Anti-Money Laundering and Terrorism Financing - Background Assessment – Consideration of UIF Sanctions to Institutions under Argentine Central Bank Supervision – New Requirements for Distributions of Financial Results

On October 4, 2013 the Argentine Central Bank (the "BCRA") issued Communication "A" 5485 (the “Communication”) whereby it introduced several changes, mainly regarding the consideration of sanctions imposed by the Financial Information Unit ("UIF") for performing background assessments, the appointment of authorities, and the granting of certain approvals, for financial institutions, foreign exchange brokers, representatives of foreign financial institutions not authorized to operate in Argentina and credit cooperatives.

Indeed, BCRA will evaluate any sanctions imposed by the UIF to the institutions under the BCRA’s supervision that the UIF notifies to BCRA, taking into account for that purpose, among others: (i) the magnitude of the offense, (ii) situations of recidivism or repeated sanctions, (iii) the existence of damages caused to third parties, (iv) any profits generated for the sanctioned institutions, and (v) the role played by individuals authorized by the BCRA that were involved; establishing that such analysis may result in:

(1) initiating administrative proceedings and sanctions provided in Article 41 of Law No. 21,526, as amended (the "Financial Institutions Law") against the obliged subjects (legal entities and also the individuals involved);
(2) the consideration of such unfavorable precedent in cases of: (a) applications for the expansion of the activities of financial institutions and exchange brokers (transformation into another financial institution, set up of operational offices in the country or abroad, increase on its shares in other financial institutions in the country or abroad or set up representative offices abroad, as may correspond), except for financial institutions of the provinces, the City of Buenos Aires and municipalities in their respective jurisdictions; and/or (b) distribution of financial results by financial institutions.

Also, if BCRA in its controlling and preventative tasks related to Anti-Money Laundering and Terrorism Financing (“AML/TF”), considers that the controlled institutions breached other AML/TF provisions, which could also be considered a violation to the Financial Institutions Law or Law No. 18,924 (the Law of Exchange Brokers) and its regulations, it may exercise its powers under Article 41 of the Financial Institutions Law and initiate, if appropriate, administrative proceedings on the obliged subject and the members of the board or equivalent body.

On the other hand, whether in the event that a sanction is communicated to BCRA or a breach to an AML/TF regulation is detected, the BCRA may require immediate corrective actions and/or the compliance of a plan to mitigate the risk, as well as providing a follow-up mechanism in order to improve the obliged subject-prevention system in these matters.

Lastly, an additional requirement has been established in order to enable financial institutions to distribute financial results: they should not have UIF sanctions (weighted as significant sanctions by BCRA). However, exceptions to the aforementioned have also been established: (i) in the event that corrective actions have been implemented by the financial institution to the satisfaction of the Superintendency of Financial and Exchange Institutions of the BCRA; or, (ii) having obtained the Superintendency’s approval of a mitigation risk plan in the event that such plan might have been required by the Superintendency.

The Communication refers to resolutions imposing sanctions issued by the UIF to trigger the consequences established therein; consequently, there would be no need to have a final judicial decision if they were challenged before the courts. In this regard, it is important to note that, since UIF Resolution No. 185/2013 (the “Resolution”) became effective on May 29, 2013, the fines imposed by the UIF must be paid within 10 days counted as from the notification of the resolution by which the UIF imposed such fines regardless of the possibility of challenging such resolution before the courts, and, only when the appeal is decided in favor of the sanctioned person, the amounts paid must be reimbursed. Nonetheless, the aforementioned is applicable to the sanctioning administrative proceedings initiated by the UIF after the date on which the Resolution entered into force.