Foreign entities to be subject to AML/CFT control

Currently the State Duma is holding discussions over amendments to Federal Law “On anti-money laundering and combatting financing of terrorism” (hereinafter “AML/CFT”).¹ Proposed amendments are aimed at controlling foreign unincorporated enterprises for AML/CFT purposes.  

A new term designating foreign unincorporated entities (hereinafter “Foreign Entities”) is entered into the law. Foreign Entities are defined as entities established under the legislation of foreign counties, whose organizational form grants them the right to perform activities aimed at making a profit for the benefit of their participants. Such entities particularly include funds, partnerships, trusts and other forms of collective investment and/or trust management. 

After these amendments enter into force, Foreign Entities will be included in the concept of “client” along with individuals and legal entities, and hence a full identification procedure will need to be carried out. 

The proposed amendments establish a list of ID information which will needs to be specified before undertaking to provide service to Foreign Entities.   

The list of such information includes:

-               name of the Foreign Entity,

-               registration number,

-               taxpayer identification number,

-               place where main activity is conducted,

-               structure of property and information about the founders and the trustee of the client.  

Moreover, financial institutions will be obliged to obtain information concerning the purpose of establishing, and purported nature of business relations with, Foreign Entity clients, as well as to conduct identification of beneficial owners of Foreign Entities.   

However, if the organizational structure of such entity does not presume a beneficial owner or sole executive body (for instance, a company is public under legislation of the country of registration), identification of the beneficiary is not required. 

Financial institutions will also have the right to take reasonable measures to determine the source of funds and other property of such clients. 

Summarizing the above, we should note that the main innovation of this draft law is the extension of the Law “On anti-money laundering and combatting financing of terrorism” to include foreign unincorporated structures. 

The regulations on internal control both for financial and non-financial institutions must be made compliant with requirements of legislation in this field no later than 3 months from when the amendments become effective.² For now, the draft law has passed the first reading in the State Duma. 

 _____________________________

1 Draft of Federal Law No.837877-6

2 Regulations No.375-P of the Bank of Russia dated March 02, 2012 and Regulations No.445-P of the Bank of Russia dated December 15, 2014

Irina Akimova  Of Counsel  Head of Antitrust Practice                               Moscow    iakimova@cls.ru  Tel.: +7 (495) 970 1090

Dmitry Gavrilenko    Associate                  Moscow     Tel.: +7 (495) 970 1090