Implementation of the AML4 Directive in Romania – “Are we there yet?”
Silviu Vasiliu, Attorney in law
After almost 2 years of delay, an infringement procedure ongoing and a draft law declared partially unconstitutional by the Constitutional Court, the Law on Preventing Money Laundering and terrorist financing no. 129/2019 (the „AML 4 Law”) aiming to implement the Fourth Anti-Money Laundering Directive 2015/849 (“AML4”) was adopted by the Parliament on 26 June 2019 and promulgated by the Romanian president on 11 July 2019.
Currently, the AML 4 Law is pending its publication with the Official Gazette and is expected to enter into force within 3 days following such publication. The law also brings a number of amendments to other specific pieces of legislation among which the Companies Law, Ordinance 26/2000 on associations and foundations and the Fiscal Procedure Code, in order to bring them in line with the new AML regime triggered by the implementation of AML4.
Impact and Key amendments brought by the AML 4 Law
The upcoming AML 4 Law is expected to have a large impact on private companies, in general, especially as regards the beneficial owner related requirements which impact upon virtually almost all companies registered with the Trade Registry, as well as other types of private entities.
New clarifications regarding the beneficial owners
While the general meaning of beneficial owner is not amended by the AML 4 Law, further clarifications are brought by AML 4 Law regarding the determination of the beneficial owners in line with AML 4 Directive.
Thus, in case after all required due diligence no beneficial owner is identified or there are doubts about the identified individual being the actual beneficial owners (the company needing to document all relevant queries in this respect), the individual or individuals managing the activity of the relevant corporate will be deemed to be the ultimate beneficial owners of the relevant companies. Also, in connection with trusts, at least the following persons are the ultimate beneficial owners, namely the settlor, the trustee, the protector (although such category does not seem to correspond to a certain category in the Romanian law trusts), the beneficiaries, or where the individuals benefiting from the legal arrangement or entity have yet to be determined, the class of persons in whose main interest the legal arrangement or entity is set up or operates.
The Beneficial Owner Registries
The AML 4 Law imposes the introduction of a central register of all beneficial owners of private companies.
The beneficial owner register (which shall need to become operational according to the law within 120 days from its entry into force) shall be held by:
the National Trade Registry Office, for all the legal entities who have the obligation to be registered with the Trade Registry, with the exception of autonomous state companies and national companies; the Ministry of Justice, for the associations and foundations and the National Agency for Fiscal Administration, for trusts (“fiducii”).
Legal entities and trusts registered on the Romanian territory, with the exception of autonomous state companies and national companies, are obliged to obtain and hold adequate, accurate and actual information about their beneficial owner, including the way by which this quality is materialized, and to make them available to the control bodies and supervisory authorities at their request, as well as to the reporting entities .
Newly established companies other than autonomous state companies, national companies or companies wholly owned or majority owned by the State have the obligation to declare on their own responsibility the beneficial owner of the shares at the time of their establishment and the ways such control is exercised.
The existing companies other than national companies or companies wholly owned or majority owned by the State have the obligation to submit the respective statement within 12 months after the entry into force of the law.
Afterwards, the companies subject to registration with the Trade Register must file annually (within maximum 15 days from the date of the approval of the yearly financial statements), or whenever there is a change, the declaration regarding the beneficial owner of the legal entity, in order to be registered in the registry of the beneficial owners to be kept by the National Trade Registry Office.
As a rule, similar obligations are set forth by the AML 4 Law in connection with associations and foundations, by amendments to Government Ordinance 26/2000 governing associations and foundations.
For the purpose of fulfilling their duties regarding the identification of the beneficial owner, reporting entities will rely on the beneficial owner registry. Access to such registries is allowed to controlling authorities, reporting entities and other persons justifying a legitimate interest.
Failure to comply with the obligation to file the statement regarding the identification data of the beneficial owner constitutes a minor offence and shall be sanctioned with a fine between RON 5,000 and RON 10,000. Also, in case the above failure is not remedied within 30 days from the date of imposing the fine, there is a risk of dissolution of the company upon request of the Trade Registry.
Prohibition to issue new bearer shares
Starting from the date when the law comes into force, companies are strictly prohibited to issue new bearer shares and to perform transactions with the existing bearer shares. Bearer shares issued prior to the law’s entry into force must be converted into nominative shares within 18 months after the law comes into force. This measure is expected to shed light on the shareholding structure of a limited number of companies, some of which having been highly visible in the media due to criminal investigations.
The joint stock companies must convert the bearer shares issued prior to the entry into force of the AML 4 Law into nominative shares and submit the update constitutive act to the trade registry.
Failure by the entity to convert the bearer shares into nominative shares may lead to the dissolution of the entity at the request of any interested party or of the National Trade Registry Office.
Reporting requirements of suspicious transactions
Reporting entities are required to submit to the National Office for the Prevention and Combating Money Laundering (the “AML Office”) a report on suspicious transactions prior to carrying out the transaction related to its client.
As a rule, the transactions subject to a suspicious report may be carried out only after the expiry of the 24 h term as of the registration of the report, unless the AML Office requests the suspension of the respective transaction. Exceptions are also permitted, however in very limited situations and subject to the report being transmitted to the AML Office within maximum 24 hours from the transaction.
Reporting requirements of non-suspicious cash transactions
Reporting entities are required to report cash transactions in RON or in foreign currency although such would not raise suspicions. The minimum limit at which such a transaction would be reported is a RON equivalent of EUR 10,000. In case the transactions are carried out through a credit or financial institution, the obligation to report the transaction belongs to these entities. Also, this includes chain transactions and operations the value of which is lower than the RON equivalent of EUR 15,000, which have common elements such as: the parties to the transaction, including the beneficial owner, the nature or category of transactions in which the amounts are involved.
Credit institutions and financial institutions will submit on-line reports on external transfers to and from accounts, in RON or in foreign currency. The minimum limit at which such a transaction would be reported is a RON equivalent of EUR 15,000.
For money remittance activities, reporting entities must submit reports on transfers of funds the minimum limit of which is a RON equivalent of EUR 2,000.
Non-fulfillment by individuals of the obligations mentioned above is sanctioned with a warning or a fine between RON 10,000 and RON 90,000. In case of legal entities, the maximum limits of the fine (between RON 10,000 and RON 90,000) shall be increased by 10% of the total revenues in relation to the fiscal period concluded before the date of the sanctioning report (although not clear, probably the law refers to the preceding financial year in this case). Sanctions and measures may be applied to members of the governing body and to other individuals who are responsible for breaking the law.
In case of reporting entities subject to the supervision of the National Bank of Romania (e.g., credit institutions, payment institutions, non-banking financial institutions) the sanctions are more severe, including fines ranging from RON 10,000 to RON 23,000,000 for individuals (managers, directors or persons appointed to ensure the management of the relevant department or branch) and from 10% of the total turnover based on the latest available financial statements up to RON 23,000,000, as well as the withdrawal of the approval of the relevant directors or managers or even withdrawal of the authorization granted to the legal entity.
Access of the National Fiscal Administration Agency (ANAF) to AML related information
In line with Directive 2016/2258 regarding access of tax authorities to AML information, the AML4 Law amends certain provisions of the Fiscal Procedure Code for the purpose of ensuring a transfer and access of Romanian National Tax Agency (ANAF) to information subject to AML reporting requirements.
Briefly, the amendments refer to:
– the obligation of the National Office for the Prevention and Combating Money Laundering to send to ANAF monthly reports on the transactions received from the reporting entities (e.g., reports on cash transactions, reports on external transfers in and from accounts, and reports on money remittance activities);
– the obligation of the reporting entities to provide to ANAF upon request various AML related documents (e.g., records of transactions, client and beneficial owner identification, the business relationship monitoring, the mechanisms and procedures on the basis of which the reporting entity applies the client’s precautionary measures).
The anti-money laundering legal landscape remains quite dynamic. On one hand, it is expected to be relatively soon subject to new changes considering the upcoming required implementation of both the Fifth AML Directive extending inter alia the scope of AML Directives also to virtual currency platforms and wallet providers and of the Countering money laundering by criminal law Directive having a transposition deadline 3 December 2020.
Separately, an important series of implementing norms are expected to be enacted in connection with the implementation of the new rules enacted by AML4 Law. In addition to the various implementing norms regarding the creation, operation of and access to the beneficial owners registers expected to be enacted within 120 days since the entry into force of the law in order for such registries to be operational also by the same deadline, it is expected that specific implementing norms are to be adopted by the National Bank of Romania and the Financial Supervisory Authority in connection with the supervision of the sector entities within their scope, within maximum 120 days since entry into force of the new law.