Transactions with a high-risk third country
Author: Jarosław Kruk - attorney at law, managing partner | Sylwia Działo - lawyer
What actions obliged institutions take entering into transactions with a high-risk third country? What is the procedure for an obliged institutions to establish a branch or representatives office in a high-risk third country?
Ministry of Finance in the amendment of the Law on Prevention of Money Laundering and Financing of Terrorism has presented many changes, which will significantly affect the activity of AML departments in obliged institutions. Most of them are related to the implementation of the EU law to the Polish legal order. The Law of March 30,2021 expanded the scope of actions to be taken by obliged institutions entering into transactions with a high-risk third country.
In the new wording of Article 44 of the Law on Prevention of Money Laundering and Financing of Terrorism obliged institutions will apply enhanced financial security measures no longer only to customers from or located in a high-risk third country, but to any transaction or business relationships relating to a high-risk third country. The obliged institutions must obtain additional information on the customer or beneficial owner, the intended nature of the business relationship and the reasons for and circumstances of the transactions envisaged or carried out. In addition, obliged institutions should obtain information about the source of the assets and property values of the customer and the beneficial owner, and obtain senior management approval to establish or continue a business relationship. The main purpose of introducing regulations concerning the application of raised financial security measures is to secure the European Union financial system against the flow of funds that may originate from illegal sources outside the borders of the European Union. Nevertheless, such a step raises the question of whether the identification of the source of asset, for example on the basis of declarations, will constitute reliable information.
In accordance with the newly added Article 44a, the obliged institutions, apart from applying the abovementioned financial security measures, are obliged to undertake additional activities within the framework of the applied financial security measures to mitigate the risk related to the transaction concluded by a natural person, legal person or organizational unit without legal personality with a high-risk third country, introduce intensified and reporting obligations or limit the scope of the business relationship or transaction. In this regard, it should be pointed out that EU legislation lists, among high-risk third countries, for example Afghanistan, Iraq, Syria, Yemen and Uganda.
In the amendment, the legislator indicated in Article 44b, that if obliged institution wants to establish a branch or a representative office in a high-risk third country, it will have to obtain, on the basis of the application submitted, the consent of the General Inspector of Financial Information or the Financial Supervision Commission. The application should contain at least the name, registered office and organizational form of the obliged institution, identification of the high-risk third country in which the branch or representative office is to be established and, the most important, information on arrangements ensuring compliance by the branch or representative office with anti-money laundering and anti-terrorist financing obligations consisted with the requirements arising from European Union legislation, as it is the information that will be central to the grating of consent for the establishment of a branch or representative office.
Where to the General Inspector of Financial Information or the Financial Supervision Commission as appropriate, grants permission for the establishment of the branch in a high-risk third country, taking into account the international obligations of the European Union and information resulting from evaluations, assessments or reports prepared by international bodies or organization active in the fight against money laundering or terrorist financing, the authority may impose obligations on obliged institutions to put in place enhanced requirements for their supervision or external audit. In addition, in light of the amended Act, the General Inspector of Financial Information or the Financial Supervision Commission may issue a decision modifying the scope or terminating correspondent relationships by obliged institutions that are respondents located in a high-risk third country, subject to a prior review of the scope of correspondent relationships with institutions that are respondents located in high-risk third country, which shall not be less than 30 days. The obligation to obtain such consent will apply only to branches established after the entry into force of the Act.