oney laundering occurs when funds from criminal and illicit activities are used through cover-up operations to give them a legitimate appearance. This problem affects all countries, no matter how small. Therefore, both governments and international organizations seek to prevent it.
Efforts by El Salvador
El Salvador is making significant efforts to combat money laundering through the Superintendency of the Financial System (SSF), which acts as the regulatory body for financial institutions. For entities not supervised by the SSF, the Attorney General’s Office (FGR) manages money laundering prevention through the Financial Investigation Unit (UIF). These agencies supervise and ensure that all entities bound by the Anti-Money Laundering Law comply with established regulations.
New Instructions
On September 5, 2023, the NEW INSTRUCTIONS FOR THE PREVENTION, DETECTION AND CONTROL OF MONEY AND ASSET LAUNDERING, FINANCING OF TERRORISM AND THE FINANCING OF THE PROLIFERATION OF WEAPONS OF MASS DESTRUCTION came into force , and from then on, all companies and businesses, branches of foreign companies in El Salvador, non-profit organizations, etc., without exception; will be required to register and apply an approach based on the prevention of the risk of money and asset laundering.
Current Requirements
It is not possible to determine the requirements for this new instruction without first mentioning that the accreditation process established with the previous instruction is still in effect; that is, to date, no changes have been published in the Financial Investigation Unit (UIF) Registration Portal or in the Financial Investigation Unit (UIF) Accreditation Portal .
Therefore, it remains essential to comply with the requirements detailed below:
Compliance Unit
- GUARANTEE THE EXISTENCE OF A COMPLIANCE UNIT , the objective of which will be to prevent the introduction of money, rights or assets originating from criminal activities. To do this, it is necessary for the company or entity to present an AGREEMENT TO CREATE A COMPLIANCE OFFICE BY MEANS OF A RECORD POINT.
Designation of Compliance Officer
- CERTIFY through an AGREEMENT FOR THE APPOINTMENT OF THE PRINCIPAL AND/OR ALTERNATE OFFICER, the APPOINTMENT OF AN EXECUTIVE WITH MANAGERIAL RANK (Compliance Officer) to assume the following responsibilities:
- Establish and implement the code of conduct/ethics.
- Verify compliance with the Anti-Money Laundering Law and the Special Law Against Acts of Terrorism.
- Formulate and implement procedures to prevent money laundering and terrorist financing.
- Design appropriate, effective, and high-quality controls to prevent the institution from being used for illicit purposes; he will also act as the liaison officer for compliance issues with the UIF and other institutions subject to the law.
Due Diligence Manual
- Submit the INSTITUTIONAL DUE DILIGENCE AND KNOW YOUR CUSTOMER MANUAL. This document consists of instructions that must comply with national and international standards related to this matter and establish the specific procedures that the entity will adopt to protect itself against money laundering and terrorist financing.
Annual Work and Training Plan
- Endorse an ANNUAL WORK PLAN FOR THE COMPLIANCE OFFICE.
- Provide an annual institutional training program, as all employees must be up-to-date on new regulations and updates. They are also responsible for protecting the company or entity from illicit capital, according to the responsibilities assigned to their positions in internal manuals.
Systems and Audit
- Prove the existence of a COMPUTER or automated SYSTEM to perform a risk analysis in a timely and effective manner. To do so, the company or entity must provide a brief description of the system or software that enables risk management in the area of money laundering.
- Present an AUDIT SYSTEM, which includes the processes that the company or entity will apply to verify the overall effectiveness of the AML/CFT prevention and compliance program.
Having summarized the requirements that are still in force, it is necessary to unify them with those that must be met according to the New Instructions and its risk-based approach. All the guidelines are interrelated, in order to achieve a Comprehensive System for the Prevention of Money Laundering and Assets.
Additional Obligations according to the New Instructions
The objective of this publication is to provide our clients with updated information that allows them to know the NEW INSTRUCTIONS FOR THE PREVENTION, DETECTION AND CONTROL OF MONEY AND ASSET LAUNDERING, FINANCING OF TERRORISM AND THE FINANCING OF THE PROLIFERATION OF WEAPONS OF MASS DESTRUCTION , and to identify the additional obligations that all companies and entities registered in El Salvador, without exception, must comply with, and which we describe below:
- Adopt policies for the prevention, control and detection of unusual operations.
- Have an institutional code of ethics.
- Create the Compliance Office (only applies to entities obligated and supervised by an official institution).
- Appoint the Compliance Officer or Manager and his/her alternate .
- Establish a risk management system for the prevention of AML/CFT/FPADM, appropriate to the company or entity’s operations and risk level, and include the following elements: a policies and procedures manual; due diligence procedures; a code of ethics; a monitoring system; and an internal audit plan for the prevention of AML/CFT/FPADM.
- Develop policies that include enhanced due diligence procedures to mitigate the risk of Politically Exposed Persons (PEPs) and high-risk customers.
- Have an annual work plan for the Compliance Officer or Compliance Officer .
- Develop an annual training plan for the prevention of AML/CFT/FPADM, including induction programs for new staff.
- Allocate human, financial, and technological resources to implement the regulations applicable to the prevention of AML/CFT/FPADM, according to the company or entity’s activities, nature, operations, and risk level.
- Establish a flexible and effective mechanism for the obligated party to comply with orders to freeze financial transactions and services, as well as assets, funds, rights, and property, ordered by the competent authorities.
- Determine procedures for detecting and reporting suspicious and unusual transactions, and ensure the confidentiality of reported information.
- Specify the consequences of non-compliance with policies and procedures for detecting and reporting suspicious and unusual transactions.
- Prioritize compliance with AML/CFT/FPADM prevention regulations over commercial goals and ensure that operations are conducted responsibly and safely, as established in the company or entity’s code of ethics.
- Develop procedures for filing and preserving documentation, as well as its confidential handling.
- Have the technology and systems necessary to ensure adequate prevention of the risk of AML/CFT/FPADM.
- Adopt computer systems that automatically and promptly generate alerts on transactions that deviate from the expected behavior of the client or counterparty.
In conclusion, the accreditation requirements already established by the UIF, since the previous instruction, continue to be requested, and one of the main ones at the documentary level is the Policies and Procedures Manual , which establishes the policies and procedures that the UIF has established as a minimum.
The topic of money laundering is extremely broad, and due to its mandatory compliance, all companies and entities must be aware of the latest updates on this matter in order to avoid any type of risk that a company or branch may incur.
Therefore, if you require specialized advice to develop more information on this and other requirements established by the new regulations, please contact us to schedule an appointment with one of our professionals specialized in the subject matter.