Keep an eye on the war on money laundering. You might find yourself involved

First of all, the Act should be of particular interest to banks, credit and loan co-operatives, securities traders, savings brokers, leasing companies, providers of savings, credit and loan services, foreign exchange bureaus, traders in receivables and debts and pawn brokers, as well as to real-estate agents, executors, notaries and lawyers. Especially if they participate in the activities or transactions covered by the Act. All such parties are referred to as “obliged persons”. In other words, practically anyone who within the framework of their business activities mediates deals or acts on behalf of a client on the basis of a mandate agreement or deals with a client’s assets should pay close attention to the Act.

Identification is key

The main preventative obligation set forth by the Act is to identify the client. Regardless of how futile it may seem, obliged persons are required to always check the ID documents of the persons with whom they are negotiating, including whether the person matches his likeness in the document, and to record this data. When someone acts under a power of attorney, the power of attorney itself must also be checked. The Act does, however, list several cases in which a person’s ID need not be checked. All information that is discovered and recorded must be kept by the obliged person for 10 years after the contractual relationship terminates.

Customer due diligence is a more interesting matter. The obliged person is required to find out information on the purpose and contemplated nature of a given deal and on the individual who controls the client (if the client is a company) and must, in addition, review the sources of financing. This obligation is remarkable due to the fact that the Act does not directly state how the obligation should be fulfilled. In other words, it is up to the obliged person to provide information sufficient for proving the relevant facts and not only to defend, but also present, those facts before the relevant inspection authority.

The Act states that data must be maintained for 10 years. In the case of so-called “politically-exposed persons” (the law applies a very complicated definition to such persons – simply said, they include persons who are entrusted with a public function, including their relatives), the source of the assets used in a deal must also be ascertained.

If the client refuses to cooperate in identifying or inspecting the deal, the obliged person must abstain from realising the deal. Moreover, if it determines that the deal is suspicious, it must notify the Ministry of Finance without undue delay. Under certain circumstances, the obliged person must refrain from fulfilling the client’s request for a set period of time.

To ensure that proper communication is maintained between the obliged person and the Ministry, a contact person must be appointed to deal with notifications. The Act also covers other obligations, such as the duty to introduce a system of internal principles to fulfil obligations and regular employee training.

Severe penalties may be imposed for infringing the obligations set forth by the Act, even though clarity in that respect is lacking. Therefore, in any deals with third-party assets, monetary transactions or representing any person in such transactions, it is advisable to bear the Act in mind so as to comply with all of its requirements.