LAW ON PREVENTION, DETECTION, AND COMBATING OF MONEY LAUNDERING AND THE FINANCING OF OTHER CRIMES

 

The “Law on the Prevention, Detection, and Combating of the Crime of Money Laundering and the Financing of Other Crimes” (“Law”), published in the Official Register Fourth Supplement No. 610 on July 29, 2024, will enter into force on July 29, 2025.

 

The Law establishes that the Financial Policy and Regulation Board (“Board”) is the governing authority in matters related to the prevention of money laundering and the financing of other crimes.

 

The Financial and Economic Analysis Unit (“UAFE”) is the technical entity responsible for gathering information, preparing reports, and implementing national policies to prevent, detect, and combat money laundering and the financing of crimes. In addition, it has the authority to impose sanctions on obligated entities.

 

The “Law on the Prevention, Detection, and Eradication of the Crime of Money Laundering and the Financing of Crimes” is repealed[1].

 

Below are the main aspects covered by the Law:

 

1. Obligated entities

 

The Law establishes the following as obligated entities:

 

• Financial sector
  1. Public: Banks and cooperatives
  2. Private: multiple and specialized banks; financial services (general deposit warehouses, exchange houses, and corporations for the development of the secondary mortgage market); credit card administrators; companies providing national and international money transport services.

 

• Popular and solidarity-based financial sector
  1. Central savings banks
  2. Communal banks and savings and loan associations
  3. Mutual savings and loan institutions for housing
  4. Credit card administrators

 

• Insurance system entities that issue life or investment-related insurance
  1. Companies engaged in insurance operations
  2. Reinsurance companies
  3. Reinsurance intermediaries
  4. Insurance advisor-producers

 

• Non-financial entities that grant credit above the limits established by the Board

 

• Entities participating in the National Payment System[2]

 

• Entities offering financial leasing services

 

• Companies engaged in currency exchange services

 

• Corporate service and trust service providers

 

• Acting as a trustee of an express trust

 

• Virtual asset service providers: those whose business involves the exchange between virtual assets and legal tender; exchange between one or more forms of virtual assets; transfer of virtual assets; custody or administration of virtual assets or instruments enabling control over virtual assets; and participation in or provision of financial services related to an issuer’s offer or sale of a virtual asset

 

1. Lawyers and accountants as obligated entities

 

The Law establishes that lawyers and accountants will be considered obligated entities when they carry out transactions on behalf of their clients involving:

 

1. Purchase and sale of real estate
2. Management of the client’s money, securities, or assets
3. Management of bank accounts
4. Organization of contributions for the creation or management of companies
5. Creation, operation, or management of entities

 

Independent lawyers and accountants are required to report suspicious transactions carried out by their clients if they act as legal representatives, provided that the relevant information was not obtained when they are subject to professional secrecy.

 

• Responsibilities of the obligated entities

 

1. Develop a program for detecting, preventing, mitigating, and managing risks related to money laundering, the financing of terrorism, and the proliferation of weapons of mass destruction.

 

2. Design and implement a risk management methodology for money laundering that includes: identification, assessment, monitoring, management, and mitigation of risks.

 

3. Develop and implement a methodology that categorizes risks as high, medium, or low, and incorporates at least the following risk factors: clients and users, products or services, geographic areas, distribution channels, and transaction patterns.

 

4. Apply due diligence to current or potential clients and suppliers, considering the following:

 

1. Confirm the identity of clients or suppliers.
2. Identify and confirm the authorization of the individual acting on behalf of the client.
3. For entities, identify and verify the beneficial owner of the entity or trust.
4. Gather information on the purpose of the business relationship and the source of funds.
5. Continuously monitor the business relationship and review transactions to ensure they align with the client’s profile and risk level.

 

For clients that are entities, legal structures, or trusts, the identification and verification must include:

 

1. Name, legal or trade name, legal form, proof of existence, and address of the main office;
2. The governing authorities of the entity, legal structure, or trust, as well as the names of the individuals holding senior management positions; and
3. Understanding the nature of the client’s or supplier’s business, and their ownership and control structure.

 

If the obligated entity fails to comply with risk-based due diligence measures, it may not initiate a business relationship, open an account, or execute a transaction. If the business relationship has already begun, it must be terminated, and a suspicious transaction report must be submitted to the UAFE.

 

5. Request the corresponding registration code from the UAFE.

 

6. In In the event of suspicion of illicit activity, a suspicious transaction report must be submitted to the UAFE within five days of becoming aware of the activity.

 

7. Report to the UAFE all individual operations or transactions equal to or greater than USD 10,000, within the first 15 days of each month.

 

8. Record the absence of suspicious transactions in the UAFE’s reporting system within 10 days after the end of each month.

 

1. Administrative violations and sanctions

 

Violations are classified as follows:

 

1. Minor violations: a fine of one to ten unified basic salaries will be imposed for the following offenses:
   • Lack of training for personnel in matters related to money laundering prevention;
   • Failure to comply with regulations issued by the supervisors of obligated entities; and
   • Failure to implement risk mitigation or management measures when low-risk situations have been identified.

 

1. Serious violations: a fine of eleven to twenty unified basic salaries will be imposed for the following situations:
   • Improperly requesting the registration code issued by the UAFE or operating with an outdated code;
   • Incomplete, incorrect, or late reporting of suspicious transactions to the UAFE;
   • Delays in providing information required by the UAFE;
   • Failure to appoint a compliance officer;
   • Failure to implement due diligence measures;
   • Failure to comply with continuous monitoring provisions regarding the commercial relationship with the client;
   • Failure to comply with provisions related to electronic transactions concerning the information of the originator and beneficiary, and their retention;
   • Failure to implement due diligence and mitigation measures by identified money laundering risk;
   • Failure to implement mitigation or risk management measures when medium or high-risk situations have been identified;
   • Failure to comply with the provisions for the development and implementation of a program for the detection, prevention, and management of money laundering risks; and
   • Repeated commission of the same minor violation within one year.

 

1. Severe violations: a fine of twenty to forty unified basic salaries will be imposed for the following offenses:

• Operating without the registration code issued by the UAFE;
• Operating without the required registration, license, or authorization related to money laundering prevention;
• Failure to retain records of information for ten years;
• Failure to report suspicious transactions to the UAFE;
• Holding or opening an account without identifying the beneficial owner, or holding or opening anonymous accounts;
• Maintaining a business relationship or account without ongoing identification of the beneficial owner;
• Initiating, continuing, or failing to terminate a relationship with a shell bank;
• Disclosing to unauthorized third parties the submission or existence of a suspicious transaction report or any information sent to the UAFE, or revealing that a suspicious transaction is under examination;
• Failure to provide information required by the UAFE;
• Refusing, preventing, obstructing, or hindering the oversight, supervision, and monitoring conducted by regulatory bodies;
• Failure to comply with preventive measures ordered by the competent authority;
• Failure to implement corrective measures; and
• Disclosing or using information classified as confidential or secret by the UAFE.

[1] Official Register Supplement No. 802 of July 21, 2016.

[2] Entities that belong to the Central Payment System include: the interbank payment system, interbank collection system, check clearinghouse, specialized clearinghouses, online payment system, integrated payment system, and the instant payment network; and to the Auxiliary Payment System: financial institutions, auxiliary service providers of the financial system, technology service providers, specialized electronic deposit and payment companies, and administrators of the Auxiliary Payment System (Resolution No. JPRM-2024-018-M).

 

Dario Escobar, Asociado en CorralRosales
descobar@corralrosales.com
+593 2 2544144