New Regulations of the Financial Information Unit and the Central Bankagainst Money Laundering and the Financing of Terrorism [1]

The Financial Information Unit (“FIU”) approved the “Directive concerning the Regulation of Article 21 (a), (b) of Law No 25,246 – Suspicious Activities” with Resolution No 228/2007 dated December 5, 2007 (the “Resolution”). Following this Resolution, the Central Bank of Argentina (CBA) amended the rules regarding the Financing of Terrorism Prevention with Communication “A” 4750 as of December 19, 2007 (the “Communication”).

During 2007 several rules towards the regulation of Money Laundering and Financing of Terrorism were enacted. Among the most important ones we can enumerate Decree No 290/2007 about Money Laundering; Decree No 1225/2007 about the National Agenda for the War Against Money Laundering and Resolution FIU No 2/2007 about Suspicious Activities.

The Resolution regulates the procedure that entities obliged to report suspicious activities, as indicated by Article 20 of the Law of Money Laundering and Financing of Terrorism, have to follow in order to gather information from their clients and to report crimes of this nature to the FIU. 

Such Resolution has two exhibits: Exhibit I “Suspicious Activities – Terms, Opportunities and Limits regarding the Compliance of the Obligation to Report them”; and Exhibit II: “Guide to Unusual or Suspicious Transactions in the Scope of the Finance and Exchange System”.

Exhibit I sets forth that entities obliged to report suspicious activities shall gather documentation that verifies the identity, legal capacity and domicile of its clients, whether they are regular or incidental clients.

Individuals who are regular clients shall present a sworn statement regarding the legality and origin of the funds. If the regular client is a legal entity the firm’s name shall be required, inscription in the Public Registry of Commerce, copy of its updated by-laws and copy of the last balance statement certified by an accountant and legalized by the Professional Council of Economic Sciences.

If the client is incidental the following shall be required:

i)            Transactions above AR$ 30,000: Sworn statement about the legality and origin of the funds.

ii)            Transaction above AR$ 200,000: Sworn statement and additionally the documentation or information that certifies the declared origin of the funds.

This Exhibit also sets forth additional measures for the identification of private clients. To enumerate some of them, whenever there is doubt as to whether the client acts for himself or on behalf of a third party, entities obliged to report shall adopt reasonable measures in order to obtain the true identity of the person. Regarding trusts, such identification shall include trustees, trustors and beneficiaries.

Exhibit I finally sets forth that each entity obliged to report shall designate a Compliance Officer in charge of protecting the compliance of these rules. Within its obligations, we can find that the Compliance Officer shall have the duty to prepare a Suspicious Activities Report (SAR) whenever a client does not want to reveal information or when, during the commercial relationship, there are inconsistencies between the transaction and the client’s background.

Exhibit II sets forth a guide of transactions that should be paid particular attention. To enumerate some of them, we can consider suspicious activities these transactions:

a.    Operations made with cash:

i)             Deposits or extractions of large and unusual amounts of cash when the ordinary transaction of the client is to use checks or other financial instruments.

ii)            Substantial increases in cash deposits without apparent reason.

iii)            Exchanges of large quantities of low denomination bank notes for high denomination bank notes.

iv)            Deposits of large amounts of cash outside business hours.

b.    Operations through bank accounts:

i)             Several bank accounts of the same client whose total balance are large amounts of money or deposits of large amounts of money in bank accounts that register a long inactivity.

ii)            Clients that jointly and simultaneously use different cash extracting machines to make big transactions or operations of currency exchange.

iii)            Bank accounts that receive money from offshore jurisdictions.

iv)           Accounts that do not have big transactional or operational movements but are rarely used for receiving or transferring large amounts of money.

v)           Transfers of large amounts of money to or from outside the country with instructions to pay in cash.

c.    Foreign Exchange operations:

i)             Change in the name and direction of the beneficiary of the letter of credit right before the payment.

ii)            Change in the place of payment of the letter of credit.

iii)            Imports or exports with excess invoices or sub invoices.

d.            Operations related with investments:

i)             Deposits or transfers of “back to back” loans with subsidiaries of the bank in “off shore” jurisdictions.

ii)            Unusual or significant movements of money in accounts with securities in custody.

Further, Exhibit II introduces a chapter about the Financing of Terrorism where it is explained that if the entities obliged to report suspicious activities suspect or have reason to suspect the existence of funds related to terrorism or with terrorism organizations, they shall immediately report such situation to the FIU.

This might be originated due to some behaviors that, among others, are explained below:

i)             Inactive accounts that contain a minimum amount of money and that unexpectedly receive a deposit or deposits followed by withdrawals of money up to emptying the bank account.

ii)            Accounts that bears authorized signature of several individuals when it seems to be no relationship between them.

iii)           Account open by a recently created legal entity and that has a level of deposits higher than the expected, compared with the declared income of the shareholders or partners.

iv)           Clients with bank accounts in close entities that consolidate the amounts in one of them for a future transfer of money to other account.

v)            Low transfers of money with a clear intention of evading transfers higher than AR$ 30,000.

vi)           Funds’ transfers made by clients, with immediate in and out transfers, especially if the client asks that such transactions are not registered in the account.

The Communication of the CBA amends section 4 (“information regarding suspicious transactions”) of the rules regarding the financing of terrorism prevention setting forth that if entities suspect or have reasonable doubts to suspect the existence of funds related with terrorism, or if they suspect that such funds are going to be used by terrorism organizations, entities must report such situation from now on to the FIU.

Prior to this Communication, such activities were reported to the Superintendency of Financial and Exchange Entities.

One last amendment is enacted by the abovementioned Communication, stating that section 5 (“Guide of transactions to identify suspicious activities”) of the rules regarding the financing of terrorism prevention has been revoked.

In conclusion, we can see that both the FIU and the CBA continue to strictly regulate the conducts that should be adopted by the entities obliged to report suspicious activities related with money laundering and the financing of terrorism.