On November 5, SEPRELAD issued Resolution 248/20 (the “Resolution”), which approves the new Regulations for the Prevention of Money Laundering and Terrorism Financing (“ML/FT”) for currency exchange houses (the “Obliged Subjects") subject to the supervision of the Central Bank of Paraguay (the "BCP"). Previously, currency exchange houses were governed by Resolution 349/13 of SEPRELAD, which established ML/TF prevention procedures for all entities subject to BCP supervision. 

Scope

Obliged Subjects must implement a comprehensive ML/TF prevention system. 

Risk Factors to Consider

For their part, Obliged Subjects must develop and implement methodologies and procedures for the identification, evaluation and mitigation of ML/TF risks, considering criteria established both by themselves and by SEPRELAD. The ML/TF risk assessment should be done at least every two years, and the associated methodology should be verified at least every four years. The risk assessments, the reports with the results and the methodology used must be duly documented, and be available to SEPRELAD and the Superintendency of Banks (the “SIB”) of the BCP. These evaluations must consider at least the following risk factors: 

  • Clients: ML/TF risks associated with clients, be they natural or legal persons, their background, activity and behavior at the beginning or during the entire commercial relationship.
  • Products and/or services: ML/FT risks associated with the products and/or services that the obliged party offers on its own during the entire design or development stage.
    Distribution channels: ML/TF risks associated with the different models and means of distribution used by the Obliged Subjects.
  • Geographical area: ML/TF risks associated with the geographical areas in which the Obliged Subjects offer their products and/or services, both locally and internationally, taking into account the characteristics related to security, crime rates, economic-financial and socio-demographic characteristics of these, and the provisions that the competent authorities in matters of ML/TF or the Financial Action Group (FATF) issue with respect to said jurisdictions, among others.

In turn, Obliged Subjects must assess the level of exposure to ML/TF risks associated with the new products and/or services that they eventually offer. The evaluation must be done before launching said products and/or services, and materialize through a report that must be available to SEPRELAD and the SIB. Among other things, the assessment in question must consider the distribution channels of the products or services involved and other risk factors. It must also be done if the Obligated Subjects decide to implement or use new technologies in the process of providing their products or services, or if they suffer a variation in risk exposure. Once these risks have been identified, mitigation measures must be developed. If the Obliged Subjects decide to expand their range of coverage to new geographical areas, they must prepare an assessment of the level of exposure to ML/TF risks, which must be made available to SEPRELAD and the SIB. 

ML/FT Prevention Committee

Obligated Subjects must have an ML/TF Prevention Committee, made up of the Compliance Officer and at least two members of the Board of Directors. 

Compliance Officer

For their part, Obliged Subjects must have a Compliance Officer, with a higher hierarchical rank, such as a manager or a director, who must report directly to the highest authority of the entity. The Compliance Officer must enjoy autonomy and independence in the exercise of their functions and have sufficient support and resources. 

If Obliged Subjects are part of a financial group, a Corporate Compliance Officer may be appointed for all its members. 

Compliance Responsible (Encargado de Cumplimiento)

Likewise, Obliged Subjects must designate a Responsible (Encargado de Cumplimiento) in their branches, agencies, auxiliary tellers, dependencies or similar, who must apply the policies and procedures for the prevention of ML/FT in said places, in coordination and under the responsibility of the Compliance Officer.

ML/TF Prevention Manual and Code of Ethics

Obliged Subjects must compile all their ML/TF prevention policies and the applicable legal regulations in accordance with the Resolution in a manual. 

In turn, Obliged Subjects must have a Code of Ethics and Conduct, approved by the highest authority, establishing the ethical principles that they must follow. 

Audits

Obliged Subjects must also make an annual internal evaluation of the procedures ML/TF prevention procedures, resulting in a report with the verifications carried out and the conclusions reached within the framework of the current provisions, which must be made known to SEPRELAD within the following 90 days after the close of the fiscal year.

Obliged Subjects must also submit their ML/TF prevention procedures to an external audit, and the respective report must be sent to SEPRELAD within the next 180 days after the close of each audited fiscal year. 

Know Your Customer or "KYC"

Obliged Subjects still have to implement KYC procedures for their clients through a set of rules and measures to obtain sufficient information to know the identity of their clients and their final beneficiaries, understand the purpose of the relationship and operations, establish their transactional profile, and verify that its operations are compatible with said profile. 

As a novelty, the Resolution includes the possibility of applying an abbreviated KYC procedure in the following cases: 

  • Foreign currency exchanges by natural persons of up to approximately US $ 11 per day within a period of one year, registering full names and surnames, type and number of identity and nationality document;
  • Currency exchanges and transfers sent or received: one-time, up to approximately US $ 933 per client; or that added in the last quarter do not exceed US $ 1,866 per client, for up to a maximum of 25 operations.
    In turn, with the intervention of the SIB, SEPRELAD can enable the application of simplified KYC regimes for certain low-risk products. 
  • Clients who, at the beginning or during the course of the relationship, present a high risk to ML/FT, must undergo an extended KYC procedure. 

Reports

Like its predecessor, the Resolution requires that all suspicious operations be reported to SEPRELAD through a Suspicious Operation Report (Reporte de Operaciones Sospechosas o “ROS”). However, now the Resolution requires that obliged subjects also send “negative reports” to SEPRELAD if they do not make a ROS within a period of three months. 

Sanctions and Legal Effects

Failure to comply with these obligations may entail significant financial and reputational sanctions, therefore, measures must urgently be taken for their compliance.