APPENDIX I: Insolvency and Creditor Rights Systems
APPENDIX II: Anti-Money Laundering Issues
1. The Slovak system to detect and prevent money laundering and to combat the financing of terrorism (AML/CFT) was assessed in late February 2002 for observance of the criteria described in the draft Fund and Bank Methodology for Assessing Legal, Institutional and Supervisory Aspects of Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT Methodology).31 The review of the legal framework extended to the financial supervisory system, foreign exchange houses and money remittance/transfer companies, and the implementation in the financial supervisory system was assessed for the banking, insurance, and securities sectors.
2. In 1994, the Slovak authorities adopted legislation concerning the prevention of laundering of the proceeds of most serious crimes, in particular of organized crime. This law established obligations to report suspicious transactions for banks, but not for insurance companies or securities firms. The Ministry of Interior issued a regulation detailing what constitutes a suspicious banking transaction in 1997. In 2000, the legal framework was significantly enhanced with the adoption of Act No. 367/2000 Coll. on Protection Against Legalization of Incomes from Illegal Activities and on Amendment of some Acts (AML Act), which was enacted on October 5, 2000 and entered into force January 1, 2001.
3. Under the Slovak legal system, the term legalization of incomes from illegal action is equivalent to money laundering. The scope of the AML Act covers a broad range of entities such as banks, branches of foreign banks, insurance companies, securities firms, securities market organizers, management companies of collective investment schemes, exchange offices, money remittance/transfer companies, auditors, tax advisors, leasing companies, real estate agents and casinos. It is envisaged that lawyers will be brought under the scope of the AML Act, as well.
4. For the banking sector, more detailed provisions are set out in the new banking law in force since January 1, 2002. For the insurance sector, a more detailed new insurance law entered into force on March 1, 2002. The securities sector is governed by the Securities Act, the powers of the Financial Market Authority (FMA) are laid out in the FMA Act. Foreign exchange houses and money remittance/transfer companies are governed by the Foreign Exchange Act and subject to licensing by the National Bank of Slovakia (NBS) and the Small Business Office within the Ministry of Interior.
5. The Slovak Republic is a member of the Council of Europe, including its Select Committee of Experts on the Evaluation of Anti-Money Laundering Measures (PC-R-EV), but not a member of the Financial Action Task Force. The Slovak anti-money laundering regime has twice been reviewed by the PC-R-EV. The first such mutual evaluation took place in 1998 and the second round was conducted in 2001. Staff obtained a summary of the 1998 evaluation report and requested copies of the full 1998 report as well as the 2001 draft report. However, the Slovak authorities did not make these reports available, stating that the 1998 report was outdated and the 2001 report was still a draft.
6. Several official organizations play a role in the AML/CFT effort. The Ministry of Finance is responsible for financial legislation. The Ministry of Interior is responsible for addressing money-laundering issues and prepared draft amendments to the AML Act in April 2002. The Ministry of Justice is responsible for the Penal Code and the Code of Criminal Procedure, including criminalization of AML and CFT, as well as international legal cooperation. The Ministry of Justice has prepared draft amendments to the Penal Code as well as to the Code of Criminal Procedure. The Ministry of Justice is also working on a substantial revision of the Penal Code, expected to take effect at the beginning of 2003. The NBS is responsible for supervising the implementation of laws and regulations by banks and the licensing of foreign exchange houses and money transfer/remittance companies. The FMA is responsible for supervising the implementation of laws and regulations concerning insurance companies and securities firms. The Slovak financial intelligence unit (FIU) is established within the Financial Police (FP) and receives and analyzes unusual transaction reports from the reporting entities designated in the AML Act. The FP forms part of the police corps under the auspices of the Ministry of Interior. The customs office is part of the Ministry of Finance and investigates tax violations and cross-border crimes.
7. With the enactment of the AML Act, the Slovak authorities significantly improved the legal framework for the prevention of money laundering. The AML Act establishes a number of obligations such as client identification, record keeping and reporting requirements for a relatively broad range of entities (banks, branches of foreign banks, insurance companies, securities firms, securities market organizers, management companies of collective investment schemes, exchange offices, money remittance/transfer companies, auditors, tax advisors, leasing companies, real estate agents and casinos), but does not require the identification of the beneficial owner of funds. Although such requirement is contained in the supervisory laws for the banking and securities sector (and the insurance sector during March 2002), it should be incorporated into the AML Act. The provisions on client identification are generally appropriate, but should be strengthened regarding legal entities. Client identification records and transaction records must be kept for a period of ten years.
8. Regarding financial institutions, the supervisory laws contain provisions concerning fit and proper requirements for managers and shareholders holding a significant interest (for foreign exchange houses only very basic criteria are applied to managers, and such reviews should be expanded to also include owners).
9. Money laundering is criminalized in Article 252 Penal Code, and efforts are underway to provide for effective mechanisms to combat terrorist financing. The legal provisions on seizure and forfeiture of property and assets are not fully adequate. The Slovak FIU, established in 1996 as part of the FP, is a member of the Egmont Group and exchanges information with other financial intelligence units. Institutional independence and autonomy could be strengthened, for example in the budgetary area.
10. The authorities have signed and ratified the Vienna and Strasbourg Conventions. They have also signed, but not yet ratified, the Palermo Convention and the International Convention for the Suppression of the Financing of Terrorism. The Slovak Republic is party to the European Convention on Mutual Legal Assistance and various other multilateral and bilateral agreements on mutual legal assistance. The extradition of a Slovak national is possible. The FP as well as the supervisory authorities exchange information with domestic and international counterparts on the basis of memoranda of understanding, a number of which are currently being negotiated. The FP is prepared to share information also in the absence of a formal arrangement.
11. For the banking sector, the legal framework complies substantially with the required criteria for AML/CFT measures and according to Basle Core Principle 15. Some areas for further clarification include: special legal protection for individuals referring unusual activity to the bank’s internal compliance officer or to the authorities (in addition to the existing confidentiality waiver); explicit requirement to appoint a senior officer for oversight of a bank’s internal AML/CFT program; obligation for banks to conduct focused internal reviews of those customers considered “high risk,” and requirement for banks to maintain a register of all inquires made to it under the law.
12. The authorities have made significant progress with the steps they have taken thus far concerning the banking sector. However, the true test of compliance will become evident as the banking supervisor implements its own program of examination and monitoring, and administers any enforcement actions necessary. Notably, the NBS is preparing itself to monitor the implementation in the banking sector and to hold training sessions for selected staff during February 2002, both on an internal basis and with the FP. Examination procedures for AML activities of banks are in preparation, and the first examination of a bank’s AML program are to be conducted by the NBS in March 2002. Communication with the banks on supervisory expectations in this area is of the utmost importance in protecting the banking system from potential criminal abuse.
13. The insurance market in the Slovak Republic is highly concentrated. Approximately 80 percent of all insurance premiums collected are received by the top five insurance companies in the marketplace. Each of these major players has taken the initiative to establish a program for dealing with the risks of money laundering and prepared training programs and printed materials to guide their staff. Typically, a compliance officer has been appointed, usually in relation with the internal controls group, and that person is charged with preparing reports for the FP as necessary. The Slovak Insurance Association has arranged training programs whereby executives of member companies have come together to meet with representatives of the FP. Considerable efforts are made to provide guidance on what type of transaction might constitute an “unusual” transaction for a life insurance company.
14. The insurance supervisor has been given no particular responsibilities in the campaign against money laundering and terrorist financing. As part of on-site inspection work, FMA staff will review compliance with internal control requirements established by the companies, when there are such systems in place. In recent training assignments FMA staff gained more experience, and recent FMA inspections included a more active approach regarding AML issues. The new Insurance Act, in effect since March 1, 2002, sets out the AML responsibilities of companies much clearer, however, it would have been preferable if the new legislation also specified the responsibilities of the insurance supervisor in this regard, but it has not done so.
15. The securities markets in the Slovak Republic are small and underdeveloped both in terms of market capitalization and liquidity. Transactions on the stock exchanges are concentrated on a small number of listed companies and the volumes of trade are low. Stock brokers only may carry out trades on the exchanges and all stock brokers must be licensed by the FMA. There are a number of collective investment schemes (31 open-ended funds and 54 closed-end funds). All management companies of collective investment schemes, of which there are nine, must be licensed by the FMA. The FMA does not actively supervise compliance with specific anti-money laundering provisions in the AML Act. It does, as part of its supervision of the securities markets, require compliance with those provisions of the Securities Act and the Act on Collective Investment that stipulate know-your-client and record keeping obligations but regards the FP as the appropriate authority to supervise anti-money laundering obligations.
16. Stock brokers must include in their articles of association the allocation of responsibilities and powers within the firm for prevention of money laundering, however, the provisions of the Securities Act, Stock Exchange Act and Act on Collective Investment do not include requirements for stock brokers, stock exchanges and management companies of collective investment schemes to have in place policies and procedures to deter money laundering and to provide specific authority for the FMA to supervise the implementation of those policies and procedures as part of its supervisory function. The Act on Collective Investment does not contain specific record keeping, audit and anti-money laundering rules for management companies of collective investment schemes, including client identification requirements. There are doubts about the application of the provisions of the Securities Act to stock brokers during a transitional period from January 1 through June 30, 2002.