Money Laundering has been around for many years. In fact, the term originated in 1920s Chicago, when Al Capone, the original money launderer, “cleaned” the profits of his crimes by cycling the money through a chain of laundrettes that he owned. Nowadays, money laundering uses increasingly innovative and sophisticated techniques, from shell companies to investments in virtual currencies.

The latest Activity Report from the National Office for Prevention and Control of Money Laundering in Romania details a wide range of potentially suspect transactions in Romania in 2020. These included

• Purchase of luxury goods by anyone who has been prosecuted for money laundering.
• Transactions that do not fit with their declared domain.
• Chip-dumping fraud.
• Remote gambling activities.
• Human trafficking and sexual exploitation.
• Rraudulent bankruptcy.
• High-value money transfers without economic justification.
• Fraudulently-used accounts.
• Use of intermediary accounts.
• Cryptocurrency transactions.,
• Compromised business emails.

It’s hard to prove which transactions are being used for money laundering. And it’s harder and harder for companies to avoid these kinds of transactions altogether. Data and analytics provide innovative methods for detect money laundering.

To identify and prevent the risks of money laundering, we first have to understand and apply the correct legislation—and that means that you need to understand the relevant legal terms. This blog post explains some of the most important concepts and provides a glossary for easy reference.

Defining the crimes

The first step is to define the crime of money laundering, and other associated crimes.

Money laundering is the exchange or transfer of assets in the knowledge that they come from the commission of crimes. It also includes hiding or concealing the illicit origin of these goods or helping the person who committed the crime to escape from prosecution, trial, or punishment. The concealment or hiding of the true nature, source, location, provision, movement, or ownership of assets originating from crime is also considered a money laundering crime. Money laundering is punishable by a term of imprisonment of 3 to 10 years under Romanian legislation.

Terrorism financing is the crime by which licit or illicit funds are knowingly collected and made available in whole or in part for committing acts of terrorism or to support a terrorist entity. This crime is punishable by a term of imprisonment of 5 to 12 years and the removal of certain rights.

Defining the legal terms

Next, let’s define some of the terms used in the anti-money laundering legislation.

Reporting entities are people or legal personas obliged by Law no. 129/2019 to report suspicious transactions in the context of money laundering. These bodies include credit institutions, financial institutions, managers of private pension funds (in their own name and on behalf of the funds), gambling service providers, digital wallet providers, auditors, chartered and authorised accountants, censors, anyone providing tax, financial, business or accounting consultancy, public notaries, lawyers, providers of services to companies or trusts, and real estate agents.

An occasional transaction is any transaction carried out outside a business relationship performed by reporting entities.

External transfers to and from bank accounts are cross-border transfers and payment and collection operations performed on Romanian territory by a non-resident customer.

A shell bank is a financial institution, a credit institution, or other entity that performs equivalent actions to those of a credit or financial institution, which is registered in a jurisdiction without having a physical presence and management there, and which is not affiliated to a regulated financial group and effectively subject to consolidated supervision.

Gambling services are any services that involve a stake with monetary value in gambling games and require licensing by the National Gambling Office. These include lotteries, casino games, poker games and betting. They may be provided physically in a building or by any type of remote media, electronic means or via any other sort of technology for facilitating communication, and at the individual request of a recipient of services.

A client or customer is any person, legal entity or entity without legal personality with whom the reporting entity carries out business relations or other operations on a permanent or occasional basis.

A virtual currency is a digital representation of value that is not issued, controlled or guaranteed by a central bank or public authority. Virtual currencies are not necessarily linked to a legally established currency and do not have the legal status of currency or money. However, they are accepted as a means of exchange and may be transferred, stored and traded electronically through designated software.

A digital wallet provider is an entity that specialises in supplying secure cryptographic key services to its customers for the holding, storage and transfer of virtual currencies.

A real beneficiary is the person who ultimately owns or controls the client and/or the person on whose behalf a transaction, operation or activity is carried out directly or indirectly.

Preventing money laundering

The final section of our glossary defines the bodies and activities that are recommended or required to prevent money laundering.

The National Office for Prevention and Control of Money Laundering, also known simply as “the Office” in the legislation, is the Financial Information Unit of Romania with the main responsibility for coordinating and implementing the national system for combating money laundering and terrorism financing.

Entities are required to make a report of suspect transactions to the Office if goods are suspected to be the result of the commission of a crime or are related to the financing of terrorism, or the information held by the reporting entity can be used to combat money laundering. Reporting entities have the obligation to report transactions that are worth 10,000 euros or equivalent.

Know Your Customer is the term used for the obligation placed on reporting entities to apply standard client knowledge measures based on:

1. Identifying customers and verifying their identities using documents, data or other information collected from credible and independent sources.
2. Establishing real beneficiaries and verifying their identity. The reporting entity must ensure that it has identified the real beneficiary, including legal entities, trusts, companies, associations, foundations and entities without similar legal personality. It must also understand the structure of customer ownership and control.
3. Assessment of the purpose and nature of the business relationship and, if necessary.
4. Obtaining additional information about them.
5. Carrying out continuing surveillance of the business relationship.

Customer due diligence is a set of standard measures of customer knowledge. It is applied in particular situations, including

1. When a business relationship is set up.
2. When carrying out occasional transactions with a minimum amount of 15,000 euros (or equivalent). It does not matter if the transaction is carried out in a single operation or several connected operations.
3. In the case of trading goods, by professionals, when carrying out occasional cash transactions amounting to at least 10,000 euros. Again, it does not matter whether the transaction is carried out in a single operation or several connected operations.

Simplified clientele knowledge measures can be used to identify customers who are considered a low risk of money laundering. These include public companies listed on a stock exchange and subject to the requirements of information disclosure, either by stock exchange rules, or by law or enforcement means (which ensure adequate transparency of the real beneficiary); public administrations or public undertakings; and customers living in low-risk geographical areas.

The risk-based approach is achieved at national level by establishing areas and categories of reporting entities based on the analysis of the risk of money laundering and terrorist financing to which they are exposed, and the stability of administrative obligations to mitigate these risks.

A customer risk-rating is a score of each customer’s money laundering risk, based on factors such as their occupation, salary, banking products used and transactions undertaken.

Learn more

UBB together with SAS and K-Business.com have discussed data from a recent survey of over 2,000 Romanian respondents on how sentiment towards financial crime is changing. Watch the recording on demand here.