ASOBANCARIA - 33.-COLOMBIA Y SU POLITICA CONTRA EL LAVADO DE DINERO

Colombia' s policies against laundering money The colombian financial system action ¿>

COLOMBIAN BANKINCI

AND FINANCIAL ENTITIES ASSOCIATION Updated to may 1996

CONTENTS

ASOBANCARIA: A BRIEF DESCRIPTION

PROLOGUE

SCHEDULE 1

Agreement on the role ofthe financial system in the detection, prevention and repression ofilegal capital movements 21 SCHEDULE 2 - Decree 1872 of 1992 included in the Organic Statute ofthe Financial System as Chapter XVI. Prevention of criminal activities. - The Anti-Corruption Statute. - Law 190 of 1995 - Title III. Financial Regime. - Institucional aspects - Decree 950 of 1995 - Criminal regulations. ' 29

SCHEDULE 3

Uniform code of behavior by and for the memebers ofthe Colombian Banking and Financial Entities Association, Asobancaria, concerning their duties in the detection, prevention and repressión ofilegal capital movements 51

SCHEDULE 4

Agreement between the Nationtal General Prosecutor's Office and the Colombian Banking and Financial Entities Association, Asobancaria, on supply of information from the financial sector for investigation by the government's competent authorities 63

SCHEDULE 5

The National General Prosecutor's Office and the Colombian Banking and Financial Entities Association, Asobancaria 73

ASOBANCARIA: A BRIEF DESCRIPTION Asobancaria, the Colombian Banking and Financial Entities Association, is a non-profit trade association created on November

31, 1936 It groups all public andprivate commercial banks (35), as well as approximately 40 non—banking financial institutions. Asobancaria ,s activities are aimed atpromoting andpreserving the public 's confidence in the financial sector, and at gaining evergrowing knowledge about the nature andfunction ofthe financial activity. The soundness of its recommendations on matters pertinent and beneficial to the financial sector, as well as the economic and legal

analyses, studies, research and publications which underlie and endorse its actions have enabled it to become apermanent valid and objective source of information and support for the National Government. The Association is a center ofnational and international fznancial information, constantly fostering research, development and all technological innovations applicable to the financial sector. In this position as leading and most representative group of the financial sector, it has developed numerous specialized services and modern infrastructure with the latest technological advances, to support the sector ys management and operations activities. The Association 's services reach the entire country throughits o)7ices which, locatedin all main cities ofthe country, are devoted to specific objectives aimed at achieving excellence in its services and preserving the leadership of the financial sector in each corresponding region. Prologue Money laundering and drug trafficking are intimately related, although the former is also quite relevant regarding other criminal and equally dangerous activities. Therefore, the two problems must be viewed within a single framework. ' Drug trafficking is a universal issue. This means that the struggle against it must involve the efforts ofall nations; foritto be successful, “drug consuming” countries must undertake a far more efficient strategy. Colombia is fighting a war which has often been frustrating. and disproportionate with respect to actions carried out by some developed countries where drugs are consumed massively. There is no doubt that the key role played by Colombian criminal organizations in drug production and trafficking implies that our country must assume special responsibilities and play a decisive role with regard to “money laundering”, as has clearly been the case. However, inweighing and assessing our role and our responsibilities, we must never loose sight ofthe fact that the flow ofa substantial part ofthe funds generated by drug trafficking activities generally begins and ends in the main consuming countries. Furthermore, most of the funds and property obtained from drug trafficking, including those owned by Colombian criminal organizations, are now located in countries other than those traditionally known as “drug—producing” countries.

Two facts are, then, of particular importance. First ofall, only a small part of drug-related funds are located in Colombia. Secondly, although a considerable portion ofsuch funds may be controlled from Colombia, this does not necessarily imply their passage through the country orthe active participation of Colombian agents inthe process. For this reason, it is unacceptable to say that Colombia and other neighboring countries are “money laundering” centers and to label any transaction with or among Colombian nationals as suspicious, just because such transactions have involved individuals or corporations from any such countries. Such assertions indicate that not only has the question been analyzed rashly and superñcially, but, yet more dangerous, they do not focus the problem properly and serve as a pretext to elude the true responsibilities ofother nations. The above thoughts are necessary to better understand the legal framework within which the role ofthe Colombian financial sector in the prevention, detection and repression ofillegal capital movements has been defined. Until recently, the Colombian Criminal Code did not include “money laundering” as a crime, although this never kept Colombian authorities from curbing the flow of drug-related funds, until Law 190 was enacted in 1995, forrnally setting forth asset laundering as a crime. Cooperation inthe concealment of drug-related property and funds is repressed through the application offigures described in the Criminal Code, such as complicity, conspiracy, illegal increase ofwealth gain and others ofa more procedural nature. There are, infact, specific provisions inthe Criminal Code thatpermit the forfeiture of goods used in the production and illegal trade of drugs, as well as property and money resulting from such activities. It is also considered illegal to allow oneºs name to be used to acquire assets with drug-related money. ln any case, the Colombian ratiñcation of the “United Nations Convention in Traffic of Narcotics and Psychotropic Substances”, better known as the “Vienna Convention”, was supported by the anticorruption law (Law 190 of 1995), where “money laundering” is classified as a crime under Article 3, sub-paragraph 1 thereof. According to Colombian law, all citizens must report to the authorities the possible violation of any rule provided for under the Criminal Code. This might have been enough to govern the conduct of ofñcers and directors of financial institutions with respect to “money laundering”. It is vital to point out that bank reserve in Colombia does not apply vis ¿¡ vis the investigation of criminal acts. Nevertheless, financial institutions had long before begun to implement clear corporate rules and policies aimed at preventing and detecting illegal capital movements, through their own internal codes of Conduct. But these individual efforts required a minimum level of uniformity in their rules and procedures, on the one hand, and an appropriate institutional support, on the other. This led the financial institutions to agree on common principles and instruments. THE AGREEMENT However these individual effort required a minimun uniformity of rules and procedures, onthe one hand, and an appropiate institucional support on the other. This led the financial institutions to agree on connon principles and instruments. It was thus, that on October 21, 1992, the Board of Directors of the Colombian Banking and Financial Entities Association adopted the “AGREEMENT ON THE ROLE OF THE FINANCIAL SYSTEM IN THE DETECTION, PREVENTION AND REPRESSION OF ILLEGAL CAPITAL MOVEMENTS”. The text ofsuch Agreement is shown in Schedule 1 hereof. In general terms, the Agreement implies adherence to a set of principles with respect to which each entity will establish its own code of conduct, as follows: - Selection and identiñcation of clients and knowledge about their economic activities. - Knowledge ofthe clients and oftheir operations with the financial entity. - Registration and documentation of cash transactions. Cooperation with the authorities, by providing them with — information for investigation and evidence gathering purposes.

DECREE 1872

A month later, the National Government, in use of special constitutional powers, issued Decree 1872, which bears the status of a law, and which is now embodied in the Organic Statute of the Financial System. The text of such decree is shown in Schedule 2 hereof. In substance,this Decree raised to the category ofa law the principles and procedures which constituted the above mentioned Agreement of the financial sector. Infact, oneofthe mandates ofthe Agreement was to promote, among the various competent Government levels, the issuance ofan adequate legal framework on this matter. 10 Inthe first place, the Organic Statute ofthe Financial System provides that financial entities must take proper and suffrcient control measures designed to prevent that, while performing their operations and activities, entities be utilized as instruments to conceal, manage, invest or make use of any kind of currency or other assets resulting from illegal activities, or to give an appearance of legality to such activities or to transactions and funds connected therewith. In complying with this general obligation, financial entities must adopt mechanisms and explicit rules of behavior which shall be observed by their legal representatives, directors, managers and officials, in order to achieve the following purposes: a) To acquire an adequate knowledge of the financial activity of their clients, the customary volume of their transactions, and particularly the activity of those persons who make any type of on sight, term or savings deposits, or who place assets undertrust or deposit them in safe deposit boxes. b) To establish the frequency, volume and characteristics oftheir clients” financial transactions. 0) To determine the coherence between the economic activity of their clients and the volume and movement of their funds. d) To report immediately tothe National General Prosecutorº 5 Office or to the Special Judicial Police Corps appointed thereby, any relevant information on management of funds, the amount or characteristics of which are not related to the economic activity of the clients; or any transactions of clients which, because of

their number, amount, or particular characteristics would reasonably lead to suspect that those clients are using the entity to transfer, handle, make use of or invest money or resources obtained from illegal activities. 11 Conceming this last aspect, entities and their officials shall not let the persons who have performed or intend to perform suspicious operations or transactions know that they have given the National General Prosecutorºs Office any such information and shall also maintain secrecy regarding all such matters. Any audit and control mechanisms adopted by the financial entities shall deal exclusively with transactions, operations or balances in amounts higher than those considered to be reasonable and sufficient. When determining the minimum values of transactions subject to control, it shall be necessary to consider the type of business carried out by the respective entity, the coverage of its network, client selection procedures, marketing of the products, operating capacity and technological development. In addition, all cash transactions shall be accompanied by adequate documentation. To this end, according to special provisions, in a form specifically designed for such purpose, every financial institution must state all information regarding the transactions performed in pesos or in foreign currency, the value ofwhich exceeds the amounts periodically indicated by the Banking Superintendency. At present, such amount is fixed at 7.5 million pesos, which is presently equivalent to approximately Nine Thousand Dollars US $9.500. With respect to operations in foreign currency, the established amount is US $10.000 or the equivalent in other currencies. Multiple cash transactions, both in pesos and in foreign currency exceeding the above amounts, shall be considered as one operation, if they are performed by or on behalf of one specific person during a single day or during any other time period indicated by the Banking Superintendency. 12 When the ordinary course of business ofa specific client requires the usual performance of several cash transactions, the financial institution may keep a record of cash transactions instead of the individual form mentioned above. This record shall contain the same information as the individual forms, though on an aggregate level.

Financial entities which prefer this mechanism shall report to the Banking Superintendency any persons who have been included inthis procedure, on a monthly basis. Finally, financial entities shall appoint officers in charge ofverifying whether such controls and procedures are duly complied with. THE UNIFORM CODE OF CONDUCT In order to allow for a higher degree of uniformity in the adoption of internal measures, the Colombian Banking and Financial Entities Association issued a basic uniform code of conduct for the use ofthe financial entities individually, so that they may adopt their own codes of conduct as provided for by Decree 1872, and thus all Colombian financial institutions have established their codes of conduct within the conditions set forth by the Government and along the lines proposed by this Association. The text ofsuch Code may be found in Schedule 3 hereunder. This set of measures was set forth to comply with international standards, specifically the following: - The United Nations Convention on Narcotics and Psychotropic Substances, approved in Vienna, on December 19, 1988. - The Recommendation of the European Council, dated June 27,

1980. 13 - The Declaration of Principles adopted in December 1988, by the Committee for Banking Regulation and Supervision, by the Group of Ten Nations, or Basel Committee.

The Recommendations of the Inter—American Commission on — Drug Abuse (Comisión Interamericana contra el Abuso de Drogas, CICAD), ofthe Organization of American States, OAS. - The Recommendations ofthe World Economic Summit or group ofseven nations, FAFT, Economic Summit Financial Action Task Force on Money Laundering.

JOINT AGREEMENT BETWEEN THE NATIONAL

GENERAL PROSECUTOR'S OFFICE AND THE

COLOMBIAN BANKING AND FINANCIAL ENTITIES ASSOCIATION Money laundering has beenan issue ofcentral importance and concernfor the Board ofDirectors andforthe Internal Committees ofthe Colombian Banking and Financial Entities Association and thus, aware of the important role that it plays in the struggle against Money Laundering, the

Financial Sector deemed it advisable to create mechanisms for formal cooperation with all relevant lawenforcement authorities. During the month ofMay, we began to hold a series of meetings with the National General Prosecutor”s Office, aimed at developing ajoint cooperation program resulting in practical and effective action to be taken. The agreement was written taking into consideration some practical terms which should contribute to the results which the government is seeking in this area. Some ofthe elements of support were designed with the help ofexperts in each area, in order to allow the Government control agencies to attain better results. This action corroborates the interest of the sector to reach solutions that are tangible and realistic. 14 The Colombian Banking and Financial Entities Association met with the Colombian Ministry ofJustice, the Banking Superintendency and The National General Prosecutor's Office in order to determine the most accurate way to establish cooperation and responsibility within the financial sector toward the prevention and control of Money Laundering. In september of 1995, a joint cooperation agreement was signed between the National General Prosecutor” 5 Office and the Colombian Banking and Financial Entities Association (see Schedule No. 4), with the participation of the Ministry of Justice, the Banking Superintendency and the National General Prosecutor's Office, as well as representatives from the financial sector. lt should be highlighted that this agreement has constituted apoint of departure in the joint effort of the war against Money Laundering. After this agreement was formalized, cooperation efforts between financial entities and the National General Prosecutorºs Office have grown stronger. Adding to this fact, the direct involvement ofentities such as the Association of Comercial Finance Companies. NATIONAL AND INTERNATIONAL COOPERATION During December 1995, the Embassador of the United States of America organized a meeting, during which participants decided that all questions and requests ofthe financial entities would be funneled through the Colombian Banking and Financial Entities Association, which would in turn contact the Embassy as required, to undertake

appropriate action in this area. In this sense, the Colombian Banking Association is seeking to strengthen its international cooperation mechanisms, in order to be more effective in its effort to support the war against Money Laundering. 15 All actions undertaken by the Association are part ofthe work ofthe Consulting Group ofthe Inter-Institutional Coordination Commission against Money Laundering (Decree 950/95 and Decree 754/96), aimed at supporting the Governmentºs plans in this matter. This Commission was modified by Decree754, which joint the Interinstitutional Commission for Laundering Assets Control and the fight Commission Against fmancing and enrichment of guerrilla groups. In order to ensure the applicability and necessary coordination ofthe jobs at hand, in addition to the meetings held with the National General Prosecutorºs Ofñce, several work sessions have been held with the Banking Superintendency and the Ministry of Justice. The above mentioned activities carried out by the C010mbian Banking and Financial Entities Association have been supplemented with internal policy changes and strict application within each ofthe Associationºs member entities. Thus, this is a principal and mandatory point to cover in the agenda ofthe Board of Directors and ofthe various committees ofthe Association. With the purpose of establishing information and cooperation channeles for the prevention and control of money laundering and to promote awareness of the operative procedures used in other countries, communication will be established with entities such as FINCEN in the Unites States and TRACFIN in France. The creation ofa work group against money laundering similar to the ones of FATF and GAFI has been considered as a mechanism of prevention through FELABAN (Federación Latinoamericana de Bancos Latin American Banking Federation) in order to create a — forum for the continuos analysis ofthese topics and to propose to the respective governments the adoption of concrete measures for the collective action against money laundering and the advocacy ofthe necessary agreements to facilitate the prevention and control of

money laundering. 16 THE ASSOCIATION”S RISK MANAGEMENT COMMITTEE In order to meet the Sector”s need to count on specialized treatment for all risks, a Risk Management Committee was created in early 1994, composed by Vicepresidents in charge ofthis area in different financial entities. Presently there are eight (8) active members from entities such as commercial banks, investment banks and S&L's. This Committee has worked actively in the prevention and control of Money Laundering, and has been instrumental in the creation ofthe agreement reached with the National General Prosecutorºs Office. As part of the development of the above mentioned agreement, this Committee has met formally with the Assistant General Prosecutor's in order to define the most important short and long term goals thereof. As part of the meetings held by the committee, during December of 1995, there was a special meeting with the National Genera Prosecutor's the Assistant General Prosecutor's and representatives from the financial sector and from the Colombian Banking and Financial Entities Association itself. The topics covered in this meeting (Schedule No. 5_) were:

1. Bases for the development ofa written agreement - Information. Development and implementation offastand reliable mechanisms to report apparently suspicious operations, and to channel, optimize and handle such information. - Support in the creation ofa Special National Unit oftheNational General Prosecutor's Office inthe war against Money Laundering.

In this regard, the Association indicated it fully endorsed the creation ofthe Special National Unit for the War Against Money Laundering, for which special groups would be promoted, in charge of handling the logistics, designing infrastructure, and develop adequate technologies. 17 - Specialized training programs for all employees ofthe financial sector and ofñcers ofthe National General Prosecutorºs Office.

2. International Cooperation. Mirroring oforganisms suchas FinCen in United States or Tracfrn in France. Opening mutual cooperation and information channels with the Government of the United

States and its various specialized agencies for the prevention and control of Money Laundering. A Special Committee was created by the Board of Directors of the Association in December of 1995, to define and harmonize procedures and for banking institutions to become acquainted with their clients” economic activities. Said procedures will be mandatory upon their inclusion in the Interbank Agreement. The Committee we will seek to standardize all the mechanisms used by all entities within the sector when carrying out their operations such as checking accounts, savings accounts, term cash deposits, mutual trust funds and international deals, among others. This Committee is perfectly integrated with the work being done by the Risk Management Committee, and one ofits members is a representative ofthe latter. SPECIALIZED TRAINING IN THE AREA OF MONEY LAUNDERING A preliminary program has been designed jointly with the Banking Superintendency and the National General Prosecutofs Office to provide training in the area of prevention and control of Money Laundering. The main objective of this project is the design and adoption ofa formal training program for Money Laundering, which will be proposed by the Board of Directors ofthe Association as an interbank agreement, in such a way that all financial entities ensure that all their ofñcers receive and apply the program. 18 The following are the main objectives ofthe program: - To provide guidelines regarding Money Laundering and the relationship between the financial sector and law enforcement authorities. - To provide knowledge of legal, administrative and operational aspects of Money Laundering. - To make financial officers aware of their responsibilities as far as Money Laundering is concerned, based on realistic case studies. - To define all functions ofthe different authorities composing the Inter-Institutional Committee against Money Laundering. - To describe the role of the Colombian Banking and Financial Entities Association as part ofthe Consulting Group. — To ensure that each and every financial entity officer knows every aspect related to the topic of Money Laundering, as required by their specific functions. Also the financial entities in conjuction with the Asobancaria have

been developed several programs and open seminars as:

1. International seminar on the Detection and Prevention on the Movement of Illicit Capitals and the Banking system, held on in the city of Bogotá, August 31 and September 1, 1994.

2. Symposium on “Prevention and Repression of Illicit Capital Laundering: a practical Approach”, Bogotá, July 17, 18 and 19,

1995.

3. As part ofthe training program, in conjunction with the National General Prosecutor's Office, during the last two years we have undertaken programs to train prosecutors throughtout the entire country in the different types of operations within the financial sector. This training which encompassed more than 60 hours of 19 work has been reinforced by specific expositions on the topics of money laundering and was carried out personally by the president and vice-president of the Colombian Banking and Financial Entities Association inajoint effort with he stafffrom the Genera] Prosecutor's Office and was aimed at the financial sectors throughout the diferent cities in the country.

Forum on Money Laundering, Bogotá, February 14, 1996. In . conjuction with the National General Prosecutor's Office, the Ministry of Justice and the Banking Superintendency. 20 Schedule 1

AGREEMENT ON THE ROLE OF THE

FINANCIAL SYSTEM IN THE DETECTION,

PREVENTION AND REPRESSION OF ILLEGAL

CAPITAL MOVEMENTS

THE BOARD OF DIRECTORS OF THE

COLOMBIAN BANKING AND FINANCIAL

ENTITIES ASSOCIATION, ASOBANCARIA WHEREAS: Member financial institutions ofthis Association may be usedwithout their knowledge or their consentas intermediaries to receive deposits and carry out transactions and funds transfer originated or destined to perform criminal activities. b) Member financial institutions may perform arole of collaboration and assistance before government authorities responsible for the investigation and repression of criminal activities. Although the internationally termed “money laundering” is not

considered in itself a crime by Colombian legislation, member financial institutions may determine the types ofoperations which, due to their connection with organized crime, can lead to special information that may be ofuse to the authorities. d) Member financial institutions have established for some time now policies and rules and internal codes of conduct designed to prevent and detect illegal capital movements. It is of primary importance to organize cohesively all the individual efforts of the member financial institutions, in one 23 unique regulation of a uniform nature, which can be applied in general regarding prevention, detection and repression of illegal capital movements. f) According to Section 10 of article 29 of the Associationºs By— Laws, the Board of Directors “shall establish the rules, uses and practices required to rationalize and standardize common procedures in the Financial Sector.”

IT THEREFORE PROPOSES THE ADHERENCE

OF ALL MEMBERS TO THE FOLLOWING PRINCIPLES: ]. Selection, identification and knowledge ofthe client The members of the Association shall make a reasonable effort to select and know its clients, whether ordinary or occasional, to identify them and to know of their transactions and activities, in order to decide whether there is coherence between them. For such purpose, a form or a set of forms shall be designed and specifically prepared in order to identify and take a statement about the origin of the resources in connection with the following operations, when performed in cash and exceed seven million ($7,000,000) pesos, readjustable from time to time by the Board of Directors ofthe Association, or its equivalent in foreign currency: a) Opening of checking and savings accounts b) Term deposits c) Drafts and transfers d) Purchase and sale of foreign currency e) Safe-deposit box services 24 Moreover, common procedures of data registration of personal information, means of identification and references shall be adopted, as well as the statement which must be presented to perform the operation.

2. Keeping information for evidence purposes Members shall adopt technical procedures that may allow the banking

institutions to keep and preserve any information concerning cash operations exceeding seven million pesos ($7,000,000), readjustable from time to time by the Board of Directors ofthe Association, or its equivalent in foreign currency, in order to ensure that any such information may be used as evidence.

3. Collaboration with the authorities The members of the Association shall collaborate with national judicial and police authorities responsible for the investigation and repression of crimes, by supplying all information required by them, and shall report any suspicious operations, on the basis ofpreviously established parameters.

Collaboration with foreign judicial and police authorities shall be carried out through competent national authorities, according to relevant international rules. Under the terms of Article 15 of the Political Constitution, the fulfillment of this principle shall not be considered as a violation of banking secrecy.

4. Refraining from performing certain operations The members of the Association shall refrain from performing operations clearly connected with criminal activities falling under given types and profiles, as classified by a Committee which shall be created therefor.

25

5. Adaptation ofinternal codes of conduct The members of the Association shall adapt their internal codes of conduct in order to develop the principles mentioned above, based on the code established by the Association.

IN ORDER TO DEVELOP THE ABOVE

.-

PRINCIPLES, THE BOARD OF DIRECTORS

PROPOSES THE FOLLOWING INSTRUMENTS

TO PERFORM THE AGREEMENT

l. Centralized data bank, allowing for uniñed and standardized information.

2. Determination oftechnical procedures ofphysical and electronic preservation of information, so that it can be used as evidence.

3. Establishment ofa clear and uniforrn procedure with respect to law enforcement authorities.

4. Establishment of codes of conduct, regulations and instruction guide books to be used as a basis or a model by the members of the Association, when adapting their own internal codes of conduct.

5. Request for international cooperation in order to obtain advice and t