As a Romanian law firm, we are aware of the issues concerning money laundering not only from a professional point of view (know your client), but also from advising clients of their liabilities. This short article is to highlight issues which may not be immediately apparent and of which clients should be aware and at the same time to draw attention to registration and other requirements required under the Law. We urge those in the relevant fields to contact advisors for further information as required. The penalties are not insignificant.
In July 2019 Law no. 129 (“Law”) for the prevention and combating of money laundering and terrorist financing was adopted. The Law established the national framework for preventing and combating money laundering and terrorist financing, and includes, but is not limited to authorities, institutions and private companies and individuals who carry on business in their own name. This article is intended to give an overview of the legislation and some guidance as to how it will affect business in Romania and that business needs to be aware of its provisions and impact.
The Law transposed the two European directives, Directive (EU) 2015/849 which amended the Regulation (EU) no. 648/2012 of the European Parliament and Directive (EU) 2016/2258 amending Directive 2011/16.
The following persons and businesses in Romania are now subject to the Law and become reporting entities. Romanian credit institutions, and branches of foreign credit institutions; Romanian financial institutions and branches of foreign financial institutions; administrators of private pension funds in their own name and for the private pension funds that they manage. Providers of gambling services; auditors, accounting experts and authorized accountants, auditors, persons providing tax, financial, business or accounting advice.
Public notaries, lawyers and judicial executors if they provide assistance regarding the purchase or sale of immovable property, shares or social shares or elements of the fund; trading in and administration of financial instruments, securities or other assets of clients, transactions that involve sums of money or the transfer of property.
Persons involved in the establishment or administration of bank accounts, savings or financial instruments, organizing the process of underwriting contributions necessary for the establishment functioning or administration of a company. Those involved in the establishment, administration or management of such companies; collective investment undertakings in securities or other similar structures, as well as participating on behalf of or for their clients in any operation of a financial character or targeting immovable property; service providers for companies or trusts; real estate agents.
Finally other entities and natural persons who trade as professionals in goods and/or provide services who carry out cash transactions whose amount represents the equivalent or more in RON of ten thousand EUR regardless of whether the transaction is executed through a single operation or through several operations that have a connection between them.
It can be seen by these definitions that the provisions of the Law are wide and potentially involve nearly every aspect of commercial life.
The Directives and the Law require that matters are now approached on a risk-based approach. Countries and their competent authorities and banks will have to identify, assess, and understand the money laundering and terrorist financing risk to which they are exposed, and take the appropriate mitigation measures in accordance with the level of risk.
This will mean that these authorities can require that all relevant persons and bodies in Romania who could be involved, even without realising it in such transactions are to report any suspicious or potentially suspicious transaction. Already several our clients have been asked to justify certain transactions to their banks and authorities and more stringent reporting requirements will evolve over a period.
The risk-based approach is achieved, at national level, through establishing the businesses and categories of reporting entities based on the analysis of the risk of money laundering and terrorist financing to which they are exposed and establishing administrative obligations on them in order to mitigate these risks.
The authorities also must assess the fulfilment of these obligations imposed by the measures that have been adopted and applied by the reporting entities according to their individual evaluated risks.
Romania has establishes its own office in relation to the prevention and combating money laundering (Oficiului Ficiciului Nationale de prenenire si Combate re a Sparlarii Banilor) who will ensure the publication on its own website a summary of the national risk assessment and will transmit to the EU supervisory authorities the relevant elements of the national assessment.
In addition the National Agency for Fiscal Administration is required to immediately send a report of suspicious transactions to the Office when applying Regulation (EC) no. 1.889 / 2005 regarding the control of cash entering or exiting the European Union and which it knows, or suspects or has reasonable reasons to suspect that the goods / funds come from the commission of offences or related to the financing of terrorism.
The reporting entities as described above have the strict obligation to report to the Office transactions in cash, whose minimum limit represents the equivalent in RON of 10,000 EUR whether in Ron or foreign currency. Credit institutions and financial institutions defined in accordance with this law will submit online reports on external transfers to and from accounts where the minimum limit represents the equivalent in RON of EUR 15,000.
Customer awareness measures for Reporting entities now impose an obligation to keep in written or electronic format all the records applying these measures. These can be copies of the identification documents, the verification documentation of a transactions, including information obtained through the means necessary to comply with the know your client principal imposed on businesses. This information must be retained for a period of 5 years from the date of termination of the business relationship with the client or from the date of the transaction.
The criminal investigation bodies will communicate to the Office annually the stage of resolving the information transmitted, as well as the amount of the amounts in the accounts of the natural or legal persons for whom the blocking was ordered, as a result of the suspensions carried out or of the insurance measures ordered.
The Know your Client measures are divided, according to the law, in standard measures, simplified measures and additional measures, depending on the degree of risk of the client. The reporting entities must apply the standard measures of Know the client in the case of entities from which they receive funds greater than the equivalent in RON of EUR 1,000.
Another change is the one related to the politically exposed persons. Not included in this legislation are references to presidential and state councillors but now are introduced members of the governing bodies of the political parties.
The Sanctions under the legislation have also been increased. They range between 25,000 RON to 120,000 RON in certain cases. For legal entities, breaches of certain provisions can be sanctioned with a warning or with the fine with a maximum amount of 10% of the total incomes reported for the last fiscal period. The sanctions can be applied to the members of the board of management and to other people who are responsible for breaking the law.
In the event that any of a contraventions committed by a financial institution, other than those supervised by the National Bank of Romania, and if the breach is serious, repeated, systematic or a combination the upper limits of the fines are for legal persons with RON 5,000,000 and for individuals RON 50,000.
Each company who is liable to supply reports and notifications must designate one or more persons with responsibilities in respect of the law. The communication of the designated person’s identity will be made to ONPCSB only in electronic format. The obligation to appoint a person does not apply to individuals who have the status of a reporting entity.
All reporting entities whether individual or corporate should establish internal policies and rules for managing the risks of money laundering and financing terrorism. These should include policies in respect of the following (i) know your client, (ii) rules applicable to reporting, keeping records and all documents in accordance with the law, (iii) internal controls, risk assessment and compliance management and communication,(iv) protection of employees in the process and periodic training and evaluation of employees.
Depending on the size and nature of the company it is required to have an independent audit function for the purpose of testing policies, internal rules, mechanisms and procedures and monitoring these policies, internal rules, mechanisms and procedures.
The application of the above measures imposes the obligation to keep for a period of 5 years from the date of termination of the business relationship or from the date of the transaction in hard copy/electronic format all records obtained through the application of the measures including copies of identification documents. This can include identification information obtained electronically.
If it is necessary to extend the period of keeping the documents in order to prevent, detect or investigate money laundering or terrorist financing activities, the reporting entity is obliged to extend the period for a further period indicated by the authorities. At the expiration of any retention period there is an obligation to delete personal data, except when other legal provisions require the retention of the data.
All the above will impose more administration on business both small and large. Our advice is to confront the problem now before issues arise. Money spent now in dealing with this issue will help resolve any problems which may arise in the future.