Prevention obligations of legalization of proceeds of criminal activity

26. February 2019

The Slovak National Council adopted on 1 February 2018 with the effective date on 15 March 2018 Act No. 52/2018 Coll. on, amending Act No. 297/2008 Coll. on the Prevention of Legalization of Proceeds of Criminal Activity and Terrorist Financing and on Amendments and Supplements to Certain Acts. This amendment has extended the circle of entities who are obliged to perform customer, simplified or enhanced due diligence (hereinafter referred to as „Obliged Entities “), as well as the scope of commercial operations where due diligence has to be performed and other regulations are amended, mainly Act No. 530/2003 Coll. on the Commercial Register, as amended.

 

The main purpose of Act No. 297/2008 Coll. on the Prevention of Legalization of Proceeds of Criminal Activity and Terrorist Financing, as amended (hereinafter referred to as „Act”) is to prevent of legalization of proceeds of criminal activity and terrorist financing by determining the direct obligations for a precisely defined circle of legal and natural persons.

 

By the amendment of the Act a significant extension of a circle of Obliged Entities has been done and according to the new legal regulation, the obliged Entities are as follows:

 

  1. auditor, accountant, tax advisor,
  2. legal entity or natural person authorised to mediate sale, rent and purchase of real estate,
  3. advocate or notary, if he provides the customer with a legal service related to any financial operation or other action which involves an indirect or direct movement in
  • purchase or sale of real estate or business or part thereof,
  • management or safekeeping of funds, securities or other property,
  • opening or management of an account with a bank or a foreign bank branch or of a securities account or
  • establishment, operation or management of a company, an association of natural persons, or legal entities, a special-purpose corporation or another legal entity,
  1. service provider of property management or a company service provider, unless it is an Obliged Entity under letters h) or j),
  2. legal entity or natural person authorised to provide the services of organisational or economic advisor, the services of public carries and messengers or forwarding services,
  3. legal entity or natural person authorised to operate an auction hall, legal entity or natural person authorised to trade with works of art, collectors´ items, antiques, cultural monuments, items of cultural heritage, precious metals or gemstones, legal entity or natural person authorised to place products made of precious metals or gemstones on the market, or legal entity or natural person authorised to operate a pawnshop,
  4. creditor under Act no. 129/2010 Coll. on Consumer credits and other credits and loans for borrowers
  5. other person, if so laid down by a special regulation.

 

Obliged Entity shall be for the purposes if this Act also a legal entity or a natural person-entrepreneur carrying out cash transactions in amount of EUR 10,000 at least. For such a transaction is considered transaction carried out in a single operation or in several linked transactions which are or may appear to be connected.

 

Every Obliged Entity is obliged to fulfil the obligation to identify and validate the identification of the customer also in the case carrying out cash transaction in amount of EUR 1,000 at least.

 

Act imposes to Obliged Entities the following obligations

 

  1. identification of a customer and verification of his identification,
  2. identification of the ultimate beneficial owner and verify his identification,
  3. obtaining information on the purpose and intended nature of the business relationship,
  4. to determine whether the customer or the ultimate beneficial owner is a politically exposed person or sanctioned person,
  5. to determine the source of funds with adequacy to the risk of legalization of proceeds of criminal activity or terrorist financing,
  6. finding out if the customer acts in his own name or in the name of another person,
  7. conducting ongoing monitoring of the business transaction or business relationship.

 

Obligations of Obliged Entities are performed by the Obliged Entities through customer, simplified or enhanced due diligence while the Act exactly specifies in which case a particular type of due diligence is required.

 

Obliged Entity shall perform customer due diligence:

 

  • at the moment of establishment of a business relationship,
  • when carrying out an occasional transaction outside a business relationship worth EUR 15,000 at least or when carrying out a cash transaction worth EUR 10,000 at least,
  • if there is a suspicion that the customer is carrying out or preparing an unusual transaction,
  • when there are doubts about the veracity or completeness of obtained data,
  • when operating a gambling game in the transaction worth EUR 2,000 at least or,
  • when concerning withdrawal of a cancelled final balance of bearer deposit.

 

Obliged Entity shall perform simplified due diligence:

 

  • in the case of customers of the Obliged Entity who are also the Obliged Entity under the Act or
  • in the case of the transactions posing a low risk of being exploited for legalization of proceeds of criminal activity if the customer of Obliged Entity is a subject stipulated in Act, for ex. a bank, legal entity whose securities are negotiable on a regulated market in a Member State, a subject of public authority and so on.

 

Obliged Entity is obliged to perform an identification of a customer and verify whether according to the information about the customer or transaction which are available to the Obliged Entity, there is no suspicion that the customer is preparing or carrying out an unusual transaction and whether there is a reason for simplified due diligence. If there is a suspicion that the customer is preparing or carrying out an unusual transaction and if there is any doubt whether it is a simplified due diligence, the Obliged Entity is obliged to perform customer due diligence.

 

Obliged Entity shall perform enhanced due diligence in case where on the basis of risk assessment carried out by the Obliged Entity

  • one of its clients or
  • some of the types of business or any particular business represents a higher risk of legalization of proceeds of criminal activity or terrorist financing.

Enhanced due diligence shall be performed if it is a politically exposed person, person established in a country that the European Commission has identified as high-risk or in a cross-border correspondence relations between the bank and financial institution with a partner institution from a third country.

Act also imposes an obligation for all legal entities that are not a subject of public authority and for special-purpose associations without any legal personality to identify its ultimate beneficial owner and in a paper or electronic form store and update identification data of the ultimate beneficial owner including data from which a natural person can be identified as the ultimate beneficial owner. The legal entity is obliged to keep these data for a period when a natural person has a status of the ultimate beneficial owner and for a period of five years following the termination of this status. Obliged Entities are obliged to register the ultimate beneficial owners into the Commercial Registry. Legal entities established until 31 October 2018 are obliged to fulfil this obligation by 31 December 2019 at the latest.

Obliged Entity is obliged to prepare in writing, introduce and update its Own Activity Programme. The own Activity Programme must contain overview of the forms of unusual transactions of the legal entity or the natural person-entrepreneur and appointment of a person who is liable for the prevention of legalization and terrorist financing, provides reporting of unusual transactions and ongoing contract with the Financial Intelligence Unit.

 

Conclusion

 

Based on the wording of the Act we can conclude that the legislator has significantly extended a circle of Obliged Entities as well as the scope of their obligations. The legislator has imposed obligations also for entities who are no defined as the Obliged Entities, when requiring all legal entities that are not a subject of public authority and special-purpose associations without any legal personality to identify their ultimate beneficial owners and register them into the Commercial registry.

 

In case of infringement of the provisions / obligations of the Obliged Entities the legislator shall lay down the penalties up to EUR 1,000,000.

 

Regarding a relatively high level of penalties laid down by the legislator for non-compliance with the provisions of the Act as well as high probability of further tightening of procedures and obligations relating to prevention of legalization of proceeds of criminal activity it is necessary at the earliest possible date to:

 

 

  1. carefully assess processes in every single entity which is a subject to the relevant obligations stipulated by the Act and set up processes within the scope of prevention of legalization of proceeds of criminal activity,
  2. prepare the Own Activity Programme and appoint the persons liable for ensuring fulfilment of the obligations stipulated by the Act,
  3. identify the ultimate beneficial owners and register them into the Commercial registry (31 December 2019 at the latest) as well as
  4. take all other necessary measures at all levels of risk management in the company in order to fulfil all the obligations stipulate by the Act.

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