to the AML rules and regulations. For lawyers, the supervision and The transactions and assets covered by the AML are many, and control is done by the Danish Bar and Law Society. State-authorised include assistance in the transfer of money and payment instructions, public accountants and registered public accountants, authorised securities, guaranties and warrants, money broking, the buying and estate agents and other service providers are controlled and super- selling of shares, commercial papers, bonds, debt instruments, real vised by the Danish Business Authority. The FIU may request that estate and undertakings, administration of customer money, securi- local police districts assist in the investigation. ties or other financial assets and assistance in the planning or execu- tions of such transactions for a customer. There are only very few monetary thresholds to prosecution. 3 Defendants It is possible for life insurance companies and pension funds Can both natural and legal persons be prosecuted for money to receive smaller amounts from customers – between €1,000 and laundering? €2,500 depending on the contracts – without having to comply with The AML rules comprise acts or omissions by both natural and legal all rules on customer due diligence (CDD). persons, and both natural and legal persons may be prosecuted and Also, for occasional customers, it is possible to assist in the trans- found guilty of money laundering. fer of, for example, funds if the single transaction does not exceed €1,000 without having to comply with all rules on CDD. Using a risk-based approach, the amount may be increased to €15,000.

38 Getting the Deal Through – Anti-Money Laundering 2014 Gorrissen Federspiel DENMARK

However, this does mean that undertakings and persons cov- Law Society may, subject to the seriousness of the matter (eg, non- ered by the AML regime shall not require their customers to identify compliance or participation), decide to start proceedings on dis- themselves if they suspect or have reason or ought to have reason to qualification, revocation of licences and public announcement of the believe that a transaction or a customer’s request is associated with non-compliance with or violation of the AML rules and legislation. money laundering. If the suspicion is related to money laundering and the offence it relates to is punishable by imprisonment of more 9 Forfeiture than one year, the FIU will be informed immediately. Describe any related asset freezing, forfeiture, disgorgement and victim compensation laws. 6 Predicate offences According to section 7 of the AML, there are duties that involve Generally, what constitute predicate offences? suspension of a transaction. The FSA may, under the regulations laid Any criminal offence, as a result of which proceeds have been gener- down in the Administration of Justice Act, demand any information ated, may become subject to an offence punishable by imprisonment necessary for the investigation of a case from the undertaking and of more than one year, can serve as a predicate offence. This could persons covered by the AML regime, and such information may be include any ordinary financial criminal offence that is not necessar- used to ask for a court order, for example, to freeze assets believed ily considered as serious crime. It does not only include proceeds of to be involved in money laundering. If the criminal proceedings lead crimes committed in Denmark, but also proceeds of crimes com- to conviction, it is likely that a judgment will also consider forfei- mitted abroad if the offence is punishable in the country where the ture and disgorgement of the proceeds, and it might also provide for crime is committed. compensation (damages) to the victim of the criminal offence that Based on the legal usage, the violation of tax and currency led to money laundering. exchange laws (eg, incorrect filings or non-filings of tax return forms) do not necessarily serve as predicate offences. However, it might be argued that the proceeds originating from intended or 10 Limitation periods gross negligence violation of tax and currency exchange laws might What are the limitation periods governing money laundering constitute an offence. Further, case law seems to demonstrate that prosecutions? a number of cases related to AML brought before court involve or The limitation period for violation of the AML and regulations originate from tax fraud and violation of exchange laws. issued based on the AML is five years.

7 Defences 11 Extraterritorial reach Are there any codified or common law defences to charges of money Do your jurisdiction’s money laundering laws have extraterritorial laundering? reach? Both the Danish FSA, the Bar and Law Society and other In accordance with the Penal Code the AML can have extraterri- professional bodies have issued guidelines, which in more detail torial reach. Transactions carried out in Denmark by a non-citizen describe the internal rules and regulations, which the institutions or non-resident in Denmark can be punished in Denmark, and covered within the AML regime must comply with in respect of, for transactions carried out abroad by a person or company resident in example, CDDs, STRs and internal education. If the recommenda- Denmark may be punished in Denmark if the transaction is punish- tions in these guidelines are followed and duly complied with, it is able both in Denmark and in the country in which it is done. likely that they will form a defence in the case of money laundering charges brought against the financial institution. AML requirements for covered institutions and individuals

12 Enforcement and regulation 8 Resolutions and sanctions Which government entities enforce your jurisdiction’s AML regime and What is the range of outcomes in criminal money laundering cases? regulate covered institutions and persons? Do the AML rules provide The Money Laundering Secretariat provides an annual report, for ongoing and periodic assessments of covered institutions and the latest of which is from 2012 and can be found at www. persons? anklagemyndigheden.dk. The number of reports of suspicious trans- As mentioned in question 1, the AML rules and regulations are con- actions have steadily increased during recent years. The reports are trolled by either by the FSA, the Business Authority or the Bar and dealt with in the same manner as other criminal reports and in com- Law Society, and enforced upon notification by the state prosecutor pliance with the same legal standards as applicable for the other dealing with serious crime. There is close cooperation between the criminal cases dealt with by the state prosecutor for serious crime. governmental entities participating in the enforcement of the regula- There have only been few cases brought to trial for AML offences. tion, including tax authorities. In respect of lawyers, the enforcement Most cases brought to trial concern other criminal offences discov- through the Bar and Law Society ensures that the rules on profes- ered as a result of the AML reporting. The few cases on violation of sional secrecy and legal privilege are not breached unless required the AML relates to retailers who have received more than 100,000 by the AML. Danish kroner in cash payment in violation of the ban against cash transactions in the AML (in these cases the courts have fined the companies or persons involved with an amount corresponding to 13 Covered institutions and persons between 25 per cent and 10 per cent of the amount received in Which institutions and persons must carry out AML measures? excess of the limit of 100,000 Danish kroner applicable until 1 July 2013) and lack of compliance with the CDD rules and the rules on The Danish rules cover all credit and financial institutions, including record keeping (in one of the cases from 2013 the court found a banks and savings banks, mortgage-credit institutions, investment financial institution liable to pay a fine in the amount of 2.5 million companies, life insurance companies, insurance brokers, electronic Danish kroner for its violation of the AML rules and regulations). money institutions, currency exchange bureaux, and undertakings Sanctions for money laundering offences can be fines or impris- and persons carrying out one or more of the activities mentioned onment. Further, the FSA, the Business Authority or the Bar and in Annexe 1 to the AML Directive. Further, the AML covers law- yers when they provide assistance in the planning and execution www.gettingthedealthrough.com 39 DENMARK Gorrissen Federspiel of certain transactions for their clients, state-authorised public institutions and persons covered by the AML shall be able to prove accountants and registered public accountants, authorised estate that the extent of their investigation is adequate in relation to the agents, tax advisers and external accountants, service providers and, risk of money laundering. in some situations, retailers and auctioneers. The cash ban in excess The Danish legislation does provide rules for an enhanced CDD of 50,000 Danish kroner is applicable to all businesses that are not in respect of foreign PEPs and also in relation to transactions with comprised by article 1.1 of the Act (re article 2.1 of the Directive). third countries. Further, the AML has rules applicable to branches and subsidiar- ies in third countries. There are no specific rules on shell banks, letters 14 Compliance of credit, and so on. Such customers or transactions are covered by Do the AML laws in your jurisdiction require covered institutions and the already existing rules, including the enhanced CDD procedure. persons to implement AML compliance programmes? What are the required elements of such programmes? 18 Record keeping and reporting requirements Institutions and persons covered by the AML must implement compliance programmes covering CDD and, in some situations, Describe the record keeping and reporting requirements for covered enhanced CDD, reporting and record keeping, internal control institutions and persons. mechanisms, risk assessment, risk management, as well as training The undertakings and persons covered by the AML shall store iden- and instructions programmes for the employees of the institution. tity information for no less than five years after the customers rela- Further, covered institutions and businesses must appoint a person tionship has ceased. Copies of the identification documents obtained on management level responsible for compliance with the obliga- must be stored for the same period of time, and the same rules apply tions under the AML. for documents and records concerning the transaction. Suspicious activity is not defined as such in the AML. A number of indications are mentioned in the guidelines; some relate to the behaviour of the 15 Breach of AML requirements customer and the situation – for example, reluctance to provide What constitutes breach of AML duties imposed by the law? information, appearance, large amounts, geographical relations and A number of acts or omissions will constitute a breach of the AML atypical movements on accounts. An indicator can also be unusual duties, including lack of proper CDD, lack of proper record keeping, payment patterns, stock market transactions or investments. lack of internal rules and training, and lack of registration with the The covered institutions and persons are under an obligation to proper supervisor. share this information, if they are suspicious and the suspicion can- The notification and information that undertakings and persons not be disproved, with the FSA. Since 2013, it has been possible to covered by the AML disclose (tipping off) in good faith, for example, file the reports electronically. as a result of an STR, does not incur any liability on the undertaking or person, its employees or management, as disclosure of informa- 19 Privacy laws tion in this connection is not considered a breach of any duty of confidentiality. Describe any privacy laws that affect record keeping requirements, due diligence efforts and information sharing. The AML lay down rules for confidentiality, and further rules have 16 Customer and business partner due diligence been laid down, for example, by the FSA. Further, the AML does Describe due diligence requirements in your jurisdiction’s AML regime. include rules concerning third-party reliance. Undertakings and persons covered by the AML are under an obliga- tion to demand that customers establish their identity when a busi- 20 Resolutions and sanctions ness relationship is entered into. If the customer is a physical person, then the identification documentation must include name, address What is the range of outcomes in AML controversies? What are the and civil registration number, or similar documentation if the rel- possible sanctions for breach of AML laws? evant person has no civil registration number (eg, is not a Danish If the AML has been breached, the controversy may be settled out of citizen). court through a fine accepted by the offender. However, if the matter If the customer is a company or legal person the identification is serious or if the amount or non-compliance involved is not mod- must include the same information as applicable for natural persons, est, it is most likely that the case will be heard in court. but also information about the registration number where the com- pany or legal person is registered. As reasonable arrangement must be made to understand the company’s control structure, it is neces- 21 Limitation periods sary to know the ultimate owner. Therefore, beneficial owners must What are the limitation periods governing AML matters? also be identified to the extent possible. The limitation period is five years. Customer relationships must be monitored on an ongoing basis, and documentation and other information on the customer must be updated on an ongoing basis. 22 Extraterritoriality Do your jurisdiction’s AML laws have extraterritorial reach?

17 High-risk categories of customers, business partners and See question 11. transactions Civil claims Do your jurisdiction’s AML rules require that covered institutions and persons conduct risk-based analyses? Which high-risk categories are 23 Civil claims and private enforcement specified? Enumerate and describe the required elements of a civil claim It is possible for institutions and persons covered by the AML to or private right of action against money launderers and covered carry out the identification procedure by way of a risk-based assess- institutions and persons in breach of AML laws. ment depending on the risk related to the individual customer or There is no Danish case law indicating a civil claim and private business relation, the products or the transaction. However, the enforcement against a money launderer or covered institution. If a

40 Getting the Deal Through – Anti-Money Laundering 2014 Gorrissen Federspiel DENMARK

authorities to investigate and prosecute a larger quantity of serious Update and trends money laundering cases. Further, the report recommended that the procedures for ascertaining information relating to beneficial own- The competent authorities seem to have increased their ers should be strengthened. Information has since then been reported enforcement efforts and the number of inspections done back to the FATF in 2008, 2009 and 2010. The FATF has noted that during the last couple of years to ensure compliance with the requirements of the AML legislation by all the institutions and Denmark has taken action to enhance its AML and CFT regime in persons covered by the legislation. Further, the number of criminal line with the recommendations in the Mutual Evaluation Report. charges against institutions and persons covered by the legislation has also increased significantly. In respect of the supervision carried out by the Business Authority we have noted that it issued 26 FIUs three decisions on violation of the rules and regulations in 2012. In 2013 the number of decisions was increased to 24 and in the Give details of your jurisdiction’s Financial Intelligence Unit (FIU). first quarter of 2014 there have already been five decisions. The state prosecutor for serious economic and international crime’s Money Laundering Secretariat is a member of the Egmont Group and is also involved in work within the EU Committee on Prevention claim can be raised, the claimant will have to prove that a finan- of Money Laundering and Terrorist Financing, UNDOC, the IMF cial damage has taken place as a result of the money laundering. and the World Bank. Theoretically, that might be possible in some cases if it can be proven The contact details are: that the covered institution has known or ought to have known that it assisted a money launderer, and as a result of this has caused finan- Statsadvokaten for Særlig Økonomisk og International cial damage to, for example, the state or a third party. In a High Kriminalitet Court case from 2013, the court found that a bank was not liable Kampmannsgade 1 as a result of the financial damage that had occurred due to money 1780 Copenhagen V laundering. Denmark Tel: +45 45 15 47 10 International anti-money laundering efforts Fax: +45 45 15 00 16 [email protected] 24 Supranational

List your jurisdiction’s memberships of supranational organisations 27 Mutual legal assistance that address money laundering. In which circumstances will your jurisdiction provide mutual legal Denmark is a member of the EU and therefore a party to the EU assistance with respect to money laundering investigations? What are regulation addressing anti-money laundering. Further, Denmark is a your jurisdiction’s policies and procedures with respect to requests member of the FATF, the UN and the IMF. from foreign countries for identifying, freezing and seizing assets? Denmark is involved in international collaboration on money laun- 25 Anti-money laundering assessments dering cases and participates within Interpol and Europol. Further, Give details of any assessments of your jurisdiction’s money Denmark is a member to the Egmont Group, which is now a col- laundering regime conducted by virtue of your membership of laboration forum for more than 139 FIUs. supranational organisations. The FATF conducted a mutual evaluation report on Denmark on 22 June 2006. The findings stated that the FATF was unhappy with the infrequent reporting of suspicious transactions and wanted the

Anne Birgitte Gammeljord [email protected]

H C Andersens Boulevard 12 Tel: +45 33 41 41 41 1553 Copenhagen Fax: +45 33 41 41 33 Denmark www.gorrissenfederspiel.com

www.gettingthedealthrough.com 41 GERMANY Knierim | Huber Rechtsanwälte Germany

Daniel Gutman and Christian Rathgeber Knierim | Huber Rechtsanwälte

Domestic legislation Money laundering

1 Domestic law 2 Criminal enforcement Identify your jurisdiction’s money laundering and anti-money laundering Which government entities enforce your jurisdiction’s money (AML) laws and regulations. Describe the main elements of these laundering laws? laws. The Public Prosecution Service of the locally responsible regional The regulations on money laundering can be found in: court is responsible for the pursuit of criminal money laundering • the Money Laundering Act (GwG) dated 25 October 1993; offences under section 261 StGB as well as administrative offences • the penal provisions of section 261 of the German Criminal under section 17 GwG. It uses the Federal State Offices of Criminal Code (StGB), introduced on 15 July 1992 and regularly adapted Investigation and Federal State police services for investigations. since then; and Since 2002, the central body for the reporting of suspected cases • for banks and financial companies – sections 25b to 25i of of money laundering under section 11 GwG has been the Federal the German Banking Law (KWG) and sections 8 et seq of the Office of Criminal Investigation with a central body for report- Payment Services Supervisory Law (ZAG). ing suspected cases set up specially for this purpose (Financial Intelligence Unit of the Federal Office of Criminal Investigation, GwG (FIU)). The FIU also supports the Federal State Offices of Criminal The GwG is the central statutory regulation for the prevention of Investigation in investigating individual cases of money laundering. money laundering in Germany. Introduced in 1993, it supplemented Overriding responsibility of the Federal Public Prosecutor in the previously only rudimentary obligation of financial companies investigations concerning money laundering only applies if these to check the person authorised to dispose when opening accounts, investigations are related to other crimes against the state. This is in accordance with section 154, subsection 2 of the German Tax regularly the case with terrorism. Code 1976. Apart from special regulations on internet gaming (section 2a), 3 Defendants the GwG includes rulings for: • definitions and determination of covered persons (section 1); Can both natural and legal persons be prosecuted for money • duties of care and internal safeguarding measures (section 2); laundering? • setting up of the central body for suspected cases and reporting German criminal law sanctions only the personal guilt of a natural obligations (section 3); and person. At present, no corporate criminal law is envisaged in the • rulings on supervision and cooperation as well as regulations on narrower sense. Nevertheless, at present, political discussions con- administrative fines (section 4). cerning the introduction of corporate criminal law are in progress. However, companies can also be subjected to monetary fines and The core of the ruling, in addition to the definitions also authorita- skimming off of profits via sections 30, 130 of the Administrative tive for other laws is, above all, the prescribing of the duties of care Offences Act if criminal offences have been committed by execu- and identification, the assertion of the reporting obligations as well tive persons or if the company has not taken sufficient precaution- as the punishment of violations of these obligations through regula- ary measures to prevent the commitment of criminal offences from tions on administrative fines. within the company.

Section 261, StGB Section 261, StGB sanctions, as a penal provision, actions concern- 4 The offence of money laundering ing money or other items arising from a listed offence as a punish- What constitutes money laundering? able predicate offence. Also covered are both the keeping and use Section 261, StGB sanctions, as a penal provision, the following acts (for oneself and for others) as well as concealing, disguising and the concerning money or other items arising from a listed offence as a thwarting of investigations. predicate offence: • concealing; KWG and ZAG • disguising the origin; By their nature, banks and other financial service providers are sub- • procurement for oneself or third parties; ject to special duties as they are typically used for and involved in • keeping or using for oneself or others; and the channelling of financial means from predicate criminal offences • thwarting or endangering the determination of the origin, the or for the financing of terrorism. finding, forfeiture, collection, seizure of money or items from a The special rulings impose particular organisational require- predicate offence. ments on this type of institution.

42 Getting the Deal Through – Anti-Money Laundering 2014 Knierim | Huber Rechtsanwälte GERMANY

A precondition in all cases is intentional conduct as regards the act • formation of criminal or terrorist associations as well as the of money laundering. Negligence is not sufficient for criminal law committing of criminal offences by a member of a criminal sanctions. There is also no strict liability. or terrorist association, in so far as not already covered as a Additionally, intent (ie, knowledge and desire, or at least approv- crime; ing acceptance) is fundamentally required in terms of the predicate • as well as the following, in so far as committed for commercial offence. If, however, the perpetrator only carelessly fails to recog- gain or on an organised basis: nise that the subject matter of the money laundering stems from a • illegal smuggling in of foreign nationals; relevant predicate offence, but acts intentionally in other respects, • inciting improper applications for asylum; the maximum punishment is only two years’ imprisonment. • tax evasion; Banks and financial service providers can only be liable to crimi- • insider trading; nal prosecution for the actions of their clients if they have aided and • infringement of trademark rights; abetted money laundering. This presupposes objective support and • copyright infringement; and subjective intent (ie, knowledge and desire) in terms of the money • infringement of patent rights. laundering and the aiding and abetting. In cases of organisational misconduct that have facilitated money laundering acts of the Comparable deeds abroad can also be predicate money laundering clients, supervisory law and administrative fine measures can, how- offences if also liable to punishment abroad. ever, be taken. Minor tax evasion (section 370, German Tax Code (AO), fiscal evasion by failure to take due care (section 378, AO) and minor tax fraud (section 379, AO) are administrative fiscal offences and as 5 Qualifying assets and transactions such do not qualify as money laundering predicate offences. Rather, Is there any limitation on the types of assets or transactions that can there is a need for the tax offences to create not only a temporary form the basis of a money laundering offence? source of income of a certain scope (acting for commercial gain), All assets stemming from a predicate offence are covered. In addition or for three persons to combine for the purpose of committing tax to money, movable and immovable items (eg, real estate, precious offences for a certain duration in the future (organised acts). In such metals, precious stones, antiques and jewellery), this also includes cases, the expense saved through tax evasion and tax refunds and particular rights (eg, account credit balances, claims, shareholdings payments obtained unlawfully are suitable subject matter of money in companies as well as shares in joint assets). There is no minimum laundering. amount. Such items are also covered if they have been repeatedly exploited 7 Defences and replaced by other items in the process. The only precondition for punishability is that, when considered from an economic perspec- Are there any codified or common law defences to charges of money tive, they can be traced back to the predicate offence in a causal laundering? context. This can also apply, above all, to assets where only a small Claiming a lack of knowledge concerning the origin of the item from part of their value originates from a criminal offence. a relevant predicate offence is possible as a defence. If, however, the perpetrator carelessly fails to recognise this stems from the predicate offence, he or she can, nevertheless, render him or herself liable to 6 Predicate offences prosecution; however, the range of sentences will be reduced. Generally, what constitute predicate offences? Additionally, section 261, subsection 4, StGB allows punishabil- The money laundering criminal standard provides for a conclusive ity to lapse if the person obtaining, keeping or using the item has list of relevant predicate offences in section 261, subsection 1, sen- not obtained this from the previous perpetrator but from a third tence 1, StGB: party who has not rendered him or herself liable to punishment (eg, • crimes, namely criminal offences, which, under section 12, sub- because he or she did not act with intent). section 1, StGB, are punishable by at least one year’s impris- Finally, punishability under section 261, subsection 9, StGB onment (ie, for which a monetary fine or imprisonment of less can again lapse if the perpetrator of money laundering reports the than 12 months is excluded by law), for example, robbery, high offence (or has reported) voluntarily to the responsible authority. treason, treason, money forgery; Nevertheless, this no longer applies if the offence had already been • irrespective of the minimum punishment: detected and the perpetrator was aware of this or should have reck- • some forms of corruption; oned with this. In addition, the report must enable seizure of the • dealing in drugs; items. • commercial, violent or organised smuggling and receiving, Further, punishability for money laundering cannot be consid- concealing or selling of property obtained by tax evasion; ered if the perpetrator has already been punished for the predicate • forgery of cheques and cards; offence. • pimping; • human trafficking; 8 Resolutions and sanctions • theft, concealment and receiving stolen property; • extortion; What is the range of outcomes in criminal money laundering cases? • fraud; Under section 261, StGB, money laundering is punishable by impris- • embezzlement; onment of between three months and five years. In serious cases, • forgery of documents, forgery of evidential data and false in particular commitment for commercial gain or on an organised certification; basis, the punishment increases to between six months and 10 years. • unauthorised organisation of gaming; Reduction of the range of sentences to between a monetary fine and • unauthorised dealing with toxic waste, radioactive or other imprisonment of two years applies if no intent existed concerning hazardous substances; the predicate offence and if failure to recognise the fact that the item • subversive acts of violence that are intended to and capable stems from a relevant predicate offence is purely due to carelessness. of threatening the existence or the security of the state or of an international institution; and

www.gettingthedealthrough.com 43 GERMANY Knierim | Huber Rechtsanwälte

In addition to imprisonment, monetary fines can also be imposed AML requirements for covered institutions and individuals under section 41 StGB, in particular if the perpetrator has enriched him or herself as a result of the offence. Under section 47, StGB, 12 Enforcement and regulation prison sentences of less than six months are normally converted into Which government entities enforce your jurisdiction’s AML regime and monetary fines; in this respect, one net month’s earnings corresponds regulate covered institutions and persons? Do the AML rules provide to a prison sentence of one month. for ongoing and periodic assessments of covered institutions and Under section 57, StGB, prison sentences of between six months persons? and one year are normally suspended on probation given a positive The money laundering obligations are supervised and asserted by prognosis on the perpetrator; prison sentences of a maximum of two the respectively responsible supervisory authorities depending on the years can be suspended on probation. covered persons. The Public Prosecution Service can suggest settlement of the offence through a penal order if only a monetary fine or imprison- ment of up to a maximum of 12 months on probation is requested. Covered person Supervisory authority The defendant can lodge an appeal against the penal order within Banks Federal Financial Supervisory Authority (BaFin) two weeks and request due process of law. The court is not bound by an application for a penal order from the Public Prosecution Service Financial service institutions BaFin and the perpetrator is likewise not obliged to consent. Institutions, agents, companies and BaFin The economic gain, derived from the offence by the perpetrator, persons as defined in the Payment Services Supervisory Law will be collected in accordance with sections 73 et seq, StGB. In some federal states, conviction for money laundering also Finance companies as defined in BaFin section 1, subsection 3, KWG results in the entry of natural or juridical persons in a central corrup- tion register. The consequence of this is that the company concerned Insurance companies (among other Allocation between BaFin and the things when conducting transactions supervisory authorities of the federal can be excluded from public tenders on the basis of unreliability as defined in Directive 2002/83/EC) states, eg, the insurance supervisory (ban on receiving public contracts). authority in Frankfurt am Main BRD-Finanzagentur GmbH Federal Ministry of Finance 9 Forfeiture Insurance intermediaries as defined Supervisory authorities of the federal in section 59, Law on Insurance states, eg, Ministry for Economy and Describe any related asset freezing, forfeiture, disgorgement and Contracts European Affairs, Brandenburg victim compensation laws. Investment companies as defined in BaFin Courts can order the forfeiture, collection and seizure of money section 2, subsection 6, Investment laundering items, tools used in the offence or of all gains derived Act from the offence. Forfeiture and collection result in the state becom- Lawyers and Bar Association legal The respective locally responsible bar advisers association ing the owner of the item. If, however, the damaged party is entitled to claims against the perpetrator, forfeiture in favour of the state Patent lawyers Chamber of Patent Lawyers shall have priority after these, in so far as the damaged party accesses Notaries The president of the regional court in the value within the scope of the compensation process. whose district the notary has his or her office Legal advisers not belonging to a bar The supervisory authorities of the 10 Limitation periods association and registered persons as federal states, eg, for legal advisers defined in section 10, Legal Services in Schleswig Holstein who are not What are the limitation periods governing money laundering Act. members of the Bar Association, the prosecutions? President of the Schleswig-Holstein Higher Regional Court The limitation period is five years from the ending of the offence. Auditors and registered accountants Chamber of Auditors Tax advisers and tax agents The respective locally responsible 11 Extraterritorial reach chamber of tax advisers Do your jurisdiction’s money laundering laws have extraterritorial Service providers for companies and Supervisory authorities of the federal reach? trust assets, trustees as defined in states, eg, for trustees with their section 2 I, No. 9, GwG) registered office in Schleswig Holstein, German criminal law is applicable to all offences: the Ministry of Economy, Labour, • committed in Germany; Transport and Technology of the • committed on a ship or an aircraft operating under a German Federal State of Schleswig-Holstein flag; Property brokers Supervisory authorities of the • in connection with treason and endangering the external secu- federal states, eg, for brokers with their registered office in Berlin, the rity of the Federal Republic of Germany; Senate Administration Department for • aimed against a German national; or Economy, Technology and Research • committed by a German national or a non-extradited foreign Casinos Supervisory authorities of the federal national situated in Germany. states, eg, the Federal State Home Office in Bavaria Organisers and brokers of internet The authority responsible for gaming issuing the gaming law licence, eg, for corresponding organisers with registered office in Schleswig-Holstein, the Home Office of the Federal State of Schleswig-Holstein Persons dealing commercially in goods Supervisory authorities of the Federal States, eg, for dealers in goods with registered office in Berlin, the Senate Administration Department for Economy, Technology and Research

44 Getting the Deal Through – Anti-Money Laundering 2014 Knierim | Huber Rechtsanwälte GERMANY

13 Covered institutions and persons 15 Breach of AML requirements Which institutions and persons must carry out AML measures? What constitutes breach of AML duties imposed by the law? See question 12. Covered companies or persons can be subjected to fines of up to €100,000 for specific violations of obligations, if they: • do not fulfil their duties of care (sections 3 et seq, GwG), do not 14 Compliance do so correctly, do not do so completely or do not do so in the Do the AML laws in your jurisdiction require covered institutions and prescribed manner or on time; persons to implement AML compliance programmes? What are the • violate their obligations to record and keep relevant informa- required elements of such programmes? tion on contract partners, economically entitled parties, business Yes, in the following cases (‘triggering events’ as per section 3, sub- relationships and transactions (section 8, GwG); section 2, GwG), the persons covered by the GwG must take action: • violate their special obligations as organisers or brokers of gam- • given the creation of a business relationship intended as long- ing on the internet (sections 9a et seq, GwG); term (this does not apply to dealers in goods); • do not report a suspected case or do not do so correctly, com- • with transactions of more than €15,000 outside existing busi- pletely or on time; ness relationships (this does not apply to dealers in goods); • inform the customer of a transaction or any other third party of • given the acceptance of cash with a value of €15,000 or more; an intended or submitted report, or of investigation proceedings • if companies ascertain facts that create a suspicion of money resulting from such; or laundering or financing of terrorism (irrespective of the level of • fail to fulfil their obligations to provide information to the the transaction); and responsible supervisory authorities, fail to do so sufficiently or • given doubts on the part of the party obliged concerning the do not enable these authorities to enter and inspect their own identity information of the contract partner or of the economi- business premises. cally entitled party. In the event of other violations of AML requirements, the respon- Under section 3, subsection 1, GwG, the duties of care are: sible supervisory authority can react with orders as per section 6, • identification ofthe contract partner (know-your-customer prin- subsection 3, KWG, for the purpose of preventing or removing ciple): details concerning identity must be recorded and checked grievances in the company concerned, in so far as this company is on the basis of suitable documents (section 4, 8, GwG); covered by the KWG. • obtaining of information concerning the nature and purpose of the business relationship; 16 Customer and business partner due diligence • checking of the representation relationships: determination and identification of the economically entitled party; and Describe due diligence requirements in your jurisdiction’s AML regime. • continuous monitoring of the business relationship. General duties of care Companies and persons concerned must initially comply with gen- Documentation obligations also apply: eral duties of care following specific triggering circumstances (see • obligation to keep records (see section 8, GwG): all details and question 14). This includes: information collected under the GwG concerning contract part- • identification of the contract partner; ners, economically entitled parties, transactions and business • ascertaining the business purpose; relationships must be recorded; • clarification of the economically entitled party, namely, the • period of keeping: the law provides for a period of keeping of at natural person under whose ownership or control the contract least five years; and partner ultimately is, or the natural person on whose initiative a • obligation to provide evidence to the authorities: upon request, transaction is ultimately made or a business relationship is ulti- the authorities must be provided with evidence demonstrating mately created (section 1, subsection 6, GwG); and that the party obliged has taken corresponding, appropriate • monitoring the business relationship. measures in line with the risk of the individual case. Certain covered persons (eg, casinos, e-money companies) are also Internal safeguarding measures and employee training must also be subject to additional duties of care. By contrast, persons dealing arranged: commercially in goods must only apply the general duties of care if • internal safeguarding systems and checks must be set up, which they accept cash with a value of €15,000 or more. enable the covered persons to recognise conspicuous matters and to prevent money laundering (eg, through internal guide- Simplified duties of care lines); and The law adopts a ‘risk-based’ approach. Consequently, the covered • the covered persons must instruct their employees. In this respect, persons can determine the specific scope of their measures in accord- it must be ensured that the employees involved in conducting ance with the risk of the respective contract partner, of the respective business transactions as well as in preparing and creating busi- business relationship or of the respective transaction. Nevertheless, ness relationships know the methods of money laundering and they must always be in a position to demonstrate to the responsible their statutory obligations. supervisory authority that the scope of the measures taken by them is appropriate to the risks. Under section 5, GwG, specific relief from If a covered person ascertains facts indicating that an offence as per the general duties of care applies to companies in cases in which the section 261, StGB or the financing of terrorism has been or will be risk of money laundering or financing of terrorism can be regarded carried out or attempted, an obligation ultimately applies to report as low. Additionally, section 25h, KWG, section 80e, VAG and sec- this to the responsible criminal prosecution authority. tion 6, subsection 5, InvG allow the waiving of specific customer due diligence obligations for institutions and companies in certain low risk case constellations and subject to tightly defined preconditions. Nevertheless, the present draft of the Fourth EU Money Laundering Directive envisages that the obligation to identify can no longer be

www.gettingthedealthrough.com 45 GERMANY Knierim | Huber Rechtsanwälte waived completely in future, and that exceptions can no longer be 19 Privacy laws claimed purely on the basis of geographic factors. Describe any privacy laws that affect record keeping requirements, due diligence efforts and information sharing. Increased duties of care Any electronic recording, collecting, storage and evaluation of data Enhanced due diligence must be conducted in higher-risk situations is subject to the requirements of the German Federal Data Protection (see question 17). Act (BDSG) and the data protection laws of the federal states. The principle of German data protection is the avoidance of data and 17 High-risk categories of customers, business partners and data economy, which fundamentally prohibits any data processing if transactions it is not permitted as an exception. Do your jurisdiction’s AML rules require that covered institutions and The AML obligations are legally standardised in the GwG. The data protection provisions are withdrawn for the correspondingly persons conduct risk-based analyses? Which high-risk categories are necessary purposes. Nevertheless, the limits are tight: data can only specified? be recorded, processed and stored if and in so far as this is neces- The law (section 6, GwG) requires covered persons to fulfil increased sary, in terms of both content and time, for fulfilment of the money duties of care if: laundering obligations. • the customer is a politically exposed person (PEP); As a fundamental rule, reporting obligations of the GwG take • at the time of starting the business relationship, the contract priority over other privacy laws and obligations of confidentiality. partner is not physically present for the purpose of establishing Nevertheless, exceptions exist in part for lawyers, tax advisers and identity (non-face-to-face customer); auditors who learn of money laundering problems within the scope • facts or evaluations of national or international bodies for com- of their advising in legal matters. Here, reporting is not admissible bating money laundering and the financing of terrorism exist as a rule. By contrast, a reverse exception applies if the legal advising that allocate an increased risk to specific business relationships, relationship is abused for money laundering or for the financing of for example, involving customers in non-cooperation countries terrorism. In turn, the reporting obligation prevails over the obliga- (in this case, the responsible supervisory authority can order tion of confidentiality here. increased monitoring); or • the facts are otherwise dubious or unusual without reaching the threshold of a suspicion subject to a reporting requirement (in 20 Resolutions and sanctions this case, the company must subject the business relationship or What is the range of outcomes in AML controversies? What are the transaction to a special examination process). possible sanctions for breach of AML laws? See question 15. The law defines a PEP as a natural person who exercises or has exer- cised an important public office, is an immediate family member of such a person or a person knowingly related to such a person 21 Limitation periods (section 6, subsection 2, No. 1, GwG). If a PEP is either a contract What are the limitation periods governing AML matters? partner or an economically entitled party, the company must take The limitation period for administrative offences as defined in sec- additional measures, among others, approvals and increased moni- tion 17, GwG is three years from the end of the action (section 31, toring of the business relationship. subsection 2, No. 1, OWiG).

18 Record keeping and reporting requirements 22 Extraterritoriality Describe the record keeping and reporting requirements for covered Do your jurisdiction’s AML laws have extraterritorial reach? institutions and persons. Section 261, StGB Record keeping The criminal offence of money laundering also applies to assets The law requires that companies record details collected and infor- obtained from an offence committed abroad if this offence is also mation obtained on contract partners, economically entitled parties, punishable there (section 261, subsection 8, StGB). Additionally, business relations and transactions. These records must be kept for some of the listed offences as per section 261, subsection 1, StGB at least five years. This also applies to other vouchers on business have an extended international area of application, for example, relationships and transactions. The period of keeping runs from the bribery as per section 334, StGB in conjunction with article 2, sec- end of the calendar year in which the newly created business rela- tion 1 and section 4, International Bribery Act (IntBestG), smuggling tionship ends or from the end of the calendar year in which the as per section 373, AO or tax evasion as per section 12, subsection respective information has been established. 1, MOG. Reporting GwG Covered persons are obliged to examine suspicious facts (see ques- As a fundamental rule, the duties of care under the GwG apply only tion 17). If transactions exist that indicate a criminal offence as per to companies with a registered office in Germany or to German section 261, StGB, the corresponding transaction must be reported branch offices and branch establishments of such companies. immediately to the Federal Office of Criminal Investigation (the cen- Nevertheless, special regulations for banks and financial service tral body for reporting suspected cases) and the responsible crimi- institutions require these to fulfil the duties of care for preventing nal prosecution authority (reporting of suspicion) under section 11, money laundering and the financing of terrorism throughout the GwG, irrespective of its level or the corresponding business relation- group (see below). ship. Failure to make such a report or failure to do so correctly, completely or on time constitutes a violation of obligations liable to KWG punishment by a fine. Under section 251, subsection 1, KWG, banks and financial service institutions are obliged to implement fundamental duties of care on a group-wide basis. These companies must therefore also com- ply with the customer duties of care (sections 3, 5 and 6, GwG),

46 Getting the Deal Through – Anti-Money Laundering 2014 Knierim | Huber Rechtsanwälte GERMANY

Update and trends

Corporate criminal liability EU Directive A fundamental theme that is also, and perhaps even very particularly, The EU is in the process of replacing the previous third Money of practical relevance to money laundering offences is the present Laundering Directive from 2005 with a stricter fourth Directive. discussion surrounding the introduction of corporate criminal law (see Adoption was planned for 2013, with implementation in the member question 3). states in 2014. Based on the delays at present, both these dates will probably be put back by roughly one year. Money laundering cases As the FATF Mutual Report of 2010 has already identified, Germany is International jurisdiction susceptible to money laundering and terrorist financing because of its The Federal Supreme Court, as the highest instance, recently decided large economy and financial centre, its strategic location in Europe, its (BGH 2 AR 91/13) that German criminal law is applicable and a strong international links and its euro currency, which is used widely German court has procedural jurisdiction in a case in which money across Europe, making it attractive to organised criminals. Accordingly, was collected in a Spanish after being obtained from a the annual money laundering cases has grown from 198 to 7,673 German bank account of a German national via Internet banking using between 1994 and 2012. However, the detection rate is far above illegally procured account access data, and the Spanish national, as 90 per cent. account holder, having forwarded the money to other Spaniards. the recording and record-keeping obligations (section 8, GwG) 25 Anti-money laundering assessments as well as the internal safeguarding measures (section 9, GwG) in Give details of any assessments of your jurisdiction’s money downstream companies, branch offices and branch establishments laundering regime conducted by virtue of your membership of abroad. In addition, under section 25k, KWG, stricter duties of care supranational organisations. apply concerning correspondent bank relationships that go even fur- The FATF published a mutual evaluation of Germany on 19 ther than the increased duties of care as per section 6, GwG. February 2010. The legal situation is considered strengthened in recent years and the principal AML provisions are largely consistent Civil claims with the FATF standard. However, the FATF identified weaknesses 23 Civil claims and private enforcement in the legal framework and in sanctioning for non-compliance with anti-money laundering and counter-terrorist financing requirements Enumerate and describe the required elements of a civil claim compared to the FATF recommendations. or private right of action against money launderers and covered institutions and persons in breach of AML laws. The criminal offence of money laundering as per section 261, StGB 26 FIUs is a so-called protective law as defined in section 823, subsection Give details of your jurisdiction’s Financial Intelligence Unit (FIU). 2 of the German Civil Code (BGB). The German Federal Supreme The central body for reporting suspected cases of money launder- Court clarified this only recently in its decision VIII ZR 302/11. ing (FIU Germany) is the Federal Office of Criminal Investigation, Consequently, claims for damages are possible against the princi- which is also a member of the Egmont Group. pal money laundering perpetrator and against those involved in the offence. In the above decision of the Federal Supreme Court, Bundeskriminalamt damages were approved against a party involved who had made his Referat SO 32 bank account available for money laundering acts. Zentralstelle für Verdachtsanzeigen By contrast, the Federal Supreme Court has established that the 65173 Wiesbaden obligations to identify and report under the GwG are not such pro- Germany tective laws (BGH XI ZR 56/07 dated 6 May 2008). As such, dam- Telephone: +49 61 155 0 ages cannot be asserted against covered persons based on violation Fax: +49 61 155 453 00 of these obligations. There must also be participation, for example, www.bka.de in the form of aiding and abetting as per section 261, StGB.

International anti-money laundering efforts 27 Mutual legal assistance In which circumstances will your jurisdiction provide mutual legal 24 Supranational assistance with respect to money laundering investigations? What are List your jurisdiction’s memberships of supranational organisations your jurisdiction’s policies and procedures with respect to requests that address money laundering. from foreign countries for identifying, freezing and seizing assets? Germany is a member of the Financial Action Task Force (FATF). Mutual legal assistance with foreign countries in criminal law mat- Germany is also a member of the Organisation for Security and ters, that is, also concerning money laundering, is based on the Law Cooperation in Europe (OSCE), whose economic and environmen- on International Mutual Legal Assistance in Criminal Matters (IRG). tal dimension is responsible cooperation in the fields of technology, As a fundamental rule, mutual legal assistance is provided to all science, economy and environment. In the economy and environ- countries, see section 1, subsection 1, IRG. mental dimension, the organisation concerns itself, among other Mutual legal assistance through the enforcement of foreign deci- things, with the combating of corruption, money laundering as well sions is regulated by section 48 et seq, IRG. According to the prin- as internet crime. ciple of section 48, IRG, mutual legal assistance can be provided for

www.gettingthedealthrough.com 47 GERMANY Knierim | Huber Rechtsanwälte proceedings in a criminal law matter (and also in administrative- • a punishment could also have been imposed for the offence offence matters) through the enforcement of a final and absolute under German law; punishment or other sanction imposed abroad. This part of the law • no decision has been issued under which a court has issued a must also be applied to requests for enforcement of an order of for- judgment against the party prosecuted based on the offence, has feiture or collection, issued by a court in the requesting country that refused to open the proceedings, has rejected an application for is not responsible for criminal law matters, provided the order is the bringing of public action or has dismissed the criminal pro- based on an offence liable to punishment. ceedings; and Under section 49, IRG, enforcement is only admissible if: • the enforcement has not become statute barred under German • a responsible body of the foreign country has requested such law. with submission of the complete, final and absolute and enforce- able decision; The provision of mutual legal assistance is inadmissible if it would • the convicted party has been granted a fair hearing, has been contradict essential principles of the German legal system. given the opportunity of appropriate defence and the sanction has been imposed by an independent court;

Daniel Gutman [email protected] Christian Rathgeber [email protected]

Meierottostrasse 1 Tel: +49 30 887 2839 0 10719 Berlin Fax: +49 30 887 839 29 Germany www.knierimhuber.com

48 Getting the Deal Through – Anti-Money Laundering 2014 Anagnostopoulos Criminal Law & Litigation GREECE Greece

Ilias G Anagnostopoulos and Jerina (Gerasimoula) Zapanti Anagnostopoulos Criminal Law & Litigation

Domestic legislation necessary investigative acts, however, everything is coordinated by the prosecutor. 1 Domestic law In cases of emergency, certain powers are given to the Hellenic Identify your jurisdiction’s money laundering and anti-money laundering FIU for securing traced assets (proceeds of crime or related to money (AML) laws and regulations. Describe the main elements of these laundering activities) whereby the head of the Hellenic FIU issues a laws. Freezing Order in order to prevent loss or further concealment of The basic legal provisions against money laundering are in force property. These orders are also reviewed by the prosecutor and, if through Law 3691/2008, which includes all legal provisions stipulated necessary, following a request by the interested party, by a judicial by the second European Parliament and European Council Directive council. against money laundering (2005/60/EC, L309/15/25.11.2005), In criminal cases that are opened on the initiative of the Anti- the third European Parliament and European Council Directive Corruption Prosecutor’s Office, enforcement lies with the latter. The against money laundering (2006/70/EC, L 214/29/4.8.2006) and Anti-Corruption Prosecutor’s Office has the power to coordinate radically changed previous legislation (Law 2331/1995). All local other enforcement agencies and request for their assistance and also regulations and administrative provisions are structured in relation supervises the conducted investigation. to and in accordance with Law 3691/2008, which is in line with international conventions and other instruments in force (eg, the UN 3 Defendants Vienna Convention against Transnational Organised Crime, the UN Can both natural and legal persons be prosecuted for money Convention against corruption, etc). All measures, preventive and repressive, generally provided for in all international instruments laundering? are applied through the provisions of Law 3691/2008 and relevant Criminal liability lies, in principle, with natural persons. For the pur- administrative regulations, which contain directions and details on poses of law enforcement such as the one in question, there are pro- application of anti-money laundering policies to all agencies, author- visions for sanctions against legal entities or businesses as the result ities, covered institutions, etc. of natural persons’ conduct. These sanctions constitute a number of The main elements of the Law are: the definition of the acts of of measures (administrative penalties and fines) imposed against a money laundering; a description of the predicate offences, proceeds legal entity or business when certain criteria are met and they vary of which fall under the scope of money laundering regulations; juris- depending on the seriousness of the violation. diction of law enforcement agencies to apply the law; a list of the natural persons and institutions covered by law; provisions for asset 4 The offence of money laundering freezing, search, confiscation and seizures; administrative and crimi- nal sanctions; and coordination of all money laundering-related What constitutes money laundering? functions of competent authorities. The act of money laundering is described in article 2 of Law 3691/2008 as follows: Money laundering • knowingly converting and transferring property assets that are the proceeds of crime, or participation in such an act for the 2 Criminal enforcement purposes of concealing the illegal sources of the assets, or aiding Which government entities enforce your jurisdiction’s money anyone involved in said acts in order to assist in avoiding legal laundering laws? sanctions; • concealing and covering up the truth, by any means, in relation Criminal law enforcement lies with the Prosecutor’s Office. All to the source, movement, disposal, place of acquiring assets or enforcement agencies (the Hellenic FIU, the Financial and Economic asset-related rights, in the knowledge that this property is the Crime Unit, the Capital Market Commission, etc) always forward proceeds of criminal acts or participation in criminal activities; their report with findings and gathered information of suspicious • acquiring, possessing, managing or using any asset knowing that activities to the Prosecutor’s Office. The prosecutor evaluates the at the time of possession, management, etc, this property asset material in hand and initiates whatever proceedings are necessary. In was the proceeds of a criminal activity; large-scale crimes or offences related to public officials, the prosecu- • using the financial sector by depositing or transferring proceeds in charge is the financial and economic crime prosecutor, who of criminal activities for the purposes of making it appear as is a prosecutor with the Athens Appeal Court and may initiate any though it has legitimate sources; and proceedings he or she deems appropriate or request for pending case • forming a group or organisation for the purposes of committing files to be handed to him or her for further processing. one or more of the above-mentioned actions. As a general rule, enforcement agencies have the powers to collect information, report their findings and proceed with www.gettingthedealthrough.com 49 GREECE Anagnostopoulos Criminal Law & Litigation

For all money laundering actions the law requires that the natural bribing of domestic public officials, bribing of foreign officials or EU person acts in the knowledge of the source of assets and for the officials, fraud, tax evasion and tax fraud, capital market offences, purposes of concealing or covering up their true origin. It is in this including offences related to insider trading, antiquities traffick- respect that there is no room for negligently committing an act of ing, environmental offences, drug trafficking, people trafficking, money laundering. By special legal provision (article 2, paragraph organised crime and terrorism financing. Recent legislation (Law 5 of Law 3691/2008), the state of mind of a natural person may be 4254/2014) has added to the list of predicate offences, the acts of drawn from the overall circumstances of committing the act. active and passive bribery of political officials (ie, prime ministers, Rules on the state of mind of the perpetrator are not applicable members of the cabinet, deputy members of the cabinet, mayors, to legal entities due to the fact that under Greek Law provisions, district commissioners, etc). Apart from the offences listed above, criminal liability lies with a natural person and, consequently, there there is a general provision that any offence that results in asset or is no criminal liability in its traditional sense regarding a business property profits and is punishable by law with a minimum of six or entity. For the purposes of applying legal provisions related to months’ imprisonment may be considered a predicate offence. In corporate practices and activities, there are provisions for liability in other words all criminal activities that can produce money or asset the form of administrative penalties and fines depending on the seri- gains or profits may be considered as predicate offences. This last ousness of the act, size of the business, etc. Latest legislation amend- provision makes the list of predicate offences non-exhaustive since it ments (by means of Law 4254/2014) mean that legal entities are leaves room for any type of criminal behaviour that results in profit liable for acts of money laundering and predicate offences if these even if it is of lesser to medium importance (as it includes misde- are acts of corruption, namely, active and passive bribery of public meanours punishable with imprisonment of a few months). officials (domestic and foreign) and political officials or members of the judiciary. 7 Defences Liability of legal entities, mainly financial institutions, can be the result of: Are there any codified or common law defences to charges of money • deliberate misconduct by a natural person with representa- laundering? tive and management powers or a person with authorisation Considering that there are no strict rules of evidence under Greek to make decisions on behalf of the entity, or a person with the law and no provisions for strict criminal liability (regardless of the power to perform internal control, who acts in this way to pro- state of mind of a natural person or fault or misconduct in rela- vide benefits or gains to the business; or tion to a legal entity) there are no codified specific defences. As a • negligent or reckless behaviour of natural persons that results matter of practice, the basic defence arguments against money in the violation of articles 12, 13 and 14 of the Law (due dili- laundering charges deal with the soundness of the charges in respect gence towards the client, confirmation of the origin of the assets, to the source of assets, money, etc, as well as knowledge of the validation of the transaction, etc). This is applicable to entities defendant in respect to the specific predicate offence (which resulted that have a special obligation to perform anti-money laundering in the profit in question). policies, such as banking and financial institutions, investment As regards the business or legal entity under review, its defence and insurance services providers, etc. may be based on evidence that suggests negligence not deliberate misconduct, as well as the absence of any profit, benefit or gain. It should be noted that in cases of entities involved in money laun- dering acts (through the acts of individuals that have the power or authorisation to manage or make decisions on their behalf) and are 8 Resolutions and sanctions not covered institutions according to the Law, prosecuting authori- What is the range of outcomes in criminal money laundering cases? ties must notify the competent regulating authority immediately if Plea agreements are not customary under Greek legislation. Recently, they decide to prosecute these cases as well as notifying the outcome however, through a series of amendments to the Greek Criminal of any judicial decisions. Code (to comply with obligations from international treaties and other instruments), there is a provision for immunity or leniency in 5 Qualifying assets and transactions respect to money laundering related to corruption acts. By virtue of article 263B of the Greek Criminal Code Procedure, charges against Is there any limitation on the types of assets or transactions that can a defendant for bribery, corruption or money laundering may be form the basis of a money laundering offence? suspended if he or she gives evidence of corrupt acts committed by The criteria set by the Law for prosecution of money laundering members of the government. If charges cannot be brought against offences are not related to quantitative criteria (such as a monetary government or Parliament members (eg, due to time limitation) then threshold rule). Prosecution is related to the characteristics of the the person offering evidence is eligible for a lesser penalty. The court act and its relation to a predicate offence. For example, the effort may even decide to suspend execution of the penalty. to conceal proceeds of fraud of lesser importance (misdemeanour) Sanctions for money laundering depend on the severity of the is equally prosecuted as a large-scale fraud and money laundering act, the person committing the act (natural or legal), the type of offence. Classification of money laundering is a combination of predicate offence and related circumstances. In principle, sanctions their seriousness and their characteristics. The fact that the list of against natural persons are imprisonment and a fine, while for busi- predicate offences includes any offence that results in profit, gain nesses or legal entities it is a fine with or without additional measures or acquisition of assets, enables the prosecuting authorities to deal (eg, suspension of activities). In principle, when the predicate offence with each case on the basis of its particulars (including the type of is a misdemeanour, the perpetrator of the money laundering act is conduct, patterns of money or asset movement, etc). punishable with imprisonment of at least one year (and up to five years). If the predicate offence is a felony, the basic sanction against natural persons is imprisonment (ranging from five to 10 years) and 6 Predicate offences a fine ranging from €20,000 to €1 million. If the act is committed Generally, what constitute predicate offences? by an employee of the covered institutions or the predicate offence Article 3 of Law 3691/2008 contains a list of offences that may con- is related to passive or active bribery or bribery of a judge, it is pun- stitute predicate offences of money laundering. The list contains all ishable with imprisonment of five to 20 years (even if the predi- forms of classic corruption and property-related offences, namely, cate offence is a misdemeanour) and a fine ranging from between

50 Getting the Deal Through – Anti-Money Laundering 2014 Anagnostopoulos Criminal Law & Litigation GREECE

€30,000 and €1.5 million. If the act is done by a person committing may freeze all types of assets (bank accounts, bank deposit boxes, such acts repeatedly or his or her acts are related to organised crime bonds, invested money, real estate, etc) as well as prohibit the liqui- activities, it is punishable with imprisonment of at least 10 years up dation of assets or any change of status. to 20 years and a fine ranging from €50,000 to €2 million. The court has a legal obligation to forfeit all assets that are Omissions of employees with covered institutions (to report) or proceeds of crime and if none of the laundered assets exist or they filing of inaccurate information is a misdemeanour, punishable with are untraceable or they cannot be confiscated, the court may forfeit imprisonment of up to two years. property unrelated to the crime of equivalent value to the laundered Sanctions against businesses or entities are mainly fines (depend- assets that do not exist or are untraceable. If the property unre- ing on the characteristics of the act) and may be divided into two lated to the crime is not of sufficient value, the court may choose to different categories: covered institutions (eg, banking and finance impose a fine instead, which would be equal in value to the proceeds institutions, companies listed in the stock exchange market) and of the crime. other businesses. For the first category (covered institutions) sanctions are stricter: 10 Limitation periods (i) an administrative fine ranging from €50,000 up to €5 million, which is always applicable; What are the limitation periods governing money laundering (ii) suspension of activities temporarily or permanently; prosecutions? (iii) prohibition of certain activities to be performed by the company, Money laundering prosecution is governed by the general rules of or establishment of branches; and the Greek Criminal Code as regards limitation periods. If the act is (iv) a ban from public tenders, subsidies, etc. a misdemeanour, the prosecutor must indict the defendant within five years of committing the act and, if it is a felony, within 15 years. These measures may be imposed for a time period of one month After these time limits there can be no prosecution for the offence of to two years. Sanctions are imposed by the competent authori- money laundering. It should be noted that time limitation of predi- ties as classified in article 6 and can be imposed accumulatively or cate offences is not relevant to the prosecution of a money launder- concurrently. ing offence: that is, prosecution of such an offence may be initiated Other businesses sanctions are of the same nature, except that even if the predicate offence (eg, bribery) has been time-barred. This the administrative fine ranges from €20,000 to €2 million. The pen- is not unusual as money laundering acts do not necessarily stop at alties are imposed by virtue of a common decision by the Ministry the time the predicate offence is committed but may continue for a of Justice and the ministry supervising or authorising the business’s substantial period of time (eg, successive asset transfers or transfor- activity (eg, the Ministry of Commerce). All of the above-mentioned mation to other types of property, etc). apply to those cases where acts of money laundering were commit- ted in favour of the legal entity or for the purposes of gaining profits by a natural person with power to represent the company or it has 11 Extraterritorial reach a managing or supervising role or is responsible for the company’s Do your jurisdiction’s money laundering laws have extraterritorial internal audits. reach? If the above-mentioned natural persons fail to supervise or effec- In principle, AML legislation and regulations apply to individuals tively control lower-ranking employees of a covered institution or and institutions based in Greece or active within the Greek terri- one that is listed in the stock exchange market business, thus ena- tory. Greek money laundering laws are applicable to Greek citizens bling them to engage in money laundering acts resulting in profit and non-citizens even if the predicate offence has been committed gaining for the legal entity, sanctions against the legal entity are abroad as long as it constitutes an offence in accordance with the (accumulatively or alternatively) an administrative fine ranging from laws of the foreign country, provided that the laundering act was €10,000 to €1 million and the above-mentioned measures (ii) to (iv) committed within Greek territory. Greek citizens may be prosecuted for a period of up to six months. for laundering acts committed in a foreign country provided that the For all other businesses the failure of supervisors, managers or dual criminality requirement is fulfilled. auditors to prevent lower-ranking employees from performing acts of money laundering is punishable with an administrative fine rang- AML requirements for covered institutions and individuals ing from €5,000 to €500,000 and measures (ii) to (iv) for a period of up to six months. 12 Enforcement and regulation It should be noted, however, that according to the Greek Which government entities enforce your jurisdiction’s AML regime and Criminal Code, sentences of up to five years are usually converted regulate covered institutions and persons? Do the AML rules provide into fines and sentences of up to five years may be suspended for for ongoing and periodic assessments of covered institutions and first-time offenders. persons? Enforcement and supervision of covered institutions and persons is 9 Forfeiture done through government entities and quasi-governmental entities Describe any related asset freezing, forfeiture, disgorgement and competent for each field of activity. victim compensation laws. Banking, financial and insurance institutions are supervised by Asset freezing and asset forfeiture is provided for by law. Asset the Bank of Greece. Corporations listed in the stock market are freezing can take place even at the earliest stages of information gath- regulated by the Hellenic Capital Market Commission. Other busi- ering from the Hellenic FIU. The head of the FIU may freeze assets nesses are regulated by the competent department of the relevant by issuing an order. If an ordinary investigation (for money launder- ministry (eg, Ministry of Commerce), lawyers and notaries by the ing) is conducted by an investigating judge, in agreement with the Ministry of Justice, etc (a comprehensive list is provided for in article prosecutor, he or she issues a freezing order to secure assets that may 6 of Law 3691/2008). be the proceeds of the crime or that have originated from proceeds All regulatory agencies and institutions liaise with the central of crime. The interested party may appeal against the order to the regulating authority, which is the Ministry of Finance. competent judicial council. The head of the FIU and the investigator

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13 Covered institutions and persons transactions of more than €15,000, when there is suspicion that an Which institutions and persons must carry out AML measures? offence has been committed or is about to be committed and when there is doubt about the accuracy of information obtained for the Article 5 of Law 3691/2008 provides an extensive list of covered purposes of confirming and verifying the identity of the client or institutions and natural persons. The Minister of Finance and the another person acting on behalf of the client. According to the rules Minister of Justice may add more institutions and natural persons of ordinary diligence, covered institutions must take the necessary to the list. action to verify the identity of the client, the identity of the beneficial Covered institutions and persons are banking and finance owner in relation to the executed transaction, gather information on organisations, venture capital companies, venture capital funds, the economic background of the client in order to check whether a auditing companies, tax consultants, real estate businesses, casinos transaction is in accordance with this background, etc. The means a and gambling agencies, auction houses, pawnbrokers, notaries and financial institution uses to make necessary cross-references must be lawyers acting on behalf of clients for real estate sales, trust fund appropriate (according to the Law’s description) in order to identify administration, etc. the individuals, the transaction and the beneficiary owner. As regards the beneficiary ownership, there is a description given 14 Compliance by the Law (article 4 paragraph 16) and is generally the person in Do the AML laws in your jurisdiction require covered institutions and favour of whom the transaction is executed or the person in control persons to implement AML compliance programmes? What are the of an entity or a group of entities (directly or indirectly) in favour of required elements of such programmes? which the transaction is executed. The main concept is to find who benefits eventually from the transaction. All covered institutions and persons need to implement AML com- pliance programmes, usually following guidelines and regulations of the competent supervising authorities. Naturally, covered insti- 17 High-risk categories of customers, business partners and tutions more vulnerable to money laundering activities (eg, banks, transactions financial institutions, insurance institutions) have more comprehen- Do your jurisdiction’s AML rules require that covered institutions and sive and detailed AML compliance programmes, especially because persons conduct risk-based analyses? Which high-risk categories are these institutions are under strict supervision and regulation. specified? However, even natural persons (eg, lawyers and notaries) have Covered institutions must conduct risk-based analysis when a trans- to meet the standards set by the competent supervising authority action is related to politically exposed persons (members of the gov- (Ministry of Justice, bar associations and notary associations) in ernment, members of Parliament, heads of state, directors of central relation to the management of trusts or transactions on behalf of the banks, ambassadors, high-ranking members of the judiciary, etc). client. The minimum elements of an AML compliance programme Stricter rules of diligence also apply in transactions without the pres- (minimum may vary depending on the nature of the covered insti- ence of the client, cross-border transactions, transactions related to tution or person) are related to validating the transaction as much new financial products or with the use of new technology. as possible and identifying transacting parties in order to eliminate Covered institutions are obliged to take additional measures in suspicions of questionable conduct or unknown, untraceable origins order to avoid the execution of a suspicious transaction and if they of assets. cannot verify the basic elements of the transaction they must abstain from executing it especially if there is suspicion of a connection with 15 Breach of AML requirements organised crime and terrorism activities. What constitutes breach of AML duties imposed by the law? All covered institutions and their employees have three basic obliga- 18 Record keeping and reporting requirements tions (articles 26 and 31 of Law 3691/2008): Describe the record keeping and reporting requirements for covered • to report immediately to the FIU on suspecting that an act institutions and persons. of money laundering has been committed or is about to be committed; Suspicious activity is that which indicates that a money laundering • to offer immediately all information requested by the FIU or offence is committed or has been attempted or there is sufficient other supervising authorities; and indication that the transacting party is involved in other criminal • not to inform the client or any third party either that they have activity (predicate offences). This assessment is made in view of filed a report of suspicious transactions or they have received a the characteristics of the transaction, the background of the client request to give information to any authority. (financial, professional, etc) and a history of the client’s transactions. Diligence rules apply to transactions over €15,000. Breach of the latter prohibition is punishable by imprisonment of Suspicious transactions must be reported immediately to the three months (minimum) to five years and a fine. Hellenic FIU along with all relevant information to be requested by the FIU. It is customary for regulated institutions to have a pre-drafted form of the report (usually drafted by the regulating 16 Customer and business partner due diligence authorities), which is used to inform the FIU on the specifics of the Describe due diligence requirements in your jurisdiction’s AML regime. suspicious transaction. It should be noted that the Ministry of Finance has issued a Law 3691/2008 outlines a complex set of diligence rules for the series of circulars in respect to application of anti-money launder- covered persons to follow, applicable to new clients, existing clients, ing laws and regulations and bookkeeping obligations, whereby high-risk individuals, politically exposed persons, transactions on auditors and accountants are given specific guidelines to report any new financial products, transactions executed without the client’s transaction that causes any suspicion of being related to a criminal physical presence, etc. act (even if it is a simple or general suspicion without need for proof) Rules of diligence apply when the covered institutions enter a to the Hellenic FIU. business agreement with the client, when they process occasional

52 Getting the Deal Through – Anti-Money Laundering 2014 Anagnostopoulos Criminal Law & Litigation GREECE

19 Privacy laws International anti-money laundering efforts Describe any privacy laws that affect record keeping requirements, due 24 Supranational diligence efforts and information sharing. List your jurisdiction’s memberships of supranational organisations Law enforcement agencies, regulators and the Hellenic FIU are that address money laundering. not bound by privacy laws in relation to information falling into their powers and responsibilities, by express legal provisions. Law Greece is a member of the FATF, the FIU-Net and the Egmont enforcement agencies such as the Financial and Economic Crime Group through the Hellenic FIU. It is also a member of the EU, the Unit or the Hellenic FIU may receive any information related to a European Council and has developed cooperation with all major person’s or entity’s banking and tax records. The Capital Market international bodies and organisations related to combating money Commission may obtain any information related to the regulated laundering. activities of the supervised entities etc. There is information though, that needs special authorisation in order to be obtained and reviewed 25 Anti-money laundering assessments (eg, correspondence and telecommunications). For the purposes of reporting and information sharing by covered institutions there is no Give details of any assessments of your jurisdiction’s money private information in relation to an agency’s request. For example, laundering regime conducted by virtue of your membership of a bank is not bound by rules of banking privacy when reporting on supranational organisations. suspicious activities or sending data on requested transactions. According to the FATF’s latest mutual assessment, Greece has made progress towards AML practices and policies. It is recognised that the legal framework is sufficient to deal with matters of international 20 Resolutions and sanctions cooperation and is actually giving broad assistance when requested. What is the range of outcomes in AML controversies? What are the Comments are made as to the ability (because of its structure) of the possible sanctions for breach of AML laws? Hellenic FIU to take advantage of its broad powers and implement See question 8. AML policies efficiently. Measures need to be taken in the insurance sector and the securities sector and adjust provisions for the confis- cation of proceeds of crime to the international standards. 21 Limitation periods What are the limitation periods governing AML matters? 26 FIUs Limitation periods vary depending on classification of the act as misdemeanour or felony. For misdemeanours (imprisonment for Give details of your jurisdiction’s Financial Intelligence Unit (FIU). up to five years), the limitation period is five years between the act The contact details are as follows: and indictment. If the act is indicted within five years the limitation period is suspended for three more years (eight years in total calcu- The Hellenic Financial Intelligence Unit lated from the act of money laundering). 207 Pireos and 92 Alkifronos Street For felonies (imprisonment of between five and 20 years), the 11853 Athens limitation period is 15 years between the act and indictment. If the Greece act is indicted within the 15-year period, limitation is suspended for Tel: +30 210 340 1901-2 an additional five years. Fax: +30 210 342 6892 [email protected] www.hellenic-fiu.gr 22 Extraterritoriality Do your jurisdiction’s AML laws have extraterritorial reach? This is the competent authority to: See question 11. • collect information from reports filed on suspicious transac- tions or any other source, make use of information reverted to Civil claims it by foreign authorities, release guidelines to natural persons or businesses covered by the Law on applying the law and cooper- 23 Civil claims and private enforcement ate and exchange information with international organisations Enumerate and describe the required elements of a civil claim with similar powers. The Hellenic FIU is a member to the FIU- Net and the Egmont Group and files its annual report with the or private right of action against money launderers and covered Commission of Ordinance and Transparency of the Hellenic institutions and persons in breach of AML laws. Parliament, the Ministry of Finance, the Ministry of Justice and Civil claims may be brought against money launderers, covered the Ministry of Citizen Protection (Taskforce A); institutions and persons, following the general provisions of civil • collect information related to terrorism and organised crime law. The person or entity seeking compensation filing a civil suit may finance and money laundering related to such activities turn against the person or the entity employing the person respon- (Taskforce B). The second taskforce files an annual report with sible for damages incurred by money laundering acts. There are no the Ministry of Foreign Affairs, the Ministry of Justice and the monetary thresholds to consider for such a claim to be admissible. Ministry of Citizen Protection; and Limitation of the civil claim depends on its legal basis. If the basis • collect and process income tax returns of natural persons who is tort, the limitation period is that of the criminal act of money have an obligation to make additional filings in respect to their laundering. The plaintiff should prove that the acts of the persons or assets, in accordance with special legislation (eg, public serv- entities constitute a breach of law, regulation, good practice, etc, and ants, members of parliament, journalists (Taskforce C)). If there that they are linked with their damages. is evidence of misconduct, the file is forwarded to the prosecu- tor. Taskforce C files its an annual report with the Commission of Ordinance and Transparency of the Hellenic Parliament, the Ministry of Finance and the Ministry of Justice.

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27 Mutual legal assistance In which circumstances will your jurisdiction provide mutual legal Update and trends assistance with respect to money laundering investigations? What are Anti-money laundering legislation is used extensively by the your jurisdiction’s policies and procedures with respect to requests competent authorities in order to detect and prosecute corruption from foreign countries for identifying, freezing and seizing assets? practices, large scale fraud, tax evasion, etc. A number of high- The Greek authorities offer broad assistance to requests of mutual profile cases prosecuted during the last year have opened following evidence gathered by the Hellenic FIU in relation to legal assistance. Most enforcement agencies and the FIU, apart from suspicious transactions or unjustified changes in the property of being points of contact and competent to handle such requests by certain individuals and entities. The Hellenic FIU has unlimited virtue of international instruments, enter into administrative agree- access to bank records, tax records, etc, and also the ability ments of cooperation, which enables them to exchange information to exchange information with other FIUs in respect to money faster and more efficiently. In principle, requests for freezing and transactions and asset transferring to and from other jurisdictions. This information gathering has become very important in the way seizing of assets are executed without delay if they meet the stand- money laundering is co-related to corruption and financial crime ards and criteria set in the relevant agreements for mutual assistance. cases. On many occasions the findings of the FIU’s investigation have become the basis for detecting and prosecuting serious criminal offences. It is noted, however, that the FIU’s conduct has received some criticism (especially from defence lawyers) for over- agressive tactics, which have a negative impact on defendants’ procedural rights.

Ilias G Anagnostopoulos [email protected] Jerina (Gerasimoula) Zapanti [email protected]

Patriarchou Ioakeim 6 Tel: +30 210 729 2010 106 74 Athens Fax: +30 210 729 2015 Greece www.iag.gr

54 Getting the Deal Through – Anti-Money Laundering 2014 Quiñones, Ibargüen, Luján & Mata SC GUATEMALA Guatemala

Estuardo Mata Palmieri Quiñones, Ibargüen, Luján & Mata SC

Domestic legislation or its equivalent in another national currency it must be reported to customs in the forms existing thereto. If the declaration is omitted or 1 Domestic law if it contains untruthful information, the money or the related docu- Identify your jurisdiction’s money laundering and anti-money laundering ments will be confiscated and put at the disposal of the authorities (AML) laws and regulations. Describe the main elements of these for legal investigation. laws. The AML Law has created a regimen of persons (responsible In relation to money laundering and anti-laundering money laws persons) who, because of the nature of their activities, must inform and related regulations, Guatemala has enforced the following. the Financial Intelligence Unit (FIU) of the obligations provided in the AML Law, which, among others, include obligations to: Anti-Laundering of Money and Other Assets Law (AML Law) • develop internal controls and programmes in order to train their In Guatemala, the crime of money laundering is defined in the AML personnel to prevent the use of assets or products in laundering Law. A person perpetrates a money or assets laundering offence activities; when he or she: • maintain a registry of all individuals and entities and related • with knowledge, invests, converts, transfers or conducts any third parties with which they do business; financial transaction with assets or money or when, through his • maintain a registry of daily transactions of up to US$10,000; or her position, employment, office or profession is obligated to • report any unusual or suspicious transaction and any informa- be aware, that such assets or money are the products or proceeds tion required by the FIU; and of, or are originated from the commission of a crime; • not open anonymous accounts. • acquires, possesses, administers, or uses assets or money or when through his or her position, employment, office or profession is If these obligations are not complied with as provided by the AML obligated to be aware that they are the products or proceeds of, Law and its regulations, the responsible persons will be penalised or originated from the commission of a crime; or with a fine of between US$10,000 and US$50,000. • with knowledge, hides or inhibits the determination of the true The compliance of the AML Law and its regulations is handled nature, origin, location, destination, movement or ownership of by the Bank Superintendence through the FIU. assets or money or duties related to such assets or money, or through his or her position, employment, office or profession is AML Law Regulation obligated to be aware that they are the product of the commis- This Regulation verifies the compliance and development of the obli- sion of a crime (the crime). gations in the AML Law and provides the list of responsible persons obligated to fulfil them. It also regulates the processes and proce- A conviction for the crime can include both individuals and legal dures that responsible persons must follow in order to communicate entities. Individuals are penalised with: to the FIU any suspicious activity as well as the punishable proce- (i) a non-commutable prison sentence of six to 20 years; dures of non-compliance of their obligations. The legal remedies and (ii) a fine equal in value to the assets seized for the perpetration of procedures to challenge any administrative resolution issued by the the crime; authorities in this matter are specified in the Administrative Law. (iii) loss or destruction of the assets used for the crime; (iv) the payment of costs and legal expenses; and Law Against Organised Crime (v) the publication of the judgment of a conviction in at least two This law provides all types of criminal conduct that are attributable newspapers with a major circulation in the country. to members of organised crime, as well as the procedures for crime investigations and prosecution in order to disrupt and eradicate If the crime is committed by a foreign national, he or she will be organised crime. It specifies that any criminal offence contained in penalised with deportation from the national territory, an action the AML Law and committed by three or more persons will be con- that will be executed immediately after complying with the other sidered as organised crime. Even though the Law Against Organised penalties. Crime does not provides a specific definition for‘money and other The penalties described in points (iii), (iv) and (v) and fines assets laundering’ a reference to the definition contained in the AML between US$10,000 and US$625,000 can also be enforced upon Law is provided. Regarding crime investigation proceedings this law legal entities, regardless of the criminal responsibility of its managers regulates, among others, undercover operations, controlled deliver- or legal representatives. If the entity commits the same crime again ies and wire and other media tapping. In order to use these investiga- its legal capacity may be cancelled. tion methods an Attorney’s General Office authorisation is needed, If an individual or a legal entity, either national or foreign, car- except for wire and other media tapping for which a court order is ries to or from overseas, on their behalf or on behalf of someone else, required. money in cash or documents in an amount greater than US$10,000 www.gettingthedealthrough.com 55 GUATEMALA Quiñones, Ibargüen, Luján & Mata SC

Regulation for special investigation methods 3 Defendants This provides and specifies the regulation on the use of the investiga- Can both natural and legal persons be prosecuted for money tion methods aforementioned, in order to accomplish the prosecu- laundering? tion of crimes committed by a structured group of three or more Both natural and legal persons can be prosecuted for money persons related to any laundering of money and other assets crimes. laundering. Forfeiture Law This law aims to stipulate the procedure of seizing any asset whose 4 The offence of money laundering origin is a product of criminal activities. The Forfeiture Law refers What constitutes money laundering? to the definition that AML Law provides of money and other assets laundering. Additionally, it regulates that any individual that does The crime of money laundering is defined in the AML Law as a not provide an affidavit informing of the entry of an amount up person who perpetrates a money or assets laundering offence when than US$10,000 into the country will be punished as regulated on he or she: the AML Law. This law has also eliminated the possibility of issuing • with knowledge, invests, converts, transfers or conducts any bearer shares in limited companies, and therefore, at the present, the financial transaction with assets or money or when through his only shares that a limited company may issue are nominative and or her position, employment, office or profession is obligated to registered shares. be aware that such assets or money are the products or proceeds of, or are originated from, the commission of a crime; Forfeiture Regulation • acquires, possesses, administers or uses assets or money, or when The Forfeiture Regulation describes the proceedings regulated in the through his or her position, employment, office or profession is Forfeiture Law to seize assets related to criminal activities in the obligated to be aware that they are the products or proceeds of, principles of ab initio, which defines that assets obtained or origi- or originated from, the commission of a crime; nated in criminal activities are null since the assets are acquired and • with knowledge, hides or inhibits the determination of the true the prevailing of the principle of the Forfeiture Law. It also provides nature, origin, location, destination, movement or ownership of the faculties of the authority to seize assets related to criminal activi- assets or money or duties related to such assets or money, or that ties and their process of administration. through his or her position, employment, office or profession is obligated to be aware that they are the product of the commis- Prevention and Suppression of Terrorism Financing Law sion of a crime. This law provides that anyone who carries inside or outside of the country, personally or through intermediaries, more than Money laundering is not a ‘strict liability’ crime – it does require a US$10,000, or its equivalent in another national currency, either in mental element on behalf of the defendant. But that mental element cash or in documentary form, must report it to the FIU. A breach is limited to ‘knowledge or suspicion’ on its behalf of dealing with a of these obligations will be considered as illegal transportation of benefit of (an earlier) crime. money. This law is closely related to AML Law, as both of them state Thus, in order to accomplish a conviction under the AML Law, responsible persons as responsible for committing crimes related to the prosecution needs to prove to the satisfaction of the court that: terrorism-financing crimes and the laundering of money and other • the property (eg, money transferred into the defendant’s account) assets, the same procedures to declare the aforementioned amount constituted or represented the benefit of a crime by someone; before customs and both of them regulate the use of the forms • the defendant knew or suspected this to be the case; and created by the FIU, to which any illegal or suspicious transaction • the defendant acquired, used or had (physical) possession of the must be reported. property.

Regulation of the Prevention and Suppression of Terrorism Strict liability standard does not apply since the crime requires the Financing Law awareness of the origin of the money for reasons of the person’s This regulation refers to the obligations with which responsible position, employment or occupation. persons must comply as well as the procedures to report suspicious Since the crime is committed when an individual, because of his transactions to the FIU. In the case of non-compliance by the respon- or her position, is obligated to be aware that it is a product that sible persons the penalty procedure regulated on the AML Law shall derives from, or is originated from, a crime and does not give notice be followed. of the suspicious activity. Negligence standard applies. Financial institutions or other money-centred businesses can be Law against Drug Trafficking. prosecuted or pursued for their customer’s money laundering crimes This law contemplates, as a separate crime, any illegal investments or if it is proven that the person for reasons of his or her position, transactions originated from funds related to any illegal drug trans- employment or profession is obligated to be aware that the money action. These crimes are penalised with six to 20 years of imprison- derives or is originated from a crime. ment and a fine of between US$6,500 and US$650,000. 5 Qualifying assets and transactions Money laundering Is there any limitation on the types of assets or transactions that can 2 Criminal enforcement form the basis of a money laundering offence? Which government entities enforce your jurisdiction’s money There is no monetary threshold to the prosecution of a money and laundering laws? other assets laundering crime. Even if the AML Law does not pro- vide a definition of ‘assets’, a reference to the definition in our civil The government entity that enforces the AML Law is the Attorney code must be made. According to section 442 of the Guatemalan General’s Office as well as the judicial authorities. The AML Law is Civil Code, ‘assets are the goods that are or can be object of appro- applicable in all of the national territory, There are no state, provin- priation, and are classified as personal property or real property’, cial or local laundering laws. and it must be understood that ‘all the things that are excluded from commerce by their nature or by disposition of the law can be the object of appropriation’.

56 Getting the Deal Through – Anti-Money Laundering 2014 Quiñones, Ibargüen, Luján & Mata SC GUATEMALA

6 Predicate offences If the crime is committed by those who have been elected by Generally, what constitute predicate offences? votes; a public officer or a public employee, or an officer or employee of the FIU, he or she will be punished with the corresponding penalty The crime is regulated in Guatemala as an autonomous crime. It is increased by one third plus the other additional penalties. Further, he not necessary to prosecute or condemn the crime from which the or she will be debarred from the exercise of the position that he or money or assets laundered originate in order to prosecute the crime. she occupied for double the time of the penalty to be fulfilled in prison. 7 Defences

Are there any codified or common law defences to charges of money 11 Extraterritorial reach laundering? Do your jurisdiction’s money laundering laws have extraterritorial There are no codified or common law defences to charges of money reach? laundering. The general principle establishes that the criminal law of Guatemala will apply to any person that perpetrates a crime in the national terri- 8 Resolutions and sanctions tory, places or vehicles subject to Guatemalan jurisdiction. However, What is the range of outcomes in criminal money laundering cases? the extraterritorial principle, understood as the application of the Guatemalan’s criminal law to crimes committed in a foreign country, In Guatemala, criminal money laundering cases cannot be resolved does apply on the following cases: by plea of settlement agreements, prosecutorial discretion or similar • a crime committed in a foreign country by a public officer as means instead of a trial. long as they are not prosecuted in the country where the crime The penalties for money laundering for individuals are a non- was committed; commutable prison sentence from six to 20 years and a fine equiva- • a crime committed on an aeroplane or any other Guatemalan lent to the value of goods produced by the commission of the crime. form of transport, as long as the crime is not prosecuted in the For the perpetration of the crime, individuals are also punished country where it was committed; with the confiscation or loss of the assets generated by and used for • a crime by a Guatemalan individual in a foreign country where money laundering. If the crime is committed by a foreign national, extradition is denied; he or she shall be penalised with deportation from the national ter- • a crime committed in a foreign country against a Guatemalan ritory, which will be executed immediately after complying with the individual where it was not prosecuted before the judicial other penalties. If the crime is committed by a public officer, penal- authorities of the country where it was committed when there is ties will increase by one-third and will also carry the debarment of an accusation from the Generals Attorney’s Office and the per- holding public office. son is in Guatemala; Regarding entities, the applicable penalty is a fine of between • a crime, which pursuant to a treaty or a convention ratified by US$10,000 and US$625,000. In the case of a second offence, entities Guatemala, should be sanctioned in Guatemala even when it are penalised with the cancellation of its commercial licence and its was not committed in Guatemalan territory; and legal capacity will be annulled. • a crime committed against national security, the constitutional order or the integrity of Guatemalan territory, the president’s 9 Forfeiture signature, the falsification of currency, shares or any counterfeit Describe any related asset freezing, forfeiture, disgorgement and finance documents. victim compensation laws. AML requirements for covered institutions and individuals The Forfeiture Law determines that assets related to criminal activi- ties, including money laundering, can be seized and taken over by 12 Enforcement and regulation the state, regardless of whether the property is in possession or is Which government entities enforce your jurisdiction’s AML regime and owned by a third party. These resources are distributed among enti- regulate covered institutions and persons? Do the AML rules provide ties created to enforce and prevent money laundering, terrorism for ongoing and periodic assessments of covered institutions and financing, organised crime, drug trafficking and for the administra- tive expenses of the seized assets administration. This law regulates persons? the possibility of returning the assets to the individuals who effec- The authority for AML matters, that supervises financial transac- tively collaborate with the persecution of criminal activities. tions and requires special forms to be filled out with information on The investigation of causes for the forfeiture of property can every client is the FIU Special Verification Intendency (IVE), which take place without a legal criminal process previous established or was created and is part of the structure of the Bank Superintendence. without a judicial order. Therefore, when enough information has The responsible persons must appoint a financial manager in charge been collected the forfeiture action can be initiated. of surveying the compliance of all programmes and procedures reg- ulated by the AML Law, internal controls to develop and execute them in order to avoid the use of the services and products on money 10 Limitation periods laundering, coordinate with other entities, have updated informa- What are the limitation periods governing money laundering tion in order to prevent and detect money laundering and file the prosecutions? reports and adequate registries and communication of suspicious The AML Law does not specifies the limitation periods for launder- and unusual transactions. ing prosecution, however, it does provide that for the prosecution of Pursuant to the compliance of AML Law matters the General the crime and execution of the penalties for money and other assets Attorney’s Office jointly works with the FIU once the investigation laundering, the limitation periods regulated in the Criminal Code and prosecution of the crime has been initiated. should be observed. The FIU provides for ongoing and periodic assessments related The Criminal Code provides that the limitation period for a to money and other assets laundering, once they are required by money laundering crime is a period equal to the maximum duration the responsible persons. However, responsible persons are obliged to of the penalty (ie, 20 years). report to the FIU the information regarding their transactions every three months. www.gettingthedealthrough.com 57 GUATEMALA Quiñones, Ibargüen, Luján & Mata SC

13 Covered institutions and persons be communicated by the FIU through a notification of the resolu- Which institutions and persons must carry out AML measures? tion or its publication twice in the Official Gazette and in another newspaper. The responsible persons stipulated in AML Law and its regulations are the following: 14 Compliance Group A Do the AML laws in your jurisdiction require covered institutions and This group includes: persons to implement AML compliance programmes? What are the • Banco de Guatemala (Central Bank); required elements of such programmes? • banks within the system; • finance companies; The AML regulation provides that all responsible persons are • exchange houses; required to execute programmes, rules, procedures and internal con- • individuals or legal persons dedicated to brokerage or to the trols in order to avoid the use of their services and products for intermediation of securities trading; money laundering. They are also obliged to have policies of ‘know • credit card issuers and operators; and your client’ (KYC) and ‘know your employee’ (KYE) in order to • offshore entities. keep a registry in a form specially elaborated by the FIU in which the responsible persons stipulate their costumer identification policies. Group B These programmes require establishing procedures that: This group includes: • assure a high level of integrity of the personnel and the working • companies dedicated to systematic or substantial fund transfers and patrimonial background of the employees; or capital flows; • include permanent training for the personnel and instructions • insurance and guaranteed bonds companies; regarding the responsibilities and obligations provided by this • companies dedicated to performing systematic or substantial law, including the knowledge of techniques that allow the operations of payment of cheques; employees to detect operations that might be related to the laun- • the Institution for Development of Insured Mortgages; dering of money or other assets and the ways to proceed in such • agencies; cases; • companies dedicated to financial leasing; • have the establishment of a mechanism for auditing in order to • general warehouses of deposit; verify and evaluate the compliance of programmes and rules; • others that the legislation submits specifically to the surveillance and and inspection of the Bank Superintendence; • create and develop specific measures to know and identify the • cooperatives performing savings and credit operations, indepen- client. dently of their denomination; • entities authorised by the government ministry to operate lot- 15 Breach of AML requirements teries, raffles and similar, regardless of the designation of their name; What constitutes breach of AML duties imposed by the law? • not-for-profit legal entities, regardless of their denomination, All duties are considered to be breached if they are not complied that receive, manage or execute state funds or receive or send with by the responsible persons. The responsible persons must funds abroad; provide the authorities the information requested related to KYC • insurance brokers and insurance agents; information, the information related to the beneficiaries of the • individuals or legal entities performing the following activities: new accounts and a daily registry of transactions over US$10,000 • real estate or real estate sales activities; through the forms created by the FIU in the period established in • purchasing of land, sea and air motorised vehicles; the regulations. If the responsible persons are not able to provide • activities related to the trading of jewels, precious stones and the information within the period established they should request an metals; extension to the period. • activities related to the trading of works of art and antiques; Responsible persons who do not comply with their duties will and be penalised with a US$10,000 to US$50,000 fine and, in addition, • the shielding of property of any kind or the rental of have to comply with the omitted duty that gave place to the pen- armoured vehicles services; alty in the period fixed by the proper authority, notwithstanding any • public accountants and auditors providing services related to legal liabilities thereto. managing money, securities, bank accounts, investments or other assets, accounting activities and auditing in general; and 16 Customer and business partner due diligence • individuals or legal entities engaged in providing services or instructions for their customers or third parties, related to any of Describe due diligence requirements in your jurisdiction’s AML regime. the following activities: The AML Law and Regulation specifies that all responsible persons • performance, on its behalf or through third parties, as a must maintain a registry of all individuals and legal persons with holder of registered shares, partner, associate or founder of which they have any commercial or business relationship, occasional legal entities; or customary clients, through the forms created by the FIU, specially • performance, on its behalf or through third parties, as a regarding all issues related to the opening of new accounts perform- director, member of the board of directors, administrator, ing fiduciary transactions, rental of safe deposit boxes or the per- guardian or legal representative of legal entities; and, formance of cash transactions that exceed US$10,000. Responsible • providing a physical address to act as a tax domicile or legal persons must also verify the identity, corporate name or name of address for legal entities. the person, age, occupation or corporate purpose, marital status, address, nationality, capacity, legal capacity and capacity of the Depending on the volume of operations and given the nature of the above-mentioned persons. Regarding foreign nationals, responsible responsible person’s activities the Superintendence of Banks through persons must require certified evidence of their income and legal the FIU may transfer responsible persons from one group to another, permanence in the country and for non-residents in the country, the according to the preceding classification. This transference shall identity of the person who will legally represent them.

58 Getting the Deal Through – Anti-Money Laundering 2014 Quiñones, Ibargüen, Luján & Mata SC GUATEMALA

Responsible persons must also adopt the necessary measures to requested, in compliance of the law and regulations related to laun- obtain, bring up to date, verify and maintain the information regard- dering of money and other assets. ing the true identity of third parties to whose benefit an account is opened or if a transaction is performed when there is doubt that 20 Resolutions and sanctions such third parties may be acting for their own benefit or, at the same time, they may be doing it for the benefit of other third party espe- What is the range of outcomes in AML controversies? What are the cially in the case of legal entities that do not perform commercial, possible sanctions for breach of AML laws? financial or industrial transactions in the country or in the country For breach of AML laws, additional to the criminal responsibility, were they have its central office or domicile. These registries must administrative fines are specified from US$10,000 to US$50,000. be updated during the legal existence of the commercial or business According to the FIU 2010 report, two fines for USD$40,000 were relationship and must be maintained at least five years after the end imposed for breach of AML laws. of the legal transactions or cancellation of accounts. For independent screening, every responsible person should appoint financial managers in charge of surveying the compliance 21 Limitation periods with all programmes and procedures, internal controls to develop What are the limitation periods governing AML matters? and execute them in order to avoid the use of the services and prod- The limitation period governing AML administrative matters is five ucts on money laundering. years. The AML Law does not provides specific regulations of benefi- cial ownership. However, the Forfeiture Law and its related regula- tion, does provide that all limited companies have the obligation to 22 Extraterritoriality issue nominative shares. Do your jurisdiction’s AML laws have extraterritorial reach? If the crime is perpetrated by a foreign individual in Guatemala, a 17 High-risk categories of customers, business partners and penalty will be imposed by the authorities and he or she will be transactions expelled from the national territory once the penalty is completed. Responsible persons are bound to verify that their agencies, subsidi- Do your jurisdiction’s AML rules require that covered institutions and aries or offices operating in foreign countries comply with all legal persons conduct risk-based analyses? Which high-risk categories are provision regarding prevention of laundering of money or assets of specified? the country where they are established. The FIU or any other author- In compliance with the AML Law, responsible persons are obliged ity are bound to assist foreign authorities to investigate, inspect, pro- to create, propose, and maintain programmes with specific catego- vide legal documents and identify any evidence of assets related to ries in order to retain the identity of their clients. Responsible per- matters concerning laundering money. sons should stipulate their own ‘client due diligence’ and update the client’s registries. Civil claims All PEPs are supervised by established mechanisms to active accounts in banks, financial entities and offshore accounts. This is 23 Civil claims and private enforcement regulated in the AML Law, the Banks and Financial Supervision Enumerate and describe the required elements of a civil claim Law and the Prevention and Suppression of Terrorist Financing Law. or private right of action against money launderers and covered The activities of banks and other institutional intermediaries, foreign institutions and persons in breach of AML laws. nationals and entities and domestic and cross-border funds are also Any person suffering a loss or damage as a result of a breach of the supervised. AML Law may initiate a civil claim against the AML Law transgres- sor. Burden of proof is on the claimant, who must prove the damage 18 Record keeping and reporting requirements or loss. The claimant has one year to claim its compensation and to Describe the record keeping and reporting requirements for covered request repair of damage for any breach of AML Law. institutions and persons. International anti-money laundering efforts Responsible persons must report to the FIU any transactions that appear unusual or significant, as well as all suspicious activities that 24 Supranational do not have a clear economic or legal reason. List your jurisdiction’s memberships of supranational organisations The AML Law defines suspicious activities or transactions as that address money laundering. unusual activities related to transactions that are duly reported by the responsible persons that do not have any clear economic or legal • the Financial Action Task Force (FATF); basis and that could constitute a crime. • the Caribbean Financial Action Task Force (CFATF); The threshold for financial transactions are every commercial • the Financial Action Task Force in South America (GAFISUD); or business relationship with occasional or customary clients that and exceeds US$10,000. The suspicious activities reports must be sub- • the Egmont Group. mitted to the FIU. 25 Anti-money laundering assessments 19 Privacy laws Give details of any assessments of your jurisdiction’s money Describe any privacy laws that affect record keeping requirements, due laundering regime conducted by virtue of your membership of diligence efforts and information sharing. supranational organisations. Only a court or the Generals Attorney’s Office can request informa- According to the Fourth Follow-Up CFATF Report, issued on 22 tion from responsible persons through a judicial order. Any respon- November 2013, Guatemala accomplished significant and effec- sible person can breach confidentiality of any nature, by providing tive advance including training, accusations, penalties and con- the information that they are forced to give to the authorities when fiscations in money and other assets laundering issues. Likewise, the report establishes that Guatemala has fulfilled many of the www.gettingthedealthrough.com 59 GUATEMALA Quiñones, Ibargüen, Luján & Mata SC

Update and trends

As has been described in this chapter, Guatemala has improved its In addition to the aforementioned, Guatemala has a determination fight against the laundering of money and other assets by introducing to continue combating the laundering of money and other assets. As a modifications to the AML Law and its Regulations. On 13 November result of this effort, Guatemala has accomplished significant advances 2013, one of the most important modifications made to this law and to overcome the deficiencies detected in the Mutual Evaluation its regulation regarding responsible persons took place. The AML Law Report, approved by the FATF in 2010. Among other accomplishments, includes those who are considered responsible persons and have the the Fourth Follow-up Report of CFATF, issued on 22 November 2013, obligation to comply with certain duties and requirements in order to indicates that Guatemala has developed programmes in order to to become liable to prosecution for money laundering. Section 18 of comply with the recommendations, among which are: the AML Law includes, among other matters, the ‘individual or legal • there has been international cooperation with the FIU, General person who performs [...] any other activity that by the nature of its Attorney’s Office and the judicial authorities; operations may be used for the laundering of money or other assets, • penalties have been applied effectively to responsible persons up as provided in the regulation’, providing a wide range of persons in to an amount of US$85,000, and the penalties have been fully relation to financial activities. However, there was also the need to satisfied; and include responsible persons (individual or legal persons who are • 41 sentences have been issued by the courts and 300 involved in non-financial activities is evidenced) who, because of the accusations and 17 sentences of abandonment and absolutions nature of their activities, services or products, can use these for have been complied with, among others. laundering of money and other assets. Consequently, the regulation was enacted in November 2013, listing and categorising responsible Statistics in the CFATF report demonstrate that although there have persons (see question 13) and complying, at the same time, with one been continuous efforts, there is still much work to do in order to of the recommendations made by de FATF. accomplish all the goals listed in the AML Law and its Regulations. recommendations made in order to comply with AML Law issues 27 Mutual legal assistance and related laws and regulations. In which circumstances will your jurisdiction provide mutual legal The CFATF Report also advises that according to the process assistance with respect to money laundering investigations? What are and procedures of evaluation made by this entity, it is recommended your jurisdiction’s policies and procedures with respect to requests that Guatemala informs to the supranational authorities (eg, the from foreign countries for identifying, freezing and seizing assets? FATF) every two years, and not every year as had been established. Guatemala has signed and ratified several international conventions, This is a form of recognising that Guatemala has made progress on both multilateral and bilateral, of mutual legal assistance in crimi- the combat against laundering of money and other assets. nal matters related to money and other assets laundering issues. The prosecutor’s office has issued an internal resolution for international 26 FIUs legal assistance in order to provide and create a process to provide Give details of your jurisdiction’s Financial Intelligence Unit (FIU). assistance in criminal matters. Legal assistance is provided through the legal authorities and the request requires authentication from the Intendencia de Verificación Especial IVE- FIU Ministry of Foreign Affairs. 9 avenida 22-00 zona 1 Guatemala Tel: +502 2429 5000 / 2204 5300 Fax: +502 2232 0002 www.sib.gob.gt

Estuardo Mata Palmieri [email protected]

Diagonal 6 10-01, Zone 10 Tel: +502 2327 4646 Centro Gerencial Las Margaritas Fax: +502 2327 4613 Tower II, Office 1402A www.qilsc.com Guatemala

60 Getting the Deal Through – Anti-Money Laundering 2014 AZB & Partners INDIA India

Aditya Bhat and Richa Roy AZB & Partners

Domestic legislation of the PML Act (see question 2). These authorities are vested with powers to provisionally attach property involved in money 1 Domestic law laundering, issue summons, search, seize and arrest with regard Identify your jurisdiction’s money laundering and anti-money laundering to proceeds of crime, similar to the powers vested in a civil court. (AML) laws and regulations. Describe the main elements of these Under the PML Act, financial institutions and intermediaries, refer- laws. ence to which, inter alia, includes NBFCs, stockbrokers and payment The Prevention of Money Laundering Act, 2002 (PML Act), together system operators, are required to maintain records of transactions of with the rules issued thereunder and the rules and regulations pre- a prescribed nature and above certain thresholds. The procedure and scribed by regulators such as the Reserve Bank of India (RBI) and manner for providing such information is prescribed by the RBI in the Securities and Exchange Board of India (SEBI), set out the broad consultation with the central government. framework for the anti-money laundering laws in India. Some of the There have not been many cases that have been brought before primary rules and guidelines regulating money laundering activities Indian courts under the PML Act, and therefore courts in India have in India include: not extensively interpreted or analysed the provisions of the PML • the Prevention of Money Laundering (Maintenance of Records Act or the scope thereof. However, as a general principle of law in of the Nature and Value of Transactions, the Procedure and India, courts have widely accepted the position that criminal statutes Manner of Maintaining and Time for Furnishing Information must be construed strictly, and that for a penalty to be imposed under and Verification and Maintenance of Records of the Identity of any criminal statute an offence must have been committed that falls the Clients of the Banking Companies, Financial Institutions and not only within the letter, but also within the spirit of the statute (see Intermediaries) Rules, 2005 (PML Rules) issued under the PML Glaxo Industries v Presiding Officer, Labour Court, Meerut AIR Act; 1984 SC 505). Having said that, courts in India have also held that • the Master Circular on Anti-Money Laundering/Combating where a plain reading of the statute does not cover the objectives of Financing of Terrorism/Obligations of Intermediaries under the the legislature in passing such a law, the courts must also have due Prevention of Money Laundering Act, 2002, issued by SEBI on consideration for such objectives while interpreting the provisions 31 December 2010 and the rules framed thereunder (SEBI AML of such statute. The above principle is especially important in the Guidelines); context of socio-economic statutes such as those dealing with cor- • the Master Circular on (KYC) norms/ ruption or violation of foreign exchange laws. Thus, one may take a AML standards/ Combating of Financing of Terrorism (CFT)/ view that the PML Act, if litigated before Indian courts, would also Obligation of banks under the PML Act, 2002, issued by the RBI be interpreted and enforced in line with the above principles. on 2 July 2013, which is the most up-to-date consolidation of the guidelines for banks (Bank KYC Guidelines); and PML Rules • the KYC Guidelines – AML Standards – PML Act – Obligations The PML Rules have been issued by the central government in of NBFCs in terms of Rules notified thereunder, issued on 2 July consultation with the RBI, setting out the process to be adopted by 2013, which is the most up-to-date consolidation of the guide- banks, financial institutions and intermediaries for identifying and lines for non-banking finance companies (NBFCs) (NBFC KYC verifying their clients before commencing a business relationship Guidelines). with them. The PML Guidelines also prescribe exhaustive require- ments for banks, financial institutions and intermediaries to estab- PML Act lish and verify the identity of any client at the time of operating an The PML Act was enacted by the Indian Parliament in 2002 but account or executing a transaction, including prescribing the docu- came into force in 2005. It was enacted following the adoption of ments that the bank, financial institution or intermediary should the Political Declaration and Global Programme of Action by the seek from a client and maintain on record. United National General Assembly in February 1990, which called In this regard, it is important to note that the definitions of the upon member states to develop money laundering legislations terms ‘financial institutions’ and ‘intermediaries’ are extremely wide and programmes. The PML Act not only criminalises the offence under the PML Act. of money laundering, but also puts in place preventive measures. The PML Rules cast obligations on banks, financial institutions These measures are proposed to be achieved through provisional and intermediaries to maintain records of certain prescribed trans- attachment of ‘proceeds of crime’, which are likely to be concealed, actions, which include all transactions in excess of a certain value, transferred or dealt with in a manner that may obstruct proceedings, series of interconnected transactions that may cumulatively amount and through obligations imposed on banks, financial institutions and to a prescribed value, and suspicious transactions (as defined in the intermediaries to maintain records and furnish information regard- PML Rules), whether or not such transactions are effected in cash. ing certain types of transactions. The PML Act provides for the The PML Rules stipulate that the procedures and manner of main- appointment of authorities to administer and enforce the provisions tenance of records may be prescribed by the respective regulators www.gettingthedealthrough.com 61 INDIA AZB & Partners of banks, financial institutions or intermediaries, namely, the RBI • officers of the SEBI; and and the SEBI. In this regard, the RBI has issued the Bank KYC • such other officers of the central government, state government Guidelines and the NBFC KYC Guidelines for banks and financial or banking companies who may be notified by a special order of institutions, and the SEBI has issued the SEBI AML Guidelines for the central government. SEBI-registered intermediaries. The PML Act specifically mandates such assistance and cooperation Bank KYC Guidelines between the aforesaid authorities, since an essential element for the The Bank KYC Guidelines have been issued by the RBI and are commission of the offence of money laundering is being involved applicable to banking companies regulated by the RBI. The purpose with a process or activity connected with the ‘proceeds of crime’, of the Bank KYC Guidelines is to prevent banks from being used and projecting such proceeds of crime as untainted property. The for money laundering or terrorist financing activities. The Bank PML Act defines ‘proceeds of crime’ to mean any property (or the KYC Guidelines require banks to put in place requirements estab- value of any such property) derived or obtained, directly or indi- lishing the identity of customers, categorising customers based on rectly, by any person as a result of any offences under Indian penal the degree of risk they may pose, undertaking client due diligence statutes set out in one of the schedules of the PML Act (scheduled (CDD), including enhanced CDD for high-risk customers and ben- offences) the commission of which is to be taken into account for eficiary accounts, and procedures for dealing with various types of the purposes of determining whether the offence of money launder- transactions such as cross-border transactions and reporting such ing has taken place. Such offences are the predicate offences for the transactions to the Financial Intelligence Unit (FIU). commission of the offence of money laundering. Accordingly, if any transaction is not linked to a scheduled offence, the funds relating to NBFC KYC Guidelines such transactions would not constitute proceeds of crime, and there- The NBFC KYC Guidelines have been issued by the RBI and are fore dealing in such funds would not amount to money laundering. applicable to both deposit-taking and non-deposit-taking NBFCs. The investigation of the offence of money laundering is therefore The NBFC KYC Guidelines require NBFCs to put in place proce- inextricably linked to the investigation of the scheduled offence and dures for establishing the identity of customers as well as brokers it is on account of this that various investigative agencies have been and agents through whom the NBFCs may deal with customers, directed in terms of the PML Act to coordinate and cooperate with categorising customers based on the degree of risk they may pose, the ED. conducting due diligence, including enhanced due diligence for high- Scheduled offences and the offence of money laundering are risk customers and beneficiary accounts, and the manner of dealing proposed to be tried together by a special court constituted by the with various types of transactions including cross-border transac- PML Act, having jurisdiction over the area in which the offence has tion and reporting such transactions to the FIU. been committed. section 44 of the PML Act provides that the central government may, in consultation with the chief justice of the rel- SEBI AML Guidelines evant high court, designate one or more sessions courts as the special The SEBI AML Guidelines have been issued by the SEBI and are court. Accordingly, the commission of a scheduled offence must nec- applicable to SEBI-registered intermediaries. The SEBI AML essarily be alleged before the special court that is trying the offence Guidelines require that intermediaries must put in place policies of money laundering under the PML Act, and evidence and material and procedures to combat money laundering, which should include relating to the scheduled offence is required to be placed before such communication of group policies relating to the prevention of special court so as to enable it to frame a charge in respect of such money laundering and terrorist financing to all management and offence and try it (see Hasan Ali Khan v Union of India [application relevant staff members that handle account information, securities No. 994 of 2011]). transactions, client acceptance policy and CDD measures, including requirements for proper identification; the maintenance of records; and cooperation with the relevant law enforcement authorities, 3 Defendants including the timely disclosure of information. Can both natural and legal persons be prosecuted for money laundering? Money laundering Under the PML Act, both natural and legal persons can be pros- 2 Criminal enforcement ecuted for money laundering. The term ‘person’ under the PML Act has been defined to Which government entities enforce your jurisdiction’s money include: individuals, companies, firms, associations of persons, laundering laws? whether incorporated or not, artificial juridical persons and The Directorate of Enforcement (ED), which is under the admin- agencies, offices and branches owned or controlled by any of the istrative control of Department of Revenue, Ministry of Finance, aforesaid. The PML Act provides for a wide range of penal actions government of India and the director of the FIU of India under the that may be taken against persons in possession of proceeds of crime Ministry of Finance, Department of Revenue, have been appointed who have committed scheduled offences. to exercise exclusive powers under specific sections of the PML Act. Under section 70 of the PML Act, a company may also be held Additionally, section 54 of the PML Act provides that certain liable for an offence under the PML Act. In the event of a company officers are empowered to assist authorities under the PML Act with committing an offence under the PML Act, the persons in charge of enforcement, including: such company (and responsible to the company for the conduct of • officers of the Customs and Central Excise Departments; its business), at the time of commission of the offence by the com- • officers appointed in terms of certain provisions of the Narcotic pany, may also be held liable under the PML Act. It may, however, be Drugs and Psychotropic Substances Act, 1985; noted that section 70 of the PML Act provides a defence to persons • officers of the stock exchange under the Securities Contracts in charge of the company at the time of commission of an offence by (Regulation) Act, 1956; the company under the PML Act if such persons are able to prove • income tax authorities under the Income Tax Act, 1960; that such contravention of the PML Act by the company took place • officers of the RBI; without their knowledge or that they exercised all due diligence to • officers of the police; prevent the commission of such an offence by the company. Further, • officers of enforcement appointed under the Foreign Exchange in such cases, if the acts by the company in the commission of the Management Act, 1999; offence can be attributable to any particular director, officer or

62 Getting the Deal Through – Anti-Money Laundering 2014 AZB & Partners INDIA manager, such a director, officer or manager may also be prosecuted • a registrar who records transactions relating to immoveable separately under the PML Act for the offences committed by the property; company under their direction or connivance. • a notified real estate agent, • a dealer in precious metals, precious stones and other high value goods, as may be notified by the central government; and 4 The offence of money laundering • a person engaged in safekeeping and administration of cash and What constitutes money laundering? liquid securities on behalf of other persons, as may be notified by Offence of money laundering the central government. Money laundering is defined in the PML Act as direct or indirect attempts to indulge or knowingly assist or knowingly become a Or under section 12 of the PML Act, every banking company, finan- party to or have actual involvement in the process or activity con- cial institution and intermediary is required to: nected with the proceeds of crime and projection of such property as • maintain a record of all transactions (which may comprise sin- untainted property. The PML Act was amended in 2013 to include gle individual transactions or a series of transactions that are the activities of concealment, possession, acquisition or use of the integrally connected to each other, provided that such series of proceeds of crime as activities that have been criminalised. Under transactions take place within a period of one month) of such section 3 of the PML Act, actions deemed to construe the offence of nature and of such value as prescribed from time to time; money laundering under the PML Act in India include: • furnish information relating to the aforementioned transactions • a direct or indirect attempt to indulge in any process or activity to the enforcement authorities under the PML Act (see question that is connected with the proceeds of crime, with the intention 2 for the enforcement authorities under the PML Act); and of projecting such proceeds of crime as untainted property; • verify and maintain the records of identities of all their clients as • any direct or indirect assistance of any process or activity con- well as their beneficial owners (ie, an individual who ultimately nected with the proceeds of crime and projecting such proceeds owns or controls a client or the person on whose behalf a trans- of crime as untainted property, provided such assistance is action is being conducted and includes a person who exercises knowingly given; ultimate effective control over a juridical person) in such manner • concealment, possession, acquisition or use of proceeds of crime; as prescribed from time to time. and • being, directly or indirectly, a knowing party to or being involved Further, the principal officer of a bank, financial institution or inter- in any process or activity connected with the proceeds of crime mediary has an obligation to furnish information in relation to any and projecting such proceeds of crime as untainted property. transaction or series of transactions (even where such transactions are not of the nature or value as prescribed above) to the enforce- Further, in the case of Hasan Ali Khan v Union of India, the Bombay ment authorities under the PML Act within the prescribed time peri- High Court has held that an offence is committed under the PML ods if such principal officer is of the view that the transactions are of Act only when an attempt is made to demonstrate a legitimate a nature that defeats the objects of the PML Act. source of earning with respect to a tainted property, namely, with The record keeping obligations continue for a period of 10 years respect to proceeds of crime. In terms of section 24 of the PML Act, from the date on which the transactions are concluded between the where there are any proceedings relating to proceeds of crime under client and such bank, financial institution or intermediary or the the PML Act, unless the contrary is proved, it shall be presumed the date of account closure. It may be noted that under section 14 of the proceeds of crime are involved in the offence of money laundering. PML Act, no civil or criminal proceedings may be initiated against The PML Act sets out certain specific offences that are referred a bank, financial institution or intermediary for divulging records as ‘scheduled offences’ under the PML Act. These are further sub- of transactions to the enforcement authorities under the PML Act divided into two categories of offences, namely, Part A or Part B in accordance with the provisions of section 12 of the PML Act. offences. The commission of any Part A offence constitutes a sched- The enforcement authorities under the PML Act have the power to uled offence, whereas the commission of a Part B offence constitutes call for the records required to be maintained by banks, financial a scheduled offence only if the total value involved in such offence is institutions and intermediaries under the PML Act from such banks, equal to or greater than 3 million rupees. financial institutions or intermediaries, or to make such inquiries in To constitute an offence of money laundering under section 3 this regard as they may deem fit, including by having their accounts of the PML Act, a person must knowingly assist or knowingly be a audited and by making the reporting entities as well their directors party to any process or activity connected with the proceeds of crime liable for non-compliance. and in the projection of such proceeds of crime as untainted prop- In the event of a failure by any of the above entities in comply- erty, or be involved in concealing, acquiring or using such proceeds ing with the requirements under section 12 of the PML Act, a fine of crime. Therefore, the element of knowledge is an important con- may be imposed on such entities ranging from a minimum amount stituent for the offence of money laundering in India and therefore, a of 10,000 rupees, which may extend up to 1 million rupees for each strict liability standard may not be applicable in India in the context failure. It should be noted that banks, financial institutions and other of an offence of money laundering. In this regard, one may note intermediaries can be prosecuted or pursued for money laundering that the term ‘knowledge’ was specifically inserted into section 3 offences committed by their clients if it can be demonstrated that of the PML Act after deliberations over the draft bill in Parliament they were aware of the commission of a scheduled offence, know- prior to passing of the PML Act. Therefore, the legislative intent of ingly became recipients of the proceeds of crime and projected the Indian Parliament in this regard seems quite clear. such proceeds as untainted property. In this regard, it is useful to note that the obligations cast on banks, financial institutions and Obligations of banks, financial institutions and other intermediaries in terms of the PML Act, the PML Rules, the Bank intermediaries under the PML Act KYC Guidelines, the NBFC KYC Guidelines and the SEBI AML Chapter IV of the PML Act sets out the obligations of banks, finan- Guidelines are to exercise due diligence in their dealings with clients, cial institutions and other intermediaries including stockbrokers, and to maintain and furnish records of certain prescribed dealings share transfer agents, merchant bankers, underwriters, portfolio with clients. Accordingly, although the exercise of diligence on the managers and investment advisers. By way of a recent amendment, part of banks, financial institutions and intermediaries does not con- such intermediaries include among others the following: stitute a defence under the PML Act and the PML Rules, it may be • a person carrying on activities for playing games of chance for used as a factor in demonstrating the lack of knowledge of the com- cash or kind, and includes such activities associated with casinos; mission of money laundering by their client. www.gettingthedealthrough.com 63 INDIA AZB & Partners

5 Qualifying assets and transactions • life imprisonment; or Is there any limitation on the types of assets or transactions that can • imprisonment for a term in excess of seven years. form the basis of a money laundering offence? The offence of money laundering has not yet been notified as affect- As set out in question 4, the commission of a scheduled offence is ing the ‘socio-economic condition of the country’, and given that required to ascertain whether the offence of money laundering has the maximum punishment is seven years’ imprisonment (except in been committed. For such a determination, a monetary threshold the case of proceeds of crime arising out of an offence under the has been prescribed for certain scheduled offences (namely, Part Narcotic Drugs and Psychotropic Substance Act 1985), plea bar- B offences). Part B offences, which include certain offences under gaining should be available for the offence of money laundering. the Indian Penal Code, 1860 (IPC) (including, inter alia, criminal In this regard it may also be noted that, in the event the courts in conspiracy, counterfeiting, kidnapping, extortion, robbery, receiving India do consider the PML Act as a social economic statue like the stolen property and fraud), the Arms Act, 1959 (relating to, inter corruption laws and other statutes, then plea bargaining may not alia, the manufacturing and selling of arms and ammunition in con- be available. travention of the Arms Act), the Wildlife (Protection) Act, 1972, The process for plea bargaining involves the accused making an the Immoral Traffic (Prevention) Act, 1956 and the Prevention of application to the court, and upon the court being satisfied that the Corruption Act, 1988 and for certain economic offences a monetary application was made voluntarily, making an order for the accused threshold of 3 million rupees has been prescribed. Accordingly, only to work out a mutually satisfactory disposition of the case that may if the total value involved in the commission of such a Part B offence include giving to the victim by the accused the compensation and exceeds 3 million rupees would the other elements of the offence of other expenses during the case and thereafter. money laundering be satisfied. In the context of an offence of cross- Under the PML Act, fines ranging from 10,000 rupees to border implications (see question 11), however, the above monetary 100,000 rupees can be imposed on the banks, financial institutions threshold would not apply. and intermediaries in the event that the bank, financial institution or intermediary has failed to maintain records or furnish information 6 Predicate offences in the manner prescribed under the PML Act and the PML Rules. Generally, what constitute predicate offences? In addition, although the PML Act and PML Rules do not pro- vide for the revocation of licences, this may be possible based on the The PML Act sets out a list of offences (ie, scheduled offences), the circulars relating to KYC and AML, issued by the regulators. The commission of which is a prerequisite to determine whether the Bank KYC Circular has been issued by the RBI under section 35A offence of money laundering has been committed. These include of the Banking Regulation Act, 1949 (BR Act) (which empowers the certain identified offences under IPC, PCA, SEBI regulations, the RBI to issue such general or specific directions ‘as it may deem fit’), Narcotic Drugs and Psychotropic Substance Act 1985, and the Arms as well as under the PML Rules. Section 35A of the BR Act read Act. with section 22 of the BR Act provides that if the RBI issues a valid In the event that vast sums of money arise from criminal acts direction that a banking company does not comply, then the RBI has that are not scheduled offences, even if attempts have been made the power to revoke the banking licence of such a banking company. to project the same as legitimate earnings, the offence of money Accordingly, in the event a banking company fails to comply with laundering cannot have occurred since the predicate offence will not the provisions of the Bank KYC Circular, the RBI may be empow- have been committed (Hasan Ali Khan v Union of India, application ered to revoke the licence of such a banking company. No. 994 of 2011 before the Bombay High Court). The jurisdiction Similarly, the NBFC KYC Circular has been issued under sec- of the PML Act applies where such scheduled offences have been tions 45K and 45L of the RBI Act, 1934 (RBI Act), and the PML committed outside India, but any part of the proceeds of such con- Rules. Sections 45K and 45L of the RBI Act read with section 45 duct may have been remitted to India, or if the scheduled offences IA(6) of the RBI Act provides that, in the event an NBFC fails to have been committed within India and all or part of the proceeds of comply with the provisions of a direction issued by the RBI, includ- crime have been remitted outside India. ing for instance the NBFC KYC Circular, the RBI is empowered to cancel the registration of such NBFC. 7 Defences The SEBI AML circular has issued section 11(1) of the SEBI Act, 1992 (SEBI Act), which empowers the SEBI to regulate the securities Are there any codified or common law defences to charges of money market by such measures as it thinks fit and the PML Rules. Section laundering? 11 of the SEBI Act empowers the SEBI to cancel the licence of an There are no codified defences to the charge of money laundering, intermediary for non-compliance with the directions issued by the other than demonstrating lack of knowledge. SEBI, which includes the SEBI AML Guidelines.

8 Resolutions and sanctions 9 Forfeiture What is the range of outcomes in criminal money laundering cases? Describe any related asset freezing, forfeiture, disgorgement and An offence of money laundering is punishable by imprisonment for victim compensation laws. a term of not less than three years and up to seven years, and addi- Provisional attachment tionally a fine. The maximum term of imprisonment may extend The PML Act provides for the attachment of any property that is the to 10 years in the event that the proceeds of crime relate to an proceeds of crime provisionally, pending a final confirmation by the offence under the Narcotic Drugs and Psychotropic Substance Act, adjudicating authority under the PML Act. The term ‘property’ has 1985 (NDPS Act). Plea bargaining is available in terms of the Code been defined very broadly to mean any property or assets of every of Criminal Procedure 1973 (Indian Criminal Procedure Code), description, whether corporeal, incorporeal, moveable or immove- although not for: able, tangible or intangible, and includes deeds and instruments • offences that have been notified by the government as affecting evidencing title to, or interest in, such property or assets wherever the ‘socio-economic condition of the country’; or located. In terms of section 5 of the PML Act, based on the materials • offences where the punishment prescribed by law is: in the possession of the ED, if the ED has reasons to believe that a • death; person is in possession of proceeds of crime and such proceeds of

64 Getting the Deal Through – Anti-Money Laundering 2014 AZB & Partners INDIA crime are likely to be concealed, transferred or dealt with in any together, then the limitation period for each offence shall be deter- manner that may result in frustrating any proceedings relating to mined with reference to the offence that is punishable with the most confiscation of such proceeds of crime; then the ED, by an order in severe punishment. Thus, if a person is prosecuted simultaneously writing, may provisionally attach such property for a period of 180 for a scheduled offence punishable by imprisonment for a term days from the date of the order by the ED or until such time as a less than three years, together with the offence of money launder- confirming order is passed by the adjudicating authority under sec- ing under the PML Act (which is punishable with imprisonment for tion 8(2) of the PML Act, whichever is earlier. three or more years), even if the limitation period for the underlying It should be noted that the PML Act does not define or explain scheduled offence may have expired when considered independently, the term ‘reason to believe’. However, the construction of the phrase the accused person may still be tried for such a scheduled offence in may be aided by the definition of the term in section 26 of the IPC, light of section 468 of the Indian Criminal Procedure Code given wherein it is provided that a person may have reason to believe a that the limitation period in such a scenario for both offences would thing if there is sufficient cause to believe such thing but not other- be determined based on the offence of money laundering and not the wise. The courts in India have held that ‘reason to believe’ does not scheduled offence. mean a purely subjective satisfaction and such belief must be held in good faith. It is open for courts in India to examine the reasons for 11 Extraterritorial reach such belief and to ascertain whether or not such reasons are relevant and not extraneous to the matter in question. Do your jurisdiction’s money laundering laws have extraterritorial It has been held by the courts in India (albeit not in the context reach? of the PML Act, but in the context of other statutes) that a mere The PML Act applies to the whole of India. However, the application doubt or suspicion cannot be a reason to believe. Further, the term of the PML Act is not only restricted to property situated in India. ‘material’, for the purposes of material in the possession of the The term ‘property’ is defined under the PML Act to include any ED, has been defined in the Prevention of Money Laundering (the property or assets, wherever located, so long as the same are derived Manner of forwarding a copy of the Order of Provisional Attachment from or arising out of or related to any of the scheduled offence. To of Property along with the Material, and copy of the Reasons along give effect to this limited extraterritorial application in the context with the Material in respect of Survey, to the adjudicating authority of certain specified offences that may be committed abroad, but the and its period of Retention) Rules, 2005 (Provisional Attachment proceeds of which may have been remitted to India, or where the Rules), as any material in the possession of an authorised officer, offence may have been committed in India, but the proceeds of the including without limitation, on the basis of which he or she has crime are remitted abroad, section 56 of the PML Act empowers the recorded reasons, including a report forwarded by the authorised central government to enter into reciprocal arrangements with the officer to a criminal magistrate in relation to a scheduled offence or government of any country outside India for enforcing the provi- a police report or compliant filed for taking cognisance of an offence sions of the PML Act and for the exchange of information for the under certain provisions of the Narcotic Drugs and Psychotropic prevention of any offence under the PML Act or under the corre- Substances Act, 1985. Following provisional attachment under sec- sponding law in force in that country or for investigation under the tion 5 of the PML Act, the ED, or an officer authorised in this regard, PML Act. is required to forward the material in their possession to the adju- Also, the PML Act contemplates ‘offences of cross-border impli- dicating authority in accordance with the procedure prescribed in cations’, which are: the Provisional Attachment Rules. The PML Act specifically permits • offences committed or related to conduct outside India that con- a person interested in the ‘enjoyment’ of immoveable property that stitute an offence in that jurisdiction and which are scheduled has been attached. offences under the PML Act, and a part or whole of the proceeds In the recent judgment of B Rama Raju v Union of India [(2011) of crime arising from such conduct are remitted to India; or 164 CompCas 149(AP)] the Andhra Pradesh High Court held that • scheduled offences committed in India and part or whole of the for the purposes of attachment and confiscation (which are civil and proceeds of crime have been transferred from India to a place economic consequences and not penal sanctions and distinct from outside India. the process for prosecution under the PML Act) neither mens rea nor knowledge that a property has a lineage of criminality has been Offences of cross-border implications are scheduled offences under statutorily prescribed as a prerequisite. the PML Act and accordingly, the PML Act may be applicable to such offences. Further, the UN Security Council Resolution 1373 obligates countries to freeze without delay the funds or other assets 10 Limitation periods of persons who commit, or attempt to commit, terrorist acts, or par- What are the limitation periods governing money laundering ticipate in or facilitate the commission of terrorist acts; of entities prosecutions? owned or controlled directly or indirectly by such persons; and of The PML Act does not specifically provide for a limitation period in persons and entities acting on behalf of, or at the direction of such relation to the offence of money laundering. However, section 468 of persons and entities, including funds or other assets derived or gen- the Indian Criminal Procedure Code specifies the limitation periods erated from property owned or controlled, directly or indirectly, by of various categories of offences in India. Under section 468, for an such persons and associated persons and entities. Each individual offence punishable with imprisonment for a term greater than three country has the authority to designate the persons and entities that years, there is no limitation period. The Indian Criminal Procedure should have their funds or other assets frozen. Additionally, to ensure Code defines the term ‘offence’ to mean ‘any act or omission made that effective cooperation is developed among countries, countries punishable by any law for the time being in force’. Consequently, should examine and give effect to, if appropriate, the actions initi- the offence of money laundering under the PML Act constitutes ated under the freezing mechanisms of other countries. To give effect an ‘offence’ within the meaning of the Indian Criminal Procedure to the requests of foreign countries under UN Security Council Code. Given that the offence of money laundering is punishable with Resolution 1373, the Ministry of External Affairs will examine the imprisonment from three to ten years, as the case may be, as per the requests made by the foreign countries and forward it electronically, provisions of section 468 of the Indian Criminal Procedure Code, with their comments, to a designated officer for freezing of funds or there is no limitation period for the offence of money laundering. other assets. The freezing orders shall take place without prior notice Further, one may note that under section 468 of the Indian to the designated persons involved. Criminal Procedure Code, if two or more offences are being tried www.gettingthedealthrough.com 65 INDIA AZB & Partners

AML requirements for covered institutions and individuals be of a sufficiently senior position who is able to discharge the func- tions with independence and authority. Further, every intermediary 12 Enforcement and regulation should ensure that a proper policy framework required by the AML Which government entities enforce your jurisdiction’s AML regime and Guidelines is put into place. regulate covered institutions and persons? Do the AML rules provide Record keeping and reporting (see question 17) are integral ele- for ongoing and periodic assessments of covered institutions and ments of the compliance programme. persons? Further, as part of such compliance requirements, banks, finan- There are several government entities that are collectively responsi- cial institutions and intermediaries and their directors, officers and ble for different aspects of enforcement and regulation of the AML employees (permanent and temporary) are prohibited from disclos- framework in India. ing (tipping-off) to their client the fact that a suspicious transaction The FIU was set up by the government of India by way of an report or related information is being reported or provided to the office memorandum on 18 November 2004 as the central national FIU-IND. agency responsible for receiving, processing, analysing and dissemi- nating information relating to suspect financial transactions. The 15 Breach of AML requirements FIU is also responsible for coordinating and strengthening efforts What constitutes breach of AML duties imposed by the law? of national and international intelligence, investigation and enforce- ment agencies in pursuing the global efforts against money launder- The following constitute a breach of AML duties imposed by law: ing and related crimes. FIU is an independent body reporting directly • acting in breach of section 3 of the PML Act by way of direct to the Economic Intelligence Council (EIC) headed by the finance or indirect attempts to indulge, knowingly assist or knowingly minister. become a party to or have actual involvement in the process or By way of an order dated 1 July 2005, the central govern- activity connected with the proceeds of crime and projection of ment empowered ED (which is under the administrative control of such property as untainted property; or Department of Revenue, Ministry of Finance and government of • banks, financial institutions or intermediaries acting in breach India for operational purposes) to exercise exclusive powers regard- of the various compliance requirements imposed on them under ing investigation and prosecution of cases under the PML Act. the PML Act, PML Rules or specific guidelines and regulations In addition, section 54 of the PML Act provides that certain offic- issued by the RBI or SEBI (including the Bank KYC Guidelines, ers are empowered to assist authorities under the PML Act with the NBFC KYC Guidelines and SEBI AML Guidelines). enforcement, including officers of the Customs and Central Excise Departments, officers appointed in terms of certain provisions of 16 Customer and business partner due diligence the NDPS Act, officers of the stock exchange under the Securities Contracts (Regulation) Act 1956, income tax authorities under the Describe due diligence requirements in your jurisdiction’s AML regime. Income Tax Act, 1960, officers of the RBI, officers of the police, The PML Rules require that: officers of enforcement appointed under the Foreign Exchange • at the time of commencement of an account-based relationship, Management Act, 1999, officers of the SEBI, and such other officers a bank, financial institution or intermediary must identify its of the central government, the state government and banking com- clients, verify their identity as well as their beneficial owners and panies as may be notified by a special order of the central govern- obtain information on the purpose and intended nature of the ment. Given that the PML Act requires that the scheduled offence business relationship; and and the offence of money laundering are tried together, the investi- • in all other cases, verify identity while carrying out: gative agencies responsible for prosecuting the predicate scheduled • transaction of an amount equal to or exceeding 50,000 offence have been mandated to assist the ED who is authorised to rupees whether conducted as a single transaction or several prosecute the offence of money laundering. transactions that appear to be connected; or Further, the RBI regulates banks and financial institutions, • any international money transfer operations. including in relation to their obligations under the PML Act and PML Rules. Similarly, the SEBI regulates intermediaries, including However, irrespective of the amount deposited, invested or trans- in relation to their obligations under the PML Act and PML Rules. acted by clients, no minimum threshold or exemption is available from obtaining the minimum information or documents from cli- ents as stipulated in the PML Rules regarding the verification of the 13 Covered institutions and persons records of the identity of clients. Further, no exemption from car- Which institutions and persons must carry out AML measures? rying out CDD exists in respect of any category of clients. In other Banks, financial institutions and intermediaries are required to carry words, there is no minimum investment threshold or category-wise out certain anti-money laundering measures, including customer exemption available for carrying out CDD measures by registered identification, CDD, customer acceptance, and tracking and report- intermediaries. ing of certain types of transactions. The PML Rules require an intermediary to obtain certain mini- mum documentation from a client to verify the client’s identity. The nature of documentation that is required to be obtained is in turn 14 Compliance dependent on the nature of the client. Do the AML laws in your jurisdiction require covered institutions and persons to implement AML compliance programmes? What are the Beneficial ownership required elements of such programmes? A client has been defined as a person who engages in a financial transaction or activity with a bank, financial institution or interme- Pursuant to the PML Act and rules framed thereunder, banks, finan- diary, and includes a person on whose behalf the person engaged in cial institutions and intermediaries are required to appoint a princi- the transaction or activity is acting. The PML Act has recently been pal officer who is responsible for ensuring compliance with the PML amended to define the term ‘beneficial owner’ as an individual who Act and the rules and regulations promulgated thereunder. Names, ultimately owns or controls a client of a reporting entity or the per- designations and addresses (including e-mail addresses) of the prin- son on whose behalf a transaction is being conducted and includes cipal officer, including any changes therein, must be intimated to the a person who exercises ultimate effective control over a juridical office of the director of the FIU. The principal officer is required to person. Therefore, an obligation is cast upon the banks, financial

66 Getting the Deal Through – Anti-Money Laundering 2014 AZB & Partners INDIA institutions and intermediaries to ensure that such entities know the • all transactions involving receipts by NPOs of a value of over ‘true identity’ of each and every client, without any exceptions. 1 million or its equivalent in foreign currency; • all cash transactions where counterfeit currency notes or bank notes have been used as genuine; and 17 High-risk categories of customers, business partners and • all ‘suspicious transactions’, which include transactions, includ- transactions ing attempted transactions, whether made in cash or not, which Do your jurisdiction’s AML rules require that covered institutions and to a person acting in good faith: persons conduct risk-based analyses? Which high-risk categories are • gives rise to a reasonable ground of suspicion that it may specified? involve proceeds of an offence specified in the schedule to The Bank KYC Circular, the NBFC KYC Circular and the SEBI AML the PML Act, regardless of the value involved; Guidelines provide for certain parameters of risk perception to be • appears to be made in circumstances of unusual or unjusti- defined in terms of the nature of business activity, location of clients, fied complexity; mode of payments, volume of turnover, social and financial status • appears to have no economic rationale or bona fide purpose; and so on to enable categorisation of customers into low, medium or and high risk. Customers requiring a very high level of monitoring • gives rise to a reasonable ground of suspicion that it may (eg, politically exposed persons (PEPs)) may, if considered necessary, involve financing of activities relating to terrorism, whether be categorised even higher. or not in cash, made by way of: Banks, financial institutions and financial intermediaries must • deposits and credits, withdrawals into or from any put in place documentation requirements in respect of different cat- accounts by way of cheques, travellers cheques or trans- egories of customers depending on perceived risk and keeping in fer from one account to another within the same inter- mind the requirements of PML Act. The nature and extent of CDD mediary and any other mode in whatsoever name it is depends on the risk perceived by the bank, and the information referred to; sought from a customer must be relevant to the risk category and • credits or debits into or from any non-monetary should not be intrusive. For the purpose of risk categorisation, indi- accounts such as demat accounts or security accounts, viduals (other than high-net-worth individuals) and entities whose in any currency, maintained with the intermediary; identities and sources of wealth can be easily identified and transac- • money transfers or remittances in favour of clients or tions in whose accounts by and large conform to the known profile, non-clients from India or abroad and to third-party ben- may be categorised as low risk. Banks must apply enhanced CDD eficiaries in India or abroad, including transactions on for high-risk customers, especially those for whom the sources of its own account in any currency by any mode of money funds are not clear. transfer; or Some instances of high-risk customers requiring enhanced due • loans and advances including credit or loan substitutes, diligence include accounts of bullion dealers (including sub-dealers) investments and contingent liability by way of subscrip- and jewellers; non-resident customers; high-net-worth individuals; tion to debt instruments such as commercial paper, trusts, charities, non-governmental organisations (NGOs), non- certificates of deposit, preferential shares, debentures, profit organisations (NPOs) and organisations receiving donations; securitised participation, interbank participation or any companies having close family shareholding or beneficial owner- other investments in securities, purchase and negotiation ship; firms with ‘sleeping partners’; PEPs of foreign origin, custom- of bills, cheques and other instruments, foreign exchange ers who are close relatives of PEPs and accounts of which a PEP is contracts, currency, interest rate and commodity and the ultimate beneficial owner;non-face-to-face customers and those any other derivatives, letters of credit, standby letters of with dubious reputation as per public information available; and so credit, guarantees, comfort letters, solvency certificates on. However, NPOs and NGOs promoted by United Nations or its or any other instrument for settlement or credit support, agencies may be classified as a low-risk customer. or collection services in any currency by way of collec- Banks and NBFCs are required to have policies, controls and tion of bills, cheques, instruments or any other mode of procedures in place to effectively manage and mitigate their risk collection. adopting a risk-based approach as discussed above. In this regard, the Indian Banks’ Association (IBA) has taken initiative in assess- For the purpose of reporting suspicious transactions, apart from ment of AML/CFT risk in the banking sector and prepared a guid- ‘transactions integrally connected’, ‘transactions remotely connected ance note on KYC norms and AML standards in July 2009. The or related’ would also have to be considered. IBA guidance also provides an indicative list of high-risk custom- The records required to be maintained with respect to a transac- ers, products, services and geographies. The RBI has clarified that tion must contain all the necessary information specified by the regu- banks and NBFCs may use the same as guidance in their own risk lator to permit reconstruction of individual transactions, including assessment. the following information: • the nature of the transaction; • the amount of the transaction and the currency in which it was 18 Record keeping and reporting requirements denominated; Describe the record keeping and reporting requirements for covered • the date on which the transaction was conducted; and institutions and persons. • the parties to the transaction. Pursuant to the PML Rules, every intermediary is required to main- tain a record of all transactions, including a record of: These records must be maintained for a period of 10 years from • all cash transactions where the value is more than 1 million the date of transactions with the relevant client. Further, the records rupees or its equivalent in foreign currency; are required to be maintained using the procedure and in the man- • all series of cash transactions that are integrally connected to ner specified by the PML Rules. Banks, financial institutions and each other and that have been valued below 1 million rupees or intermediaries must maintain such records as are sufficient to per- its equivalent in foreign currency where such series of transac- mit reconstruction of individual transactions (including the amounts tions have taken place within a month and the aggregate value and types of currencies involved, if any) so as to provide, if neces- of such transactions exceeds 1 million rupees; sary, evidence for prosecution of criminal behaviour. Should there be any suspected drug-related or other laundered money or terrorist www.gettingthedealthrough.com 67 INDIA AZB & Partners property, the competent investigating authorities may need to go identify whether such persons have any transactions with the inter- through the audit trail to reconstruct a financial profile of the sus- mediary. If, pursuant to such a check, a client’s details match with pect account. To enable this reconstruction, registered intermediaries the United Nations’ designated listed, the intermediary is required to should retain the following information for the accounts of their inform the joint secretary (Internal Security 1 (IS-1) division) at the clients in order to maintain a satisfactory audit trail: Ministry of Home Affairs, the UAPA Nodal Officer of the SEBI, the • the beneficial owner of the account; Unlawful Activities (Prevention) Act (UAPA) Nodal Officer of the • the volume of the funds flowing through the account; and state where the account is held, and the FIU-IND of the name and • for selected transactions: details of the client within 24 hours. If the details of the client match • the origin of the funds; the details of a designated person beyond doubt, the bank, financial • the form in which the funds were offered or withdrawn (eg, institution or intermediary is under an obligation to prevent such a cheques, demand drafts, etc); person from conducting financial transactions under intimation to • the identity of the person undertaking the transaction; joint secretary (IS.1 division) at the Ministry of Home Affairs. Such • the destination of the funds; and transactions are also to be included in the suspicious transaction • the form of instruction and authority. reportings submitted to the FIU in the prescribed format.

Banks, financial institutions and intermediaries must ensure that 19 Privacy laws all client and transaction records and information are available on a timely basis to the competent investigating authorities. Where Describe any privacy laws that affect record keeping requirements, due required by the investigating authority, they should retain certain diligence efforts and information sharing. records such as client identification, account files and business corre- Under section 12 of the PML Act, every banking company, financial spondence for periods that may exceed those required under the BR institution and intermediary is required to maintain certain records Act, the RBI Act, the SEBI Act, rules and regulations framed under and disclose such information to the authorities under the PML Act each of the aforesaid, the PML Act, and other relevant legislations, (see question 17). rules and regulations or exchange by-laws or circulars. The Information Technology Act 2000 (IT Act), and Information The principal officer is under an obligation to furnish informa- Technology (Reasonable security practices and procedures and sensi- tion relating to the use of counterfeit notes and suspicious trans- tive or information) Rules 2011 (Sensitive Information actions to the director no later than seven working days from the Rules) impose certain data protection obligations on the collection, date of occurrence of such transaction, and all other transactions are storage and transmission in electronic format of information that required to be reported by the 15th day of the succeeding month. is considered to be ‘sensitive personal data or information’. The The principal officer is under an obligation to furnish information Sensitive Information Rules lays down practices and procedures relating to suspicious transactions to the director no later than seven that need to be followed when collecting, storing and transferring working days on being satisfied that the transaction is suspicious. sensitive personal data or information. The Sensitive Information Banks, financial institutions and intermediaries should not put any Rules prohibit the sharing of sensitive personal data or informa- restrictions on operations in the accounts where a suspicious trans- tion unless the person to whom the data or information pertains to action report (STR) has been made. (the data subject) has consented to the sharing of the information Pursuant to the Bank KYC Guidelines, the NBFC KYC or the sharing of the information is necessary for the performance Guidelines and the SEBI AML Guidelines, the background includ- of the contract between the data subject and the body corporate ing all documents, office records, memorandums and clarifications that seeks to share the information. The Sensitive Information Rules, sought pertaining to transactions that are deviant from the client’s however, expressly permit the disclosure of sensitive personal data normal activity and purpose thereof would also have to be exam- or information: ined, and findings should be recorded in writing. Further, such find- • to the extent necessary to comply with legal obligations; ings, records and related documents should be made available to • where a government agency that is mandated under law to auditors and also to the RBI, the SEBI, the FIU and other relevant obtain such information makes a request in writing for such authorities during audit, inspection or as and when required. These information; and records must be preserved for 10 years. • pursuant to any order passed under law that is in force.

Reporting of suspicious transactions Accordingly, the storing and disclosure of information in terms of Any suspicious transaction must be immediately notified to the the PML Act should not be in violation of the Sensitive Information principal officer or any other designated officer within the bank, Rules. In addition, section 14 of the PML Act also provides that financial institution or intermediary. The principal officer and other no civil proceedings may be initiated against a bank, financial insti- related staff members are required to have timely access to client tution or intermediary for divulging records of transactions to the identification data and CDD information, transaction records and enforcement authorities under the PML Act in accordance with the other relevant information. To ensure that the registered intermedi- provisions of section 12 of the PML Act. aries properly discharge their legal obligations to report suspicious transactions to the authorities, the principal officer would act as a central reference point in facilitating the reporting of suspicious 20 Resolutions and sanctions transactions and for playing an active role in the identification and What is the range of outcomes in AML controversies? What are the assessment of potentially suspicious transactions, and shall have possible sanctions for breach of AML laws? access to and be able to report to senior management at the next See question 8. reporting level or the board of directors.

UN designated list 21 Limitation periods Pursuant to a circular dated 23 October 2009, all banks, financial What are the limitation periods governing AML matters? institutions and intermediaries are required to maintain an updated See question 10. list of designated persons who are subject to United Nations sanction measures and run a periodic check based on certain parameters to

68 Getting the Deal Through – Anti-Money Laundering 2014 AZB & Partners INDIA

Update and trends

Several critical amendments to the PML Act were notified this year, benchmark them against global best practices. A majority of Indian a number of which were in response to the FATF’s mutual evaluation companies conduct an anti-money laundering risk assessment on report for India. For instance, the mutual evaluation report highlighted at least a half yearly or yearly basis. Indian companies and financial that intermediaries did not identify and verify beneficial ownership institutions are making significant investments in anti-money of legal persons, on account of which the definition of ‘beneficial laundering-related practice internally. This function is administered by owner’ was included in the PML Act, as well as the requirement for their compliance and internal audit teams. intermediaries to indentify beneficial owners. In response to allegations that some branches of certain banks The Enforcement Directorate recently filed a case against the were circumventing KYC requirements and undertaking transactions National Spot Exchange Limited (NSEL), its promoters and directors in violation of the PML Act, banks have sought to tighten their under the PML Act. The CEO of a firm that defaulted the NSEL compliance procedures, undertake forensic investigations to examine was arrested in connection with a money laundering charge. The potential breaches and penalise employees who are potentially Enforcement Directorate has already attached assets to the extent of involved. Identification and verification of beneficial ownership has 225 million rupees. been significantly enhanced. Senior management involvement in Companies and financial institutions base their anti-money investigating and plugging potential breaches has been extensive. laundering related policies and procedures on local regulations and

22 Extraterritoriality • enhance the effectiveness of the STR reporting regime; Do your jurisdiction’s AML laws have extraterritorial reach? • enhance the effectiveness of the financial sector supervisory regime and ensure that India Post is adequately supervised; and See question 11. • ensure that the competent supervisory authorities make changes to their sanctioning regimes to allow for effective, proportionate Civil claims and dissuasive sanctions for failures to comply with AML/CFT 23 Civil claims and private enforcement requirements. Enumerate and describe the required elements of a civil claim or private right of action against money launderers and covered 26 FIUs institutions and persons in breach of AML laws. Give details of your jurisdiction’s Financial Intelligence Unit (FIU). The PML Act is a criminal statute, and civil claims and a private FIU-IND has been a member of the Egmont Group, an international right of action have not been contemplated therein. organisation for stimulating cooperation among FIUs, since May 2007. The FIU-IND has also signed bilateral memoranda of under- International anti-money laundering efforts standing (MoUs) with 15 countries, namely Australia, Bermuda, Brazil, Canada, Georgia, Indonesia, Japan, Malaysia, Mauritius, 24 Supranational Nigeria, the Philippines, Russia, San Marino, Sri Lanka and the List your jurisdiction’s memberships of supranational organisations United States. The MoUs are to facilitate the exchanges of intelli- that address money laundering. gence between the two countries for the purpose of cooperation to India is a member of the Financial Action Task Force (FATF) and the gather, develop and analyse information concerning financial trans- Asia/Pacific Group on Money Laundering (APG). actions suspected of being related to money laundering and terrorist financing. The contact details for the FIU are: 25 Anti-money laundering assessments Give details of any assessments of your jurisdiction’s money Office of the Director – FIU laundering regime conducted by virtue of your membership of Financial Investigation Unit supranational organisations. Ministry of Finance India’s mutual evaluation was last completed on 25 June 2010. Government of India The conclusion was that India has several mechanisms in place 6th Floor, Hotel Samrat Chanakyapuri for domestic coordination and cooperation at both the policy and New Delhi 110 021 operational levels to identify new and emerging trends and to for- India mulate appropriate responses. India has progressively expanded and www.fiuindia.gov.in strengthened its preventive measures for the financial sector, which now apply to all but one of the financial activities required to be 27 Mutual legal assistance covered under the FATF standards. However, several preventive pro- In which circumstances will your jurisdiction provide mutual legal visions need to be brought more closely into line with the FATF assistance with respect to money laundering investigations? What are standards, and overall more time is needed before all requirements are substantially implemented. The key recommendations made to your jurisdiction’s policies and procedures with respect to requests India in the mutual assessment included the need to: from foreign countries for identifying, freezing and seizing assets? • address the technical shortcomings in the criminalisation of both The establishment of the commission or apprehension of the offence money laundering and terrorist financing and in the domestic of money laundering is a prerequisite for Indian Authorities to seek framework of confiscation and provisional measures; information from a ‘contracting state’ under the PML Act or take • broaden the CDD obligations with clear and specific meas- any steps to attach the assets of a person accused of money launder- ures to enhance the current requirements regarding beneficial ing (which may be located in a contracting state). Once the aforesaid ownership; is established, Indian Authorities would then have to seek informa- • improve the reliability of identification documents, the use of tion by following the process set out in the reciprocal arrangement pooled accounts, PEPs and non-face-to-face business; for the exchange of information between India and the contracting • ensure that India Post, which recently became subject to the state, or the procedure detailed in sections 57, 59 or 60 of the PML PML Act, effectively implements the AML/CFT requirements; Act. Chapter IX of the PML Act empowers the government of India www.gettingthedealthrough.com 69 INDIA AZB & Partners to enter into reciprocal arrangements with the government of any a warrant or summons for execution to competent authorities in a country outside India for the exchange of information for the pre- contracting state requiring an accused person to, inter alia, allow vention of any offence under the PML Act or under the correspond- searches, attend proceedings before the special court or produce ing law in force in that country. documents before the special court. In addition, under section 60 of Section 57 of the PML Act provides that in the course of the the PML Act, the adjudicating authority or director under the PML investigation of an offence or other proceedings under the PML Act may take necessary steps to attach or seize property involved Act, the relevant investigating officer may make an application to in money laundering that is located or suspected to be located in a a special court in India to issue a letter of request to the competent contracting state by issuing a letter of request to a court or authority authorities in the contracting state to, inter alia, forward the relevant in such contracting state in the event an offence corresponding with evidence to the special court. In the event that the special court is a scheduled offence has been committed in the contracting state. In satisfied that such evidence is required in connection with the inves- terms of the PML Act, the power of the government of India is lim- tigation, such special court may issue a letter of request to the rel- ited to seeking information regarding a person accused of the com- evant contracting state. Section 59 of the PML Act provides that a mission of an offence under the PML Act and not other persons. special court may, in relation to an offence under the PML Act, issue

Aditya Bhat [email protected] Richa Roy [email protected]

23rd Floor, Express Towers AZB House, 67-4 4th Cross Nariman Point Lavelle Road Mumbai 400 021 Bangalore 560 001 India India Tel: +91 22 6639 6880 Tel: +91 80 4240 0500 Fax:+91 22 6639 6888 Fax: +91 80 2221 3947

70 Getting the Deal Through – Anti-Money Laundering 2014 Studio Legale Pisano ITALY Italy

Roberto Pisano and Chiara Cimino Studio Legale Pisano

Domestic legislation • record keeping obligations: such obligations, which are provided for by articles 36 to 40 of the 2007 Decree, are substantially the 1 Domestic law same as (and to a certain extent even stricter than) the ones laid Identify your jurisdiction’s money laundering and anti-money laundering down by article 30 of the Third EC Directive (see questions 14 (AML) laws and regulations. Describe the main elements of these and 18); and laws. • reporting obligations: according to articles 41–48 of the 2007 As far as criminal provisions are concerned, money laundering is Decree, the ‘relevant subjects’ mentioned above have to dis- a criminal offence provided for by article 648-bis of the Italian close to the competent authority (the Financial Intelligence Unit Criminal Code (ICC) that punishes the conduct of anybody who, (FIU)) ‘suspicious transactions’ relating to money laundering with knowledge and intent, substitutes or transfers money, goods or and terrorist financing. Such reporting obligations are substan- other things of value deriving from an intentional crime or carries tially the same ones laid down by articles 20–29 of the Third EC out, in relation to that benefit, any transactions in such a way as Directive. Failure to disclose a ‘suspicious transaction’ does not to obstacle the identification of their criminal provenance. A condi- amount to a criminal offence, but it is penalised by the imposi- tion for applying the money laundering offence is the offender not tion of fines and other administrative sanctions (articles 55–59 to have participated in the predicate offence (in this latter case the of the 2007 Decree; see questions 14, 15 and 18). offender will only be responsible for the predicate offence). The punishments are imprisonment from four to 12 years and The relevant ‘categories of subjects’, for the purposes of the AML a fine from €1,032 to €15,493, always with the confiscation of the obligations, are in essence the following (see question 13): relevant money or goods in the case of conviction. • financial intermediaries (article 11 of the 2007 Decree); Further, additional punishments such as disqualification from • professionals (accountants and, under certain conditions, nota- holding public office, disqualification from practising a profession ries public and lawyers (article 12 of the 2007 Decree)); or art and temporary disqualification from managing corporations • auditors (article 13 of the 2007 Decree); or enterprises are ordinarily applicable (articles 28 ff ICC). • ‘other subjects’ (ie, those carrying on the activities of collection As far as the main anti-money laundering (AML) provisions of credit, managing of gambling houses, offering gambling with are concerned, they are contained in Legislative Decree No. 231 cash awards through the internet, etc, (article 14 of the 2007 of 21 November 2007 (the 2007 Decree), entered into force on 29 Decree)); and December 2007, which has implemented in Italy both the Third • subjects carrying out the following activities: trading, including European Money Laundering Directive (Directive 2005/60/EC on import and export, of gold and jewels, trading of antiquities, the prevention of the use of the financial system for the purpose of managing of art galleries, etc (article 10 of the 2007 Decree). money laundering and terrorist financing (the Third EC Directive)) and Directive 2006/70/EC, concerning the related measures of Money laundering execution. 2 Criminal enforcement In essence, it imposes on relevant ‘categories of subjects’ certain AML obligations, the most significant of which are the following: Which government entities enforce your jurisdiction’s money • ‘customer due diligence’ obligations: such obligations, which laundering laws? are provided for by articles 15 to 35 of the 2007 Decree, are Public prosecutors are the main body responsible for investigating substantially the same ones laid down by articles 6 to 19 of the and prosecuting money laundering offences (as well as any other Third EC Directive (see questions 14 and 16). They mainly con- offences). They are assisted by the police forces, which include the sist of the following activities: state police, the and the financial police. • identifying the customer and verifying the customer’s iden- Italian public prosecutors are magistrates and their duties are tity on the basis of documents, data or information obtained compulsory and not discretionary (article 112 of the Constitution). from a reliable and independent source; This means that where they receive notice of a crime (a notice • identifying the beneficial owner and verifying his or her regarding specific facts potentially constituting a crime), they have a identity; duty to open a formal criminal proceeding and to start an investiga- • obtaining information on the purpose and the intended tion and subsequently, if they assess that the requirements of crime nature of the business relationship or professional service; are met, to bring a criminal prosecution. and Money laundering is criminalised at the state level (and not at • conducting of ongoing monitoring in the course of the busi- the regional or provincial level), and the geographical competence ness relationship or professional service; of the relevant public prosecutors is determined on the basis of the place of the commission of the offence.

www.gettingthedealthrough.com 71 ITALY Studio Legale Pisano

In relation to combating money laundering and terrorist a way that often also extends the reach of the offence to merely a financing, special units of the financial police and, to a certain extent, negligence case. of the state police (the DIA, the Bureau of Anti-Mafia Investigation) As far as the responsibility of financial institutions is concerned do have particular powers and skills. it should be noted that, according to Italian law, where an individ- With respect to the tasks and powers of the FIU, which mainly ual gives at least a minimum contribution to the commission of a relate to compliance obligations, see questions 12 and 26. criminal offence, supported by the required mens rea, he or she is liable for that offence with the other offenders, under the concept of ‘participation in a crime’ (article 110 ff ICC). As a consequence, 3 Defendants where the officers of the financial institution have knowledge that Can both natural and legal persons be prosecuted for money the relevant transaction relates to money (or other benefit) deriving laundering? from an intentional crime, and they contribute to carry out such Yes, but with respect to legal persons only for offences commit- transaction, their criminal responsibility for money laundering will ted from December 2007. In particular, according to Italian law, a arise. corporation can be held responsible only on condition that certain In that scenario, the legal person can be held responsible for the criminal offences are committed by its managers or employees in money laundering offence committed by its managers or employees, the interest or for the benefit of the corporation: on 29 December in accordance with the principles explained in question 3. 2007, money laundering was included in the list of relevant crimi- nal offences (article 63, paragraph 3 of the 2007 Decree, which has 5 Qualifying assets and transactions inserted article 25-octies into Legislative Decree No. 231 of 8 June 2001). Is there any limitation on the types of assets or transactions that can The responsibility of the corporation is qualified as administra- form the basis of a money laundering offence? tive by the law, but the matter is dealt with by a criminal judge, in There is no limitation on the types of assets that can form the basis accordance with the rules of criminal procedure, in proceedings that of a money laundering offence, and there is no monetary threshold are usually linked and joined with criminal proceedings relating to to prosecution. However, where the goods laundered have a limited the offences committed by the corporation’s officers or employees. value, or they derive from a less serious predicate offence (punished Where an offence is committed by an employee, a corporation with imprisonment lower than five years), mitigating circum- can avoid liability by proving to have implemented effective ‘com- stances could apply, which can decrease the amount of the effective pliance programmes’ designed in accordance with the requirements punishment. provided for by Italian law and aimed at preventing the commission of that type of offence (article 7 of Legislative Decree No. 231/2001). 6 Predicate offences Where the offence is committed by senior managers, the implemen- tation of effective compliance programmes does not suffice, and the Generally, what constitute predicate offences? corporations’ responsibility is avoidable only by proving that the As explained in question 4, every intentional crime qualifies as a perpetrator acted in ‘fraudulent breach’ of corporate compliance predicate offence of money laundering (proceeds from misappro- controls (article 6 of Legislative Decree No. 231/2001). priation, fraud, corruption, false accounting, etc). Criminal infringe- Penalties applicable to corporations include fines, disquali- ment of laws of other jurisdictions also qualify as a predicate offence, fications and confiscation. Disqualifications can be particularly on condition that the same conduct would amount to a criminal damaging, because they can include the suspension or revocation offence under Italian law. of government concessions, debarment, exclusion from govern- As far as tax crimes are concerned, in the past the prevailing ment financing and even prohibition from carrying on business opinion maintained that they did not qualify as a predicate offence activity (articles 9 to 13 of Legislative Decree No. 231/2001). Such of money laundering because, generally, the proceeds from tax sanctions can also be applied at a pretrial stage during the investiga- evasion do not physically derive from the offence, but they are tions as interim coercive measures (article 45 of Legislative Decree ‘saved’ from the taxpayer’s funds, who does not comply with his No. 231/2001). or her obligation to transfer them to the state. However, in recent years, the prevailing case law has taken the position that tax crimes do qualify as predicate offences of money laundering. 4 The offence of money laundering What constitutes money laundering? 7 Defences As indicated in question 1, the money laundering offence (article 648-bis ICC) punishes the conduct of anybody who, with knowl- Are there any codified or common law defences to charges of money edge and intent, substitutes or transfers money, goods or other things laundering? of value deriving from an intentional crime or carries out, in relation No. In general, the most common defences relate to the absence of to that benefit, any transactions in such a way as to obstruct the the material element of the offence (ie, the relevant money or goods identification of their criminal provenance. do not have an unlawful provenance), or of the mens rea (ie, a lack A condition for applying the money laundering offence is for of knowledge about the unlawful provenance of the relevant money the offender not to have participated in the predicate offence (in or goods). this latter case the offender will only be responsible for the predicate Further, another common defence is to prove to have concretely offence). contributed to the commission of the predicate offence: this is As for the mens rea, the law requires knowledge about the because the conduct of self-money laundering does not amount to unlawful provenance of the money, goods or other things of value a crime under Italian law (see question 4) and because the predicate and knowledge and intent to substitute or transfer them, or to carry offences usually bear a lower punishment and a shorter statute of out transactions that obstruct the identification of their criminal limitations than the money laundering offence. provenance. Therefore, from a theoretical point of view, a strict liability standard and a negligent standard have to be excluded. However, in practice, prosecutors and courts tend to infer (and even to presume) knowledge and intent from objective circumstances in

72 Getting the Deal Through – Anti-Money Laundering 2014 Studio Legale Pisano ITALY

8 Resolutions and sanctions 10 Limitation periods What is the range of outcomes in criminal money laundering cases? What are the limitation periods governing money laundering As explained above, the money laundering offence has a wide sphere prosecutions? of application, which can often lead to convictions (even where the The ordinary statute of limitations for money laundering offences knowledge about the unlawful provenance of the relevant money is 12 years from the moment of commission of the offence. In the or goods is not directly proven, but only inferred or based on event no qualified activity of investigation is carried out within that presumptions). period (such as a request of interrogation of the suspect, a request With respect to individuals, the main punishments are imprison- of committal for trial, an order of pretrial custody, the fixing of a ment from four to 12 years and fine from €1,032 to €15,493, always preliminary hearing, etc (article 157 ICC)), the crime is considered with the confiscation of the relevant money or goods in the case of time-barred, and is extinguished. conviction (in the event confiscation of the specific money or goods On the contrary, in the event of the above-mentioned qualified is not possible, the law provides for the so-called confiscation ‘or activity of investigation being carried out within 12 years from the equivalent’, namely the confiscation of different money or goods for offence (the ‘acts of interruption’), the limitation period is extended the same value). to 15 years from the offence. If no final conviction is reached within Further, additional punishments are ordinarily jointly applicable 15 years from the offence, the crime is considered time-barred and to individuals, such as disqualification from holding public office, therefore extinguished. disqualification from practising a profession or art, temporary dis- It is worth noting that, even in the event the predicate offence qualification from managing corporations or enterprises, etc (arti- is declared time-barred, this has no effect on the prosecution for cles 28 ff ICC). the money laundering offence, on condition that such a predicate As indicated in question 1, under Italian law criminal action is offence is considered performed by the court that is making the deci- compulsory and not discretional and it cannot be dropped by the sion on the money laundering. public prosecutor (unless he or she assesses that no crime was ever committed, and then requests accordingly a dismissal to the com- petent judge). However, under certain conditions, plea bargaining 11 Extraterritorial reach with prosecuting authorities is recognised by Italian law. It has to Do your jurisdiction’s money laundering laws have extraterritorial be approved by the competent judge, the punishment agreed upon reach? cannot be more than five years’ imprisonment, and it is substantially Italian criminal law, generally applicable also to money laundering considered as a conviction sentence (article 444 of the Italian Code offences, provides first of all that Italian courts have jurisdiction on of Criminal Procedure). The adoption of the plea bargaining entitles all offences committed within Italian territory; namely, when at least the party to a reduction of one-third on the punishment to be con- part of the prohibited conduct (eg, the decision to launder money in cretely applied. a foreign territory) takes place in Italy. With respect to corporations, as explained in question 3, appli- In relation to these offences committed within Italian territory, cable penalties include fines, disqualifications and confiscation. Italian courts have jurisdiction regardless of the offender’s national- Disqualifications can be particularly damaging, because they can ity (or corporate offender’s main seat) or the offender’s residence include the suspension or revocation of government concessions, (article 6 ICC). debarment, exclusion from government financing and even prohibi- With regard to money laundering offences committed out- tion from carrying on business activity (articles 9 to 13 of Legislative side the Italian territory, Italian law provides for an extraterritorial Decree No. 231/2001). Such sanctions can also be applied at a pre- jurisdiction only to a limited extent, where stringent requirements trial stage, during the investigations, as interim coercive measures are fulfilled (eg, the presence in Italy of the suspect, and particular (article 45 of Legislative Decree No. 231/2001). request of proceedings by the Italian minister of justice (articles 9–10 In the event of conviction, confiscation of the ‘profit’ or ‘price’ ICC)). of the offence has to be applied, even by confiscating ‘for equivalent’ In addition, with regard to corporations whose main seat is in the assets of the corporation (article 19 of Legislative Decree No. Italy, Italian law provides for a limited extraterritorial jurisdiction 231/2001). At a pretrial stage, prosecutors can request the compe- in relation to money laundering offences committed abroad where tent judge to grant freezing of the ‘profit’ or ‘price’ of the money such offences are not prosecuted against the corporation in the state laundering offence (article 45 of Legislative Decree No. 231/2001). where they were committed and where the other stringent require- ments mentioned above are fulfilled (eg, the presence of the suspect 9 Forfeiture in Italy, a request of proceedings by the minister of justice against the corporation, etc (article 4 of Legislative Decree No. 231/2001)). Describe any related asset freezing, forfeiture, disgorgement and victim compensation laws. AML requirements for covered institutions and individuals As explained in question 8, confiscation of the relevant money or goods is compulsory in the event of conviction of individuals for the 12 Enforcement and regulation offence of money laundering and of conviction of corporations in Which government entities enforce your jurisdiction’s AML regime and relation to the money laundering offences committed by their man- regulate covered institutions and persons? Do the AML rules provide agers or employees. for ongoing and periodic assessments of covered institutions and In the event confiscation of the specific money or goods is not persons? possible, the law provides for the so-called confiscation ‘for equiva- The AML rules strictly provide for ongoing and periodic assess- lent’, namely the confiscation of different money or goods for the ments of covered institutions and persons. same value. The government entity that enforces Italy’s AML regime is, ini- At a pretrial stage, during the investigations, prosecutors can tially, the Ministry for Economy and Finance, which is responsible request the judge to grant seizure of the ‘profit’ or ‘price’ of a money for the policies to prevent use of the financial system for the purpose laundering offence, even for an ‘equivalent amount’, according to of money laundering and terrorist financing, and which is supported the case law. Such a request is usually granted. in its task by the Financial Security Committee (article 5 of the 2007 Decree). In general terms, and with some exceptions, the Ministry

www.gettingthedealthrough.com 73 ITALY Studio Legale Pisano for Economy and Finance is also responsible for applying the admin- • identifying the beneficial owner and verifying his or her istrative sanctions provided for by the AML regime. identity; In that sphere, a crucial function for the purposes of enforcing • obtaining information on the purpose and the intended the AML regime is performed by the Financial Intelligence Unit nature of the business relationship or professional service; (FIU), which autonomously operates the Bank of Italy and which and is responsible for obtaining, analysing and exploiting the informa- • conducting of ongoing monitoring in the course of the busi- tion on suspicious transactions reported to it by the relevant subjects ness relationship or professional service; (article 6 of the 2007 Decree) (see question 26). The FIU can also • record keeping obligations: such obligations, which are pro- suspend, for a maximum period of five working days, transactions vided for by articles 36–40 of the 2007 Decree, are substantially suspected of involving money laundering or terrorist financing. the same as (and to a certain extent even stricter than) those In addition, a significant role for the purposes of enforcing laid down by article 30 of the Third EC Directive. They mainly the AML regime is performed by the the Financial Police (in par- refer to the retention of relevant documents and the recording of ticular, the Special Foreign Exchange Unit), which operates in strict relevant information, to the creation for that purpose of a single coordination with the FIU, and which carries out the activity of electronic archive and to the periodic sending to the FIU of the investigation (including inspections, etc) relating to the ‘suspicious aggregate data on their business activity; and transactions’. • reporting obligations: according to articles 41-48 of the 2007 Finally, in the frame of the AML regime, a relevant role is also Decree, the ‘relevant subjects’ mentioned above have to report played by the financial sector supervisory authorities (such as the to the FIU suspicious transactions relating to money laundering Bank of Italy, the ISVAP for the insurance companies, etc), and by the or terrorist financing. Failure to disclose a suspicious transaction professional associations (with respect to accountants, lawyers, nota- does not amount to a criminal offence, but it is penalised by the ries public, etc), who have to cooperate with the above-mentioned imposition of fines and other administrative sanctions (articles AML authorities for the purpose of supervising and assessing the 55–59 of the 2007 Decree). compliance of the relevant subjects with the AML obligations. Where the suspicious transactions are potentially linked to organised crime, the relevant information has also to be reported 15 Breach of AML requirements to the Bureau of Anti-Mafia Investigation, which can consequently What constitutes breach of AML duties imposed by the law? carry out its ordinary powers. The 2007 Decree provides that the breach of the relevant AML duties is punished with criminal and administrative sanctions. 13 Covered institutions and persons Criminal offences Which institutions and persons must carry out AML measures? Failure to carry out the customer identification due diligence The relevant ‘categories of subjects’ on which the AML measures are (article 55, paragraph 1) imposed are listed by articles 10–14 of the 2007 Decree (and they Anyone who violates the provisions concerning the customer iden- substantially correspond to the categories listed by article 2 of the tification due diligence is punished with a criminal fine of between Third EC Directive). They are, in essence, the following: €2,600 and €13,000 (unless the act constitutes a more serious • financial intermediaries (article 11 of the 2007 Decree). The crime). The mens rea required is intention. notion of financial intermediaries is extremely broad, and it If the customer identification requirements are fulfilled using includes banks, Poste Italiane SpA, electronic money institu- fraudulent means, such as to obstruct the identification of the person tions, Italian investment firms, insurance companies, stockbro- who carried out the transaction, the punishment is doubled. kers, etc, including the Italian branches of the entities mentioned above having their registered office in a foreign country; Failure to carry out the record keeping obligations (article 55, • professionals such as accountants and, under certain conditions, paragraph 4) notaries public and lawyers (article 12 of the 2007 Decree); Anyone who is so required who fails to record the relevant informa- • auditors (article 13 of the 2007 Decree); tion, or who does so late or incompletely is punished with a crimi- • ‘other subjects’ (ie, those carrying on the activities of collection nal fine of between €2,600 and €13,000. The mens rea required is of credit, managing of gambling houses, offering gambling with intentional. cash awards through the internet, etc (article 14 of the 2007 If the recording requirements are fulfilled using fraudulent Decree); and means, such as to obstruct the identification of the person who car- • subjects carrying on the following activities: trading, including ried out the transaction, the punishment is doubled. import and export, of gold and jewels, trading of antiquities, managing of art galleries, etc (article 10 of the 2007 Decree). Violation of the ban on communication (article 55, paragraph 8) The 2007 Decree provides that the persons subject to reporting obli- 14 Compliance gations shall not inform the interested party or third parties that a Do the AML laws in your jurisdiction require covered institutions and report of a suspicious transaction has been made or that an investi- persons to implement AML compliance programmes? What are the gation is being or may be conducted into money laundering or ter- required elements of such programmes? rorist financing (article 46). Anyone who violates the above-mentioned ban on communica- As mentioned in question 1, the 2007 Decree imposes on the rel- tion is punished with imprisonment for between six months and one evant ‘categories of subjects’ described above certain AML obliga- year or a fine of between €5,000 and €50,000 (unless the act con- tions, the most significant of which are the following: stitutes a more serious crime). The mens rea required is negligence. • ‘customer due diligence’ obligations: such obligations, which are Further, the 2007 Decree provides for a number of additional provided for by articles 15–35 of the 2007 Decree, are substan- criminal offences in relation to the conduct of the executor of the tially the same ones laid down by articles 6–19 of the Third EC transaction who: Directive. They mainly consist of the following activities: • identifying the customer and verifying the customer’s iden- tity on the basis of documents, data or information obtained from a reliable and independent source;

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• fails to give the identifying particulars of the person for whom For existing clients, the ongoing due diligence required consists the transaction is executed or who provides false particulars of analysing each transaction performed in the course of the rela- (article 55, paragraph 2; punishments are imprisonment for tionship (article 19, paragraph 1, section c, of the 2007 Decree). between six months and one year and a fine of between €500 In that case, the verification procedure consists of ascertaining the and €5,000); and consistency of each transaction with information in possession of • fails to provide information on the purpose and the nature of the person, subject to the obligations of the 2007 Decree (in terms the continuous relationship or the professional service or who of the business activity and the risk profile of the client, etc), keeping provides false information in this regard (article 55, paragraph them up to date. 3; punishments are imprisonment for between six months and As far as the concept of beneficial owner is concerned, Italian three years and a fine of between €5,000 and €50,000). law provides that the ‘beneficial owner’ is the ‘individual on behalf of whom a transaction or activity is carried out, or, in the event of Administrative violations juridical entity, the individual or individuals who ultimately own or Failure to report ‘suspicious transactions’ (article 57, paragraph 4) control such entity, or result in being its beneficiaries according to Unless the act constitutes a crime, failure to report suspicious trans- the criteria referred to in the technical Annex to this Decree (article actions is punished with a fine from 1 to 40 per cent of the amount 1, paragraph 2, letter u, of the 2007 Decree). of the non-reported transaction. In the most serious cases, it is also Further, it is worth pointing out that financial intermediaries ordered that the decree imposing the sanction is published in at least and other persons engaged in financial activities, in performing their two newspapers distributed nationwide. institutional or professional activity, must carry out customer due diligence, further to the establishment of a continuous relationship, Failure to create the single electronic archive (article 57, as well as for: paragraph 2) • occasional transactions involving means of a payment of Failure to create the single electronic archive is punished with a fine €15,000 or more, even when they are simply go-between enti- of between €50,000 and €500,000. In the most serious cases, it is ties to transfers among different people; also ordered that the decree imposing the sanction is published in at • the presence of a suspicion of money laundering or terrorist least two newspapers distributed nationwide. financing; and • the presence of doubts on the veracity or adequacy of informa- Failure to comply with the suspension measure (article 57, tion given by the customer. paragraph 1) As mentioned in question 12, the FIU has the power to suspend As far as professionals are concerned (lawyers, notaries public, etc), transactions suspected of involving money laundering or terrorist the 2007 Decree provides for less strict duties, such as not being financing for a maximum period of five working days. obliged to perform customer due diligence in cases of continuous Unless the act constitutes a crime, failure to comply with the relationship with a customer, but only in the three cases indicated suspension measure mentioned above is punished with a fine from above and whenever a transaction is of indeterminate or indetermi- €5,000 to €200,000. nable amount (article 16 of the 2007 Decree).

16 Customer and business partner due diligence 17 High-risk categories of customers, business partners and Describe due diligence requirements in your jurisdiction’s AML regime. transactions As mentioned in question 14, the most significant ‘customer due dili- Do your jurisdiction’s AML rules require that covered institutions and gence’ obligations are the following: persons conduct risk-based analyses? Which high-risk categories are (i) identifying the customer and verifying the customer’s identity specified? on the basis of documents, data or information obtained from a Yes, the Italian AML rules provide for a detailed risk-based analyses reliable and independent source; to be conducted by the relevant subjects. In particular, the customer (ii) identifying the beneficial owner and verifying his or her identity; due diligence obligations (and the related identification procedures) (iii) obtaining information on the purpose and the intended nature have to be calibrated to the risk associated with the type of customer, of the business relationship or professional service; and continuous relationship, professional service, operation, product or (iv) conducting ongoing monitoring in the course of the business transaction in question (article 20 of the 2007 Decree). The men- relationship or professional service. tioned relevant subjects must be able to demonstrate that the extent of the measures adopted is appropriate in view of the risk of money In particular, the due diligence required to initiate a new client rela- laundering or terrorist financing. The risk has to be assessed on the tionship consists of that indicated in (i) and (ii) above. This activity basis of the following criteria: can also be carried out by employees and collaborators of the person • with reference to the customer: concerned (article 19, paragraph 1, sections a and b, of the 2007 • the legal form; Decree). • the principal activity; The verification procedure is based on a valid identity document, • behaviour at the time the transaction is carried out or the and must be carried out before the continuous relationship begins or continuous relationship established or the professional ser- where an appointment in order to perform a professional activity is vice performed; and given or a transaction executed. If the customer is an entity, identifi- • the geographical area in which the residence or business cation and verification of its representatives that have the power to office of the customer or counterparty is located; and sign for the transaction must be carried out. • with reference to the transaction, continuous relationship or As far as beneficial owners are concerned, the verification of professional service: their identity must be carried out, together with the one of the cus- • the type of transaction, continuous relationship or profes- tomers, using public information or asking the client the pertinent sional service; data. For entities and trusts, it is mandatory to adopt adequate meas- • the manner of performing the transaction, continuous rela- ures on a risk-based approach aimed at understanding the structure tionship or professional service; of ownership and control of the customer. • the amount;

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• the frequency of the transactions and duration of the exist- For the purpose of facilitating the identification of suspicious ing relationship or professional service; transactions, on the proposal of the FIU, ‘anomaly indicators’ are • the reasonableness of the transaction, existing relationship issued and periodically updated. or professional service in relation to the customer’s activity; Reports shall be made without delay, where possible before the and transaction is effected, as soon as the person required to make a • the geographical area of destination of the product, object of report has grounds for suspicion. the transaction or continuous relationship. Persons required to make a report shall not execute the trans- action until a report has been made, unless it is impossible not to Further, where there is a greater risk of money laundering and execute it, given the normal operating procedures or if not executing terrorist financing, and always in the specific cases indicated below, it could obstruct the investigation (article 41 of the 2007 Decree). the relevant subjects shall apply enhanced due diligence measures As far as reporting obligations for professionals are concerned (article 28 of the 2007 Decree). These cases are the following: (notaries public, lawyers, etc), it should be noted that for the men- • when the customer is not physically present; tioned professionals a duty to report does arise only when they carry • in the case of correspondent accounts with non-EU respondent out a transaction on behalf of their customers of a financial or real institutions; and estate nature and assist them in arranging or carrying out transac- • in respect of transactions, continuous relationships or profes- tions involving the transfer of real rights to immoveable property or sional services with ‘politically exposed persons’ (PEPs). For the economic activities, the management of money, financial instruments purposes of Italian law, PEPs are individuals who are or have or other property, the opening or management of bank accounts, been entrusted with prominent public functions and the immedi- deposit books and securities accounts, the organisation of the con- ate family members and persons known to be close associates of tributions needed and the setting up, management or administration such persons. of companies, entities, trusts and comparable legal persons (article 12 of the 2007 Decree). Finally, with respect to shell banks and anonymity, Italian law pro- In general terms, professionals do not have to report ‘suspi- vides that financial intermediaries cannot open or maintain corre- cious transactions’ if the relevant information is obtained during the spondent accounts with a shell bank or with a bank known to allow examination of the customers’ legal position or for their representa- a shell bank to use its accounts, and that the relevant subjects shall tion in a legal proceeding (including advice given in this respect). pay special attention to products or transactions that might favour With respect to the modalities of reporting for professionals, the anonymity and take measures, if needed, to prevent their use for 2007 Decree, together with its implementing regulations, provides money laundering or terrorist financing purposes. that they shall report to the professional association to which they belong (eg, the bar for lawyers), which in turn shall report to the FIU, keeping the source confidential (and keeping a record of the 18 Record keeping and reporting requirements data of the reporter, in view of potential additional requests by the Describe the record keeping and reporting requirements for covered FIU or the financial police, or both) (article 43 of the 2007 Decree). institutions and persons. With respect to the record keeping obligations, as mentioned in 19 Privacy laws question 14, they mainly refer to: • the retention of relevant documents and the recording of Describe any privacy laws that affect record keeping requirements, due relevant information (for a period of 10 years after the relation- diligence efforts and information sharing. ship or professional service has ended, or following the carrying First, the 2007 Decree expressly provides that reports of suspicious out of the transaction or the end of the relationship or profes- transactions carried out in the meaning and for the effects of the sional service; article 36 of the 2007 Decree); and Decree shall not constitute a violation of secrecy requirements, pro- • the creation of a single electronic archive, where all relevant data fessional secrecy or any limits to the communication of information have to be stored, in such a way to ensure the clarity, complete- imposed by contract or by laws, regulations or administrative provi- ness and immediacy of the data and ease of consultation (article sions and, if the reports are made for the envisaged purposes and 37 of the 2007 Decree). in good faith, they shall not incur liability of any kind (article 41, paragraph 6). With regard to the reporting obligations, the 2007 Decree imposes, Second, with respect to the relevant AML authorities, the 2007 in essence, on the relevant subjects, and first of all on the financial Decree provides that all the information in possession of the FIU, intermediaries, the duty to report to the FIU ‘suspicious transactions’ financial sector supervisory authorities, interested administrative relating to money laundering or terrorist financing (articles 41–48 of bodies, professional associations, etc, shall be covered by profes- the 2007 Decree). sional secrecy, including in relation to the public administration. In particular, the relevant subjects shall send a report of any However, professional secrecy cannot be invoked with respect to the ‘suspicious transactions’ to the FIU whenever they know, suspect or judicial authorities when the information requested is needed for have reason to suspect that money laundering or terrorist financing investigations into criminal matters (article 9 of the 2007 Decree). is being or has been carried out or attempted. The suspicion may In any case, by way of express derogation to the secrecy, the law arise from the characteristics, size or nature of the transaction or provides that the financial sector supervisory authorities shall coop- from any other circumstance ascertained as a result of the function erate with each other and with the FIU, including by exchanging carried out, also taking into account of the economic capacity and information, in order to facilitate the performance of their respective the activity engaged in by the person in question, on the basis of the functions. information available to reporters, acquired in the course of their Further, always by way of express derogation to the secrecy, work or following the acceptance of assignment (article 41 of the the law provides that the FIU may exchange information and 2007 Decree). cooperate with analogous authorities of other states that pursue In 2010, an amendment was introduced in the 2007 Decree the same purposes, subject to reciprocity, and may conclude a (article 41), expressly stating that there is an element of suspicion memoranda of understanding to this end. In particular, the FIU may in the frequent or unjustified carrying out of cash transactions, and exchange data and information concerning suspicious transactions in particular the cash withdrawal or cash deposit through financial with analogous authorities of other states (article 9, paragraphs 2 intermediaries for an amount equal or higher than €15,000. and 3 of the 2007 Decree).

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Information received from foreign authorities may be transmit- civil action for restitution and damages against the authors of such ted by the FIU to the competent Italian authorities, except where predicate offences, while the main victim of a money laundering permission to do so is explicitly denied by the foreign authority offence (theoretically entitled to bring a civil action) is traditionally (article 9, paragraphs 2 and 3 of the 2007 Decree). identified in the state itself, whose function of ‘administration of jus- Finally, with regard to the protection of privacy of the individu- tice’ is damaged by the conduct of the launderer. als who make reports, the 2007 Decree provides that the persons It should be noted that, according to Italian law, in the event a with reporting obligations, the UIF, the financial police, etc, shall crime has caused damage, the ‘fact constituting crime’ is considered adopt adequate measures to ensure the maximum protection of the to also represent a civil tort, and the person injured by the crime identity of the individuals who make reports (article 45 of the 2007 is entitled to bring the civil action for the related restitution and Decree). damages not only before a civil judge, but also in the frame of the criminal proceeding, through ‘standing as civil party’ in the criminal proceeding. 20 Resolutions and sanctions According to Italian civil law, the statute of limitations’ period What is the range of outcomes in AML controversies? What are the for a civil tort is ordinarily five years from the moment of the tort. possible sanctions for breach of AML laws? However, if the fact also represents a criminal offence and the stat- The sanctions for breach of AML laws are explained in detail in ute of limitations for the criminal offence is longer, then the longer question 15. criminal statute of limitations’ period does apply (article 2947 of the As far as the criminal sanctions are concerned, due to their pecu- Italian Civil Code). If a civil action is brought during that period, liar nature, plea bargaining is admitted only to a very limited extent this qualifies as an interruption of the civil statute of limitations, and (and, in particular, with respect to the criminal offences concerning the original five-year period provided for by the civil law restarts the ban on communication, and the failure to provide information running from the moment in which the decision on the criminal pro- or the false information provided by the executor of the transaction). ceeding has become final. With regard to the administrative violations, they are not applied by public prosecutors but by the Ministry for Economy and Finance, International anti-money laundering efforts in the course of administrative proceedings governed by administra- tive law (in particular, Law No. 689/1981 regulating administrative 24 Supranational sanctions). List your jurisdiction’s memberships of supranational organisations that address money laundering.

21 Limitation periods First of all, Italy is a member of the FATF, which is a well-known intergovernmental body entrusted with the countering of money What are the limitation periods governing AML matters? laundering and terrorist financing, and which sets standards and The sanctions for breach of AML laws are explained in detail in develops and promotes policies in that respect (it should be noted question 15. that the FATF 40 Recommendations, and subsequent Nine Special For most of the criminal offences indicated therein (with the Recommendations on Terrorist Financing, have been recognised by exception of the violation of the ban on communication), the the International Monetary Fund and the World Bank as the inter- ordinary statute of limitations is six years from the moment of the national standards for combating money laundering and terrorist committing of the offence, extended to seven years and six months financing). in the event that a qualified activity of investigation is carried out Italy is also a member of the Egmont Group, entrusted with within the six years (see question 10 for the general explanation the development and strengthening of cooperation among FIUs, about the Italian rules on the statute of limitations). the Council of Europe, the International Monetary Fund and the As far as the violation of the ban on communication is con- United Nations, all providing for different types of interventions and cerned, the ordinary statute of limitations is four years from the international cooperation to combat money laundering and terrorist moment of the offence, extended to five years in the event that a financing. qualified activity of investigation is carried out within the four years.

25 Anti-money laundering assessments 22 Extraterritoriality Give details of any assessments of your jurisdiction’s money Do your jurisdiction’s AML laws have extraterritorial reach? laundering regime conducted by virtue of your membership of No, they only apply to the relevant subjects that carry out activity supranational organisations. within the Italy territory, including Italian subsidiaries and Italian Before the 2007 Decree was enacted, the FATF drafted very detailed branches of foreign institutions. Assessment Reports on the Italian regime on AML and combat- ing the financing of terrorism (CFT), conducted on the basis of the Civil claims 40 Recommendations and of the Nine Special Recommendations on Terrorist Financing (Recommendations). The assessments were 23 Civil claims and private enforcement based on the laws, regulations and other materials supplied by the Enumerate and describe the required elements of a civil claim authorities, as well as on other details provided to the assessment or private right of action against money launderers and covered team (staff of the International Monetary Fund and experts acting institutions and persons in breach of AML laws. under its supervision) during its missions to Italy. As explained in question 15, the breach of the relevant AML duties Since 2005, the Italian AML framework has been considered by is first of all punished with criminal and, respectively, administrative the third Mutual Evaluation Report as extensive and mature, achiev- sanctions. ing a high degree of compliance with most of the Recommendations, Further, as explained in questions 1, 4 and 7, if someone takes thus recognising the efforts made. Although the AML preventive sys- part in the predicate offence of money laundering (misappropria- tem was seen as quite sophisticated, it needed to be updated to incor- tion, fraud, etc), he or she can be charged only with that offence porate the new features of the revised FATF standards with respect but not with the money laundering offence. As a consequence, the to financial institutions and non-financial businesses and profes- victims of the predicate offences are ordinarily entitled to exercise a sions. Further, the report pointed out deficiencies by supervisory www.gettingthedealthrough.com 77 ITALY Studio Legale Pisano authorities in ensuring the real implementation of an AML legal • participates in the work of various international organisations framework by reporting entities. (the FATF, the Egmont Group) and EU bodies (the FIU Platform As a consequence, subsequently, the FATF released the and the Committee for the Prevention of Money Laundering Follow-Up Report to the Mutual Evaluation Report of Italy, aimed and Terrorist Financing). at ascertaining whether the relevant criteria were satisfied. Italy was rated partially compliant (PC) on some recommendations on cus- Information on the FIU is provided at the Bank of Italy web address, tomer due diligence and on suspicious transactions reporting, as well www.bancaditalia.it/UIF;internal&action=_setlanguage.action? as on other key and core recommendations. LANGUAGE=en. In light of the above, Italy was placed on a regular follow-up The certified e-mail address to contact the UIF directly is uif@ process, reporting back to the Plenary in October 2007 and October pec.bancaditalia.it. It is located in Rome, at the headquarters of the 2008. At the October 2008 Plenary meeting, Italy maintained that, Bank of Italy, the main address of which is: having adopted the 2007 Decree, sufficient actions for removal from the follow-up process were taken. The Plenary agreed with this at Via Nazionale 91 the February 2009 Plenary meeting. In analysing the measures taken 00184 Rome to address the deficiencies in relation to the Recommendations, the Italy FATF recognised that Italy had made significant progress and that Tel: +39 06 47921 it should henceforth report on a biennial basis on the actions it will take in the AML-CFT area. Additional contact details can be found at www.bancaditalia.it/ footer/contatti, mainly referring to the Bank of Italy, where the FIU is located. 26 FIUs Give details of your jurisdiction’s Financial Intelligence Unit (FIU). 27 Mutual legal assistance As explained in question 12, a crucial function for the purposes of In which circumstances will your jurisdiction provide mutual legal enforcing the AML regime is performed by the Italian FIU, which assistance with respect to money laundering investigations? What are autonomously operates at the Bank of Italy, and which is responsible your jurisdiction’s policies and procedures with respect to requests for obtaining, analysing and exploiting the information on ‘suspi- from foreign countries for identifying, freezing and seizing assets? cious transactions’ reported to it by the relevant subjects (article 6 of the 2007 Decree). The FIU can also suspend, for a maximum period Mutual legal assistance with foreign countries, including with respect of five working days, transactions suspected of involving money to money laundering investigations, is governed by the international laundering or terrorist financing. treaties signed and ratified by Italy. They include the Strasbourg The FIU performs its functions autonomously and indepen- European Convention on Mutual Legal Assistance in Criminal dently using human, technical and financial resources and instru- Matters of 1959, the Strasbourg Convention on Money Laundering, mental assets provided by the Bank of Italy. The organisation and Search, Seizure and Confiscation of the Proceeds of Crime of 1990 activities of the FIU are governed by a Bank of Italy regulation. and many bilateral treaties. In the absence of a treaty, mutual legal In addition to the functions mentioned above, the FIU: assistance is governed by specific provisions of the Code of Criminal • analyses and studies financial flows and carries out statistical Procedure (articles 696 and 723 ff ICCP). analyses of aggregate data transmitted on a monthly basis by Where a request is made from a foreign authority to the Italian entities subject to reporting requirements; authorities, then both the Italian minister of justice and the Italian • cooperates with the competent authorities in issuing secondary court of appeal that is geographically competent (depending on the legislation, develops anomaly indicators and elaborates patterns place of execution of the request), have to approve it. If approved, of anomalous behaviour from a financial standpoint; the court of appeal delegates the Italian ‘judge for the preliminary • performs monitoring functions, including inspections, and starts investigations’ (not the public prosecutor) for the execution of the request. sanction procedures in matters for which it is competent; In essence, the Italian minister of justice can deny the request • cooperates with the other Italian authorities engaged in counter- where: ing money laundering and terrorist financing and with foreign (i) the acts requested compromise the sovereignty, security or other FIUs; and essential interest of the state;

Studio Legale Pisano

Roberto Pisano [email protected] Chiara Cimino [email protected]

Via Cino del Duca 5 Tel: +39 02 7600 2207 20122 Milan Fax: +39 02 7601 6423 Italy www.pisanolaw.com

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(ii) the acts requested are expressly prohibited by Italian law or they In addition, the court of appeal can subsequently deny the request are conflicting with the fundamental principles of the Italian where the conditions under (ii) and (iii) above are met, or the dual juridical system; criminality principal is not fulfilled (article 724 ICCP). (iii) there are grounds to believe that considerations relating to race, The relevant international treaties can simplify and reduce the religion, sex, nationality, language, political opinions or personal conditions for the assistance to be granted. or social conditions can negatively affect the carrying out or the The same procedures mentioned above do apply with respect to outcome of the trial; or requests from foreign countries for identifying, freezing and seizing (iv) the requesting state does not provide proper guarantees of reci- assets. procity (article 723 ICCP).

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Yoshihiro Kai Anderson Mo¯ri & Tomotsune

Domestic legislation 3 Defendants Can both natural and legal persons be prosecuted for money 1 Domestic law laundering? Identify your jurisdiction’s money laundering and anti-money laundering Both natural and legal persons can be prosecuted for money laun- (AML) laws and regulations. Describe the main elements of these dering (article 15 of the Anti-Drug Special Provisions Act and article laws. 17 of the Act on Punishment of Organised Crimes). Japanese AML laws consist of the following three Acts: • the Act on Special Provisions for the Narcotics and Psychotropics 4 The offence of money laundering Control Act, etc, and Other Matters for the Prevention of Activities Encouraging Illicit Conduct and Other Activities What constitutes money laundering? Involving Controlled Substances through International As noted in question 1, both the Anti-Drug Special Provisions Act Cooperation (Act No. 94 of 1991) (the Anti-Drug Special and the Act on Punishment of Organised Crimes criminalise money Provisions Act); laundering activities. • the Act on Punishment of Organised Crimes and Control of Money laundering under the Anti-Drug Special Provisions Act Crime Proceeds (Act No. 136 of 1999) (the Act on Punishment criminalises: of Organised Crimes); and • concealment of drug crime proceeds (article 6), which includes: • the Act on Prevention of Transfer of Criminal Proceeds (Act No. • disguising facts with respect to acquisition or disposition of 22 of 2007). drug crime proceeds; • concealing drug crime proceeds; and In 1992, the Anti-Drug Special Provisions Act was established in • disguising facts with respect to the source of drug crime pro- order to implement the United Nations Convention against Illicit ceeds. The predicate crimes that generate drug crime pro- Traffic in Narcotic Drugs and Psychotropic Substances. The Act ceeds are listed in article 2, paragraph 2 of the Anti-Drug criminalised money laundering activities and provided for the con- Special Provisions Act; and fiscation of criminal proceeds related to drug crimes. In 2000, the • receipt of drug crime proceeds (article 7). Act on Punishment of Organised Crimes was enforced and the scope of predicated offences of money laundering was extended from The Anti-Drug Special Provisions Act also criminalises the act of drug-related crimes to other serious crimes. knowingly receiving drug crime proceeds. The Act on Prevention of Transfer of Criminal Proceeds imposes Money laundering under the Act on Punishment of Organised an obligation on business operators to take preventive measures Crimes criminalises: such as customer due diligence. This Act criminalises the provision • managing an enterprise by the using of criminal proceeds of false information at the time of a transaction to covered institu- (article 9). The predicate crimes that generate crime proceeds are tions and persons listed in question 13 for the purpose of conceal- listed in the attachment to the Act on Punishment of Organised ing customer identification data. The Act criminalises the reception, Crimes; delivery and provision of deposit and savings passbooks, ATM cards • concealment of crime proceeds (article 10); and and exchange transaction cards in order to prevent the misuse of • receipt of crime proceeds (article 11). these passbooks and cards in money laundering crimes. Both acts require intention or knowledge as the substantive require- Money laundering ment of crimes. Neither a strict liability standard nor negligence standard applies to money laundering. 2 Criminal enforcement Financial institutions or other money-centred businesses can Which government entities enforce your jurisdiction’s money be prosecuted for their customers’ money laundering crimes if they laundering laws? knowingly assist their customers in concealing or receiving crime proceeds. There is no special government entity that enforces the AML laws. Like criminal laws, the police departments of each prefecture and public prosecutors offices enforce the AML laws. 5 Qualifying assets and transactions Is there any limitation on the types of assets or transactions that can form the basis of a money laundering offence? There is no limitation on the types of assets or transactions that can form the basis of a money laundering offence. There is no monetary threshold to prosecution.

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6 Predicate offences 10 Limitation periods Generally, what constitute predicate offences? What are the limitation periods governing money laundering As noted in question 4, predicate offences are listed in the Anti-Drug prosecutions? Special Provisions Act and the Act on Punishment of Organised The limitation period governing money laundering prosecutions Crimes. The predicate offences include a wide range of serious is three or five years. The limitation period varies according to the crimes, but violations of tax or currency exchange laws do not serve maximum sentence of money laundering activities. as predicate offences.

11 Extraterritorial reach 7 Defences Do your jurisdiction’s money laundering laws have extraterritorial Are there any codified or common law defences to charges of money reach? laundering? Japanese AML laws can apply to non-citizens and non-residents There is no special codified or common law defence to charges of who are involved in money laundering activities in our jurisdiction. money laundering. The AML laws also apply to money laundering activities com- mitted by Japanese nationals outside our jurisdiction’s borders.

8 Resolutions and sanctions AML requirements for covered institutions and individuals What is the range of outcomes in criminal money laundering cases? Public prosecutors have discretion to decide whether or not they 12 Enforcement and regulation prosecute a suspect who committed a money laundering crime. After Which government entities enforce your jurisdiction’s AML regime and the public prosecutor prosecutes the defendant, the court will decide regulate covered institutions and persons? Do the AML rules provide whether the defendant is guilty or not in the light of evidence and, for ongoing and periodic assessments of covered institutions and if the court finds the defendant guilty, will pronounce a sentence on persons? the defendant. As noted in question 2, the prefectural police and the public pros- In Japanese criminal procedure, there are no resolutions through ecutor’s office have authority to enforce AML laws if covered insti- plea agreements, settlement agreements or other similar means as tutions and persons are involved in criminal money laundering alternatives to trial. activities. The criminal sanction for money laundering is imprisonment for If there is any suspicion that covered institutions and persons not more than five years or a fine of not more than ¥10 million, or violate the obligation prescribed in the Act on Prevention of Transfer both. The maximum sentence varies according to the types of money of Criminal Proceeds, the National Public Safety Commission and laundering activities. the National Police Agency may make requests to the alleged cov- ered institutions and persons for the submission of reports or orders 9 Forfeiture to the relevant prefectural police to conduct necessary inquiries. The National Public Safety Commission and the National Police Describe any related asset freezing, forfeiture, disgorgement and Agency may issue an opinion statement to competent administrative victim compensation laws. authorities in charge of supervising the alleged covered institutions Related asset freezing and persons and encourage the administrative authorities to take In order to ensure the forfeiture of crime proceeds, the court may, necessary measures to correct the violation. upon the request of a public prosecutor or police officer, issue a pro- Competent administrative authorities may, to the extent neces- tective order that prohibits the disposing crime proceeds before the sary for the enforcement of AML laws, request covered institutions prosecution. The court may also issue such a protective order after and persons to submit reports or materials concerning its business the prosecution. affairs, conduct on-site inspections, provide necessary guidance and issue a correction order to covered institutions and person. Forfeiture The court may order the forfeiture of crime proceeds and, if crime proceeds have already been consumed or transferred to a third party 13 Covered institutions and persons and cannot be forfeited, the court may order to collect an equiva- Which institutions and persons must carry out AML measures? lent value of the crime proceeds. Drug crime proceeds are subject to The following institutions and persons must carry out AML mandatory forfeiture. measures: • financial institutions; Victim compensation • financial leasing operators; The court may not order the forfeiture of a crime victim’s property • credit card operators; (crime proceeds obtained from victims through crimes relating to • real estate agents; property) because it would cause an obstruction to damages claimed • dealers in precious metals and stones; by victims. However, the court may forfeit a crime victim’s property • postal receiving service providers or telephone call receiving ser- if it is difficult for the victim to recover damages by executing the vice providers; right to seek damages or other rights. The government will convert • lawyers (including a foreign lawyers registered in Japan) or legal the crime victim’s property to money and distribute the money to profession corporations; the victims (see the Act on Recovery Payment to be Paid from Assets • judicial scriveners or judicial scrivener corporations; Generated from Crime (Act No. 87 of 2006) for the procedure of • certified administrative scriveners or administrative scrivener victim compensation). corporations; • certified public accountants or audit firms; and • certified tax accountants or certified tax accountancy corporations.

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14 Compliance Notification pertaining to foreign exchange transactions Do the AML laws in your jurisdiction require covered institutions and In conducting exchange transactions pertaining to payment from persons to implement AML compliance programmes? What are the Japan to foreign countries, financial institutions shall notify the receiving institutions of certain identification data of customers. required elements of such programmes? The AML laws have no provisions requiring covered institu- tions and persons to implement AML compliance programmes. 17 High-risk categories of customers, business partners and Competent administrative authorities have authority to supervise transactions covered institutions and persons and some administrative authori- Do your jurisdiction’s AML rules require that covered institutions and ties such as the Financial Services Agency publish guidelines, persons conduct risk-based analyses? Which high-risk categories are which require covered institutions and persons to implement AML specified? compliance programmes. See question 16.

15 Breach of AML requirements 18 Record keeping and reporting requirements What constitutes breach of AML duties imposed by the law? Describe the record keeping and reporting requirements for covered As noted in question 16 in detail, AML laws impose several duties to institutions and persons. covered institutions and persons. The most typical breach of AML duties is the failure to verify the identification data of customers at Record keeping requirement the time of transaction and report suspicious transactions. Covered institutions and persons have a duty to prepare and preserve records of the verified information collected at the stage of transaction and the measures taken verify the customer for seven 16 Customer and business partner due diligence years from the day when the transaction was terminated. Describe due diligence requirements in your jurisdiction’s AML regime. Covered institutions and persons also have a duty to prepare and preserve the records of transaction for seven years from the day The Act on Prevention of Transfer of Criminal Proceeds requires of transaction. covered institutions and persons to conduct the following due diligences on customers and business partners. Reporting requirement If property accepted from a customer is suspected, in consideration Verification at the time of transaction of the results of verification at the time of transaction and other con- The Act requires covered institutions and persons to verify: ditions, to have been criminal proceeds or the customer is suspected • identification data of customers such as their name, domicile of committing a certain crime, covered institutions and persons and date of birth documents; shall promptly report the transaction to a competent administrative • the purpose of the transaction; authority such as the Financial Services Agency and the Ministry of • the occupation (natural person) and content of business (juridi- Economy, Trade and Industry. A competent administrative author- cal person); and ity shall, when having received the report of suspicious transactions • information on the beneficial owner by such verification meth- from covered institutions and persons, promptly notify the matters ods as asking customers to present identification documents. As pertaining to the report of suspicious transactions to the National for judicial scriveners, administrative scriveners, certified public Safety Commission. When the National Safety Commission finds accountants or tax accountants or tax accountancy corpora- that matters pertaining to the report of suspicious transactions will tions, the Act requires them to verify only the identification data contribute to the investigation of criminal cases conducted by public of customers. prosecutors, the police or other investigators, the National Safety Commission shall disseminate such information to the investigators. Covered institutions and persons shall verify the matters listed above by verification methods different from the methods listed above if: • a party of transaction is suspected of pretending to be a customer; 19 Privacy laws • a customer is suspected to have given false information when the Describe any privacy laws that affect record keeping requirements, due verification at the time of transaction was conducted; diligence efforts and information sharing. • a customer resides or is located in the state or area in which a system for the prevention of the transfer of criminal proceeds is The Act on the Protection of Personal Information (Act No. 57 of deemed to be not sufficiently prepared (such as North Korea and 30 May 2003) prescribes the duties to be observed by business enti- Iran); or ties regarding the proper handling of personal information, but this • it is found that there is a substantial need to perform enhanced Act does not have the record keeping requirements, due diligence customer due diligence for the prevention of the transfer of crim- efforts and information sharing prescribed in the Act on Prevention inal proceeds. of Transfer of Criminal Proceeds.

If the transaction involves a transfer of property of a value exceed- 20 Resolutions and sanctions ing ¥2 million, covered institutions and persons shall also verify the What is the range of outcomes in AML controversies? What are the status of the property and income. possible sanctions for breach of AML laws? Measures to appropriately conduct verification at the time of There is no criminal sanction even if covered institutions and per- transaction sons commit a breach of AML laws. As noted in question 12, the The Act requires covered institutions and persons to take measures National Public Safety Commission, the National Police Agency to keep identification data up to date, implement education and and competitive administrative authorities can take administrative training for employees and develop other necessary systems. measures against covered institutions and persons who violate AML laws.

82 Getting the Deal Through – Anti-Money Laundering 2014 Anderson Mo¯ri & Tomotsune JAPAN

Update and trends

Number of arrests made for money laundering activities Number of reports of suspicious transactions According to the statistics on the Japan Financial Intelligence Center’s The number of reports of suspicious transactions has increased (JAFIC’s) annual report (see the following table), the number of the rapidly (see the following table). arrests made for money laundering activities recently demonstrated The JAFIC has analysed that the increase in reporting numbers an upward trend and many of such money laundering activities were can be attributed to the following factors: committed by organised crime groups. • the monitoring system for anti-social forces and illegal funds transfer has been reinforced by financial institutions with the progress of compliance awareness in society; and Act on Punishment of Organised Crimes • education on cases of suspicious transactions through seminars 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 for financial institutions in the past has had a positive effect. 65 107 134 177 173 226 205 243 238 272 (40) (48) (53) (60) (63) (90) (90) (81) (55) (75) 2004 2005 2006 2007 2008 Anti-Drug Special Provisions Act 95,315 98,935 113,860 158,041 235,260 5 5 10 7 12 10 9 8 11 10 2009 2010 2011 2012 2013 (3) (4) (5) (5) (5) (4) (5) (3) (4) (10) 272,325 294,305 337,341 364,366 349,361 Note: the number in brackets represents the number of cases (Based on the statistics in the JAFIC’s annual report) conducted by organised crime groups (based on the statistics in the JAFIC’s annual report). The JAFIC publishes an annual report on the trends in criminal money laundering schemes and enforcement efforts in Japan on its website (www.npa.go.jp/sosikihanzai/jafic/en/nenzihokoku_e/nenzihokoku_e. htm).

21 Limitation periods persons in breach of AML laws. Victims of crime can bring an action What are the limitation periods governing AML matters? for damages against money launderers who have concealed crime proceeds and have caused damage to the victim. There is no limitation period for administrative measures regarding AML violations. International anti-money laundering efforts

22 Extraterritoriality 24 Supranational Do your jurisdiction’s AML laws have extraterritorial reach? List your jurisdiction’s memberships of supranational organisations If foreign institutions and persons and their subsidiaries fall within that address money laundering. the category of covered institutions and persons listed in question Japan is a member of: 13 under the relevant laws, AML laws apply to them. There is no • the Financial Action Task Force (FATF); specific provision that prescribes the applicability of AML laws to • the Asia/Pacific Group on Money Laundering (APG); and subsidiaries of domestic institutions in foreign jurisdictions and • the Egmont Group. conduct outside the Japanese jurisdiction’s borders. 25 Anti-money laundering assessments Civil claims Give details of any assessments of your jurisdiction’s money 23 Civil claims and private enforcement laundering regime conducted by virtue of your membership of Enumerate and describe the required elements of a civil claim supranational organisations. or private right of action against money launderers and covered The FATF conducted the third mutual evaluation of Japan regard- institutions and persons in breach of AML laws. ing compliance with the FATF’s 40 Recommendations and 9 Special There is no specific provision regarding civil claims or a private right Recommendations from 2007 to 2008. of action against money launderers and covered institutions and As for the recommendation regarding customer due diligence by financial institutions, the FATF pointed out that Japan’s AML

Yoshihiro Kai [email protected]

Akasaka K-Tower, 2-7 Tel: +81 3 6888 5694 Motoakasaka 1-chome Fax: +81 3 6888 6694 Minato-ku www.amt-law.com Tokyo 107-0051 Japan

www.gettingthedealthrough.com 83 JAPAN Anderson Mo¯ri & Tomotsune laws should directly provide for the verification of the purpose of from FSA to the National Police Agency. This new FIU is called the transaction and beneficial owner and introduce additional customer Japan Financial Intelligence Center (JAFIC) and is a member of the identification measures in the case of identifying a customer without Egmont Group. The contact details are as follows: photo ID. In April 2011, in consideration of the recommendations made Japan Financial Intelligence Center by the FATF, the following amendments were made to the Act on 2-1-2 Kasumigaseki Chiyoda-ku Prevention of Transfer of Criminal Proceeds: Tokyo 100-8974 • the verification of the purpose of transactions and beneficial Japan owner at the time of transaction; Telephone: +81 3 3581 0141 • the addition of call forwarding service providers to the list of www.npa.go.jp/sosikihanzai/jafic/index_e.htm. covered institutions and persons; • the addition of measures for the verification at the time of trans- 27 Mutual legal assistance actions; and • strengthening the punishments on illicit transfers of passbooks. In which circumstances will your jurisdiction provide mutual legal assistance with respect to money laundering investigations? What are The amended Act came into force on 1 April 2013. your jurisdiction’s policies and procedures with respect to requests from foreign countries for identifying, freezing and seizing assets?

26 FIUs Japan provides mutual legal assistance with respect to money laun- dering investigations under the same conditions as other crimes. Give details of your jurisdiction’s Financial Intelligence Unit (FIU). Japan also provides mutual legal assistance with respect to Japan’s first FIU was established within the Financial Supervisory the forfeiture and asset freezing of crime proceeds under the Act Agency (FSA) in 2000. As the Act on Prevention of Transfer of on Punishment of Organised Crimes and the Anti-Drug Special Criminal Proceeds was established in 2007, the FIU was transferred Provisions Act.

84 Getting the Deal Through – Anti-Money Laundering 2014 Laurent Lenert, Avocat à la Cour LUXEMBOURG Luxembourg

Laurent Lenert Laurent Lenert, Avocat à la Cour

Domestic legislation Regulated entities and persons are further required to put in place an organisational framework and policies relating to customer 1 Domestic law due diligence, ongoing monitoring, reporting, record keeping, inter- Identify your jurisdiction’s money laundering and anti-money laundering nal control, risk assessment, as well as to comply with disclosure and (AML) laws and regulations. Describe the main elements of these reporting obligations. laws. The principal money laundering and terrorist financing legislation Money laundering is as follows: 2 Criminal enforcement • the Luxembourg criminal code, specifically articles 506-1 et seq as regards acts of money laundering; Which government entities enforce your jurisdiction’s money • the amended law of 19 February 1973 governing the sale of laundering laws? medicinal substances and measures to combat drug addiction, The Grand Duchy of Luxembourg has two major judicial dis- specifically article 8-1; tricts. The Prosecutor’s Office of the judicial district of the city of • the amended and consolidated law of 12 November 2004 on Luxembourg and the Prosecutor’s Office of the district of the fight against money laundering and terrorist financing (2004 both have jurisdiction to enforce money laundering legislation for Law); acts committed in their respective jurisdictions. The Prosecutor’s • the law of 17 July 2008 relating to the fight against money laun- Office of the judicial district of Luxembourg, however, has sole juris- dering and terrorist financing; diction for acts of terrorism. • the law of 27 October 2010 enhancing the anti-money launder- Criminal convictions for acts of money laundering can only be ing and counter terrorist financial legal framework; made by the criminal courts. • the grand-ducal regulation of 1 February 2010 providing details on certain provisions of the amended law of 12 November 2004 on the fight against money laundering and terrorist financing; 3 Defendants and Can both natural and legal persons be prosecuted for money • the grand-ducal regulation of 29 October 2010 enforcing the laundering? law of 27 October 2010 implementing United Nations Security Under Luxembourg law, legal entities are subject to potential crimi- Council resolutions as well as acts adopted by the European nal liability and may, thus, be prosecuted for acts of money laun- Union concerning prohibitions and restrictive measures in finan- dering and terrorist financing. Criminal liability of a legal entity is cial matters in respect of certain persons, entities and groups in non-exclusive, meaning that it does not preclude an individual who, the context of the combat against terrorist financing. in fact, perpetrated the relevant crime or offence from also being convicted, be it as a principal or an accomplice. In order for a court Various other legal provisions impose anti-money laundering obliga- to hold a legal person liable, it will need to be evidenced that the tions, inter alia the amended law of 9 December 1976 on the profes- money laundering or terrorist financing offence has been committed sion of notaries public, the amended law dated 20 April 1977 on by one or more of the entity’s legal representatives, on behalf and for gambling and sports betting, the amended law on the judicial system the benefit of the legal entity. dated 7 March 1980, the amended law of 10 August 1991 on the legal profession, the amended law of 6 December 1991 on the insur- ance sector, the amended law of 5 April 1993 on the financial sector 4 The offence of money laundering and the amended law of 18 December 2009 concerning the audit What constitutes money laundering? profession. Article 506-1 of the Criminal Code sanctions acts of money launder- Luxembourg has progressively adopted all three European ing by incriminating: Union AML directives, the present legislation resulting from the • whoever knowingly has facilitated, by any means, the untruthful implementation of the Third Anti-Money Laundering Directive justification of the nature, the origin, the location, the disposal, (2005/60/EC). Following recommendations made by the Financial the movement or the property of goods (as further defined by Action Task Force, Luxembourg amended its legislation in 2010 to article 32-1 of the Criminal Code), including assets of any kind, the now applicable legal framework. whether tangible or intangible, movable or immovable, any Luxembourg law incriminates acts of money laundering or ter- legal document or instrument or any interest therein, forming rorist financing, as well as, notably, the attempt, conspiracy, incita- the direct or indirect object or product of various criminal acts tion or aid to commit such offences, the failure to disclose or report (ie, predicate offences); these offences and the tipping off of a third party.

www.gettingthedealthrough.com 85 LUXEMBOURG Laurent Lenert, Avocat à la Cour

• whoever has knowingly provided his or her support to any 7 Defences investment, concealment or disguise, transfer or conversion of Are there any codified or common law defences to charges of money goods; and laundering? • whoever has knowingly acquired, detained or used such goods Luxembourg is a civil law country. Criminal defences are appreci- knowing that they may come from one or more predicate ated on a case by case basis and are not as such codified. offences As previously mentioned, acts of money laundering require a positive intent either to carry out money laundering offences on the The attempt to commit the aforementioned money laundering part of the author, or to knowingly disregard legal requirements offences is equally punishable. regarding customer due diligence, adequate internal organisation, Article 9 of the 2004 Law provides for sanctions for persons cooperation with the authorities or carrying out of suspicious trans- who, knowingly, do not comply with the legal requirements regard- actions. If the Prosecutor’s Office cannot prove that there was such ing customer due diligence, adequate internal management and intent on the part of the (alleged) perpetrator, and should there be cooperation with the authorities. any doubt, the indicted person may not be convicted by a criminal Under Luxembourg criminal law, notably influenced by French court (in dubio pro reo). and Belgian law, an intent to commit a criminal offence will gener- ally need to be evidenced in court in order for an indicted person to be convicted. Both the Criminal Code, as regards the definition of 8 Resolutions and sanctions acts of money laundering, and the 2004 Law, as regards the criminal What is the range of outcomes in criminal money laundering cases? sanctions for violations of the AML obligations relating to profes- The Luxembourg Prosecutor’s Office has the liberty to decide sionals, focus on the requirement that the perpetrator of the offence whether a criminal prosecution should be brought against the has a positive state of mind to (knowingly) commit the said offence. alleged authors of criminal offences, including (alleged) acts of Accordingly, professionals may not, in principle, unless they have money laundering, unless the victim of a criminal offence (including, acted as an accomplice or aid, be convicted for acts of money laun- for the avoidance of doubt, legal persons) has directly secured the dering of their clients, if they have met the organisational require- investigation judge, in which case the alleged criminal offences must ments and have cooperated with the relevant authorities. If these be investigated. professionals, however, know or suspect a client to commit (or to Luxembourg law does not currently provide for plea agreements have committed) a criminal offence and carry out a suspicious trans- in criminal matters, although a bill has been submitted to Parliament actions, their conduct may give rise to criminal liability. and is being discussed at present. Sanctions for acts of money laundering differ for natural and 5 Qualifying assets and transactions legal persons. Whereas fines ranging from €1,250 to €1.25 million Is there any limitation on the types of assets or transactions that can may be ordered for natural persons being first-time offenders, fines form the basis of a money laundering offence? applicable to legal entities are, in principle, doubled in comparison (article 36 of the Criminal code). In both cases, fines may yet be By reference to article 32-1 of the Criminal Code, which mentions doubled in the case of renewed criminal offences within five years. any property, including assets of any kind, whether tangible or intan- Convictions abroad may be taken into considering in order to deter- gible, movable or immovable, any legal document or instrument in mine if the offence was a renewed one. any form evidencing title to, or any interest in, any asset constitut- Natural persons may be forbidden to exercise certain rights (eg, ing the subject or the proceed, whether directly or indirectly, of eligibility, carrying of weapons and public mandates) or may impris- an offence or giving rise to any financial benefit deriving from the oned for up to five years, or both, (sanctions being potentially dou- offence, including income from these assets, there is, legally, no de bled in the case of renewed offences), whereas legal persons may face minima criteria forming the basis of a money laundering offence. special confiscation, exclusion from participation in public contracts or, in some cases, dissolution. 6 Predicate offences Generally, what constitute predicate offences? 9 Forfeiture Under Luxembourg law, money laundering effectively requires prior Describe any related asset freezing, forfeiture, disgorgement and proof of the predicate offence and a link between this offence and victim compensation laws. the laundered proceeds. Further to the provisions of article 506-8 Confiscation of assets in relation to acts of money laundering are of the Criminal Code, however, money laundering offences do not of a criminal nature only, as Luxembourg law does not provide for require any prior conviction for these offences. any kind of civil forfeiture. Seizure of assets subject to later confisca- Article 506-1 of the Criminal Code provides an extended list tion by criminal courts may be ordered by the Prosecutor’s Office of predicate offences under Luxembourg law, whereas article 506-3 or by the investigating judge. Where a suspicious transaction report of the same code states that acts of money laundering may be con- has been filed, the Prosecutor’s Office may freeze bank accounts and stituted even if predicate offences are carried out abroad (in princi- block transactions. ple under the requirement that such acts are also punishable in the The confiscation of assets will need to be confirmed by the com- relevant jurisdiction). The list provided for by the aforementioned petent criminal court. Until such time, any person having a legitimate article 506-1 is rather extensive and comprises most notable crimi- interest may request the unfreezing thereof before the competent nal offences, it being stated that any and all criminal offences with court sitting in chambers. a minimum imprisonment of at least six months will be considered Victims may be given compensation after the case has been as a predicate offence. debated in court, either by virtue of a judgment of the criminal In principle, unless part of a bigger fraud scheme, acts of tax courts or by separate proceedings before the civil courts. fraud would not yet constitute a predicate offence. Luxembourg leg- islation is expected to change on this point soon.

86 Getting the Deal Through – Anti-Money Laundering 2014 Laurent Lenert, Avocat à la Cour LUXEMBOURG

10 Limitation periods • statutory auditors, approved statutory auditors, audit firms and What are the limitation periods governing money laundering approved audit firms; prosecutions? • accountants and accounting professionals; • real estate agents; Under Luxembourg law, money laundering prosecutions are subject • notaries; to a limitation period of five years. Where, however, acts of money • lawyers, when assisting or advising their clients in corporate, laundering have been carried out on an ongoing basis, the limita- financial or real estate transactions or carrying out the activity tion period does not start until the very last isolated act of money of family office, and excluding the case where they are acting as laundering has been carried out, which may effectively prolong the defence (litigation) counsel; limitation period. • persons not listed before and exercising on a professional basis an activity of tax, legal or economic advice, or a trust and com- 11 Extraterritorial reach pany service provider activity; • casinos and similar gambling establishments; and Do your jurisdiction’s money laundering laws have extraterritorial • persons trading in high value goods (in an amount of €15,000 or reach? more, whether the transaction is carried out in a single operation Luxembourg criminal law, in general, has an extraterritorial reach or in several operations that appear to be linked). as it applies not only to alleged perpetrators residing or domiciled in the Grand-Duchy, but to any situation where a constitutive element of the criminal offence has been carried out or taken place 14 Compliance in Luxembourg or to the disadvantage of a Luxembourg person (eg, Do the AML laws in your jurisdiction require covered institutions and a Luxembourg-based credit institution). As regards acts of money persons to implement AML compliance programmes? What are the laundering, Luxembourg legislation clearly indicates that it also required elements of such programmes? applies, in principle, to situations where the predicate offence has Persons within the scope of the 2004 Law are subject to following taken place in a foreign jurisdiction. requirements: • conducting customer due diligence, including, for the avoidance AML requirements for covered institutions and individuals of doubt, the identification of beneficial ownership, and, if appli- cable, monitoring ongoing business relationships; 12 Enforcement and regulation • procuring and maintaining records allowing for the identifica- Which government entities enforce your jurisdiction’s AML regime and tion of both costumers and beneficial owners and ensuring that regulate covered institutions and persons? Do the AML rules provide the data is appropriate and up to date; for ongoing and periodic assessments of covered institutions and • establishing and maintaining adequate and appropriate poli- persons? cies and procedures of customer due diligence, reporting, record Under Luxembourg law, the Prosecutor’s Offices of Luxembourg keeping, internal control, risk assessment, risk management, and Diekirch have sole jurisdiction as regards criminal offences. compliance management and communication; On the other hand, various governmental or semi-private entities • taking adequate and appropriate measures so that the relevant enforce AML provisions for regulated persons, notably: employees are aware of, and trained in respect to, the provisions • the Luxembourg government, branch of land domains and regarding money laundering and terrorist financing; and registration; • cooperating with the Luxembourg AML authorities. • the Regulatory Commission of the Financial Sector (CSSF) for persons subject to the amended law of 5 April 1993 on the 15 Breach of AML requirements financial sector; What constitutes breach of AML duties imposed by the law? • the Regulatory Commission of the Insurance Sector (CAA) for persons subject to the amended law of 6 December 1991 on the Breaches of AML duties typically result from non-compliance with insurance sector; and legal provisions as regards customer due diligence, adequate internal • the President of the Bar Association for lawyers. organisation requirements, insufficient or absent cooperation with the relevant authorities or a violation of the obligation to refrain from carrying out suspicious transactions. 13 Covered institutions and persons The 2004 Law expressly addresses the ‘no tipping-off’ rule by Which institutions and persons must carry out AML measures? stating that persons subject to the AML legislation shall, under no circumstance, disclose the fact that information regarding suspicions Article 2 of the 2004 Law provides a detailed list of legal and natural of acts of money laundering have been transmitted to the relevant persons subject to AML provisions, contingent on periodic updat- authorities, and that an investigation has been made or is likely to ing. Broadly speaking, Luxembourg AML legislation applies to fol- be made, neither to their clients, nor to third parties. The ‘no tipping lowing persons: off’ requirement may be limited in certain situations where coercive • credit institutions and professionals of the financial sector, pay- measures have been requested by virtue of mutual legal assistance ment institutions and electronic money institutions, as well as requests. persons subject to the law on payment services; • insurance and reinsurance undertakings or intermediaries, and professionals of the insurance sector; 16 Customer and business partner due diligence • undertakings for collective investment, specialised investment Describe due diligence requirements in your jurisdiction’s AML regime. funds, investment companies in risk capital, as well as relevant Broadly speaking, customer due diligence assessments must be made management companies, managers and advisers thereof; in the following cases: • pension funds; • when establishing a business relationship; • securitisation undertakings; • when carrying out occasional transactions amounting to • alternative investment fund managers; €15,000 or more, whether the transactions are carried out in • persons not listed before and conducting as a business one more a single operation or in several operations that appear to be of the aforementioned services; linked; www.gettingthedealthrough.com 87 LUXEMBOURG Laurent Lenert, Avocat à la Cour

• when there is a suspicion of money laundering or terrorist (iii) any natural person who exercises control over 25 per cent financing, regardless of any derogation, exemption or threshold; or more of the property of a legal arrangement or entity. and • when there are doubts about the veracity or adequacy of previ- 17 High-risk categories of customers, business partners and ously obtained client identification data. transactions Customer due diligence measures must comprise: Do your jurisdiction’s AML rules require that covered institutions and • identification of the customer and verification of his or her iden- persons conduct risk-based analyses? Which high-risk categories are tity on the basis of documents, data or information obtained specified? from a reliable and independent source; Following the application of the 2004 Law, all professionals subject • identification, where applicable, of the beneficial owner and tak- to AML provisions must apply enhanced client due diligence meas- ing reasonable measures to verify his or her identity so that the ures on a risk-sensitive basis, in addition to normal due diligence professional is satisfied with the knowledge of the customer and requirements, in situations, which by their nature are likely to pre- the beneficial owner, including, as regards legal persons, trusts sent a higher risk of money laundering or terrorist financing, and and similar legal arrangements, taking risk-based and adequate in other situations representing a high risk of money laundering or measures to understand the ownership and control structure of terrorist financing. the customer; Enhanced customer due diligence procedures must always be • obtaining information on the purpose and intended nature of applied in following circumstances: the business relationship; and • where the customer has not been physically present for identifi- • conducting ongoing monitoring of the business relationship, cation purposes; including scrutiny of transactions being conducted, verifying if • in the event of cross-border correspondent banking and other transactions are consistent with the professional’s knowledge of similar relationships with responded institutions in third coun- the customer and the business and risk profile, including, where tries (ie, non member states of the European Union) and, con- necessary, the source of funds and ensuring that the documents, tingent upon the assessment of a higher risk, with respondent data or information held are kept up to date. institutions in member states, credit institutions and other insti- tutions involved in such relationships; and The verification of a customer’s identity and the identity of the ben- • in transactions or business relationships regarding politically eficial owner must take place before the establishment of a business exposed persons residing abroad or holding a public function relationship or the carrying-out of any transaction. The verification in a foreign country or holding a public function on behalf of a may, however, be completed during the establishment of a business foreign country. relationship only, if the normal conduct of business cannot be inter- rupted or where there is little risk of money laundering or terror- In respect of transactions or business relationships with politically ist financing occurring. In such situations, customer due diligence exposed persons, as aforementioned, relevant professionals must: measures must be completed as soon as practicable after the initial • have appropriate risk-based procedures to determine whether contact. the customer or beneficial owner is a politically exposed person; Customer due diligence procedures must not only be applied to • obtain senior management approval for establishing business new clients but, at appropriate times, to existing clients on a risk- relationships with such customers; sensitive basis. • take adequate measures to establish the source of wealth and Beneficial ownership is defined by article 1(7) of the 2004 Law source of funds that are involved in the business relationship or as ‘any natural person who ultimately owns or controls the customer transaction; and and/or any natural person on whose behalf a transaction or activity • conduct enhanced ongoing monitoring of the business is being conducted’. The law further states that beneficial owners relationship. must at least include:

18 Record keeping and reporting requirements (a) in the case of corporate entities: (i) any natural person who ultimately owns or controls a Describe the record keeping and reporting requirements for covered legal entity through direct or indirect ownership or con- institutions and persons. trol over a sufficient percentage of the shares or voting Professionals subject to AML provisions must keep documents and rights in that legal entity, including through bearer share information for use in any investigation into, or analysis of, pos- holdings, other than a company listed on a regulated sible money laundering or terrorist financing by the competent market that is subject to disclosure requirements consist- Luxembourg AML authorities: ent with Community legislation or subject to equivalent • in the case of customer due diligence, a copy of the references of international standards; a percentage of more than 25 per the evidence required, for a period of at least five years after the cent shall be deemed sufficient to meet this criterion; business relationship with their client has ended; and (ii) any natural person who otherwise exercises control over • in the case of business relationships and transactions, the sup- the management of a legal entity: porting evidence and records, consisting of the original docu- (b) in the case of legal entities, such as foundations and legal ments or copies admissible in court proceedings under applicable arrangements, such as trusts, which administer and distribute Luxembourg law, for a period of at least five years following funds: the carrying-out of the transactions or the end of the business (i) where the future beneficiaries have already been deter- relationship. mined, any natural person who is the beneficiary of 25 per cent or more of the property of a legal arrangement or Following the provisions of the 2004 Law, subjected professionals entity; must inform the relevant authorities without delay, on their own ini- (ii) where the individuals that benefit from the legal arrange- tiative, when they know, suspect or have reasonable grounds to sus- ment or entity have yet to be determined, the class of pect that money laundering or terrorist financing is being committed persons in whose main interest the legal arrangement or or has been committed or attempted, in particular in consideration entity is set up or operates; of following elements:

88 Getting the Deal Through – Anti-Money Laundering 2014 Laurent Lenert, Avocat à la Cour LUXEMBOURG

• the persons concerned; • prohibition to carry out certain transactions or other limitations • the development of the attempt or commission; of the activity; • the origin of the funds; and • fines ranging from €250 to €250,000; and • the purpose, nature and procedure of the operation. • one or more of the following measures: • a temporary or definitive prohibition on the execution of The report must be accompanied by all supporting information and any number of operations or activities, as well as any other documents having prompted the report. Except for lawyers, who restrictions on the activities of the person or entity; and are subject to special proceedings, suspicious transaction reports • a temporary or definitive prohibition on participation in the must be made on the basis of a form available at the website of profession by de jure or de facto, of directors or senior man- the FIU and contained in its circular letter number 22/10 dated agement personnel of persons or entities subject to pruden- 8 November 2010. It should be made in one of the official lan- tial supervision. guages of the Grand-Duchy (, French or German), although, for pragmatic reasons, initial or urgent disclosures may be Regulatory sanctions constitute an administrative decision, which made in English. may be appealed before the administrative court. Any suspicion must be disclosed to the FIU, a risk-based Under Luxembourg law, the ‘non bis in idem’ principle, which approach being excluded at this stage. has constitutional value, entails that no legal action may be insti- tuted twice for the same cause of action and, consequently, forbids a person being convicted twice for the same offence, including acts of 19 Privacy laws money laundering. Accordingly, acts of money laundering are usu- Describe any privacy laws that affect record keeping requirements, due ally deferred to the jurisdiction of criminal courts, whereas admin- diligence efforts and information sharing. istrative sanctions are usually taken for non-compliance matters of Under Luxembourg law, professionals entrusted with privileged a lesser gravity. information, such as lawyers (by virtue of article 35 of the amended law of 10 August 1991 on the legal profession), professionals of 21 Limitation periods the financial sector (by virtue of article 41 of the amended law of 5 April 1993 on the financial sector), professionals of the insurance What are the limitation periods governing AML matters? sector (by virtue of article 111-1 of the amended law of 6 December Limitation periods apply to AML matters through application of 1991 on the insurance sector) and, in general, any professional being criminal law provisions. As previously indicated, the limitation entrusted with privileged information (article 458 of the Criminal period is five years. code), are subject to strict rules of professional secrecy. Article 5 of the 2004 Law, as well as specific legal provisions 22 Extraterritoriality of each of the aforementioned laws, however, provide for a notable exception to the professional secrecy rules as regards cooperation Do your jurisdiction’s AML laws have extraterritorial reach? requirements with the AML authorities, stating that ‘no professional Luxembourg law notably applies to persons indicated in article 2 of secrecy applies vis-à-vis the financial intelligence unit’ in respect to the 2004 Law, being persons conducting business in Luxembourg. the cooperation and disclosure requirements. It is further specified Whereas criminal laws governing money laundering matters have that disclosure in good faith shall not constitute a breach of any an extraterritorial reach, prescriptions for professionals do not, in restriction on disclosure of information imposed by way of contract principle, apply to persons not explicitly indicated in the 2004 Law. or professional secrecy and must not involve such persons in liability of any kind. Civil Claims Lawyers are not subject to the aforementioned disclosure require- ments with regard to information they receive from or obtain on one 23 Civil claims and private enforcement of their clients, in the course of providing legal advice or ascertaining Enumerate and describe the required elements of a civil claim the legal position for their client or performing the task of defending or private right of action against money launderers and covered or representing that client in judicial proceedings or concerning such institutions and persons in breach of AML laws. proceedings, including advice on instituting or avoiding proceedings, There are no specific courses of action in relation to acts of money whether such information is received or obtained before, during or laundering, in the sense that would exist, for example, for violations after such proceedings. Further, instead of direct information or of consumer legislation. transmission of documents to the financial intelligence unit, lawyers Under Luxembourg law, any person having suffered prejudice must disclose suspicious transactions directly to the President of the may bring a civil action against the (alleged) authors thereof in order Bar Association. to claim damages, following application of the general Civil Liability Law. 20 Resolutions and sanctions Broadly speaking, in order for his or her claim to be successful, the claimant will need to evidence three elements: What is the range of outcomes in AML controversies? What are the • harm suffered, consisting in a loss or absence of gain; possible sanctions for breach of AML laws? • the commission, by the defendant, of a civil fault, among which Luxembourg legislation provides that professionals subjected to the acts of money laundering are plausible; and 2004 Law, among which notably, persons subject to the prudential • a direct causality between the harm and the civil fault. supervision of the CSSF and professionals subject to the prudential supervision of the CAA, may be sanctioned for non-compliance with Should a claimant succeed in evidencing those elements, he or she anti-money laundering legislation. Following the provisions of the will be awarded damages of a compensatory nature only; punitive amended laws of 6 December 1991 and 5 April 1993, the regulatory damages may not be awarded under Luxembourg law. authorities may impose following sanctions: A victim may also bring a claim for damages against the (alleged) • warnings; author during criminal proceedings, the advantage being that the • reprimands; claimant will not bear judicial costs and that the Prosecutor’s Office

www.gettingthedealthrough.com 89 LUXEMBOURG Laurent Lenert, Avocat à la Cour bears the burden of proof as regards the existence of the fault, which may be difficult for the victim to prove. Update and trends It should be noted that, at the present time, Luxembourg does not offer any class actions for victims of money laundering. Civil At present, Luxembourg authorities are participating in European- actions will need to be filed by each claimant individually, though level discussions on the proposed Fourth EU Anti-Money Laundering Directive, which is expected to promote even higher they may be joined later on during the proceedings. standards for the fight against money laundering and terrorist financing. International anti-money laundering efforts Following the publication of the latest FATF mutual evaluation dated February 2014, which, while recognising that considerable 24 Supranational efforts have been made and most concerns have been addressed, has formulated certain recommendations towards the Grand List your jurisdiction’s memberships of supranational organisations Duchy, Luxembourg authorities are working on the implementation that address money laundering. thereof, while, at the same time, preparing the legislation for the financial sector in view of the automatic exchange of information Luxembourg is part of following supranational organisations, with selected foreign jurisdictions, which has been announced for whose focus mainly lies on money laundering and terrorist financ- 2015. ing, the best-known among which are: • the Council of Europe: Group of States Against Corruption (GRECO); Luxembourg Prosecutor’s Office • the Egmont Group; Cité Judiciaire – Plateau du St Esprit • the Financial Action Task Force; 2080 Luxembourg • the Organisation for the Economic Co-operation and Tel: +352 475 981 447 Development; and Fax: +352 26 20 25 29 • the International Monetary Fund. [email protected] www.justice.public.lu/fr/organisation-justice/ministere-public/par- quets-arrondissement/lutte-anti-blanchiment/index.html 25 Anti-money laundering assessments Give details of any assessments of your jurisdiction’s money laundering regime conducted by virtue of your membership of 27 Mutual legal assistance supranational organisations. In which circumstances will your jurisdiction provide mutual legal The latest FATF mutual assessment was carried out earlier this year, assistance with respect to money laundering investigations? What are the follow-up report of which (Sixth Follow-up Report) was pub- your jurisdiction’s policies and procedures with respect to requests lished in February 2014. from foreign countries for identifying, freezing and seizing assets? The latest GRECO compliance report dates back to June 2012 The Grand Duchy of Luxembourg provides mutual legal assistance (Second Compliance Report on Luxembourg). to a large number of jurisdictions, either by way of bilateral treaties (eg, Australia and the United States of America) or through multilat- 26 FIUs eral international judicial cooperation mechanisms (eg, Eurojust, the Schengen Treaty, and the Council of Europe). Give details of your jurisdiction’s Financial Intelligence Unit (FIU). The State General Prosecutor is the central authority that The Luxembourg Financial Intelligence Unit (CRF) is of a judicial receives mutual legal assistance requests from other jurisdictions type, namely, composed by magistrates and financial analysts of the that require coercive powers or the intervention of an investigating Luxembourg Prosecutor’s Office. It is assisted by members of the judge, or both (ie, freezing and seizing of assets). Grand-ducal Police for the execution of its mission. The CRF is a Luxembourg legislation requires a mutual legal assistance member of the Egmont Group of FIUs and cooperates with foreign request to relate to facts legally qualifying as criminal offences, counterparts following the (EU) Council Decision of 17 October although the specific requirements vary depending on the treaty on 2000 concerning arrangements for cooperation between financial which the mutual legal assistance request is sought upon. Criminal intelligence units of the member states in respect of exchanging offences already sanctioned in the requesting state may not be inves- information. tigated twice (non bis in idem).

Laurent Lenert [email protected]

6 rue d’Ethe Tel: +352 28 77 01 25 1478 Luxembourg Fax: +352 27 76 16 21 Luxembourg www.lenert-legal.com

90 Getting the Deal Through – Anti-Money Laundering 2014 Rubio Villegas y Asociados, SC MEXICO Mexico

Juan Carlos Partida Poblador, Alejandro Montes Jacob and Marcela Trujillo Zepeda Rubio Villegas y Asociados, SC

Domestic legislation Institutions to whom the AML AML regulations regulations apply 1 Domestic law Money transmitters Determination by which the general Identify your jurisdiction’s money laundering and anti-money laundering provisions referred to in article 95 bis (AML) laws and regulations. Describe the main elements of these of the General Law of Organisations and Auxiliary Activities of Credit, applicable laws. to money transmitters, are issued Money laundering is considered to be the crime of ‘operations with Savings and popular loans entities Determination by which the general resources from illegal origins’ under article 400 bis of the Federal provisions referred to in article 124 of Criminal Code. The money laundering offence is also complemented the Law of Savings and Popular Loans, by the Federal Law Against Organised Crime, which provides higher are issued criminal sanctions for money laundering offenders considered to Financial factoring companies, Determination by which the general be members of a criminal organisation, and the Federal Criminal general deposit warehouses and provisions referred to in article 95 of Procedures Code, which considers the money laundering offence to leasing companies the General Law of Organisations and Auxiliary Activities of Credit, applicable be a serious offence and thus limits the ability of any defendant to to money transmitters, are issued obtain release prior to conviction. Stockbrokers Determination by which the new general With regard to anti-money laundering laws and regulations, the provisions referred to in article 212 of Ministry of Finance is the overall regulatory authority. The Ministry the Stock Market Law, are issued of Finance is authorised by the relevant laws to regulate and super- Retirement fund administrators Determination by which the general vise the financial system, and to issue anti-money laundering regula- provisions referred to in articles 108 bis tions that establish measures and procedures for the subject entities of the Law of the Retirement Savings to prevent and detect money laundering activities. System and 91 of the Law of Investment Companies, are issued The applicable anti-money laundering laws and regulations are: Insurance institutions Determination by which the general provisions referred to in article 140 of Institutions to whom the AML AML regulations the General Law of Mutualist Insurance regulations apply Institutions and Companies, are issued Designated non-financial businesses Law for the Prevention and Identification Bonding institutions Determination by which the general and professions (eg, lawyers and of Transactions with Criminal Proceeds provisions referred to in article 112 of accountants, real estate agents, car the Federal Bonding Institutions Law, dealers, lottery and casinos, notary are issued public, non-profit organisations, etc) Credit institutions (banks) General provisions referred to in article The aforementioned anti-money laundering general provisions 115 of the Credit Institutions Law applicable to the Mexican financial system have the same basic Limited object financial companies Determination by which the general structure and have the same elements, which include: provisions referred to in article 115 of • client identification policy requirements; the Credit Institutions Law applicable to limited object financial companies are • know-your-client (KYC) policy requirements; issued • requirements for the reporting of relevant and unusual transac- Multiple object financial companies Determination by which the general tions, as well as internal transactions of concern; provisions referred to in article 115 of • internal structure requirements; the Credit Institutions Law, in relation • training requirements; with articles 87-D and 95 bis of the • requirements for automated systems; General Law of Organisations and • confidentiality of the information requirements; and Auxiliary Activities of Credit, applicable to multiple object financial companies, • retention of documents requirements. are issued Licensed foreign exchange General provisions referred to in article Designated non-financial businesses and professions will be subject companies 95 of the General Law of Organisations to less burdensome requirements, which will nevertheless include: and Auxiliary Activities of Credit • client identification policy requirements; Registered foreign exchange General provisions referred to in • KYC policy requirements; companies articles 95 bis of the General Law of • requirements for the reporting of certain transactions; Organisations and Auxiliary Activities of • internal structure requirements; Credit, applicable to the persons that conduct the operations referred to in • confidentiality of the information requirements; and article 81-A of the same Law • retention of documents requirements. www.gettingthedealthrough.com 91 MEXICO Rubio Villegas y Asociados, SC

Money laundering a fine that ranges from between 1,000 and 5,000 times the mini- mum wage. However, if the criminal is considered to be a member 2 Criminal enforcement of a criminal organisation, an additional sanction may be applied. Which government entities enforce your jurisdiction’s money Imprisonment may be incremented from four to eight years, and the laundering laws? fine may be incremented from 250 to 12,500 times the minimum The government entity than enforces the money laundering laws in wage. Mexico is the Attorney General’s Office. All penalties are increased by 50 per cent when the crime is com- In Mexico, money laundering is a federal crime; thus, this crime mitted by a government officer in charge of money laundering pre- is prosecuted at a federal level. vention, investigation and process. The penalties are also increased by 50 per cent if the crime is committed by a government official that forms part of a criminal organisation, or if minors or handi- 3 Defendants capped individuals are used in the commission of crimes. Can both natural and legal persons be prosecuted for money The money laundering offence in Mexico cannot be resolved laundering? through a plea agreement, settlement agreement, prosecutorial dis- According to the Mexican law, legal persons cannot be prosecuted cretion or similar means instead of a trial. for money laundering. However, the Federal Criminal Code estab- lishes that, in certain cases, if a member or representative of a legal 9 Forfeiture person commits a crime on behalf of, in representation of or for Describe any related asset freezing, forfeiture, disgorgement and the benefit of the legal person, the judge may order the suspension victim compensation laws. or dissolution of the legal person when it deems it appropriate for public security reasons. The Mexican legal provisions provide for the ability to forfeit prop- erty that has been used in the commission of any crime, including money laundering, as well as the profits obtained therefrom. The 4 The offence of money laundering applicable legal provisions include the forfeiture of the property What constitutes money laundering? derived directly or indirectly from crime, including the income, Money laundering is considered to constitute the acquisition, sale, profits and other benefits, regardless of whether the property is in administration, guarding, exchange, deposit, giving in guarantee, possession of or is owned by a convicted individual or a third party. investment, transport or transfer, within national territory or from Forfeiture of property may only be ordered by a criminal judge. national territory to a foreign jurisdiction, or vice versa, resources, rights or assets of any nature, knowing that they are the proceeds 10 Limitation periods or represent the product of an illegal activity, in order to hide or What are the limitation periods governing money laundering pretend to hide, conceal or impede finding out the origin, location, prosecutions? destination or ownership of such resources, rights or assets, or foster any illegal activity. The statute of limitation for the money laundering offence prosecu- In the case of the aforementioned conduct being carried out tion is of 10 years. However, if the individual committing the offence using the services of the financial system, the previous complaint is a public servant in charge of preventing, investigating or judging from the Ministry of Finance will be necessary to proceed criminally. crimes, then the statute of limitations is 15 years.

5 Qualifying assets and transactions 11 Extraterritorial reach Is there any limitation on the types of assets or transactions that can Do your jurisdiction’s money laundering laws have extraterritorial form the basis of a money laundering offence? reach? There is no monetary threshold to prosecution of money laundering. The crimes committed in a foreign jurisdiction (regardless of the nationality of the criminal) that produce an effect in Mexico are sub- ject to the criminal laws in Mexico. In the case of money laundering, 6 Predicate offences if the illegal proceeds generated in another country have an effect Generally, what constitute predicate offences? in Mexico when laundered in or through the national territory, the Under Mexican law, any offence capable of generating resources, money laundering offence may be processed and sanctioned pursu- rights or assets (including violations of tax or currency exchange ant to the Mexican laws. Similarly, the crimes committed in another laws) are considered to be predicate offences for money laundering. country by or against Mexican nationals, may also be processed and Also, crimes committed outside of Mexico that generate profits may sanctioned in Mexico. also constitute a predicate offence to money laundering in Mexico. AML requirements for covered institutions and individuals

7 Defences 12 Enforcement and regulation Are there any codified or common law defences to charges of money Which government entities enforce your jurisdiction’s AML regime and laundering? regulate covered institutions and persons? Do the AML rules provide There are no codified or common law defences to charges of money for ongoing and periodic assessments of covered institutions and laundering. persons? In Mexico, the Ministry of Finance is the general regulatory author- ity for AML issues. This authority is conferred to the Ministry of 8 Resolutions and sanctions Finance by the Organic Law of the Federal Public Administration, What is the range of outcomes in criminal money laundering cases? which authorises the ministry, among others, to regulate and super- At present, the criminal sanctions for money laundering crimes are vise the financial system. only contemplated for individuals. The basic sanction included in Within the Ministry of Finance there are three entities that are the Mexican law is imprisonment for a term of five to 15 years and responsible for the supervision and enforcement of the AML regime:

92 Getting the Deal Through – Anti-Money Laundering 2014 Rubio Villegas y Asociados, SC MEXICO

• the National Banking and Securities Commission; • certain customs brokerage activities; and • the National Insurance and Bonding Commission; and • the lease and granting of personal rights of use over real estate • the National Retirement Savings System Commission. assets.

The financial laws andAML regulations authorise the supervision 14 Compliance authorities to supervise and impose penalties for non-compliance. All of these regulations oblige the aforementioned authorities Do the AML laws in your jurisdiction require covered institutions and to supervise compliance by the financial institutions with their persons to implement AML compliance programmes? What are the AML obligations. The applicable regulations require the super- required elements of such programmes? vising authorities to examine the compliance with the applicable Mexico’s AML regulations require covered institutions to elaborate regulations with regard to the financial institutions’ local branches, and send to the corresponding regulatory authority a document in affiliates, agencies and offices of financial institutions, as well as their which the institutions develop their customer identification and KYC overseas operations. policies, as well as all criteria, measures and internal proceedings The applicable AML regulations provide for ongoing and peri- that the institutions must adopt in order to comply with the AML odic assessments of the covered institutions’ and persons’ compli- regulations, including the selection proceedings of their employees ance with the applicable AML regulations. and AML training requirements. Covered institutions engaged in designated non-financial busi- 13 Covered institutions and persons nesses and professions will be subject to less burdensome require- ments, mainly covering customer identification, transaction Which institutions and persons must carry out AML measures? reporting, confidentiality and record keeping. The main elements All institutions that make up the Mexican financial system must of such requirements have already been set forth in the Law for carry out AML measures. Such institutions are the following: the Prevention and Identification of Transactions with Criminal • credit institutions (banks); Proceeds, which entered into effect in July 2013. The regulations of • limited object financial companies; this law were enacted in August 2013. • multiple object financial companies; • licensed foreign exchange companies; • registered foreign exchange companies; 15 Breach of AML requirements • money transmitters; What constitutes breach of AML duties imposed by the law? • savings and popular loans entities; AML duties are considered to be breached when the covered institu- • general deposit warehouses; tions do not comply with any of the requirements established in the • leasing companies; AML regulations. • financial factoring companies; All AML regulations provide that employees of the covered • stockbrokers; institutions, including members of the board and legal representa- • retirement fund administrators; tives, shall maintain absolute confidentiality regarding the informa- • insurance institutions; and tion contained in the reports that are sent to the authorities, except • bonding institutions. when the information is requested by the competent authorities. Compliance with the obligation of the covered institutions to issue Pursuant to the Law for the Prevention and Identification of the requested reports will not constitute a violation to the restric- Transactions with Criminal Proceeds (subject to certain qualifica- tions on the disclosure of the information imposed either through tions that may include monetary thresholds and habituality), enti- private agreements or by any legal provisions. ties and persons engaged in the following designated non-financial businesses and professions will also be bound to carry out certain AML measures: 16 Customer and business partner due diligence • activities related to the practice of gambling, contests or raffles, Describe due diligence requirements in your jurisdiction’s AML regime. carried out through the sale of tickets, tokens or any other type Covered institutions shall elaborate and observe an identification of of proof of payment involving the payment of prices; the customer policy, as well as KYC policies. • activities related to the issuance and marketing of prepaid cards, All applicable AML regulations include requirements for the payment service cards and of any type of card comprising instru- identification of the clients, including individuals, companies and ments for the crediting of money value; beneficiaries. Also, such regulations include specific provisions for • activities related to the issuance and marketing of travellers’ nationals and for foreign persons, and require the covered institu- cheques; tions to implement requirements based on risk. Updating the iden- • the granting of credit or guarantees; tification requirement is also required in the applicable regulations. • construction services, real estate development services, real KYC policies shall be implemented on the basis of the opera- estate brokerage or intermediation services; tional risk of the clients, and should at least include: • the marketing of precious metals, precious stones, jewels or • proceedings for the institutions to monitor the operations car- watches; ried out by the clients; • marketing and auctioning of artworks; • proceedings to know the operational profile of all clients; • marketing and distribution of new or used vehicles; • instances where the operations carried out strayed from the • vehicle and real estate armouring services; operational profile of the clients; • money and value transportation services; • measures to identify possible suspicious operations; and • certain representation activities carried out by lawyers and other • consideration to, when appropriate, modify the risk grade that independent service suppliers; was previously determined for a client. • certain notarial, attestation and appraisal activities carried out When the institutions have information that a client is acting on by notaries, public brokers and public officers; behalf of a third person, the institutions shall take the necessary • the receiving of donations by non-profit organisations; steps to identify the real owner of the involved resources.

www.gettingthedealthrough.com 93 MEXICO Rubio Villegas y Asociados, SC

The covered institutions shall also include in the identification • concerning operations reports: these reports include the opera- of the customer policy and KYC policies, measures, criteria proceed- tions, activity, conduct or behaviour of an employee, official or ings and instances when they should conduct verification visits to other personnel of the institution who seems suspicious, even if the customers qualified as high-risk with the purpose of integrating he or she does not engage in transactions with the institution. the files and update all information and corresponding documents. The suspicious activities reports are submitted to the corresponding regulatory authority, which will then resend such reports by elec- 17 High-risk categories of customers, business partners and tronic means to the Mexican Financial Intelligence Unit (FIU). transactions Entities and persons strictly falling under the category of desig- Do your jurisdiction’s AML rules require that covered institutions and nated non-financial businesses and professions will share some of persons conduct risk-based analyses? Which high-risk categories are the financial institutions’ reporting and record-keeping obligations specified? but at a much lower level. Mexico’s AML regulations require that covered institutions conduct risk-based analyses with purposes of classifying a client’s level of risk. Covered institutions must have at least two risk categories, 19 Privacy laws high-risk and low-risk. However, covered institutions may establish Describe any privacy laws that affect record keeping requirements, due additional intermediate risk levels. diligence efforts and information sharing. Each covered institution must establish the policies, criteria, Federal and state laws regarding the protection of private measures and internal proceedings that each shall use to determine personal data in possession of private entities or individuals have a client’s level of risk and to determine if a person must be con- been recently enacted. However, the confidentiality, safekeeping and sidered as a politically exposed person (PEP), taking into account, non-disclosure obligations under such laws are subject to and super- among other aspects, the client’s background, profession, activity or seded by national safety, public order, and public safety and health line of business, the origin and destiny of its resources, the place purposes. Hence, competent authorities can request the disclosure of residence and other circumstances determined by each covered of any private personal information in possession of a private indi- institution. vidual or entity, if necessary for the aforementioned purposes. Foreign PEPs shall be considered as high-risk clients; therefore Financial entities are expressly authorised to share information the rules applicable to high-risk clients shall also be applicable to among them, regarding clients, users and transactions, for the pur- foreign PEPs. Mexican PEPs shall have the level of risk deemed con- pose of complying with their AML obligations. Mexico has proper venient by the covered institution, and so the rules of the level of risk legal mechanisms in place to ensure that the authorities are able to given to them shall apply. request and gather any information for AML purposes from the In operations conducted by high-risk clients, the covered insti- financial entities, regarding their clients, users, and such clients’ tutions shall adopt reasonable measures to know the origin of the and users’ transactions. Compliance by the financial institutions resources. to provide information to the authorities with such obligations is These requirements will not apply for entities and persons considered not to be a violation of the restrictions imposed by other strictly falling under the category of designated non-financial busi- legal provisions with respect to the sharing of personal data. nesses and professions.

20 Resolutions and sanctions 18 Record keeping and reporting requirements What is the range of outcomes in AML controversies? What are the Describe the record keeping and reporting requirements for covered possible sanctions for breach of AML laws? institutions and persons. Breach of AML laws can result in administrative penalties that The legal requirements for reporting suspicious activity in Mexico include fines and, in some cases, close or suspension of activities are identical for all financial institutions but are included in different (when the breached provision is of administrative nature) and in the regulations, depending on the type of activity. The main reporting imposition of criminal penalties that include imprisonment, forfei- obligation is included in the several financial laws (and applicable ture of assets, fines and damage repair (when the breached provision AML regulations) that regulate the different financial institutions. is of criminal nature). Financial institutions are obliged to submit before the corre- In either case, the penalties can only be the result of a jurisdic- sponding regulatory authority the following categories of suspicious tional proceeding (which, at least at the first stage, can be of admin- activity reports: istrative nature in the case of breach of administrative provisions) • relevant operations reports: these reports include those opera- concluded with a final resolution ordering the imposition of such tions that meet specified monetary thresholds. These thresholds penalties. AML controversies, particularly those arising from breach depend on the type of activity of the financial institutions (for to criminal provisions, cannot be resolved through plea agreements, example, for money transmitters, the operations that shall be settlement agreements or similar means. reported are those that are equal to or greater than US$5,000; In Mexico, only individuals can be subject to criminal for banks, the operations that shall be reported are those that are prosecution. equal or greater than US$10,000); • unusual operations reports: these reports will include those operations carried out by clients that do not relate to the usual 21 Limitation periods pattern of transactions conducted by such clients regarding the What are the limitation periods governing AML matters? amount, frequency, type or nature of the transaction being con- As a general rule of thumb, the limitation period governing AML sidered, if there is no reasonable justification for said behaviour, administrative matters is of 10 years and the limitation period or otherwise a transaction in which the institution believes, for governing AML criminal matters is equivalent to the arithmetic any other reason, that the funds could be directed to facilitate median of the imprisonment term provided for the applicable crime. committing the money laundering crime; and However, specific legislation can provide for different limitation periods.

94 Getting the Deal Through – Anti-Money Laundering 2014 Rubio Villegas y Asociados, SC MEXICO

22 Extraterritoriality 25 Anti-money laundering assessments Do your jurisdiction’s AML laws have extraterritorial reach? Give details of any assessments of your jurisdiction’s money AML laws apply to foreign and domestic entities and persons. AML laundering regime conducted by virtue of your membership of criminal laws apply: supranational organisations. • to crimes initiated, planned or committed abroad that are Mexico is not listed as a non-cooperative country by the FATF, not intended to render effects in Mexico; listed as an uncooperative by the OECD, is on the EU’s • to crimes initiated abroad that are continued in Mexico; and white list of equivalent jurisdictions and not included in the original • to crimes that are committed abroad, by or against Mexican IMF list. persons or entities, provided: Despite acknowledging that there is still room for improvement, • the defendant is located in Mexico; the FATF recognises that Mexico has made progress in developing • the defendant has not been definitively subject to trial in the its systems for combating money laundering. country where the conduct was committed; and In its latest Interim Follow-up Report of the Mutual Evaluation • the conduct in question is also considered as a crime in the of Mexico, dated October 2012, the FATF has indicated that the country where it was committed. government of Mexico is clear in its intentions, and its message to the international community is that is seeks to be among those Financial entities are bound to comply with their AML administra- countries that are at the forefront of the international fight against tive obligations in all their offices, branches, subsidiaries and affili- ML/FT. ates located abroad.

26 FIUs Civil Claims Give details of your jurisdiction’s Financial Intelligence Unit (FIU). 23 Civil claims and private enforcement Palacio Nacional Enumerate and describe the required elements of a civil claim Plaza de la Constitución s/n or private right of action against money launderers and covered Colonia Centro institutions and persons in breach of AML laws. Delegación Cuauhtémoc Civil claims shall be pursued through litigation, started by a claimant Mexico 06000 (an individual, his or her heirs or an entity) with sufficient legal inter- Tel: +5255 3688 3573 est, on grounds of such claimant having suffered a loss or damage www.shcp.gob.mx/inteligencia_financiera/Paginas/presentacion. as a result of the breach of AML laws. The claim may be addressed aspx. against the person or entity in breach of AML laws. Burden of proof, in general terms, is on behalf of whoever makes 27 Mutual legal assistance an assertion. As a general rule of thumb, the limitation period on a civil claim In which circumstances will your jurisdiction provide mutual legal for civil liability not arising from a crime is of two years. assistance with respect to money laundering investigations? What are your jurisdiction’s policies and procedures with respect to requests International anti-money laundering efforts from foreign countries for identifying, freezing and seizing assets? Mexico provides mutual legal assistance to foreign jurisdictions with 24 Supranational regard to money laundering investigations pursuant to the terms of List your jurisdiction’s memberships of supranational organisations its international treaties and pursuant to the international reciproc- that address money laundering. ity principle. Mexico complies with foreign jurisdictions’ requests for identifi- In Mexico, the memberships of supranational organisations that cation and seizure of assets. address money laundering include the International Monetary The FATF recognises that Mexican authorities cooperate effec- Fund (IMF), the Organisation for Economic Co-operation and tively with authorities from other countries in the area of mutual Development (OECD), the Financial Action Task Force (FATF), the legal assistance and extradition involving money laundering crimes. Caribbean Financial Action Task Force, the Financial Action Task Force in South America and the Egmont Group.

Juan Carlos Partida Poblador [email protected] Alejandro Montes Jacob [email protected] Marcela Trujillo Zepeda [email protected]

Río Duero 31 Tel: +52 55 5242 0700 Colonia Cuauhtémoc Fax: +52 55 5242 0708 Mexico 06500 www.rubiovillegas.com

www.gettingthedealthrough.com 95 NETHERLANDS Sjöcrona Van Stigt Advocaten Netherlands

Enide Z Perez and Max J N Vermeij Sjöcrona Van Stigt Advocaten

Domestic legislation Intelligence and Investigations Service (FIOD). On the basis of the results of an investigation, charges can be brought against one or 1 Domestic law more perpetrators. To a considerable degree, a public prosecutor is Identify your jurisdiction’s money laundering and anti-money laundering free to decide who, among a number of possible ‘candidates’, will be (AML) laws and regulations. Describe the main elements of these identified and prosecuted as perpetrators. laws. The Ministry of Security and Justice may formulate high-level Sections 420bis, 420ter and 420quater of the Dutch Criminal Code policy targets, and the Board of Procurators General (the ‘manage- (DCC) prohibit money laundering. Section 420bis DCC is the gen- ment’ of the PPS) can formulate more detailed policy guidelines, eral anti-money laundering provision. Section 420bis, subsection 1 in some cases at the behest of the Minister of Security and Justice. under a, states that it is forbidden to hide or to conceal the actual These targets and guidelines narrow the scope within which an indi- nature, the origin, the location, the disposal or relocation of an vidual prosecutor can decide to drop or prosecute a case. Also, in object or asset, or to hide or conceal who is entitled to or has posses- certain sensitive cases, the individual public prosecutor will not be sion of an object or an asset, while knowing that the object or asset entirely at liberty to make far-reaching decisions without prior con- has (directly or indirectly) proceeded from a criminal offence. sultation with senior ranks of the PPS. Section 420bis subsection 1 under b DCC states that it is forbid- den to acquire, to have in one’s possession, to hand over, to convert 3 Defendants or to use an object or an asset, while knowing that the object or asset Can both natural and legal persons be prosecuted for money has (directly or indirectly) proceeded from a criminal offence. Section 420ter DCC concerns habitual money laundering. This laundering? is an aggravated version of the basic money laundering offence Under Dutch criminal law, criminal offences can be committed both penalised in section 420bis. Simply repeating the crime of money by natural and by legal persons (corporate entities), and in several laundering does not constitute a habit; there has to be a connection capacities, (inter alia) as perpetrators, co-perpetrators or accom- between the various offences. In this respect, habitual money laun- plices (section 51 DCC). dering differs from simple recidivism of basic money laundering. Corporate criminal liability always presupposes an act, or omis- Article 420quater DCC penalises negligent money laundering. sion, of an individual (a natural person). This individual perpetrator The difference between this criminal offence and that of section can be criminally prosecuted under Dutch law. 420bis DCC is the degree of guilt. Section 420bis DCC requires An act or omission of an individual can lead to corporate crimi- the higher standard of ‘knowingly’ to have been satisfied, while for nal liability if a judge rules that it is ‘reasonable’ to attribute the section 420quater DCC it suffices that the perpetrator ‘should individual’s behaviour to the corporate entity. The Dutch Supreme reasonably have suspected’ that an object or asset has proceeded Court has ruled that, generally, an act that has been committed from a crime. ‘within arm’s length’ or ‘within the setting’ of a company may be reasonably attributed to this company. Money laundering In a landmark case (Supreme Court 21 October 2003 (publica- tion) NJ 2006, 328), the Dutch Supreme Court gave a non-exhaus- 2 Criminal enforcement tive list of examples of the conditions under which an act can be Which government entities enforce your jurisdiction’s money said to have been committed ‘within the setting’ of a company and laundering laws? consequently can be ‘reasonably attributed’ to the company: • the behaviour (or failure to act) was displayed by someone who The Dutch Public Prosecution Service (PPS) is responsible for was working, as an employee or otherwise, on behalf of the cor- criminal enforcement and for initiating criminal prosecutions. The porate entity; PPS has 10 local offices. Apart from these local offices, the PPS has • the behaviour fitted into the regular pattern of operations of the several offices that are active on a national level. One of these is corporate entity; the National Public Prosecutor’s Office for Financial, Economic and • the behaviour served the corporate entity’s commercial pur- Environmental Offences. This national office deals with large fraud poses; and cases, including (large) money laundering cases. However, money • the corporation could influence whether or not the act was omit- laundering cases may also be dealt with by public prosecutors at ted, and would normally have accepted the act (or omission). local office level, depending on the magnitude of the case. The public prosecutor directs the criminal investigation and According to the Supreme Court, acceptance of certain behaviour coordinates the actual investigative activities of a team of police or may be equated with not having taken the precautions that might special (eg, anti-fraud) officers. Tax crimes, commercial fraud cases be reasonably expected from the corporation in order to avoid the and money laundering cases are usually investigated by the Fiscal behaviour in question.

96 Getting the Deal Through – Anti-Money Laundering 2014 Sjöcrona Van Stigt Advocaten NETHERLANDS

Once it has been established that an individual has committed a 6 Predicate offences criminal act that can be attributed to a corporate entity, a third cat- Generally, what constitute predicate offences? egory of offenders may subsequently be identified and prosecuted. Sections 420bis, 420ter and 420quater DCC require that the laun- Certain persons who can be proven to have ‘directed’ or ‘ordered’ dered ‘object’ (for instance, money) has a criminal provenance, either the prohibited conduct, may be held criminally responsible as well. ‘directly’ or ‘indirectly’. This criminal provenance must follow from The criterion to be used to identify a person that has ‘directed’ the evidence presented to the court, however, the Dutch Supreme or ‘ordered’ a criminal act committed by a company consists of two Court has ruled that it is not necessary to prove that the ‘object’ elements that can be summarised as follows: originates from a concrete (individualised) offence. This means that • the person in question was aware that a criminal act was com- it is not necessary to prove by whom, when and where the predicate mitted within the corporate entity. This awareness is only offence was committed. The criminal origin of an ‘object’ may even required regarding the ‘core element’ of the crime. It is not nec- be inferred from the circumstances of the case (eg, if 25 unissued essary to prove that a person (for instance, a senior officer) was driver’s licences were to be found in the hands of a private person). informed about all aspects of the offence; and A crime committed in another jurisdiction can serve as a predicate • the person must have been in a position of sufficient authority, offence for money laundering in the Netherlands, the only require- allowing, and ‘reasonably’ obliging, him or her to take appropri- ment being that the ‘foreign’ crime must constitute a crime under ate measures to put a stop to the criminal behaviour. When the Dutch criminal law. It is not required that this predicate offence is individual under scrutiny has failed to take such measures, he or liable for prosecution or actually prosecuted abroad. she can be deemed to have wilfully accepted the probability that The Dutch Supreme Court has also ruled that tax offences (as a an offence was committed. result of which a perpetrator has at his or her disposal certain sums of money) may serve as predicate offences for money laundering. 4 The offence of money laundering What constitutes money laundering? 7 Defences The legal definition of money laundering contains two categories of Are there any codified or common law defences to charges of money behaviour either of which may constitute money laundering. These laundering? two categories can be roughly summarised as either ‘concealment’ Apart from the defence offered to institutions and their employees or ‘use’ of objects. Concealment behaviour may consist of ‘hiding’ or in section 19 of the MLTFPA (see question 4), the codified general ‘concealing the actual nature, origin, location, disposal or relocation’ defences such as force majeure (section 40 DCC), statutory provi- of an object, or ‘hiding or concealing who is entitled to or has posses- sion (section 42 DCC), or authorised official order (section 43 sion’ of an object. Use-related behaviour may consist of ‘acquiring, DCC), may be established against a charge of money laundering, possessing, transferring, turning over or using’ an object. depending, of course, on the circumstances of the case. As regards For a conviction under section 420bis DCC, it suffices that the common law (law of precedent) defences, case law shows that the suspect has displayed ‘money laundering behaviour’ (falling in either defence ‘absence of all guilt’ is sometimes brought forward. the concealment or the use category; see question 1), while knowing that the object has, directly or indirectly, proceeded from any crimi- nal offence. The term ‘knowing’ also covers dolus eventualis. 8 Resolutions and sanctions Section 420quater DCC merely requires that the suspect ‘should What is the range of outcomes in criminal money laundering cases? have reasonably suspected’ the (direct or indirect) criminal prov- The possible outcomes of a money laundering case range from a enance of the object. prosecutorial decision to dismiss the case, through offering an out- Financial institutions or other money-centred businesses can, of-court settlement, to full prosecution of the case. in principle, be prosecuted in connection with their customers’ The possibility to offer an out-of-court settlement can be found money laundering crimes, for instance as accomplices or accessories. in section 74 DCC. A public prosecutor can propose certain condi- However, when they have fully complied with the reporting duties tions to the suspect, acceptance of which will extinguish the prosecu- (concerning suspicious transactions) imposed on financial institu- tor’s right to further prosecute the case. Conditions can include any tions by the Money Laundering and Terrorist Financing Prevention or all of the following: payment of an amount of money to the state Act (MLTFPA), section 19 of the MLTFPA offers a certain protec- (the maximum being the maximum amount of the fine a judge could tion against prosecution. This section states that the data reported have imposed), doing community service, compensation of damages by the institution to the FIU-Netherlands cannot be used as a basis or payment of an amount of money representing any criminal pro- for an investigation or a prosecution against the reporting institu- ceeds (illicit gains). tion. This defence also applies to employees of the institution. In the case of the public prosecutor deciding to prosecute and take the matter to court, the result can be the imposition of a prison 5 Qualifying assets and transactions term (possibly wholly or partly suspended), community service or a Is there any limitation on the types of assets or transactions that can monetary fine, or any of these together. Additional penalties include form the basis of a money laundering offence? the deprivation of certain rights (eg, the right to serve in the military, to vote or to practice a profession), confiscation, or publication of In the sections of the DCC where money laundering is prohibited, the verdict, or any of these together. the term ‘objects’ is used. This term is defined (in the money laun- As far as prison terms are concerned, the offence of money laun- dering sections) to include all (tangible) items of property and all dering (section 420bis DCC) carries a penalty of a prison term of up property rights, including money. This means that there is no limita- to four years or a fine of €78,000, or both, for natural persons and tion on the types of assets or transactions that can form the basis €780,000 for corporations. Section 420quater DCC (merely requir- of a money laundering offence. There is no monetary threshold to ing that the suspect ‘should have reasonably suspected’ the direct or prosecution. indirect criminal provenance of the object) is a lesser offence with a penalty of a prison term of one year or a fine of €78,000, or both, for natural persons, and €780,000 for corporations. A longer prison term of six years can be imposed on perpetrators who ‘habitually’ engage in money laundering activities (section 420ter DCC). www.gettingthedealthrough.com 97 NETHERLANDS Sjöcrona Van Stigt Advocaten

9 Forfeiture • the (legal) person was convicted for a ‘serious’ offence (ie, an Describe any related asset freezing, forfeiture, disgorgement and offence for which a fine of at least €78,000 can be imposed), and victim compensation laws. provided that it is ‘probable’ that he or she benefited from the revenues of any other criminal acts. Civil recovery as known in common law systems is not avail- able in the Netherlands as the country’s law system belongs to the Section 36e DCC was amended in 2011. Explicitly following the Continental (civil) law family. example of the UK Drug Trafficking Offences Act 1994, the Proceeds There are, however, legal measures available that can lead to of Crime Act 2002 and the Serious Offences Act 2007, the Dutch some type of redress or recovery following an unlawful act (in civil confiscation provisions were changed to embody certain ‘unex- law) or following a criminal act (including money laundering). plained wealth’ evidence rules. Expenditures made in the six years preceding the crime for which one is convicted are now assumed Prejudgment attachments in civil proceedings to represent ‘illegally obtained profits’, unless the convicted person The interim relief judge of the district court can give permission for makes it sufficiently plausible that the expenditures were made using a prejudgment attachment on assets when they are located in the legal sources. Also, any assets obtained in these six years are pre- Netherlands. The decision will be made after summary investiga- sumed to represent illegally obtained profits, unless the convicted tion, and the case will usually be decided ex parte. A conviction in person can make a plausible case that they were obtained using legal a criminal trial, for instance, for bribery or money laundering, will funds. constitute binding proof that, in civil law terms, an ‘unlawful act’ has been committed. 10 Limitation periods Aggrieved party claims What are the limitation periods governing money laundering A person who has suffered damages as a direct result of a crimi- prosecutions? nal act may join the criminal proceedings with a civil claim against the perpetrator (sections 51a-51f of the Dutch Code of Criminal In general, the limitation period for a crime starts the day after the Procedure). The claim can be brought forward either before the delinquent activities were last performed. However, some money criminal trial or at the trial itself. Usually the public prosecutor will laundering behaviour (eg, ‘hiding’ or ‘having in one’s possession’ support the aggrieved party claim and will request that the court certain objects) can amount to a so-called continuous crime. This award it. The aggrieved party has the right to clarify before the means that, unless this behaviour has effectively ended on a certain court, either in person or represented by a trial lawyer, the nature date, the limitation period will not start. and magnitude of the claim. In Dutch criminal law, the duration of the limitation period is linked to the maximum prison term that can be imposed. The Payment of damages as a special condition in sentencing basic offence of money laundering (section 420bis DCC) carries a A criminal court may determine that part of the penalty will be ‘con- maximum prison term of four years, which amounts to a limita- ditional’, namely, the penalty (for instance, a prison sentence or a tion period of 12 years. Habitual money laundering (section 420ter fine)will not be (fully) enforced if the perpetrator satisfies one or DCC) carries a maximum prison term of six years, which also leads more conditions (section 14c, subsection 2, sub 1° of the DCC). to a limitation period of 12 years. Section 420quater DCC (merely A possible condition that can be imposed is the payment of dam- requiring that the suspect ‘should have reasonably suspected’ the ages to the victim, within a period to be determined by the court. direct or indirect criminal provenance of the object) is a lesser offence punishable by a maximum prison term of one year and, con- Court order to pay damages sequently, a limitation period of six years. Apart from punitive sanctions, a criminal court can also impose non-punitive court orders. One possibility is a court order that 11 Extraterritorial reach imposes the obligation to pay an amount of money to the state, for Do your jurisdiction’s money laundering laws have extraterritorial the benefit of (and to be paid to) the victim (section 36f DCC). Such reach? a court order may only be imposed if, and insofar as, the perpetrator can be held liable (under civil law) for the damages that the victim Dutch courts have jurisdiction over all Dutch and foreign indi- has incurred as a result of the criminal act. viduals and companies who commit (either as perpetrators, co- The court must also determine which alternative sentence (for perpetrators or accomplices) money laundering offences within instance, a prison sentence) will be imposed on the perpetrator if he the Netherlands. Such offences qualify as having been committed or she fails to comply with the court order. The public prosecutor ‘within the Netherlands’ when; must enforce such a sentence if the perpetrator fails to fulfil his or • the criminal behaviour itself has (partly) occurred within the ter- her payment obligation. ritory of the Netherlands; • any instrument used to commit the offence has had its effect in Confiscation of illegally obtained profits the Netherlands (eg, money that was sent from a foreign country Following a conviction in a criminal trial, a (legal) person can be to the Netherlands); or confronted with a consecutive, separate court procedure leading to a • the final consequence (effect) of the offence has occurred in the court order by means of which any illegally obtained profits can be Netherlands. confiscated (section 36e DCC). Such a confiscation order is a non-punitive measure and can be The jurisdiction of Dutch courts further extends to money launder- imposed if: ing committed abroad, where the perpetrator is a Dutch (natural or • the convicted (legal) person has benefited‘by means or from’ the legal) person, provided that the offence is also punishable under the offence for which he or she has actually been convicted; laws of the country in question. • the convicted (legal) person has benefited‘by means or from’ other criminal acts, given ‘sufficient indications’ that the con- victed person also committed these acts; or

98 Getting the Deal Through – Anti-Money Laundering 2014 Sjöcrona Van Stigt Advocaten NETHERLANDS

AML requirements for covered institutions and individuals are only covered insofar as the goods sold are paid in cash for an amount of €15,000 or more. 12 Enforcement and regulation Which government entities enforce your jurisdiction’s AML regime and 14 Compliance regulate covered institutions and persons? Do the AML rules provide for ongoing and periodic assessments of covered institutions and Do the AML laws in your jurisdiction require covered institutions and persons? persons to implement AML compliance programmes? What are the The Prevention of Money Laundering and Financing of Terrorism required elements of such programmes? Act (PMLFTA) contains regulations regarding client assessment and It follows from the PMLFTA that an institution is required to the disclosure of unusual transactions. The Implementation Decree carry out client assessment and is able to report unusual transac- to the Prevention of Money Laundering and Financing of Terrorism tions. The institution has a duty to educate its employees about the Act (ID-PMLFTA) contains an appendix listing a number of indica- requirements of the PMLFTA and to offer training enabling them tors that are used to qualify a transaction as being unusual. to recognise suspicious transactions. An institution that does not The central entity in the enforcement and regulation of the Dutch fulfil its reporting duty may be confronted with binding instruc- AML regime is the FIU-Nederland. Unusual transactions must be tions to develop the proper internal procedures and controls (to pre- reported to the FIU-Nederland. The main task of the FIU-Nederland vent money laundering and financing of terrorism) and to train its is to analyse these reports, but it also carries out money laundering employees (in recognising suspicious transactions). research, information gathering and reporting. Apart from the FIU- Nederland, four more regulatory bodies deal with the supervision of 15 Breach of AML requirements anti-money laundering regulations in the Netherlands. Each of these bodies covers a number of (more or less) related branches that are What constitutes breach of AML duties imposed by the law? subject to the requirements of the PMLFTA: Breach of AML duties may constitute a criminal offence under the • the Dutch Central Bank (DCB) supervises, inter alia, banks, trust Economic Offences Act. For instance: offices and pension funds. The DCB fulfils a statutory role in • breach of the duty to perform client assessment (sections 2, supervising compliance with the PMLFTA by institutions under 3 subsection 1, 4 subsection 1, 5 subsections 1 and 3 of the its (prudential) supervision. The DCB assesses and enforces the PMLFTA); adequacy of the procedures and measures implemented by the • breach of the duty to perform (as prescribed in certain cases) institutions to counter money laundering and terrorist financing; tightened client assessment (section 8 of the PMLFTA); • the Authority for the Financial Markets supervises investment • breach of the duty to report unusual transactions (section 16 of institutions and financial service providers insofar as they the PMLFTA); arrange life insurance contracts; • breach of the duty to provide additional information after a • the Bureau for Financial Supervision supervises the PMLFTA transaction has been reported (section 17 subsection 2 of the compliance of civil law notaries, lawyers, accountants, tax advis- PMLFTA); breach of the duty of secrecy (section 23 subsections ers, business consultants and independent legal advisers; and 1 and 2 of the PMLFTA); • the PMLFTA Supervision Desk, which is part of the Large • breach of the duty to keep records (sections 33 and 34 of the Enterprises branch of the Tax Authority, supervises the PMLFTA PMLFTA). compliance of real estate agents, professional providers of mail- ing addresses, certified appraisers and sellers of valuable goods. These offences (if committed with criminal intent) carry a prison term of up to two years, community service or a €19,500 fine (€78,000 for legal persons), or a combination of these. If criminal 13 Covered institutions and persons intent cannot be proven, these acts are summary offences, and carry Which institutions and persons must carry out AML measures? a prison term of up to one year, community service or a €19,500 fine There are two broad categories of institutions and persons that are (€78,000 for legal persons), or a combination of these. covered by the PMLFTA. The first category consists of those who Section 23 of the PMLFTA imposes a duty of secrecy on an insti- are covered in their capacity as, for instance, a financial institution. tution that has reported an unusual transaction, or additional infor- This category encompasses, for instance, credit institutions, financial mation following an initial report, to the FIU-Nederland. However, institutions, life insurance companies, investment companies, finan- auditors, tax advisers, lawyers and civil law notaries are allowed to cial service providers, trust offices, auditors, administration consult- dissuade their clients from executing a transaction by giving notice ants, tax advisers and credit card companies. that a proposed transaction is ‘unusual’ and will have to be reported The second category consists of persons who are covered by (section 23 subsection 3 of the PMLFTA). virtue of the type of activities they perform, such as lawyers and civil law notaries. The latter are only covered insofar as they provide 16 Customer and business partner due diligence advice or assistance in connection with: • buying or selling real estate; Describe due diligence requirements in your jurisdiction’s AML regime. • the management of funds, securities, precious metals or other Sections 3 to 11 of the PMLFTA set out the requirements for client valuables; assessment and client due diligence. Section 3, subsection 1 of the • incorporating or managing legal persons; PMLFTA holds that an institution must carry out client assessment • buying or selling companies; or in order to prevent money laundering and financing of terrorism. • fiscal work. This client assessment entails, inter alia, (subsection 2) identification of the client and verification of the client’s identity; identification, if Lawyers and civil law notaries are also covered insofar as they act in applicable, of the ultimate beneficial owner (UBO) and the duty to the name and on behalf of a client in a financial or real estate trans- take risk based and adequate measures to verify the UBO’s identity action. Lawyers are not covered insofar as they advise a client about (when dealing with legal persons, risk based and adequate measures his or her position in a (possible) procedure, and insofar as they must be taken to gain insight in the client’s ownership and control do ‘procedural’ work (representing and defending a client, giving structure); establishing the objective and the nature of the relation advice prior to, during and after a legal procedure, or giving advice with the client; monitoring on a continuous basis, insofar as pos- about initiating or avoiding a procedure). Professional salespersons sible, the business relationship with the client and the transactions www.gettingthedealthrough.com 99 NETHERLANDS Sjöcrona Van Stigt Advocaten carried out; establishing whether a natural person representing the a correspondent bank relationship with a bank established in a non- client is authorised to do so; taking risk-based and adequate meas- EU country. ures to verify whether the client is acting on his or her own behalf or on behalf of a third party; and, if applicable, identifying the person 18 Record keeping and reporting requirements representing a client and verifying the representative’s identity. According to the 2010 FATF evaluation, the PMLFTA’s defini- Describe the record keeping and reporting requirements for covered tion of ‘beneficial owner’ fell short of the FATF standard as it only institutions and persons. referred to legal persons and trusts, and not, more broadly, to the An institution must report an unusual transaction, performed or natural person or persons who ultimately own or control ‘a cus- planned, to the FIU-Nederland ‘forthwith’ after the unusual char- tomer’. These shortcomings have, from 1 January 2013, been acter of the transaction has become apparent. The information that remedied. must be provided if a report is made includes: Section 3, subsection 5 of the PMLFTA provides a list of situa- • the identity of the client and (insofar as possible) the identity of tions in which client assessment must be carried out; the person on whose behalf the transaction is carried out; • if the institution enters into a business relation in or from within • the type and number of the client’s means of identification; the Netherlands; • the nature, time and place of the transaction; • if the institution carries out, in or from within the Netherlands, • the magnitude, destination and provenance of the funds or other a non-recurring transaction on behalf of the client representing values involved; a value of at least €15,000, or two or more interrelated transac- • the circumstances that have caused the transaction to have been tions representing a value of at least €15,000; labelled as ‘unusual’; and • if there are indications that the client is involved in money laun- • a description of the goods exchanged in the case of a transaction dering or the financing of terrorism; exceeding €15,000. • if the institution doubts the reliability of prior data provided by the client; The PMLFTA itself does not define ‘unusual transactions’, but sec- • if the risk of a present client being involved in money laundering tion 15 of the PMLFTA enables the Ministry of Finance and the or the financing of terrorism would give rise to an assessment; Ministry of Justice to establish categories of unusual transactions • if, considering the country where a client is living or established, by joint governmental decree. This decree, which is periodically a more acute risk of money laundering of financing of terrorism revised, lists one ‘subjective’ indicator and various ‘objective’ indica- is present; or tors. The objective indicators differ according to the type of institu- • if in or from within the Netherlands a non-recurring transac- tion to which they apply. The objective indicators describe situations tion is carried out for the client or trust, consisting of a money in which transactions must always be reported. When applying the transfer as meant in section 2, subsection 7, of EU Regulation subjective indicator, the institution has some margin to appraise 2006/1781 on information on the payer accompanying transfers whether or not the activity in question may be related to money of funds. laundering or the financing of terrorism. The subjective indicator is the same for all types of institutions Section 4 of the PMLFTA states that, as a general rule, client assess- and targets ‘transactions that give the institution reason to suppose ment should take place before the client relation is established or that they may be connected to money laundering or the financing before an ‘incidental’ service is provided. A number of exceptions are of terrorism’. available (eg, for situations in which full prior identification would Objective indicators are given for (inter alia): unduly hamper the provision of services to the client). Section 5 of • banks, electronic money institutions, financial and investment the PMLFTA prohibits institutions from establishing or continuing a institutions and money transaction offices; client relationship without carrying out client assessment. • life insurance companies and insurance intermediaries; Sections 6 and 7 of the PMLFTA introduce the possibility of • credit card companies; simplified client assessment for certain types of clients and certain • casinos; types of transactions, for instance, financial institutions and invest- • traders dealing with high-value goods; and ment institutions domiciled in the Netherlands. In these cases, client • independent legal advisers. assessment must be carried out if there are indications that the client is involved in money laundering. Cash transactions involving €15,000 or more are labelled unusual for (inter alia): 17 High-risk categories of customers, business partners and • banks, electronic money institutions, financial and investment transactions institutions and money transaction offices (in the case of a cash exchange into another currency or into large denomination Do your jurisdiction’s AML rules require that covered institutions and banknotes); persons conduct risk-based analyses? Which high-risk categories are • credit card companies (in the case of a cash deposit on a credit specified? card account, or a credit card payment); In section 8 of the PMLFTA ‘tightened client assessment’ is • casinos (when cash is placed on deposit, or exchanged for described, which is called for if and insofar as the nature of a busi- tokens); ness relation or a transaction, or the country where the client lives • independent legal advisers, lawyers, civil law notaries, tax and or is established, entails a higher money laundering or financing of business advisers, auditors, real estate brokers and trust offices terrorism risk. Tightened client assessment is required when dealing (in the case of cash payments); and with politically exposed persons (PEPs), or direct relatives or close • traders dealing with high-value goods. associates of a PEP, living outside the Netherlands, and also when dealing with transactions with (legal) persons in jurisdictions that A transaction involving €25,000 or more that is wholly or partially have been labelled as high risk and non-cooperative by the FATF. paid in cash is unusual for traders in high-value goods. A cash trans- Institutions are required to follow the periodic revisions of this FATF action involving €2,000 is unusual for money transfer offices. list and to take measures if necessary. After a report has been made by an institution, the FIU- Tightened client assessment is also necessary where a client is Nederland can approach the institution that has made the report, as not physically present for identification, and when a bank enters into well as any other institutions involved in the reported transaction,

100 Getting the Deal Through – Anti-Money Laundering 2014 Sjöcrona Van Stigt Advocaten NETHERLANDS for additional information. Covered institutions are not required to offences (see question 15) carry a maximum penalty of two years make reports or share information concerning unusual transactions imprisonment (where criminal intent can be proven), that conse- with other government agencies. The FIU-Nederland will act as a quently results in a limitation period of six years. As far as these liaison. criminal acts are summary offences, the limitation period is three Covered institutions and persons are obliged to keep records years. for each client, containing the data that the PMLFTA requires to When the administrative approach instead of the criminal law be recorded. The data must be kept accessible during a period of approach is chosen, the limitation period for the imposition of an five years following the termination of the client relationship or the administrative fine is three years. execution of the transaction. The data contained in reports made to the FIU-Nederland must be kept as well, for a period of five years after the report has been made. The FIU-Nederland will keep reports 22 Extraterritoriality of unusual transactions for a period of five years as well. Reports Do your jurisdiction’s AML laws have extraterritorial reach? of unusual transactions that subsequently have been labelled by the The PMLFTA applies to institutions that carry out activities within FIU-Nederland as ‘suspicious’ will be kept for a period of 10 years. the Netherlands and to institutions that have clients based in the Netherlands. This means, that an institution without a physical 19 Privacy laws presence in the Netherlands that has a client who is based in the Netherlands, falls under the PMLFTA. This may lead to complica- Describe any privacy laws that affect record keeping requirements, due tions, as the Third Money Laundering Directive 2005/60/EC for diligence efforts and information sharing. instance states that a suspicious transaction should be reported to Data processing by the FIU-Nederland is covered by the Police Data the FIU of the member state where the institution is based, whereas Act (see section 14 of the PMLFTA). This means, inter alia, that FIU- client due diligence should have taken place (according to the Nederland may share data with police officers, specialised investi- PMLFTA) in the Netherlands. gating officers (such as FIOD investigators) and public prosecutors. Data may also be shared internationally with foreign police forces, Civil Claims Interpol and Europol. Data provision to foreign authorities is only allowed if the receiving authority can guarantee the proper use of the 23 Civil claims and private enforcement data as well as protection of privacy. Such a guarantee is given with Enumerate and describe the required elements of a civil claim the context of the Egmont Group. or private right of action against money launderers and covered After having reported an unusual transaction, covered institu- institutions and persons in breach of AML laws. tions and persons are allowed under certain conditions (as an excep- tion to the duty of secrecy encoded in section 23 of the PMLFTA) to A civil claim or private action against a money launderer, a cov- notify other parties. For instance, notification can be given to institu- ered institution, or a person in breach of AML laws is possible tions belonging to the same financial conglomerate as the reporting under Dutch law. A civil claim could be based on an unlawful act institution. Notification can also be given to other foreign institu- (section 6:162 of the Dutch Civil Code) having been committed, or, tions or persons domiciled in an EU member state where an equiv- for example, on attributable non-performance (section 6:74 of the alent AML system is in place, insofar as the notification concerns Dutch Civil Code). In the Netherlands no case law has, as yet, been the same client and the same transaction and is intended to prevent published in which a covered institution such as a bank has been money laundering or the financing of terrorism. held liable towards victims of money laundering and where this liability was based on the fact that specifically AML law or regula- tions had been breached. The standard limitation period on a civil 20 Resolutions and sanctions claim is five years. What is the range of outcomes in AML controversies? What are the possible sanctions for breach of AML laws? International anti-money laundering efforts In some cases, breach of AML duties may be qualified as a criminal offence (see the answer to question 15). For the possible outcomes, 24 Supranational see question 8. The range of outcomes for a criminal money launder- List your jurisdiction’s memberships of supranational organisations ing case and for a criminal AML case is the same. that address money laundering. Instead of a criminal law approach, the supervisory authorities FIU-Nederland cooperates with foreign agencies, such as, for may choose an administrative law approach when AML duties have instance, the Serious Organised Crime Agency in the UK, and also been breached. It is possible to impose an order for incremental pen- with foreign FIUs, for instance in FIU.NET (a computer network that alty payments or an administrative fine on a non-compliant institu- enables rapid data exchange). Within the framework of Analytical tion. An institution that does not fulfil its reporting duty may be Work File for Suspicious Transactions, the FIU-Nederland cooper- confronted with binding instructions to develop the proper proce- ates with about 20 other countries in supplying data concerning sus- dures and to train its employees. picious transactions to Europol on a weekly basis. The Netherlands is a member of the FATF. 21 Limitation periods What are the limitation periods governing AML matters? 25 Anti-money laundering assessments In general, the limitation period for a crime starts the day after the Give details of any assessments of your jurisdiction’s money delinquent activities were last performed. However, some prohib- laundering regime conducted by virtue of your membership of ited AML behaviour (eg, non-compliance with reporting duties) can supranational organisations. amount to a so-called continuous crime. This means that, unless In 2010, the FATF evaluated the Dutch anti-money laundering this behaviour has effectively ended on a certain date, the limitation and counter-terrorist financing measures. The Mutual Evaluation period will not start. Report was adopted by the FATF at its plenary meeting in Paris In Dutch criminal law, the duration of the limitation period is on 25 February 2011. The report brought forward various positive linked to the maximum prison term that can be imposed. The AML points, eg, the criminalisation of money laundering is fully in line

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Update and trends

In 2012, the total number of suspicious transactions reported to the Audit points out that FIU-Nederland now has even less understanding FIU-Nederland showed a 25 per cent increase compared to 2011, of the ways in which investigating agencies are using information mainly as a result of a greater number of money transfers having about suspicious transactions that have been labelled as suspect by been reported. Taken together, all transactions reported in 2012 the FIU-Nederland. represented a transaction value of €680 million. However, the number In reaction to the Court of Audit report, the Minister of Finance of transactions (and their value) reported by banks has diminished and the Minister of Safety and Justice have announced that a National within this total. Money Laundering and Terrorist Financing Risk Assessment will be On 6 March 2014, the Netherlands Court of Audit published its developed, to provide a better understanding of important money 2013 state of affairs report on the national AML effort, as a follow laundering risks. The first results are expected to be published up to the 2008 report. AML capacity, expertise and data exchange in 2015. Towards the end of 2014, a new Policy Monitor Money facilities have increased, but according to the Court of Audit, it is not, Laundering will be published. Both publications will henceforth be as yet, possible to identify concrete results. Feedback to covered used to inform Parliament about the national AML effort. institutions has not been ameliorated since 2008, and the Court of

with FATF requirements, but also some points of criticism such as 27 Mutual legal assistance the non-standard criminalisation of terrorism financing, the effec- In which circumstances will your jurisdiction provide mutual legal tiveness of the FIU-Nederland, and some shortcomings as regards assistance with respect to money laundering investigations? What are client due diligence requirements in the PMLFTA. Some aspects of your jurisdiction’s policies and procedures with respect to requests the treatment of trust offices were criticised as well. from foreign countries for identifying, freezing and seizing assets? As a result of the 2010 FATF evaluation, some changes have The Netherlands is party to a large number of bilateral and multi- been made to the PMLFTA, effective from 1 January 2013. Most lateral conventions on mutual assistance, pertaining to minor legal importantly, the client due diligence requirements have been assistance (hearing of witnesses, seizure of goods or serving docu- strengthened. For instance, it has now become necessary to ascertain ments) as well as extensive legal assistance (extradition). As a result, whether a natural person representing a client is authorised to do so, the Netherlands will often provide legal assistance upon request to to identify this natural person and to verify his or her identity (see states that have instituted a criminal investigation and these states also question 16). will often reciprocate on the basis of these conventions. It must be determined on a case-by-case basis whether any conventions govern 26 FIUs the legal relationship between the Netherlands and another state. Give details of your jurisdiction’s Financial Intelligence Unit (FIU). The Netherlands has ratified the Council of Europe Convention of 8 November 1990 on Laundering, Search, Seizure and The postal address of FIU-Nederland is: Confiscation of the Proceeds from Crime. Parties to this Convention are required to cooperate with each other to the widest extent pos- Postbus 3016 sible for the purpose of investigations (including money laundering 2700 KX Zoetermeer investigations) and proceedings aiming at the confiscation of pro- Netherlands ceeds of crime. The Convention stipulates that provisional measures Tel: +31 88 662 9500 (such as freezing or seizing assets) must be taken at the request of Fax: +31 79 345 8768 another party, and that confiscation orders made by a court of a [email protected] requesting party must be enforced. These requests will be carried out www.fiu-nederland.nl in accordance with domestic law, namely, the applicable sections of the Dutch Code of Criminal Procedure, which allows, inter alia, for FIU-Nederland is a member of the Egmont Group. provisional seizure and confiscation of assets following a conviction. In the absence of a treaty, legal assistance may still be provided under Dutch law. However, legal assistance that requires the use of coercive measures is only possible on a treaty basis.

Enide Z Perez [email protected] Max J N Vermeij [email protected]

‘t Hoenstraat 5 Tel: +31 70 346 74 72 2596 HX The Hague Fax: + 31 70 392 43 78 Netherlands www.svsadvocates.com

102 Getting the Deal Through – Anti-Money Laundering 2014 Wilson Harle NEW ZEALAND New Zealand

Gary Hughes and Rachel Sussock Wilson Harle

Domestic legislation framework that has led to a major overhaul of this country’s AML regime. The new law had a long implementation period and only 1 Domestic law came into full force and effect from 30 June 2013. Identify your jurisdiction’s money laundering and anti-money laundering The substantive AML/CFT legal obligations and powers for (AML) laws and regulations. Describe the main elements of these most types of regulated institutions are now found in the AML/CFT laws. Act 2009 and the Regulations made under it. The Act contains the New Zealand’s domestic legislation and legal processes used to key principles and umbrella provisions, with significant matters of counter money laundering can be separated into two main catego- detail being addressed in the Regulations and Gazette notices made ries. The first contains the criminal money laundering offences and under it. The regulatory supervisors have also issued a Code of provisions related to those offences. The second contains the AML Practice for Identity Verification (now amended), which if complied civil compliance regime by which regulated businesses, primarily with provides a safe harbour to institutions when verifying informa- in the financial and gaming sectors, are required to take steps to tion for customers considered to be low to medium risk. deter, detect and report possible money laundering activity. This civil The AML/CFT Act imposes significantly more onerous obliga- regime contains comprehensive regulatory provisions, breach of tions on reporting entities than the previous regime and expands which can itself be a criminal offence. the range of commercial enterprises brought under coverage of the The main criminal provisions are in the Crimes Act 1961. regime as reporting entities. In a brief summary, the main obligations Section 243 makes it an offence to engage in a money laundering on such entities include to: transaction in respect of property that is the proceeds of a serious • conduct and document a written risk assessment on money offence, knowing or believing that all or part of the property is the laundering and terrorist financing risks arising from the custom- proceeds of a serious offence or being reckless as to whether or not ers, the products and services, the delivery channels, countries the property is so tainted. A ‘serious offence’ is defined as one pun- and institutions dealt with and intermediary risks; ishable by imprisonment for a term of five years or more (including • develop a written AML compliance programme containing poli- overseas actions that would be so punishable were they commit- cies, procedures and controls to manage and mitigate the risks ted in New Zealand). Money laundering is punishable by a term of of money laundering and the financing of terrorism; imprisonment of up to seven years. • vet senior managers and staff hired to perform AML/CFT There is also a separate offence of obtaining property that is the related duties; proceeds of a serious offence with intent to engage in money laun- • train senior managers and relevant staff in AML/CFT related dering, knowing or believing (or being reckless as to whether) the matters; property is the proceeds of a serious offence. • comply with detailed customer due diligence (CDD) require- Other relevant provisions can be found in: ments, including customer identification and verification pro- • the Misuse of Drugs Act 1975, where section 12B very much cesses, and determine when enhanced CDD is required, when follows the structure of section 243, but relates specifically to simplified CDD might be permitted and when CDD can be car- laundering the proceeds of drug offences; ried out by a person other than the reporting entity; • the Terrorism Suppression Act 2002, with criminal offences for • have a process to detect and to ensure reporting of suspicious providing or collecting funds to be used for terrorist acts; and transactions, and to make such reports when appropriate; • the Criminal Proceeds (Recovery) Act 2009, which relates to the • monitor, on an ongoing basis, customer activity, especially forfeiture of assets and funds that may be derived from the prof- in relation to specified high-risk transactions and business its of crime. relationships; • ensure there are processes for full record keeping to enable The criminal offence provisions for laundering money are reason- reconstruction of accounts or transactions if required; and ably settled and have been largely unchanged for a number of years. • make an annual report to the AML supervisor on compliance The laws relating to the recovery of money or property that are the issues, and arrange for biennial independent auditing of compli- proceeds of crime were substantially reformed in 2009 and there is a ance with the AML/CFT programme. growing body of case law on these types of confiscation or recovery action. The requirements in the previous regime, the Financial Transactions New Zealand’s AML regulatory regime for the financial sector Reporting Act 1996 (FTR Act), continue in effect for lawyers, has also been through a period of major recent transition, designed accountants, real estate agents, precious metals dealers and other to greatly enhance New Zealand’s degree of compliance with the luxury asset dealers or brokers. It is intended that these industries FATF’s 40+9 Recommendations (October 2004 version). The Anti- will be brought under the AML/CFT regime via a second round of Money Laundering and Countering Financing of Terrorism Act coverage regulation, probably not before 2016. 2009 (AML/CFT Act) introduced a modern and broad risk-based www.gettingthedealthrough.com 103 NEW ZEALAND Wilson Harle

Money laundering or being reckless as to whether the property is the proceeds of such an offence. There must also be an intention to conceal the property 2 Criminal enforcement or to assist another to do so. Which government entities enforce your jurisdiction’s money There is also a lesser offence of possession of property for money laundering laws? laundering purposes. In order to establish this offence, it must be The are responsible for enforcing the crimi- proven that the property was the proceeds of a serious offence and nal offence provisions relating to money laundering. A specialist that the accused had the requisite knowledge or was reckless, and unit within the police, the Organised and Financial Crime Agency intended to engage in a money laundering transaction in respect of New Zealand, is involved in most of the major operations. and for that property (section 243(3)). criminal proceeds recovery and forfeiture, regional Specialised Asset Recovery Units exist within the police. 5 Qualifying assets and transactions Money laundering is an indictable offence and can be prose- cuted on a summary basis in the district court (under the Summary Is there any limitation on the types of assets or transactions that can Proceedings Act 1957). New procedural rules that remove the dis- form the basis of a money laundering offence? tinction between indictable and summary offences have come into There is no monetary threshold or other limitation on the types effect following the commencement of the Criminal Procedure Act of assets or transactions for prosecution under section 243 of the 2011 in October 2013. Crimes Act (see the discussion of the definition of ‘property’ and The three AML/CFT supervisory bodies (the Reserve Bank, ‘deal with’ in question 4). the Financial Markets Authority and the Department of Internal Affairs) are not involved in prosecuting or enforcing the criminal 6 Predicate offences law relating to money laundering, but they supervise the anti-money laundering regulatory regime and may bring civil actions to enforce Generally, what constitute predicate offences? the obligations under the AML/CFT Act. There can also be crimi- Under section 243 a predicate offence must be a ‘serious offence’, nal prosecutions for some offences under the AML/CFT Act, which which means an offence punishable by imprisonment for five or would be brought by the New Zealand police. more years. The definition expressly includes acts, wherever com- mitted, which, if they had been committed in New Zealand, would constitute an offence punishable by imprisonment for five or more 3 Defendants years. Acts committed outside New Zealand can constitute a predi- Can both natural and legal persons be prosecuted for money cate offence, but must, at the time of being committed, constitute an laundering? offence under the law of the jurisdiction in which they are commit- The Crimes Act offence provisions for money laundering refer to ted (section 245). There is a presumption that the act will constitute a ‘person’ engaging in a money laundering transaction (section an offence under the relevant foreign laws unless the accused puts 243(4)). The Crimes Act defines a person as including any public the matter in issue. body or local authority and any board, society or company in rela- There are proposals expected to be put forward to Parliament tion to acts that it is capable of doing. Therefore, both legal and soon for consideration in an Organised Crime and Anti-Corruption natural persons can be prosecuted for money laundering. Although Legislation Bill, that may do away with the ‘serious offence’ thresh- the penalty for money laundering is a term of imprisonment, under old and mean that any criminal offence could qualify as a predicate section 39 of the Sentencing Act 2002, a court may impose a fine offence. instead. The requisite knowledge and intention to commit the Under the Misuse of Drugs Act 1975, the relevant predicate offence can be imputed to a body corporate through its human offences are offences relating to dealing in controlled drugs, cultivat- agents. Thus both natural and legal persons can be subject to an ing prohibited plants, supplying or manufacturing equipment that is appropriate punishment for money laundering. Most cases in the capable of being used to manufacture controlled drugs or cultivat- past have been taken against individuals. ing prohibited plants and knowingly importing or exporting precur- sor substances for unlawful use. Again, the predicate offence can be committed outside New Zealand and, if it was, the burden is on 4 The offence of money laundering the accused to show that the act was not an offence in the relevant What constitutes money laundering? foreign jurisdiction at the relevant time. A money laundering transaction is engaged in if, for the purpose From October 2013, a new provision came into effect, which of concealing any property, or enabling another person to con- clarifies that a person may be charged with money laundering ceal property, a person deals with that property or assists another whether or not the person who committed the predicate offence has person to deal with that property (whether directly or indirectly). been charged or convicted or is otherwise amenable to justice (sec- ‘Property’ is widely defined as including real and personal property tion 243A). of any description, whether situated in New Zealand or elsewhere and whether tangible and intangible, and includes an interest in any 7 Defences such property. ‘Conceal’ is defined as concealing or disguising the property and includes (without limitation) converting the property Are there any codified or common law defences to charges of money into another form and concealing or disguising the nature, source, laundering? location, disposition or ownership of the property, or of any inter- In addition to the ability to establish that the relevant act committed est in the property. ‘Deal with’ means to deal with the property in outside New Zealand was not an offence in the foreign jurisdiction any manner and by any means and includes (without limitation) at the time it was done (section 245 Crimes Act 1961), there is also a disposal, transferring possession or bringing the property into or codified defence under section 244. The defence is established if the removing it from New Zealand. accused can prove that the act to which the charge relates was done The state of mind required for money laundering is a knowl- by them in good faith for the purpose of, or in connection with, the edge or belief that all or part of the property is the proceeds of an enforcement or intended enforcement of: offence punishable by a term of imprisonment of five years or more, • any enactment relating to a serious offence; • the Criminal Proceeds (Recovery) Act 2009;

104 Getting the Deal Through – Anti-Money Laundering 2014 Wilson Harle NEW ZEALAND

• the AML/CFT Act; or 11 Extraterritorial reach • the Financial Transactions Reporting Act. Do your jurisdiction’s money laundering laws have extraterritorial reach? This typically relates to directions from the police on how to deal As a general rule, the criminal jurisdiction applies only to acts or with funds or with customers after a suspicious transaction report omissions that occur in New Zealand and does not extend beyond (STR) has been made. domestic borders (section 6 Crimes Act). All acts committed in New Additional general defences are set out in the Crimes Act, and Zealand may form the basis of an offence and so non-citizens and common law defences (such as insanity, compulsion and duress) are non-residents that commit a crime in New Zealand can be pros- preserved unless abrogated expressly. The codified defences include ecuted (section 5 Crimes Act). Although generally actions outside infancy (sections 21 and 22), insanity (section 23) and compulsion New Zealand would not be an offence, sections 243 and 245 specifi- by another (section 24). cally provide that the predicate offences for money laundering can be offences committed outside New Zealand. 8 Resolutions and sanctions Further, the money laundering conduct itself may occur out- What is the range of outcomes in criminal money laundering cases? side New Zealand as it may involve property being brought into or moved outside New Zealand, and the property may be situated The maximum penalty for the offence of money laundering is seven in New Zealand or elsewhere. However, some connection to New years’ imprisonment. For the related offence of possession with the Zealand is required; some relevant act or event forming part of deal- intention of money laundering it is five years’ imprisonment. Under ings with the property must have taken place in the jurisdiction. section 39 of the Sentencing Act a fine may be imposed instead of a term of imprisonment. AML requirements for covered institutions and individuals

9 Forfeiture 12 Enforcement and regulation Describe any related asset freezing, forfeiture, disgorgement and Which government entities enforce your jurisdiction’s AML regime and victim compensation laws. regulate covered institutions and persons? Do the AML rules provide for ongoing and periodic assessments of covered institutions and The Criminal Proceeds (Recovery) Act 2009 sets out a detailed legis- persons? lative scheme relating to forfeiture orders. Unlike the previous forfei- ture law, a criminal conviction is not required for the imposition of a New Zealand makes use of a multi-supervisor model under the forfeiture order – all that is required is proof of ‘significant criminal AML/CFT Act, whereby three existing regulatory agencies that each activity’ on the balance of probabilities. A significant criminal activ- have responsibility for regulating certain sectors in other areas of ity is activity that would amount to either an offence punishable by a law have added AML/CFT to their existing responsibilities. In this term of imprisonment of five years or more, or from which property respect, New Zealand differs from other countries (eg, Australia) or proceeds of NZ$30,000 or more have been directly or indirectly that have chosen to establish a new singular enforcement agency. obtained. Several types of orders are covered in the Act, including The three AML/CFT Supervisors are: assets forfeiture orders, profit forfeiture orders and instrument for- • the Reserve Bank of New Zealand – for banks, life insurers and feiture orders. non-bank deposit takers; Prior to forfeiture, the Act provides for restraining orders in • the Financial Markets Authority – most other financial institu- respect of property. The police can then apply for a civil forfei- tions including issuers of securities, trustee companies, futures ture order in respect of certain property, including orders relating dealers, collective investment schemes, brokers and financial to both assets and profits. If the court is satisfied that the property advisers; and was obtained as a result of a significant criminal activity, then it • the Department of Internal Affairs – for casinos, non-bank must make an assets forfeiture order, which vests the property in deposit taking lenders, money changers, card issuers and any the Crown. If it is shown that a respondent has benefited from sig- other reporting entities that do not clearly fall within the remit nificant criminal activity, and has an interest in property, then the of the other supervisors. court must make a profit forfeiture order. A profit forfeiture order is enforceable as an order made as a result of civil proceedings insti- The three supervisors have had greatly enhanced supervisory, investi- tuted by the Crown against the person to recover a debt due to it. gation and enforcement powers from 30 June 2013 when the AML/ Relief can be granted, following application by a person other than CFT Act came properly into force. Over several years previously, the respondent to the forfeiture order, in the case of undue hardship. they had worked to create a large number of guidelines and advisory An order for the forfeiture of property used to commit or facili- notes for entities grappling with their new compliance responsibili- tate a serious offence may also be made under section 142N of the ties and the Supervisors’ new enforcement functions. Further guide- Sentencing Act 2002 and form part of the sentence imposed on an lines have continued to be issued since the Act came into effect to offender. The effect of such an order is also to vest the property in assist entities to better understand their obligations under the law, the Crown absolutely. most recently on the topics of wire transfers and persons acting on behalf of customers (August 2013). The Commissioner of Police is also involved in the civil 10 Limitation periods AML/CFT regulatory regime as the recipient of any STRs for inves- What are the limitation periods governing money laundering tigation and as ultimate enforcement arm if there is a breach of prosecutions? the AML/CFT compliance regime that necessitates criminal pros- There are no limitation periods governing the prosecution of money ecution. The Police Financial Intelligence Unit (NZFIU) issued new laundering offences under the Crimes Act. They do not come within Suspicious Transaction Guidelines in 2013. the range of offences subject to a 10-year limitation period under The Ministry of Justice also has an active role in the develop- section 10B of that Act. ment and implementation of the AML regime. The Ministry man- ages an AML/CFT Coordination Committee that includes the three supervisors, New Zealand customs service, New Zealand police and other invited agencies.

www.gettingthedealthrough.com 105 NEW ZEALAND Wilson Harle

13 Covered institutions and persons 14 Compliance Which institutions and persons must carry out AML measures? Do the AML laws in your jurisdiction require covered institutions and At present, reporting entities under the AML/CFT Act are defined persons to implement AML compliance programmes? What are the to include financial institutions and casinos. Section 5 provides that required elements of such programmes? ‘financial institution’, means a person, who in the ordinary course Reporting entities must establish, implement and maintain an AML of business, carries on one or more of the financial activities set out compliance programme. They must first conduct their own detailed there, including: written risk assessment of their business operations, products or • accepting deposits or other repayable funds from the public; services, customers, distribution methods, countries and institutions • making a loan to or for a customer; dealt with, and then base their compliance programme on those • issuing a debit or credit card; identified risks. This means the programme can be proportionate • managing the means of payment; and risk based, having regard to the nature, size and complexity of • supplying goods through a finance lease (other than for con- their individual business. sumer products); The compliance programme must include adequate and effec- • providing remittance services that transfer money or property; tive processes, policies and controls in a number of specified areas, • issuing or accepting liability under life insurance policies; including: • issuing or selling securities and derivatives; • training and vetting processes for staff involved in AML/CFT • safekeeping or administering cash or liquid securities on behalf procedures; of other persons; and • ensuring that customer due diligence (CDD) measures are car- • exchanging foreign currency. ried out; • reporting suspicious transactions; A firm that carries on one or more of those activities and does so ‘in • ensuring safe retention of account and transaction records and the ordinary course of business’ will have to comply with the AML/ keeping written findings on unusual transactions or business CFT Act. The AML/CFT supervisors issued a guideline to clarify relationships; how they intend to apply the phrase ‘ordinary course of business’. • prevention of products or transactions that might favour ano- It sets out a number of contextual factors, which, when considered nymity; and together, may indicate whether an activity is in the usual course of • monitoring and managing ongoing compliance with its AML/ business of that firm. These involve whether the financial activity: CFT programme (section 57 of the AML/CFT Act). • is normal or otherwise unremarkable for the particular business (including as indicated by the firm’s internal processes and mar- Entities must also appoint an AML/CFT compliance officer to keting materials); administer and maintain the programme. • is frequent or is regular; • involves significant amounts of money; 15 Breach of AML requirements • is a source of revenue for the firm; What constitutes breach of AML duties imposed by the law? • involves significant allocation of the firm’s resources; or • involves a service or product that is offered to customers or third Breach of AML obligations can cover a wide variety of matters, a parties. number of which are listed in question 20. Some specific prohibi- tions are set out in the AML/CFT Act: In addition, any person who holds a casino operator’s licence under • if unable to conduct CDD, an entity must not establish a new the Gambling Act 2003 is covered by the AML/CFT Act. customer relationship, must terminate an existing relationship, There is also power to include or exclude other types of busi- must not carry out an occasional transaction over certain thresh- ness by regulation without having to formally amend the Act in olds and must consider whether to make a STR; Parliament. An illustration of this flexibility came when the AML/ • an entity must not knowingly or recklessly set up a facility for an CFT Regulations 2011 added trust and company service providers anonymous customer or under a false name; and (formation and secretariat services) to the list of covered reporting • an entity must not establish or continue relationships with a for- entities, largely in response to concerns raised by the alleged involve- eign shell bank, or correspondent bank of a shell bank. ment of some New Zealand registered companies in overseas crimi- Tipping off customers is also prohibited in New Zealand. The nal activities using rogue trust or company service providers. The legislation sets out a duty not to disclose or tip off, together with an regulations have also brought some types of financial advisers (and offence of tipping off, and the substantial potential penalties that firms that provide financial advice) within the new regime. may follow. There are also a growing number of carve outs and exemptions Under the AML/CFT Act, section 46 requires a reporting entity from coverage being made in the Regulations for low-risk products not to disclose certain information in relation to suspicious trans- or services or some functions of a covered entity, for example, debt actions reports to anyone except the police, the entity’s AML/CFT collection services. In addition, there is a process to apply for spe- supervisor, an officer or employee of the entity for any purpose con- cial ministerial exemption for a particular business or sector. At the nected with their duties, a lawyer advising on the matter or members time of writing, almost 40 of these individual or ad hoc ministerial of a designated business group in order to decide whether to make exemptions have been granted. a STR. Section 47 prevents disclosure of that information in any At a later date, lawyers, accountants, real estate agents, pre- judicial proceeding unless the judge is satisfied that disclosure is nec- cious metals dealers and other luxury asset dealers or brokers will essary in the interests of justice. be brought under the new AML/CFT regime via a second round of regulation. The Ministry of Justice has said it intends to commence policy work in 2014 to bring this second tranche into place. In the 16 Customer and business partner due diligence meantime these people will continue to be regulated by the FTR Act. Describe due diligence requirements in your jurisdiction’s AML regime. A key feature of the AML/CFT Act is to force reporting entities to develop more detailed CDD (or ‘know your customer’) processes. While there is ability to apply a risk-based approach somewhat

106 Getting the Deal Through – Anti-Money Laundering 2014 Wilson Harle NEW ZEALAND flexibly in many areas, there are also minimum requirements set out • wire transfers, correspondent banking or customer relation- in the statute. Sections 10 to 17 contain the main requirements for ships involving new or developing technologies or products that standard CDD, with additional requirements or relaxations in cer- might favour anonymity. tain circumstances for simplified CDD (sections 18 to 21) or for enhanced CDD (sections 22 to 30). Enhanced CDD means, in most of those cases, making further Generally, the CDD required was not retrospective as it did not enquiry into the customer’s source of funds or wealth, although require all existing customers to be verified upon the law coming there are some additional specific data requirements, for example, in into force, with some exceptions if and when the nature of the rela- the case of wire transfers. tionship changes, suspicion is raised or an entity realises it holds As noted in question 16, the safe harbour Code of Practice for inadequate information. identity verification does not extend to high risk customers (or cor- CDD will typically apply to new customers or accounts where porate entities). there is a business relationship that has an element of duration or to ‘occasional transactions’ that are one-offs outside of a business 18 Record keeping and reporting requirements relationship over a dollar threshold of NZ$10,000 and where insuf- ficient information is held about a customer or the business relation- Describe the record keeping and reporting requirements for covered ship changes. institutions and persons. Section 15 sets out the minimum information required for stand- New Zealand reporting entities and their auditors have specific obli- ard CDD: the person’s full name, date of birth, if not the customer, gations under sections 40–43 of the AML/CFT Act to make STRs that person’s relationship to the customer, address or registered office where suspicion is raised in certain situations. The legal trigger for and the person’s company identifier or registration number, as well reporting is when a transaction or proposed transaction gives the as any information prescribed by the Regulations. The entity must reporting entity reasonable grounds to suspect that it is or may be then verify that information and verify additional details depend- relevant to the investigation or prosecution of money laundering or ing on the level of risk in certain situations (or as prescribed in the related offences. Regulations). The STR must be made as soon as practicable and no more than An Identity Verification Code of Practice was issued by the three working days after forming the suspicion. The NZFIU has AML/CFT supervisors and amended in 2013, containing detailed developed a secure online XML-based IT platform that entities must options of the type of documentary evidence or electronic verifica- use to make STRs, known as ‘goAML’. The detailed contents of an tion methods that may be considered acceptable when verifying the STR form are now prescribed in the Regulations. Other parties who identity of low to medium-risk individuals during CDD. The code is are not yet directly covered by the new regime (including lawyers, not compulsory but, if followed, acts as a safe harbour, providing a accountants and real estate agents) still have generic obligations business with a way of establishing likely compliance with the AML/ under the old FTR Act to make STRs upon suspicion being formed CFT obligations. Reporting entities must still consider further, and when any person conducts or seeks to conduct any transaction giv- potentially develop additional mechanisms for verifying, any high- ing reasonable grounds to suspect money laundering activity. risk customers. Where terrorism financing is suspected, a Suspicious Property Beneficial ownership is a challenging area of compliance in New Report must be completed under section 43 of the Terrorism Zealand, given the relatively high proportion of trust structures used Suppression Act 2002. in commercial and individual enterprises. A balance has been struck Reporting entities must also: in the AML/CFT Act and Regulations that will require entities to • keep transaction records enabling reconstruction of any transac- verify beneficial ownership by obtaining the name and date of birth tion within the last five years, specified financial information, of each beneficiary of a trust or, for charitable or discretionary trusts and identity and verification evidence; with more than 10 beneficiaries, a description of the class and types • make annual reports on their risk assessment and compliance of beneficiary and trust objectives. A Guidance Note indicating programme, in the detailed format required by the AML super- the AML supervisors’ likely approach to beneficial ownership was visors for this reporting function; and issued in December 2012. • subject their risk assessment and compliance programme to independent audits every two years, or as requested by their AML/CFT supervisor. 17 High-risk categories of customers, business partners and transactions Do your jurisdiction’s AML rules require that covered institutions and 19 Privacy laws persons conduct risk-based analyses? Which high-risk categories are Describe any privacy laws that affect record keeping requirements, due specified? diligence efforts and information sharing. The risk-based approach is enshrined in much of the AML/CFT Act. Reporting entities under the AML/CFT Act must have regard to pri- Reporting entities must carry out a written risk-based assessment, vacy issues and protect personal information they may hold. This is which must be the platform and reference point for the rest of their expressly required in relation to the sharing of information among Compliance Programme, and available to the Supervisor on request. members of a designated business group (eg, related companies). It must also be independently audited every two years. Reporting Privacy is also an important consideration under the Amended entities must also develop processes and filters to determine if more Identity Verification Code of Practice 2013 jointly issued by the stringent CDD measures are required in high risk cases, or where AML/CFT supervisors. This recognises and endorses New Zealand’s the Act prescribes that enhanced CDD must be carried out, such as: well-developed personal privacy principles contained in the Privacy • dealing with a trust, or company with nominee shareholders or Act 1993, whenever reporting entities are carrying out due diligence. bearer shares; The Privacy Act governs personal information held by any agency • non-resident account holders from a country with an insufficient in New Zealand and sets out 12 Principles AML regime; (IPPs). The IPPs govern all phases of collection, handling and ulti- • ‘politically exposed persons’ (prominent foreign public individu- mate use and disposal of information about identifiable individuals als, as specifically defined); and by both private and public agencies. The IPPs require good reasons

www.gettingthedealthrough.com 107 NEW ZEALAND Wilson Harle for disclosing personal information to anyone other than the data • failing to make STRs when required; subject and for use of the information for any reason other than • providing false or misleading information concerning STRs; the purpose for which it was collected. The definition of personal • tipping off unauthorised third parties about STRs; information is very wide and includes any ‘information about an • failing to keep adequate records concerning STRs; and identifiable individual’. • obstructing an STR investigation. Before issuing STR guidelines for each type of reporting entity, setting out examples and features of transactions that may give rise For these more serious matters, the statutory maximum sanction is to suspicion of any money laundering offence, the New Zealand a criminal fine of up to NZ$300,000 or up to two years’ imprison- police must consult with the Privacy Commissioner. Such guidelines ment for individuals, or fine of up to NZ$5 million for corporate were issued by the NZFIU in 2013. bodies. New legislation has been passed – the Identity Information There are also offence provisions relating to the cross-border Confirmation Act 2012 – that enables access to a consent-based transportation of cash, which are considered more minor offences service to allow both public and private sector agencies to check and have a penalty of not more than three months’ imprisonment or whether identity information presented by customers is the same a fine of up to $10,000, or both, for an individual or a fine of up to as that recorded by the Department of Internal Affairs through $50,000 for a body corporate. The first prosecutions under the new its citizenship, passports, and births, deaths and marriages registry AML/CFT Act have been made by the New Zealand customs ser- functions. The Act provides for quite strict privacy controls on the vice, based on the non-declaration of cross-border cash movements. circumstances in which the registries can be accessed. This service is still in its formative stages. However, another initiative, a secure 21 Limitation periods online identity verification service introduced by the government called ‘RealMe’ is up and running, and some leading banks have What are the limitation periods governing AML matters? begun using it. A RealMe verified account is intended to be the If seeking a civil penalty, an application must be made by an AML/ online equivalent of a passport or drivers licence. The service was CFT supervisor within six years of the conduct that gives rise to the introduced to not only allow the government to provide services liability to pay the civil penalty. online but to also be used by the private sector to verify identity. The time limit for the majority of offences under the AML/CFT Separately, some IT service providers are compiling databases that Act is three years ‘after the time when the matter of the informa- can be subscribed to for a fee in order to assist with verification tion arose’. For the more minor offences relating to the cross-border information about New Zealand citizens and residents. transportation of cash the time limit for laying the charging docu- ment is only six months after the date on which the offence was committed. 20 Resolutions and sanctions What is the range of outcomes in AML controversies? What are the possible sanctions for breach of AML laws? 22 Extraterritoriality There are a mix of enforcement sanctions with differing levels of Do your jurisdiction’s AML laws have extraterritorial reach? potential penalty outcomes, depending on the factual circumstances Generally speaking, the AML/CFT Act measures apply to entities and the attitude of the AML/CFT supervisor to the transgression. carrying on the defined types of business or services within New Regulators can consider legal action for civil liability acts and also Zealand’s borders. However, this applies equally to subsidiaries or criminal offences, and these can be taken against senior managers branches of foreign financial institutions seeking to operate in New and individuals within corporate entities as well as the corporation. Zealand. Further, in some specific respects a limited form of extrater- Civil liability acts include: ritoriality applies, for instance: • failing to ensure branches and subsidiary businesses comply • New Zealand domestic reporting entities must ensure that with AML/CFT requirements, entering or continuing a business branches and subsidiaries in a foreign country apply, to the relationship without adequate evidence of identity, inadequate extent that the country’s law permits, broadly equivalent AML account and transaction monitoring and entering or continu- compliance measures; or ing a correspondent banking relationship with a shell bank. For • cross-border transportation of cash (NZ$10,000 or more) into these matters, statutory maximum pecuniary penalties are set or out of the country. at NZ$100,000 for individuals or NZ$1 million for corporate bodies; and The AML/CFT supervisors issued a brief guidance note in December • failing to keep records as required, failing to establish, imple- 2012 on how they perceive the territorial scope of the Act as it ment or maintain an AML compliance programme and failing affects their functions. Some uncertainty, however, remains over the to carry out CDD. Here, statutory maximum pecuniary penal- exact extent of extraterritorial reach, and this may be ultimately ties are set at NZ$200,000 for individuals or NZ$2 million for only resolved as case law develops in future. corporate bodies. Civil Claims Rather than apply to the court for a pecuniary penalty or an injunc- tion, the AML/CFT supervisor may elect to issue a formal warning, 23 Civil claims and private enforcement or accept a court-enforceable undertaking from the reporting entity. Enumerate and describe the required elements of a civil claim At the time of writing, there have not yet been any such formal or private right of action against money launderers and covered enforcement actions made public, although that may well change institutions and persons in breach of AML laws. later in 2014. It is expected that, initially at least, the supervisors are The field of private claims or civil liability for AML breaches is likely to make use of warnings and enforceable undertakings rather very underdeveloped in New Zealand. In the past, the FTR Act has than punitive court action, except in the most egregious of cases. been seen as primarily a police or criminal matter, and there have Criminal offences for breaches of the AML/CFT regulatory been few attempts to press private claims. However, as part of the regime include: criminal process, victims can seek reparation payments or courts can • recklessly, knowingly or repeatedly carrying out a civil liability order that part of the fine be paid to victims. act as above;

108 Getting the Deal Through – Anti-Money Laundering 2014 Wilson Harle NEW ZEALAND

In relation to civil liability acts under the new AML regime, the entities subject to the Act: The Reserve Bank of New Zealand; primary right and responsibility to take action rests with the AML/ the Financial Markets Authority; and the Department of CFT supervisor and the civil ‘balance of probabilities’ onus of proof Internal Affairs. applies. However, if a pecuniary penalty is sought, the court has the • Strengthening its registration and licensing regime for financial ability to order it to be paid to the Crown ‘or to any other person service providers and the insurance sector. specified by the court’, which allows payment to be directed to vic- • Introducing a new cross-border cash reporting regime. tims of crime or others affected. In practice, the usual court order would probably be a payment In October 2013, the FATF recognised that New Zealand had made to the Crown, similar to a fine. But it is possible that as the enhanced significant progress in addressing the deficiencies identified in the AML/CFT regime gets bedded in, and as the financial consequences 2009 mutual evaluation report and could be removed from the become more serious for reporting entities in future, more civil regular follow-up process. The decision by the FATF to remove a claims are likely. country from the regular follow-up process is based on procedures Reporting entities have immunity from civil suit for actions agreed in October 2009. taken to comply with the Act, as long as they were acting in good faith and reasonably (section 77 of the AML/CFT Act). For plain 26 FIUs cases of non-compliance or breach, potential common law causes of action may remain available, such as equitable tracing remedies, Give details of your jurisdiction’s Financial Intelligence Unit (FIU). claims of knowing assistance or knowing receipt of property from The NZFIU collects suspicious transaction reports that come from the proceeds of crime, fraud or breach of trust or even the tort of banks and other financial institutions. It also monitors reportable breach of statutory duty. amounts of cash crossing New Zealand borders, and supports inves- At a practical level, increasing use by the Crown of the Criminal tigations into money laundering activity. The NZFIU is a member of Proceeds (Recovery) Act regime tends to preclude or ‘crowd out’ the the Egmont Group. likelihood of private claims, because the Crown usually targets those The NZFIU address and contact details are: assets of an offender with the most realistic prospect of realising value, frequently leaving few viable assets for a private claimant. New Zealand Police National Headquarters 180 Molesworth Street International anti-money laundering efforts PO Box 3017 Wellington 24 Supranational New Zealand List your jurisdiction’s memberships of supranational organisations Tel: +64 4 474 9499 that address money laundering. Fax: +64 4 498 7405 New Zealand has been a member of the FATF since 1991. New www.police.govt.nz/service/financial/index.html. Zealand is also closely engaged with the Asia-Pacific Group on Money Laundering (APG), a FATF-styled regional body that coordi- The NZFIU has a bespoke online secure system named ‘goAML’ nates regional development and liaison under FATF auspices. that reporting entities must use, and it does not accept simple e-mail reports or oral reports (other than in situations of extreme urgency). Reporting entities must enrol in and interface with the goAML sys- 25 Anti-money laundering assessments tem operated by the FIU in order to satisfactorily meet their obliga- Give details of any assessments of your jurisdiction’s money tions to make secure electronic reporting. laundering regime conducted by virtue of your membership of supranational organisations. 27 Mutual legal assistance The FATF has carried out country assessments of New Zealand in In which circumstances will your jurisdiction provide mutual legal 2003, 2009 and in 2013, in conjunction with the APG. assistance with respect to money laundering investigations? What are Following delays in implementing the new AML/CFT legisla- your jurisdiction’s policies and procedures with respect to requests tion, New Zealand had been placed on a more frequent follow-up from foreign countries for identifying, freezing and seizing assets? schedule for mutual evaluations, however following the most recent October 2013 Mutual Evaluation Report finding there had been sig- In New Zealand, the Mutual Assistance in Criminal Matters Act nificant progress, New Zealand is back on to the regular evaluation 1992 allows government authorities to receive and consider requests path. for assistance from an appropriate and legally competent foreign A copy of that Report can be found at www.fatf-gafi.org/ body, such as police or regulatory agencies and courts. The statute countries/n-r/newzealand/documents/fur-new-zealand-2013.html. is designed to facilitate the provision and obtaining of international The FATF Report’s summary section in October 2013 records assistance in criminal cases, and is being increasingly resorted to in that: cases of international fraud and money laundering. In the interests of international comity, the New Zealand attor- Since the adoption of its mutual evaluation report in 2009, New ney-general (as the New Zealand central authority) has the discre- Zealand has focused its attention on: tion to receive such requests and to exercise powers under New • Strengthening the AML/CFT legislative framework with the Zealand domestic legislation on behalf of the foreign authority. adoption of new preventive AML/CFT Legislation – the AML/ This may include going to the New Zealand courts to obtain search CFT Act, 2009 – which came into full force and effect on 30 warrants on a without notice (ex parte) basis or seeking interim or June 2013. permanent restraining and seizure orders over assets and property, • Issuing a set of implementing preventive AML/CFT measures, a or both. National Risk Assessment and comprehensive guidance mate- The usual sequence of events in a request for international assis- rial to assist reporting entities with the implementation of the tance would be as follows: Act. • a foreign legal basis for action is established by decision or order • Introducing several changes to its supervisory framework, of a foreign court; including establishing three statutory supervisors for reporting • the foreign court order or indictment or foreign restraining order, or both, provide the source material for the foreign agencies to www.gettingthedealthrough.com 109 NEW ZEALAND Wilson Harle

Update and trends

With the implementation of a complex new regulatory regime, reporting section 106 of the Act dealing with cross-border transactions, rather entities and their customers have had plenty of ‘teething troubles’ to than the more mainstream AML compliance obligations applicable to grapple with during the early period of the AML/CFT Act being in force. private financial institutions. However, the court confirmed the general In particular, even as we approach the one-year anniversary of the approach to enforcement under the Act, including that the offence was implementation, there remains considerable confusion among some one of strict liability, with no requirement to prove Huang had actual firms, their advisers and the public over aspects of customer due knowledge of being required to report, and that the Act clearly allows diligence rules. a charge of an ‘attempt’ to be brought. The interpretative approach By far the biggest problem area surrounds trust structures of the court indicates heavy reliance on the explicit public welfare and the legislative requirement to identify and verify the upstream regulatory nature of the Act’s purpose statement and also holds useful beneficial ownership and persons acting on behalf of others. There judicial analysis of its offence structure. are a large and varied number of trust structures traditionally used Looking ahead, a proposed Organised Crime and Anti-Corruption in New Zealand commerce. Confusion over these issues seems to bill is expected to be introduced into Parliament during 2014. This will have been exacerbated by the decision to exclude lawyers and other make some important amendments to the present AML compliance professionals from the first round of coverage under the Act, in that regime, including potentially: some professionals acting as trustees appear unclear on the extent to • clarifying that intent to conceal the money or property is not an which new requirements apply to them. element of the money laundering Crimes Act offence; To date, the AML/CFT supervisors have taken a sensible and • removing the requirement that the predicate offence must be one pragmatic approach to enforcement, in effect, telling the supervised punishable by five years’ or more imprisonment namely, any type entities that if a ‘genuine and reasonable attempt to comply’ has of offence potentially qualifies; been made, immediate enforcement action will be unlikely. It may be • requiring reporting entities to report to the NZFIU all international expected that, to the extent this has allowed any ‘honeymoon period’ wire transfers over NZ$1,000 and all physical cash transactions of transition, it is perhaps coming to an end during 2014, especially over NZ$10,000; in cases where there has been wilful or deliberate breaches of the • creating new offences to address gaps in New Zealand’s criminal compliance rules. law framework for identity crime and people trafficking; The first prosecution under the AML/CFT Act to reach the High • extending the time frames for foreign restraining orders and Court (acting as appellate body) is the case of New Zealand Customs providing the ability to register such orders without notice (eg, to Service v Huang [2013] NZHC 3277. This concerned an example of cover a Dotcom case scenario); and large amounts of cash being transported across the country’s borders. • allowing police to share personal information and DNA databank Mr Huang’s appeal against conviction, for failing to declare or report information with international counterparts, in order to further cash well in excess of the threshold of NZ$10,000 being moved inter-agency cooperation efforts and treaty agreements. in or out of New Zealand by him, failed. This was an offence under

make a request for assistance to the attorney-general under the The FBI alleges that Kim Dotcom’s business, Megaupload.com, Mutual Assistance in Criminal Matters Act; a file-sharing or ‘cyberlocker’ website, was an international crimi- • the New Zealand attorney-general receives and considers the nal organisation responsible for massive worldwide online piracy. request on the basis of the information provided, and can then After obtaining an indictment from a grand jury in West Virginia on apply to the court for various orders, including registration of charges of breach of copyright, conspiracy to breach copyright, con- any interim foreign restraining orders on a without notice basis; spiracy to racketeer, wire fraud and money laundering, the United • once accepted and registered, the foreign orders allow New States Department of Justice (as that country’s central authority) Zealand’s asset restraining powers under the Criminal Proceeds requested assistance from the attorney-general to search the prop- (Recovery) Act to be engaged; and erty of Dotcom and his associates in New Zealand and to seize evi- • any actual seizure operation would then be executed by the New dence. New Zealand police were then authorised to apply for search Zealand police. warrants to effect that assistance. Having obtained the warrants in the district court, police executed them at three separate addresses The mutual assistance regime was invoked in 2012 to provide assis- and seized a large number of documents and digital storage devices. tance to the United States’ authorities investigating the business of a The subjects of those search warrants subsequently applied for German internet tycoon who was resident in New Zealand, known judicial review of the warrants, alleging that they were unlawful. as Kim Dotcom, and this has generated considerable recent case law Dotcom and his co-accused had sought, prior to a hearing in this area. on their eligibility for extradition to the USA, disclosure of the

Gary Hughes [email protected] Rachel Sussock [email protected]

64 Fort Street Tel: +64 9 915 5700 Auckland City 1010 Fax: +64 9 915 5701 New Zealand www.wilsonharle.com

110 Getting the Deal Through – Anti-Money Laundering 2014 Wilson Harle NEW ZEALAND documents on which the United States’ case against them was based. The majority in the Supreme Court has held that the record of After several appeals, in Dotcom & Ors v United States of America case procedure does not require disclosure of all the documents it [2014] NZSC 24, the Supreme Court, by a majority, held that the summarises and there is no general obligation of disclosure on a United States is not required to disclose to the appellants, prior to foreign state requesting extradition. Further, it held that the lower their extradition hearing, the documents, records and information courts did not have the power to make disclosure orders in extradi- upon which their criminal case in the United States relies. tion cases, as the statutory powers in the Criminal Disclosure Act are In its application for extradition, the United States is able to not incorporated into the Extradition Act. The majority also noted, make use of a procedure for submitting evidence called the ‘record however, that the requesting state has a duty of good faith to disclose of the case’. A record of the case is relied on as establishing a prima any information that would seriously undermine the evidence upon facie case against those facing extradition and comprises a summary which it relies. of the evidence that the requesting state says implicates them. It is At the time of writing, Mr Dotcom and his associates are still not available to every country that applies for extradition and is awaiting an extradition hearing on the grand jury charges. Despite designed to provide a streamlined procedure for those to whom it the final resolution of the collateral dispute regarding the extent of applies. In this case the record of the case contained extracts from disclosure required in the context of extradition proceedings, other emails, data stored on servers, an analysis of how Megaupload’s judicial review proceedings and challenges to the extradition process websites operated and proposed evidence of investigators and remain under appeal to the Supreme Court. experts.

www.gettingthedealthrough.com 111 NIGERIA Sofunde, Osakwe, Ogundipe & Belgore Nigeria

Babajide O Ogundipe and Chukwuma Ezediaro Sofunde, Osakwe, Ogundipe & Belgore

Domestic legislation 5 Qualifying assets and transactions Is there any limitation on the types of assets or transactions that can 1 Domestic law form the basis of a money laundering offence? Identify your jurisdiction’s money laundering and anti-money laundering There is no limitation on the types of assets or transactions that can (AML) laws and regulations. Describe the main elements of these form the basis of a money laundering offence. laws. The laws governing money laundering in Nigeria are the Money 6 Predicate offences Laundering (Prohibition) Act and the Economic and Financial Crimes Commission Act. The main elements of these laws prohibit: Generally, what constitute predicate offences? • the conversion or transfer of resources or property derived Any criminal activity would constitute a predicate offence because directly from illegal and unlawful activity; the Money Laundering Act refers to illegal or criminal activity. Since • collaboration in concealing or disguising the genuine nature, any criminal activity can serve as a predicate offence, it follows that origin, movement or ownership of the resources, property or where the violation of tax and currency exchange laws in Nigeria rights derived from the above-mentioned acts; amounts to a criminal act, such violation would serve as a predicate • retaining the proceeds of criminal activity; and offence (see sections 2 and 15 of the Act). • conspiring to commit or the aiding and abetting of any offence under the Money Laundering Act. 7 Defences Are there any codified or common law defences to charges of money Money laundering laundering? 2 Criminal enforcement There are no codified or common law defences to charges of money Which government entities enforce your jurisdiction’s money laundering. laundering laws? The government entities that enforce the provisions of the Money 8 Resolutions and sanctions Laundering Act include the Economic and Financial Crimes What is the range of outcomes in criminal money laundering cases? Commission, the National Drug , the Enforcement matters can be resolved through plea agreements, set- Central Bank of Nigeria and the . tlement agreements, prosecutorial discretion or similar means. The use of such methods is, however, in its infancy in Nigeria. Nigeria is 3 Defendants a federation, with power to legislate on criminal procedural matters vested in state legislatures and only one state, Lagos, has thus far Can both natural and legal persons be prosecuted for money passed any legislation dealing with plea bargains. The Lagos state laundering? legislation was passed in 2012 and does not provide any detailed Yes, both natural and legal persons can be prosecuted for money framework for plea bargains. laundering. The sanctions for money laundering vary according to the offence. They include a term of imprisonment of between two and three years or a fine not less than 1 million naira for individuals and 4 The offence of money laundering fines of 3 million to 25 million naira or the winding-up and forfei- What constitutes money laundering? ture of assets and properties for legal persons. Money laundering is considered to be the conversion or transfer of resources or properties derived from criminal activity and collabora- 9 Forfeiture tion by concealing or disguising the ownership, movement, location or deposition of such resources or properties. Describe any related asset freezing, forfeiture, disgorgement and Under the Money Laundering Act, acts and omissions will con- victim compensation laws. stitute criminal liability. A strict liability standard would apply to The Economic and Financial Crimes Commission Act, the Corrupt certain offences committed under the Act. Practices and Other Related Offences Act, the Criminal Procedure A negligence standard can be applied to offences where the Act and the Money Laundering Act all have provisions dealing with accused person has failed to carry out an imposed duty. the forfeiture of assets upon conviction for offences committed. Financial institutions can be prosecuted or pursued for the The Economic and Financial Crimes Commission Act permits money laundering activities of their customers under the Money the Commission to apply to a court for an order freezing an account Laundering Act. where it believes the money to be the proceeds of committing an offence under the Act.

112 Getting the Deal Through – Anti-Money Laundering 2014 Sofunde, Osakwe, Ogundipe & Belgore NIGERIA

10 Limitation periods • failing to report transactions in excess of 5 million naira for What are the limitation periods governing money laundering individuals or 10 million naira for legal persons within the stipu- prosecutions? lated periods (section 10); and • failing to report an international transfer of funds or securities There are no limitation periods for instituting criminal prosecutions required to be reported under the Act (section 16e). in Nigeria. The law makes tipping off customers an offence punishable by a 11 Extraterritorial reach term of imprisonment of between two and three years or a fine of Do your jurisdiction’s money laundering laws have extraterritorial 500,000 naira to 1 million naira (section 16). reach? As the legislation does not claim to have any extraterritorial applica- 16 Customer and business partner due diligence tion and Nigeria does not claim any such reach, money laundering Describe due diligence requirements in your jurisdiction’s AML regime. laws would not apply to conduct outside Nigeria. To initiate a new client or business partner relationship the following steps must be followed: AML requirements for covered institutions and individuals • where the client is an individual, he or she will be required to 12 Enforcement and regulation provide a valid original copy of an official document bearing his or her name and photograph; Which government entities enforce your jurisdiction’s AML regime and • where the client is an institution it will be required to present its regulate covered institutions and persons? Do the AML rules provide certificate of incorporation and other documents attesting to its for ongoing and periodic assessments of covered institutions and existence; persons? • in existing client and business partner relationships, a party must The Central Bank of Nigeria, the Nigerian Drug Law Enforcement ensure that such client’s records are up to date and that in the Agency, the Economic and Financial Crimes Commission, the event of a transfer of ownership of a corporate client it is aware Nigeria Police Force and the Nigerian customs service are the main of the identity of the natural persons who truly own or control agencies engaged in the enforcement of anti-money laundering laws. the client; and • further, the client could be asked to provide references and dis- creet investigations could be conducted with the law enforce- 13 Covered institutions and persons ment agencies. Which institutions and persons must carry out AML measures? Institutions and persons who are obliged to carry out anti-money Section 3(7) of the Anti-Money Laundering Act states that where laundering measures include banks, financial advisory firms, jew- it appears that a client may not be acting on its own, the covered ellers, chartered accountants, legal practitioners, hotels, casinos, institution or person shall seek information as to the true identity supermarkets, tax consultants, car dealers, dealers in luxury goods, of a principal where the client is an individual. Where the client is a bureaux de change, insurance institutions, money brokerage firms, legal person the covered institution or person shall take reasonable investment management firms, project consultancy firms, financial measures to understand the ownership and control structure of the consultancy firms, pension funds management, etc. client and determine the natural persons who truly own or control the customer.

14 Compliance Do the AML laws in your jurisdiction require covered institutions and 17 High-risk categories of customers, business partners and persons to implement AML compliance programmes? What are the transactions required elements of such programmes? Do your jurisdiction’s AML rules require that covered institutions and Yes, the Anti-Money Laundering Law requires covered institutions persons conduct risk-based analyses? Which high-risk categories are to implement anti-money laundering compliance programmes. specified? These programmes require that: Yes, the Anti-Money Laundering Act requires that covered institu- • the identity of the customer be verified and updated; tions and persons conduct risk-based analysis. The Act states that • all transactions performed by the customer be recorded in where the customer is a public officer, the financial or non-financial chronological order for a minimum period of five years; institution must: • such records be submitted to the Federal Ministry of Commerce • verify the individual’s identity by means of a valid original copy or the Economic and Financial Crimes Commission; of an official document bearing his or her name and photograph; • any suspicious transaction be reported to the Economic and • verify the individual’s address by means of originals of receipts Financial Crimes Commission; issued within the previous three months by public utilities; and • compliance officers be designated for each level of the financial • put in place appropriate risk-management systems and obtain or non-financial institution; senior management approval during, and before establishing, • regular training programmes be provided for its employees; and any business relationship with the public officer. • an internal audit unit be established to ensure compliance with and ensure the effectiveness of the provisions of this Act. 18 Record keeping and reporting requirements Describe the record keeping and reporting requirements for covered 15 Breach of AML requirements institutions and persons. What constitutes breach of AML duties imposed by the law? Under the Anti-Money Laundering Act, where a transaction’s Breaches of anti-money laundering duties include the following: frequency is unjustifiable or unreasonable, appears to have no • a non-financial institution failing to verify the identity of a economic justification or lawful objective or is simply inconsistent customer and submitting records of transactions within seven with the known transaction relationship, the covered institutions or days of such transactions (section 5 of the Money Laundering persons are required within seven days after the transaction to: Act); www.gettingthedealthrough.com 113 NIGERIA Sofunde, Osakwe, Ogundipe & Belgore

• draw up a written report containing the identity of the principal a result of any unlawful act may institute proceedings against the and the beneficiary or beneficiaries; perpetrator of the unlawful act or persons who have assisted or • take appropriate action to prevent the laundering of the pro- otherwise enabled such unlawful act. In particular, a victim may ceeds of criminal conduct; have claims against third parties involved in money laundering for • send a copy of the report and action taken to the Economic and constructive trusteeship; money owned and received; and tracing in Financial Crimes Commission; equity or conspiracy. The limitation period for the bringing of civil • keep the record of a customer’s identification for a period of at actions based in tort is six years from the time the cause of action least five years after the closure of the account or the severance arose. The period may be extended where, for example, a potential of relations with the customer; and defendant has, through fraud, or some other unlawful act concealed • keep the record and other related information of a transaction the unlawful act from a potential claimant. Awards of damages and carried out by a customer for a period of five years after carrying restitution for losses suffered are the types of relief that will be avail- out the transaction. able in civil actions.

International anti-money laundering efforts 19 Privacy laws Describe any privacy laws that affect record keeping requirements, due 24 Supranational diligence efforts and information sharing. List your jurisdiction’s memberships of supranational organisations There is a law that governs banker–customer confidentiality. that address money laundering. However the Anti-Money Laundering Act makes it mandatory for Nigeria belongs to the Egmont Group, Interpol, the United Nations the covered institutions and persons to send their records to domes- Office on Drugs and Crime, and the United Nations Security Council tic law enforcement agencies and the Nigerian Financial Intelligence Counter-Terrorism Committee. Unit (FIU). The law does not contemplate the sharing of records with foreign law enforcement agencies or other covered persons. This may, however, occur at the FIU level, where information is 25 Anti-money laundering assessments exchanged. A lawyer’s obligation not to disclose privileged commu- Give details of any assessments of your jurisdiction’s money nications with clients is also the subject of an express provision in laundering regime conducted by virtue of your membership of the Evidence Act. supranational organisations. The Inter-governmental Action Group Against Money Laundering 20 Resolutions and sanctions in West Africa published a mutual evaluation report on Nigeria on 7 May 2008. The report recommends that particular attention should What is the range of outcomes in AML controversies? What are the be given to FAFT requirements regarding the conduct of enhanced possible sanctions for breach of AML laws? due diligence, beneficial ownership, PEPs and ongoing monitor- The sanctions for breach of the Anti-Money Laundering Act range ing, as most designated non-financial institutions (DNFIs) seemed from the imposition of fines to terms of imprisonment. Anti-money unclear on their requirements surrounding these obligations. Also, laundering matters can be resolved through plea agreements, settle- the evaluation team were concerned about the identification and the ment agreements, prosecutorial discretion or similar means. The use ability of the DNFIs to identify high-risk customers. of such methods is, however, in its infancy in Nigeria and there is no formal framework regulating those procedures. 26 FIUs Give details of your jurisdiction’s Financial Intelligence Unit (FIU). 21 Limitation periods The address and contact details of Nigeria’s Financial Intelligence What are the limitation periods governing AML matters? Unit are: There is no limitation period governing anti-money laundering matters. 12 Ibrahim Taiwo Street Aso Rock Villa 22 Extraterritoriality Federal Capital Territory Abuja Do your jurisdiction’s AML laws have extraterritorial reach? Nigeria The anti-money laundering laws do not have extraterritorial reach. Tel: +234 9 460 4633 The jurisdiction of the laws is restricted to covered institutions and [email protected] persons within Nigeria. They would only apply to foreign institu- www.nfiu.gov.ng tions and persons if they were carrying on business in Nigeria. They would also be applicable to subsidiaries of foreign institutions carry- It became a full member of the Egmont group during the first quar- ing on business in Nigeria. ter of 2007. The functions of the NFIU include trailing money transactions in banks and other financial institutions, promoting Civil Claims public awareness and understanding of matters relating to economic and financial crimes, money laundering and financing of terrorist 23 Civil claims and private enforcement activities, advising the government and regulatory authorities on the Enumerate and describe the required elements of a civil claim prevention and combating of economic and financial crimes, receiv- or private right of action against money launderers and covered ing and collecting currency transaction reports (CTRs) and suspi- institutions and persons in breach of AML laws. cious transactions reports (STRs) and other information relevant to There are no civil claims that equate directly to the criminal offences money laundering and terrorist financing activities from financial of theft and the handling of stolen property. However, there are institutions and designated non financial institutions, as well as ana- established legal principles that can be used to recover money or lysing and assessing the information and reports it receives. property. Essentially, any person or body that has suffered loss as

114 Getting the Deal Through – Anti-Money Laundering 2014 Sofunde, Osakwe, Ogundipe & Belgore NIGERIA

27 Mutual legal assistance • location and identification of persons; In which circumstances will your jurisdiction provide mutual legal • service of documents; assistance with respect to money laundering investigations? What are • examination of witnesses; your jurisdiction’s policies and procedures with respect to requests • production of judicial or official records; from foreign countries for identifying, freezing and seizing assets? • appearance of witnesses in the country that makes that request; • appearance of persons in custody; Nigeria, under the Mutual Assistance in Criminal Matters within • tracing of the proceeds of criminal activities; and the Commonwealth (Enactment and Enforcement) Act, will provide • confirmation and enforcement of orders for the forfeiture of the mutual legal assistance with respect to money laundering investiga- proceeds of criminal activity. tions in the following areas:

Sofunde, Osakwe, Ogundipe & Belgore

Babajide O Ogundipe [email protected] Chukwuma Ezediaro [email protected]

7th Floor, St Nicholas House Tel: +234 1 462 2502 Catholic Mission Street Fax: +234 1 462 2501 Lafiaji www.sooblaw.com Lagos Nigeria

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Chrysilla Carissa P Bautista Angara Abello Concepcion Regala & Cruz Law Offices (ACCRALAW)

Domestic legislation Money laundering

1 Domestic law 2 Criminal enforcement Identify your jurisdiction’s money laundering and anti-money laundering Which government entities enforce your jurisdiction’s money (AML) laws and regulations. Describe the main elements of these laundering laws? laws. The AMLC is the government agency tasked with implementing Republic Act No. 9160, otherwise known as the Anti-Money the AMLA, including the investigation of suspicious transactions Laundering Act of 2001, as amended by Republic Act No. 9194, and covered transactions deemed suspicious after its investigation 10167, and 10365 (AMLA), defines and penalises money laundering. (AMLA, section 7(5)). After its investigation, the AMLC files the The AMLA created the Anti-Money Laundering Council complaint for money laundering with the Department of Justice (AMLC). The AMLC is mandated to act unanimously in the dis- or the Ombudsman (for complaints involving public officers and charge of its functions, which include: employees with salary grade 27 or higher), which then conducts a • the implementation of necessary measures to counteract money preliminary investigation to determine whether there exists sufficient laundering; evidence to file any information regarding money laundering against • investigation of suspicious transactions and covered transac- the respondents in court. After the information is filed in court, the tions deemed suspicious after an investigation by the AMLC; Department of Justice or the Ombudsman prosecutes the criminal • filing of complaints with the Department of Justice or the case (AMLA, sections 5 and 7(4)). Ombudsman for the prosecution of money laundering offences; A person may be charged with and convicted of the offence of • institution of civil forfeiture proceedings and all other remedial money laundering and the predicate offences or the unlawful activi- proceedings through the Office of the Solicitor General, among ties to which the monetary instrument or property relates. The pros- others (AMLA, section 7); and ecution of money laundering offences shall proceed independently • investigation of financing of terrorism and any property or funds of the prosecution of the predicate offences (AMLA, section 6). that relates to said offence (Republic Act No. 10168, section 10).

3 Defendants To assist the AMLC, a secretariat headed by an executive director was also created (AMLA, section 8). Can both natural and legal persons be prosecuted for money The AMLA provides the different court remedies available to laundering? the AMLC, such as freeze orders, authorisation to inquire into bank The offence of money laundering may be committed by ‘any person’ deposits and forfeiture (AMLA, sections 10, 11 and 12). or by any ‘covered person’. These terms as defined under the AMLA The AMLA further prescribes preventive measures, including include both natural or juridical persons (AMLA, section 3(a) and customer identification, record keeping and reporting of covered (e)). and suspicious transactions by covered persons (AMLA, section 9). Pursuant to the AMLA, the Bangko Sentral ng Pilipinas (BSP), the Insurance Commission (IC) and the Securities and Exchange 4 The offence of money laundering Commission (SEC) promulgated the Revised Implementing Rules What constitutes money laundering? and Regulations of the AMLA (RIRR). Section 4 of the AMLA defines money laundering as a crime whereby The BSP also issued Circular No. 706, series of 2011, the the proceeds of an unlawful activity as defined in the AMLA are Updated Anti-Money Laundering Rules and Regulations for banks, transacted and such proceeds are made to appear to have originated trust entities and other institutions under its supervisory authority. from legitimate sources. It is committed by any person who, know- The Supreme Court also promulgated AM No, 05-11-04, or the ing that any monetary instrument or property represents, involves Rule of Procedure in Cases of Civil Forfeiture, Asset Preservation, or relates to the proceeds of any unlawful activity, carries out any of and Freezing of Monetary Instrument, Property or Proceeds the following acts: Representing, Involving, or Relating to an Unlawful Activity or • transacts the said monetary instrument or property; Money Laundering Offence under Republic Act No. 9160, as • converts, transfers, disposes of, moves, acquires, possesses or amended. uses the said monetary instrument or property; or • conceals or disguises the true nature, source, location, disposi- tion, movement or ownership of or rights with respect to the said monetary instrument or property.

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The following acts committed by any person also constitute money ‘Property’ includes any thing or item of value, real or personal, tan- laundering: gible or intangible, or any interest therein or benefit, privilege, claim • an attempt or conspiracy to commit the money laundering or right with respect thereto (RIRR, section 3.a.3(o)). offences referred to above; Covered persons are required to report covered and suspicious • aiding, abetting, assisting in or counselling the commission of transactions to the AMLC (AMLA, section 9(c)). ‘Covered’ transac- the offences referred to above; and tions are transactions in cash or its equivalent in a monetary instru- • performing or failure to perform any act that facilitates the com- ment involving a total amount in excess of 500,000 Philippine pesos mission of the offences referred to above. within one banking day. ‘Suspicious’ transactions are transactions with covered persons, regardless of the amounts involved, where any Also, money laundering is committed by any covered person who, of the following circumstances exist: knowing that a covered or suspicious transaction is required under • there is no underlying legal or trade obligation, purpose or eco- the AMLA to be reported to the AMLC, fails to do so. nomic justification; All the elements of every money laundering offence as defined • the client is not properly identified; under section 4 of the AMLA must be proved by evidence beyond • the amount involved is not commensurate with the business or reasonable doubt, including the element of knowledge that the mon- financial capacity of the client; etary instrument or property represents, involves, or relates to the • taking into account all known circumstances, it may be per- proceeds of an unlawful activity (RIRR, rule 6.6). Since the elements ceived that the client’s transaction is structured to avoid being of money laundering are separate and distinct from the elements the subject of reporting requirements under the AMLA; of the predicate offence or unlawful activity, the elements of the • any circumstance relating to the transaction that is observed to predicate offence do not need not to be established by evidence deviate from the profile of the client or the client’s past transac- beyond reasonable doubt (RIRR, rule 6.7). tions with the covered person; Following the definition of money laundering under section 4 • the transaction is in any way related to an unlawful activity or of the AMLA, the offence of money laundering may be committed offence under the AMLA that is about to be, is being or has been through a positive act or omission (the failure to act) of the offender. committed; or An offender who transacts or attempts to transact any monetary • any transaction that is similar or analogous to any of the fore- instrument or property known by him or her to be related to an going (AMLA, sections 3(b) and 3(b-1)). unlawful activity, or performs an act that facilitates a transaction involving such a monetary instrument or property, is liable under the 6 Predicate offences AMLA. Also, an offender who fails to perform an act and as a result of which facilitates money laundering or who fails to disclose such Generally, what constitute predicate offences? a monetary instrument or property to the AMLC as required by Section 3(i) of the AMLA in relation to Rule 3.1 of the RIRR the AMLA, is liable under the AMLA. An offender who knowingly enumerates the unlawful activities or predicate offences. These fails to report a covered or suspicious transaction required under the offences can be characterised as serious and heinous offences, AMLA to the AMLC is also liable for money laundering. including those perpetrated by terrorists against non-combatant While wilfulness or malice to commit the offence of money laun- persons, offences involving corruption of public officials, violations dering is not an element of the offence of money laundering, what of customs laws and other special statutes. These offences may also should be established is the element of knowledge of the offender be viewed to typically involve cash or property in a total amount that the monetary instrument or property represents, involves or that would likely exceed the threshold of 500,000 Philippine pesos relates to the proceeds of an unlawful activity or that any covered or if transacted through covered persons. suspicious transaction is required under the AMLA to be disclosed Examples of serious and heinous predicate offences include and filed with the AMLC. Such knowledge may be established by kidnapping for ransom, importation and sale of prohibited drugs, direct evidence or inferred from attendant circumstances (RIRR, robbery and extortion, hijacking, arson and murder. Examples of rule 6.5). predicate offences that involve corruption of public officials include violations of Republic Act No. 3019 or the Anti-Graft and Corrupt Practices Act, and Republic Act No. 7080. Smuggling, which con- 5 Qualifying assets and transactions stitutes a violation of customs laws, is also classified as a predicate Is there any limitation on the types of assets or transactions that can offence. Violations of special statutes, such as the Republic Act No. form the basis of a money laundering offence? 8792 or the Electronic Commerce Act, Republic Act No. 7394 or Any asset or transaction may form the basis of a money laundering the Consumer Act and Republic Act No. 8799 or the Securities offence. Assets may include cash, monetary instruments, or other Regulation Code also constitute as predicate offences. Terrorism and property, both personal and real property. conspiracy to commit terrorism as defined under the Republic Act ‘Monetary instruments’ include: No. 9372 or the Human Security Act of 2007, and the financing of • currency or legal tender of the Philippines or of a foreign the said crimes are also predicate offences (Republic Act No. 10168, country; section 17). • drafts, cheques and notes; Felonies or offences of a similar nature that are punishable under • securities or negotiable instruments, bonds, commercial papers, the penal laws of other countries also serve as predicate offences deposit certificates, trust certificates, custodial receipts or (AMLA, section 3(i)(14)). deposit substitute instruments, trading orders, transaction tick- ets and confirmations of sale or investments and money market 7 Defences instruments; • contracts or policies of insurance, life or non-life, and contracts Are there any codified or common law defences to charges of money of suretyship; and laundering? • other similar instruments where title passes to another by Among the defences that may be raised to charges of money laun- endorsement, assignment or delivery (AMLA, section 3(c)). dering is the absence of knowledge of the offender that the monetary instrument or property relates to an unlawful activity.

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Also, the offender may raise the defence of ownership. In Petitions for the issuance of a freeze order are filed with the court of relation to a forfeiture of the monetary instrument or property in a appeals and petitions for the issuance of an asset preservation order criminal prosecution, the offender may apply for a declaration that are filed with the regional trial court. If the court of appeals is satis- such a monetary instrument or property legitimately belongs to him fied that there exists probable cause that the monetary instrument or her (AMLA, section 12(b)). or property relates to an unlawful activity, a freeze order would be Lawyers and accountants acting as independent professionals issued and it is effective immediately but shall not exceed six months are expressly excluded from the enumeration of covered persons (AMLA, section 10). If the regional trial court determines that there who have an obligation to report covered or suspicious transactions exists probable cause that the monetary instrument or property to the AMLC. However, if they are charged to have failed to make relates to an unlawful activity, an asset preservation order would be any report, their available defence is that the relevant information issued and it is effective immediately for 20 days. Within the 20-day is protected by the attorney-client privilege or professional secrecy period, a summary hearing, with notice to parties is held to deter- (AMLA, section 9(c)). mine whether the asset preservation order should be modified, lifted or extended. (A.M. No. 05-11-04, sections 11 and 12). In addition to freezing and asset preservation, the AMLA also 8 Resolutions and sanctions allows civil forfeiture and criminal forfeiture. Similarly, the gov- What is the range of outcomes in criminal money laundering cases? ernment, acting through the AMLC and represented by the OSG, Violations of the AMLA incur a penalty of imprisonment from seven may file a petition for civil forfeiture in favour of the state of any to 14 years and a fine of not less than 3 million Philippine pesos, monetary instrument or property that relates to money laundering but not more than twice the value of the monetary instrument or or any unlawful activity as defined in the AMLA. The forfeiture property involved. extends to other monetary instruments or property of an equivalent Offenders convicted of transacting, converting or transfer- value to the monetary instrument or property found to be related to ring, concealing or disguising the true nature of the monetary money laundering offence or any unlawful activity. Generally, the instrument or property that relates to an unlawful activity and petition is filed with the regional trial court of the judicial region attempting to commit such acts are penalised with imprisonment where the monetary instrument or property is located. However, if ranging from seven to 14 years and a fine of not less than 3 million any or all of the monetary instrument or property is located outside Philippine pesos, but not more than twice the value of the monetary the Philippines, the petition shall be filed in the regional trial court instrument or property involved. Offenders convicted of aiding or of Manila or of the judicial region where a portion of the mon- abetting the commission of money laundering offences or perform- etary instrument or property is located, at the option of the govern- ing or failing to perform any act that resulted in the facilitation of ment. The petition for civil forfeiture shall proceed independently money laundering are penalised with imprisonment ranging from of the charge, prosecution or conviction for any unlawful activity four to seven years and a fine of not less than 1.5 million but not or money laundering. Acting on the petition, the court may either more than 3 million Philippine pesos. Offenders convicted of know- render a judgment declaring the monetary instrument or property ingly failing to report a covered or suspicious transaction to the forfeited in favour of the government or in appropriate cases, order AMLC are penalised with imprisonment ranging from six months the respondent to pay an amount equal to the value of the monetary to four years or a fine ranging from 100,000 to 500,000 Philippine instrument or property (AMLA, section 12(a); A.M. No. 05-11-04, pesos, or both (AMLA, section 14(a)). sections 2, 3, 27, 28 and 32). If the offender is a juridical entity, the penalty shall be imposed In relation to a criminal prosecution for money laundering upon the responsible officers who participated in, or by their gross offences, the monetary instrument or property that relates to the negligence allowed, the commission of the crime. The licence of the unlawful activity may also be ordered by the court to be forfeited juridical entity may be suspended or revoked (AMLA, section 14(c) in favour of the government. If such an order cannot be enforced second paragraph). because such property cannot be located or has been substantially If the offender is a foreign national, in addition to the foregoing altered, destroyed, diminished in value or rendered worthless by an penalties, he or she shall be deported without further proceedings act attributable to the offender, the court may instead order the con- after serving the penalties (AMLA, section 14(c) second paragraph). victed offender to pay an amount equal to the value of said mon- If the offender is a public official or employee, in addition to the etary instrument or property (AMLA, section 12(c)). foregoing penalties, he or she shall suffer permanent or temporary By virtue of Republic Act No. 10168, which expanded the absolute disqualification from office (AMLA, section 14(c) second authority of the AMLC to investigate financing of terrorism, the paragraph). AMLC has authority to issue an ex parte freeze order on any prop- Those accused of money laundering offences are convicted after erty or funds that are either related to financing of terrorism or trial. However, there is no prohibition against entering into plea bar- belong to any person or organisation, in relation to whom there gaining agreements to obtain a lesser penalty (Rules of Court, Rule is probable cause to believe that such a person or organisation is 116, section 2 and Rule 118, section 1). committing, attempting or conspiring to commit such a offence. The freeze order issued by the AMLC is effective for 20 days and may be extended for a period not exceeding six months upon an order 9 Forfeiture of the court of appeals. For the extension of the effective period of Describe any related asset freezing, forfeiture, disgorgement and the freeze order, a petition should be filed with the court of appeals victim compensation laws. (Republic Act No. 10168, section 11, first and second paragraphs). The AMLA authorises asset freezing, asset preservation, forfeiture Further, the AMLC also has authority to issue an ex parte freeze and payment in lieu of forfeiture in connection with the investiga- order in compliance with the Philippines’ international obligations tion and prosecution of money laundering offences. The petitions and terrorism-related Resolutions, including Resolution No. 1373 for the issuance of a freeze order, asset preservation order or for- of the UN Security Council pursuant to article 41 of the UN Charter. feiture are filed by the Office of the Solicitor General (OSG), which A freeze order issued on the basis of the Philippines’ international represents the AMLC. obligations shall be effective until the basis thereof has been lifted. For the issuance of a freeze order or an asset preservation order An aggrieved party may seek relief by filing a petition with the court on any monetary instrument or property that relates to any unlaw- of appeals (Republic Act No. 10168, section 11, third paragraph). ful activity as defined in the AMLA, an ex parte petition is filed.

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Any property or funds related to financing of terrorism are The AMLC has authority to enlist the assistance of any branch, also subject of civil forfeiture proceedings instituted by the AMLC office or agency of the government in undertaking any and all AML (Republic Act No. 10168, section 11, fourth paragraph). operations (AMLA, section 7(10)). The AMLC also has authority to require the Land Registration Authority and all its registries of deeds to submit to the AMLC, reports and copies of relevant docu- 10 Limitation periods ments on all real estate transactions involving an amount in excess What are the limitation periods governing money laundering of 500,000 Philippine pesos. prosecutions? With respect to banks, trust entities and other institutions regu- In the absence of any limitation period for the prosecution of money lated by the BSP, the BSP may inquire into or examine any deposit laundering offences in the AMLA, Act No. 3326, An Act to Establish or investment with any bank when the examination is made in the Periods of Prescription for Violations Penalised by Special Acts and course of a periodic or special examination in accordance with the Municipal Ordinances and to Provide When Prescription Shall BSP rules (AMLA, section 11). The BSP may also conduct annual Begin to Run, applies. Thus, the applicable prescriptive periods are: testing limited to the determination of the existence and true identity • eight years for knowing that any monetary instrument or of the owners of numbered accounts (AMLA, section 9(a)). property relates to an unlawful activity, transacts, converts or With respect to insurance companies and other institutions transfers, conceals or disguises the true nature of the monetary regulated by the IC, the IC is authorised and required to examine instrument or property or attempts to commit such acts; every insurance company at least once a year (Presidential Decree • eight years for knowing that any monetary instrument or prop- No. 612, as amended, section 246) and to conduct testing more than erty relates to an unlawful activity and aids or abets the com- once a year to determine the true identities of the owners of the poli- mission of money laundering offences or performs or fails to cies or contracts of insurance (RIRR, rule 9.1.g). perform any act that results in the facilitation of money launder- With respect to securities dealers, brokers, investment houses ing; and and other entities regulated by the SEC, the SEC may also conduct • 12 years for knowingly failing to report a covered or suspicious similar testing more than once a year (RIRR, rule 9.1.g). transaction to the AMLC. 13 Covered institutions and persons Prescription shall begin to run from the day of the commission of the offence, and if the date is not known at the time, from the discovery Which institutions and persons must carry out AML measures? thereof and the institution of judicial proceeding for its investigation Covered persons include: and punishment (Act No. 3326, section 2). • banks, non-banks, quasi-banks, trust entities, foreign exchange dealers, pawnshops, money changers, remittance and transfer companies and other similar entities and all other persons and 11 Extraterritorial reach their subsidiaries and affiliates regulated by the BSP; Do your jurisdiction’s money laundering laws have extraterritorial • insurance companies, pre-need companies and all other persons reach? supervised or regulated by the IC; Unlike Republic Act No. 10168, also known as the Terrorism • securities dealers, brokers, salesmen, investment houses and Financing Prevention and Suppression Act of 2012, which provides other similar persons managing securities or rendering services that said law has extraterritorial application, the AMLA does not as investment agent, adviser or consultant; mutual funds, close- contain a similar provision. While the AMLA expressly recognises end investment companies, common trust funds, and other that the monetary instrument or property subject of the money laun- similar persons; and other entities administering or otherwise dering offence relates to an unlawful activity or predicate offence dealing with currency, commodities or financial derivatives committed in a foreign jurisdiction, in order to be prosecuted for based thereon, valuable objects, cash substitutes and other simi- money laundering offences, the constitutive elements of the money lar monetary instruments or property supervised or regulated by laundering offence should be committed within Philippine territory the SEC; (AMLA, section 3(i)(34)). Philippine citizens and foreign nationals, • jewellery dealers in precious metals, who, as a business, trade in both natural and juridical entities, may be found criminally liable precious metals, for transactions in excess of 1 million Philippine and foreign nationals are not exempted from the application of the pesos; AMLA. • jewellery dealers in precious stones, who, as a business, trade in precious stones, for transactions in excess of 1 million Philippine AML requirements for covered institutions and individuals pesos; • company service providers, which as a business, provide any of 12 Enforcement and regulation the following services to third parties: Which government entities enforce your jurisdiction’s AML regime and • acting as a formation agent of juridical persons; regulate covered institutions and persons? Do the AML rules provide • acting as (or arranging for another person to act as) a direc- for ongoing and periodic assessments of covered institutions and tor or corporate secretary of a company, a partner of a part- nership, or a similar position in relation to other juridical persons? persons; The AMLC is the government agency tasked with implementing the • providing a registered office, business address or accom- AMLA, in particular requesting and receiving reports from covered modation, correspondence or administrative address for a persons, investigating suspicious transactions and covered transac- company, a partnership or any other legal person or arrange- tions deemed suspicious after an investigation, filing complaints ment; and with the Department of Justice and Ombudsman, instituting civil • acting as (or arranging for another person to act as) a nomi- forfeiture proceedings and all other remedial measures (AMLA, sec- nee shareholder for another person; and tion 7). • persons who provide any of the following services: The AMLC is composed of the governor of the BSP as chairman, • managing of client money, securities or other assets; commissioner of the IC and the chairman of the SEC as members. • management of bank, savings or securities accounts; The BSP, IC and SEC exercise supervising authority over the covered • organisation of contributions for the creation, operation or institutions under their respective jurisdictions (AMLA, section 7). management of companies; and www.gettingthedealthrough.com 119 PHILIPPINES Angara Abello Concepcion Regala & Cruz Law Offices (ACCRALAW)

• creation, operation or management of juridical persons or For natural persons, specified minimum information and docu- arrangements, and buying and selling business entities. ments are required to be obtained, which include personal and work information and government-issued identification documents Covered persons, however, exclude lawyers and accountants act- (RIRR, rules 9.1.a and 9.1.c). For juridical entities, their legal exist- ing as independent legal professionals in relation to information ence and organisational structure, and the identity and authority of concerning their clients or where disclosure of information would all persons acting on their behalf should be verified. Similarly, speci- compromise client confidences or the attorney–client relationship, fied minimum information and documents need to be obtained, such provided that these lawyers and accountants are authorised to practise as, but not limited to, the articles of incorporation or partnership, in the Philippines and shall continue to be subject to the provisions by-laws and list of directors, principal stockholders and beneficial of their respective codes of conduct (AMLA, section 3(a)). owners, if any (RIRR, rule 9.1.d). Covered persons are required to maintain accounts in the true and full name of the account owner or holder. Anonymous accounts, 14 Compliance accounts under fictitious names and similar accounts are strictly pro- Do the AML laws in your jurisdiction require covered institutions and hibited (RIRR, rule 9.1.e). persons to implement AML compliance programmes? What are the Also, no new accounts shall be opened without face-to-face con- required elements of such programmes? tact and full compliance with the minimum customer identification Yes, covered persons under the supervisory authority of the BSP, IC requirements (RIRR, rule 9.1.f). and SEC are required to formulate and implement their respective For trustee, nominee and agent accounts, covered persons are money laundering prevention and compliance programmes (RIRR, required to verify and record the true and full identities of the ben- rule 17.2.a). The BSP, IC and SEC have issued their respective Model eficial owner and the trustee, nominee or agent. Covered persons Operating Manuals. should make the necessary inquiries to verify the state of the busi- These programmes should contain the following: ness relationship between the parties where they suspect that such a • detailed procedures on customer identification or‘know-your- trustee, nominee or agent is being used as a dummy in circumvention client’ policy; of existing laws (RIRR, rule 9.1.b). • setup of information dissemination on money laundering activi- ties and their prevention, detection and reporting; 17 High-risk categories of customers, business partners and • system of flagging and monitoring transactions; transactions • system of reporting to the AMLC; • designation of compliance officers at management level; Do your jurisdiction’s AML rules require that covered institutions and • adequate screening and recruitment procedures; and persons conduct risk-based analyses? Which high-risk categories are • an audit function to test the system (RIRR, rules 17.2.b and specified? 17.2.c). Covered persons regulated by the BSP, IC and SEC are required to conduct a risk-based assessment to determine whether a customer is These institutions are also required to provide their responsible a low or normal-risk or high-risk customer. Transactions with high- officers and personnel with efficient and effective training and con- risk customers require enhanced due diligence and senior manage- tinuing education programmes to enable them to fully comply with ment action (BSP Circular No. 706, Series of 2011, sections X805 the AMLA and the RIRR (RIRR, rule 17.3). and X806.1.b; IC Circular Letter No. 32-2006, title 3, section 1.a; SEC Memorandum Circular No. 02-10, sections 4.A.14 and 4.C.3). A high-risk customer is from a country from that is recognised 15 Breach of AML requirements as having inadequate internationally accepted AML standards, or What constitutes breach of AML duties imposed by the law? does not sufficiently apply regulatory supervision or the Financial The following constitute a breach of AML duties under the AMLA: Action Task Force (FATF) recommendations, or presents greater risk • knowing that any monetary instrument or property relates to an for crime, corruption or terrorist financing (BSP Circular No. 706, unlawful activity, and performs or fails to perform any act that Series of 2011, sections X806.2.m; IC Circular Letter No. 32-2006, results in the facilitation of money laundering (AMLA, section title 3, section 1.a; SEC Memorandum Circular No. 02-10, section 4(f)); 4.C). • knowing that a covered or suspicious transaction is required to Dealing with politically exposed persons (PEPs) and their imme- be reported to the AMLC and fails to do so (AMLA, section 4, diate family members and entities related to them also requires last paragraph); enhanced due diligence in terms of establishing and recording their • failure to keep records for five years from the dates of transac- true and full identities (BSP Circular No. 706, Series of 2011, section tions (AMLA, section 14(b)); X806.2.g). • malicious reporting or making a completely unwarranted report Shell banks are not allowed to operate or to be established in the or a report with false information relative to a money laundering Philippines and banks are prohibited from entering into any rela- transaction against any person (AMLA, section 14(c)); and tionship with such banks. In dealing with shell entities, enhanced • breach of confidentiality by communicating to any person or due diligence is applied on both the entity and its beneficial own- entity, including the media, the fact that a covered or suspicious ers (BSP Circular No. 706, Series of 2011, section X806.2.n). For transaction report was made, the contents thereof, or any other covered entities regulated by the IC and SEC, in addition to secur- related information (AMLA, sections 9 and 14(d)). ing the necessary identification and corporate documents, they must also obtain a board of directors’ certification as to purposes of the owners or stockholders in purchasing the shell company (IC 16 Customer and business partner due diligence Circular Letter No. 32-2006, title 3, section 13; SEC Memorandum Describe due diligence requirements in your jurisdiction’s AML regime. Circular No. 02-10, section 4.E). Covered institutions and persons are required to establish and In dealing with correspondent banks, banks are required to record the true identity of their clients, whether natural or juridical apply enhanced due diligence, which includes gathering information persons, based on official documents (AMLA, section 9). about the customer and the correspondent bank’s business and anti- money laundering and terrorist financial controls (BSP Circular No. 706, Series of 2011, section X806.2.h).

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In dealing with banks operating outside the Philippines, the and prohibit banks from disclosing any information related to the banks shall obtain a sworn certification from the other financial said deposits. As a consequence of the enactment of the AMLA, institution that it has complied with its requisite customer identifica- the reporting of covered and suspicious transactions to the AMLC tion requirements and that it has the capacity to obtain additional was expressly made an exception to bank secrecy laws (AMLA, identification documents upon request (BSP Circular No. 706, Series section 9). of 2011, section X806.2.e.i.b). But in order for the AMLC to inquire into or examine any par- For fund and wire transfers, including cross-border transfers, ticular deposit or investment, such as the main or principal account full and true identities of both the originator and beneficiary must and related accounts, with any bank or financial institution, gener- be established. When additional information cannot be obtained ally, the AMLC must secure a ‘bank inquiry order’ from the court or any document provided is false or falsified, banks should refuse of appeals by filing an ex parte application. The bank inquiry order to effect the fund or (BSP Circular No. 706, Series of will only be issued after the AMLC establishes probable cause that 2011, section X806.2.i). the deposit is related to money laundering or any unlawful activity. However, certain kinds of unlawful activity, such as those involving kidnapping and dangerous drugs, fall under the exception (AMLA, 18 Record keeping and reporting requirements sections 11 and 21). Describe the record keeping and reporting requirements for covered Also, covered persons, their officers and employees, are prohib- institutions and persons. ited from communicating, directly or indirectly, in any manner to Covered persons are required to maintain and safely store records any person or entity, including the media, the fact that a report on of all transactions for five years from the dates of transactions. Such covered and suspicious transactions was made, the contents thereof records shall contain the full and true identity of the owners or hold- and other related information. These covered and suspicious trans- ers of the accounts and all other customer identification documents. actions reports are also prohibited from being published in any man- These records shall also be kept confidential (AMLA, section 9(b) ner, such as by the mass media, in electronic mail or similar devices and RIRR, rule 9.2.a). However, if a money laundering case has been (AMLA, section 9). The members of the AMLC, the executive direc- filed, the records of that transaction shall be retained beyond five tor, and all members of the Secretariat, whether permanent, on detail years until the case has been finally resolved or terminated by the or on secondment, are also prohibited from disclosing any informa- court (RIRR, rule 9.2.d). tion known to them by reason of their office (RIRR, rule 8.4). Reports by covered persons, which include both ‘covered’ and Since the AMLC is authorised to implement such measures ‘suspicious’ transactions shall be reported to the AMLC within five as may be necessary and justified under the AMLA to counteract days from the dates of the transaction, unless the AMLC prescribes a money laundering, the AMLC issued Resolution No. 59 on 4 August longer period not exceeding 15 days (AMLA, section 9(c)). 2006 wherein the AMLC delegated to the executive director of the Reports shall be made in the forms prescribed by the AMLC and Secretariat the authority to share intelligence information, except submitted electronically (RIRR, rule 9.3.b). when such information relates to PEPs, with law enforcement agen- Covered transactions are transactions in cash or its equiva- cies whether foreign or domestic (AMLA, section 8). The AMLC has lent in a monetary instrument involving a total amount in excess also entered into a number of memoranda of understanding with of 500,000 Philippine pesos within one banking day. Suspicious FIUs on the exchange of information. transactions are transactions with covered persons, regardless of the Section 20 of the AMLA, however, provides that the AMLC is amounts involved, where any of the following circumstances exist: not allowed to interfere with the operations of the Bureau of Internal • there is no underlying legal or trade obligation, purpose or eco- Revenue. nomic justification; • the client is not properly identified; 20 Resolutions and sanctions • the amount involved is not commensurate with the business or financial capacity of the client; What is the range of outcomes in AML controversies? What are the • taking into account all known circumstances, it may be per- possible sanctions for breach of AML laws? ceived that the client’s transaction is structured to avoid being In addition to the sanctions discussed in question 8, offenders the subject of reporting requirements under the AMLA; convicted of failure to keep records for five years from the dates • any circumstance relating to the transaction that is observed to of transactions are punished with imprisonment from six months deviate from the profile of the client or the client’s past transac- to one year or a fine of not less than 100,000 but not more than tions with the covered person, or both; 500,000 Philippine pesos, or both (AMLA, section 14(b)). Offenders • the transaction is in any way related to an unlawful activity or convicted for malicious reporting are punished with imprisonment offence under the AMLA that is about to be, is being or has been from six months to four years and a fine of between 100,000 and committed; or 500,000 Philippine pesos. If convicted for malicious reporting, the • any transaction that is similar or analogous to any of the forego- Probation Law is not applicable (AMLA, section 14(c)). Offenders ing (AMLA, sections 3(b) and 3(b-1)). convicted for breach of confidentiality are punished with imprison- ment from three to eight years and a fine of between 500,000 and The AMLC also issued AMLC Resolution No. 59 on 1 June 2005, 1 million Philippine pesos (AMLA, section 14(d)). which lists the 16 basic red flag indicators for suspicious transac- Administrative sanctions may also be imposed without preju- tions that correspond to FATF practices. dice to the filing of criminal charges against the persons responsi- ble for AMLA violations. The AMLC, after due notice and hearing, has the discretion to impose sanctions, including monetary penal- 19 Privacy laws ties, warning or reprimand, upon any covered person, its directors, Describe any privacy laws that affect record keeping requirements, due officers, employees or any other person for AMLA violations, its diligence efforts and information sharing. implementing rules and regulations, or for failure or refusal to com- The bank secrecy laws, namely, Republic Act No. 1405, as amended ply with AMLC orders, resolutions and other issuances. The AMLC and Republic Act No. 6426, as amended, subject to certain excep- shall determine the appropriate amount of monetary penalty, which tions, expressly declare that deposits of whatever nature, Philippine shall not be more than 500,000 Philippine pesos per violation. peso and foreign currency deposits, respectively, are confidential www.gettingthedealthrough.com 121 PHILIPPINES Angara Abello Concepcion Regala & Cruz Law Offices (ACCRALAW)

Civil Claims Update and trends 23 Civil claims and private enforcement In 2013, a whistleblower exposed the multibillion Philippine Enumerate and describe the required elements of a civil claim peso ‘Pork Barrel Scam’ or the controversy involving the alleged or private right of action against money launderers and covered misuse of the Priority Development Assistance Fund (PDAF) by certain legislators and non-government organisations (NGOs). institutions and persons in breach of AML laws. The PDAF, commonly referred to as the ‘pork barrel’, is the The AMLA does not provide a civil claim or private right of action lump-sum discretionary fund of members of Congress intended against money launderers and covered persons. for community projects, such as the building of infrastructure, providing scholarships, and financing health programmes. Janet Lim Napoles was named as the alleged mastermind of the International anti-money laundering efforts pork barrel scam who formed the fictitious NGOs that served as conduits for the release of the PDAF. Acting on the different 24 Supranational investigations conducted by the Commission on Audit, Department of Justice and National Bureau of Investigation, the AMLC, filed a List your jurisdiction’s memberships of supranational organisations petition for the issuance of a freeze order on the bank accounts in that address money laundering. the name of Napoles, her family and relatives, her corporation, JLN Corporation, and the different NGOs associated with her. Finding The Philippines is a member of the following organisations: probable cause that these bank accounts related to unlawful • the Asia/Pacific Group on Money Laundering; activities, such as violations of the Anti-Graft and Corrupt Practices • the Egmont Group of Financial Intelligence Units; Act, the court of appeals issued a freeze order, which was effective • the Asian Development Bank; for six months, for 415 accounts, which included 344 bank • the Global Organization of Parliamentarians Against accounts, 66 insurance policies, and five credit card accounts. The AMLC also filed a forfeiture case with the regional trial Corruption; court of Manila and impleaded as respondents were Napoles, her • the International Association of Insurance Supervisors; family and relatives, and all others associated with her NGOs. In • the International Monetary Fund; connection with this case, the regional trial court issued an asset • the International Organisation of Supreme Audit Institutions; preservation order involving almost 120 million Philippine pesos, • the International Organization of Securities Commissions; which is effective while the case is continuing. • Interpol; • the World Bank; and 21 Limitation periods • the World Customs Organization. What are the limitation periods governing AML matters? Further to the discussion in question 10 and in the absence of any 25 Anti-money laundering assessments limitation period for the prosecution of money laundering offences Give details of any assessments of your jurisdiction’s money in the AMLA under Act No. 3326, the applicable prescriptive laundering regime conducted by virtue of your membership of periods are: supranational organisations. • four years for failure to keep records; In June 2013, in recognition of the Philippines’ significant pro- • eight years for malicious reporting; and gress in addressing deficiencies in its anti-money laundering/ • 12 years for breach of confidentiality. combating financial terrorism (AML/CFT) regime, the FATF removed the Philippines from its ongoing compliance list and it is no 22 Extraterritoriality longer subject to the FATF’s monitoring process under its ongoing compliance process. However, it has been observed that the unregu- Do your jurisdiction’s AML laws have extraterritorial reach? lated casino sector for AML/CFT purposes remains a concern. See question 11.

Chrysilla Carissa P Bautista [email protected]

22/F ACCRALAW Tower Tel: +63 2830 8000 Second Avenue, corner 30th Street Fax: +63 2403 7007 / 7009 Crescent Park West www.accralaw.com Bonifacio Global City 0399 Taguig Philippines

122 Getting the Deal Through – Anti-Money Laundering 2014 Angara Abello Concepcion Regala & Cruz Law Offices (ACCRALAW) PHILIPPINES

26 FIUs of Southeast Asian Nations. The AMLA also recognises MLA Give details of your jurisdiction’s Financial Intelligence Unit (FIU). between the Philippines and other foreign states and it is the AMLC that makes or acts on such requests for assistance (AMLA, section The address and contact information of the AMLC are: 13). The requirements for requests for mutual assistance from a 5th Floor, EDPC Building foreign state must: Bangko Sentral ng Pilipinas Complex • confirm that an investigation or prosecution is being conducted Mabini corner Vito Cruz Street, Malate in respect of a money launderer named therein or that he or she Manila has been convicted of any money laundering offence; Philippines • state the grounds on which any person is being investigated or Tel: +632 708 7701, local 3083, 3084 prosecuted for money laundering or the details of his or her Fax: +632 708 7909 conviction; [email protected] • give sufficient particulars as to the identity of said person; [email protected] • give particulars sufficient to identify any covered institution www.amlc.gov.ph believed to have any information, document, material or object that may be of assistance to the investigation or prosecution; The AMLC is a member of the Egmont Group of Financial • ask from the covered institution concerned any information, Intelligence Units. document, material or object that may be of assistance to the investigation or prosecution; 27 Mutual legal assistance • specify the manner in which and to whom said information, In which circumstances will your jurisdiction provide mutual legal document, material or object obtained pursuant to said request, assistance with respect to money laundering investigations? What are is to be produced; your jurisdiction’s policies and procedures with respect to requests • give all the particulars necessary for the issuance by the court in the requested state of the writs, orders or processes needed by from foreign countries for identifying, freezing and seizing assets? the requesting state; and Generally, mutual legal assistance (MLA) is recognised in MLA trea- • contain such other information as may assist in the execution of ties entered into with Australia, China, Hong Kong, Korea, Spain, the request (RIRR, rule 13.5). Switzerland, the United States and countries within the Association

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Vasily Torkanovskiy Ivanyan & Partners

Domestic legislation Money laundering

1 Domestic law 2 Criminal enforcement Identify your jurisdiction’s money laundering and anti-money laundering Which government entities enforce your jurisdiction’s money (AML) laws and regulations. Describe the main elements of these laundering laws? laws. Criminal law and enforcement in the Russian Federation is predomi- Russia’s primary anti-money laundering (AML) laws and regula- nantly a matter of federal competence (with minor exceptions that tions are as follows: are not relevant here). The crime of money laundering (under articles • the Federal Law on the Prevention of Legalisation (launder- 174 and 174.1 of the CC) can be investigated as a separate crime ing) of the Proceeds of Crime and Terrorist Financing (dated by the investigators of the Ministry of Interior (article 151(2)(3) of 7 August 2001, No. 115-FZ) (the AML Law), together with the CPC). numerous accompanying regulatory acts, contains the general However, if this crime is discovered by some other governmen- framework of the AML compliance regulations; tal body, it can be investigated by the same body that discovered it • the Criminal Code of the Russian Federation (the CC) criminal- (article 151(5) of the CPC). For example, if the Federal Narcotic ises the offence of money laundering; Drugs Control Service (FNDCS) investigates illegal drugs traders, it • the Criminal Procedural Code of the Russian Federation (the need not refer the money laundering part of the investigation to the CPC) provides a comprehensive set of rules of criminal proce- Ministry of Interior and can investigate this offence as well. Apart dure, including international cooperation in this field; from the Ministry of Interior and the FNDCS, money laundering • the Civil Code of the Russian Federation (the CivC) provides the crimes are often investigated by the Federal Security Service and the causes of action for any civil law enforcement; Investigative Committee of the Russian Federation. • the Code of the Russian Federation on Administrative Offences Criminal trials on the charges of money laundering are normally (the CAO) provides for sanctions for broad range of violations conducted at first instance in the federal district courts. Prosecution of the AML compliance regime; and in court is conducted by the Prosecutor’s Office. • the Federal Law on the Central Bank of the Russian Federation (The Bank of Russia) (dated 10 July 2002, No. 86-FZ), Federal 3 Defendants Law on Banks and Banking (dated 2 December 1990, No. 395- 1), and the Federal Law on the Securities Market (dated 22 April Can both natural and legal persons be prosecuted for money 1996, No. 39-FZ), together with other specialised acts, govern laundering? particular types of activities of the covered institutions, includ- Only individuals are subject to criminal liability under Russian law; ing the supervision powers of the competent public regulators. legal entities cannot face any criminal charges.

The Russian Federation has also ratified several treaties that are of importance and that, under article 15 of the Constitution of the 4 The offence of money laundering Russian Federation, prevail over federal laws: What constitutes money laundering? • the United Nations Convention Against Illicit Traffic in Narcotic The offence of money laundering can trigger liability in public law if Drugs and Psychotropic Substances (Vienna, 1988, in force for it falls under the prohibitions of the CC described below. The CAO the Russian Federation (USSR) from 14 April 1991) (the 1988 does not penalise money laundering as such, but rather violations of Vienna Convention); the regulatory regime. • the Convention on Laundering, Search, Seizure and Confiscation Money laundering has been criminalised by two articles of the of the Proceeds from Crime (Strasbourg, 1990, in force for CC introduced specifically for that purpose: article 174 and arti- the Russian Federation from 1 December 2001) (the 1990 cle 174.1. These provisions were introduced in 2003, apparently Strasbourg Convention); and to implement the 1990 Strasbourg Convention. The first of these • the United Nations Convention against Transnational Organized articles concerns the proceeds of an offence committed by another Crime (Palermo, 2000, in force for the Russian Federation from person; while the second imposes liability for money laundering on 25 June 2004) (the 2000 Palermo Convention). the person that has committed the predicate offence. In both cases the proceeds of crime that can be laundered include money as well as any other asset acquired as a result of a crime. Any crime can qualify as a predicate offence. The crime of money laundering cannot be committed by omis- sion. Any transactions or operations with the proceeds of crime are covered, and the number of transactions is not relevant.

124 Getting the Deal Through – Anti-Money Laundering 2014 Ivanyan & Partners RUSSIA

Damage is not required, but it is worth mentioning that the If the perpetrator is repentant, has compensated for any harm sanctions are limited to fines, unless the amount of assets involved resulting from the crime and assists the investigation, such perpetra- in the laundering operations exceeds 1.5 million roubles or there are tor may be released from liability under article 75 of the CC, unless other aggravating circumstances such as conspiracy. Article 14(2) of the offence was a particularly grave one. the CC contains a general exception from criminal liability for any Another common defence is based on the lapse of a limitation ‘minor’ offences. Whether an offence is serious enough to qualify as period for the imposition of criminal liability (article 78 of the CC). a crime is a matter of judgement on a case-by-case basis, but some Depending on the circumstances of a particular offence such limita- experts suggest that if the value of the object of an offence is less tion periods may range from two to 10 years from the date of the than 1,000 roubles, there can be no criminal liability. These de mini- offence. mis requirements, however, do not necessarily bar liability simply It is unlikely that money laundering can be committed in a situa- because the threshold has not been reached. It might be that the tion of absolute necessity or for self-defence, or to implement a bind- offence has been interrupted or that for some other reason the crimi- ing order that is not clearly illegal. If, however, that does happen, no nal has been unable to launder as much as he or she planned. In such criminal liability can be imposed (see generally chapter 8 of the CC). cases the liability should be imposed for an inchoate offence. One of the most important features of this crime is mens rea. 8 Resolutions and sanctions Not only should the criminal know that the transactions and opera- tions in question are committed in respect of the proceeds of crime, What is the range of outcomes in criminal money laundering cases? but he or she should have an objective of laundering (ie, making the Sanctions that can be imposed for this offence range from fines to title to the tainted property look clean). This objective distinguishes mandatory works, limitation on freedoms (such as the freedom of the crime of money laundering under articles 174 and 174.1 of the movement and employment) or imprisonment. CC from mere sale and purchase of the proceeds of crime, which In the most serious cases, the perpetrator can face up to seven falls under article 175 of the same Code. years’ imprisonment. Leniency can be shown in various cases, in particular if the crime has been committed by a minor or a dependant, or if the perpetrator 5 Qualifying assets and transactions had been forced to commit the offence by his or her superiors, and in Is there any limitation on the types of assets or transactions that can some other cases provided for in article 61 of the CC. In such cases form the basis of a money laundering offence? the maximum punishment should be two-thirds of what would oth- See question 4. erwise be the statutory maximum. However, other circumstances, listed in article 63 of the CC, can militate against leniency. Such cir- cumstances may include previous criminal sentence against the per- 6 Predicate offences petrator, facilitation of another crime, use of the perpetrator’s official Generally, what constitute predicate offences? position, etc. To serve as a predicate offence for the purposes of AML provisions, If the offence has been committed by several perpetrators, the offence should be a crime under the CC. the role of each of them should have an effect on their respective It is commonly believed (although the CC is silent on this) sentences. that the predicate crime can be committed outside the Russian Leniency can also be envisaged if the perpetrator pleads guilty Federation. One authority for that is article 6(2)(a) of the 1990 (articles 314 to 317 of the CPC); in that case a so-called simpli- Strasbourg Convention, which provides that ‘it shall not matter fied trial might be conducted, based on the confession of guilt. In whether the predicate offence was subject to the criminal jurisdic- general, the final decision is at the court’s discretion; however, if the tion of the Party’. This Convention is binding upon the Russian procedure for simplified trial is eventually applied, the actual punish- Federation. Although article 6 generally requires implementation ment cannot exceed two-thirds of the maximum punishment (article and is not immediately applicable, it can at least be regarded as an 316(7) of the CPC). authoritative commentary to articles 174 and 174.1 of the CC. The wrongdoer may also choose to cooperate with the investiga- The same solution is suggested by the 2000 Palermo Convention. tion by entering into a formal cooperation agreement with the inves- Dual criminality is not required by the law; therefore, it should tigators in the course of preliminary investigation. To enter into this be sufficient that the predicate offence is criminalised in the Russian agreement the wrongdoer shall make a full report on the crime com- Federation, unless article 6(2)(c) of the 2000 Palermo Convention mitted; the article or articles of the CC applicable to this crime shall (which provides to the contrary) is given direct application. The also be indicated in this agreement. The wrongdoer shall further position of the Russian authorities in that respect is unclear. undertake to provide information and render cooperation to help to investigate the crimes committed by other persons. It is not sufficient to provide cooperation with regard to his or her own criminal activi- 7 Defences ties. It is unclear whether the charges brought as a result of the pre- Are there any codified or common law defences to charges of money liminary investigation can exceed those stipulated in the cooperation laundering? agreement. The agreement may be concluded at an early stage of The structure of the CC is such that, with some exceptions, the the investigation and the investigator may find out more about the same kinds of defences can be raised against any criminal charges. wrongdoer’s criminal activities in the course of the pre-trial proceed- Criminal liability cannot be imposed if any element of the crime ings. However, the simplified court proceedings provided for those is not present. It might be that the wrongdoer is insane or has not who enter into the cooperation agreements are only possible if the reached 16 years of age or did not have the objective of money laun- charges are accepted by the wrongdoer from the outset. dering, or the criminal conduct has not been established on the evi- Cooperation agreements were introduced in 2009 but there is dence. The defence based on the wrongdoer’s intent and objective is insufficient court practice available to us to clarify the situation. If very common, because it is usually quite difficult for the prosecutors the wrongdoer fulfils all of his or her obligations under the valid to determine the state of mind of the perpetrator. cooperation agreement, the court conducts summary proceedings to As mentioned in question 4, ‘minor’ offences are not regarded as issue a sentence that should not exceed half of the otherwise appli- crimes under article 14(2) of the CC. cable statutory maximum. The court may, at its discretion, show further leniency, but is not obliged to do so.

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9 Forfeiture Federation (see the broader optional rule suggested by article 15(4) Describe any related asset freezing, forfeiture, disgorgement and of the 2000 Palermo Convention). victim compensation laws. AML requirements for covered institutions and individuals Money laundering is covered by the CC confiscation provisions (chapter 15.1). Proceeds of certain predicate offences listed in article 12 Enforcement and regulation 104.1 of the CC (such as various terrorist activities, narcotics-related Which government entities enforce your jurisdiction’s AML regime and crimes, murder, etc) can also be confiscated. Article 104.2 provides regulate covered institutions and persons? Do the AML rules provide that the proceeds that are liable for confiscation can be traced into for ongoing and periodic assessments of covered institutions and the value received in consideration for such proceeds or even the persons? value equivalent to the value of such proceeds, if they are consumed or have otherwise perished. At the most senior level, the government of the Russian Federation If possible, the property should be returned to its legal owner is actively engaged in rule-making, in particular, in the field of AML instead of confiscation. procedures for the covered institutions and persons. The criminal court may grant an arrest order or other injunctive The principle regulatory authority in the field of AML is the relief to provide for enforceability of a confiscation order or a civil Federal Service for Financial Monitoring (FSFM). Its functions are judgment that might be issued later in respect of the same assets quite broad and include most notably the preparation of certain reg- (articles 115–116, article 230 of the CPC). In urgent cases the arrest ulations at the most technical level, accumulation and analysis of the order can be issued by the investigators subject to subsequent judi- reports submitted by the covered institutions and persons, coordina- cial review (article 165 of the CPC). tion with law-enforcement agencies at home and with designated As explained in question 23, compensatory relief is based on authorities abroad and generally ensuring that the AML laws and civil law remedies. In relatively straightforward cases, civil compen- regulations are effectively enforced in the Russian Federation. sation may be awarded by the criminal court (articles 44, 54, 306, However, enforcement of the AML compliance law through 309 of the CPC). If the criminal court makes no judgment on a civil imposition of various penalties is also effected by various supervi- claim, this claim can be brought before the civil court under general sory authorities in their respective fields (eg, by the Federal Financial rules of civil procedure. Markets Service, the Russian State Assay Office, the Federal Service for Supervision in the field of Communications and Information Technology, and the Ministry of Finance of the Russian Federation). 10 Limitation periods Financial institutions that provide banking services are regulated What are the limitation periods governing money laundering separately by the Central Bank of the Russian Federation, that coor- prosecutions? dinates its rule-making activities with the government and FSFM. The Central Bank also monitors the implementation of AML laws Applicable limitation periods for the imposition of sanctions depend and imposes liability for the violations committed by the banking upon the circumstances of the crime. The minimum limitation is two institutions. years from the date of the offence, but it can be up to 10 years if the offence is sufficiently grave (the gravity is principally measured in terms of the amount of assets involved and the existence of prior 13 Covered institutions and persons conspiracy or other organisational efforts). Which institutions and persons must carry out AML measures? The covered institutions under the AML Law are divided into two 11 Extraterritorial reach general categories: those subject to the full list of requirements (the ‘targeted institutions’) and some other businesses that share a lim- Do your jurisdiction’s money laundering laws have extraterritorial ited number of the AML obligations imposed upon the targeted reach? institutions (the ‘professional advisers’). The criminal jurisdiction of the Russian Federation extends to any The targeted institutions include financial institutions, in par- crimes committed within its territory, irrespective of the nationality ticular those providing banking services, professional agents in the and residence of the wrongdoer (article 11 of the CC). securities market, insurers and financial leasing services, the federal Russian criminal law can be applied abroad only in a limited post service, pawnshops, traders in precious stones and precious met- number of cases. The active personality principle in article 12(1) of als, pari-mutuel and bookmakers’ offices and gambling businesses, the CC requires that the Russian national or permanent resident be investment and pension funds, real estate agents, payment agents, prosecuted under the CC for any crimes committed abroad, unless financial agents, consumer cooperatives, microfinance organisations, a foreign court has already pronounced upon the same charges. mutual insurance organisations and cellular network operators. Foreign nationals and persons without nationality, not permanently Professional advisers include advocates, notaries and other pro- resident in the Russian Federation, can be prosecuted under the fessional counsel in the field of law and bookkeeping. There can be CC only if the crime is targeted against the interests of the Russian no doubt that auditors are meant to be covered by this description, Federation, or a Russian national or resident (article 12(3) of the although the formulation is not entirely clear (see, for example, the CC). Any other jurisdictional gateways shall be provided for by a Letter of the Ministry of Finance No. 07-03-32/520 dated 13 April treaty. 2009). The provisions of article 12 of the CC are sufficient to satisfy the mandatory provisions on jurisdiction of the 2000 Palermo Convention (article 15, paragraphs (1) and (3)). Optional gateways 14 Compliance under article 15(2)(a) and (b) of the same Convention are also cov- Do the AML laws in your jurisdiction require covered institutions and ered by article 12 of the CC. Article 15(2)(c) grounds correspond persons to implement AML compliance programmes? What are the to the protective principle in article 12(3) of the CC to the extent required elements of such programmes? that the prevention of crime in its territory is one of the interests of The AML Law requires the targeted institutions as well as the pro- the Russian Federation. However, the ‘prosecute-or-extradite’ prin- fessional advisers to implement internal compliance rules (articles ciple is not generally extended in Russia to the persons that neither 7(2) and 7.1(1) of the AML Law). Those rules should be based have Russian nationality nor are permanent residents of the Russian upon the general outlines adopted by the government of the Russian

126 Getting the Deal Through – Anti-Money Laundering 2014 Ivanyan & Partners RUSSIA

Federation and the Central Bank of the Russian Federation (for It would be too harsh to withdraw a licence for lack of suspicion in financial institutions that provide banking services). a particular case. The bank’s regulations are more detailed, but in any case the internal rules should include such important elements as: 16 Customer and business partner due diligence • the appointment of the special internal compliance officer and the appropriate procedures to enable this person to act; Describe due diligence requirements in your jurisdiction’s AML regime. • identification and risk assessment in relation to the clients; According to article 7(1) of the AML Law, both the targeted institu- • monitoring and identification of problematic transactions; tions and the professional advisers should identify their clients (as • record-keeping in relation to the monitored transactions and cli- well as the client’s representatives) or the beneficiaries. The targeted ents’ data; persons are also obliged to take all necessary and reasonable steps • special suspension and freezing measures (or other special meas- to identify a beneficial owner and to update this information sys- ures provided under article 7(5) of the AML Law for banking tematically. Beneficiary is defined by the AML Law (article 3) as a institutions); and person that benefits from the client’s actions, inter alia, under agency, • training programmes for the personnel to raise employees’ mandate, trusteeship agreement, from the operations with money awareness. or other assets. The beneficial owner is the ultimate owner of 25 per cent of the client entity or any person that is able to control the Of particular interest is Schedule 2 to the Central Bank’s Letter No. client. 99-T dated 13 July 2005, where the Central Bank suggests criteria The banking institutions should also properly identify their cor- that should be used by the banking businesses to identify problem- respondents and check their compliance procedures (section 3.4 of atic transactions (such as special emphasis on confidentiality, failure the Central Bank’s Regulations on identification dated 19 August to provide documents that are normally required within reasonable 2004 No. 262-P). period of time, suspicious hastiness, absence of clear economic pur- Exceptions to the identification obligations are payment and pose, etc). currency exchange operations for individual customers for the For more detail, see the above-mentioned Letter of the Central amounts below 15,000 roubles. The banks do not have to identify Bank and the Ruling of the Government of the Russian Federation the beneficiary if the client is: No. 667 dated 30 June 2012. • a targeted institution; • a professional adviser; or • a bank that is resident in a member state of the Financial Action 15 Breach of AML requirements Task Force (FATF) and is either rated by Moody’s, Standard & What constitutes breach of AML duties imposed by the law? Poor’s or Fitch, or listed by the Bankers Almanac. Breach of the AML compliance provisions has recently been further particularised for the purposes of liability provisions. According to To identify an individual any covered institution should obtain this article 15.27 of the CAO an administrative offence is committed if person’s name, nationality, date of birth, details of the identity and any of the AML compliance rules concerning internal control are migration documents and of the residence permit, address (of resi- breached, whether or not the breach results in failure to report to the dence or stay) and tax identification number (if any). Financial Intelligence Unit (FIU), and the failure to report as well as To identify a legal entity, the covered institution should obtain its a failure to block assets constitute separate offences; a severe penalty name, address, the taxpayer’s number or a special code of a foreign should also follow where a covered institution disobeys the com- entity, as well as the state registration number. petent authority or impedes the investigation, or effectively causes As noted by the Central Bank in its Letter dated 17 March 2011 money laundering to happen (this should be confirmed by a finding No. 12-1-5/382, the bank can only request for identification the doc- in a criminal case). uments that the individual is required to have under Russian law. ‘Tipping off’ is prohibited by article 4 of the AML Law, which That should equally apply to the other covered institutions and to provides that the covered institutions can only inform the client the identification of legal entities. Foreign registration and identity (or a third party) that an operation is suspended, that the client’s documents can be requested in relation to a foreign person. instructions cannot be implemented, or that a bank account can- The FSFM’s Identification Regulations approved by Decree No. not be opened and that some documents should be provided under 59 dated 17 February 2011 summarise the identification procedure the AML Law. If any other information is leaked to the client, that as comprising the following steps (regulations for banking institu- would constitute a violation of the AML Law (see also article 7(6) tions are structured in a different way, but the applicable rules are and 7.1(4) of the AML Law) and can cause a more or less severe largely the same): penalty depending on the circumstances (the penalties would be • collect all the necessary personal information in relation to the more serious, for example, if the alarmed criminal then successfully client or beneficiary in accordance with the AML Law; takes an alternative route to launder the funds). • ensure that the client is not involved in extremist or terror- Apart from the sanctions stipulated by the CAO, other types of ist activities (the check is performed against the list of entities administrative measures can be imposed by specialised regulators produced by the FSFM in cooperation with other competent acting as supervising authorities in their respective fields (such as authorities); the Central Bank of the Russian Federation or the Federal Service • check whether the client or beneficiary is a foreign public official; for Financial Markets, see in general article 7(9) of the AML Law). • check whether the client or beneficiary is registered or resident in Article 13(1) of the AML Law provides that the licence can only a state that does not comply with the FATF recommendations or be withdrawn if either article 6 or article 7 (except for article 7(3)) has a bank account with an institution registered in such state; of the AML Law has been violated. These articles cover, inter alia, and the bulk of the recording and reporting obligations, internal con- • assess the risk level in relation to the particular client. trol requirements and various specialised limitations on the banking businesses. Failure to report on suspicious transactions under article If the client acts through a representative, the representative should 7(3) is excluded probably because in this case the reporting is based also go through the same identification procedure, although argu- on the assessment of the situation by the covered institution itself. ably some questions may be omitted as irrelevant to the representa- tive’s function.

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Subsection 2.10 of the FSFM’s Identification Regulations sug- of internal AML procedures. Apart from the client profiles, the cov- gests that the covered institutions should, as a general rule, renew ered institutions are required to keep records of transactions in the the identification file once a year, unless there is a special reason following situations: for an extraordinary check (eg, legitimate suspicions of money • if the transaction is unusual or unclear, or has no clear economic laundering). For banks or financial institutions the renewal period and lawful purpose (article 7(2) of the AML Law); should be either one year or three years, depending on the level • if the transaction is against the statutory objectives of the com- of risk (section 2.11 of the Central Bank’s Regulations on identi- pany (article 7(2) of the AML Law); fication dated 19 August 2004 No. 262-P). Subsection 2.15 of the • if a series of transactions analysed together suggest that the cli- FSFM’s Identification Regulations stresses that ongoing monitor- ent attempts to avoid mandatory control requirements (article ing is necessary to assess the level of risk at every given moment (a 7(2) of the AML Law); similar approach is suggested by section 2.10 and section 2.11 of the • if information about the client has already been requested by the Central Bank’s Regulations No. 262-P). competent authority (article 7(2) of the AML Law); • if the client refuses to proceed with a suspicious transaction (article 7(2) of the AML Law); 17 High-risk categories of customers, business partners and • if some other reasons exist to suspect that the transaction is part transactions of a money laundering scheme (article 7(2) of the AML Law); Do your jurisdiction’s AML rules require that covered institutions and • if the transaction is subject to the mandatory control of the FIU persons conduct risk-based analyses? Which high-risk categories are (see below) (article 7(1)(4) of the AML Law); specified? • if a banking institution refuses to open an account or perform an As explained in question 15, risk assessment is a necessary part of operation in accordance with the AML Law (article 7(13) of the identification process. The level of risk assigned to a particular client AML Law); and affects the depth and intensity of the scrutiny to which the opera- • if a targeted institution discovers that a foreign jurisdiction pre- tions of such client are subjected. vents its subsidiaries, branches and representative offices from The criteria for risk assessment are described at length in vari- fulfilling theAML Law requirements (article 7(5.3) of the AML ous regulations, and it is impossible to list all of them here; however, Law). some may be mentioned for the sake of example. The following fac- tors may increase the level of risk: An employee who identifies any such transaction should file an • the client or the beneficiary is not a Russian resident, especially internal report, and the compliance officer should decide whether or if this person is resident or registered in a jurisdiction that does not the institution should report to the FIU. In any case, all records not comply with the FATF recommendations or a bank account should be kept for five years after the relationship with the client is in such jurisdiction is involved. The same considerations apply terminated (article 7(4) of the AML Law). The banking institutions to the clients or beneficiaries registered or doing business in a are encouraged to keep records in a form that would allow these low-tax (offshore) jurisdiction; records to be used as evidence in judicial proceedings (sections 2.5 • special considerations apply to the foreign public officials and 2.6 of the Central Bank’s Letter No. 99-T). (as defined in the UN Convention Against Corruption, sec- Reporting obligations of the covered institutions can generally tion 1.5 of the FSFM’s Identification Regulations and FATF be subdivided into two categories: automatic reporting and report- Recommendations) as well as various domestic officials, if their ing on suspicious transactions. operations appear to present a high risk of money laundering. The first category applies to the targeted institutions. Article 6 Any relationship with such clients or beneficiaries, or even their of the AML Law provides for a list of transactions that have to be close relatives, should be approved by the head or a deputy head reported to the FIU (the FSFM) in any event (article 7(1)(4) of the of the institution or its branch. The covered institution should AML Law). Those include certain financial transactions and trans- also identify the source of funds, renew the identification docu- actions in relation to moveables for not less than 600,000 roubles, ments regularly and pay particular attention to any operations as well as sale and purchase of real estate for not less than 3 million of this client (article 7.3 of the AML Law). If a state has a share- roubles. Transactions are also subject to automatic AML control if holding in a client or beneficiary, that is also a risk factor; one of the parties is reported to be involved in terrorism or extrem- • certain indications exist of possible involvement of the client or ism (in accordance with the list prepared by the FSFM). beneficiary into terrorist or extremist activities, including black- The second category applies more broadly. In relation to tar- listing of their close relatives or registration at the same address geted institutions, it includes any situations where a targeted institu- as a blacklisted person or even registration of the client or ben- tion believes that the transaction is suspicious, even though it does eficiary, or their contractors in a jurisdiction where terrorist or not fall under the automatic reporting provisions. The threshold for extremists are particularly active; reporting is seemingly higher for the professional advisers. They only • the client is an NGO, or its head or a founder; or report in relation to transactions or financial operations involving • the legal entity might be a sham, because it has no real place of real estate, management of the clients funds, management of their administration or its legal representative’s office at its registered clients’ accounts or creation, maintenance or management of legal address. entities, provision of funds for those purposes or sale and purchase of legal entities. They should report if they have ‘any grounds to For a more detailed account of the risk factors see the FSFM’s believe’ that those transactions or financial operations are aimed at, Information Letter dated 2 August 2011 No. 17 and section 2.9 of or may be aimed at, money laundering. the Central Bank’s Regulations No. 262-P. The AML Law also contains more specific reporting obligations (mostly imposed upon banking institutions), based on the decision taken by a covered institution that the transaction or operation is 18 Record keeping and reporting requirements suspicious, in particular, because the information is lacking (article Describe the record keeping and reporting requirements for covered 7.2(11)), or otherwise cannot proceed (article 7(13)). institutions and persons. The obligations of record-keeping are quite broad and relate to any information that is obtained by the covered institutions in the course

128 Getting the Deal Through – Anti-Money Laundering 2014 Ivanyan & Partners RUSSIA

19 Privacy laws 22 Extraterritoriality Describe any privacy laws that affect record keeping requirements, due Do your jurisdiction’s AML laws have extraterritorial reach? diligence efforts and information sharing. The general rule is that the AML regulations apply within the The covered institutions are sometimes bound by various territory of the Russian Federation (as any public law regulations). professional and commercial secrecy obligations. Those secrecy Article 2(1) of the AML Law suggests that the compliance rules regimes may include the records taken by the covered institutions in apply irrespective of the residence or nationality of the clients and accordance with the AML laws. To avoid any problems that might beneficiaries, as long as the transactions and operations are per- have resulted from the conflicting reporting and secrecy obligations, formed within the territory of the Russian Federation. article 7(8) of the AML Law provides expressly that the reporting to Article 2(2) of the AML Law extends the scope of its application an FIU under the same law cannot be regarded as a violation of offi- extraterritorially to cover branches, subsidiaries and representative cial, banking, tax and commercial secrecy obligations as well as of offices of the targeted institutions, provided that such regulations do the secrecy of communications insofar as the transfers of money by not contradict local laws (for example, local secrecy laws), in which post are concerned. The same rule is repeated in article 9 in relation case a report should be filed to the Russian FIU, as explained above. to the provision of information to an FIU from other authorities. Finally, article 2(3) of the AML Law allows territorial scope to be Advocates’ professional secrecy obligations do not trump disclo- extended by a treaty. For example, a hypothetical treaty may provide sure under the AML Law (article 7.1(5)). that the AML Law should be applicable to foreign companies that operate in the Russian Federation through controlled subsidiaries.

20 Resolutions and sanctions Civil Claims What is the range of outcomes in AML controversies? What are the 23 Civil claims and private enforcement possible sanctions for breach of AML laws? Violation of the AML compliance regulations can be part of con- Enumerate and describe the required elements of a civil claim spiracy to commit money laundering, in which case the responsi- or private right of action against money launderers and covered ble individuals bear criminal liability as described in questions 2 to institutions and persons in breach of AML laws. 10. Otherwise, the covered institutions and their officials may be Russian tort law is based on the principle of délit général (article responsible under the CAO, as described in question 14. In the lat- 1064 of the CivC), which means that any crime or administrative ter case, the sanctions can include, depending on the gravity of the offence at the same time qualifies as a tort to the extent it causes violation, fines and disqualification for individuals, and fines and any loss to others. It is difficult, however, to envisage any civil claims suspension of business activities for legal entities. against money launderers (unless the claim is part of a broader claim In addition to normal CAO sanctions, the banking institution based on fraud, conspiracy or other complex tort, involving money can lose its licence if it violates its obligations under articles 6 and 7 laundering as one of its elements). of the AML Law (those include, inter alia, most important internal If, however, a covered institution abuses its powers and impedes control and reporting obligations) more than once within one year the normal commercial activities of the clients, that might be a tort (article 20(1) of the Federal Law on Banks and Banking dated 2 or a contractual violation, depending on the circumstances of the December 1990, No. 395-1). The same rule applies to the profes- case. For the avoidance of doubt, it is stated in article 7(12) of the sional agents in the securities market by virtue of article 44 of the AML Law that the suspension of operations and transactions as well Federal Law on the Securities Market (dated 22 April 1996, No. as the refusal to perform an operation or transaction (described in 39-FZ). question 20) do not entail civil liability for the covered institutions to The Central Bank of the Russian Federation may also use its the extent that such actions are based on the respective provisions of powers under article 74 of the Federal Law on the Central Bank of the AML Law. Illegality being one of the necessary elements of tort the Russian Federation (dated 10 July 2002, No. 86-FZ). These are under the CivC (unless otherwise expressly provided by the law, see general supervision powers that allow the Central Bank to inter- article 1064(3) of the CivC), the mentioned article 7(12) is probably vene in any cases where banking institutions violate any laws or redundant. regulations. A broad range of sanctions can be applied, including interference with the management and business activities of the International anti-money laundering efforts institution. The Central Bank has recently also acquired powers to 24 Supranational impose liability for most of the offences under article 15.27 of the CAO (article 23.74). List your jurisdiction’s memberships of supranational organisations Ultimately, article 61(2) of the CivC allows punitive liquida- that address money laundering. tion of a legal entity through court proceedings, in particular, if it The Russian Federation is a member of the FATF as well as of two commits repetitive gross violations of law. This is, however, a fairly regional cooperation organisations: the Eurasian Group and the extraordinary measure. Council of Europe Committee of Experts on the Evaluation of Anti- Money Laundering Measures and the Financing of Terrorism. The Russian Federation has an observer status at the Asia/Pacific 21 Limitation periods Group on Money Laundering and participates in various AML What are the limitation periods governing AML matters? events organised by other international groups and organisations. The criminal liability limitation applies as explained in question 9. The limitation under article 15.27 of the CAO expires in one 25 Anti-money laundering assessments year from the date of violation. If the violation is ongoing (eg, absence of the internal control procedures), the limitation begins Give details of any assessments of your jurisdiction’s money from the date on which the offence has been discovered by the moni- laundering regime conducted by virtue of your membership of supranational organisations. toring authority. The FATF 2008 Mutual Evaluation Report on the Russian Federation can be found at www.fatf-gafi.org/media/fatf/ documents/reports/mer/MER%20Russia%20ful.pdf and the recent

www.gettingthedealthrough.com 129 RUSSIA Ivanyan & Partners

Update and trends

A number of further steps have been made by the government in 2013 In many cases law enforcement authorities are unwilling to extend and the beginning of 2014 to remedy the remaining regulatory lacunae their investigations to assets taken abroad and to trace money flows and ensure compliance. Most notable are, perhaps, the definition through transnational corporate structures. It will probably take some of the ‘beneficial owner’ (that includes both ownership and control time for the law-level investigators to become accustomed to the tools criteria) as well as a more nuanced approach to liability and sanctions. provided by the international anti-money laundering system. Important developments have been made to allow a more efficient Another important and relevant development in the field of public exchange of information between tax and law enforcement authorities policy is the strategy commonly called ‘de-offshorisation’ intended as well as other state institutions and the FIU. The mechanisms of to suppress the use of international tax havens and to prevent blocking and listing (as well as unblocking and de-listing) have been the leakage of financial resources from the country. This will most clarified and particularised. Finally, the predicate offences now include probably have a positive effect on anti-money laundering efforts tax crimes. as a certain lack of transparency in some offshore jurisdictions is Certain progress has also been made in the field of implementation. frequently abused to divert shell corporate structures into money Domestically a number of large laundering schemes have been unveiled laundering vehicles. With these jurisdictions blacklisted by the state, involving well-known financial institutions. The FIU’s work also allows the the money flows will be redirected to more transparent places. halting of some predicate illegal activities. International cooperation Cooperation in this field is also reinforced by the recognition of tax has also been reported, but the funds involved are less substantial. offences as predicate crimes. sixth follow-up report has been published at www.fatf-gafi.org/ 27 Mutual legal assistance media/fatf/documents/reports/mer/FUR-Russian-2013.pdf. In which circumstances will your jurisdiction provide mutual legal Also of interest are paragraphs 83–87 of the OECD Report assistance with respect to money laundering investigations? What are on the implementation of the OECD Anti-Bribery Convention in your jurisdiction’s policies and procedures with respect to requests Russia (Phase I) and paragraphs 288-292 of the second stage of the from foreign countries for identifying, freezing and seizing assets? same report (Phase II). This is available at www.oecd.org/russia/ According to article 10 of the AML Law, the FSFM cooperates with russia-oecdanti-briberyconvention.htm. foreign authorities on the basis of treaties or the international com- For another recent overview, please see the 2013 US Department ity principle. The FSFM shares information with various foreign of State Report on International Narcotics Control Strategy (Volume authorities to assist them in their investigations and inquiries as long II): www.state.gov/j/inl/rls/nrcrpt/2013/vol2/204067.htm#Russia. as it does not conflict with the interests of the Russian Federation. Generally, article 10 of the AML Law refers to the cooperation pro- 26 FIUs cedures under the treaties in force for the Russian Federation. Give details of your jurisdiction’s Financial Intelligence Unit (FIU). Under the 1990 Strasbourg Convention the Russian Federation has designated two bodies as its central authorities: the Ministry of The FSFM is the Russian FIU and is a member of the Egmont Group. Justice in the domain of civil law cooperation and the Prosecutor’s Its address and contact details are as follows: Office in the field of criminal law cooperation. Cooperation pro- cedures provided for in the 1990 Strasbourg Convention (articles K-450, 39 (building 1) Myasnitskaya Street 23–35) are complemented by chapter 53 of the CPC to the extent 107450 Moscow that certain measures of criminal procedure are required (including Russia assistance to foreign criminal investigation). Fax: +7 495 607 60 60 In practical terms, the FSFM is certainly more active in its inter- [email protected]. national cooperation efforts, in particular, through its Egmont Group membership. Internally, however, its primary task is to accumulate Telephone numbers for various purposes can be found on the and analyse information. Its role in mutual assistance is, therefore, FSFM’s website: www.fedsfm.ru/contacts. mostly limited to information-sharing. Mutual assistance under the 1990 Strasbourg Convention is more relevant in the cases where practical steps need to be taken within the Russian Federation.

Vasily Torkanovskiy [email protected]

Floor 3, 10/4 Bolshaya Dmitrovka Street Tel: +7 495 647 00 46 107031 Moscow Fax: +7 495 647 00 45 Russia www.ivanyanandpartners.com

130 Getting the Deal Through – Anti-Money Laundering 2014 The Law Firm of Salah Al-Hejailan SAUDI ARABIA Saudi Arabia

Robert Thoms and Sultan Al-Hejailan The Law Firm of Salah Al-Hejailan

Domestic legislation 4 The offence of money laundering What constitutes money laundering? 1 Domestic law Money laundering is defined in the New AML as any actual or Identify your jurisdiction’s money laundering and anti-money laundering attempted act aimed at concealing or camouflaging, contrary tosha- (AML) laws and regulations. Describe the main elements of these riah (Islamic law) or to the law, the nature of illegally or illegitimately laws. earned property to make it appear as proceeds from legal sources. Saudi Arabia’s AML laws and regulations comprise the following: A definition of money laundering in the Prior AML Implementing • Anti-Money Laundering Law (New AML), Royal Decree No. Regulations and in the CMA Rules is restated in terms of commit- M/31 dated 3 April 2012 (Implementing Regulations awaited, ting or attempting to commit any act for the purpose of concealing and until such time as they are issued, Implementing Regulations or disguising the true origin of funds acquired by means contrary of the Prior AML below shall continue to apply to the extent to shariah and to the law, thus making the funds appear as if they they do not conflict with the the New AML); had come from a legitimate source. The SAMA Rules also refer to • Anti-Money Laundering Law (Prior AML), Royal Decree No. broader international definitions of money laundering as used by the M/39 dated 24 August 2003 and its Implementing Regulations Financial Action Task Force (FATF) and the relevant UN conven- issued (undated) by the Ministry of Interior and published on 4 tions (identified in question 24). May 2007 (replaced by the New AML except that provisions The Prior AML includes terrorist financing within the meaning with respect to terrorism financing crimes and terrorist acts and of criminal activity (predicate offence), and the relation between organisations in the Prior AML shall continue to apply until new money laundering and terrorist financing is made more explicit in legislation in these matters is enacted); the SAMA and CMA Rules. • Saudi Arabian Monetary Agency (SAMA) Rules Governing The offence of money laundering requires that performing a Anti-Money Laundering and Combating Terrorism Financing transaction or dealing in property or proceeds or concealment is (third update – February 2012); done with knowledge that the property or proceeds are a result • SAMA Anti-Money Laundering and Counter-Terrorism of criminal activity or are from an illegal or illegitimate source. Financing Rules for Financing Companies (first update – According to the Prior AML, financing terrorism does not require February 2012); knowledge. • Saudi Arabian Capital Market Authority (CMA) Anti-Money Negligence cannot be the basis of a criminal prosecution. Laundering and Counter-Terrorism Financing Rules issued pur- To the extent that financial institutions have the requisite knowl- suant to Resolution Number 1-39-2008 dated 1 January 2008, edge, they may also be prosecuted for their customers’ money laun- and as amended 23 October 2011; and dering crimes. • SAMA Rules Governing the Opening of Bank Accounts in Saudi Arabia (fourth update – 2012). 5 Qualifying assets and transactions Money laundering Is there any limitation on the types of assets or transactions that can form the basis of a money laundering offence? 2 Criminal enforcement Property and proceeds are very broadly defined as meaning, as Which government entities enforce your jurisdiction’s money regards property, any level of assets, whether material or imma- laundering laws? terial, moveable or immoveable, as well as legal documents and The Ministry of Interior, the Financial Investigation Unit and other instruments, that prove ownership or rights attached thereto; and directorates, Saudi Customs, the Ministry of Finance, the Prosecution as regards proceeds, any funds generated or earned directly or Authority and the Bureau of Investigation all enforce Saudi Arabia’s indirectly. money laundering laws. There is no threshold to prosecution, except that the thresh- old for cross-border transportation of cash, bearer instruments or precious metals is 60,000 Saudi riyals, and the SAMA Rules set a 3 Defendants 60,000 Saudi riyal threshold for transaction monitoring. Can both natural and legal persons be prosecuted for money laundering? 6 Predicate offences Both natural and legal persons can be prosecuted for money laundering. Generally, what constitute predicate offences? Predicate offences are broadly defined as activity contrary to shariah or to law. The New and Prior AMLs and the Prior AML Implementing Regulations fully cover the ‘designated predicate www.gettingthedealthrough.com 131 SAUDI ARABIA The Law Firm of Salah Al-Hejailan offences’ utilised by the FATF. The list of predicate offences in the AML requirements for covered institutions and individuals AML Implementing Regulations is wide-ranging but not exhaustive. A predicate offence committed outside Saudi Arabia would 12 Enforcement and regulation trigger prosecution under the New and Prior AML if the offence Which government entities enforce your jurisdiction’s AML regime and constitutes criminal activity under Saudi law. regulate covered institutions and persons? Do the AML rules provide Violations of tax and currency exchange laws can be predicate for ongoing and periodic assessments of covered institutions and offences. persons? The following entities enforce Saudi Arabia’s AML regime and regu- 7 Defences late covered institutions and persons: • the Ministry of Interior, Financial Investigation Unit and other Are there any codified or common law defences to charges of money Directorates; laundering? • the Saudi Arabian Monetary Agency; There exist no special defences in shariah law or in legislation • the Capital Market Authority; relevant to the charge of money laundering, assuming the elements • the Prosecution Authority; of the crime are satisfied. Consequences are lessened in the event that • the Bureau of Investigation; and a person reports the activity before the Saudi authorities have any • the Ministry of Commerce and Industry. knowledge of it. See question 20 as regards a possible ‘good faith’ defence in certain circumstances. Saudi Arabia participates in periodic FATF mutual evaluation reports. 8 Resolutions and sanctions What is the range of outcomes in criminal money laundering cases? 13 Covered institutions and persons Outcomes of criminal money laundering cases can include provi- Which institutions and persons must carry out AML measures? sional attachment, confiscation, imprisonment or fine (imprison- Financial or non-financial institutions undertaking one or more ment for up to 10 years or a fine of up to 5 million Saudi riyals, of the following financial, commercial or economic activities must increased respectively to 15 years and 10 million Saudi riyals given carry out AML measures: certain aggravated circumstances). • acceptance of deposits, borrowing and opening of accounts; Plea agreements and settlement agreements are not common • insurance, lease or other financing; in Saudi practice, and trials in Saudi Arabia do not feature such • money transfer services; elements as pretrial discovery, witness testimony and the testing of • issuance and management of means of payment (credit cards, evidence as found in other jurisdictions. traveller’s cheques, bank cards); • issuance of guarantees and credits; 9 Forfeiture • trading in monetary instruments or dealing in foreign currencies; • trading and financial brokerage; Describe any related asset freezing, forfeiture, disgorgement and • real estate transactions; victim compensation laws. • dealing in precious metals, precious stones or rare commodities Both provisional attachment and confiscation are possible. There are such as antiques; no victim compensation laws in Saudi Arabia. • law practice; and • accounting and auditing. 10 Limitation periods This applies to banks, financing institutions, money exchanges, What are the limitation periods governing money laundering investment and insurance companies, sole proprietorships, profes- prosecutions? sionals, as well as the chairman, members of the board of directors, There is generally no limitation period in Islamic law, and none is owners (controlling or substantial), employees, authorised repre- stated in the AML or its Implementing Regulations. In practice, sentatives, auditors or any other person acting in such capacities for record keeping requirements for financial and non-financial institu- him or herself or for an institution. tions would have the effect of making prosecutions untenable after the passage of time, as would the 10-year record-keeping require- 14 Compliance ment set forth in the Prior AML Implementing Regulations. Do the AML laws in your jurisdiction require covered institutions and persons to implement AML compliance programmes? What are the 11 Extraterritorial reach required elements of such programmes? Do your jurisdiction’s money laundering laws have extraterritorial The required compliance programmes are set forth in the respective reach? SAMA Rules (for banks, insurance companies and financing com- Saudi Arabia generally does not seek extraterritorial reach with its panies) and CMA Rules (for securities businesses), as well as rules laws. However, see question 6 as regards predicate offences that take regarding the verification of identities set forth by the Ministry of place outside Saudi Arabia. Commerce and Industry and the Ministry of Justice. The Ministry of Interior, Financial Investigation Unit has set forth general param- eters and minimum standards of a compliance regime including the reporting of suspicious transactions or activities. These compliance provisions conform to generally accepted international standards.

132 Getting the Deal Through – Anti-Money Laundering 2014 The Law Firm of Salah Al-Hejailan SAUDI ARABIA

15 Breach of AML requirements • a customer who provides false or misleading information, What constitutes breach of AML duties imposed by the law? refuses to provide relevant information, refuses to provide his or her identity or whose identity cannot be verified; Breach of the AML extends not only to criminal prosecution but • requests for information received from domestic and interna- also to deficiencies in establishing and implementing compliance tional correspondent banks in regard to inquiries about the programmes and reporting systems. The AML also addresses the operations and activities of some customers; and ‘tipping off’ of customers. • requests for disclosure of customer balances and accounts and enquiries received from the local supervisory and regulatory 16 Customer and business partner due diligence authorities. Describe due diligence requirements in your jurisdiction’s AML regime. The AML requires new customer and business partner due diligence 19 Privacy laws with respect to identification, verification, data updating, profiling, Describe any privacy laws that affect record keeping requirements, due enhanced due diligence and other similar features of due diligence diligence efforts and information sharing. worldwide. Bank and money exchanges are subject to additional require- The New AML provides that the Financial Investigation Unit data ments pursuant to the SAMA Rules such as adoption of a risk-based base is generally confidential. Saudi Arabia has acceded recently to approach, know-your-customer standards, record keeping and other the Egmont Group to exchange information and coordinate efforts detailed procedures. More specific requirements apply to insurance among member states. The AML provides that financial and non- companies and financing companies as regulated respectively by financial institutions must provide information to judicial and other the SAMA and to securities businesses, in particular, ‘authorised competent authorities as requested, without regard to the confiden- persons’ as regulated by the CMA. Covered entities would be tiality provisions that normally apply. The AML does not address, required to verify the identity of the beneficial owners, as well as however, information-sharing among covered entities. customers, but it remains to be seen whether covered entities may have a flawed understanding of this requirement as regards benefi- 20 Resolutions and sanctions cial ownership. What is the range of outcomes in AML controversies? What are the possible sanctions for breach of AML laws? 17 High-risk categories of customers, business partners and See question 8 regarding the criminal prosecution of a covered transactions person or entity. The AML also provides that imprisonment of up to Do your jurisdiction’s AML rules require that covered institutions and three years and a fine of up to 500,000 Saudi riyals may be imposed persons conduct risk-based analyses? Which high-risk categories are on a covered person or entity for violation of the provisions regard- specified? ing customer due diligence, record-keeping, supervisory measures, suspicious transactions, disclosure of information, prohibition of Banks and other financial institutions are required to perform risk- tipping off and internal policies and contracts. based or indicators analyses (and therefore greater scrutiny in certain The New AML provides that chairmen and members of the circumstances). High risk is determined based on such categories as board of covered institutions, their owners (presumably controlling the customer’s business activity, ownership structure, anticipated or or substantial), employees, agents or authorised representatives shall actual volume or types of transactions, complex or unusual trans- be relieved from criminal, civil or administrative liability that may actions, correspondent banking relationships, politically exposed be caused by performing the duties provided for in the New AML persons, type of client and so on. Correspondent accounts for shell including violating confidentiality, unless it is established that they banks may not be opened. acted in bad faith to harm the involved party. The Banking Control Law and the Cooperative Insurance 18 Record keeping and reporting requirements Control Law also allow the SAMA to apply against banks and insur- Describe the record keeping and reporting requirements for covered ance companies respectively administrative or corrective measures, institutions and persons. with more serious measures requiring the approval of the minister of finance. A similar regime applies as regards securities businesses Upon discovery of a suspicious transaction, covered entities are regulated by the CMA. required to report immediately to the Financial Investigation Unit using a standard suspicious-activity form. This requirement is reit- erated in the companion SAMA and CMA Rules. The Prior AML 21 Limitation periods Implementing Regulations leave it to the regulators, the SAMA and What are the limitation periods governing AML matters? the CMA, to establish indicators of suspicious activity. The SAMA See question 10. has set forth in the SAMA Rules ‘typologies’ or techniques of money laundering and terrorist financing. Examples of suspicious activities are: 22 Extraterritoriality • unusual patterns of transactions that do not have apparent or Do your jurisdiction’s AML laws have extraterritorial reach? visible an economic, lawful or commercial purpose; • events that involve complex transactions; See question 11. • unusually large amounts of cash deposits that are not consistent with the normal and expected transactions of the customer; Civil Claims • very high account turnover inconsistent with the size of the 23 Civil claims and private enforcement balance; • transactions connected with entities or individuals who are the Enumerate and describe the required elements of a civil claim subjects of a local or UN sanction; or private right of action against money launderers and covered • business relationships or transactions with entities or individu- institutions and persons in breach of AML laws. als from or in countries that do not sufficiently apply the FATF No private right of action against money launderers or terrorist Recommendations or have weak AML or CTF systems; organisations is set forth in the New AML. However, the prohibitions www.gettingthedealthrough.com 133 SAUDI ARABIA The Law Firm of Salah Al-Hejailan in shariah law against ‘illegal funds’ or ‘prohibited profit’ or ‘illicit profit’ may be read to extend to money laundering, and it is conceiv- Update and trends able that a claim might be made by a person harmed by such actions. There has been continued progress in the implementation of the AML/CFT regime in light of the plan adopted in the MENAFATF International anti-money laundering efforts 2010 Mutual Evaluation Report for Saudi Arabia – First Follow-Up Report submitted in February 2012. 24 Supranational Following issuance in February 2013 of the FATF Methodology List your jurisdiction’s memberships of supranational organisations for Assessing Compliance with the FATF Recommendations and the Effectiveness of AML/CFT Systems, Saudi Arabia participated that address money laundering. in the January 2014 MENAFATF workshop in Jordan to discuss Saudi Arabia is a member of the following organisations that address the FATF recommendations, revised in February 2012, and the money laundering: assessment methodology. • the FATF (via the Gulf Cooperation Council) and the Middle East A regional workshop on best practices, related to money laundering and cash crimes, was held in Riyadh, Saudi Arabia, and North Africa Financial Action Task Force (MENAFATF); in April 2013, the second to be held within the framework of • the Egmont Group; cooperation between the FIU Saudi Arabia and the US Department • the UN Convention against Illicit Traffic in Narcotic Drugs and of the Treasury. Psychotropic Substances (Vienna Convention); • the UN Convention against Transnational Organised Crime (Palermo Convention) (partially implemented); 26 FIUs • the UN Convention for the Suppression of Terrorist Financing Give details of your jurisdiction’s Financial Intelligence Unit (FIU). (remains to be implemented); and • the Arab Convention for Combating Money Laundering and Ministry of Interior – Financial Investigation Unit PO Box 69941 Terrorist Financing. King Fahad Road Riyadh 11557 25 Anti-money laundering assessments Saudi Arabia Give details of any assessments of your jurisdiction’s money Fax: +966 1 412 7616 laundering regime conducted by virtue of your membership of www.moi.gov.sa supranational organisations. The MENAFATF/FATF Mutual Evaluation Report for Saudi 27 Mutual legal assistance Arabia, dated 25 June 2010, found that the Saudi anti-money laun- In which circumstances will your jurisdiction provide mutual legal dering framework is fairly robust, but the combating terrorist financ- assistance with respect to money laundering investigations? What are ing framework is not as developed, and that both frameworks need your jurisdiction’s policies and procedures with respect to requests improvement. Specifically, the rights of bona fide third parties should from foreign countries for identifying, freezing and seizing assets? be protected in the event of confiscation and enactment of a free- standing terrorist financing offence to implement the UN Terrorist Saudi Arabia is a member of the Egmont Group and the MENAFATF, Financing Convention is awaited. Further findings include that the and provides mutual legal assistance in accordance with the policies non-profit sector is a well-organised sector, but Saudi Arabia is not of these bodies, as well as based on the provisions of the Vienna considered to have undertaken a review or periodic reassessments Convention and under the Criminal Procedure Law. A permanent of its NPO sector to identify terrorist financing risk as required by committee on mutual legal assistance and a permanent committee FATF. A problem was recognised as regards the effective implemen- on combating terrorism are in place. In practice, the Prosecution tation of preventive measures within banks, insurance companies, Authority handles requests for mutual legal assistance. Bilateral securities and other financial institutions. Levels of reporting suspi- cooperation agreements were, for example, signed in 2012 between cious transactions are low. Insufficient distinction is found between the Saudi FIU and the FIUs of, respectively, Lebanon, the United requirements to monitor transactions and to report transactions, Kingdom and the United States. and the problem with reporting is greater among non-financial institutions and professions. Low levels of corrective measures were applied by the SAMA and the CMA.

The Law Firm of Salah Al-Hejailan

Robert Thoms [email protected] Sultan Al-Hejailan [email protected]

Al-Dahna Center Tel: +966 11 479 2200 54 Al-Ahsaa Street Fax: +966 11 479 1717 Malaz District www.hejailanlaw.com Riyadh 11431 Saudi Arabia

134 Getting the Deal Through – Anti-Money Laundering 2014 Niederer Kraft & Frey Ltd SWITZERLAND Switzerland

Adrian W Kammerer and Thomas A Frick Niederer Kraft & Frey Ltd

Domestic legislation declared it is part of the supervisory standard that needs to be adhered to by each bank and securities’ dealer. 1 Domestic law The AMLA’s provisions are further detailed in a variety of direc- Identify your jurisdiction’s money laundering and anti-money laundering tives, ordinances, circulars and explanatory notes issued by FINMA. (AML) laws and regulations. Describe the main elements of these The most important respective acts are the FINMA anti-money laws. laundering ordinance (GwV-FINMA, available in German, French Switzerland provides far-reaching instruments to combat money and Italian only), the ordinance on professional practice of financial laundering and terrorist financing. The implemented instruments intermediation (VBF, available in German, French and Italian only) contain regulatory preventive measures under administrative law, and the FINMA-Circular 2011/1 Financial Intermediation under the repressive measures under penal law and law enforcement, inter- AMLA (available in German, French and Italian only), which fur- national cooperation measures and soft law regulation such as the ther details the provisions of the VBF. Swiss Bankers’ Association’s (SBA) Agreement on the Swiss Banks’ Additionally, Switzerland has been a member of the Financial Code of Conduct with Regard to the Exercise of Due Diligence (CDB Action Task Force on Money Laundering (FATF) since the latter’s 08), likely to be published in an amended version in mid-2015, and creation in 1989. Switzerland has actively participated in the work the anti-money laundering regulations of the various self-regulatory involved in revising the 40 Recommendations. organisations (SROs)). As a consequence of the FATF revised recommendations Most importantly, in connection with the regulation for the of February 2012, Switzerland is in the process of adapting its combat of money laundering, in 1998 Switzerland enacted its own own AML regulation accordingly. On 13 December 2013, the anti-money laundering law, the Federal Act of 1997 on Combating Federal Council adopted the dispatch on the new Federal Act for Money Laundering and Terrorist Financing in the Financial Sector Implementing the revised FATF recommendations for the attention (AMLA), which regulates the combat of money laundering and ter- of the Swiss Parliament. Together with certain technical changes, the rorist financing. newly proposed regulation, among other things, suggests the inclu- The AMLA is a framework law. It sets out the principles that are sion of the following topics within the AMLA: specified in detail in an implementing regulation. This approach puts • the introduction of a predicate offence for cases of tax offences the authorities in a position to adapt the principles to the concrete (the term ‘tax offences’ not being finally defined for the time business activities they are supervising. The SROs (see question 2) being); accordingly set out in detail the obligations of the AMLA in their • the inclusion of domestic politically exposed persons (PEPs) and regulations. international organisations’ PEPs; The AMLA is based on the respective provisions set forth in the • improved transparency of legal entities that have issued bearer Swiss Penal Code (PC), which define money laundering as any act shares; that attempts to conceal the origin, or prevent the discovery or the • implementation of stricter rules on the identification of the BO; confiscation of assets, whereby the offending person knows or has to and assume that they derive from a criminal offence (article 305 bis, PC). • the mandatory involvement of a financial intermediary in cases Further, the PC defines terrorist financing as accumulating assets of cash payments in excess of 100,000 Swiss francs for pur- or putting assets at the disposal of any attempt to finance a violent chases of movable or immovable property. criminal act that aims to intimidate the population or to compel a state or an international organisation to perform or abstain from The draft law will be discussed in, and is likely to be amended by, the performing an act (article 260 quinquies, PC). Swiss Parliament during the course of 2014. The enactment of the A major part of the AMLA provisions detail the due diligence revised provisions is scheduled for 2015. It should be noted, how- duties in connection with a financial intermediary’s handling of ever, that Switzerland announced in February 2014 that it intends third-party assets (ie, assets that are not owned by the financial inter- to accelerate its shift towards the automatic information exchange mediary (FI)). Among others, the AMLA obliges the FI to duly iden- (AIE) as a consequence of the draft Standard for Automatic tify the contractual party and to duly determine the beneficial owner Exchange of Financial Account Information issued by the OECD (BO), if any, and to document such identifications appropriately. In on 13 February 2014 and acknowledged by the EU member states connection with the determination of the BO, the CDB 08’s very in a revised directive on 24 March 2014. This new standard aims at detailed provisions, although originally not an official legislatory act adapting the structure of the FATCA intergovernmental agreement but a code of conduct privately agreed among the Swiss banks, rep- (IGA) with the final goal of a worldwide tax transparency system. resent the de facto minimal standard, which an FI is well advised to The Federal Council plans to unilaterally apply the new AIE implement and adhere to. standard of the OECD to all double taxation treaties not yet adapted The SROs’ regulations follow, as a rule, the system of the CDB to it and accordingly instructed the Swiss Federal Department of 08 and the Swiss Supervisory Authority (FINMA) Finance (FDF) to prepare a corresponding draft. www.gettingthedealthrough.com 135 SWITZERLAND Niederer Kraft & Frey Ltd

In light of the FATCA IGA regulation and the newly introduced 3 Defendants OECD standards for an AIE, it remains to be seen whether, respec- Can both natural and legal persons be prosecuted for money tively, to what extent the proposed revised AMLA provisions will be laundering? affected by such new international standards. Under Swiss anti-money laundering regulation, both natural and legal persons may be prosecuted for money laundering offences if Money laundering they meet the requirements under the PC. 2 Criminal enforcement As a general rule, a crime that is committed in the context of a legal entity’s business carried out in accordance with its purposes is Which government entities enforce your jurisdiction’s money only attributed to the legal entity if it is not possible to attribute the laundering laws? particular offence to a specific natural person within the legal entity In Switzerland, anti-money laundering regulation is regulated due to the insufficient organisation of such legal entity. However, exclusively at state (federal) level. However, offences of anti-money if the circumstances to be judged are connected to money launder- laundering regulation are, as a rule, prosecuted by the cantonal ing (or criminal organisations, the financing of terrorism, or active state prosecution authorities (article 29, AMLA). Under article 24 bribery), a legal entity may be penalised irrespective of any natural of the Federal Criminal Procedure Act, the Federal Prosecutor’s person’s criminal liability. This is the case when the legal entity is Office may be competent if money laundering is done abroad or responsible for failing to take all reasonable organisational measures if it is committed in several cantons and there is no clear focus on in order to prevent the offence. one canton. The federal prosecutor may again delegate the inves- tigation to the cantonal state prosecutors (article 25, paragraph 2, Federal Criminal Procedure Act). The Federal Criminal Police and 4 The offence of money laundering the Federal Prosecutor’s Office therefore usually prosecute cases that What constitutes money laundering? have an international dimension, involve several cantons, or which Anybody committing an act capable of preventing the investigation deal with money laundering and terrorist financing, organised crime, into the origin of, the discovery of or the seizure of assets that as he, bribery and white-collar crime. Switzerland has a specialised Federal she, or it knows or has to assume originate from a crime, may be Criminal Court ruling on such cases brought before it by the federal punished by imprisonment or by a fine (article 305bis, paragraph prosecutor. 1, PC). It is disputed whether the crime can also be committed by An investigation by the criminal authorities is often triggered omission. However, it is sufficient that the person was aware of the by the regulatory authorities filing a criminal complaint against fact that the assets originated from a criminal activity; although the the alleged offender. FINMA, in particular its Money Laundering crime cannot be committed by negligence alone, the wording ‘has and Market Analysis section, is responsible for the enforcement to assume’ indicates a broad understanding of the acting person’s of Switzerland’s anti-money laundering regulation in the banking intent. sector. For the non-banking or para-banking sector, self-regulatory A financial institution cannot be prosecuted for its customers’ bodies, namely, the aforementioned SROs, are in charge of supervis- money laundering crimes unless such financial institution was itself ing FIs. in breach of its own anti-money laundering obligations. In turn, the Money Laundering Reporting Office, Switzerland Further, article 305ter, PC stipulates that anybody who, acting in (MROS) is Switzerland’s central money laundering reporting office a professional capacity, accepts, stores, helps to invest or to transfer and functions as a relay and filtration point between financial third-party assets and who omits to use due diligence to determine intermediaries and the law enforcement agencies. MROS is an the BO’s identity, will be punished by imprisonment or by a fine. administrative unit with specialised tasks, organised as a section within the . It is responsible for receiv- ing and analysing suspicious activity reports (SARs) in connec- 5 Qualifying assets and transactions tion with money laundering. A template form for such a SAR is Is there any limitation on the types of assets or transactions that can available at www.fedpol.admin.ch/content/dam/data/kriminalitaet/ form the basis of a money laundering offence? geldwaescherei/formular-e.doc. When receiving a SAR, MROS The term ‘asset’ is interpreted extensively and includes any increase will, as a rule, by means of a computerised access procedure, verify or non-reduction of assets and its surrogates as well as the reduction whether a person reported or notified to it is listed in any of the fol- or non-increase of liabilities. No limitation applies to what types of lowing databases: transactions can form the basis of a (criminal law) money launder- • the National Police Index; ing offence; regulatory obligations, however, only apply to certain • the Central Migration Information System; financial intermediaries as outlined below. • the automated Register of Convictions; • the State Security Information System; or • the person, file and case management system used in the field of 6 Predicate offences mutual assistance in criminal matters (article 35a, AMLA). Generally, what constitute predicate offences? Anything defined as a ‘crime’ under Swiss penal law may qualify as If, having conducted the aforementioned checks, MROS deems a a predicate offence. A crime is defined as a criminal act that can be specific report relevant and worth further investigation, MROS for- punished by more than three years of imprisonment (article 10, para- wards the information to the law enforcement bodies, usually the graph 2, PC). Consequently, a long list of possible predicate offences cantonal prosecutors and, in cases of particular complexity, the fed- applies. Examples are drug trafficking, fraud, theft, embezzlement, eral prosecutor (see above). human trafficking, bribery, product piracy, counterfeiting of goods, insider trading or share manipulation. Criminal infringements of the laws of other jurisdictions also serve as predicate offences; how- ever, it is required that the act be a criminal offence both under the applicable foreign law and under Swiss law. According to present

136 Getting the Deal Through – Anti-Money Laundering 2014 Niederer Kraft & Frey Ltd SWITZERLAND revision efforts regarding anti-money laundering legislation as a it is committed, money laundering offences committed abroad can result of the FATF 40 Recommendations revised in February 2012, be prosecuted in Switzerland. severe violations of tax law shall constitute a predicate offence. It remains to be seen if, and to what extent, the various jurisdictions AML requirements for covered institutions and individuals will implement the relatively vague indications of the pertaining revised FATF recommendations. As mentioned, Switzerland is in the 12 Enforcement and regulation course of amending its AML regulation, which is also influenced by Which government entities enforce your jurisdiction’s AML regime and the FATCA regulation, and the recently published new AIE stand- regulate covered institutions and persons? Do the AML rules provide ards of the OECD. for ongoing and periodic assessments of covered institutions and persons? 7 Defences Supervision and enforcement Are there any codified or common law defences to charges of money FINMA, in particular its Money Laundering and Market Analysis section, is responsible for the enforcement of Switzerland’s anti- laundering? money laundering regulation in the banking sector. FINMA analy- There are no specific defences to the charge of money laundering, ses the applicable anti-money laundering regulations and takes the but all defences generally available may apply. appropriate steps to amend these where necessary. For the non- banking or para-banking sector, self-regulatory bodies, the afore- 8 Resolutions and sanctions mentioned SROs, are in charge of supervising the FIs. The latter are obliged to apply for membership within an SRO in the absence of What is the range of outcomes in criminal money laundering cases? which the FI is not permitted to conduct financial intermediation Under the PC, the penalty for money laundering offences is impris- services. The 12 available SROs in Switzerland are licensed and onment for up to three years or a monetary penalty; in severe cases supervised by FINMA. Whether a FI is a member of an SRO, and if the penalty is up to five years’ imprisonment combined with a mon- so to which SRO he, she or it is a member, may be found in FINMA’s etary penalty of up to 1.5 million Swiss francs. search engine available at www.finma.ch/e/beaufsichtigte/sro/Pages/ sro-mitglieder.aspx. 9 Forfeiture If an FI in the para-banking sector prefers, he, she or it may also apply for direct supervision by FINMA as a so-called directly subor- Describe any related asset freezing, forfeiture, disgorgement and dinated financial intermediary (DSFI). victim compensation laws. FINMA summarises its activities as follows (emphasis added, Assets derived from a crime may be confiscated by the state. Courts see www.finma.ch/e/finma/Pages/Ziele.aspx for the full text): may order the forfeiture of assets of which a criminal organisation disposes. If such assets are no longer available, compensatory assets In its role as state supervisory authority, FINMA acts as an over- of a corresponding value are confiscated. Assets held by a third party sight authority of banks, insurance companies, exchanges, securities may also be confiscated unless such party has acquired the assets dealers, collective investment schemes, distributors and insurance bona fide without knowledge of the grounds for forfeiture and has intermediaries. It is responsible for combating money launder- paid an appropriate amount or forfeiture would be unreasonably ing and, where necessary, conducts restructuring and bankruptcy burdensome. Forfeiture may be ordered in addition to other penal- proceedings, and issues operating licences for companies in the ties and also irrespective of the criminal liability of a person or legal supervised sectors. Through its supervisory activities, it ensures that entity. supervised institutions comply with the requisite laws, ordinances, An FI having a ‘well-founded suspicion’ (a term that itself entails directives and regulations, and continue at all times to fulfil the complex interpretation questions) that assets involved in a transac- licensing requirements. tion or business relationship may originate from money laundering or the like must file an ARS with MROS and concurrently freeze the FINMA imposes sanctions and provides administrative assistance assets under its control and connected to the report. If MROS con- to the extent permissible by law. It also supervises the disclosure firms the relevance of the SAR, it regularly passes the case on to the of shareholdings, conducts the necessary proceedings, issues orders cantonal prosecution authorities (or, in certain cases, to the Federal and, where wrongdoing is suspected, files criminal complaints with Prosecutor’s Office, see question 2). If the competent prosecuting the FDF. Moreover, FINMA supervises public takeover bids and, in authority does not issue a freezing order, the assets must be released particular, is the complaints body for appeals against decisions of the after five working days. During this period, the FI must not inform Takeover Board. Finally, FINMA also acts as a regulatory body: it the affected or any other third parties (which, in practice, can put the participates in legislative procedures, issues its own ordinances and FI in quite a delicate position when approached by the contracting circulars where authorised to do so, and is responsible for the recog- party within the five-day period). nition of self-regulatory standards. Additionally, FINMA engages in the work of the Swiss FATF 10 Limitation periods delegation. It is also responsible for dealing with issues relating to financial crime, such as the financing of terrorism, organised crime, What are the limitation periods governing money laundering corruption, proliferation financing and embargo provisions. FINMA prosecutions? may also initiate criminal investigations by informing the Federal The limitation period for money laundering is seven years and in Prosecutor’s Office. certain cases 15 years (article 97, PC). The Swiss Federal Gaming Board (www.esbk. admin.ch/esbk/ en/home.html) supervises the casinos. MROS’s key task is to act as a hub between the FIs and the crim- 11 Extraterritorial reach inal prosecution authorities. The supervisory authorities, MROS and Do your jurisdiction’s money laundering laws have extraterritorial the law enforcement bodies have established a coordinating com- reach? mittee. Further coordination bodies exist between FINMA and the Provided that an act is of a criminal nature both under the laws of SROs as well as among the SROs themselves. Switzerland and under the laws of the foreign jurisdiction in which www.gettingthedealthrough.com 137 SWITZERLAND Niederer Kraft & Frey Ltd

Ongoing and periodic assessment of the financial intermediaries The implementation of computer-based transaction monitoring and their customers or business partners systems is mandatory for banks, securities dealers, fund managers, FINMA has issued directives providing for individual risk-related investment companies and asset managers of collective investments. audit intervals. Depending on the individual FI’s risk classification, FIs are requested to implement (preferably tailor-made) writ- these audit intervals vary from one to a maximum of three years. ten internal guidelines or directives. Also, an FI-internal competence According to the AMLA, the FIs are, among other things, centre for combating money laundering and terrorist finance must requested to verify the contracting party’s and the BO’s identity as be established. The individuals in charge of such duty have to file soon as related doubts arise in the course of any given business rela- a variety of personal records with the SRO or FINMA to evidence tionship or, in certain cases, in the conduct of establishing a business their qualification to do so. They must be trained in AML matters relationship (which, in practice, can pose very difficult questions to on a regular basis. the FI as to how the FI has to act to be compliant). The aforementioned proposed changes to the AMLA provide for additional compliance obligations of the covered institutions and natural persons. According to the original proposals submitted 13 Covered institutions and persons by the Federal Council (but not yet approved by Parliament), FIs Which institutions and persons must carry out AML measures? would have become obligated to check whether funds received are The AMLA applies to any entity or natural person qualifying as an tax-compliant. FI in the scope of the AMLA. Article 2 of the AMLA contains a (non-exhaustive) list of persons qualifying as FIs. 15 Breach of AML requirements One major first group of FIs includes the professional ser- vices within the financial sector such as banks, certain categories What constitutes breach of AML duties imposed by the law? of fund managers, investment companies with variable capital, The obligations under the AMLA contain due diligence obliga- limited partnerships for collective capital investments, investment tions, the obligation to file SARs and the obligation to freeze assets companies with fixed capital, asset managers within the meaning of related to the SAR. Any breach of such obligations constitutes a the Collective Investment Schemes Act, certain categories of insur- breach of AML duties. As said, Switzerland has implemented the ance providers, securities dealers and casinos. These institutions are FATF 40 Recommendations in its anti-money laundering regulation. subject to complete prudential supervision. Consequently, an FI is obliged to carry out a variety of specific due A further major group represents the non-banking or para- diligence duties under the AMLA (articles 3 to 11, AMLA). Due to banking sector, which is subject to limited supervision. According the FI’s position as guarantor, a criminal offence may also be com- to the relevant catch-all provision (article 2, paragraph 3, AMLA), mitted by way of omission of specific duties (article 11, PC). The FI’s legal or natural persons ‘who, on a professional basis, accept or duties include due diligence obligations such as: hold or deposit assets belonging to third parties or who assist in • the verification of the identity of the contracting party; the investment or transfer of such assets’, qualify as FIs pursuant to • the determination of the BO; the AMLA. These are asset managers and credit institutions, inter • the establishment, monitoring and regular amendment of a writ- alia those offering financial leasing, commodities traders, traders in ten ‘client history’; banknotes, precious metals, as well as lawyers and notaries engaging • in certain cases the clarification of the economic background in financial intermediation. and purpose of a transaction or business relationship; According to article 7 of the VBF, persons below the following • appropriate record keeping of customer, BO and transaction thresholds do not qualify as FIs: data; and • gross profit equal to or in excess of 20,000 Swiss francs per • the implementation and maintenance of adequate internal annum; organisational measures (eg, by implementation of formal inter- • contractual arrangements with more than 20 parties per annum; nal directives, the establishment of an AML department and the • unlimited authority to dispose of third party assets in excess of 5 training of staff). million Swiss francs; and • the conduct of transactions in excess of 2 million Swiss francs The FI is further obliged to report ‘well-founded’ suspicions of money per annum. laundering to MROS by filing a SAR with the latter. In the event of such suspicion, the FI is requested to freeze any related assets while it is prohibited to inform the affected party of the matter during the 14 Compliance following five days. Non-compliance with the reporting duty may be Do the AML laws in your jurisdiction require covered institutions and sanctioned by fines up to 500,000 Swiss francs (article 37, AMLA). persons to implement AML compliance programmes? What are the The law addresses tipping off of clients in article 10, paragraph 2, required elements of such programmes? AMLA. After the FI has filed a SAR and frozen the assets connected Yes. The GwV-FINMA, the CDB 08 as well as the SROs’ regulations to the report, the FI must not inform those affected or third parties provide for risk-based client identification and transaction monitor- of the report during a term of, at most, five days. ing and record keeping. FIs are requested to implement a KYC risk management programme, which is normally done by implement- 16 Customer and business partner due diligence ing respective internal AML directives. High-risk business relation- ships or transactions must be defined accordingly and assessed more Describe due diligence requirements in your jurisdiction’s AML regime. thoroughly, for instance with respect to the assets’ origins. Where When starting a business relationship, the FI must verify the necessary, plausibility checks must be made and documented. All contracting party’s identity by assessing and photocopying the cross-border wire transfers must include details about the funds’ (potential) contracting party’s official documents and noting name, remitters. date of birth, nationality and home address. If the contracting party In our experience it is most important that the internal AML is a legal entity, the identity of the natural person who acts on behalf directive of FIs are tailor-made to his, her or its business. If an AML of it and such natural person’s power to legally bind the entity must audit conducted by FINMA or an SRO determines discrepancies in also be verified and documented in the FI’s AML records. the FI’s conduct of business compared with his, her or its directives, Whenever the contracting party is not identical to the BO or the FI may be sanctioned even if such discrepancy does not represent doubts exist in this regard, or whenever the contracting party is a a breach of AML regulation. domiciliary company or a cash transaction of significant amount is

138 Getting the Deal Through – Anti-Money Laundering 2014 Niederer Kraft & Frey Ltd SWITZERLAND made, the FI must determine the BO’s identity. In addition thereto, 19 Privacy laws the contracting party is requested to render a respective written Describe any privacy laws that affect record keeping requirements, due declaration in what is known as Form A (available at shop.sba. diligence efforts and information sharing. ch/11008_e.pdf, page 42) or the corresponding form of the com- FIs are prevented by professional secrecy (in the case of banks, secu- petent SROs. rities traders and managers of collective investment schemes) and by If transactions or business relationships seem unusual or if there data protection laws to disclose their findings to third parties other are indications that involved assets are related to criminal actions, than through the legal means provided by the reporting rights and the FI has a special obligation to clarify their economic background obligations of the AMLA and the PC. and purpose. As for record-keeping requirements and due diligence efforts, see questions 16 and 18. 17 High-risk categories of customers, business partners and transactions 20 Resolutions and sanctions Do your jurisdiction’s AML rules require that covered institutions and What is the range of outcomes in AML controversies? What are the persons conduct risk-based analyses? Which high-risk categories are possible sanctions for breach of AML laws? specified? In its annual report for 2012 (the annual report for 2013 was not yet Yes. On the basis of an ordinance, Switzerland implements the available when drafting this chapter) of May 2013, MROS reports economic sanctions of the United Nations against individuals and having received a total of 1,585 SARs, a number comparable to entities belonging or related to, for example, Osama Bin Laden, the the SARs filed in 2011. According to MROS, the total asset value al-Qaeda group or the Taliban. Any assets or resources attributed to involved again reached a record amount of over 3 billion Swiss such persons and entities listed by the United Nations, are frozen. It francs in 2012. is also prohibited to, directly or indirectly, transfer assets or provide If FINMA is to discover an FI violating its anti-money laun- funds or resources to these persons and entities. The assets remain dering obligations, FINMA shall take necessary measures to restore frozen until the list or ordinance is modified. Transactions for or on legality. In severe cases, this may even result in the liquidation of behalf of the said persons or entities moreover qualify as suspicious the FI as a result of FINMA revoking the FI’s licence. SROs may, in transactions and are subject to reporting duties under the AMLA. contrast to FINMA, also impose fines on financial intermediaries. As In addition, based on a United Nations Resolution, the United a rule, an FI will be expelled by the SROs if the FI is not adhering to States compiles lists of persons and entities deemed to be terrorists his, her, or its anti-money laundering duties. The FI is then submit- (the ‘Bush lists’, named after a decree issued by former United States ted to direct supervision by FINMA, which may take further action president, George W Bush). In Switzerland, the supervisory authori- against it. ties forward these lists to the FIs with the order to apply enhanced As explained, Swiss banks are parties to the CDB 08. By agree- due diligence. The FIs check their business relationships accordingly ing to this regulation, the Swiss banks have agreed to be sentenced and undertake thorough assessments if a listed person or entity is with fines of up to 10 million Swiss francs. In practice, until the among its business partners. The FIs must file a SAR with the MROS present date, fines imposed by the SBA under the CDB 08 fall within if suspicion in the sense of the AMLA is confirmed. The assets related a range of some thousand Swiss francs up to, to the best of our to such a report must be frozen (see above). knowledge, approximately 500,000 Swiss francs. According to the implementing regulations, decisions to enter into a business relationship with PEPs must be taken with senior corporate body involvement and such relationships must be ade- 21 Limitation periods quately monitored. What are the limitation periods governing AML matters? AML offences fall under the statute of limitations of seven years pur- 18 Record keeping and reporting requirements suant to article 52 of the Federal Act on the Swiss Financial Market Describe the record keeping and reporting requirements for covered Supervisory Authority. institutions and persons. The financial intermediaries must keep records of transactions and 22 Extraterritoriality assessments undertaken according to the AMLA in a way that allows Do your jurisdiction’s AML laws have extraterritorial reach? the supervisory authorities, the SROs and the prosecuting authori- In practice, the following FIs fall under the territorial scope of the ties to review such files and the transactions’ compliance with the AMLA: provisions of the AMLA. The records must be kept for a minimum • FIs incorporated in Switzerland, even if they render their finan- of 10 years after a transaction’s execution or the termination of the cial services (exclusively) abroad; and business relationship. Most importantly, the aforementioned author- • FIs incorporated abroad who employ persons in Switzerland ities emphasise keeping up a reliable paper trail of any transactions who, on a commercial basis inside or outside Switzerland, enter involving financial intermediation. into transactions on their behalf or bind them legally (called for- With respect to reporting requirements, see question 12. mal or factual branch offices). Financial intermediaries who submit SARs and freeze assets may not be prosecuted for a breach of professional, commercial or offi- In contrast, the following FIs fall outside the scope of the AMLA: cial secrecy. They may also not be held liable for a breach of contract • FIs incorporated abroad who employ persons in Switzerland if they have acted with due care in fulfilling their duties under the who do not enter into transactions on their behalf or do not AMLA. legally bind them (eg, representation and mere advisory ser- vices); and • FIs incorporated abroad who render cross-border services and seconding persons employed abroad only on a temporary basis to Switzerland for negotiation purposes or in order to conclude individual contracts.

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Civil Claims 26 FIUs Give details of your jurisdiction’s Financial Intelligence Unit (FIU). 23 Civil claims and private enforcement Switzerland’s FIU is MROS. It is an administrative service of the Enumerate and describe the required elements of a civil claim Federal Office of Police. It can be contacted at the following address: or private right of action against money launderers and covered institutions and persons in breach of AML laws. Federal Office of Police A complaint may be made by any legal or natural person by way of Money Laundering Reporting Office Switzerland (MROS) a filing with MROS. If MROS passes the claim on to prosecution Nussbaumstrasse 29 authorities, the latter are in charge of further investigating the facts 3003 Berne and, possibly, bringing a criminal law complaint before the court. Switzerland A civil law claim may be made based on the regular Swiss civil law Telephone: +41 31 323 40 40 regulations in the case a party suffered damages caused by another Fax: +41 31 323 39 39 party acting fraudulently (contract, tort or unjust enrichment). As mentioned, the MROS is a member of the Egmont Group of International anti-money laundering efforts Financial Intelligence Units (for further details see questions 2, 15 and 20). 24 Supranational List your jurisdiction’s memberships of supranational organisations 27 Mutual legal assistance that address money laundering. Switzerland has been a member of the FATF and has played an In which circumstances will your jurisdiction provide mutual legal active role in its activities since its establishment in 1989. The MROS assistance with respect to money laundering investigations? What are is a member of the Egmont Group, which is an international associa- your jurisdiction’s policies and procedures with respect to requests tion of Financial Intelligence Units (FIUs) whose objective is to foster from foreign countries for identifying, freezing and seizing assets? a safe, prompt and legally admissible exchange of information in Switzerland grants judicial assistance in criminal matters in money order to combat money laundering and terrorist financing. laundering investigations provided that the requesting country can show that the alleged offence is a criminal act both under the requesting country’s laws and under Swiss law. The request, as a 25 Anti-money laundering assessments rule, has to specify the assets concerned and the suspect persons (ie, Give details of any assessments of your jurisdiction’s money no ‘fishing expeditions’); however, as a result of recent discussions laundering regime conducted by virtue of your membership of about the scope of banking secrecy, Swiss authorities have recently supranational organisations. also permitted requests that referred to a group of persons deter- The results of Switzerland’s most recent FATF mutual evaluation in mined by general patterns of behaviour and not named individually. 2005 were very good. Given that the deficiencies identified by the In such cases, professional secrecy is usually lifted. The same is true FATF were only minor, Switzerland was able to undergo a simplified for the FATCA agreement entered into between Switzerland and the process for this mutual examination compared with countries such United States in late 2012. In all likelihood, the said regulation will as Germany or the United States. In 2011, Switzerland published its enter into force in Switzerland in 2014. biennial update report. The next mutual assessment of Switzerland Upon request, Switzerland may also freeze and seize assets is planned for 2015. belonging to a suspect. This can be effected either by complying with a request received from a foreign authority (through judicial assis- tance proceedings) or, in particular if a request received is deemed not to be sufficient, for example, for formal reasons, by opening an AML investigation on its own initiative in Switzerland and by freezing the assets in these national AML proceedings, which then permits the foreign authority to amend its request.

Adrian W Kammerer [email protected] Thomas A Frick [email protected]

Bahnhofstrasse 13 Tel: +41 58 800 8000 8001 Zurich Fax: +41 58 800 8080 Switzerland www.nkf.ch

140 Getting the Deal Through – Anti-Money Laundering 2014 Herdem Attorneys at Law TURKEY Turkey

S¸afak Herdem Herdem Attorneys at Law

Domestic legislation with obligations, disclosure to customs administration and other measures for the purpose of preventing the laundering of proceeds 1 Domestic law of crime and the financing of terrorism for the implementation of Identify your jurisdiction’s money laundering and anti-money laundering Law No. 5549. (AML) laws and regulations. Describe the main elements of these laws. Money laundering The Turkish Penal Code is the principal document that criminal- 2 Criminal enforcement ises money laundering. The Code was amended on 26 June 2009. According to article 282 of the Code, whoever transfers abroad the Which government entities enforce your jurisdiction’s money proceeds derived from an offence requiring a minimum of one year laundering laws? or more imprisonment or subjects the proceeds to any transaction The Financial Crimes Investigation Board (MASAK), which is a for the purposes of disguising illicit sources and misleading as if they main service unit of the Ministry of Finance, is directly attached to were derived from legitimate sources, may be sentenced to impris- Ministry of Finance The mission of MASAK with regard to prevent- onment from two to five years and to a judicial penalty of up to ing money laundering and to detecting this offence is to make poli- 20,000 days. When this offence is committed by public servants or cies and to contribute to making regulations, to collect information particular professionals during the execution of their professions, quickly and reliably and to analyse this information, to carry out the sentence to imprisonment shall be increased by half. With regard investigation and research and to convey the information and the to legal persons involved in this offence, security measures pertinent results to relevant authorities. to them are taken. Before initiating the prosecution procedure, who- ever enables the competent authorities to seize the proceeds that are the subject of the offence or facilitates seizing the proceeds by 3 Defendants informing the competent authorities about where the proceeds are Can both natural and legal persons be prosecuted for money concealed shall not be sentenced under this article. laundering? The Law on Prevention of Money Laundering (Law No. 4208), Yes. dated 19 November 1996 is the first legal document to define money laundering. The Law on Fight Against the Terrorism (Law No. 3713) defines 4 The offence of money laundering terror and terrorist organisations and offences deemed as terrorist What constitutes money laundering? offences. Turkey criminalises money laundering in several different ways to The Law on the Prevention of Laundering Proceeds of Crime attain international standards of compliance: of 18 October 2006 (Law No. 5549) was drawn up to take into • money laundering; account international standards in combating laundering proceeds • failing to notify the accused person or the evidence of the of crime. Since the implementation of essential criminal and proce- offence; dure laws in punishing and investigation of money laundering has • assisting an organised criminal group knowingly and willingly; been adopted, this law includes arrangements accordingly. and The Regulation of Duties and Working Procedures of • purchasing or accepting property acquired through committing Financial Crimes Investigation Experts determines the assignment an offence. and professional career procedures and principles of financial crimes investigation experts of the Ministry of Finance Financial Strict liability and negligence standards are applicable. Financial Crimes Investigation Board. The Regulation of the Programme institutions can also be prosecuted since the failure in notifying is of Compliance with Obligations of Anti-Money Laundering and deemed illegal in terms of money laundering. Combating the Financing of Terrorism regulates principles and pro- cedures regarding the establishment of compliance programmes and the assignment of compliance officers by covered parties for the pur- 5 Qualifying assets and transactions pose of anti-money laundering and combating the financing of ter- Is there any limitation on the types of assets or transactions that can rorism for the implementation of Law No. 5549. The Regulation on form the basis of a money laundering offence? Measures Regarding Prevention of Laundering Proceeds of Crime Transactions exceeding 8,000 Turkish lira or the equivalent are sub- and Financing of Terrorism regulates principles and procedures ject to bank transfer in Turkey. Amounts exceeding this limit are regarding covered parties, obligations and inspection of compliance subject to investigation.

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6 Predicate offences When a partial confiscation of any article is required, that part Generally, what constitute predicate offences? shall be confiscated providing that it can be separated without giving any harm to the whole of it. Criminal infringements of laws of other jurisdictions shall not be With regard to goods belonging to joint owners, only the share deemed as predicate offences unless the same act is defined as a of the person participating in the crime shall be confiscated. crime in Turkish legislation. Turkish legislation only imposes sanc- With regard to the confiscation of benefits, the material benefits tions where the act complies with the elements of money laundering derived from committing a crime or constituting the subject of the as defined in theTurkish Penal Code. MASAK also investigates tax- crime or provided for committing a crime with the earnings obtained related claims. by the deposition or conversion of them, shall be confiscated. In order to give the confiscation decision in accordance with this para- 7 Defences graph, the material benefit cannot be returned to the inflicted person. Are there any codified or common law defences to charges of money When the property or material benefits cannot be seized or sub- laundering? mitted to the competent authorities, an equivalent value of these assets shall be confiscated. There are no particular common law defences. The courts may order a restraint order to freeze the property that may be realised in order to pay a confiscation order. A restraint 8 Resolutions and sanctions order may be made at any time, even before the prosecution is insti- tuted, as long as the court is convinced that a confiscation order What is the range of outcomes in criminal money laundering cases? against the defendant is likely. It is not possible to resolve money laundering through plea agree- The civil forfeiture regime is regulated by cabinet. Cabinet has ments. A person who transfers abroad the proceeds obtained from the right to freeze the accounts of suspects upon MASAK’s request. an offence requiring a minimum penalty of six months’ imprison- ment (or longer), or processes such proceeds in various ways in order to conceal the illicit source of such proceeds or to give the impres- 10 Limitation periods sion that they have been legitimately acquired shall be sentenced to What are the limitation periods governing money laundering imprisonment from three to seven years and a judicial penalty of up prosecutions? to 20,000 days. Pursuant to the article 16 of the Law No. 5020 the limitation period A person who, without participating in the commitment of the of money laundering prosecutions is 15 years. offence mentioned above, purchases, acquires, possesses or uses the proceeds that are the subject of that offence, knowing the nature of the proceeds, shall be sentenced to imprisonment from two to five 11 Extraterritorial reach years. Where this offence is committed by a public officer or profes- Do your jurisdiction’s money laundering laws have extraterritorial sional person in the course of his or her duty then the penalty to be reach? imposed shall be increased by one-half. Where this offence is con- ducted in the course of the activities of an organisation established Yes, Turkish legislation is based on ‘accountable institutions’, which for the purpose of committing an offence, the penalty to be imposed are financial institutions, insurance firms, companies, etc. Citizenship shall be doubled. Where a legal entity is involved in the commission or residential classification is not determined in the legislation. of this offence, it shall be subject to security measures. In relation to the offences defined in this article, no penalty shall be imposed AML requirements for covered institutions and individuals upon a person who directly enables the securing of financial assets 12 Enforcement and regulation or who facilitates the securing of such assets by informing the rel- evant authorities of the location of such before the commencement Which government entities enforce your jurisdiction’s AML regime and of a prosecution. regulate covered institutions and persons? Do the AML rules provide for ongoing and periodic assessments of covered institutions and persons? 9 Forfeiture MASAK is the national authority that: Describe any related asset freezing, forfeiture, disgorgement and • develops policies and implementation strategies; victim compensation laws. • coordinates institutions and organisations; Turkey’s confiscation and forfeiture provisions are defined under • conducts collective activities; article 54 (Confiscation of Goods) and article 55 (Confiscation of • exchanges views and information in order to prevent launder- Benefits) of the Turkish Penal Code. ing proceeds of crime and prepares laws, bylaws and regulation Accordingly, provided they do not belong to bona fide third par- drafts in accordance with the determined policies; ties, the goods used in committing a deliberate offence or allocated • makes regulations for the implementation of relevant laws and for committing an offence or derived from a crime shall be confis- the decisions of the Council of Ministers regarding the relevant cated. The goods prepared for use in committing an offence shall be laws; confiscated where there is a threat to public security, public health or • carries out research on the developments and trends of laun- public morality. In the case of removing, transferring or consuming dering proceeds of crime and on the methods of detecting and the goods within the scope of the above, or when confiscation of preventing them; the aforementioned goods is impossible, an equivalent value of the • makes sectoral studies, improves measures and monitors the goods shall be confiscated. implementation of measures on the purpose of prevention of If it is considered that the confiscation of the goods used in com- laundering proceeds of crime; mitting the offence generates more serious results in comparison to • carries out activities to raise public awareness and support; the offence and for this reason it is understood that confiscation of • collects data, receives suspicious transaction reports and analy- the goods violates equity, then the confiscation may not be ordered. ses and evaluates them in the area of the prevention of launder- Goods, whose production, disposition, usage, transportation, ing proceeds of crime and terrorist financing; purchase and sale constitutes a crime, shall be confiscated.

142 Getting the Deal Through – Anti-Money Laundering 2014 Herdem Attorneys at Law TURKEY

• requests examination from law enforcement agencies and other Covered parties must establish a risk management policy under relevant units in their fields when required during the evaluation the scope of institutional policy, considering their business size, busi- period; ness volume and nature of the transactions they conduct. The objec- • submits files to the Chief Public Prosecutor’s Office for neces- tive of the risk management policy is to define, grade, monitor, assess sary legal actions according to the Criminal Procedure Law, in and reduce the risk possible to be exposed by the covered parties. the event of detecting serious findings at the conclusion of an Activities related to risk management must cover at least: examination that shows a money laundering offence has been • developing risk-defining, rating, classifying and assessing meth- committed; ods based on customer risk, service risk and country risk; • examines cases conveyed from public prosecutors and fulfils • rating and classifying services, transactions and customers requests relating to the determination of money laundering depending on risks; offences; • developing proper operational and control rules for ensuring • conveys cases to the competent Public Prosecutor’s Office in monitoring and controlling risky customers, transactions or ser- cases where serious suspicion exists that a money laundering or vices, reporting in a way that warns related units and carrying terrorist financing offence has been committed; out the transaction with the approval of senior management and • ensures inspection of obligations within the scope of relevant controlling it when necessary; laws and relevant legislation; • questioning retrospectively the coherency and effectiveness of • requests all kinds of information and documents from public risk-defining and assessing methods and risk-rating and classify- institutions and organisations, natural and legal persons and ing methods depending upon sample events or previous transac- unincorporated organisations; tions and reassessing and updating them according to achieved • requests temporary personnel assignment from other public results and new conditions; institutions and organisations within the Presidency, when their • carrying out required development works through pursuing rec- knowledge and expertise is necessary; ommendations, principles, standards and guidelines established • carries out international affairs, exchanges views and informa- by national legislation and international organisations related to tion on subjects within the sphere of its duties; issues under the scope of risk; and • exchanges information and documents with counterparts in for- • reporting risk monitoring and assessing results regularly to the eign countries; and executive board. • signs memorandums of understanding that are not in the nature of an international agreement for this purpose as defined in Law Covered parties must take, at least, the following measures for No. 4208 on the Prevention of Money Laundering. reducing the risks that are undertaken, in relation to groups deter- mined as risky as a result of risk-rating activities: MASAK’s headquarters are in Ankara and it has no regional office • developing procedures for ongoing monitoring of transactions (see question 26). and customers; • requiring approval of one higher level officer for establishing a business relationship, sustaining current business relationships 13 Covered institutions and persons or carrying out transactions; Which institutions and persons must carry out AML measures? • gathering as much information as possible on the purpose of the The covered parties, as defined in the Law on Prevention of transaction and the source of the asset subject to a transaction; Laundering Proceeds Of Crimes, are those who operate in the field and of banking, insurance, individual pensions, capital markets, money • obtaining additional information and documents under the lending and other financial services; the postal service and trans- scope of customer due diligence and taking additional measures portation, lotteries and bets; those who deal with exchange, real for verifying and certifying the information submitted. estate, precious stones and metals, jewellery, all kinds of transporta- tion vehicles, construction machines, historical artefacts, artworks, Communiqué 6 defines the procedures to determine product or antiques, as well as intermediaries in these operations; and notaries, service risk. However, there is no certain indicator to define a cus- sports clubs and those operating in other fields determined by the tomer or a transaction as suspicious for money laundering purposes. Council of Ministers. The only internal risk management system of financial institutions Accordingly, within the scope of necessary measures, the aims to determine the credibility and financial sustainability of the Ministry has the authority to determine covered parties and imple- customer. It is on the initiative of the covered parties to determine mentation principles and procedures, including measures to assign any transaction as suspicious, because of the lack of a controlling an officer with the necessary authority at an administrative level for mechanism. This can be understood from Communique 6, which ensuring compliance with this law and to establish training, internal prescribes that in each case where simplified measures are applied, control and risk management systems by regarding the size of busi- the covered parties must assess each transaction separately to evalu- ness and business volumes. ate whether there will be any abuse of the transaction for money laundering and terrorist financing and, therefore, whether there is any risk of money laundering or terrorist financing. In the event that 14 Compliance there is a suspicion of money laundering or terrorist financing, cov- Do the AML laws in your jurisdiction require covered institutions and ered parties must not apply simplified measures and should report persons to implement AML compliance programmes? What are the the transaction to MASAK. required elements of such programmes? Article 25 of the AML Regulation imposes the duty on finan- Customer risk, as defined in the money laundering regulations, cial institutions to pay special attention to business relationships means the risk of covered parties being abused due to the business and transactions with natural and legal persons, unincorporated area of the customer allowing intensive cash flow, purchasing of organisations and citizens located in risky countries and to obtain valuable goods or international fund transfers that are carried out information about the purpose and the nature of the transactions, easily and due to acts of the customer, or those acting on behalf or as far as possible, which have no apparent reasonable legitimate and for the benefit of the customer, for money laundering or terrorist economic purpose, and to record them. In addition, the principle financing purposes. of ‘reliance on third parties’ may not be applied to cases where the third party is resident in a country perceived as constituting a risk. www.gettingthedealthrough.com 143 TURKEY Herdem Attorneys at Law

15 Breach of AML requirements Any person who knowingly and wilfully provides or collects prop- What constitutes breach of AML duties imposed by the law? erty to be used for terrorist financing either in whole or in part, shall be punished as a member of the organisation. Even if the property is Turkey criminalises money laundering in several different ways to unused, the person shall be punished in the same way. reach international standards of compliance: ‘Property’ refers to all kinds of goods that can be represented by • money laundering; money or value for money, rights, receivables, income and interest • failing to notify the accused person or the evidence of the and the resulting exchange of these with reference to interest and offence; value. • assisting an organised criminal group knowingly and willingly; Every kind of act that is perpetrated by any of the methods and of extortion, intimidation, discouragement, menace and threat by • purchasing or accepting property acquired through committing using force and violence by a person or by persons belonging to an an offence. organisation with a view to changing the nature of the Republic as defined in the Constitution and its political, legal, social, secular and A person who transfers abroad the proceeds obtained from an economic order, impairing the indispensable integrity of the Turkish offence requiring a minimum penalty of six months’ imprisonment state and Republic, weakening or annihilating or overthrowing the (or longer) or processes such proceeds in various ways in order to state authority, eliminating basic rights and freedoms and damaging conceal the illicit source of such proceeds or to give the impres- internal and external safety, public order or the general health of the sion that they have been legitimately acquired shall be sentenced to country. imprisonment for between three and seven years and served with a The legislation refers to the informing of customers in terms of judicial penalty of up to 20,000 days. the obligation of notifying the accused person or the evidence of the A person who, without participating in the commitment of offence in suspicious transactions. the offence mentioned in the above bullet-pointed list, purchases, acquires, possesses or uses proceeds that are the subject of that offence, knowing the nature of the proceeds, shall be sentenced to 16 Customer and business partner due diligence imprisonment for between two and five years. Describe due diligence requirements in your jurisdiction’s AML regime. Where this offence is committed by a public officer or profes- sional person in the course of his or her duties then the penalty that The covered parties, in cases where they cannot identify the cus- is imposed shall be increased by one-half. tomer or obtain information on the purpose of the business rela- Where this offence is conducted in the course of the activities tionship, must not establish business relationships and not conduct of an organisation established for the purpose of committing an transactions that are requested. In such circumstances they cannot offence, the penalty that is imposed shall be doubled. open an anonymous account or an account in a fictitious name. Where a legal entity is involved in the commission of this offence In cases where customer identification and its verification, it shall be subject to security measures. which are required to be conducted due to suspicion on the ade- In relation to the offences defined in this article, no penalty quacy and accuracy of previously obtained customer identification shall be imposed upon a person who directly enables the securing information, cannot be carried out, the business relationship must of financial assets or who facilitates the securing of such assets by be terminated. informing the relevant authorities of the location of such before the As defined in the Guideline for the Turkish Banking System on commencement of a prosecution. the Significance of the Fight Against Laundering of Crime Revenues Any person who fails to notify the authorised bodies about the and Financing Terrorism, in order to establish a bank–customer rela- known place of a person, against whom a decision is obtained for tionship based on trust under the policy of know-your-customer, it is his or her arrest or conviction, shall be sentenced to imprisonment important to have sufficient information about the following items: for up to one year. • determination of the customer’s true identity and address; Any person who knowingly fails to notify the place where the • coherency of the customer’s documents and information; evidence can be found or indications of the offence are concealed • the reason for the customer’s preference of the particular bank by others shall be punished according to the provisions of above and the purpose of opening an account; provision. • the profession, main revenue-raising activities, and professional The punishment to be imposed is increased by one half in the principles of the customer; case of commission of this offence by a public officer while perform- • the profile and capacity of the customer’s transactions; ing his or her duties. • suppliers to and buyers from the customer; and If the accused’s name is publicised during the investigation or • the location of the customer’s business office and activity. prosecution stages in order to give the impression that he or she is the offender prior to the judgment, the persons involved in such an It is extremely significant that the banks instruct their employees in act shall be punished with imprisonment for between six months contact with or making offers to the customers to be diligent about and two years. these issues. Any person who knowingly and willingly helps an organised criminal group, even though not they are not part of the hierarchical 17 High-risk categories of customers, business partners and structure of the group, is punished as if he or she is a member of the transactions organised group. Do your jurisdiction’s AML rules require that covered institutions and Any person who purchases or accepts property acquired through persons conduct risk-based analyses? Which high-risk categories are committing an offence, is punished with imprisonment for between six months and three years and served with a punitive penalty of up specified? to 1,000 days. Pursuant to article 24 of the Regulation on Measures Regarding Turkey criminalises terrorist financing in article 8 of the Law on Prevention of Laundering Proceeds of Crime and Financing of Fight Against the Terrorism in two different ways as follows: Terrorism, financial institutions are required to pay special attention • providing property; and to business relationships and transactions with natural and legal per- • collecting property. sons, unincorporated organisations and citizens located in countries perceived to constitute a risk and to obtain information about the

144 Getting the Deal Through – Anti-Money Laundering 2014 Herdem Attorneys at Law TURKEY purpose and the nature of the transactions, as far as possible, which immovables, establishing, managing and transferring companies, have no apparent reasonable legitimate and economic purpose and foundations and associations, provided that these functions are not to record them There are no requirements in Turkish law in relation contrary to the terms of the right of defending, are exempt from to screening PEPs and shell banks do not exist. conducting customer due diligence in relation to certain products.

18 Record keeping and reporting requirements 20 Resolutions and sanctions Describe the record keeping and reporting requirements for covered What is the range of outcomes in AML controversies? What are the institutions and persons. possible sanctions for breach of AML laws? Pursuant to article 31 of the Regulation on Measures Regarding See question 8. Prevention of Laundering Proceeds of Crime and Financing of Terrorism, when requested by MASAK or examiners, public insti- 21 Limitation periods tutions and organisations, natural and legal persons and unin- corporated organisations must provide all kinds of information, What are the limitation periods governing AML matters? documents and related records in every type of environment includ- See question 10. ing microchips, microfilms, magnetic tapes, disks and any kind of information and passwords necessary for fully and accurately accessing to or making these records decipherable, and render the 22 Extraterritoriality necessary convenience for access. Do your jurisdiction’s AML laws have extraterritorial reach? Those from whom information and documents are requested See question 17. may not avoid giving information and documents by alleging the provisions of special laws, provided that the defence right is reserved. Civil Claims Pursuant to article 17 of the Regulation on the Procedures and Principles For Accounting Practices and Retention of Documents 23 Civil claims and private enforcement by Banks, the banks are obligated to retain for presentation within Enumerate and describe the required elements of a civil claim their own premises, whenever requested, the originals of any docu- or private right of action against money launderers and covered ments concerning their operations or copies in a manner leaving institutions and persons in breach of AML laws. no room for inaccuracy if keeping the originals is not possible, as The civil forfeiture regime is poor in Turkey and a claimant can only well as mechanically reproduced copies of any letters sent to their rely on court orders in ordinary civil cases. The decision is either customers or private or public entities, which must be arranged by given as a temporary injunction or as a final decision. assigning them dates and numbers sequentially, including any letters, telegrams, electronic mails, notices and notifications and any other letters received from their customers or public or private entities and International anti-money laundering efforts organisations for 10 years. 24 Supranational It is obligatory that the registration of documents referred to in the above paragraph is maintained under a correspondence registra- List your jurisdiction’s memberships of supranational organisations tion system by assigning them dates, numbers and subjects. Provided that address money laundering. that the limitations imposed by other laws are reserved, banks may Turkey is a member of several different international organisations retain documents, other than statutory books, on microfilms, micro- that regulate against money laundering and terrorist financing. On fiches or electronic, magnetic or other similar media in a manner 25 September 1991, Turkey became a member of the Financial allowing their presentation in the case of a request. Action Task Force (FATF), in June 1998, Turkey became a mem- Pursuant to article 46 of the Regulation on Measures Regarding ber of the Egmont Group of FIUs and on 1 January 2004, Turkey Prevention of Laundering Proceeds of Crime and Financing of became a member of the Group of States against Corruption. Terrorism, covered parties must retain for eight years the docu- Turkey has also implemented many international conventions ments, in all forms, regarding their transactions and obligations and treaties in regard to money laundering and terrorist financing starting from the drawn up date, books and records from the last as follows: record date, identification documents from the last transaction date, • Council of Europe, Committee of Ministers, Recommendation and submit them when requested. The starting date of the retaining No. R(80) 10 on Measures against the Transfer and Safekeeping period relating to documents on customer identification concerning of Funds of Criminal Origin was adopted from 27 December the accounts of covered parties is the date when the account was 1980; closed. • the UN International Convention for Suppression of the Documents and records of suspicious transactions reports made Financing Terrorism was ratified on 10 January 2002; to MASAK or internal reports made to the compliance officer, docu- • the UN Convention against Transnational Organised Crime was ments attached to reports, the written reasons relating to suspicious ratified on 30 January 2003; transactions that were decided not to be reported by compliance • Council of Europe Civil Law Convention on Corruption dated officers all fall within the scope of the obligation of retaining and 4 November 1999 was ratified on 17 April 2003; submitting. • Council of Europe Convention No. 141 on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime (Strasbourg Convention) was ratified on 16 June 2004; 19 Privacy laws • the UN Convention against Corruption was ratified on 18 May Describe any privacy laws that affect record keeping requirements, due 2006; and diligence efforts and information sharing. • Turkey signed the Council of Europe Convention on Laundering, Insurance agents and freelance lawyers, except the lawyers pertain- Search, Seizure and Confiscation of the Proceeds from Crime ing only to functions within the scope of paragraph 2 of article 35 and on the Financing of Terrorism on 28 March 2007. of the Attorneyship Law (Law No. 1136 ), such as lawyers trading

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Turkey is also a party to the Hague Convention in relation to the following Conventions: Update and trends • relating to civil procedure; • on the law applicable to international sales of goods; Work on Turkey’s AML regime is still under progress in order to • on the law governing transfer of title in international sales of comply with FATF recommendations. There is a significant increase in the signing of memorandums of understanding with the FIUs of goods; a number of countries in order to exchange information to avoid • on the jurisdiction of the selected forum in the case of interna- money laundering. Turkey’s legal framework is not yet advanced tional sales of goods; enough to identify and freeze assets. The public was not satisfied • relating to the settlement of conflicts between the law of nation- with the outcome of corruption claims in December 2013, in which one of the suspects was accused of money laundering. ality and the law of domicile; The Council of Ministers has been granted the power to freeze • concerning the recognition of the legal personality of foreign accounts with the regulation dated 31 May 2013. The regulation companies, associations and institutions; requires the principle of reciprocity with other countries. The • on the law applicable to maintenance obligations towards Council of Ministers is authorised to act upon recommendations of children; the Assessment Committee of MASAK. This has been criticised by the politicians who have a concern that the government can now • concerning the recognition and enforcement of decisions relat- freeze accounts at will without any judiciary control. ing to maintenance obligations towards children; The main concern in the fight against money laundering • concerning the powers of authorities and the law applicable in is related to reporting. Banks and financial institutions require respect of the protection of minors; independent AML auditors who will act as intermediary agents aiming to monitor suspicious transactions. • on the conflicts of laws relating to the form of testamentary dispositions; • on abolishing the requirement of legalisation for foreign public documents; • FATF IX Special Recommendations. • on the service abroad of judicial and extrajudicial documents in • FATF Revised Mandate 2008-2012. civil or commercial matters; • on the choice of court; United Nations • on the recognition and enforcement of foreign judgments in civil • The United Nations Convention Against Illicit Traffic In Narcotic and commercial matters; Drugs And Psychotropic Substances (Vienna Convention). • on the taking of evidence abroad in civil or commercial matters; • The United Nations Convention Against Transnational • concerning the international administration of the estates of Organized Crime (Palermo Convention). deceased persons; • The United Nations Political Declaration. • on the Law Applicable to Trusts and on their Recognition; and • The Global Programme against Money Laundering. • on the Law Applicable to Contracts for the International Sale of Goods; and European Union • on the Law Applicable to Certain Rights in respect of Securities Directive 2005/60/EC and Directive 2001/500/JHA, Council Frame- held with an Intermediary. work Decision of 26 June 2001 on money laundering, the identifica- tion, tracing, freezing, seizing and confiscation of instrumentalities and the proceeds of crime. 25 Anti-money laundering assessments Give details of any assessments of your jurisdiction’s money Council of Europe laundering regime conducted by virtue of your membership of • Council of Europe Convention on Laundering, Search, Seizure supranational organisations. and Confiscation of the Proceeds from Crime and on the Financing of Terrorism, dated 16 May 2005. MASAK follows up the recommendations and methodologies of the • Convention on Laundering, Search, Seizure and Confiscation of following institutions in assessment of money laundering: the Proceeds from Crime (Strasbourg Convention). • Council of Europe Recommendation No. R (80) 10 on meas- FATF ures against the transfer and the safekeeping of funds of criminal • FATF Recommendations 2012. origin, dated 27 June 1980. • Methodology for AML/CTF. • FATF 40 Recommendations (revised in 2003).

S¸afak Herdem [email protected]

Kanyon Office Building Tel: +90 212 319 7703 Büyükdere Street No. 185, Floor 6 Fax: +90 212 319 7600 Levent 34394 www.herdem.av.tr Istanbul Turkey

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Basel Committee on Banking Supervision 27 Mutual legal assistance • Basel Statement of Principles on Prevention of Criminal Use of In which circumstances will your jurisdiction provide mutual legal the Banking System for the Purpose of Money-Laundering. assistance with respect to money laundering investigations? What are • Customer Due Diligence for Banks. your jurisdiction’s policies and procedures with respect to requests Wolfsberg Group from foreign countries for identifying, freezing and seizing assets? • Wolfsberg Statement on Monitoring Screening and Searching, September 2003. MASAK is the only unit that assesses the existence of money laun- • Wolfsberg AML Principles for Correspondent Banking, dering upon an assistance request from other jurisdictions. After the November 2002. assessment, if MASAK decides to prosecute, prosecution officers are • Wolfsberg Statement on The Suppression of the Financing of appointed for investigation, with supporting documents provided Terrorism, January 2002. during the assessment phase. • Wolfsberg AML Principles on , revised version May 2002.

26 FIUs Give details of your jurisdiction’s Financial Intelligence Unit (FIU). The contact details of MASAK as a member of the Egmont Group are as follows:

Maliye Bakanlıgˇı N Blok Dikmen Cad 06100 Çankaya Ankara Turkey Fax: +90 312 415 2535 / 415 2536 www.masak.gov.tr

www.gettingthedealthrough.com 147 UNITED KINGDOM Simmons & Simmons LLP United Kingdom

Nick Benwell, Cherie Spinks, Emily Agnoli and David Bridge Simmons & Simmons LLP

Domestic legislation Money Laundering Regulations 2007 (Regulations) The Regulations require regulated persons to put in place policies 1 Domestic law and procedures relating to customer due diligence and ongoing Identify your jurisdiction’s money laundering and anti-money laundering monitoring, reporting, record keeping, internal control, risk assess- (AML) laws and regulations. Describe the main elements of these ment and the internal communication of such policies and proce- laws. dures. It is a criminal offence to not comply with the provisions of The principal money laundering and terrorist financing legislation the Regulations. is as follows: • the Proceeds of Crime Act 2002, brought into force on 14 Money laundering February 2003; 2 Criminal enforcement • the Terrorism Act 2000, brought into force on 19 February 2001; and Which government entities enforce your jurisdiction’s money • the Money Laundering Regulations 2007, brought into force on laundering laws? 15 December 2007. In England and Wales, money laundering offences are investigated by the police or HM Revenue and Customs and will be prosecuted Proceeds of Crime Act 2002 (POCA) by the Crown Prosecution Service. Where the matter is significant POCA consolidated the existing UK legislation on money launder- it may be investigated and prosecuted by the Serious Fraud Office ing, which focused separately on the laundering of the proceeds of (SFO). In addition, the Financial Conduct Authority (FCA) has serious crimes (the Criminal Justice Act 1988) and drug trafficking the power to investigate and bring a prosecution against a firm or (the Drug Trafficking Act 1994). POCA created money laundering person it supervises for an offence under POCA. In Scotland and offences that cover the laundering of proceeds obtained from all Northern Ireland, prosecutions are taken by the Crown Office and crimes (apart from terrorist financing – see the Terrorism Act 2000, Procurator Fiscal, and the Public Prosecution Service for Northern below). The POCA offences are: Ireland respectively. Enforcement of money laundering legislation • money laundering, which may be committed by: takes place at a national level only. • concealing, disguising, converting or transferring criminal property, or removing criminal property from the UK (sec- 3 Defendants tion 327); • entering into or becoming concerned in an arrangement Can both natural and legal persons be prosecuted for money knowing or suspecting that it facilitates (by whatever laundering? means) the acquisition, retention, use or control of criminal Both natural and legal persons may be prosecuted for breaches of property by or on behalf of another person (section 328); the money laundering legislation. In England and Wales, in order and to successfully bring a prosecution against a corporate entity, it • acquiring, using or possessing criminal property (section is necessary to prove that a ‘directing mind’ of the company had 329); the appropriate knowledge to commit an offence. This requires a • failing to disclose money laundering to the authorities; and director or senior manager to have knowledge of the offence. • tipping off a third party that a disclosure has been made to the authorities, or making a disclosure that is likely to prejudice an investigation. Falsifying, concealing, destroying or disposing of 4 The offence of money laundering documents will also constitute an offence. What constitutes money laundering? The money laundering offences under sections 327 to 329 of POCA It is also an offence to attempt, conspire, incite, aid, abet, counsel or are committed when a person deals in ‘criminal property’. Under procure an offence under sections 327 to 329. section 340 of POCA, property will be criminal property if it con- stitutes a person’s benefit from criminal conduct or if it represents Terrorism Act 2000 such a benefit. The alleged offender must know or suspect that the The Terrorism Act sets out separate offences of fundraising, use or property constitutes or represents such a benefit. A strict liability possession arrangements and money laundering terrorist property or negligence standard does not therefore apply. For an offence to (sections 15 to 18). It also creates offences of failing to disclose to have taken place, it must be proved that the property involved was the authorities the laundering of terrorist property and tipping off a criminal property. It is not necessary for a prosecutor to prove that third party that such a disclosure has been made. the ‘criminal property’ is the benefit of a particular act of criminal conduct. It is sufficient to prove that the property derives from a criminal origin.

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The definition of ‘criminal conduct’ under section 340 is wide. an authorised disclosure to the NCA and obtains consent to carry Conduct will not only be criminal if it constitutes an offence in any out an act that would amount to an offence. part of the UK but also if it would constitute an offence in any part of the UK if it had occurred here. This means, for example, that 8 Resolutions and sanctions profits generated from a contract that was obtained through the payments of bribes in another European jurisdiction would give rise What is the range of outcomes in criminal money laundering cases? to criminal property in the UK, and dealing with that property in the The money laundering offences under POCA and the Terrorism Act UK would amount to a money laundering offence under sections carry maximum sentences of 14 years’ imprisonment or an unlim- 327 to 329 of POCA. ited fine, or both. The offences of failure to disclose money launder- Financial institutions cannot be prosecuted for their customers’ ing and prejudicing an investigation under POCA and the Terrorism money laundering per se. However, if a financial institution knows Act carry maximum sentences of five years’ imprisonment or an or suspects that a customer’s account holds criminal property unlimited fine, or both. Tipping off is punishable with a sentence of it will commit an offence if it carries out any transactions on its two years’ imprisonment or an unlimited fine, or both. customer’s behalf. Financial institutions could also be liable under In addition to any term of imprisonment or a fine, a confiscation the Regulations for not having in place the required policies and order may be imposed by the court, under which the proceeds of procedures to detect money laundering. criminal conduct can be confiscated. Alternatively, the civil courts may impose a civil recovery order (CRO). This process allows the civil courts to recover the proceeds of criminal conduct without 5 Qualifying assets and transactions securing a criminal conviction. The scope for CROs has been lim- Is there any limitation on the types of assets or transactions that can ited following the judgment in Perry and others v Serious Organised form the basis of a money laundering offence? Crime Agency [2012] UKSC 35 in which it was held that CROs There is no limit in the UK on the types of assets or transactions cannot be made in respect of property located outside of the UK. that can form the basis of a money laundering offence. Property is Therefore, in cases where the proceeds of unlawful conduct in the defined by section 340 of POCA to include money, all forms of prop- UK has been moved abroad, it will no longer be possible to recover erty (real or personal), things in action and other intangible property. such property in the absence of criminal proceedings in the UK. A deposit-taking institution will not commit an offence under Directors of companies may be disqualified from continuing to sections 327 to 329 of POCA if it operates an account maintained hold appointments as directors in certain circumstances. In addition, with it and the value of the funds involved is less than £250. under EU directives that have been implemented in the UK, public authorities in the UK are required to exclude from public contracts all organisations that have been convicted of a money laundering 6 Predicate offences offence under POCA. Generally, what constitute predicate offences? From 1 October 2014, courts will refer to guidelines published As set out above, the definition of criminal conduct under POCA by the Sentencing Council for sentencing corporate offenders for is wide and covers all crimes in the UK, including tax evasion. It fraud, bribery and money laundering offences. The definitive guide- also includes predicate offences committed in other jurisdictions. line covers offences committed by corporate bodies under sections However, a person will not commit a money laundering offence if 327 to 329 of POCA. he or she knows or believes on reasonable grounds that the relevant The status of plea agreements in England and Wales is highly conduct occurred in another jurisdiction, and it was not, at the time uncertain. They have been used in corruption cases, and could it occurred, unlawful under the criminal law of that jurisdiction, and equally be used in money laundering cases, but have been subject was not of a type that would constitute an offence that would be to judicial criticism. Judges have made clear that sentencing discre- punishable by a maximum term of in excess of 12 months if it had tion will always be reserved to the court, meaning that agreements occurred in the UK. between prosecutors and defendants may not be upheld. The SFO has used civil recovery orders instead of criminal proceedings in cases of money laundering, sometimes as part of a negotiated settle- 7 Defences ment with a company. Are there any codified or common law defences to charges of money Deferred Prosecution Agreements (DPAs) were introduced into laundering? the law of England and Wales on 24 February 2014. DPAs will be In addition to the two defences set out above (knowledge that con- made between a prosecutor and an organisation to defer prosecu- duct is not a criminal offence in the jurisdiction where it is carried tion for alleged economic wrongdoing, such as money laundering, out and the threshold offence for deposit-taking institutions) there as long as certain conditions are met. Those conditions are likely to are a number of other defences prescribed by POCA. include significant fines, undertakings to improve compliance proce- A person will have a defence to an offence under sections 327 to dures and possibly the appointment of an independent monitor to 329 of POCA if he or she: oversee those improvements. Details of their application are set out • makes an authorised disclosure to the National Crime Agency in the DPA Code of Practice for Prosecutors (see: www.sfo.gov.uk/ (NCA) and obtains prior consent to carry out an act that would media/264623/deferred%20prosecution%20agreements%20cop. amount to an offence; pdf). It is thought that CROs will continue to have a place under • intended to make an authorised disclosure but has a reasonable the DPA regime. excuse for not doing so; and While investigating allegations on money laundering, the • if he or she acquired the criminal property for adequate consid- authorities will commonly apply for freezing injunctions of any eration (this defence applies to section 329 only). assets believed to be involved. These orders apply to third parties who may be holding these assets, such as banks. In the case of FSA v Under the Terrorism Act, a person will have a defence to the offence Sinaloa Gold plc & Others and Barclays Bank plc [2013] UKSC 11, of laundering terrorist property if he or she did not know, and had the Supreme Court confirmed that when seeking an interim injunc- no reasonable cause to suspect, that the arrangement related to ter- tion in pursuance of a public duty, the FSA, as it then was, (in com- rorist property. A person will also have a defence if he or she makes mon with other public authorities) is not generally required to give a cross undertaking in damages in respect of any losses caused to third parties by the granting of such an injunction. www.gettingthedealthrough.com 149 UNITED KINGDOM Simmons & Simmons LLP

9 Forfeiture • auditors, insolvency practitioners, external accountants and tax Describe any related asset freezing, forfeiture, disgorgement and advisers; victim compensation laws. • independent legal professionals (when they participate in certain financial or real property transactions); Courts may make a restraint order under POCA and the Terrorism • trust or company service providers; Act. Such orders prohibit the subject from dealing with specified • estate agents; property. An order will be made if the court believes that it is likely • high-value dealers (dealing in goods in cash of an amount over that a confiscation order (see question 8) will be made in respect of €15,000); and the property. Once a restraint order has been made, money may be • casinos. seized to prevent it being dealt with. Courts may also make an order for compensation to be paid to any victim who has suffered loss. 14 Compliance Do the AML laws in your jurisdiction require covered institutions and 10 Limitation periods persons to implement AML compliance programmes? What are the required elements of such programmes? What are the limitation periods governing money laundering prosecutions? Relevant persons are required to carry out the following steps: • conduct customer due diligence and, where applicable, ongoing There are no limitation periods in the UK for bringing a money laun- monitoring of the customer relationship; dering prosecution. • maintain records of the evidence of the customer’s identity; • establish and maintain appropriate and risk-sensitive policies 11 Extraterritorial reach and procedures in order to prevent activities related to money Do your jurisdiction’s money laundering laws have extraterritorial laundering and terrorist financing; and reach? • take appropriate measures so that relevant employees are: • made aware of the law in relation to money laundering and POCA applies to anyone who carries out activities in the UK whether terrorist financing; and or not they are a British citizen or national. Individuals and organisa- • regularly given training in how to recognise and deal with tions (including overseas branches of UK organisations) will not be transactions and other activities that may be related to subject to the criminal jurisdiction of the courts of the UK under the money laundering and terrorist financing. provisions of POCA unless they are present within the jurisdiction. However, POCA applies to conduct outside the UK in a number of Policies and procedures ways: conduct will not only be criminal if it constitutes an offence in The Regulations set out the areas that policies and procedures should any part of the UK but also if it would constitute an offence in any cover. These include specifying measures to identify complex or unu- part of the UK if it had occurred here. Predicate offences carried out sually large transactions and to determine whether a customer is a outside the UK may therefore give rise to criminal liability in the UK politically exposed person (see question 17). for laundering any criminal property derived from those offences. Organisations are also required to nominate an individual, The offence of failing to disclose the knowledge or suspicion of known as the nominated officer, who will receive internal reports money laundering to the UK authorities (section 330 of POCA (see from employees of their knowledge or suspicions of money launder- question 18)) includes the requirement to report money laundering ing or terrorist financing (see question 18). that is taking place outside the jurisdiction.

AML requirements for covered institutions and individuals 15 Breach of AML requirements What constitutes breach of AML duties imposed by the law? 12 Enforcement and regulation It is an offence to fail to comply with the provisions of the Which government entities enforce your jurisdiction’s AML regime and Regulations. Regulation 45 provides a defence in that a person will regulate covered institutions and persons? Do the AML rules provide not be guilty if he or she took all reasonable steps and exercised all for ongoing and periodic assessments of covered institutions and due diligence to avoid committing the offence. persons? It is an offence to tip off another person that a disclosure has See question 2 on the relevant enforcement entities. been made internally within a person’s organisation or externally to The Regulations also require those in the regulated sector to be the NCA (this applies to persons in the regulated sector only) under monitored for compliance with the Regulations by relevant super- section 333A(1) of POCA and section 21D of the Terrorism Act. visory authorities, such as the FCA and the Solicitors Regulation An offence of tipping off is only committed if the communication Authority, the regulatory body of the Law Society of England and is likely to cause prejudice to a money laundering investigation. It is Wales. The ‘regulated sector’ includes the financial sector, account- also an offence to disclose to any person that a money laundering ants, auditors, tax advisers, insolvency practitioners and lawyers, investigation is being contemplated or carried out. Disclosures will when they carry out certain activities. not give rise to an offence in circumstances where: The supervisory authorities may take regulatory action against • they are made to another employee, officer, or partner in the any person they supervise where it is deemed that person has not same undertaking or they are made between credit or financial complied with its money laundering obligations. institutions in the same group, which are situated in an EEA state or in a country imposing equivalent money laundering requirements; or 13 Covered institutions and persons • the disclosure is made by a professional legal adviser or relevant Which institutions and persons must carry out AML measures? professional adviser to: The Regulations apply to the following persons, known as ‘relevant • another person performing their professional activities persons’, when they act in the course of a business in the UK: within different undertakings that share common owner- • credit institutions; ship, management or control; or • financial institutions (including a money service business);

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• the adviser’s client for the purpose of dissuading the client of compliance will be eligible for simplified due diligence. The from engaging in conduct amounting to an offence. European Commission has published a list of jurisdictions outside the EEA that are considered by the member states to have equivalent It is an offence under section 342 of POCA for a person to make a anti-money laundering legislation to the Third Directive (see http:// disclosure that is likely to prejudice an investigation, or to falsify, ec.europa.eu/internal_market/company/docs/financial-crime/3rd- conceal, destroy or dispose of documents, or cause them to be falsi- country-equivalence-list_en.pdf). Even if a customer is eligible for fied, concealed, destroyed or disposed of, where those documents are simplified due diligence, a firm needs to conduct due diligence if it relevant to an investigation. A person does not commit an offence suspects money laundering or terrorist financing. if he or she: Enhanced due diligence must be conducted in higher-risk situa- • does not know or suspect that the disclosure is likely to preju- tions (see question 17). dice the investigation; • is a professional legal adviser and the disclosure is made to a Beneficial ownership client in connection with the giving of legal advice or to any per- The Regulations provide a definition for beneficial ownership. A son in connection with legal proceedings or contemplated legal beneficial owner of a company (other than a company listed on proceedings; or a regulated market) will be anyone ultimately owning or control- • does not know or suspect that the documents are relevant to the ling more than 25 per cent of the shares or voting rights, or who investigation or does not intend to conceal any facts disclosed by otherwise exercises control over the management of the body. A the documents from any person carrying out the investigation. beneficial owner of a partnership is any individual who ultimately is entitled to or controls more than a 25 per cent share of the capital or profits of the partnership or more than 25 per cent of the voting 16 Customer and business partner due diligence rights in the partnership, or who otherwise exercises control over the Describe due diligence requirements in your jurisdiction’s AML regime. management of the partnership. A beneficial owner of a trust is any When is customer due diligence required? individual who is entitled to a specified interest in at least 25 per cent Under the Regulations, customer due diligence should be conducted of the capital of the trust property; or the class of persons in whose when a relevant person establishes a business relationship, carries main interest the trust is set up or operates, or any individual who out an occasional transaction (this is a transaction that amounts to has control over the trust. €15,000 or more, whether in a single or several linked operations), suspects money laundering or terrorist financing, or he or she has Ongoing due diligence doubts about the veracity of any due diligence documents previously The Regulations require relevant persons to conduct ongoing obtained. monitoring of a business relationship on a risk-sensitive basis. This If a firm is not able to apply the necessary due diligence measures involves scrutinising transactions undertaken throughout the course it must not carry out any work for that customer, and if relevant, of the relationship to ensure that transactions are consistent with the must terminate any existing business relationship with the customer. relevant person’s knowledge of the customer and his or her business The firm should also consider whether it is suspicious of money and risk profile. It also requires keeping due diligence documents laundering and therefore required to make a disclosure to the NCA. up to date. However, verification may be completed during the establish- ment of a business relationship if this is necessary not to interrupt 17 High-risk categories of customers, business partners and the normal conduct of business and there is little risk of money laun- transactions dering or terrorist financing occurring. Do your jurisdiction’s AML rules require that covered institutions and What is required? persons conduct risk-based analyses? Which high-risk categories are The Regulations require the following steps to be undertaken in specified? order to appropriately identify and verify a customer’s identity: The Regulations require firms to undertake enhanced due diligence • identifying the customer and verifying the customer’s identity measures in the following circumstances: on the basis of documents, data or information obtained from a • when the customer is not physically present for identification reliable and independent source; purposes (this requires firms to apply one or more stated meas- • identifying the beneficial owners of the customer and taking ade- ures, for example, to ensure that the customer’s identity is estab- quate measures, on a risk-sensitive basis, to verify their identity. lished by additional documents, data or information); The relevant person must be satisfied that he or she knows who • in correspondent banking relationships with non-EEA credit the beneficial owner is, including, in the case of a legal person, institutions; trust or similar legal arrangement, measures to understand the • the customer is a politically exposed person (PEP); or ownership and control structure of the person, trust or arrange- • in any other situation, which by its nature can present a higher ment; and risk of money laundering or terrorist financing. • obtaining information on the purpose and intended nature of the business relationship. Correspondent banking Credit institutions that propose to have correspondent banking The Regulations introduced the concept of applying a risk-based relationships with respondent institutions from non-EEA states approach to customer due diligence requirements and relevant per- must take a number of due diligence steps. These include gathering sons are therefore able to determine the extent of the due diligence sufficient information about the respondent institution to under- measures required depending on the risks of money laundering or stand fully the nature of its business, and to assess the respondent’s terrorist financing posed by the customer. anti-money laundering and anti-terrorist financing controls. Senior In low-risk scenarios, firms may apply simplified due diligence, management approval must be given before a correspondent rela- which is simply determining that the customer is eligible for sim- tionship is established. plified due diligence. Companies listed on a regulated market or financial institutions situated in non-EEA states (which impose Requirements for PEPs requirements equivalent to those set out in the Third EU Money Under the Regulations, the definition of PEPs extends only to over- Laundering Directive) and which are supervised for the purposes seas PEPs and does not include domestic PEPs. A PEP will therefore www.gettingthedealthrough.com 151 UNITED KINGDOM Simmons & Simmons LLP be an individual who has at any time in the preceding year been A disclosure must be made as soon as practicable after the person entrusted with a prominent public function by a state (other than the learns of the information or other matter giving rise to the knowl- UK), a European Community institution or an international body. edge, suspicion or reasonable grounds for suspicion. The definition also includes immediate family members or known An offence will not be committed under these sections in the close associates of anyone holding one of those positions. following circumstances: Relevant persons are not prohibited from entering into business • where a person can show he or she has a reasonable excuse for relationships with PEPs, but before doing so the Regulations require not making the required disclosure; them to: • if a professional legal adviser or other relevant professional • obtain approval from senior management; adviser (defined as an accountant, auditor or tax adviser who • take adequate measures to establish the source of wealth and is a member of a professional body) receives the information in source of funds that are to be involved in the proposed relation- privileged circumstances. However, this defence is not available ship or occasional transactions; and if the information or other matter communicated in privileged • where the business relationship is entered into, conduct enhanced circumstances (as defined by sections 330(10) and 21A(10)) is ongoing monitoring of the relationship. communicated or given with the intention of furthering a crimi- nal purpose; Wire transfers • where a person does not know or suspect that another person is EU Regulation 1781/2006 on Information on the Payer engaged in money laundering and has not been provided by his Accompanying Transfers of Funds applies to all EU member states or her employer with adequate training about the risks of money including the UK. The Regulation is enforced in the UK under laundering and his or her employer’s policies and procedures to the Transfer of Funds (Information on the Payer) Regulations counter this risk; or 2007/3298. The Regulation requires financial institutions to ensure • if a person knows or believes on reasonable grounds that money that all wire transfers include information about the payer, such as laundering is occurring in a foreign country, which is not unlaw- the name, address and account number of the payer. ful under the applicable criminal law in that foreign country and is not of a description prescribed in an order made by the secre- tary of state. 18 Record keeping and reporting requirements Describe the record keeping and reporting requirements for covered In considering whether a person has committed an offence, the institutions and persons. courts will take into account whether he or she followed any indus- Record keeping try guidance that has been approved by HM Treasury. For example, The Regulations require relevant persons to keep the following the Joint Money Laundering Steering Group publishes approved records: guidance for the financial sector (see www.jmlsg.org.uk). • evidence of a customer’s identity – these records should be kept for a period of at least five years from the date the business rela- Sections 331 and 332 of POCA tionship ends; and Under sections 331 and 332 of POCA a nominated officer acting • any supporting documents in respect of a business relationship within or outside the regulated sector respectively will commit an or occasional transaction that is the subject of due diligence or offence if: ongoing monitoring – these records must be kept until the busi- • he or she receives information as a result of an internal disclo- ness relationship ends, or if they relate to a particular transac- sure made to him or her by an employee; tion, when that transaction is completed. • as a result he or she knows or suspects that a person is engaged in money laundering, or additionally, for the purposes of section It is also recommended that relevant persons and others keep 331, if the disclosure gives him or her reasonable grounds for records of any internal money laundering reports that are made by such knowledge or suspicion; and employees and any external reports made to the NCA including any • he or she fails to make a disclosure to the Serious Organised documents recording a decision whether to make a report to the Crime Agency as soon as is practicable after the information or NCA. other matter comes to his or her attention.

Reporting obligations An offence will not be committed under sections 331 or 332 if there Sections 330, 331 and 332 of POCA and sections 19 and 21A is a reasonable excuse for not making the disclosure or if the nomi- of the Terrorism Act create the offences of failing to disclose nated officer knows or believes on reasonable grounds that money knowledge or suspicion that another person is engaged in money laundering is occurring in a foreign country, it is not unlawful under laundering. Sections 330, 331 and 21A apply to individuals and the applicable criminal law in that foreign country and is not of a nominated officers operating within the regulated sector. The regu- description prescribed in an order made by the secretary of state. lated sector is defined in the same way as relevant persons under the Regulations. Section 332 applies to nominated officers operating Section 19 of the Terrorism Act outside the regulated sector. Section 19 of the Terrorism Act applies Section 19 of the Terrorism Act creates a separate duty on all per- to all persons. sons to report knowledge or suspicion that an offence of terrorist financing has been committed under sections 15 to 18 of thatAct. Section 330 of POCA and section 21A of the Terrorism Act The information on which the person’s knowledge or suspicion is Under sections 330 of POCA and 21A of the Terrorism Act, a person based must come to him or her during the course of a trade, profes- operating within the regulated sector commits an offence when he or sion or business. she either knows or suspects, or has reasonable grounds to know or A person will not commit an offence if he or she has a reasonable suspect, that an individual is engaged in money laundering or terror- excuse for not reporting, or he or she is a professional legal adviser ist financing and he or she can identify the person or whereabouts and obtained the information in privileged circumstances. In addi- of the property or believes or reasonably believes the information tion, a person will not commit an offence if he or she is employed may assist in doing so and fails to report his or her knowledge or and made a disclosure to his or her employer in accordance with any suspicion to a nominated officer or person authorised by the NCA. internal reporting procedures.

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Update and trends

Sentencing guidelines firms to identify how their money laundering and bribery and corruption On 31 January 2014, the Sentencing Council published its definitive risks were being managed. The work was started by the FSA in 2012 guideline for sentencing corporate offenders convicted of fraud, and was continued by the FCA after it took over responsibility for the bribery and money laundering offences. The guideline was compiled prevention of financial crime. The FCA report highlighted a number of following consultation in autumn 2013, which covered both individual common weaknesses across the firms it assessed. It reported that and corporate offenders convicted of these crimes, and will come into many firms were found to have well developed policies and procedures force on 1 October 2014. Under the guidelines, the sentencing fine is in place but noted that addressing money laundering and bribery and designed to remove profit from the offending, to have an impact both corruption risk is often treated as a compliance matter with measures on the company and its shareholders and to deter other companies to address these risks insufficiently integrated with, and tailored to, from offending. The fine will be worked out by first assessing the type the requirements of the business. The FCA expects such risks to be of offending by reference to a non-exhaustive list of culpability factors. addressed as part of a proactive risk management exercise, and sees The financial sum of the harm will be assessed depending on the level engagement from firms’ senior management as crucial. The FCA also of profit generated by the offending or, where that cannot be assessed, identified significant weaknesses in most firms’ systems for dealing by the revenue derived from the product or business relating to the with and monitoring third party relationships, such as relationships offending. This financial harm figure will then be multiplied depending with agents and introducers. The FCA stated that it would follow up on the culpability level. The sentencing court then has wide discretion with some firms reviewed to discuss how to address any weaknesses to adjust the fine, depending on a host of other factors reflecting the identified in their AML and ABC systems and controls. For some of relative seriousness of the offending and the impact that the fine these firms, this is likely to take the form of enforcement action. should have. No indication has been given of when guidelines will be issued for individual offenders. Fourth Money Laundering Directive The European Commission adopted a proposal for a new money Deferred prosecution agreements (DPAs) laundering directive on 5 February 2013. The new directive, the The Director of Public Prosecutions and the Director of the SFO have Fourth Money Laundering Directive, follows a review by the European together issued the final version of the Code of Practice on DPAs, Commission on the application of the Third Directive across member as required by the Crime and Courts Act 2013. With the publication states. Many of the reforms in the new directive are in line with of this and the Sentencing Council’s final guidance on sentencing recent FATF recommendations. The new directive aims to increase corporate entities, the preconditions for DPAs were met and their use the effectiveness of the anti-money laundering rules, in particular by commenced on 24 February 2014. They will be available in respect of clarifying areas of uncertainty or disparity between member states. criminal conduct predating their introduction. The Prosecutors’ Code In particular, a broader application of the risk-based approach is sets out in detail the proposed procedure for DPAs, together with proposed and the scope of the revised directive is widened so that it factors to be considered as to whether a matter is suitable for a DPA. applies to all providers of gambling services (and not just casinos as See: www.sfo.gov.uk/media/264623/deferred%20prosecution%20 has hitherto been the case) and to traders in high value goods dealing agreements%20cop.pdf. with cash payments of €7,500 (rather than €15,000 as prescribed in the Third Directive). Text has been proposed, which tightens the FCA thematic review present provisions on simplified due diligence and which also amends On 31 October 2013, the FCA published a report of its thematic the definition of PEPs by extending it to include domestic, in addition review into anti-money laundering and anti-bribery and corruption to overseas, PEPs. The proposal includes a requirement for legal controls in Asset Management firms (see: www.fca.org.uk/static/ persons to hold information on their beneficial owners, which should documents/thematic-reviews/tr13-09.pdf). The FCA assessed 22 be made available to competent authorities on request. At present, wealth and asset management firms, fund administrators and platform the proposal is being considered by the other EU institutions.

19 Privacy laws anti-money laundering requirements to the UK, and the discloser Describe any privacy laws that affect record keeping requirements, due and receiver are subject to equivalent duties of professional con- diligence efforts and information sharing. fidentiality and data protection. This exemption will therefore apply to financial and credit institutions and professional legal The Data Protection Act 1998 requires organisations to notify cus- advisers; tomers in some circumstances that they will be conducting due dili- • by a person in the regulated sector to a supervisory body, such gence on them. For example, this applies if electronic data sources as the FCA, or for the purposes of the prevention, detection or are to be used. This Act also requires that personal information is investigation of a criminal offence. For these purposes, it does only sought for a declared purpose, is kept up to date and is not not matter whether the disclosure is made in the UK or else- retained for longer than is necessary. where; and POCA and the Terrorism Act include provisions that protect • for the purposes of detecting, investigating or prosecuting a persons making money laundering disclosures to law enforcement criminal offence or for the purpose of a money laundering, con- from breaches of confidentiality. This includes potential breaches of fiscation or civil recovery investigation, or for the purpose of the Data Protection Act. enforcing any court order made under POCA. Persons in the regulated sector are also able to share informa- tion about money laundering disclosures with others in a number of circumstances without giving rise to an offence under the Data 20 Resolutions and sanctions Protection Act or an offence of tipping off. Information may be What is the range of outcomes in AML controversies? What are the shared when a disclosure is made: possible sanctions for breach of AML laws? • to another employee, officer or partner of the same undertaking; • by a credit or financial institution to another credit or financial The criminal penalty for failing to comply with the Regulations is, institution in the same group that is located in an EEA state on conviction on indictment, a term of imprisonment not exceed- that imposes equivalent anti-money laundering requirements to ing two years or a fine, or both. In deciding whether a person has the UK (see http://ec.europa.eu/internal_market/company/docs/ committed an offence, the court must consider whether he or she financial-crime/3rd-country-equivalence-list_en.pdf); followed any relevant guidance issued by a supervisory authority, • between the same type of institution and it relates to a cus- which has been approved by HM Treasury. tomer (or former customer) of the discloser, the disclosure is Certain designated authorities, such as the FCA, may impose made to prevent the commission of a money laundering offence, civil penalties on relevant persons who fail to comply with the the receiver is located in an EEA state that imposes equivalent Regulations. If a person has been convicted of an offence, he or www.gettingthedealthrough.com 153 UNITED KINGDOM Simmons & Simmons LLP she will not also be liable to a civil penalty. Professionals, such as Civil claims have also been made by persons who are the subject independent legal professionals, may also be subject to disciplinary of money laundering disclosures made to the authorities. In these proceedings by their supervisory body if they do not comply with circumstances, claims have been made against reporting institu- the Regulations. tions, such as banks, on the grounds that the reporter did not have See question 8 for further information on other means of settling the requisite knowledge or suspicion of money laundering and the prosecutions. report has caused the subject loss, for example, by causing a delay in a transaction. The High Court held in the case of Shah v HSBC (UK) Limited [2012] EWHC 1283 (QB) that the bank 21 Limitation periods was not liable for losses alleged to have been caused by delays in What are the limitation periods governing AML matters? executing transfers, because its money laundering reporting officer There are no limitation periods for bringing a prosecution for breach held a genuine suspicion that the funds represented the proceeds of of the Regulations. crime. A term was implied into the contract between the bank and its customers that the bank could refuse to provide information where in doing so it might contravene the tipping-off provisions within 22 Extraterritoriality POCA. This case makes clear that the statutory reporting require- Do your jurisdiction’s AML laws have extraterritorial reach? ments under POCA and the Terrorism Act must be complied with The Regulations apply to relevant persons carrying on business in and an institution will not be liable for any losses suffered by its cus- the UK. This means that the obligations under the Regulations do tomers where the institution has acted honestly and promptly upon not apply to UK-based businesses in relation to any business that a genuine suspicion. The case is also a reminder of the importance of they may conduct overseas. This includes branches, offices or subsid- keeping adequate records of internal reports to nominated officers iaries of organisations located overseas, which will be subject to the evidencing reasons for the suspicion and having a clear definition of requirements of the local law. The Regulations do, however, apply to roles and escalation routes in the anti-money laundering function of overseas organisations that carry on business in the UK. a financial institution.

Civil Claims International anti-money laundering efforts

23 Civil claims and private enforcement 24 Supranational Enumerate and describe the required elements of a civil claim List your jurisdiction’s memberships of supranational organisations or private right of action against money launderers and covered that address money laundering. institutions and persons in breach of AML laws. The UK has been a member of the Financial Action Task Force Victims of money laundering may make claims against launderers (FATF) since 1990. and those that have assisted them through a claim for constructive trusteeship. Claims are likely to be made against professional advis- 25 Anti-money laundering assessments ers since they are more likely to be able to pay damages than the principal money launderer. A claim for constructive trusteeship may Give details of any assessments of your jurisdiction’s money arise in two ways: knowing receipt and knowing assistance. Liability laundering regime conducted by virtue of your membership of for knowing receipt requires a person to receive property in circum- supranational organisations. stances where the property is subject to a trust or fiduciary duty and The FATF published a mutual evaluation of the United Kingdom on contrary to that trust or duty he or she applies the property for his 13 June 2007. This was followed by a further report on 16 October or her own use and benefit. Knowing assistance requires a person to 2009. The UK money laundering legislation is considered to be com- assist another in breach of trust or fiduciary duties. A claim on this pliant with the FATF’s international standards. ground also requires dishonesty to be shown.

Nick Benwell [email protected] Cherie Spinks [email protected] Emily Agnoli [email protected] David Bridge [email protected]

CityPoint Tel: +44 20 7628 2020 One Ropemaker Street Fax: +44 20 7628 2070 London EC2Y 9SS www.simmons-simmons.com United Kingdom

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26 FIUs 27 Mutual legal assistance Give details of your jurisdiction’s Financial Intelligence Unit (FIU). In which circumstances will your jurisdiction provide mutual legal The NCA is the UK’s FIU and is a member of the Egmont Group. assistance with respect to money laundering investigations? What are The NCA’s contact details are as follows: your jurisdiction’s policies and procedures with respect to requests from foreign countries for identifying, freezing and seizing assets? National Crime Agency The UK is able to provide mutual legal assistance to any country 1–7 Old Queen Street or territory in the world, whether or not a bilateral agreement is in London SW1H 9HP place. The UK is able to assist with document production requests, Tel: +44 20 7238 8282 the service of documents, obtaining witness evidence, search and www.nationalcrimeagency.gov.uk seizure and the interception of telecommunications. The UK will E-mail address for general FIU queries: [email protected] assist with requests for restraint and confiscation of assets, but only in circumstances where the matter being investigated by the requesting state would also amount to a crime in the UK if it had occurred here. A full justification for why a restraint or confisca- tion order is necessary must be provided by the requesting state. For further information on mutual legal assistance, see www.gov.uk/ government/uploads/system/uploads/attachment_data/file/269208/ MLA_Guidelines_2014.pdf.

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James G Tillen, Laura Billings and Jonathan Kossak Miller & Chevalier Chartered

Domestic legislation Money laundering

1 Domestic law 2 Criminal enforcement Identify your jurisdiction’s money laundering and anti-money laundering Which government entities enforce your jurisdiction’s money (AML) laws and regulations. Describe the main elements of these laundering laws? laws. At the federal level, the US Department of Justice (DoJ) is respon- The United States has a comprehensive set of money laundering and sible for the investigation through its investigative arm, the Federal anti-money laundering (AML) laws and regulations at the federal Bureau of Investigation (FBI), and prosecution of money launder- and state level. ing crimes. Most prosecutions are conducted in the location where The cornerstone of the federal AML framework is the Bank the offence occurred by one of the DoJ’s 94 US Attorneys’ Offices Secrecy Act (BSA), 31 USC section 5311 et seq. Enacted in 1970, it (USAOs), which are the primary federal law enforcement offices in was the first federal law to require financial institutions to assist US their respective locations. For large, complicated or international government agencies in detecting and preventing money laundering. cases, the DoJ’s Asset Forfeiture and Money Laundering Section The BSA imposes certain reporting and record-keeping requirements (AFMLS) may assist local USAOs or the DoJ’s criminal division with on covered financial institutions and persons, and imposes civil and the prosecution of the case. criminal penalties for violations of the Act. The US Internal Revenue Service’s criminal investigation section, The Money Laundering Control Act of 1986 (MLCA), 18 USC which is part of the US Treasury Department, also has investigative sections 1956–1957, criminalised money laundering at the federal jurisdiction over money laundering crimes. The Drug Enforcement level. The MLCA prohibits the knowing and intentional transporta- Administration (DEA) oversees AML operations conducted in con- tion or transfer of proceeds of specified unlawful activities (SUAs) nection with its effort to combat drug trafficking and drug violence. and prohibits transactions involving property derived from SUAs. The Department of Homeland Security’s Immigration and Customs It also amended the BSA by introducing civil and criminal forfeiture Enforcement agency is responsible for investigating bulk cash smug- gling, drug smuggling, alien trafficking and other money launder- for BSA violations. ing-related activities that are associated with the illicit movement During the 1990s, a series of AML laws were enacted that of persons across US borders. The United States Postal Service also strengthened sanctions for BSA reporting violations, required has criminal investigative authority over money laundering offences. suspicious activity reports (SARs), criminalised the operation of Each state in the US has its own law enforcement establishment unregistered money services businesses (MSBs) and required bank- responsible for investigating and prosecuting state crime, including ing agencies to develop AML training for examiners. The most the state crime of money laundering. significant recent legislative development in theAML context, the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (Patriot 3 Defendants Act), was passed into law in the immediate aftermath of the terror- Can both natural and legal persons be prosecuted for money ist attacks of 11 September 2001. The Patriot Act was intended to laundering? enhance the BSA and MLCA in order to strengthen the government’s Yes, both natural and legal persons can be prosecuted. Criminal pen- ability to prevent, detect and prosecute international money laun- alties for violations of the federal money laundering laws include dering and the financing of terrorism. fines as well as imprisonment. Fines are commonly imposed on The Patriot Act amended the BSA to require financial institu- corporations for violating the criminal money laundering statutes, tions to establish enhanced and formalised AML programmes and while natural persons are routinely penalised with both fines and policies. It also authorised the US Treasury Department to issue rules imprisonment. requiring financial institutions to comply with confidential informa- tion requests from law enforcement; added reporting rules regarding the filing of ARs;S set forth minimum standards for programmes 4 The offence of money laundering that financial institutions employ to identify and verify the identity What constitutes money laundering? of customers; and expanded the list of crimes comprising SUAs for Federal law criminalises four types of money laundering activities the purposes of the MLCA. (18 USC sections 1956–-1957): In addition to the federal AML laws, 38 of the 50 US states have • basic money laundering; AML laws. Some of these state regimes merely establish reporting • international money laundering, involving the transfer of crimi- requirements, while others either mirror federal law (eg, New York), nal proceeds into or outside of the United States; or, in some cases, are more stringent than federal law (eg, Arizona). • money laundering related to an undercover ‘sting’ case; and • knowingly spending more than US$10,000 in criminal proceeds.

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Basic money laundering offences listed in 18 USC section 1961(1). There are nearly 250 Section 1956(a)(1) prohibits conducting a financial transaction (eg, predicate offences for money laundering, including federal, state and a deposit, withdrawal, transfer, currency exchange, loan, extension foreign crimes. The list of state and federal predicate offences are of credit and purchase or sale of securities or other monetary instru- similar – murder, kidnapping, bribery, drug trafficking, arson, rob- ments) with funds that a person knows (or is aware to a high prob- bery, and so on. Certain foreign crimes can be predicate offences if ability) are the proceeds of unlawful activity: there is a sufficient nexus between the conduct and the United States. • with the intent to promote an SUA; The list of federal predicate offences is expansive but does not • with the intent to evade taxation; at present include tax evasion, despite the 2012 Financial Action • knowing that such transaction is designed to conceal informa- Task Force (FATF) Recommendations guidance that suggested for tion about the funds, including the location, source, ownership the first time that serious tax crimes should be considered predicate or control of said funds; or offences. US senators Patrick Leahy (D-VT) and Charles Grassley • knowing the transaction is designed to avoid AML reporting (R-IA) introduced legislation in 2011 that would include tax evasion requirements. on the list of predicate offences for money laundering prosecutions, but such legislation has not been enacted into law. In April 2013, the International money laundering US Senate Caucus on International Narcotics Control, chaired by US Section 1956(a)(2) prohibits the international movement of funds Senators Dianne Feinstein (D-CA) and Grassley issued a report, ‘The with the intent to promote an SUA. It further criminalises such Buck Stops Here: Improving US Anti-Money Laundering Practices’, movement of funds when a person knows that the funds represent in which they encouraged the enactment of legislation such as the proceeds of unlawful activity and where the purpose of moving the Incorporation Transparency and Law Enforcement Assistance Act, funds internationally is to conceal information about the funds, which would require the disclosure of beneficial ownership infor- including the location, source, ownership or control of said funds; mation to combat the use of anonymously incorporated shell com- or avoid AML reporting requirements. panies, and the Combating Money Laundering, Terrorist Financing and Counterfeiting Act of 2011, which would make all felonies, Sting operations including tax evasion, predicate offenses for money laundering. Section 1956(a)(3) deals with undercover (sting) investigations. It However, neither bill was reintroduced in 2013. prohibits a person from transacting with funds believed to be SUA proceeds (eg, because an undercover agent represents them as such) when that person intends to: 7 Defences • promote an SUA; Are there any codified or common law defences to charges of money • conceal information about the funds, including the location, laundering? source, ownership or control of said funds; or There are no codified or common law defences to money laundering • avoid reporting requirements. charges. A typical defence at trial is that the defendant lacked the requisite mens rea – in other words, that the defendant did not know Money spending statute the proceeds were derived from SUAs. Section 1957, often called the ‘money spending statute’, prohibits otherwise innocent financial transactions tainted by the unlawful origin of the property exchanged in the transaction. It criminalises 8 Resolutions and sanctions monetary transactions over US$10,000 when a person knows that What is the range of outcomes in criminal money laundering cases? the funds are derived from general criminal activity, and the prop- In the United States, prosecutorial discretion is paramount. Setting erty is, in fact, derived from an SUA. In effect, the US$10,000 thresh- aside political pressures, which may be powerful but are non-bind- old amount replaces the mens rea elements of the money laundering ing, there is no circumstance under which a prosecutor at either the offences set forth in section 1956. state or federal level is required to bring money laundering charges against any person or institution. Likewise, nothing prohibits a pros- 5 Qualifying assets and transactions ecutor from offering a defendant a plea agreement rather than pur- suing a conviction at trial. Is there any limitation on the types of assets or transactions that can The sanctions for AML violations include: form the basis of a money laundering offence? • any violation of the basic money laundering, international For basic money laundering offences under section 1956(a)(1), the money laundering, or sting operation provisions (section 1956) statute refers generically to ‘proceeds’ and thus there is no limita- carries a maximum sentence of 20 years’ imprisonment; tion on the types of assets or transactions that can form the basis • a violation of the money spending statute (section 1957) carries of a money laundering offence and there is no monetary threshold a maximum sentence of 10 years; and to prosecution. However, the international money laundering pro- • a defendant’s actual sentence is determined by the presiding vision, section 1956(a)(2), does not refer to ‘proceeds’ and instead judge using the benchmarks provided by the United States refers to ‘a monetary instrument or funds’, which has been inter- Sentencing Commission’s Sentencing Guidelines (USSG), which preted to mean that section 1956(a)(2) does not apply to transac- take into account the severity of the crime, the amount of the tions involving certain properties such as precious stones, metal, art proceeds involved, the predicate offences involved, and a num- or other high-value goods. As mentioned above, the money spending ber of other relevant factors. statute, section 1957, does have a threshold amount of US$10,000, but there is no limitation on the type of asset that may qualify. In addition, violations of the basic money laundering and interna- tional money laundering provisions, 18 USC section 1956(a)(1)–(2), 6 Predicate offences are punishable by a fine of not more than the greater of US$500,000 or twice the value of the property involved in the offence. Sting Generally, what constitute predicate offences? operation violations, 18 USC section 1956(a)(3), are punishable The federal criminal money laundering statutes reference an exten- by fines of not more than the greater of US$250,000 (US$500,000 sive list of predicate offences. The underlying predicate offences for an organisation) or twice the value of the property involved in are catalogued in 18 USC section 1956(c)(7) and include all of the offence. Violations of the money spending statute, 18 USC sec- the Racketeer Influenced and Corrupt Organization law predicate tion 1957, are punishable by a fine of not more than the greater www.gettingthedealthrough.com 157 UNITED STATES Miller & Chevalier Chartered of US$250,000 or twice the value of the property involved in the 10 Limitation periods offence. What are the limitation periods governing money laundering prosecutions? 9 Forfeiture The statute of limitations for money laundering prosecutions under Describe any related asset freezing, forfeiture, disgorgement and 18 USC sections 1956 and 1957 is five years. victim compensation laws. There are three types of forfeiture proceedings in the United States: 11 Extraterritorial reach • criminal forfeiture, 18 USC section 982; Do your jurisdiction’s money laundering laws have extraterritorial • civil forfeiture, 18 USC section 981; and reach? • administrative or ‘nonjudicial civil’ forfeiture, 18 USC section There is extraterritorial jurisdiction for violations of 18 USC section 983(a)(1)–(2) and 19 USC section 1607. 1956 if: • the transaction or series of related transactions exceeds Criminal forfeiture US$10,000; and Criminal forfeiture is intended as a further penalty on the guilty • the conduct is by a United States citizen or, if done by a foreign party and is limited to the property interests of the defendant. national, the conduct occurs in part in the United States. As such, criminal forfeiture proceedings may only occur after the defendant is adjudicated to be guilty. In addition, there is extraterritorial jurisdiction for violations of 18 Forfeiture is statutorily required in money laundering prosecu- USC section 1957 under circumstances in which a US person (legal tions – for example, the presiding court, in imposing a sentence on or natural) commits the offence outside of the United States. a defendant pursuant to 18 USC sections 1956 or 1957, must order Prior to the enactment of the Patriot Act, only a select group the defendant to forfeit to the United States ‘any property, real or of foreign crimes were listed as predicates or SUAs for purposes of personal, involved in the offense, or any property traceable to such money laundering prosecutions under 18 USC sections 1956 and property’. Under 21 USC section 853(e)(1), the government may 1957. Section 315 of the Patriot Act expanded the list to include: seek a pre- or post-indictment restraining order or injunction to pre- • any crime of violence; serve the availability of the property prior to judgment. • bribery of a public official; The government must notify a defendant upon charging of its • misappropriation of public funds; intent to seek forfeiture in order for a court to enter a judgment of • smuggling munitions or technology with military applications; forfeiture upon a finding of guilt. A court must grant a forfeiture and order if the government proves by a preponderance of the evidence • any ‘offense with respect to which the United States would be that forfeiture of the property is warranted. If, upon conviction, the obligated by multilateral treaty’ to extradite or prosecute the government is unable to access the defendant’s interest in forfeitable offender. assets, courts will order the forfeiture of substitute assets. For exam- ple, the Patriot Act permits the seizure of funds subject to forfeiture As outlined above in the response to question 4, it is an offence to located in a foreign bank account by authorising the seizure of the send money from any source into or out of the United States with foreign bank’s funds that are held in a correspondent US account. the intent to promote one of the foreign predicate offences (18 USC The funds in the US account are seen as a substitute for the foreign section 1956(a)(2)(A)). deposit.

AML requirements for covered institutions and individuals Civil forfeiture Civil forfeiture actions are instituted by the federal government 12 Enforcement and regulation against ‘property, real or personal, involved in a transaction or attempted transaction’ in violation of 18 USC sections 1956, 1957, Which government entities enforce your jurisdiction’s AML regime and or 1960, or ‘any property traceable to such property’. The proce- regulate covered institutions and persons? Do the AML rules provide dures established for civil forfeiture actions are complex but require for ongoing and periodic assessments of covered institutions and that notice be provided to interested parties who are then given the persons? opportunity to answer the government’s complaint and defend the There are various AML enforcement and regulatory authorities forfeiture on the merits. in the United States. The Financial Crimes Enforcement Network Civil forfeiture actions may be brought concurrently with crimi- (FinCEN) is a bureau of the US Treasury that exercises regulatory nal forfeiture actions regarding the same property without triggering functions under the BSA. Its primary functions are to assist federal ‘double jeopardy’ protection. Prosecutors may switch from criminal and local law enforcement in the detection and analysis of finan- to civil forfeiture if the requisite conditions for criminal forfeiture cial crimes, and to coordinate between law enforcement and finan- are not available. cial institutions. FinCEN has limited enforcement powers, but its director, Jennifer Shasky Calvery, is a long-time federal prosecutor Administrative/non-judicial civil forfeiture who began her career investigating a multibillion-dollar money Finally, administrative or ‘non-judicial civil’ forfeiture is available if laundering scheme at the Bank of New York involving suspected no claims are filed contesting the forfeiture. The following four cat- Russian mafia money, and eventually became Chief of the US DoJ’s egories of property can be administratively forfeited: AFML Section, where she oversaw a programme that was respon- • property that does not exceed US$500,000 in value; sible for the annual forfeiture of nearly US$1.5 billion in criminal • merchandise the importation of which is illegal to import; assets. Given Director Shasky Calvery’s enforcement background • a conveyance used in moving or storing controlled substances; and expertise on shell companies and the dangers they pose for the and financial system, the expectation is that FinCEN will be aggressive • currency or monetary instruments of any value. in its enforcement and regulation of financial institutions (FIs), with a particular focus on expanding the requirements for FI due dili- Administrative forfeitures do not involve judicial authorities and gence investigations of accounts held by shell companies and non- comprise the vast majority of forfeiture actions. transparent entities. In 2013, FinCEN established the stand-alone Enforcement Division, a lightly staffed branch of the bureau that

158 Getting the Deal Through – Anti-Money Laundering 2014 Miller & Chevalier Chartered UNITED STATES asserts FinCEN’s civil enforcement authority under the BSA against • an ongoing employee training programme; and domestic institutions and hopes to assert FinCEN’s regulatory • an independent audit function to test programmes. authorities, particularly section 311 of the USA Patriot Act, against jurisdictions and financial institutions that are of ‘primary money In addition, and discussed in more detail below, US law imposes laundering concern’ outside the United States. Under section 311, other AML obligations on covered institutions and persons such as: once FinCEN determines that a foreign financial institution, foreign • customer identification programmes (CIPs); jurisdiction, type of account or class of transaction is of ‘primary • monitoring and detecting suspicious activity; money laundering concern’, the Director has the authority to require • filing currency transaction reports (CTRs) and ARs;S domestic financial institutions to take certain special measures to • enhanced due diligence (EDD) on foreign correspondent address the concern. accounts; Other government and non-government organisations are • a blanket prohibition on hosting correspondent accounts for also tasked with the administration and enforcement of the BSA, foreign shell banks; including the US Securities and Exchange Commission (SEC), the • mandatory information-sharing in response to requests by fed- New York Stock Exchange, the National Association of Securities eral law enforcement; and Dealers, the Commodity Futures Trading Commission, the Board • compliance with ‘special measures’ imposed by the US Treasury of Governors of the Federal Reserve System, the Federal Deposit to manage particular AML concerns. Insurance Corporation, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, the National Credit Union 15 Breach of AML requirements Administration and the Financial Industry Regulatory Authority. Both the US Treasury and the DoJ share prosecutorial authority What constitutes breach of AML duties imposed by the law? over civil BSA violations. The DoJ has prosecutorial authority over Financial institutions and persons subject to AML laws face penal- criminal BSA violations. ties for failing to abide by BSA requirements. For example, the BSA prohibits the ‘structuring’ of a transaction with the purpose of evad- ing an AML reporting or record keeping requirement under 31 USC 13 Covered institutions and persons section 5324. To be found guilty of structuring, a defendant must: Which institutions and persons must carry out AML measures? • know that the financial institution has a reporting or record The BSA (and its accompanying regulations at 31 CFR chapter X keeping requirement; et seq) is the primary law that establishes which institutions and • commit acts to evade that requirement; and persons must carry out AML measures. The BSA’s principal focus is • intend to evade that requirement. on ‘financial institutions’, which, over the years and through various amendments, has been defined under 31 USC section 5312(a)(2) and A classic example of a structuring offence occurs when a person tries (c)(1) broadly to cover traditional financial service providers – such to avoid financial reporting requirements triggered by cash trans- as banks, credit unions and thrifts – but also securities broker-dealers actions over US$10,000 by breaking up such a transaction into a and futures commission merchants (FCMs), mutual funds and other series of smaller transactions at various financial institutions over investment companies, certain investment advisers and commodity the course of a few days (an activity known as ‘smurfing’). trading advisers, insurance companies, casinos, pawnbrokers, deal- In addition, the BSA imposes civil and criminal penalties for fail- ers of precious metals, MSBs, and other businesses that have been ing to file a required report, for filing a required report with a mate- deemed to be vulnerable to money laundering activities. rial omission or misstatement, and for failing to maintain records as BSA requirements vary for different types of financial institu- required by the BSA, 31 USC sections 5321–22. Mere negligence is tions, with the most extensive requirements being imposed on banks. enough to trigger civil liability in these contexts, while criminal sanc- FinCEN issues regulations pursuant to the BSA with respect to the tions are reserved for wilful failures to abide by reporting require- various industries covered by the BSA. Most recently, in March 2013, ments or records maintenance requirements. FinCEN issued guidance on the regulatory treatment of convert- Financial institutions that are required to file a report if they ible ‘virtual’ currencies. Virtual currency is a medium of exchange identify a suspicious transaction are prohibited from tipping off the that acts like real currency, but does not have legal tender status subject of a suspicious transaction investigation. Institutions and in any jurisdiction. It is considered convertible if it has an equiva- persons who file SARs are protected from civil liability for filing such lent value in real currency or acts as a substitute for real currency. reports, but may not notify any person involved in the transaction FinCEN’s new guidance covers ‘administrators’, defined as a person that the transaction has been reported. engaged as a business in issuing a virtual currency and who has the authority to redeem such virtual currency; and ‘exchangers’, persons who are engaged in the business of exchanging virtual currency for 16 Customer and business partner due diligence real currency, funds, or other virtual currency. FinCEN now treats Describe due diligence requirements in your jurisdiction’s AML regime. administrators and exchangers of virtual currency as MSBs, thereby The United States has adopted a risk-based approach in imple- imposing on them MSB registration, reporting and record keeping menting its AML requirements generally. A financial institution’s requirements. The BSA’s application to new industries will continue customer due diligence (CDD) processes should be commensurate to broaden as new vulnerabilities are exposed. with its AML risk profile and should be aimed at high-risk custom- ers. Certain financial institutions are required to have a written CIP, 14 Compliance which must ensure that the financial institution takes reasonable steps to: Do the AML laws in your jurisdiction require covered institutions and • establish the identity of the nominal and beneficial owners (eg, persons to implement AML compliance programmes? What are the individual or individuals who have a level of control over, or required elements of such programmes? entitlement to, the funds or assets in an account) of a private The Patriot Act amended the BSA to require that certain financial banking account; institutions establish AML compliance programmes. Such pro- • determine if the account owner is a senior foreign political figure grammes must include, per 31 USC section 5318(h): or someone affiliated with that figure (also known as a ‘politi- • internal policies, procedures and controls; cally exposed person’ or PEP); • the designation of a compliance officer; • assess the sources of funds deposited into the account; and www.gettingthedealthrough.com 159 UNITED STATES Miller & Chevalier Chartered

• determine the purpose and expected use of the account (collec- monetary instruments in excess of US$10,000 from a place out- tively termed ‘know your customer’ or KYC steps). side the United States. Such persons are required to make truth- ful written declarations of such activities to the US Customs and The CIP must also ensure that the financial institution monitors Border Patrol (CBP). In addition, persons subject to US jurisdic- account activity in order to verify that such activity is consistent tion that receive currency exceeding US$10,000 in a trade or with the information known about the owner. business must file reports with the IRS and FinCEN. Accounts that have been identified by a financial institution’s CDD programme as posing a heightened risk should be subjected to Trade-based money laundering (TBML) has also become a major EDD procedures that are reasonably designed to enable compliance concern among US AML authorities. Criminal organisations, par- with AML requirements. For example, financial institutions that ticularly drug cartels, use the international trade system to trans- establish, maintain, administer or manage a private banking account fer value across international borders and disguise the illicit origins or a correspondent account in the United States for a non-US per- of criminal proceeds. FinCEN has issued guidance to FIs to enable son must establish EDD programmes ‘that are reasonably designed them to identify ‘red flags’ and report suspicious activities on their to detect and report instances of money laundering through those SAR forms as ‘TBML’ or ‘BPME’ (Black Market Peso Exchange), accounts’. but non-FIs are also at risk of becoming unwitting facilitators of TBML schemes.

17 High-risk categories of customers, business partners and transactions 18 Record keeping and reporting requirements Do your jurisdiction’s AML rules require that covered institutions and Describe the record keeping and reporting requirements for covered institutions and persons. persons conduct risk-based analyses? Which high-risk categories are specified? Financial institutions are required to file a number of different trans- action reports to US AML authorities who rely on such reporting to US regulations deem high-risk customers to include: identify and track illicit behaviour. These include: • PEPs; • Currency Transaction Report (CTR) (31 CFR section • foreign financial institutions; 1010.311): a CTR is a filing triggered each time a financial insti- • non-bank financial institutions; tution deposits, withdraws, exchanges, pays, or transfers more • non-resident aliens and other non-US persons; than US$10,000 in currency; • foreign corporations with transaction accounts, particularly off- • SAR: pursuant to 31 USC section 5318(g) and its corresponding shore corporations located in high-risk jurisdictions; regulations (eg, 31 CFR sections 1010.320, 1020.320, 1023.320 • deposit brokers; and 1024.320), financial institutions are required to report sus- • cash-intensive businesses; picious activity relating to both money laundering and terrorist • non-governmental organisations and charities; and financing. Covered institutions include: banks, securities broker • professional service providers. dealers, MSBs (except cheque cashers), FCMs, introducing bro- kers in commodities, insurance companies, mutual funds and The EDD procedures for PEPs are generally the same as for other casinos. Reporting thresholds for non-MSB covered institutions non-US holders of private banking accounts, but financial institu- is set at US$5,000; MSBs must file SARs when they involve at tions have an additional obligation to develop procedures to reason- least US$2,000 (US$5,000 for issuers of money orders or travel- ably identify and report transactions that might involve the proceeds lers’ cheques reviewing clearance records). Covered institutions of foreign corruption. required to file ARsS must file a report if they know, suspect, or Section 313(a)(ii) of the Patriot Act and its corresponding regula- have reason to suspect that: tions require financial institutions to take reasonable steps to ensure • the transaction involves funds derived from illegal activities; that correspondent accounts provided to foreign banks are not being • the transaction is intended or conducted in order to hide or used to provide banking services indirectly to foreign shell banks, disguise funds or assets derived from illegal activities; defined as a foreign bank without a physical presence in any country. • the transaction is designed to evade any regulations promul- Financial institutions are required to obtain a certification from their gated under the BSA, including structuring to avoid report- foreign bank customers and to verify through re-certification every ing thresholds; three years that the customer is neither a foreign shell bank nor a • the transaction has no business or apparent lawful purpose provider of financial services to foreign shell banks through US cor- or is not the sort of transaction in which the customer nor- respondent accounts. In March 2014, FinCEN provided guidance mally engages; or to FIs related to their EDD obligations for foreign correspondent • the financial institution knows of no reasonable explanation accounts based on FATF’s February 2014 identification of jurisdic- for the transaction after examining the available facts; tions that have strategic AML/CFT deficiencies and have not made • Foreign Financial Accounts Report (FBAR) (31 CFR section sufficient progress in addressing the deficiencies. FinCEN advised 1010.350): an FBAR must be filed by any person subject to US FIs that they should apply EDD procedures if they maintain cor- US jurisdiction who has a financial interest or authority over a respondent accounts for foreign banks operating under a banking financial account in a foreign country with an aggregate value of licence issued by Algeria, Ecuador, Ethiopia, Indonesia, Myanmar, over US$10,000. The report must be submitted annually to the Pakistan, Syria, Turkey and Yemen. IRS; and The United States also views cash transactions as posing serious • securities broker-dealers, insurance companies and MSBs must money laundering risk. As a result, US authorities have implemented report transactions over the US$5,000 threshold in which they a declaration system called Reports of International Transportation suspect they are being used to facilitate criminal activity gener- of Currency or Monetary Instruments (CMIR). CMIR requirements ally. Also, banks have an obligation to file reports with respect apply to: to criminal violations involving insider abuse in any amount, • persons who physically transport, mail, ship or cause to be phys- criminal violations of US$5,000 or more when a suspect has ically transported, mailed or shipped, currency or other mon- been identified and criminal violations of US$25,000 or more etary instruments whose aggregate value exceeds US$10,000 on regardless of the identity of the suspect. Banks are encouraged any one occasion to or from the United States; or to file a copy of their SARs with the state and local law enforce- • persons in the United States who receive currency or other ment authorities.

160 Getting the Deal Through – Anti-Money Laundering 2014 Miller & Chevalier Chartered UNITED STATES

In addition, all businesses and persons must file the following, as In addition to the RFPA, in 1999 Congress enacted the applicable: Gramm-Leach-Bliley Act (GLBA), which grants the Federal Trade • Report of Transportation of Currency or Monetary Instruments Commission (FTC) authority to issue rules requiring financial insti- (31 CFR section 1010.340): this applies to any person subject to tutions to establish standards for security and confidentiality of cus- US jurisdiction that transports currency or any other monetary tomer records. instrument valued at more than US$10,000; and The GLBA also prohibits financial institutions from disclosing • Report Relating to Currency Exceeding US$10,000 Received non-public personal information to unaffiliated third parties with- in a Trade or Business (31 CFR section 1010.330): this applies out providing customers the opportunity to decline to have such to any person subject to US jurisdiction that receives currency information disclosed. The GLBA requires that financial institutions exceeding US$10,000 in a trade or business. disclose their privacy policies to customers at the beginning of the business relationship and annually thereafter. Covered financial institutions and persons also have AML record The Patriot Act, at section 314(a), requires certain financial keeping obligations. These include: institutions to respond to specific information requests from federal • foreign financial accounts (31 CFR section 1010.420): a person agencies through FinCEN, conduct record searches, and reply to subject to US jurisdiction is required to retain account records FinCEN with positive record matches of targeted individuals or enti- for any foreign financial account in which he or she has a ties. Section 314(b) allows financial institutions that have adopted financial interest. Such persons must keep records detailing the sufficientAML compliance programmes to share information with account’s identifying information for a period of five years; one another (upon providing notice to the Treasury Department) to • extension of credit or transfer of funds over US$10,000 (31 CFR identify and report to governmental authorities activities that may section 1010.410(a)): a financial institution extending credit involve money laundering or terrorism. or transferring currency, funds, cheques, investment securities, Finally, the relatively recent enactment of the Dodd-Frank Wall credit or other monetary instruments over US$10,000 must Street Reform and Consumer Protection Act of 2010, established maintain the corresponding records. Such institutions must the Consumer Financial Protection Bureau (CFPB) and consolidated retain records for a period of five years identifying details of the the regulation and enforcement of financial privacy laws under the transaction; control of the CFPB. • transactions involving transfer over US$3,000 (31 CFR section 1020.410(a), (e)): with certain exceptions, a financial institu- tion that transfers over US$3,000 must maintain records on the 20 Resolutions and sanctions details of the transaction. This record keeping requirement does What is the range of outcomes in AML controversies? What are the not apply to transactions where both transmitter and recipient possible sanctions for breach of AML laws? are a bank, a broker or dealer in securities, an FCM or introduc- Penalties for violating the BSA vary greatly, depending on a num- ing broker in commodities, a wholly-owned domestic subsidiary ber of factors, including the type of violation at issue, the degree of of the above, the United States, a state or local government or a wilfulness, and the existence of prior violations. Sanctions available federal, state or local government agency or instrumentality; and to FinCEN to resolve civil enforcement matters include letters of • CIP (31 CFR section 1020.220, 1023.220, 1026.220): as part warning or caution, court-ordered injunctions, or the imposition of of their CIP and KYC programmes, financial institutions must consent orders. Where criminal penalties may attach, only the DoJ collect identifying information about their customers and keep may file criminal charges against institutions in breach of AML laws. records of such information for five years after the customer’s US federal judges have substantial leeway in determining penalties account is closed. and will follow guidelines set forth in the USSG, in addition to the civil and criminal penalty provisions of the BSA. 19 Privacy laws Criminal penalties may be assessed for breaching a variety of AML laws. For example, institutions or persons who fail to file a Describe any privacy laws that affect record keeping requirements, due CMIR, file a report containing a material omission or misstatement, diligence efforts and information sharing. or file a false or fraudulent report, may receive an administrative The United States does not have a general law of financial privacy fine of a maximum of US$500,000, but may also be subject to a as broad in scope as the various European laws enacted pursuant to maximum period of incarceration of 10 years. Criminal penalties the European Data Protection Directive. Rather, in response to the ranging from a fine of US$250,000 to a maximum sentence of five Supreme Court’s pronouncement, in United States v Miller, 425 US years’ incarceration are also available for persons engaged in a trade 435 (1976), that the US Constitution does not provide for a right or business who wilfully fail to file a FinCEN/IRS Form 8300 report to financial privacy, the US Congress enacted the Right to Financial upon receiving currency in amounts over US$10,000. Also, the Bulk Privacy Act (RFPA), 12 USC section 3401-22, a limited statute that Cash Smuggling statute, 31 USC section 5332, provides for criminal establishes a framework for maintaining the confidentiality of finan- penalties of five years’ imprisonment for violations of the law as well cial information. The RFPA’s goal is to protect individual customers as criminal and civil forfeiture. – defined as natural persons or partnerships of five or fewer indi- In addition, FinCEN may assess civil monetary penalties for fail- viduals – of financial institutions from unwarranted intrusion into ing to file a CTR (eg, in violation of 31 CFR section 1010.311), for their records by the federal government. The RFPA’s principal provi- failing to file a ARS (eg, in violation of 31 CFR section 1010.320), sions prohibit a financial institution from releasing financial records or for failing to have an adequate AML compliance programme in of customers to the federal government. Various exceptions apply, place (eg, in violation of 31 CFR section 1020.210). Civil monetary including: penalties for wilful violations of AML laws and regulations such • when the customer authorises access; as these range from US$25,000 per violation (or per day without a • when an appropriate administrative or judicial subpoena or proper compliance programme), to the actual amount involved in summons is issued; the violation, not to exceed US$100,000 per violation. For finan- • when a qualified is issued; or cial institutions that engage in a pattern of negligent violations of • when there is an appropriate written request from an authorised AML laws, FinCEN may impose civil monetary penalties of up to government authority. US$50,000. Federal banking agencies (FBAs) – the Office of the Comptroller In addition, notice is not required when SARs are sent by FinCEN to of the Currency, the Board of Governors of the Federal Reserve law enforcement authorities. System and the Federal Deposit Insurance Corporation – also have www.gettingthedealthrough.com 161 UNITED STATES Miller & Chevalier Chartered

Update and trends

After a banner year in 2012, in which the DoJ and other US Meanwhile, US authorities continue to combat the use of US authorities successfully resolved prosecutions of multi-national financial markets by foreign kleptocrats and narcotics-traffickers. financial institutions such as the large UK-headquartered bank, HSBC In March 2014, the DoJ, as part of its Kleptocracy Asset Recovery (US$1.9 billion); ING Bank NV, a financial institution headquartered in Initiative, froze more than US$458 million traced to former Nigerian Amsterdam (US$619 million); Standard Chartered, a British banking dictator Sani Abacha and his co-conspirators as part of the largest institution (US$330 million); the Lebanese Canadian Bank (LCB), kleptocracy forfeiture action the DoJ has ever brought. The civil a foreign financial institution (US$150 million); and MoneyGram forfeiture complaint alleged that Abacha and others embezzled, International, Inc, an MSB (US$100 million), 2013 saw fewer misappropriated and extorted billions of dollars while in power from blockbuster prosecutions. US authorities may have been using their 1993 to 1998, and then laundered the proceeds using US financial time to prepare new investigations into major financial institutions, institutions through the purchase of bonds backed by the US. On the which appear to be bearing fruit in 2014. However, few new narcotics-trafficking front, in 2013 federal prosecutors secured guilty enforcement trends have been unveiled. US authorities continue to pleas from five defendants charged with laundering more than US$20 struggle to hold individuals at major banking institutions accountable, million through ‘shell’ business bank accounts as part of the Black while the prosecution of low-level financial conduits for organised Market Peso Exchange, and convicted a Texas attorney based on his crime and narcotics-traffickers and the seizure of assets of corrupt role in a conspiracy to launder up to US$600 million in illegal drug foreign kleptocrats continues unabated. US efforts to prevent the proceeds for the Milenio drug-trafficking organisation. exploitation of virtual currencies is perhaps the newest and most likely In their seemingly never-ending battle to cut off avenues for the ‘growth sector’ for the US AML/CFT authorities. laundering of illegal drug proceeds through US financial institutions, While US authorities did not successfully resolve a single AML/ US authorities have begun to keep a close eye on virtual currency CFT prosecution of a major US financial institution in 2013, in the services. In May 2013, federal prosecutors shut down Liberty first few days of January 2014, JPMorgan Chase Bank, NA, agreed Reserve, a provider of digital currency services that processed 55 to a two-year deferred prosecution agreement with the US Attorney’s million transactions in its seven-year history, had more than 1 million Office for the Southern District of New York for failing to report users and allegedly laundered more than US$6 billion in suspected suspicious transactions related to a decades-long, multibillion-dollar proceeds of crimes. Liberty Reserve offered its users near complete fraudulent investment scheme masterminded by the now-infamous anonymity and became the preferred choice of traffickers in stolen US financier, Bernard L Madoff. According to authorities, in 2008, credit cards and social security numbers, drug dealers and computer JPMorgan identified a number of ‘red flags’ in the course of its dealing hackers. The company was founded by Arthur Budovsky and Vladimir with Madoff and his company – Madoff’s investment performance Kats, both of whom were convicted in 2006 for operating Gold Age was suspiciously stellar; his trading techniques lacked the customary Inc as an unlicensed money-transmitting business. Liberty Reserve transparency; he used an obscure auditor; and he was uncooperative was indicted, along with seven of its principals and employees, and in providing information to JPMorgan during its due diligence review. charged with money laundering and operating an unlicensed money Although JPMorgan took steps in the autumn of 2008 to protect its transmitting business. Five defendants, including Budovsky and Kats, own business interests, authorities concluded that the bank failed to were arrested as part of a coordinated law enforcement action that notify regulators by filing a SAR as required by the BSA, even though it spanned 17 countries. Kats pleaded guilty in October 2013. filed a SAR-equivalent with FinCEN’s UK counterpart in the same time Many commentators predicted that another virtual currency period. As part of the deferred prosecution agreement, JPMorgan will service, Bitcoin, would soon follow in Liberty Reserve’s footsteps. pay US$1.7 billion as part of an asset forfeiture deal that will help But Bitcoin’s transactions are public and traceable and therefore it remunerate Madoff’s victims. No individual at JPMorgan has been operates with greater transparency than did Liberty Reserve. However, prosecuted in relation to the Madoff scandal. Bitcoin still attracts attention from US authorities because it is More recently, Citigroup Inc, the third-largest US bank by assets, reported to be a favourite service of Silk Road, a US$1.2 billion black has come under scrutiny as a result of the activities of its Mexican market for illegal drugs. In fact, in October 2013, authorities arrested affiliate, Banamex. In early March 2014, Citigroup and the US arm the alleged owner of Silk Road and brought a civil suit against him of Banamex announced that they had received grand jury subpoenas that resulted in a forfeiture of nearly US$30 million in Bitcoins. In issued by the US Attorney’s Office for the District of Massachusetts late January 2014, federal prosecutors also charged two men with reportedly related to AML compliance deficiencies. Banamex is also engaging in a money laundering conspiracy to sell more than US$1 responsible for a US$400 million loss on Citigroup’s books related to million in Bitcoins to individuals they allegedly knew were using the a series of allegedly fraudulent loans made to a Mexican oil services currency for illegal drug transactions on Silk Road. It is believed to be company, Oceanografia, and for a US$300 million write-down of the first criminal case involving BSA violations by Bitcoin exchangers, bad loans Banamex provided to a group of Mexican homebuilding but it is unlikely to be the last – as of March 2013, virtual currency companies last year. According to reports, questions about Citigroup’s services are required to register with FinCEN and abide by its record- oversight of Banamex’s books and records are the main concern of US keeping and reporting requirements. AML authorities. statutory authority to impose informal and formal administrative 21 Limitation periods sanctions against the financial institutions whose activities they What are the limitation periods governing AML matters? oversee. The most severe sanction an FBA may impose is to termi- The statute of limitations for violations of AML laws subject to nate the activities of a financial institution that has been found guilty criminal penalties is typically five years. of certain money laundering offences. MSBs that fail to register with FinCEN, or file false or incom- plete information in their registration statements, are subject to civil 22 Extraterritoriality penalties of US$5,000 per day of non-compliance. Unlicensed MSBs Do your jurisdiction’s AML laws have extraterritorial reach? are also subject to criminal fines and imprisonment of up to five years if persons carrying on such business knowingly fail to obtain a Through its amendments to the BSA, the Patriot Act creates pres- licence under 18 USC section 1960. sures on foreign institutions that ultimately arm the US authorities Covered institutions and persons in the securities sector who with international reach and influence. For example, the Patriot Act violate AML laws may be subject to civil penalties under the fed- authorises the secretary of the treasury and the attorney general to eral securities laws, enforced by the SEC, or may be subject to sanc- subpoena records from a foreign bank that maintains a correspond- tions for violating self-regulatory organisation (SROs) internal rules. ent account with a US bank. Though the subpoenaed records must Enforcement remedies available to the SEC include cease-and-desist relate to the correspondent account, they may be located anywhere orders, court-ordered injunctions, censures or suspensions/bars from in the world. Should the foreign bank fail to comply with the sub- the securities industry, and the assessment of civil monetary penal- poena, the US-based bank that maintains its correspondent account ties. SROs may undertake their own enforcement actions as well. must terminate the account. As with any US-based subpoena

162 Getting the Deal Through – Anti-Money Laundering 2014 Miller & Chevalier Chartered UNITED STATES recipient, foreign banks may initiate proceedings in a United States 25 Anti-money laundering assessments court to contest a subpoena. Give details of any assessments of your jurisdiction’s money It is not always possible for the US government to impose sanc- laundering regime conducted by virtue of your membership of tions on foreign persons or institutions suspected of money laun- supranational organisations. dering or financing international terrorism. Yet the Patriot Act has The FATF conducted its most recent assessment of the US’s AML empowered the government to target such foreign persons and insti- regime in 2006 and published its findings in the Third Mutual tutions by pressuring the financial intermediaries that provide them Evaluation on Anti-Money Laundering and Combating the access to US markets. Financing of Terrorism (the 2006 Report). This assessment was the The Patriot Act also requires US financial institutions to main- US’s first mutual evaluation since 1997. The 2006 Report provided tain CDD programmes that assess the risks associated with foreign a detailed summary of the United States’ criminal money launder- bank correspondent accounts. The definition of a correspondent ing laws and AML regime, and assessed the US system’s strengths account under the Patriot Act is sufficiently broad to encompass and weaknesses in light of the FATF’s 40+9 Recommendations. The most formal banking relationships between US and foreign banks. FATF concluded that the United States made significant improve- As a result, foreign banks wishing to avoid overly intrusive due dili- ments in its criminal laws and AML regime and determined that gence examinations from US financial institutions are incentivised to the US was ‘compliant’ or ‘largely compliant’ with the vast majority establish their own internal AML policies. In effect, the more strin- of the recommendations. Ultimately, the 2006 Report found that, gent a foreign bank’s AML detection programmes are, and the more although the United States has developed an effective AML regime, robust a foreign bank’s KYC efforts are, the less likely US financial there is room for improvement given that the framework lacks a institutions are to adopt intrusive due diligence procedures in their legal obligation to undertake ongoing due diligence. dealings with the foreign bank. Further, the Patriot Act has created unprecedented seizure pow- ers over funds located offshore. It permits the US government to 26 FIUs seize funds subject to forfeiture but located out of reach in a foreign Give details of your jurisdiction’s Financial Intelligence Unit (FIU). bank account by authorising the seizure of that foreign bank’s funds that are held in a correspondent US account. This substitution is FinCEN serves as the United States’ FIU, and it is a founding mem- permitted regardless of whether the seized funds are traceable to the ber of the Egmont Group. FinCEN contact details are: money held offshore in the foreign bank account. Financial Crimes Enforcement Network PO Box 39 Civil Claims Vienna, VA 22183 23 Civil claims and private enforcement United States Tel: +1 703 905 3591 Enumerate and describe the required elements of a civil claim [email protected] or private right of action against money launderers and covered www.fincen.gov institutions and persons in breach of AML laws. Despite various attempts by private citizens to bring federal claims against financial institutions for failing to detect money laundering 27 Mutual legal assistance activities, the courts have ruled in those cases that the BSA and the In which circumstances will your jurisdiction provide mutual legal Patriot Act do not provide a private right of action. assistance with respect to money laundering investigations? What are your jurisdiction’s policies and procedures with respect to requests International anti-money laundering efforts from foreign countries for identifying, freezing and seizing assets? The United States provides mutual legal assistance to foreign law 24 Supranational enforcement through all stages of money laundering investigations. List your jurisdiction’s memberships of supranational organisations The US has entered into numerous mutual legal assistance treaties that address money laundering. (MLATs) and executive agreements with other countries in order The United States joined the FATF in 1990. to provide an expedited process for foreign countries to request and receive investigative assistance. Some MLATs apply to specific

James G Tillen [email protected] Laura Billings [email protected] Jonathan Kossak [email protected]

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www.gettingthedealthrough.com 163 UNITED STATES Miller & Chevalier Chartered government agencies, such as the SEC, whereas other MLATs apply • the transfer must be agreed to by the DoJ and the Treasury to specific types of crimes, such as drug trafficking, bribery, or tax Department; evasion. Even without an MLAT, however, the United States may • the Secretary of State must approve the transfer; still provide legal assistance to foreign countries. Mutual legal assis- • an international agreement between the United States and the tance generally involves locating persons in the United States, com- foreign country must authorise the transfer; and pelling testimony and the production of evidence, and furnishing • the foreign country must be certified under the ForeignAssistance public records and financial data. Act of 1961 (if required). The DoJ and the State Department process most requests for such judicial assistance. Foreign legal attaches representing federal The United States has received forfeited assets from Antigua, agencies abroad, such as the FBI, the DEA and the CBP, also accept the Bahamas, Canada, the Cayman Islands, Hong Kong, Jersey, and process requests for investigate assistance. Liechtenstein, Luxembourg, Singapore, Switzerland and the United US law permits federal courts to receive requests directly from Kingdom. The United States has shared foreign assets with Aruba, foreign countries for investigative assistance. While US federal courts Australia, the Bahamas, Brazil, the Cayman Islands, China, the receive most requests for mutual legal assistance, US state courts also Dominican Republic, Egypt, Guernsey, Honduras, the Isle of Man, may provide similar assistance. The courts assist foreign AML inves- Japan, Jersey, Mexico, the Netherlands, Nicaragua, Palau, Panama, tigations by compelling testimony and the production of evidence. Portugal, Qatar, St Vincent and the Grenadines, Switzerland, the In addition to providing investigative assistance, the United United Kingdom and Vietnam. States can transfer forfeited assets to a foreign country, subject to certain statutory requirements. Specifically:

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ANTI-MONEY LAUNDERING 2014 ISSN 2050-747X