Amendments to the Law on preventing and combating money laundering and terrorist financing

In brief

The Parliament of the Republic of Moldova has approved several amendments to Law no. 308/2017 on the Prevention and Combating of Money Laundering and Terrorism Financing, through Law no. 66/2023, amending certain normative acts. These amendments are aimed at improving and updating the legal framework for preventing and combating money laundering and terrorism financing in the Republic of Moldova. Below is an overview of the changes:

1. Expansion of the definition of beneficial owners

The law introduces an expansion of the definition of beneficial owners to include non-commercial organisations, in addition to legal entities and sole entrepreneurs. Thus, these organisations should provide the necessary information to comply with legal obligations.

2. Supervision of reporting entities

Clarification is provided regarding the bodies responsible for supervising reporting entities, including the National Bank of Moldova, the National Commission for Financial Markets, and other relevant entities. These bodies have specific supervisory functions for various categories of entities.

3. International exchange of information

Procedures for exchanging information with similar institutions or competent authorities in other countries on the prevention and countering of money laundering and terrorism financing are regulated. These information exchanges are intended to facilitate international cooperation in combating these crimes.

4. Lists of restricted organisations and natural persons,

The law stipulates that reporting entities and the Public Services Agency should comply with restrictions on natural persons, groups, and entities included in restriction lists, including those compiled by the European Union and the United Nations.

5. Appeals against inclusion in restriction lists

Natural persons and organisations erroneously included in these lists have the right to request the Security and Intelligence Service to be removed from the respective list. The Service can decide the approval or denial of the requests.

These changes to Law no. 308/2017 are aimed at strengthening the legal framework for combating money laundering and terrorism financing in the Republic of Moldova and aligning with international standards in the field. These changes are also intended to boost the transparency and efficiency of the process of preventing and combating these illegal activities.

In detail

Definition of Financial Intelligence Unit

The Service for Preventing and Combating Money Laundering is Moldova’s Financial Intelligence Unit, referred to as the Service.

Changes to concepts

Changes are made to concepts in the Act, such as the definition of "virtual asset," replacement of the word “conducts” with “exercises” under the concept of  "shell bank", eliminating the concept of "beneficial owner ," and introducing new concepts such as "virtual asset service provider" and "predicate offence."

Extension of reporting entities list 

The list of reporting entities required to adhere to anti-money laundering and counter-terrorism financing rules is expanded to include banks, currency exchanges, investment companies, registry companies, insurers or reinsurers, non-bank credit institutions, savings and loan associations, as well as professionals such as lawyers, notaries, bailiffs, and other self-employed individuals. Additionally, providers of crowdfunding services and organisers of gambling activities, as well as auditors, are added to the list of reporting entities.

Ban on virtual asset services

The provision of services related to virtual assets is prohibited in the Republic of Moldova, and fines are provided for cases of non-compliance. The Public Services Agency should immediately report to the Service information on any suspicious activities or transactions identified during the provision of public services. This data should be reported within a maximum of 24 hours from the moment the circumstances raising suspicions are identified.

Standard customer precautions

Modifications are made to the standard customer due diligence measures, including stricter criteria for opening accounts and conducting transactions with non-resident clients and service providers dealing in virtual assets from other countries. For instance, in the case of the value of all types of occasional transactions, the amount of MDL 30,000 is replaced with MDL 20,000.

Identifying and verifying the identity of customers by electronic means

Eligibility for electronic identification

Identification and verification of customer identities using electronic means are allowed for citizens of the Republic of Moldova and for resident legal entities, provided that their representatives, founders, administrators, and beneficial owners are citizens of the Republic of Moldova.

Electronic identification methods

Methods for identifying and verifying customer identities using electronic means are established, including the use of electronic identification means with sufficient levels of security, live transmission of video and audio recordings, or other electronic means provided by qualified and accredited trust service providers in accordance with Law no. 124/2022 on electronic identification and trust services.

Requirements and procedures

The supervisory authorities of reporting entities establish the requirements for identifying and verifying customer identities using electronic means, including the necessary policies and procedures, the internal control system, risk management, protective measures, and minimum technical requirements.

Beneficial owner

Definition of beneficial owner

The beneficial owner is defined as any natural person  who ultimately owns or controls the client, and/or the natural person on whose behalf or for whom an activity or transaction is conducted, either directly or indirectly.

The concept of beneficial owner

 The Article specifies that the concept of beneficial owner includes at least the following categories of natural persons:

• natural persons who own or control a profit-making legal person;

• natural persons who  hold the position of client administrator

•  natural persons involved in trusts or similar legal arrangements;

• natural persons exercising ultimate control over non-commercial organisations;

• natural persons benefiting  from at least 25% of the assets of a legal person or unincorporated entity.

Identifying and reporting the beneficial owner

Reporting entities have the duty to identify and report the beneficial owner. Where there are discrepancies between the information available in the State Register of Legal Entities regarding the beneficial owner and the information provided by the client, reporting entities should inform the tax authorities and the Public Services Agency within five working days. During this time, they cannot engage in any financial activity or transaction with the respective client and should request the client to update its information regarding the beneficial owner in the official register. The Public Services Agency may make a provisional entry in the official register, but this entry will be stricken off after the discrepancies are resolved. Until the situation is clarified, the Agency cannot record changes in the legal entity's articles of incorporation, its reorganisation, or its deregistration.

Policies and procedures to prevent money laundering and terrorist financing

Money laundering and terrorist financing risk assessment and risk-based approach

References to criteria and factors established by supervisory authorities are removed, and policies and procedures no longer require periodic approval and updates. Instead, they should be included in an assessment report approved by a senior management person responsible for ensuring compliance with legal requirements for anti-money laundering and counter-terrorism financing. These policies and procedures are to be updated annually.

Another significant change is the introduction of a risk-based approach, which requires reporting entities to implement procedures for identifying, assessing, monitoring, managing, and mitigating the risk of money laundering and terrorism financing. These procedures should be approved by a senior management person responsible for ensuring compliance with legal requirements.

Additionally, the amendments allow the deputy director of the reporting entity to issue orders in this context.

Furthermore, the requirement to identify and verify beneficial owners in the case of large cash transactions or similar value is removed.

Verifying customer identity

The verification of the client's and beneficial owner's identities should be conducted as soon as possible after the establishment of the business relationship, but no later than one month from the initial contact.

Money laundering and terrorist financing risk assessment

Extended External Audit

Conducting external audits on branches or representative offices of reporting entities from high-risk countries is introduced.

Simplified Rules

The removal of references to criteria and factors established by supervisory authorities simplifies the rules and requirements, making them more accessible and easier to apply.

Electronic Risk Assessment

The imposition of risk assessments associated with electronically identified customers is consistent with technological progress and the importance of risk management in this context.

Extension of Precautionary Measures

Extending the scope of enhanced precautionary measures to clients residing in high-risk countries strengthens vigilance over these clients.

Focus on Electronic Identification

Enhanced precautionary measures also apply to clients identified by electronic means, placing additional emphasis on this type of identification.

Adaptation to Virtual Assets

The scope is extended to customers and transactions related to virtual asset service providers authorised in other states, to keep pace with technological progress and new financial services.

Supplementary Screening  in Cross Border Operations

The provision clarifying that enhanced precautionary measures apply especially to reporting entities that include commercial banks in cross-border correspondent relationships strengthens control over these operations.

Additional measures are introduced for transactions or business relationships with resident clients conducting transactions to/from addresses of virtual asset service providers authorised in other states. These measures include opening special accounts for these clients and implementing specialised IT solutions to monitor their transactions.

Politically exposed persons

Politically exposed persons are defined, with such categories including heads of state, Members of Parliament, members of the governing bodies of political parties and other important national or international public officials.

Countermeasures on high-risk countries (jurisdictions) designated/monitored by the Financial Action Task Force (FATF)

Measures for reporting entities and supervisory bodies to apply when dealing with customers and financial institutions in FATF designated/monitored high-risk countries/jurisdictions are introduced. These measures include limiting business relationships, assessing and modifying cross-border correspondent relationships, conducting the external audit.

Data retention

Recent amendments have brought significant changes to data retention for reporting entities. Previous provisions that mandated the retention of transaction-related data and documents for five years from the termination of the business relationship or from the date of occasional transactions have been repealed. This means that specific retention periods are no longer applicable, except for the cases where the Service or supervisory authorities may request an extension of the period for certain types of documents, but such extension cannot exceed an additional five years.

Coordination with third parties

Modifications made to Article 10 have a significant impact on coordination with third-party entities concerning anti-money laundering and counter-terrorism financing efforts. The requirement for reporting entities to immediately obtain from third parties all necessary information regarding customer due diligence measures and to retain copies of identification data and other relevant documents has been introduced. Significant changes have been made to several paragraphs in the article to establish clear requirements and specific deadlines for reporting transactions and customer activities, including remittances and transactions conducted via specific reporting entities. These changes are consistent with a stricter and more targeted approach to managing and reporting financial activities to prevent money laundering and terrorism financing.

Reporting activities or transactions

Changes to Article 11 include the obligation on reporting entities to report to the Service the cash activities or transactions of customers amounting to at least MDL 200,000 for one month and to submit this information via a special form by the fifth day of the following month. Additionally, a reporting requirement is introduced for customer transactions exceeding MDL 200,000, which are to be reported by the tenth day of the following month.

Reporting entities listed in Article 4(1)(a) and (i) are required to report remittances with a value of at least MDL 40,000 within five days of the transaction, except notaries who are exempted from this obligation. A clause is also added requiring legal entities to inform the Service about the activities or transactions of customers until all obligations related to their licensed or authorised activity are fulfilled.

Policies, internal controls, and procedures

Article 13 undergoes significant changes to strengthen the prevention of money laundering and terrorism financing. These changes include the responsibility of reporting entities to establish policies, procedures, and controls to manage the risks associated with these illegal activities. Supervisory authorities can now require external audits to verify compliance with these policies and controls. Additionally, the responsibilities of senior-level personnel are updated, and protective mechanisms are now in place for those responsible for compliance and employees who report law breaches.

Other amendments

Modifications made to Article 14 include an expanded definition of "beneficial owners" to add non-commercial organisations and an obligation on these beneficial owners to provide necessary information to comply with legal obligations.

In Article 15, supervisory bodies are specified for various categories of reporting entities, granting them the authority to request necessary documents and information. Among the supervisory bodies are the National Bank of Moldova, the National Commission for Financial Market, the Notary Chamber, the Bar Association of the Republic of Moldova, the Union of Authorised Administrators, the National Union of Biliffs, the Public Oversight Council for Auditing, and the Service. Additionally, a new requirement is introduced for supervisory bodies to inform authorities in cases of virtual asset service activities against the law.

Article 16 stipulates that the information obtained cannot be disclosed without the prior consent of the Service.

Article 17 facilitates the exchange of information with similar institutions in other countries to prevent and combat money laundering and terrorism financing. It also imposes an obligation to provide detailed information about the results of the examination of received information.

In Article 19, reporting entity obligations to report suspicions are extended, and the obligations of authorities and public institutions regarding assistance to the Service are clarified.

Article 20 adds new reporting entities and institutions required to adhere to anti-money laundering and counter-terrorism financing legal requirements, while sub-points are restructured for clarity.

Within Article 25, sub-points related to staff cuts or the elimination of functions are introduced, with the mention of exceptions in certain cases being removed.

Article 34 includes the Public Services Agency as a reporting entity and clarifies that reporting entities should refrain from any activities and transactions benefiting natural persons, groups, and entities included in specific lists. Relevant United Nations resolutions are also specified, and a provision regarding the list of the European Union and the Council of Europe concerning natural persons, groups, and entities involved in terrorist activities is added. A procedure for organisations and natural persons, erroneously included in the lists is introduced, allowing them to request their delisting, with the Information and Security Service to then decide on the request.

[Source: Law No. 66 of 30 March 2023 on the amendment of some normative acts, published in the Official Gazette No. 159 - 161 of 11 May 2023; in force from 1 July 2023]

The takeaway

On 1 July 2023, law provisions entered into force, introducing important amendments to the legislation on preventing and combating money laundering and terrorist financing.