Legal & Tax Alerts

New law on money laundering, impacting companies, associations and foundations

A new law on the prevention and combating of money laundering and terrorist financing[1] was adopted in Romania (the “New AML Law“), transposing the 4th Anti Money Laundering Directive[2] into national legislation.

New requirements are enacted for companies, associations and foundations, now subject to reporting obligations on their shareholders, members and the ultimate beneficial owners. Failure to comply with newly imposed obligations may result in the application of fines or, in certain cases, the dissolution of the entities concerned.

1. New features in money laundering prevention

The New AML Law brings some important changes to the old legislation, as follows:

1.1. Lowering the reported cash transactions’ threshold to EUR 10,000. Entities nominated by law have the obligation to provide the National Office for the Prevention and Control of Money Laundering (the “AML Office“) with information on transactions in cash, in RON or in foreign currency, handled by them and whose minimum limit is the equivalent in RON of EUR 10,000. The threshold set by the New AML Law is thus reduced by EUR 5,000 compared to the previous threshold of 15,000 EUR. The reporting entities include, amongst others, credit institutions, financial institutions, pension fund managers, gambling platforms operators and, also, lawyers, public notaries and court enforcement officers. As a consequence, any bank transfers, payment order or cash transaction handled by such entity that will reach the new threshold of EUR 10,000 will be reported by that entity and may later undergo a verification procedure by the AML Office.

1.2. Know Your Customer by means of electronic identification. The New AML Law explicitly provides for the possibility to use electronic means of identification in the context of KYC measures. Financial institutions (as well as other entities covered by KYC requirements) will thus be able to use trust services for electronic transactions, which may be used to identify customers and verify their identity. This extends the scope of customer identity verification to further develop online financing activities and e-commerce transactions.

1.3. Enlargement of the definition for “Publicly exposed persons”. The New AML Law extends the applicability of the notion of “publicly exposed persons” to members of the governing bodies of political parties, members of Parliament or other similar central legislative bodies, but also to directors (including deputies) and members of the board of directors or members of the governing bodies of an international organization. These persons are considered to have a significant impact on the activity of the entity they represent, given their public exposure. Thus, reporting entities that deal with such persons will have to apply additional know your customer measures, and the concerned persons (together with the company, association or body they belong to) will be required to provide additional information on their status.

1.4. Reporting money remittances. A newly introduced obligation is the reporting on money remittances. Thus, the reporting entities that handle money remittances will send to the Office reports on transfers of funds that exceed the equivalent in RON of EUR 2,000. In accordance with their own procedures that will be adopted as a consequence of the new regulation, it may become possible for the reporting entities to ask additional information/documents from the payers/beneficiaries of the remitted amounts, potentially in all cases where the remittance exceeds the said threshold or, regardless of their value, if the remittance poses an increased risk of money laundering or terrorist financing.

1.5. Registry of the ultimate beneficiaries of fiduciary trusts. The New AML Law provides for the obligation of the trustee to provide to the authorities, both upon establishing and during the existence of fiduciary trusts, information regarding the rightful owner and the ultimate beneficiary owner of the fiduciary trusts; such information will be recorded in a special registry, created for this purpose.

2. Obligation to identify and disclose the ultimate beneficial owners (UBOs) of companies, associations and foundations, and to eliminate bearer shares in companies

In what concerns the companies, associations and foundations, the New AML Law introduces duties concerning the operation and ownership of these entities. Significant new elements brought by the law include, in particular, (i) eliminating the possibility to issue and hold bearer shares and (ii) the establishing of registries concerning information about the UBOs of companies, associations and foundations, using the details they supply on such matter.

As per the law, the ultimate beneficial owner is any natural person who ultimately owns or controls the legal person and/or the individual on behalf of or in the interest of which a transaction, operation or activity is directly or indirectly carried out. Therefore, the actual beneficiary is always one (or more) natural person(s) who controls the company, the association or the foundation, whether or not it is shareholder/member/ founder.

2.1. Eliminating the companies’ ability to issue bearer shares. Until the enactment of the New AML Law, joint-stock companies have had the possibility to issue shares in hardcopy form, the owner and beneficiary of these shares being the person who held that document. The transfer of ownership of such bearer shares was accomplished by the simple handing over of the document, without the need to register the identity of the holder or of the transfer in any register, be it public or private, thus ensuring full confidentiality (anonymity) on the shareholder structure of a bearer shares’ company.

As a result of the provisions of the new AML Law, no new joint-stock companies with bearer shares may be set up, and those already registered upon the entry into force of the provisions will have to go through a procedure that will ensure the transparency of the shareholder structure.

Thus, companies that have issued bearer shares will have to make a public announcement addressed to all bearers of their shares and ask them to disclose their identity within 18 months upon the entry into force of the New AML Law. At the expiry of the term, bearer shares whose owners did not disclose their identity will have to be annulled by the company. If the company does not annul them, it risks to be subjected to an ex officio winding-up procedure, the companies are no longer allowed after that date to be set up as joint-stock companies with bearer shares.

2.2. Obligation to disclose the UBOs of the company, association or foundation. Under the New AML Law, all companies registered with the Trade Registry Office (except national companies and wholly or majority-state owned companies) will be required to file a statement on their ultimate beneficial owner(s). Such duty must be fulfilled by all companies, regardless of their form of organization, field of activity, turnover or number of employees.

The companies’ directors will have to ensure the necessary steps to identify the UBOs (mainly, by requesting information from their shareholders) and to submit this information with the National Trade Registry Office (through the Bucharest or the county bureaus of the authority). It is important to note that the affidavit regarding the ultimate beneficial owners is made under the responsibility of the director(s), consequently requiring their utmost diligence in collecting the information and preparing the statement.

For the companies already set up, the first affidavit will have to be submitted within 12 months since the enactment of the new AML Law, and then annually (after the approval of the financial statements) or whenever changes occur in the shareholder structure or ultimate beneficial owner structure. For companies in the process of being registered, the first statement is to be made at the time of registration, then annually or when changes are made by reference to the last statement.

A similar course of action is applicable for associations and foundations, with the difference that their affidavits regarding the ultimate beneficial owner will be the responsibility of their founders or of the board of directors, and will be submitted before the Ministry of Justice.

Failure to comply with the new requirements leads to the impossibility of registration of the newly set up entity, fines or even the dissolution of the involved entities.

In this respect, in the case of companies, associations or foundations that are in process of registration, the application for registration/establishment will not be favourably solved if it is not accompanied (in addition to the rest of the documents required by the applicable regulations) with information on the ultimate beneficial owner.

Subsequently, during the operation of the company, failure to submit the affidavit annually or when changes to the previous situation on UBOs occurred, represents an administrative contravention and is sanctioned with a fine ranging between RON 5,000 to RON 10,000. The law also provides as sanction the winding up of the company if, within 30 days since the fine is applied, the director still does not disclose the UBO details.

Regarding the associations and foundations already registered, a gradual system of sanctions was adopted in case of failure to submit the affidavit on the UBOs, respectively (i) firstly a fine between 200 – 2,500 RON would be applied, and (ii) at the second offense, the fine range between 500 and 5,000 RON, and finally (iii) the possibility of dissolution of the association or foundation, if the duty on disclosing or updating the situation of the beneficiary owners is not fulfilled.

Notwithstanding the above, it is important to note that these new duties may be implemented no sooner than when the registers (where the UBO information would be recorded) will be made operational, which will require the adopting of specific regulations to outline the necessary legal framework and to establish the specific procedural aspects. Until this date, the legislation that ensures the setting up and operation of the special registers has not been yet adopted, but in the following period, norms will have to be adopted in this respect and only at that time the fulfilling of the new obligations will become effectively possible.

You can read and download this legal alert in PDF format right here.

 

[1] Law no. 129/2019 on the prevention and combating of money laundering and terrorist financing, published in the Official Gazette no. 589/18.07.2019.

[2] Directive (EU) 2015/849 of the European Parliament and of the Council on the prevention and combating of money laundering and terrorist financing.

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