Firms need to fight money laundering

April 17, 2013 | 17:44

(0) user say

It is time firms in Vietnam seriously thought about navigating through the new anti-money laundering compliance requirements, write Steve Punch, Advisory director and Ronald Parks, Tax and Corporate Services director at KPMG Vietnam.

Money laundering is an increasingly significant international issue, with many governments scrambling to enact anti-money laundering legislation to deter criminal activity, whilst taking other steps to move towards the level of transparency demanded by the international community to continue to attract foreign direct investment (FDI).

Although impossible to measure, billions of USD are believed to be laundered internationally every year, with some analysts estimating that 2-5 per cent of the global economy could be connected to laundered funds. As Vietnam is now a member of the intergovernmental Financial Action Task Force on Money Laundering (FATF) and the Asia/Pacific Group on Money Laundering (APG), the government has moved to enact anti-money laundering law applicable from January 1, 2013. As such, this reform is far wider in application than the one off ‘patches’ to address specific aspects of anti-money laundering rules that have been in existence since 2005. Broadly, the newly effective Anti-Money Laundering Law (No. 07/2012/QH13) aims to prevent criminals from evading liability for crimes by converting criminal proceeds into ‘clean’ money or property.

Who does it apply to?

The law regulates organisations and individuals who may support the money launderer in ‘legalising’ the proceeds of a crime. Largely, the new law applies to ‘financial organisations’ and other ‘subjects’ (hereafter ‘affected entities’), which are defined widely in Article 4 to include casinos, financial lending institutions, accountants, lawyers, investment managers, real estate brokers, real estate managers and anyone receiving deposits from or making loans to other enterprises or individuals. Article 8 requires the law be applied to certain clients opening accounts with affected entities in addition to clients making infrequent high value transactions. Given the high value inherent in housing, commercial premises and land transactions, the real estate industry may be subject to increased scrutiny under the new law.

Must I take active steps to comply?

Yes, active steps must be taken in certain situations. Doing nothing is not an option. The new law imposes several positive obligations on affected entities including a requirement to formulate internal policies to combat money laundering such as the establishment and maintenance of a customer information database in addition to keeping a detailed record of certain transactions. Internal procedures should be developed for client acceptance, with clients classified according to their risk level.

As seen in anti-money laundering legislation in other jurisdictions, the ‘customer information’ must include details of beneficial ownership in addition to the standard requirements such as copies of passports, copies of licences, names and addresses. Policies and risk management systems should be put in place to identify foreign clients with political influence with the law requiring that additional measures be undertaken for such clients. Article 20 requires internal rules to be established to train staff on the anti-money laundering requirements and internally audit compliance with policies and regulations.

Further, the law requires the specified entities to report transactions to the State Bank of Vietnam if they raise reasonable suspicion or simply because they are of a high monetary value or notably complex. Reports must be made in accordance with the procedures outlined in the law including a requirement to report certain transactions within 48 hours. With such strict reporting requirements, it is important that entities maintain up-to-date internal policies. Due to this broad application, a number of less obvious industries such as the real estate industry may be caught under the mandatory reporting requirements.

What to watch out for?

Businesses should be aware that the new law contains several ambiguities. For instance, the drafters have repeatedly used the term “high value” without clearly defining its meaning. While a decree should resolve these uncertainties in due course, in the mean time it is advisable for prudent entities looking to limit risk exposure to take a conservative interpretation and conform to industry best practices.

How to ensure compliance and reduce risk of exposure

Entities or individuals that fail to implement procedures or report transactions as required face stiff penalties including criminal charges, depending on the seriousness of the breach. According to the draft decree on penalties in the area of currency and banking, the penalty amounts imposed could be over VND1,000,000,000. For groups with many subsidiaries, such penalties could be significant. Therefore, it is clear that businesses should carefully consider the legal changes and ensure that their practices are in accordance with the law.

While the failure to record a routine transaction should not be considered a breach, failure to detail the intricacies of a large real estate deal could attract significant scrutiny from the authorities. Participants in the real estate industry, for example, should establish strict administration policies for recording certain transactions including their value and the parties involved. Whilst it may be easier for the authorities to detect a failure to record an electronic transaction, certain cash transactions related to real estate if discovered, may be considered suspicious. Thus, prudent real estate professionals should consider reporting such transactions to the State Bank of Vietnam. Article 22 specifies what constitutes suspicious signs in a real estate business. As such the real estate industry must be mindful not to breach the new rules. Consulting a professional advisor, such as KPMG, is advisable to ensure compliance with the requirements of the new law.

The views expressed by the authors here do not

necessarily represent the views and opinions of KPMG Vietnam.

What the stars mean:

★ Poor ★ ★ Promising ★★★ Good ★★★★ Very good ★★★★★ Exceptional