Challenges of Combating Money Laundering During COVID-19 Crisis

April 23, 2020

Challenges of Combating Money Laundering During COVID-19 Crisis

April 23, 2020

Miloš Velimirović

Miloš Velimirović

Partner

Stefan Jugović

Stefan Jugović

Junior Associate

The Financial Action Task Force (FATF), a global inter-governmental body aimed at preventing money laundering and terrorist financing, has recently removed Serbia from its grey list. Serbia continues to follow FATF’s recommendations and has adopted new AML regulation – Prevention of Money Laundering and the Financing of Terrorism Act of the Republic of Serbia. The intended aim of this law is the harmonisation of the Serbian legal framework on AML with international standards and compliance with the recommendations of FATF. The most important changes made to the Serbian AML regulatory framework with this new piece of legislation involves the inclusion of public notaries as subject to implementing and tightening the AML measures.

Although the AML regulations to be implemented by the financial institutions of the Republic of Serbia are in accordance with international standards, there are doubts about the expected efficiency of the implementation of these regulations. They may prove to be too heavy a burden for Serbian financial institutions, especially during the time of economic crisis caused by the novel coronavirus.

The COVID-19 pandemic is very likely to have negative effects on the implementation of AML measures in Serbia. As the state of emergency involves many restrictions related to standard ways of conducting procedures, the electronic means of establishing relationships will likely present an additional administrative and compliance burden on the financial institutions. The strictness of the AML obligations will remain in place, irrespective of the unusual circumstances created by the pandemic.

The COVID-19 crisis created an unusual circumstance of the government restricting personal contact during the state of emergency. Certain AML procedures require the mandatory physical presence of clients, such as the client due diligence procedure, but the Act also prescribes additional client due diligence (CDD) measures to be taken by the financial institutions in case the client is not physically present when establishing a business relationship:

  • obtaining additional documents, data or information to determine the identity of a client
  • additional verification of the clients’ data
  • ensuring that before the execution of other transactions of the client the first payment is made from an account of the customer opened with a bank or other financial institution employing know your client (KYC) measures
  • obtaining the data on the reasons for the absence of the customer
  • other measures if implemented.

The Act does not allow for exceptions to the rule that the customer is to be physically present in the office of the financial institution for the ordinary client due diligence procedure to take place. Video-conferencing or other technological aid is not considered sufficient to bypass the strict AML provisions. Financial institutions and other entities obliged to act in line with the Act risk to be found liable for an administrative offence in case they do not provide additional AML screening measures.

Apart from additional bureaucratic pressure AML teams may be facing, another concern is a real risk of increased fraudulent online activity. As customers are more likely to use electronic banking services during the quarantine, it is likely that some of them not accustomed to using this technology will be more vulnerable to personal data frauds and money laundering scams.

If the pandemic extends for too long, there is also a danger of financial institutions facing shortages of professional AML staff. Besides having a significant number of employees working from home during the pandemic, we may also expect that financial institutions will lay off many employees, including AML professionals. Times of crisis are often followed by an increase in criminal activities, and money laundering frauds and scams are no exception to that. How will this be met by financial institutions with limited resources remains to be seen. 

On the other hand, establishing business relations with the bank during the coronavirus poses significant compliance difficulties for the clients as well. Electronic signatures and business excerpts could become hard to come by, especially electronically, in case the quarantine measures are to be tightened and the pandemic is to last.

The effective implementation of the AML measures during the coronavirus pandemic requires coordination of all members of the AML system and constant analysis and evaluation of new risks for the financial system. The financial regulator of the Republic of Serbia is yet to implement any measures on the AML compliance of the financial institutions since the pandemic is started. We have also yet to see regulatory relief measures as well.

The National Bank of Serbia (NBS) has implemented measures following the overall strategy of combating the spread of the virus. Financial institutions have limited working hours, most employees are working from home. The movement of clients is naturally also very limited. NBS suggests the use of necessary equipment and precautions to minimize the risk of money laundering as much as possible.

The effective implementation of the AML measures during the coronavirus pandemic requires coordination of all members of the AML system and constant analysis and evaluation of new risks for the financial system in the era of new coronavirus. Time will tell whether the Serbian AML system is up to the challenge.

 

 

This text is for informational purposes only and should not be considered legal advice. Should you require any additional information, feel free to contact us.

Contact:

Miloš Velimirović, Partner
milos.velimirovic@sog.rs

Stefan Jugović, Junior Associate
stefan.jugovic@sog.rs

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