Foreward by Andrew Chilvers
When the 5th Anti-Money Laundering Directive was introduced into law by the UK and EU in January 2020, for many professionals it was a much needed addition to legislation that would significantly help business transparency and combat money laundering. In essence, it was good for business and for public and professional confidence.
All jurisdictions signing up to the 5th Directive will build and maintain UBO registries that will be publicly available at any time. UBO registries will also be set up for bank accounts and trusts, although these latter two will not be publicly available but be accessed by the relevant authority such as financial intelligence units and legal advisors looking into money laundering. Investigative journalists who can show a legitimate interest in the case can also have access, which is vital if another Panama Papers (see below) is to be uncovered. Across the UK and EU national UBO registers will be set to connect through a central European platform by April 2021.
Please provide a brief overview of the UBO Register in your jurisdiction and its history?
In El Salvador, all companies must register at the Trade Registry of the National Registry Center, an autonomous entity of the government. This is in charge of granting a valid legal status to third parties and of registering all companies. Failure to register implies being a null or irregular company.
In principle, in the trade registry, information on companies can be checked along with their legal representatives and boards of directors, changes in their constitutions and statutes, and annual balance sheets. The consequence of not making these registrations or allowing them to expire implies that certain procedures or processes may not be carried out by companies, such as banking procedures, public contracts, among others. Consequently, companies try to keep this documentation up to date to avoid any legal problems. This information cannot be found online; it must be recorded on the Registry or in books. However, with respect to the shareholders of the capital companies, it is only possible to consult the shareholders who appear in the articles of incorporation. There is no legal obligation to update each transfer or endorsement of the shares in the aforementioned registry or obligation to update data of final beneficiaries.
Annually in January, the Tax Code requires that companies report changes in share ownership to the Ministry of Finance of El Salvador. The update of the shareholders of the companies that comply with their obligations in the Ministry are only limited to the names of the shareholder, percentage of share ownership and tax identification number. There is no data of final beneficiaries or data location of said shareholders. This database can only be obtained by the entity itself by writing or by judicial authority in an investigation.
Only societies and companies that participate in the Financial System of El Salvador (co-operatives, banks, insurance companies, remittance companies, electronic money companies, pension funds, investment funds, stock exchanges) can be considered for the UBO register of El Salvador. These companies are obliged to report all the data of their final beneficiaries. The registry and the UBO data are confidential and can only be known to the judicial authorities through resolution in an investigation process.
How can your firm ensure your clients are fully compliant with the new / existing requirements?
To obtain information and establish business relationships with companies, in which the transactions represent a considerable amount, a Know Your Client (KYC) policy is in place. This contains information of relevant shareholders and share ownership (generally over 10% of share ownership). As it is a commercial relationship, documents that prove the layers of share ownership are not requested, but due diligence is carried out safeguarding clients in case of investigations.
This policy is part of a money laundering prevention compliance program, which establishes prevention manuals that contain: processes with new clients, reporting procedures, detection of suspicious operations, mandatory reporting amounts, safeguarding and confidentiality of documentation, and personnel responsible for carrying out such tasks. This is accompanied by a Code of Ethics, good corporate governance regulations and through annual and extraordinary audits. Also, with continuous training.
What changes can we expect to see emerging, are any new proposals expected?
It is expected that the prevention of money laundering is seen as a preventive investment, where companies consider carrying out policies and due diligence in the businesses they carry out, for the rates of the corruption, money laundering and financing of terrorism decrease and / or be eradicated in El Salvador. Therefore, in order to have transparency and to know the final beneficiaries of the companies, a reform of the Commercial Code and the laws of the Commercial Registry is expected, in which the relevant information of the companies can be consulted from the internet, helping to eradicate money laundering or the use of borrowed names in companies. Finally, it is expected that the law reforms place the obligation to inform the Commercial Registry, establish the data of the final beneficiaries, although this information may be accessible after ratifying the identity of the petitioner and that he is carrying out a work of Responsible for Compliance or due diligence, due to business between companies, transactions or projects.