The Money Laundering Law to be Implemented

The Spanish Council of Ministers has approved the text of the future Implementing Regulation of Law 10/2010 of 28 April, on the Prevention of Money Laundering and the Financing of Terrorism, setting forth the obligations of individuals, legal entities and other persons obliged to meet the legal requirements on money laundering and financing of terrorist activities.

Current regulations apply not only to those entities or persons most directly linked or related to the activities of capital movements, such as Exchange outlets, banks, financial institutions, brokers, securities and investment agencies and the like, but also to all those professionals who perform operations that involve capital movements or require the direct or indirect intervention on behalf of their clients in the control, management or execution of transactions such as the incorporation of companies, opening bank account, provision of social homes and other usual activities in professional practice. The rules even reach the activities of notaries, lawyers, accountants, financial or investment advisors. (hereinafter, collectively identified as Obliged Persons)

The main aspects of the Regulations which began the Parliamentary process are as follows:

a) the draft confirms the existing restrictive policies on splitting of transactions in order to avoid the application of the quantitative limits of capital operations foreseen in existing legislation. The current rules set forth a clear distinction between those activities that are direct and permanent activities of the Obliged Person and those operations that are ancillary to the main activity of the Obliged Person, by establishing limits (i) by customer, on a quarterly basis (€1,000); (ii) by amount, with absolute character, in annual limit (€100,000); and (iii) as a maximum percentage of the annual turnover of the business concerned (5%).

(b) Excluded from the scope of the regulations would be all those acts which - even if regulated – may lack economic contents or have other features to be specifically regulated by the Ministry of Economy and Competitiveness.

(c) The draft maintains the current obligations referred to the need for the Obliged Persons to pursue a prior and faithful identification of those customers entering into relationships which economic contents exceed 1.000€, with the exception of the money transfer operations and management, where there will be no minimum identification threshold.

It will not be mandatory to verify the identity of the counterparts when executing operations where there are no doubts as to the identity of the intervening parties, and their intervention is witnessed through their physical or electronic signature and the identity check had been previously made when the relationship was first established.

(d)       The intervening parties that are individuals must be “faithfully identified”, a term meaning that the relevant individuals (either Spaniards or foreigners) must provide faithful copies of their identity cards, passports, residence cards or other national identification documents.

As for legal persons, it will be necessary to ask for and obtain the public documents (or verified copies thereof) supporting their existence, name, legal form, address, the identity of their administrators, By-Laws and Tax Identification Number or, in the case of foreign legal persons, who do not have such Spanish Tax Number, the number of registration in their home country. The identification requirements are particularly stringent with respect to those entities without legal personality, such as, the Anglo-Saxon trusts, in which case the obligated subject shall be bound to ask for and obtain the document of incorporation ("deed of trust"), without prejudice to the identification and verification of the identity of the person who act on behalf of the beneficiaries or in accordance with the terms of the trust, or legal instrument. For this purpose, the Trustees shall communicate their condition to the Obliged Person when, as such, they may be seeking to establish business or intervene in any targeted operations. In those cases where a trustee would decline to provide the required information and documents, the Obliged Person will be bound to put an end to the business relationship, also proceeding to carry out a special additional examination referred to in article 17 of the law 10/2010 of 28 April. In this sense, the Obliged Persons will have to identify and shall take all appropriate measures to verify the identity of the Settlor, the Trustees,  the Protector of the beneficiaries or classes of beneficiaries and any other individual who exercises ultimate effective control over the trust, even if at the end of a chain of control or ownership.

Specific principles apply to the identification of parties involved in insurance operations.

All these principles are intended to identify the "Actual Owners" or “Actual Principals” of the various operations or transactions encompassed by the regulations, which - in the case of legal entities - are those individuals who ultimately own or control, directly or indirectly, a percentage higher than 25 per cent of the capital or of the rights of vote, or by other means exercise direct or indirect control over the management of the same.

When there is not an individual owning or controlling, directly or indirectly, a percentage higher than 25 per cent of the capital or of the voting rights of the legal entity, or by other means exercising the control, (directly or indirectly), of the legal entity, the regulations will consider that the Administrators thereof are the Actual Owners of Principals.

In such cases, the Obligated Person must secure and retain documents witness any and all actions he/she may have carried out to identify the individuals who ultimately met the above control or ownership requirements.

The determination of such Actual Ownership by the Obliged Parsons is subject to the previously described principles in the case the transactions refer to or include the execution of transfers for amounts in excess of 1,000€, or, in other cases, refer to occasional transactions amounting to more than 15,000€.

The Draft regulation carefully reviews the transactions and specific activities that the Obliged Persons must carry out in order to identify, the Actual Owners or Principals of an operation, being bound to refusing to perform the transaction in the event of refusal by the customer to provide the information mandated by the regulations.

(f) the Obliged Persons shall be bound to obtain all said information from the customer in order to ascertain the nature of their professional or business activity. The activity declared by the customer will be registered by the Obliged Person prior to first entering into a business relationship.

The activities declared by the customer must be identified when

(i) the client or business relationship presents risks that are greater than the average;

(ii) the identification is mandated by a legal provision or this is so adviced by any risk analayisis performed by the obliged Party:

(iii) where the development of the business relationship indicates that the transactions of the customer do not correspond with their declared activity or its operating history.

(g)  The Obloged Persons will scrutinize the transactions throughout the business relationship in order to ensure that they are in line with the customer’s professional or business activity and its operating history. Scrutinies shall be more intense in the presence of risks that are higher than the average. The review (i) shall be comprehensive, (ii) will incorporate all the products of the customer that are relevant to the Obliged person and, where appropriate, to other companies in its Group

2.  The Obloged Persons will periodically review these processes with a view to ensure that documents, data and information obtained as a result of the due diligence measures are permanently updated and are relevant at all times. The extent of the requirement is such that dpeending upon the circumstances, the Obliged Persons must produce and keep an updated Manual of Money Laundering Policies and Practices.

(h) with few exceptions (linked exclusively to the domestic market), Foundations and Associations will identify and verify the identity of all persons who provide donations or otherwise gratuitously facilitate funds or resources.

When the nature of the project or activity would make an individualized identification impossible, or when the activity would carry a low risk of money laundering, the requirements shall be limited to identifying the beneficiaries and partners or collaborators in the relevant project or activity.

A comprehensive analysis of the text of the new draft law would exceed the limits of the present report, which purpose is exclusively to alert our friends and clients about the imminent enactment of the new legislation and the significant obligations imposed on the individuals and legal entities encompassed by the scope thereof.