Anti-Money Laundering and Terrorism Financing: New Obligations for Capital Market and Insurance Sectors

As we have mentioned in one of our previous editions (see our article “Recent News on Anti-Money Laundering and Terrorism Financing Regulations” published in Marval News # 102 on February 28, 2011), during the course of 2011 the Financial Information Unit (UIF) has issued more than 20 Resolutions that established the new requirements that shall be complied with by the Reporting Entities indicated in article 20 of Law No. 25.246, as amended (the “Anti-money Laundering Law”), as to improve and deepen the fight against money laundering assets and the financing of terrorism in line with international standards and the amendment of the Anti-money Laundering Law by Law No. 26.683. In this respect, on December 14, 2011 the Resolutions No. 229/2011 and No. 230/2011 of the UIF were published in the Official Gazette, which stipulate the new obligations that the participants of the capital market and insurance sector shall comply with, as the Reporting Entities under the provisions paragraph 4, 5, 8 and 16 of Article 20 of the Anti-money Laundering Law (the "Resolutions"). In some cases, the Resolutions foresee particular modifications for each sector, and in other, provisions that are common to both sectors.

Among the different modifications, we highlight the following:

Resolution No. 229/2011 of the UIF

In accordance with the recitals of the Resolution, the UIF created a work team along with officials from the National Securities Commission (CNV) in order to analyze and adapt the legislation for this type of Reporting Entities, while presentations were received and different meetings were held with different business chambers and directly interested entities such as Mercado de Valores de Buenos Aires and Mercado Abierto Electrónico. From the different amendments stipulated by Resolution that repeals Resolution No. 33/2011 of the UIF and has been in force since its publication in the Official Gazzette, we highlight the following:

a) Amendments in the Definition of “Client”

It maintains the definition of “client” as one who operates once, occasionally or usually, with the Reporting Entities, whilst also falling under this classification the simple associations of the Article 46 of the Civil Code and other entities to which the certain laws may consider them as legal entities. In this manner, the Resolution considers clients according to the type and amount of their operations: (i) regular clients: those clients that perform operations in an annual amount of at least AR$ 60,000 or its equivalent in other currencies, and (ii) occasional clients: those clients that perform annual operations which are less than AR$ 60,000 and (iii) inactive clients: Those clients whose accounts have not had any activity within a period greater that a calendar year and its assets are less than AR$ 60,000. Additionally, as from the present client classification the form in which the operations are financed within the calendar year will also be considered. The type of documentation that the reporting entities require will depend on the type of client.

Resolution No. 230/2011 of the UIF

Regarding the insurance sector, this is the second time that the UIF establishes the obligations for the Reporting Entities. On this occasion, the UIF created a working group formed by UIF officials and Argentine Superintendence of Insurance’s staff (with the collaboration of several institutions and associations directly interested) in order to analyze and adjust the legislation on this matter. From the different amendments stipulated by Resolution that repeals Resolution No. 33/2011 of the UIF and has been in force since its publication in the Official Gazette, we highlight the following:

1. Settle the Scope of Those Considered Reporting Entities

   While maintaining the expressions "producers, insurance advisors, agents, brokers, appraisers and insurance adjusters", it adds that they will be affected "only when involved in operations related to pension or life insurance". Therefore, the Resolution unifies the criteria adopted in UIF’s Resolution No. 70/2011 for the compliance of the online systematic report.

2. Classification of “Clients” Depending on the Type and Amount of the Transactions

   The Resolution includes significant changes to the "know-your-client" (“KYC”) policies. The Resolution made a distinction between clients (individuals or companies) that hire a single premium policy, or annual premium policy, that is lower than, or equal to, or greater than AR$ 40,000 or its equivalent in foreign currency, in the calendar year. The type of documentation that the Reporting Entities require to each client will depend on the client type of client.

3. Special Procedures in Client Identification

   Thus, the Resolution establishes special identification procedures for which additional documentation must be obtained to define the customer profile when: (i) the client hires a single premium policy or annual premium policy, that is equal to or greater than AR$ 80,000 or its equivalent in foreign currency, (ii) the client makes extraordinary contributions that exceed the sum of AR$ 80,000 or its equivalent in foreign currency as premiums paid during the calendar year, (iii) the total of the amounts of operations mentioned in (i) and (ii) above is equal to or greater than AR$ 80,000 or its equivalent in foreign currency, in the calendar year, (iv) the insurer has to pay a claim and/or compensation for an amount lower than AR$ 200,000 or its equivalent in foreign currency (v) as a result of requests for policies cancellation, the insurer must return premiums to the client for an amount equal to or greater than AR$ 200,000 or its equivalent in foreign currency, in the calendar year, (vi) the client makes partial withdrawals in a calendar year that their accumulated amounts are equal to or greater than AR$ 200,000 or its equivalent in foreign currency, and (vii) a cash surrender is performed in a calendar year, for an accumulated amount equal to or greater than AR$ 200,000 or its equivalent in foreign currency.

4. Complementary Disposition for Financial Entities that offer Insurance Policies

   The resolution establishes that the financial entities that offer insurance policies will govern their operations by the provisions of UFI’s Resolution No. 121/2011 or its future amendments or substitutions, taking into consideration the circumstances specified in Resolution for the purpose of detecting suspicious transactions.

The Resolutions also amended provisions common to the capital market sector as well as to the insurance sector, such as the following:

1. Precisions as for the Definitions of Suspicious Operation and Unusual Operation

   In the event of the unusual operations, it is specified that it will include those without economic and/or juridical justification, because they have no relation with the economic, financial, patrimonial or tributary profile of the client. On the other hand, suspicious operations are those that, having been identified before like unusual, do not relate to lawful activities declared by the client, or when doubts are verified of its authenticity, veracity or coherence of the documentation presented by the client.

2. Unusual Transactions Registry

   The Regulation provides for a change to the rule of the previous resolution, which required registration only for suspicious transactions. Now, the Reporting Entities must prepare records and risk management analysis of any detected unusual transactions and of those that having been considered suspicious have been reported. With this modification, the tasks of those officers responsible for compliance will be increased considerably.

3. Amendments regarding the Manual of Procedures

   The Resolution contains some defined guidelines regarding certain issues that should be explicitly included in the Manual of Procedures. Accordingly, it settles that the Manual of Procedures should include the different parameters applied to the prevention systems implemented by the Reporting Entities which must be confidential except for the Compliance Officer, those who operate in the process of monitoring, control, design and programming the implemented criteria and those who assist the Compliance Officer in carrying out its functions.

4. Amendments regarding the Compliance Officer’s Appointment

   Certain changes are made regarding the requirements applicable to the appointment of the Compliance Officer. The Resolution also provides for the possibility to appoint an Alternate Compliance Officer.

5. Human Resources Area

   As applies to other categories of Reporting Entities, the Resolution states that Reporting Entities must adopt appropriate screening systems to guarantee strict regulations on hiring employees and monitoring their behavior, proportional to the risk related with the tasks that employees carry out, keeping records of those controls, with the involvement of the leader of Human Resources department.

6. Determination of the Clients Profile

   To define the profile of the client, on certain occasions certain parameters will have to be applied, for example, the information and documentation relative to the economic, patrimonial, financial and tributary situation that the client had provided and that could have obtained the Reporting Entities. Hereby, it demonstrates the intention of the UIF to give tributary crime sufficient weight to be considered as a precedent of money laundering.

7. Creation of Client Identification Files

   The client's file must contain the records of compliance with all requirements specified in the Resolution, additionally the file should include all data exchanged, physical or electronic, between the client and Reporting Entity, and any other information or element that may contribute to reproduce the client's profile or that the Reporting Entity considers necessary for the proper acknowledgement of the client.

8. Updating of clients’ files

   The updating of the files to the requirements of the Resolution must be carried out in accordance with the following schedule: (i) for new clients: from the time the Resolution became enforceable; (ii) for existing clients: before July 1, 2012.

9. Deadline for Reporting Suspicious Transactions

   Suspicious transactions of money laundering must be reported within 150 calendar days, and those suspicious of terrorism financing must be reported within 48 hours. In both cases, the supporting documentation for the Suspicious Transaction Report (ROS) must be retained for a period of 10 years and remain available to the UIF, and, if requested, delivered within 48 hours. Thus, the Resolution enacts the rule already adopted by Law No. 26,683.

10. Confidentiality of the Report

    The Resolution expressly provides that the ROS must be confidential, except with respect to the Argentine Superintendence of Insurance when it acts in a supervisory proceeding, supervision and inspection in situ, within the framework of its collaboration with the UIF.

Please also see article “The Financial Information Unit Implemented the Collaboration Procedure for the Tax Authority” also published in this edition of Marval News.