Royal Decree 304/2014 approving the Regulation of Law 10/2010 on the prevention of money laundering and terrorist financing

OFFICIAL STATE GAZETTE No. 110 Tuesday, May 6, 2014 Sec. I. Page 34775 I. GENERAL PROVISIONS MINISTRY OF ECONOMY AND COMPETITIVENESS 4742 Royal Decree 304/2014, of May 5, approving the Regulation of Law 10/2010, of April 28, on the prevention of money laundering and terrorist financing.

The Royal Decree develops Law 10/2010, of April 28, on the prevention of money laundering and terrorist financing, in accordance with the authorization granted for this purpose by said Law in its final provision fifth.

Money laundering and terrorist financing present themselves as universal and globalized phenomena, taking advantage of the benefits offered by the international economy and the gradual elimination of barriers to exchanges at the global level. In this regard, the response that the international community must offer to this phenomenon must be coordinated and global.

The policy of preventing money laundering and terrorist financing has been developed in Spain in consonance with the evolution of international standards in this matter. Standards in whose configuration Spain has actively collaborated, through its participation as a member of the Financial Action Task Force (FATF), since its founding in 1989. Precisely, the intense commitment to the elaboration of the new FATF Recommendations and their subsequent approval in February 2012 has led to the adoption of different initiatives in the regulatory field aimed at incorporating into our legal system the novelties contained therein.

In this sense, it is important to highlight the modification made to Law 10/2010, of April 28, through the approval of Law 19/2013, of December 9, on transparency, access to public information and good governance, which incorporates, as notable novelties, the modification of the regime applicable to persons with public responsibility, the reform of the simplified diligence system, the expansion of the powers of the Council of Ministers when adopting sanctions and international financial countermeasures, and the establishment of the obligation to structure internal control procedures at the group level.

With the approval of the Royal Decree, on the one hand, the new risk-oriented approach of the preventive regulation in Spain is completed, also incorporating the main novelties of international regulation arising from the approval of the new FATF Recommendations.

In this sense, although the risk-oriented approach was already incorporated in Law 10/2010, of April 28, this Royal Decree proceeds to the development and specification of this concept.

Taking into account the limited means available to the obligated subjects, it is imperative to adopt measures that allow increasing the effectiveness and efficiency in the use of these resources, placing greater emphasis on those situations, products, and clients that present a higher level of risk.

In this way, the obligated subjects must analyze the main risks they face, which will vary depending on the type of business, products, and clients with whom they establish business relationships. Based on this analysis, internal policies and procedures must be designed so that they adapt to the entity's risk profile, moderating the intensity of the due diligence measures applied, according to the specific characteristics of the client and the operation.

A risk-oriented approach that, not only increases the efficiency of the measures to be applied, but also presents itself as an element of flexibility of the rule, directed at a very heterogeneous group of subjects. In this way, basic and common requirements are established for all obligated subjects, also allowing a margin of adaptation of the application of the rule to the specific reality of the activity that each subject develops.

Along with this, a resizing of the procedural obligations required of certain types of obligated subjects is carried out. The objective is to limit procedural obligations for smaller-sized subjects, increasing the requirement depending on the size and business volume of the obligated subject. An approach that is justified both from an economic point of view and from risk management, which in the case of large entities, requires centralized, specialized, and automated treatment.

It is also particularly relevant the development of Article 43 of Law 10/2010, of April 28, which provides for the creation of a Financial Ownership Register, the content, operation, and access possibilities of which this Royal Decree specifies.

Finally, a review of the institutional scheme dedicated to the prevention of money laundering and terrorist financing is carried out, with a strengthening of the Commission through the expansion of the institutions participating in it and the creation of a new body dependent on it, the Financial Intelligence Committee.

During the processing of this regulation, a report was requested from the vocal members of the Commission for the Prevention of Money Laundering and Monetary Offenses, in accordance with what is established in Article 44.2.k) of Law 10/2010, of April 28.

Likewise, it was submitted to public hearing in which numerous affected organisms and entities participated. Finally, a report was requested from the affected ministerial departments, the General Council of the Judiciary, the Fiscal Council, and the Spanish Data Protection Agency.

In virtue thereof, on the proposal of the Minister of Economy and Competitiveness, with the prior approval of the Minister of Finance and Public Administrations, in accordance with the Council of State and after deliberation of the Council of Ministers in its meeting on April 30, 2014,

I HEREBY ORDER:

Sole Article. Approval of the Regulation of Law 10/2010, of April 28, on the prevention of money laundering and terrorist financing.

The Regulation of Law 10/2010, of April 28, on the prevention of money laundering and terrorist financing is approved, the text of which is included below.

Additional Provision First. Reports of the Executive Service of the Commission in the procedures for the creation of financial entities and in the procedures for the precautionary evaluation of acquisitions and increases in participations.

It will not be mandatory for the Executive Service of the Commission to issue a report in the procedures for the creation of financial entities and in the procedures for the precautionary evaluation of acquisitions and increases in participations: a) When the person or entity subject to the procedure does not have the status of an obligated subject as provided in Article 2 of Law 10/2010, of April 28. b) In subsequent variations in the chain of intermediate companies through which a holder instruments a significant participation previously authorized.

Additional Provision Second. No increase in public expenditure. The measures included in this Royal Decree will be attended to with ordinary budget allocations and shall not imply an increase in public expenditure.

Additional Provision Third. Access to information by the State Tax Administration Agency. The State Tax Administration Agency, for the fulfillment of the functions legally attributed to it, may request and obtain the information that the obligated subjects possess or manage as a consequence of the due diligence obligations derived from Law 10/2010, of April 28, under the terms provided in Article 93 of the General Tax Law.

Transitional Provision First. Entry into operation of the Financial Ownership Register. The entry into operation of the Financial Ownership Register, regulated in section 3 of Chapter V of the regulation, will take place on the date determined by Order of the Minister of Economy and Competitiveness and will be communicated to credit entities with a minimum advance of six months. The entry into operation of the register must take place within a maximum period of two years from the entry into force of the regulation.

Credit entities will declare, prior to the entry into operation of the Financial Ownership Register, to the Executive Service of the Commission, in the form established by it, all current checking accounts, savings accounts, securities accounts, and time deposits valid at the moment of entry into operation of the Financial Ownership Register.

Transitional Provision Second. Systematic communication. Until the designation by Order of the Minister of Economy and Competitiveness, obligated subjects will apply in the fulfillment of what is established in Article 27.1.b) of this regulation the list of countries and territories contained in Article 1 of Royal Decree 1080/1991, of July 5, which determines the countries or territories referred to in Article 2, paragraph 3, number 4, of Law 17/1991, of May 27, on urgent fiscal measures, and Article 62 of Law 31/1990, of December 27, on General State Budgets for 1991, taking into account what is established in the first additional provision and the second transitional provision of Law 36/2006, of November 29, on measures to prevent tax fraud, complemented by Order ECO/2652/2002, of October 24, which develops the communication obligations of operations in relation to certain countries to the Executive Service of the Commission for the Prevention of Money Laundering and Monetary Offenses.

The systematic communication established in Article 27.1 e) and f) will be enforceable from the date determined by the Executive Service of the Commission, which will also determine the form and content of said communications.

Transitional Provision Third. Due diligence obligations in occasional operations. Until the entry into force of the identification threshold in occasional operations contemplated in Article 4.1 of this Regulation, the thresholds established in Royal Decree 925/1995, of June 9, approving the Regulation of Law 19/1993, of December 28, on certain measures for the prevention of money laundering, will continue to apply.

Transitional Provision Fourth. Beneficial ownership. Regarding existing clients on the date of entry into force of the regulation, the inclusion by obligated subjects in their client files of administrators as beneficial owners of legal persons in the cases contemplated in Article 8.b) of this regulation will be carried out within a maximum period of two years from the entry into force of this regulation.

Transitional Provision Fifth. Simplified due diligence measures. The application of the simplified due diligence measures of Article 17 in relation to living clients and products that, on the date of entry into force of this regulation, benefited from the simplified diligence regime, will be carried out in accordance with the risk criterion established in the regulation and within a maximum period of three years from the entry into force thereof.

Notwithstanding said period, for the products referred to in Article 16 a) to d), the verification of identity will be carried out, in any case, before the payment of the benefit.

Sole Repealing Provision. Repeal of regulations. Upon the entry into force of this Royal Decree, Royal Decree 925/1995, of June 9, approving the Regulation of Law 19/1993, of December 28, on certain measures for the prevention of money laundering, shall be repealed.

As far as they do not oppose what is established in the regulation, the following will remain in force: Order EHA/2963/2005, of September 20, regulating the Centralized Prevention Body in matters of money laundering in the General Council of Notaries; Order EHA/1439/2006, of May 3, regulating the declaration of movements of payment instruments in the field of money laundering prevention; Order EHA/2619/2006, of July 28, developing certain money laundering prevention obligations of obligated subjects carrying out currency exchange or management of transfers with the outside; Order EHA/2444/2007, of July 31, developing the Regulation of Law 19/1993, of December 28, on certain measures for the prevention of money laundering, approved by Royal Decree 925/1995, of June 9, in relation to the external expert report on internal control procedures and bodies and communication established to prevent money laundering; and Order EHA/114/2008, of January 29, regulating the compliance of certain obligations of notaries in the field of money laundering prevention.

Final Provision First. Competence title. This Royal Decree is issued under the protection of Article 149.1.11th and 13th of the Constitution, which attribute to the State, respectively, the competences to dictate the bases of the organization of credit and the bases and coordination of the general planning of economic activity.

Final Provision Second. Authorization for the development and application of the regulation. The Minister of Economy and Competitiveness is authorized to dictate the development and application provisions referred to in Articles 3.2, 27.1 g), 45.1, and transitional provision first, and any other provisions and acts of application necessary for the development of what is established in this regulation.

Final Provision Third. Entry into force. This Royal Decree shall enter into force on the same day of its publication in the "Official State Gazette".

The foregoing is excepted for the identification threshold in occasional operations of Article 4.1, which shall enter into force six months after the publication of this Royal Decree in the "Official State Gazette".

Given in Madrid, on May 5, 2014. JUAN CARLOS R. The Minister of Economy and Competitiveness, LUIS DE GUINDOS JURADO cve: BOE-A-2014-4742

OFFICIAL STATE GAZETTE No. 110 Tuesday, May 6, 2014 Sec. I. Page 34779 REGULATION OF LAW 10/2010, OF APRIL 28, ON THE PREVENTION OF MONEY LAUNDERING AND TERRORIST FINANCING INDEX Chapter I. General provisions. Article 1. Scope of application. Article 2. Splitting of operations and countervalue in foreign currency. Article 3. Excluded activities. Chapter II. On due diligence. Section 1. Normal due diligence measures. Article 4. Formal identification. Article 5. Formal identification in the insurance sector. Article 6. Reliable documents for formal identification purposes. Article 7. Identification obligations of collective investment scheme management companies. Article 8. Beneficial owner. Article 9. Identification of the beneficial owner. Article 10. Purpose and nature of the business relationship. Article 11. Continuous monitoring of the business relationship. Article 12. Due diligence and prohibition of disclosure. Article 13. Application by third parties of due diligence measures. Article 14. Agreements regarding the identification of persons with public responsibility. Section 2. Simplified due diligence measures. Article 15. Clients eligible for simplified due diligence measures. Article 16. Products or operations eligible for simplified due diligence measures. Article 17. Simplified due diligence measures. Article 18. Retail sale. Section 3. Enhanced due diligence measures. Article 19. Cases for the application of enhanced due diligence measures. Article 20. Enhanced due diligence measures. Article 21. Requirements in business relationships and non-face-to-face operations. Article 22. Countries, territories, or jurisdictions of risk. Chapter III. On information obligations. Section 1. Communication obligations. Article 23. Alerts. Article 24. Operations potentially related to money laundering or terrorist financing. Article 25. Special examination. Article 26. Communication by indication. Article 27. Systematic communication. Section 2. Document retention. Article 28. Retention of due diligence documents. Article 29. Other document retention obligations. Article 30. Authority requests. cve: BOE-A-2014-4742

OFFICIAL STATE GAZETTE No. 110 Tuesday, May 6, 2014 Sec. I. Page 34780 Chapter IV. On internal control measures. Section 1. Common provisions. Article 31. Internal control procedures. Article 32. Risk analysis. Article 33. Prevention manual. Article 34. Adaptation of internal control procedures. Article 35. Internal control bodies. Article 36. Internal control measures at group level. Article 37. Internal control measures applicable to agents. Article 38. External examination. Article 39. Training. Article 40. High ethical standards in the hiring of employees, executives, and agents. Section 2. Special provisions. Article 41. Internal control measures applicable by the national administrator of the Emissions Rights Register provided for in Law 1/2005, of March 9, regulating the trading regime of greenhouse gas emission allowances. Article 42. Foundations and associations. Article 43. Internal control measures applicable to the payment of prizes in lotteries or other games of chance. Article 44. Centralized prevention bodies of mandatory incorporation. Chapter V. Other provisions. Section 1. Payment instruments. Article 45. Intervention of payment instruments. Article 46. Postal sending. Section 2. Sanctions and international financial countermeasures. Article 47. Authorization of fund transfers. Article 48. Freezing or blocking of funds or economic resources. Article 49. Release of frozen or blocked funds or economic resources. Section 3. Financial Ownership Register. Article 50. Nature and purpose of the Financial Ownership Register. Article 51. Declaration by credit entities. Article 52. Queries and access to the Financial Ownership Register. Article 53. Data protection. Article 54. Content of the Public Prosecutor's Office function. Article 55. Verification of the regularity of queries and accesses by the Public Prosecutor's Office. Article 56. Initiation of preliminary actions. Article 57. Result of preliminary actions. Section 4. Sanctions. Article 58. Execution of sanctions. Article 59. Execution of sanctions for non-compliance with the declaration obligation provided for in Article 34 of Law 10/2010 of April 28. Section 5. Data protection. Article 60. Security level in the processing of personal data. Article 61. Common files for the fulfillment of obligations in prevention matters. cve: BOE-A-2014-4742

OFFICIAL STATE GAZETTE No. 110 Tuesday, May 6, 2014 Sec. I. Page 34781 Chapter VI. On institutional organization. Article 62. Commission for the Prevention of Money Laundering and Monetary Offenses. Article 63. Plenary Session of the Commission. Article 64. Permanent Committee of the Commission. Article 65. Financial Intelligence Committee. Article 66. Secretariat of the Commission. Article 67. Executive Service of the Commission. Article 68. Police units attached to the Executive Service of the Commission. Article 69. Unit of the State Tax Administration Agency. CHAPTER I General Provisions Article 1. Scope of application. This regulation regulates, in development of Law 10/2010, of April 28, on the prevention of money laundering and terrorist financing, the obligations of the obligated subjects listed in Article 2 of said law, the institutional organization in matters of prevention of money laundering and terrorist financing, the sanctions and international financial countermeasures, and establishes the structure and functioning of the Financial Ownership Register.

Article 2. Splitting of operations and countervalue in foreign currency.

1. The quantitative thresholds established in this regulation shall be applicable regardless of whether they are reached in a single operation or in several linked operations.
2. References in the regulation to amounts in euros shall include their countervalue in foreign currency.

Article 3. Excluded activities.

1. The activity of foreign currency exchange carried out as ancillary to the main activity of the holder shall not be subject to Law 10/2010, of April 28, in accordance with Article 2.3 thereof, when all of the following circumstances concur: a) That the foreign currency exchange activity is verified exclusively as a service provided to clients of the main activity. b) That the amount exchanged per client does not exceed 1,000 euros in each natural quarter. c) That the foreign currency exchange activity is limited in absolute terms, not exceeding the figure of 100,000 euros annually. d) That the foreign currency exchange activity is ancillary to the main activity, considered as such that which does not exceed 5 percent of the annual turnover of the business.
2. Notarial and registry acts that lack economic or patrimonial content or are not relevant for the purposes of preventing money laundering and terrorist financing shall also be excluded. To this effect, by Order of the Minister of Economy and Competitiveness, prior report of the Ministry of Justice, the list of such acts shall be established. cve: BOE-A-2014-4742

OFFICIAL STATE GAZETTE No. 110 Tuesday, May 6, 2014 Sec. I. Page 34782 CHAPTER III On Due Diligence Section 1. Normal Due Diligence Measures Article 4. Formal Identification.

1. Obligated subjects shall identify and verify, through reliable documents, the identity of any natural or legal persons intending to establish business relationships or intervene in any occasional operations whose amount is equal to or greater than 1,000 euros, with the exception of the payment of prizes in lotteries and other games of chance, where identification and verification of identity shall proceed regarding those prizes whose amount is equal to or greater than 2,500 euros, without prejudice to what is established in Law 13/2011, of May 27, on the regulation of gambling, and its development regulations.

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