New due diligence rules

(Compiler's note: I noted that avoiding Sharia financing was NOT specifically mentioned here.)

by Wolf Theiss, Bucharest

Romania's Accession Treaty to the European Union contains the commitment to transpose and implement, among others, Directive 2005/60/CE on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing, as well as Directive 2006/70/CE, which lays down implementation measures for Directive 2005/60/CE regarding the definition of a politically exposed person, the technical criteria for simplified customer due diligence procedures and exemption on grounds of a financial activity conducted on an occasional or very limited basis.

Romania also undertook to adopt rules and procedures for the transposition of EC Regulation 1781/2006 on payer information accompanying the transfer of funds.

To address these issues, Romanian Law 656/2002 on anti-money laundering and anti-terrorism financing has been amended by Government Emergency Ordinance 53/2008, published on April 30 2008 and entered into force on July 16 2008.

Following consultations with Romania's prudential supervision authorities, financial-fiscal control institutions, and Romania's Anti-Money Laundering National Office, Government Decision 594/2008 entered into force on July 15 2008. This decision approved a general purpose regulation implementing Law 656/2002 as amended and established, among other things, the standard, simplified and enhanced customer due diligence rules and procedures.

The standard customer due diligence rules become applicable: (i) when entering a business (banking) relationship with a prospective customer; (ii) when carrying out and performing, on an occasional basis, banking transactions with values of €15,000 ($24,000) or more, regardless of the transaction consisting of one single operation or several allegedly inter-connected operations; (iii) if there are doubts as to the accuracy or adequacy of previously obtained customer identification data; (iv) upon purchase or exchange in casinos of chips with a minimum value representing the RON equivalent of €2,000.

Credit institutions must apply the standard rules to both prospective and existing customers, as well as to the beneficial owners of existing bank accounts and holders of savings accounts certificates.

These rules will consist of: (i) identification and cross-checking of customer identification data; (ii) identification of beneficial owners and the verification of their identity by taking risk-based and adequate measures; (iii) gathering of information on the purpose and nature of the established business relationship; and (iv) conducting of continual monitoring of the business relationship with the respective customer.

When the customer is a credit or financial institution of a member state or of a state where similar regulatory rules and procedures are in force, the simplified customer due diligence rules will be applied.

Similarly, simplified rules may also be applied to: (i) listed companies whose securities are admitted to trading on a regulated market in one or several of the member states or on regulated markets of third countries, having reporting and transparency requirements which are similar to those of the EU; (ii) beneficial owners of pooled bank accounts managed and administered by public notaries and other independent legal professionals; (iii) domestic public authorities; (iv) any other customer representing a low risk of money laundering and terrorism financing and meeting certain technical criteria; and (v) related products and operations that cumulatively meet certain criteria set out in detail in the regulation.

Finally, the enhanced customer due diligence rules will become applicable to: (i) customers who are physically absent when carrying out banking transactions; (ii) cross-border correspondent banking relationships with credit institutions in third countries; (iii) transactions conducted on an occasional basis; or (iv) business relationships with politically exposed persons residing in other member states, in the EEA or in a non-member country.

These enhanced rules will mainly consist of the following: (i) gathering sufficient information and/or requesting additional documents and information; (ii) taking supplementary measures for the verification and certification of the supplied documents; (iii) assessing the control mechanisms implemented internally by the credit institution in the third country; (iv) obtaining the approval of senior management before establishing new correspondent banking relationships; (v) implementing appropriate risk-based procedures; and (vi) enhanced continual monitoring of the business relationship.

In line with these rules, the National Bank of Romania has published Regulation 20/2008 (in force from July 14 2008) imposing on credit institutions and non-banking financial institutions the obligation to revise, amend, adopt and submit to the National Bank of Romania new internal customer due diligence rules and procedures consistent with the regulatory acts described above.

The implementation of these rules is part of a wider national effort to provide Romania with more efficient tools to fight the financing of terrorism and money laundering, a threat constantly present in today's globalised world.