RECOMMENDATIONS and GUIDELINES (hereinafter:Guidelines) for notaries according to the Prevention of Money Laundering and Terrorist Financing Act – APMLFT

1. INTRODUCTION

The Prevention of Money Laundering and Terrorist Financing Act (Official Gazette of the Republic of Slovenia), nos60/07 and 19/10 (hereinafter:theAPMLFT) authorises the Chamber of Notaries of Slovenia, as a supervisory authority, to adopt policy autonomously or together with other supervisory authorities and issue, pursuant to Article 90 of the APMLFT, recommendations and guidelines related to the implementation of the measures prescribed for the detection and prevention of money laundering and terrorist financing.

The policy, recommendations and guidelines adopted are the precondition for the preparation of internal procedures for the detection and prevention of money laundering and terrorist financing.

These recommendations and guidelines are advisory in nature and are intended to help notaries interpret and implement the provisions of the APMLFT consistently.

The APMLFT stipulates the special tasks and duties of notaries in the implementation of measures for the detection and prevention of money laundering and terrorist financing implemented in accordance with the provisions of Chapter III therein.

While the Chamber of Notaries of Slovenia supervises the implementation of the policy, recommendations and guidelines, notaries must consistently implement a risk management policy in the prevention of money laundering and terrorist financing, and ensure the efficiency and full consistency of their activities in the implementation of the Guidelines of the Chamber of Notaries, and applicable regulations in the prevention of money laundering and terrorist financing.

2. GENERAL REMARKS ON MONEY LAUNDERING AND TERRORIST FINANCING

The APMLFT defines money laundering as an activity carried out for the purpose of concealing the origin of money or other proceeds of crime, and includesthe conversion or transfer of money or other proceeds of crime, and the concealment or disguise of the true nature, source, location, movement, disposal, ownership or rights of funds or other criminal proceeds.The ultimate objective of money laundering is to gradually integrate laundered money or property into a business activity (existing or new) or into standard business flows which form an integral part of a lawful business activity.

In accordance with the APMLFT, terrorist financing means the direct or indirect provision or collection of funds or other property of legal or illegal origin, or the attempted provision or collection of such funds or other property, with the intention that they be used in full or in part for the performance of a terrorist act, or that they be used by a terrorist or terrorist organisation.In contrast to money laundering, where the subject of concealment or disguise may only be illegally gained assets – which means assets gained by a previously committed criminal offence – terrorist financing resources that are intended for the performance of terrorist acts or used by terrorists or terrorist organisations may be either of legal (personal income, profit, humanitarian assets, sponsor assets, etc.) or of illegal origin (assets gained from criminal offences, such as tax evasion, offences related to corruption, drug or weapons trafficking, etc.), tax evasion, offences related to corruption, drug or weapons trafficking, etc.).

Money laundering and terrorist financing may represent a serious threat to the stability and integrity of the operation of financial institutions, harm the stability and reputation of the domestic financial sector, put the internal market and its competitiveness at risk, and, in particular, weaken trust in the democratic institutions of modern society over the long term.As international experience in combating money laundering and terrorist financing has proven that the financial instruments market is also an easy target for organised criminal activities, such as money laundering and terrorist financing, steps must be taken to ensure that notaries consistently observe all the measures determined by the APMLFT and secondary legislation in their activities, especially those measures concerning due diligence regarding clients, reporting requested information, record keeping, internal controls, employee training, and similar, as well as the measures and procedures determined by the Guidelines, which help notaries implement a consistent policy for the detection and prevention of money laundering and terrorist financing in practice.

3. NATIONAL AND INTERNATIONAL LEGISLATION

Even before its accession to the EU, the Republic of Slovenia ensured a gradual compatibility of its legislation with the acquis on the detection and prevention of money laundering.By 2001, it had already adopted and, soon after, amended the Prevention of Money Laundering Act (Ur. l. RS, nos79/01 and 59/02;hereinafter:theZPPD), which extensively and consistently observed all the international standards established from ratified international treaties and other international regulations that were not formally a constituent part of the legislation of the Republic of Slovenia at the time of the adoption of the Act.Together with the provision of Article 252 of the Penal Code (Ur. l. RS, no.95/04 – official consolidated text;hereinafter:theKZ), which defines the criminal offence of money laundering, and, since 2004, with the provision of Article 388a of the KZ, which defines the criminal offence of terrorist financing, the ZPPD constituted a conceptual framework for the detection and prevention of actions concealing the origin of money or assets.

After a series of terrorist attacks in the USA and Europe, the international community and various international organisations decided to amend international standards in combating money laundering and terrorist financing.These are primarily summarised in the recommendations of the Financial Action Task Force; hereinafter:theFATF), which is one of the key international bodies in combating money laundering and terrorist financing. As the FATF recommendations were considerably expanded in 2003 and 2004, this led to the preparation of the new Directive 2005/60/EC of the European Parliament and of the Council of 26 October 2005 on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing (hereinafter:Directive 2005/60/EC), which constitutes a direct basis for the adoption of the APMLFT.Directive 2005/60/EC replaces Council Directive no.91/308/EEC on the prevention of the use of the financial system for the purpose of money laundering of 1991, and Directive of the European Parliament and of the Council no.2001/97/EC on the amendments to Directive no. 91/308/EEC of 2001. Directive 2007/64/EC of the European Parliament and of the Council of 13 November 2007 on payment services in the internal market constituted the basis for the adoption of the Act amending the Prevention of Money Laundering and Terrorist Financing Act (APMLFT-A, Ur. l. RS, no.19/10), which entered into force on 27 March 2010.

In the framework of combating terrorism, the Republic of Slovenia also adopted the Restrictive Measures Act (Ur. l. RS, no. 127/2006). The restrictive measures currently implemented in the Republic of Slovenia are based on the legal acts of the UN Security Council and the EU, but may also be introduced on the basis of binding or non-binding acts of other international organisations or associations (such as theOSCE).These measures may include the partial or full cessation of economic relations, and railway, maritime, air, postal, telegraphic, radio and other means of communication, and the severance of diplomatic ties, while the most common measure in combating terrorism is financial sanctions, including the freezing of funds on accounts and/or the prohibition of the disposal of property (economic resources) in general, a military embargo, which means prohibition from arms trading with a certain country or other entities as well as a travel embargo, which includes banning certain persons from entering a country or transiting through its territory.Restrictive measures may be imposed against countries, international organisations, other entities, natural persons (e.g. heads of state, high state officials, terrorists) and other entities, especially terrorist organisations, whereas persons subject to sanctions may also include legal persons.The lists of persons subject to sanctions form part of legal acts which introduce sanctions.

Together with the documents already listed, the most important international documents on the detection and prevention of money laundering and terrorist financing may be summarised in the following points:

a) In the field of the detection and prevention of money laundering

  1. Directive 2005/60/EC of the European Parliament and of the Council of 26 October 2005 on the prevention of the use of the financial system for the purpose of money laundering and terrorist financing;
  2. Commission Directive 2006/70/EC of 1 August 2006 laying down implementing measures for Directive 2005/60/EC of the European Parliament and of the Council as regards the definition of “politically exposed person” and the technical criteria for simplified client due diligence procedure and for exemption on grounds of financial activity conducted on an occasional or very limited basis;
  3. Directive 2007 of the European Parliament and of the Council of 13 November 2007, on payment services in the internal market, and on amended Directives 97/7/EC, 2002/65/EC, 2005/60&EC and 2006/48/EC and repealing Directive 97/5/EC;
  4. Regulation of the European Parliament and of the Council on information on the payer accompanying transfers of funds;
  5. Regulation No. 1889/2005 of the European Parliament and of the Council of 26October 2005, on controls of cash entering or leaving the Community;
  6. Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime and on the Financing of Terrorism;Warsaw, 16 May 2005;
  7. Forty recommendations by the international organisation, the FATF, on money laundering from June 2003.

b) In the field of the detection and prevention of terrorist financing

  1. European Convention on the Suppression of Terrorism;Strasbourg, 27 January 1977.Slovenia signed the Convention on 28 March 2000 and ratified it on 29 November 2000. It entered into force on 1 March 2001.
  2. Protocol amending the European Convention on the Suppression of Terrorism;Strasbourg, 15 May 2003).Slovenia signed the Protocol on 15 July 2003 and ratified it on 11 May 2004.
  3. UN Security Council Resolution 1373 of 2001.
  4. International Convention for the Suppression of the Financing of Terrorism;New York, 9 December 1999. Slovenia signed the Convention on 10 November 2001 and ratified it on 15 July 2004. It entered into force on 23 October 2004.
  5. Council of Europe Convention on the Prevention of Terrorism;Warsaw, 16 May 2005.Slovenia signed the Convention on 19 May 2006.
  6. Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime and on the Financing of Terrorism;Warsaw, 16 May 2005.
  7. Special recommendations of the FATF on terrorist financing of October 2001 and October 2004 (hereinafter:Special recommendations of the FATF).

In the Republic of Slovenia, the detection and prevention of money laundering and terrorist financing is currently regulated by the Prevention of Money Laundering and Terrorist Financing Act (the APMLFT), Ur. l. RS, nos 60/2007 and 19/2010, Ur. l. RS, no.47/2009 Constitutional Court Decision:U-I-54/06-32 (48/2009 corr.) and secondary legislation published in Ur. l. RS, no.10/2008:

-Rules on the method for reporting information to the Office of the Republic of Slovenia for Money Laundering Prevention;

-Rules on the method for reporting information by lawyers, law firms or notaries to the Office of the Republic of Slovenia for Money Laundering Prevention;

-Rules laying down the conditions under which information on cash transactions executed by certain customers need not be reported;

-Rules on exercising internal control, authorised person, storage and protection of information, and management of records with respect to organisations, lawyers, law firms and notaries;

-Rules laying down the conditions to be met by a person in order to be allowed to act as a third party;

-Rules laying down the conditions for identifying a customer and verifying the customer's identity on the basis of the customer's qualified digital certificate;

-Rules on determining the list of equivalent third countries;

-Rules laying down the conditions under which a person may be considered a customer who represents a low risk of being involved in money laundering or terrorist financing.

4. GENERAL PRINCIPLES OF COMBATING MONEY LAUNDERING AND TERRORIST FINANCING

Article 4 of the APMLFT determines the persons under obligation for the implementation of measures for the detection and prevention of money laundering and terrorist financing. The measures for the detection and prevention of money laundering and terrorist financing provided by this Act are also implemented by notaries, in accordance with the provisions of Chapter III of the Act.

Unless otherwise provided in Chapter III of the APMLFT, a notary acts in accordance with the provisions of the APMLFT governing the tasks and obligations of organisations in applying the measures for detecting and preventing money laundering and terrorist financing when:

1. assisting in planning or executing transactions for a client concerning:

a)drafting contracts on legal transactions related to buying or selling real property or a company;

b)managing client money, securities or other assets;

c)opening or managing bank, savings or securities accounts;

d)raising the funds required to establish, operate or manage a company;

e)establishing, operating or managing foundations, trusts, companies or similar legal organisational forms;

2. conducting a financial or real estate transaction on behalf of and for a client.

When, in carrying out a business activity referred to in Article 47 of the APMLFT, reasons for a suspicion of money laundering or terrorist financing exist in connection with the client or transaction, the notary reports such suspicion prior to processing the transaction and states the time limit within which the transaction is to be carried out. Such report may be submitted by telephone but must also be sent to the Office in writing the next working day at the latest.

The notary reports any instance of a client seeking advice for money laundering or terrorist financing purposes to the Office immediately, and not later than within three business days of seeking such advice.

Article 50 of the APMLFT determines exceptions for notaries: the provisions of the first and second paragraphs of Article 49 of this Act do not apply to the notary with regard to data obtained from or concerning the client while establishing the client's legal position or when acting as the client's legal representative in judicial proceedings, including advice concerning the institution or avoidance of such proceedings, irrespective of whether such data is obtained before, during or after such proceedings. On these conditions, notaries are not obliged to furnish the data, information and documentation referred to in the first and second paragraphs of Article 55 of the APMLFT on the request of the Office. In the event of such, they immediately, and not later than within 15 days of receipt of the request, inform the Office in writing of the reasons for the non-compliance with the Office's request.

Notwithstanding the other provisions of the APMLFT, the notaries are not obliged to report the cash transactions referred to in the first paragraph of Article 38 of the APMLFT to the Office, unless reasons exist for a suspicion that the transaction or client is connected with money laundering or terrorist financing.

In view of the above, the activities of the notaries must include the preventive measures prescribed in order to reduce the risk of money laundering or terrorist financing.Particular reference should be made to those measures that directly refer to verifying the identity of a client or the beneficial owner of a client if this is a legal entity, and those measures that help organisations identify transactions and clients when reasonable grounds exist to suspect the involvement of money laundering or terrorist financing.

For the purpose of the implementation of the APMLFT and these guidelines in the preparation of internal regulations and procedures, notaries rely on the following key principles for combating money laundering and terrorist financing:

a) Respecting regulations and standards

In performing their activities, notaries must comply with the statutory and executive provisions adopted that regulate the detection and prevention of money laundering and terrorist financing, and ensure that the measures prescribed are appropriately integrated at all levels so that the activity is fully implemented in compliance with the standards set by Directives 2005/60/EC, 2006/70/EC, 2007/64/EC, and the FATF recommendations.

b) Cooperation with the Office and supervisory authorities

As a part of their legal authorisations, notaries must ensure full cooperation with supervisory authorities, such as the Office of the Republic of Slovenia for Money Laundering Prevention (hereinafter: the Office), the Chamber of Notaries of Slovenia, and the Ministry of Justice. Mandatory cooperation between an organisation and a supervisory authority applies especially when reporting prescribed and requisite data, information and documentation referring to clients or transactions when reasonable grounds to suspect money laundering or terrorist financing exist, as well as when reporting any facts or circumstances that indicate or may indicate money laundering or terrorist financing, and that may threaten the security, stability and reputation of the financial system of the Republic of Slovenia.Therefore, the internal procedures adopted must not, either directly or indirectly, restrict the aforementioned cooperation or affect the efficiency of such cooperation in any other way.

c) Adoption of appropriate policies, procedures and internal controls

Notaries must implement a uniform risk management policy concerning money laundering and terrorist financing, and draft effective internal procedures on its basis, especially in the field of client due diligence, risk analysis and the identification of clients and transactions in respect of which reasonable grounds to suspect money laundering or terrorist financing exist, and ensure that all employees are familiar with these procedures, comply with them, and use them in their work.

Risk management policy must include the following:procedures of admission and treatment of clients, procedures of risk analysis preparation, employee training procedures, internal control mechanisms, procedures of detection and reporting of data on suspicious transactions, responsibility of staff for the implementation of measures for the detection and prevention of money laundering or terrorist financing, etc.

e) Regular employee training

The Chamber of Notaries of Slovenia provides regular professional training related to the detection and prevention of money laundering and terrorist financing.

5. RISK-BASED APPROACH

5.1 Purpose of Risk Analysis

A risk of money laundering or terrorist financing means the risk that the client would misuse the financial system for money laundering and terrorist financing, or that a business relationship, transaction or product would be used, directly or indirectly, for money laundering or terrorist financing.