The Use of Cash (Restriction) Regulations and FIAU’s Proposed Amendments to Part I of the Implementing Procedures
News    ·   12-03-2021
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AUTHOR: Diane Bugeja; Peter Mizzi

Cash regulations

On the 9th March 2021, the Use of Cash (Restriction) Regulations, 2021 were published by virtue of L.N. 81 of 2021. The aim of these regulations is to limit the use of cash for certain payments and transactions in order to prevent money laundering and other criminal activity within particular economic sectors.

Offence 

3. (1) It shall not be lawful for any person to make or receive a payment or otherwise carry out a transaction in cash amounting to, or exceeding, ten thousand euro (€10,000) or its equivalent in any other currency, whether in one transaction or in several linked transactions, in respect of the purchase or sale of: 

a)       antiques;

b)      immovable property;

c)       jewellery, precious metals, precious stones and

d)      pearls;

e)      motor-vehicles;

f)        sea-craft; and

g)       works of art.

Penalty

Any person who contravenes the provisions of sub-regulation (1) shall be guilty of an offence and liable, on conviction, to a fine (multa) of not less than 40% of the sum paid, received, or otherwise transacted in cash in excess €9,999.99, or its equivalent in any other currency.

Should the guilty part be a director, manager or any other officer that exercises executive functions in a company or other undertaking, or body of persons, then the same company or other undertaking, or body of persons, will be liable on the whole with the person found guilty. 

Administrative settlements

A person who acts in contravention of the regulation 3. (1) may, as an alternative to criminal proceedings, and with the consent of the Attorney General, prior to being charged in court, agree to pay an administrative penalty to be imposed by the FIAU as follows:

(a)    where the sum paid, received or otherwise transacted in cash amounts to not more than €50,000, a penalty of 10% of the sum paid, received, or otherwise transacted in cash in excess of €9,999.99 or its equivalent in other currencies, shall be imposed – provided that the amount is not less than €1,000.

(b)    where the sum paid, received or otherwise transacted in cash amounts to more than €50,000 but less than €100,000, a penalty 25% of the sum paid, received, or otherwise transacted in cash in excess of €9.999.99, or its equivalent in other currencies, shall be imposed - Provided that the amounts is not less than €2,500.

However, this does not apply to transactions that exceed €100,000 or to any person who has been found guilty of contravening the provisions of regulation (3), or has settled through a penalty, unless 3 years have elapsed from the date of such judgement or settlement agreement.

A payment or transaction made or received in violation of regulation 3. (1) has no effect on the legal validity of the payment or transaction, or the contractual obligation in respect of which the payment or transaction was carried out, and all parties to the payment or transaction are bound by their contractual obligations despite the contravention.

False declaration, representation or documentation

Any person who knowingly makes a false declaration, or a false representation, or who produces false or incomplete information or documentation for the purposes of these regulations shall be guilty of an offence and shall be liable, on conviction, to a fine (multa) of not more than €25,000.

It is widely known that almost all crime types make use of cash to facilitate money laundering at some stage. Cash payments for high-value items such as property, cars, boats, jewellery, antiques and art are preferred vehicles for criminals looking to launder the proceeds of their activities. Therefore, in a bid to thwart such occurrences, cash transactions over €10,000 are now banned and transactions that exceed this threshold must be made through a bank. Subject persons within the economic sectors mentioned, can no longer accept these payments and transactions and ought to have the necessary controls and systems to prevent such from taking place.

Revised IPs

On the 10th March 2021, the FIAU published a consultation document outlining a series of proposed amendments to Part I of the Implementing Procedures in response to recent issues and concerns raised by subject persons. The main changes deal with adverse media, ongoing monitoring responsibilities, more flexibility in the appointment of the MLRO, and additional guidelines when conducting a jurisdictional risk assessment.

Evaluating Adverse Media


Under Section 3.5.1 (a) (a), the FIAU proposes additional guidelines to assist subject persons in evaluating the reliability of adverse media when conducting customer risk assessments. The same guidelines are also intended to assist subject persons in their evaluation of supervisory and regulatory information within the context of Simplified Due Diligence

When determining whether adverse media would affect the (potential) customer's ML/FT risk, the FIAU proposes that the following factors be considered:

  • When did the breach of the requirement/s resulting in administrative measures take place?
  • What was the regulatory requirement breached?
  • What was the regulatory action taken against the (prospective) customer?
  • Have the regulatory issues been resolved, i.e. has the customer taken action to address the issues highlighted by its regulator or supervisor?

Other factors to consider include:

  • The nature of the adverse news will also have an impact on its actual relevance for risk assessment purposes. For example, finding news from a reliable source that an individual was the mastermind behind a major bankruptcy where funds were siphoned off to remote jurisdictions will have a larger impact in terms of risk than finding news from equally reliable sources that one has been indicted for a one-off shoplifting incident involving goods of minimal value. Subject persons should ideally develop guidelines to allow officers and employees to determine what is to be considered as reliable media reports and what impact these can have on one’s risk understanding.
  • The impact of adverse media can at times also depend on how remote in time it is. The longer the passage of time from the date of the media item (or the date of the adverse activity reported on in the media item), the less likely it is that the facts reported on will have an ML/FT impact. Equally important is to consider whether following any adverse media reports, there were reports which showed that the earlier information was groundless or otherwise downsized the gravity and severity of any such earlier information.

Investment fund managers & ongoing monitoring

The proposed amendments seek to clarify the role of subject persons, particularly investment fund managers, in respect of their duty to conduct ongoing monitoring.

Section 4.5.2.1 outlines “where the transactions carried out by a subject person on behalf of its clients are left to the subject person's discretion, as is the case with discretionary fund management and wealth management services provided to collective investment schemes or retirement schemes, it is not required that the subject person controls the transactions it is carrying out itself.”

In such situations, the subject person would have received instructions from the customer to invest funds and manage assets as the subject person wishes within the specified agreement. Therefore, the activities subject to monitoring would be any increase in the funds or assets entrusted to the subject person, determining whether this is in line with customer profile and any request from the customer to have funds or assets released back to it.

Simplified Due Diligence & ongoing monitoring

In Section 4.8.1.1, the FIAU highlight the need to conduct ongoing monitoring even when a subject person has applied SDD, to ensure that the business relationship remains low risk and hence SDD is warranted. Subject persons are required to conduct frequent checks to confirm that the information obtained at the onboarding stage is still valid and relevant.

In addition, the subject person should consider whether:

  • Any new regulatory or supervisory information has been made public which may somehow impact the subject person’s earlier customer risk assessment and rating of the business relationship as one presenting a low risk of ML/FT.
  • The volume of funds being channelled or invested through a nominee, omnibus or pooled account can somehow be considered to increase the risk of ML/FT posed by the given business relationship. 
  • Any data, information or documentation made available in relation to particular transactions or the underlying investors or customers is in keeping with the information provided by the customer at the start of the business relationship.

More flexibility in the appointment of MLROs

Chapter 5 of the revised IPs contains a number of proposed amendments that seek to address the repeated issues arising from the appointment of the MLRO. The FIAU anticipates that such changes will provide the necessary flexibility to subject persons, whilst ensuring that whoever is acting as MLRO can conduct the duties in an effective and timely manner.

Some of the major changes are:

  • The removal of the prohibition on non-executive directors to act as MLROs;
  • The considerations which should be taken into account when a subject person locates its MLRO abroad;
  • A more detailed explanation of which situations may present a conflict of interest and the introduction of an element of proportionality, allowing for the taking of mitigating measures rather than the outright refusal or removal of the (proposed) MLRO;  and
  • The removal of the restriction on the number of Designated Employees that can be appointed by each subject person.

Jurisdictional Risk Assessments

Section 8.1.2 sets out criteria which, if met, will allow a subject person to rely on assessments carried out by third parties. However, this is only permitted when the following considerations are made:

  • The risk assessment carried out considers a sufficient number of aspects that may impact the subject person, and the sources used for the purposes of the said assessment are reliable ones.

Should particular aspects not be factored in, then the subject person should supplement the said risk assessment and consider what is likely to be the impact on the risk rating provided by the third party.

  • The subject person must understand the methodology behind the risk assessment and the resulting risk rating attributed to any one given jurisdiction. It must be ascertained that the said methodology makes sense and is sufficiently objective.
  • The subject person must ensure that any assessment and associated risk rating is updated periodically. In particular, subject persons have to consider how quickly the said assessments and ratings are revised once there are changes in a jurisdiction’s circumstances.
  • The fact that a subject person may be making use of a readily available index does not absolve the subject person from understanding the main reasons for a jurisdiction being considered as presenting its assigned level of risk, especially in situations where a jurisdiction is deemed to present a higher than usual risk of ML/FT.

Subject persons, all supervisory and other competent authorities, as well as other interested parties are invited to provide their feedback on the proposed amendments to the Implementing Procedures Part I by not later than Friday 9th April, 2021 through written submissions via email on consultation@fiaumalta.org.

 

 

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