Pay checks

Money remittance is seen as a way of financing terrorism. But the Spanish government is introducing stringent measures to counter the problem. By José Antonio Bonilla

As a consequence of the increased immigration flow into Spain, the money-remittance business has flourished in recent years. According to the Bank of Spain’s official data, O4.23bn (£2.87bn) was transferred in 2005, compared with O2.3bn (£1.56bn) in 2002.

On 10 August, the Ministry of Economy’s ministerial order (orden ministerial) was published. This order develops certain obligations of the money-remittance and money-exchange houses for the prevention of money laundering and the financing of terrorism. While Spain waits for the complete implementation of the EU directive to prevent the use of the financial system for money laundering and the financing of terrorism (it has to be implemented before 15 December 2007), this new regulation already complies with two of the basic EU objectives.

First, it reinforces the prevention measures relating to money-remittance and money-exchange activities. These are considered by the EU and Spanish authorities as being particularly susceptible to money laundering and use in financing terrorism.

Second, by developing and confirming existing obligations, it covers one of the financial institutions’ main concerns – the lack of specific guidance and instructions from the authorities on these issues.

However, the introduction to the exposición de motivos sets out that the ministerial order is only a complement to more general laws and the royal decree that names all the money-remittance and money-exchange entities’ obligations to prevent money laundering and the financing of terrorism. Some of those obligations are not mentioned in the ministerial order, such as systematic reporting, confidentiality or cooperation with the authorities.

Identification rulesAccording to the new ministerial order, customer identification is required whenever a customer wants to enter a money-exchange or money-remittance transaction. Additional identification measures are needed in case the transactions, whether individually or cumulatively, exceed O3,000 (£2,030) for money remittance or O6,000 (£4,060) for money exchange within a three-month period.

Money remittances with no physical presence of the customer are, however, possible if the following additional measures are taken.

The customer can use an individual code. However, the code has to be initially issued physically to the person and requires a risk analysis of the customer. All the data obtained through this analysis must be updated annually, with a physical interview of the customer as a compulsory part of the updating process.

The funds have to be provided from a bank account in the customer’s name.

The transaction has to be documented according to general rules, using the code instead of the signature of the customer.

A copy of the customer’s identification documents and documents relating to the transaction must be kept by the obliged subject for at least six years. Documents evidencing the transactions have to include: the identification data of the customer; the kind of identification document provided by the customer; domicile of the customer in Spain; currency and amount of the transaction; identification of the beneficiary of the transaction; the country where the money is received or where the money comes from; and the kind of transaction and the reason for the transaction.

If the customer cannot provide any of the aforementioned information or documentation, the transaction will not be concluded and has to be reported to the Spanish financial intelligence unit, the Executive Service of the Commission for the Prevention of Money Laundering and Monetary Offences (SEPBLAC). Internal controlOne of the most important parts of the ministerial order is the description of the internal control measures and procedures that have to be adopted by the obliged subjects. Furthermore, there is an obligation to set up procedures to regularly update all the information when initiating a business relationship with a customer or entering into a specific transaction.

There is also the obligation to make sure that correspondent banks used by the obliged subject adopt similar anti-money laundering procedures to those required by Spanish legislation, which indirectly prohibits the use of shell banks as correspondent, as recommended by the Financial Action Task Force (FATF).

However, these two obligations could still be derived from other general obligations as previously mentioned in existing laws and a royal decree.

The ministerial order strengthens other obligations already set out in the general anti-money laundering legislation, such as:#the adoption of a customer admission policy;#drafting a list of suspect transactions;#adopting appropriate internal information flow procedures;#using appropriate technical systems in order to fulfil online control systems;#creation of an internal organisation and appointing a compliance officer as well as a representative to be in charge of the communication with the competent authorities;#adopting measures to ensure knowledge of the anti-money laundering legislation and obligations by all the employees and agents.

The ministerial order also sets out the criteria that the internal control procedures will have to meet. These have to allow the obliged subject to:#centralise, manage, control and efficiently keep all the documentation and information of its customers and transactions done through its network;#aggregate on a daily basis all the transactions done in its network;#determine if it is necessary to know the business or professional activities of the customer before allowing the transaction to be concluded;#identify inconsistencies with the customer’s risk profile;#automatically prevent the execution of transactions where the obligatory data of the customer or the transaction are incomplete and in those cases where the customer is under the prohibition to enter into the proposed transaction;#automatically identify suspect transactions according to predetermined criteria;#allow the compliance officer direct communication with the network; and to#answer in a quick, sure and efficient manner the SEPBLAC information requests and to fulfil the systematic report obligations to the SEPBLAC.

However, there are still certain aspects of the EU directive and the FATF recommendations that are not included in the Spanish anti-money laundering regulation and which will have to wait for the new legislation. Particularly relevant are the obligations to identify and adopt specific additional prevention measures in relation to politically exposed persons that, although not specifically covered by existing anti-money laundering legislation, are adopted by most large financial institutions in Spain.

According to the FATF ‘Third Mutual Evaluation Report on Anti-Money Laundering and Combating The Financing of Terrorism for Spain’, issued in June, the main challenge facing Spain in the near future is related more to the practical implementation of the existing legal framework rather than the passing of new EU directives into law.

The FATF believes that the Spanish authorities have to devote more realistic efforts and resources to the supervision of the financial system and the enforcement of the existing anti-money laundering and terrorism- financing procedures to ensure that they are not inadvertently facilitating illegal activities.

José Antonio Bonilla is a partner at DLA Piper Madrid>