Compliance in Georgia

Until recently, Georgia has been treating foreigners in a fairly loyal manner, and one would not encounter any issues in terms of opening an account with a local bank.However, since late 2019, the situation has drastically changed.Increasingly more Georgian banks reject provision of services to non-residents, and it is becoming quite challenging to open a corporate account for a company with foreign founders.All of the above are accounted for by the compliance in Georgia, which has been actively introduced and used by banks after the adoption of the law on combating money laundering.

Compliance in Georgia: how it started?

Combatting money laundering is among oneof the main objectivesdeclared by the European Union.Recall that Georgia is very keen on becoming an associate member of the European community in the near future.To this end, the country is bound to take on certain obligations, for example, to adapt local legislation to European standards.

One of these specific measures towards the implementation of the Association Agreement with the European Union was the reform in the field of combating money laundering.In October 2019 the government of the country adopted the relevant law, which fully meets the criteria of Directive (EU) 2015/849 No. Hence, the adoption of Law No. 5226 of October 30, 2019 marked the beginning of compliance in Georgia.

In accordance with Georgian legislation (Article 194 of the Criminal Code):

1 Legalisation of illegal income, i.e. giving legal form to illicit and/or undocumented property (use, purchase, possession, conversion, transfer or other actions in connection with property) in order to conceal its illegal and/or undocumented origin or to assist another person in evading liability, as well as concealment or disguising of its genuine nature, source of origin, location, dislocation, movement, its title and/or of other rights related to it.

In other words, if a person received income from illegal activities (human trafficking, bribes, drug or arms trafficking) and attempts through various actions, to transact them into the financial system in order to embellish their source of origination.

In Georgia these actions are punished by a fine or imprisonment from 3 to 6 years which is the minimal level of the sentence.If the violations are committed by a group of persons or repeatedly or in large amounts, the sentence will be significantly more stringent.

Compliance in Georgia: conditional stages of money laundering

Today, there are a substantial number of options and ways to legalize money obtained by means of illegal activities.Theycanbeconditionallydividedinto3stages:

1. Placement: The money is deposited with a real financial institution in a bank account.
2. Disguise:a variety of transactions arecarried out from the accountduring which money is transferred to other accounts.
3. Integration: the purchase of assets, shares, investments in business,etc.

It is very difficult to hide a large amount of money, without having attracted the attention of government agencies, especially if expensive purchases are involved.Therefore, such amounts are split into smaller sums and transferred to different accounts.

There can be many such transactions, therefore, compliance was introduced in Georgia in order to determine which of these transactions constitute money laundering.

Attention!!!For 2019 alone, the total sum of fines imposed by the National Bank of Georgia for violation of financial monitoring rules amounted to 1 698 800 GEL.

Compliance in Georgia: who is in charge?

In accordance with the adopted law, as well as for the purpose of systematizing information, all accountable entities were divided into 3 categories:

1. Financial institutions: credit unions, banks, pension funds, exchange offices, brokers, microfinance organizations, insurance companies, leasing companies, credit companies, securities registrars,etc.
2. Non-financial organizations: lawyers / law firms, lottery organizers, gambling organizers, notaries, certified accountants, auditors, and traders in precious stones or metals.
3. State-owned companies: Revenue Service and National Public Registry Agency.

Supervisory bodies for compliance with financial monitoring requirements in Georgia are: Bar Association, National Bank of Georgia, Ministry of Justice,Agency forFinancial Accounting, Reporting and Auditing, State Insurance Supervision Service of Georgia.Each of the above bodies is responsible for its own line of operation.

Compliance requirements in Georgia for accountable persons

After the entry into force of the new law, accountable persons were assigned new responsibilities:

• preventive measures: questioning the client, conducting identity verification and due diligence checks based on a reliable and verified source, determination of the ultimate beneficial owner, determination of cooperation goals and ongoing monitoring;
• risk-based approach: it is required to assess the imminent risks of money laundering.Banks, for example, are obliged to take into account the client’s origin (whether the client is from a EU country or a country of high risk), to understand the origin of funds.To this end, you may need to provide additional documents, for example, a deposit agreement, receipts of the transfer, an agreement on the sale of property,etc.If the business relationship has a low level of risk, for example, it is an employee who periodically receives salary/wages, then the identification is reduced to a minimum (2 times per year or less);
• record-keeping: all suspicious deals and transactions that may involve money laundering, are reflected in a report that is submitted to the Financial Monitoring Service;
• Compliance monitoring: All accountable persons are required to develop and implement policies, rules and systems for internal controls to minimize money laundering risks.

The presence of the above requirements has significantly complicated the opening of corporate accounts for foreigners in Georgian banks.However, this service is fully available to our customers.Write to us:[email protected]and we will be happy to help.

Find out more aboutregistration of a company in Georgia by a non-resident: what makes this hospitable Caucasian country attractive for business?

More stringent preventive measures

If there are suspicions of money laundering, banks and other accountable persons in Georgia are required to apply enhanced preventive measures:

• require additional information about the client and/or beneficiary;
• increase the frequency of updating the identity of the client and/or beneficiary;
• receive additional information about the anticipated nature of the business relationship, including the objectives and grounds of prepared, transactions concluded, executed or expected;
• obtain permission from management to establish or continue a business relationship;
• determine the origin of the client’s property and funds;
• conduct enhanced monitoring of business relationships.

Operations in Georgia which require compliance

The accountable person is obliged to conduct financial monitoring in the following cases:

• upon establishing business relations (for example, when opening an account with a bank);
• upon execution of a one-time transaction, if its amount or the total amount of related transactions exceeds15,000 lari or equivalent in foreign currency;
• upon one-time transfer of the amount of 3,000 GEL or the equivalent in foreign currency, or when the amount of related transactions exceeds3,000 GEL;
• upon availability of doubts about thereliability of the dataspecified in the questionnaire or other identification details.

Also, the client identification is mandatory for:

• persons engaged in trade in precious metals and stones – when the transaction exceeds30,000 lari or the equivalent in foreign currency;
• lottery and / or gambling / quiz organizers – if the transaction exceeds5,000 GEL or the equivalent in foreign currency, as well as upon establishment of business relations;
• National Public Registry Agency – in case of registration of ownership of real estate in Georgia on the basis of a sale-purchase or donation agreement;
• Revenue Service – in case of import or export of money or securities, if the amount of cash or the value of securities exceeds 30,000 lari or the equivalent in foreign currency.

The presence of such restrictions should be taken into account when making transactions, otherwise you will have to face a very close encounter with the compliance service in Georgia.

Which are considered High Risk Jurisdictions in terms of compliance in Georgia

The National Bank of Georgia regularly updates the list of jurisdictions with a high level of risk. In cases when:

• legal entity / branch is registered in any of jurisdictions with a high level of risk;
• an individual has a place of actual residence or registration in these countries;
• the transaction is made through financial institutions located in said jurisdictions,

the bank or other accountable person is obliged to apply enhanced preventive measures.In practice, a bank in Georgia is likely to refuse servicing such entities/individuals, to meet compliance requirements.

The list of countries with a high level of riskin accordance with the Decree of the National Bank of Georgia from 01.05.2020:

1. Afghanistan;
2. Albania;
3. Anguilla;
4. AntiguaandBarbuda;
5. Barbados;
6. Bahamas;
7. Botswana;
8. Ghana;
9. Gibraltar;
10. DominicanRepublic;
11. Zimbabwe;
12. Yemen;
13. IslamicRepublic ofIran;
14. Iceland;
15. The CaymanIslands;
16. Cambodia;
17. Colombia;
18. DemocraticPeople’sRepublic of Korea;
19. Mauritius;
20. Malta;
21. Myanmar;
22. Mongolia;
23. Nigeria;
24. Nicaragua;
25. IslandsTehas-Caicos;
26. Pakistan;
27. Panama;
28. SeychellesIslands;
29. Saint Vincentand theGrenadines;
30. SyrianArabRepublic;
31. Tajikistan;
32. Uganda;
33. Jamaica.

Who else is subject to mandatory compliance in Georgia?

Compliance in Georgia must also be pursued in case of:

• out-of-ordinary transactions – complex, very large transactions or their combinations that do not have an obvious economic (commercial) or legal purpose;
• politically exposed persons; – the head of state, members of the government, deputies, party leaders, auditors, judges, ambassadors, heads of international organizations,etc.

In the case of serving politically exposedpersons banks need to obtain permission to establish business relations from the head of the board and take enhanced preventive measures.Similar actions also apply to their family members, in particular: spouse, brother, sister, children, parents.

Information provided to the accountable person in the course of compliance in Georgia is stored for 5 years.

It should be noted that compliance in Georgia is just in its early stages of development. And many more banks and other institutions do not know and do not understand how to use financial monitoring. However, its presence has significantly complicated the process of opening accounts for non-residents. Yet, if you need to open a personal or corporate account in a bank of Georgia, please do not hesitate to contact us: [email protected] and we will assist you in opening an account for your Georgian company remotely.