Argentina’s Legal Update

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In the last quarter of 2011 legal agenda has been set forth.  This is an election year in Argentina and many projects, that could be considered somewhat populist, which would otherwise not be considered are likely to be treated by the Argentine Congress.
The majority of the projects that will be treated by the Congress in 2011 will affect potential and current investors in Argentina. In addition, following an adverse report from the Financial Action Task Force (“FATF”), Argentina is looking to promote drastic amendments in its current Anti Money Laundering (“AML”) regulations in order to pass future reports and avoid being blacklisted by the FATF.
The legislative projects to follow this year range from a bill proposing the distribution of corporation’s profits among the employees and the regulation (with more stringent requirements and eventually plain restriction) of work on Saturdays and Sundays to an amendment project to re-regulate the consumer protection law.   We will briefly analyze those projects with the larger impact to foreign investors. 
1. Draft Bill on Oil Exploration and Exploitation Argentina’s Continental Shelf:  
This bill came about after last year’s exploration ventures in the Atlantic Islands in dispute between Argentina and the United Kingdom (Malvinas).  The bill intends that companies currently exploring in the continental shelf be registered and request Argentina’s prior approval.
The bill prohibits and forbids any company or individual, domestic or foreign, to develop exploration or exploitation activities, or have participation direct or indirect in local or foreign entities that develop exploration or exploitation activities in Argentina’s continental shelf, without prior approval of the Argentine Secretary of Energy.  
In the same venue, the bill prohibits and forbid to hire and/or develop activities, transactions, economic, financial, logistic, technical, consulting and or advising operations, for companies or individuals to develop exploration or exploitation activities in Argentina’s continental shelf without prior approval of the Argentine Secretary of Energy.
The Secretary of Energy shall withdraw any corporate or civil authorization to carry out business activities (and eventually file criminal complaints) to companies and individuals acting in violation of the previous paragraphs.  In addition, if such violating entities hold oil concessions such concessions shall revert to the Federal or Provincial Government, according to the location of such concessions.   Finally, the Federal, Provincial and Municipal Governments cannot execute agreements or hire companies or individuals whereby either its controlling entities or shareholders, directly or indirectly, develop oil exploration or exploitation activities in Argentina’s continental shelf without prior approval of the Secretary of Energy.
2. Draft Bill Amending the Public Offering Law: 
The Ministry of Economy is currently considering a bill originated in the National Securities Commission (“NSC”) seeking to amend the current law applicable to Public Companies No. 17,811 (“Law on Public Offering”) enacted in 1968.
This amendment to the Law on Public Offering, far from being a novelty, began to be considered years ago during the administration of Eduardo Hecker, former head of the NSC.  The reform of the Law of Public Offering re-emerges as part of the system of measures established by the National Government to adapt to the premises stated by FATF and the increasing pressures on Argentina to increase the controls and measures against money laundering.
One of the main amendments introduced by this bill is the free exchange of information among regulatory agencies of the State, such as the NSC, the Financial Information Unit (“FIU”), the Tax Authorities, and the Central Bank of Argentina.
Thus, activities that are protected by the stock secret could be exercised freely if this bill is approved by the National Congress.  The head of the NSC, Alejandro Vanoli, referred that that this measure would lead to prevent crimes and violations related to insider trading, market manipulation, and issues related to the prevention of money laundering and financing of terrorism.
Another important change that attempts to correct the strong criticism of the FATF, who referred to the lack of controls by the National Government in the capital market in its report in late 2010, is to invest the CNV of police power in punitive action. If this is approved, it would grant the NSC the authority to sanction stockbrokers if irregularities are detected, and if a violation of the provisions, statutes and regulations of these entities takes place. Thus, it would be set aside the concept of the self-governing of the market that has ruled for over forty years, a situation highly questioned by many economists who believe that it is the market that can exert the greatest control against money laundering.
These measures are intended to summarize the international experience, particularly the cases of Chile and Brazil, and integrate the country into the group of countries that meet the international standards of the International Organization of Securities Commissions (“IOSCO”), objective which finds its origin in the international pressure addressed to the National Government.
3. Bill on Land Ownership:
The Argentine President, Cristina Kirchner, in her speech opening the 2011 legislative period mentioned she will file a draft bill on land ownership to Congress.   The alleged purpose of such bill is to control foreign land ownership in an intelligent manner to prevent any anti-foreign investor view.  The President used Brazil as an example where there is already a bill like this.   The President mentioned the bill will aim at keeping the vital resources under national property without having a xenophobic approach.  Such bill has not yet been filed before Congress.
4. New AML Regulations: 
Finally, and on a separate note, Argentina is currently providing for extensive changes in its AML regulation structure. From January 14, 2011 until January 24, 2011 the Financial Information Unit (“FIU”) has issued a total of thirteen Resolutions. 
This is an effort of Argentina to avoid sanctions from the FATF after a critical report in October 2010 issued by such entity.  The set of rules deals with issues ranging from the treatment given to the information received by anti-money laundering agencies of other countries -which had already earned criticism from his US counterpart, the FINCEN-, to a list of politically exposed persons (PEP), provisions for the Central Bank, National Securities Commission, Gambling Houses, Notaries, etc.
The goal set by the rules is to provide a system of measures to prevent money laundering and implement greater control over commercial and financial operations. Thus, there will be more controls on the purchase of property, vehicles, insurance contracts, bank transfers, and bets in bingos and casinos that exceed certain amounts.
In December 2010, Argentina submitted before the FATF a plan to prevent money laundering.  In relation with this plan, the FATF considered that Argentina should change its plan of action and that the country lacks adequate anti-money laundering control standards.  Consequently, the origin of these new measures is the need to comply with the strong criticisms leveled against the Government by the FATF and avoid warnings and sanctions.  
The main measures implemented by the Government are as follows.
Notaries, accountants, Banks, insurers and money transportation companies must implement procedures for the control of operations in which they intervene, which exceed the sum of two hundred thousand pesos ($ 200,000).
Banks must report transfers that denote unusual movement of funds of their customers.  Accounting firms and transportation of funds companies must report any suspicious transaction.
All organisms and professionals previously mentioned must have a procedure manual to avoid transactions involving money laundering, carry files of each of their customers, and report unusual transactions and those in which their customers can not justify the origin of funds.
Argentine Central Bank (“ACB”) must exercise tighter controls on financial entities while sanctioning powers are under the responsibility of the UFI.
Gambling is one of the most difficult areas to control, especially because of its extension.  According to a survey of the UFI there are in the country 61 bingos, 67 casinos, 115 horse agencies and 89 locals with slot machines.  Since the new measures implementation, all bingo and casinos must implement more stringent control mechanisms.
Additionally, the Government decided to increase the control on Politically Exposed Persons (PEP). This group is composed of presidents, ministers, public, officials, presidents of political parties, legislators, judges, military officers, prosecutors, union leaders and heads of chambers of commerce.
 
By Javier Canosa – Canosa Abogados
 
  The Financial Action Task Force (FATF) is an inter-governmental body whose purpose is the development and promotion of national and international policies to combat money laundering and terrorist financing. The FATF is therefore a 'policy-making body' that works to generate the necessary political will to bring about legislative and regulatory reforms in these areas. The FATF has published 40 + 9 Recommendations in order to meet this objective. For more information go to www.fatf-gafi.org