Regulations for the prevention of money laundering, financing of terrorism and other crimes

Regulations for the prevention of money laundering, financing of terrorism and other crimes - CorralRosales - Lawyer Ecuador
The following is a summary of the main obligations of the parties obliged to report to the Financial and Economic Analysis Unit (UAFE) according to article 5 of the Organic Law for the Prevention, Detection and Eradication of Money Laundering and Financing of Crimes, published in the Second Supplement to the Official Registry 411 of March 16, 2021.

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DISCLAIMER: The previous text has been prepared for informational purposes. CorralRosales is not responsible for any loss or damage caused as a result of having acted or stopped acting based on the information contained in this document. Any additional determined situation requires the specific opinion and concept of the firm.


Amendments to the law of companies

On December 10, 2020, the Law of Modernization to the Law of Companies was published in the third supplement of Official Gazette 347, of which the most relevant aspects are the following:

a) Permitted activities outside the corporate purpose: Companies are allowed to occasionally or in an isolated manner enter into acts or contracts for investment, research or experimentation purposes, or as reasonable contributions of a civic or social nature.

b) Elimination of the opposition process: The process of opposition by third parties to the reduction of capital, change of name, early dissolution and change of domicile is hereby eliminated.

c) Single shareholder: The stock company and the limited liability company may subsist with a single shareholder. For its incorporation, at least two contracting parties must participate. Consequently, the cause for dissolution is hereby eliminated if a second shareholder is not incorporated within six months.

d) Corporate acts that do not require approval:  The voluntary and anticipated dissolution does not require previous authorization of the Superintendence of Companies, Securities and Insurance. Therefore, the direct inscription of the corporate act in the Mercantile Registry is allowed for the beginning of the liquidation, which will be supervised by the control entity.

Neither does the change of name, change of domicile and modification of the corporate term require prior authorization.

e) Indefinite term: Stock and limited liability companies can be set up for an indefinite term.

f) President of the board of directors and legal representative: In the companies in which the bylaws provide for the existence of a board of directors, the legal representative of the company may not be the president or representative of that body.

g) Share premium: When non-shareholders participate in a capital increase, it may be decided the new shares to be issued with a value greater than the nominal value (share premium) to be paid by the new shareholders. The issue premium will be part of the voluntary reserves and will be freely agreed upon by the investor and the company.

h) Voluntary control: Stock companies may or may not have commissaries as a control body.

i) Loss absorbency: When a company registers operational losses and has reserves, these will be automatically called to be wiped out.

j) Cause of dissolution for losses: A company will incur in a cause of dissolution for losses when these represent 60% or more of the assets and this situation is maintained for more than 5 continuous years.

k) Transfer of the registered office abroad: The transfer of the registered office of an Ecuadorian company abroad is allowed if the receiving country allows the maintenance of the legal status of the company.

l) Global assignment of assets and liabilities to liquidate a company: A company may transfer in block all its assets to third parties, shareholders or other parties in exchange for a consideration. The global transfer of assets and liabilities must be approved unanimously by the general meeting of shareholders, granted by public deed and will not require the approval of the Superintendence of Companies, Securities and Insurance.  The global assignment of assets and liabilities will have the effects of the transfer of companies as economic units as provided in the Code of Commerce.  The assigning company will cancel its registration in the Commercial Registry without any additional procedure once the total value received from the global assignment of assets and liabilities has been distributed among its shareholders.  The joint and several obligations that under the Commercial Code are attributable to the person transferring the company will be assumed by the shareholders of the extinct company in proportion to their participation in the share capital.

m) Association or Joint Purse Agreements: The regulations regarding this figure, with some modifications, are excluded from the Law of Companies and are incorporated as reforms to the Code of Commerce.

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DISCLAIMER: The preceding text has been prepared for general information purposes only. CorralRosales is not responsible for any loss or damage caused as a result of having acted or stopped acting based on the information contained in this document. Any given situation requires the specific opinion and view of the firm in Quito / Guayaquil, Ecuador.


Compliance as a business culture


Strict compliance with legal and ethical standards is a requirement for all companies today. To that end, each company must develop a culture of prevention through a regulatory compliance program, known as “compliance”. Compliance applies to all actions, relationships and procedures of the company and, therefore, all actions of managers and employees must be subject to this culture.

Keep in mind that not complying with legal obligations, not only could bring economic sanctions to those who act in this way, but could even cause criminal charges not only for the people who committed such acts but also for the companies themselves that are active subjects of the crime as stated in the Comprehensive Organic Penal Code that came into force in 2015.

The adoption of a compliance program is not simple, since it implies changing the culture of a company, not only by its partners, shareholders, managers and workers, but also by customers and suppliers.

Here are some of the key steps to adopt an effective compliance program:

  1. Start at the head of the institution: any change in the culture of a company starts at the top; therefore, the first step is for managers to have precise knowledge of what compliance entails, such as corporate culture and the willingness to adopt it. Therefore, it is up to them to transmit the adoption of the program to all levels, which implies the necessary commitment of everyone to strictly comply with it.
  2. Prevention and analysis: it is necessary to carry out a diagnosis regarding the approach that the program will have, this approach must be adapted to the individual characteristics of each company. For example, an organization that performs public procurement must implement a different compliance plan, compared to a company that mostly sells to the private sector. Once the areas of greatest risk have been identified, the necessary resources will be assigned to make the changes.
  3. Education: education is essential to achieve culture change. It is essential that all or at least the absolute majority of workers understand the scope of compliance. This ensures that any non-compliance that could harm the company is reported on time. Education programs must be continuous (at least every 6 months), personalized for each role, and must provide information on the legal framework for compliance.
  4. Communication: Internal regulations of companies contained in a code of conduct must be clear, affordable, and permanently communicated to their workers. It should include topics such as: corruption, blackmail, bribery, conflicts of interest, tax evasion, money laundering, among others. In addition, it must establish who is responsible for the compliance program and the mechanism through which employees can report or consult a case where a breach could happen.
  5. Relevance: the importance of the program must be determined, and the personnel and resources required for its implementation must be assigned to it. Otherwise it could become “dead letter” without any significance for the company that adopts it.

The additional costs that implementing a compliance program may eventually demand are fully justified if, with its deployment, the company achieves an unblemished reputation for strict compliance with the law and ethics in its business relationships with shareholders, customers and suppliers. This behavior will translate into better positioning in the market and the consequent increase in sales.

María Isabel Torres
Associate at CorralRosales