Spain: Spanish Exchange Control and Money Laundering Legislation Reformed

Last Updated: 3 December 2003
Article by Florentino Carreño

On July 5, 2003, Law 19/2003 on the legal system governing capital movements and financial transactions with other countries and on certain measures for preventing money laundering (the "Law") was published in the Official Gazette.

This Law amends regulations of particular importance, especially for banks. In this respect, the Law replaces the former regulations of the legal system for exchange of currencies, which, for the most part, have been abrogated, with the aim of incorporating the terms of the Treaty establishing the European Community into Spain’s legal system.

In this context, the following is a series of observations that deal systematically with the most important aspects introduced by the Law into the legal system governing capital movements and financial transactions with other countries and prevention of money laundering.

Capital movements

In respect of regulation of currency exchange, the Law updates the former Law 40/1979 on the Legal System of Currency Exchange Control; the text of the former law had certain defects, owing to the substantial changes that had come about since it was enacted.

Nevertheless, in spite of the significant new measures introduced and commented upon below, the Law remains based on the same familiar principles of free movement of capital, upheld in its Article One, and obligations of notice for administrative and statistical purposes.

Private individuals and companies, both resident and non-resident in Spain, are obliged under the Law to declare and notify the government of capital movements. In particular, banks and other financial enterprises taking part in such transactions on behalf of their clients are obliged to inform the Ministry of the Economy and the Bank of Spain of the particulars of such transactions carried out by their clients.

The Law includes the safeguard clauses and exceptional measures set out in Title III, Chapter 4 of the Treaty establishing the European Community. Thus, it provides for a mechanism by which, under a Cabinet resolution, measures taken within the framework of the European Union or other international organisations of which Spain is a member can be applied. Likewise, provision is made for the possibility of carrying out, with government permission, transactions that would otherwise be prohibited by virtue of the safeguard clauses and suspension of freedom of capital movements under certain circumstances (in the interest of national defence, public order, public health and safety, etc.).

Lastly, it amends the former system of penalties and establishes the categorisation of infractions and the corresponding penalties, as well as assigning competency in punitive actions, as follows: proceedings are carried out by the Directorate-General of the Treasury and Financial Policy and penalties are imposed by the Cabinet, the Minister of the Economy and the Secretary of State for the Economy, in the case of penalties for very serious, serious and minor infractions, respectively.

New aspects in connection with money laundering

The Law makes fundamental amendments to Law 19/1993 on certain measures for prevention of money laundering, broadening the scope of its application and the range of obligated persons in connection with this matter.

Firstly, the scope of application of the Law is broadened to include the prevention of money laundering originating in any type of criminal participation in an offence punishable by imprisonment for a term of over three years. In view of the structure of scales of penalties provided for in the current Penal Code, the interpretation of this provision could give rise to substantial uncertainty. Consequently, the specification of criminal activities set out in the former version of the law has been abrogated, so that, as the most significant example, it includes tax offences, punishable by imprisonment for a term of one to four years, among the offences generating the obligations provided for in this Law.

In addition, the Law considerably broadens the subjective scope of Law 19/1993, since, in addition to all the obligated persons provided for to date, the Law includes in that category all individuals and companies acting professionally as auditors, external accountants or tax consultants. It further includes notaries public, lawyers and court procurators, whose categorisation as obligated persons is conditional upon: (i) their participation in certain transactions, such as "the conception, accomplishment or counselling of transactions by clients in connection with the purchase and sale of real estate or commercial enterprises", the management of funds, securities or other assets, the opening and management of bank accounts, savings accounts or securities accounts, "the organisation of contributions required for the creation, operation or management of enterprises" or structured companies, trusts or other similar enterprises; and (ii) their acting on behalf of clients in any financial or real estate transaction.

With the same objective of broadening the subjective scope of the Law, it also includes as obligated persons individuals and companies who, on their own behalf or on behalf of others, carry out certain movements of means of payment, such as the movement into or out of the country of cash or any other means of payment in excess of €6,000 per person per trip, or movement within the country of certain means of payment in excess of €80,500.

This obligation is meant to cover a need perceived by police agencies specialising in the persecution of this type of offence, namely the power to confiscate amounts of cash found in the possession of presumed criminals where the latter are unable to justify the origin of such funds. Failure to comply with the obligation to give notice of such movements can lead to confiscation.

In the circumstances set out in the preceding paragraph, the obligated persons must declare the possession, origin and destination of the funds.

In respect of the aforementioned obligated persons, the Law also introduces certain amendments relating to their obligations.

The first new aspect in this regard, one that also deals with a very widespread concern on the part of both the Spanish authorities and those of other countries, is the mention by the Law of regulation of the obligation to identify clients who "are not physically present at the moment when the relationship is established", in a clear reference to remote trading in all types of products, particularly via the Internet. This category includes not only virtual banking, but also all operators who use remote methods to deal with their clients.

In connection with the obligation to require identification of clients, the only exception to that obligation refers to clients who are finance companies domiciled in the European Union or other countries determined by the Commission for Prevention of Money Laundering and Monetary Offences.

One of the most important new aspects, the enforceability and importance of which will be substantiated in the development of regulations and the outcome of possible penalty proceedings, is the obligation to "take measures to determine reasonably the accuracy" of information on clients relating to the "nature of their professional or business activity", which, if applied strictly, could make the obligated persons into investigators of their clients.

In addition, provision is also made for the obligation to examine any suspicious transactions, including the obligation to examine any complex or unusual transaction, or transactions that have no apparent financial or licit purpose, and the outcome of that examination must be set out in writing.

In respect of the requirement for obligated persons to co-operate with the Executive Branch of the Commission for Prevention of Money Laundering and Monetary Offences, the Law is clear in specifying the obligation to report, in addition to any event or transaction suspected of being or known to be related to money laundering, all transactions in which there is a lack of ostensible congruity with the nature, turnover or operational background of the client, where there is financial, professional or business justification for such transactions.

Likewise, and in connection with the already existing obligation to establish the appropriate supervisory procedures and bodies within the obligated entity itself, the Law includes an important new aspect in providing in Article 3, paragraph 7 for the obligation to establish "an express policy on acceptance of clients", making it necessary for obligated persons to set out, establish procedures for and disseminate that policy.

Likewise, it provides for the obligation to have such procedures revised annually by an external expert, a measure that will need to be embodied in the corresponding regulations and that is a wholly novel factor in comparison with the previous law in addition to the already existing (and now strengthened) competency of the Executive Branch as auditor.

Also in connection with money laundering, the National Police Force and the Special Customs and Tax Department are authorised to confiscate means of payment, with the obligation to forward the corresponding certificate of confiscation to the Executive Branch.

Lastly, the amendments to Law 230/1963 on general tax regulations are aimed solely at establishing reciprocal co-operation between the Executive Branch of the Commission for Prevention of Money Laundering and the tax authorities, to facilitate the exchange of information between those two organisations.

Cuatrecasas. Banking Law and Financial Institutions practice Group. Madrid.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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