18
Feb2020

Obligations and controversies of the new law for prevention and combating money laundering and terrorist financing

On July 18, 2019, Law no. 129 of July 11, 2019 for the prevention and combating of money laundering and terrorist financing, as well as for the modification and completion of other normative acts, modified by the Government Emergency Ordinance no. 68 from November 6, 2019 has been published in the Official Gazette no. 589.

This norm transposed into Romanian legislation two EU directives on combating money laundering and terrorist financing: (1) Directive (EU) 2015/849 of the European Parliament and the Council dated May 20, 2015 on prevention of the use of the financial system for money laundering or terrorist financing, amending Regulation (EU) 2012/648 of the European Parliament and of the Council and repealing Directive 2005/60/EC of the European Parliament and of the Council and Commission Directive 2006/70/EC, published in Official Journal of the European Union, L series, no. 141 dated June 5, 2015 and (2) Council Directive (EU) 2016/2258 of 6 December 2016 amending Directive 2011/16/EU as regards the access of tax authorities to information on combating money laundering, published in the Official Journal of the European Union, series L, no. 342 of December 16, 2016.

As its name suggests, Law no. 129/2019 represents an evolution of the Romanian legislation regarding the annihilation of money laundering and terrorism by implementing procedures for informing and reporting the transactions considered suspicious. Also through this normative act the National Office for Prevention and Combating Money Laundering (ONPCSB or the Office) was set up, representing the authority that coordinates the implementation of the risk assessment of money laundering and terrorist financing at national level, evaluation that is carried out in cooperation with the authorities and the institutions provided by law, with the protection of personal data. Also, the Office coordinates the response at national risks evaluated in cooperation with the authorities and institutions provided by law, informing the European Commission, the European System of Financial Supervision and the Member States. 

An element of maximum novelty brought by the new law, unlike the previous legislation, is the widening of the so-called reporting entities. Within the art. 5 paragraph (1) of Law no. 129/2019 are mentioned the persons (natural or legal) who have the obligation to collect data and to inform the National Office for the Prevention and Control of Money Laundering, called reporting entities . These are:

  1. a) Romanian legal credit institutions and branches of foreign credit institutions;
  2. b) Romanian legal entities and the branches of the foreign legal entities;
  3. c) administrators of private pension funds, in their own name and for the private pension funds they manage, except for occupational pensions;
  4. d) providers of gambling services;
  5. e) auditors, accounting experts and authorized accountants, persons who provide fiscal, financial, business or accounting consultancy;
  6. f) public notaries, attorneys at law, enforceable judicial and other persons exercising judicial liberal professions, if granted assistance for the preparation or issuance of operations for customers on purchase or sale of property, shares, social parts or trade funds, administration of financial instruments, securities or other assets of customers, operations or transactions that involve a sum of money or a transfer of property, the establishment or administration of bank accounts, savings or financial instruments, the organization of the underwriting process regardind the contributions needed to set up the transaction, operate or manage a company; the establishment, administration or management of such companies, collective investment undertakings in securities or other similar structures, as well as if they participate on behalf or for their clients in any operation of financial character or regarding real estate;
  7. g) service providers for companies or trusts, other than those provided in letter e) and f);
  8. h) real estate agents;
  9. i) other entities and natural persons who market, as professionals, goods or services, insofar as they carry out cash transactions whose minimum limit is the equivalent in lei of 10,000 euros, regardless of whether the transaction is executed through a single operation or through several operations that have a connection between them.

From the same perspective of the new legal provisions, article 6 paragraph (1) shows that these reporting entities are required to submit a report if they know, suspect or have reasonable grounds to suspect that one of the following cases is incident:

  1. a) the goods come from the commission of crimes or are related to the financing of terrorism;
  2. b) the person or his/her authorized representative is not who he/she claims to be;
  3. c) the information that the reporting entity holds may be used to impose the provisions of the present law;
  4. d) in any other situations or regarding elements that are likely to raise suspicions regarding the character, economic purpose or motivation of the transaction, such as the existence of anomalies with the customer profile, as well as when there are indicators that the data held about the customer or the actual beneficiary is not real, and the client refuses to update them or offers explanations that are not plausible.

Also, there is the obligation to report including on transactions that do not have suspicion indicators, in the case of transactions with amounts in cash, in lei or in foreign currency, whose minimum limit is the equivalent in lei of 10,000 euros. When the transactions are carried out through a credit or financial institution, the reporting obligation rests with it, except for the operations in the remittance activity, which will be reported according to par. (5) in art. 7 of the law.

Attorneys at law also have the obligation of reporting being liberal professions included in art. 5 paragraph (1) lit. f) of the present law. They act as a reporting entity in the following cases: assistance for the preparation or issuance of operations for customers on purchase or sale of property, shares or social parts or elements of the trade fund, administration of financial instruments, securities or other property of the customer, operations or transactions that involve a sum of money or a transfer of ownership, the establishment or administration of bank accounts, savings or financial instruments, the organization of the subscription process of the contributions necessary for the establishment, operation or administration of a company; the establishment, administration or management of such companies, collective investment undertakings in securities or other similar structures, as well as if they participate on behalf or for their clients in any operation of financial character or regarding real estate.

Within the art. 9 paragraph (3) of Law no. 129/2019, exceptions to reporting are applicable, including attorneys’ at law as reporting entity, namely: The persons provided in art. 5 paragraph (1) lit. e) and f) do not have the obligation to send a report of suspicious transactions regarding the information they receive from one of their clients or they obtain in connection with them during the evaluation of the legal situation of the client in court proceedings or in fulfilling the obligation to defend or represent the client in court proceedings or in connection with these procedures, including legal advice on initiating or avoiding proceedings, whether or not this information is received or obtained before the proceedings, during to them or after them” . However, these provisions do not apply when reporting entities are aware that legal advisory activity is provided for money laundering or terrorist financing or when they know a client wants legal advice for money laundering or terrorist financing. 

This normative act gives a broad meaning to the notion of client and clientele in the art. 2 lit. r): they mean any natural, legal person or entity without legal personality with which the reporting entities carry on business relations or with which they carry out other operations of permanent or occasional character. The client of a reporting entity is considered to be any person with whom, in the course of its activities, the reporting entity has negotiated a transaction, even if the respective transaction has not been completed, as well as any person who benefits or previously benefited from the services of a reporting entity. 

Attorneys at law also have the obligation to implement measures to know the clients/clientele. Thus, in accordance with art. 11 of the law, they must – before establishing a business relationship – identify the client and verify his/her identity based on documents, data or information obtained from credible and independent sources, as well as identify the real beneficiary and take reasonable measures to verify his/her identity. Attorneys at law also need to assess the purpose and nature of the relationship of business and, if necessary, to get further information about these and monitor continuously the business’ dealings there are conducted. In the same sense, the reporting entities verify whether a person who claims to act on behalf of the client is authorized to do so, in which case they identify and verify the identity of that person. Within the art. 13 of Law no. 129/2019 are detailed the situations in which the standard measures of customer knowledge are applied. 

At a first glance, a conflict arises between the reporting obligation established by the Law for preventing and combating money laundering and terrorist financing and, respectively, the obligation of confidentiality regarding the professional secrecy of attorneys at law. Art. 33 of Law no. 129/2019 stipulates in par. (4) and par. (5) the following: The professional secrecy and the banking secrecy to which the reporting entities are kept, including those provided by special laws, are not objectionable to the Office, except for the entities mentioned in par. (5). The lawyers shall comply with the provisions provided by this law, in compliance with the provisions provided by Law no. 51/1995 for the organization and exercise of the profession of attorneys at law, republished, with subsequent modifications, regarding the maintenance of professional secrecy. The same Law no. 129/2019 provides in art. 37 paragraph (1) that the observance of the reporting entity’s obligation to notify the authorized bodies regarding any suspicious transaction does not constitute a violation of a disclosure restriction imposed by the contract or by an act of law or administrative act and does not entail any liability for the obliged entity or its employees. On one hand, we observe that attorneys at law – as a reporting entity – can object to the Office’s professional (confidentiality) secrecy. Art. 11 of Law no. 51/1995 for the organization and exercise of the profession of attorneys at law stipulates that the attorney is obliged to keep the professional secrecy regarding any aspect of the case that has been entrusted to him, except the cases expressly provided by law. We appreciate that Law no. 129/2019 does not constitute an exception to abolish the professional secrecy between the lawyer and the client, as long as the legal norm itself indicates that the attorneys will comply with the provisions regarding the professional secret. On the other hand, it follows from art. 37 of the same law that reporting is not a crime as a result of disclosure of professional or banking secrecy.

The Charter of Fundamental Principles of the European Lawyer states that the essence of the attorney’s profession also includes the fact that he will be told things, which the client would not tell another person – the most intimate details of private life or the most valuable trade secrets – and that the lawyer should be receptive to the information obtained on the basis of trust. Without the security of confidentiality there can be no trust. The Charter places a special emphasis on the dual nature of the principle – respecting confidentiality is not only the lawyer’s obligation, but it is a fundamental human right of the client. In the same sense, the provisions of Law no. 129/2019 must be reconciled with art. 6 of the Convention for the Protection of Human Rights and Fundamental Freedoms (ECHR) regarding the right to a fair trial. In an older case of the European Court of Human Rights having an almost identical subject, it is shown that the attorney at law would not be able to fulfill his mission of advising, defending and representing his client properly, and he would, therefore, be deprived of the rights conferred on it by Article 6 of the ECHR if the lawyer, in the course of a judicial procedure or its preparation, was obliged to cooperate with the public authorities, transmitting them information obtained during the legal consultations granted. In such a procedure, however, given that that legal rule lays down exceptions to the obligations of information of lawyers and respects the valences of professional secrecy, the European Court has ruled as follows: Information and cooperation obligations with the authorities responsible for combating money laundering provided for in Article 6 paragraph 1 of Council Directive 91/308 / EEC of 10 June 1991 on the prevention of the use of the financial system for the purpose of money laundering, as amended by Directive 2001/97 / EC of the European Parliament and of the Council of 4 December 2001, and imposed on lawyers by Article 2a (5) of this Directive, taking into account the second subparagraph of Article 6 (3) thereof, does not infringe the right to a fair trial, as guaranteed by Article 6 of the ECHR and Article 6 (1). (2) of the EU Treaty. In our opinion, the same guarantees should be granted to attorneys at law in the context of the current law for preventing and combating money laundering, in order to confirm the inviolability of professional secrecy.

When the reporting entity is not able to apply the customer awareness measures, it must not open the account, initiate or continue the business relationship or carry out the occasional transaction and must draw up a suspicious transaction report in relation to that client, whenever there are grounds for suspicion, which will be transmitted to the Office. 

To the extent that there is a suspicion as described above, the reporting method is open under art. 8, the reporting entities should immediately fill in the report form, which they will send to the Office, being notified also the management structures of the liberal professions, in the situation of attorneys at law as a reporting entity. The National Office for the Prevention and Control of Money Laundering has implemented an online reporting procedure, in order to simplify this process.

Reporting entities, in order to benefit from the possibility of online reporting, must meet a number of initial conditions:

– designate one or more or persons having responsibilities pursuant to Law no. 129/2019 (according to article 23 of the law);          

– access the Electronic Data Transmission site at https://raportare.onpcsb.ro;          

– the completion of an initial form;          

– printing and saving the generated form, containing the request in allocation of a user account;          

– the signed and stamped form will be sent or registered at the Office;          

– receival of the account password.          

Regarding attorneys at law as reporting entities, the National Union of Bars in Romania (UNBR) announced that, as a competent Romanian authority in the field of organizing and exercising the profession of attorney at law, it has already taken the necessary measures to implement the Directive (EU) 2015/849 and has prepared a software through which lawyers can make the reports required by law, under conditions of confidentiality. Access to the computer reporting program will be made from the lawyer’s account after connecting to the application „National panel of lawyers” where access to the legislative information products are made available to lawyers by UNBR. The program will become available and operable as soon as it is technically approved in the consultative reports with the Office.

According to the provisions of art. 60 paragraph (3) of the Law, the reporting entities should comply with the obligations incumbent upon them under this law within 180 days from the date of entry into force. However, the National Office for Preventing and Combating Money Laundering announces: Creating an online account at the Electronic System for Data Transmission (to designate the responsible person and for online reporting) may also be made after the deadline of 180 days stipulated in art. 60 paragraph (3) of Law no. 129/2019, respectively after January 21, 2020.

This material was prepared for the website of Costaș, Negru & Asociații by our associate Paul Sorinca (Cluj Bar Association)

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