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Amendments to the Law of Georgia on Facilitating the Prevention of Illicit Income Legalization were discussed at the plenary session of the Parliament on 4 April, 2014. The bill was proposed by Davit Onoprishvili, Member of the Parliamentary Majority. It should be noted here that the Parliament passed the bill during its third hearing on 29 May.

Giorgi Vashadze, Member of the Parliamentary Minority, stated the following during the first hearing of the new Law: “This [bill] implies that the [bank] account of every citizen of Georgia and the [bank] account of every business organization will be controlled by the executive branch. This means that they will need neither the court’s decision nor any kind of agreement with another entity in order to control who transferred what amount of money to whom. They do not need the court’s decision in order to have direct access to commercial secrets”.

FactCheck

wondered about the accuracy of the statement by the MP.

Before we discuss the Law itself, we should review the legal regulation which was in force prior to the adoption of the new law in Georgia.

The purpose of the Law of Georgia on Facilitating the Prevention of Illicit Income Legalization (updated 27 November 2013) is to create legal mechanisms against the legalization of illicit income and financing acts of terrorism and protect the legal rights and the interests of the public and the state. The Law regulates the relationships related to facilitating the detection and prevention of illicit income legalization in Georgia.

The Law was implemented in practice by the Financial Monitoring Service of Georgia which was established under the National Bank of Georgia. Along with other rights, it is authorized to request and obtain from monitoring entities additional information and documents available to them for the purpose of revealing the facts of illicit income legalization, terrorism financing or other illegal acts. The Service is entitled to request confidential information about transactions (banking operations) as well as bank accounts and persons making banking transactions as well as the parties to them (Article 10, 4 a).

According to the Law, monitoring entities include (Article 3):

a)      Commercial banks, currency exchange bureaus, non-bank depository institutions and microfinance organizations,

a1)

Entities engaged in the transaction of remittances,

a2)

Qualified credit institutions,

b)      Broker companies and securities registrars,

c)      Insurance companies and non-state pension scheme founders,

d)      Entities organizing lotteries and other commercial games,

e)      Entities engaged in activities related to precious metals, precious stones and products thereof as well as antiquities,

f)       Revenue Service a legal entity of public law of the Ministry of Finance of Georgia,

g)      Entities engaged in the extension of grants and charity assistance,

h)     Notaries;

h1)

National Agency of Public Registry a legal entity of public law,

i)        Entity engaged in activities related to accounting and auditing,

j)        Leasing companies,

k)      Attorneys.

As we mentioned above, the Financial Monitoring Service of Georgia is a legal entity of public law and was created under the National Bank of Georgia.

According to Georgian law, a legal entity of public law is an organization created on the basis of a corresponding law, separated from state management, performing political, state, social, educational, cultural and other public authority independent of state control. (Article 2[1]).

According to the Constitution of Georgia, the National Bank of Georgia is independent in its activities. The members of Georgia’s legislative and executive bodies do not have the right to intervene in the National Bank of Georgia’s activities. The rights and obligations of the National Bank of Georgia as the central bank of the country, the principles of its activity and the guarantee of its independence are defined in the Organic Law of Georgia on the National Bank of Georgia.

According to the bill adopted by the Parliament, the Financial Monitoring Service of Georgia, a legal entity of public law created under the National Bank of Georgia, will be reorganized and established as the Financial Monitoring Service of Georgia, a legal entity of public law and controlled by the Government of Georgia. Moreover, the Financial Monitoring Service of Georgia will present its annual report about its implemented activities to the Government of Georgia and it will be held accountable by the Government of Georgia.

According to the explanatory note to the bill: “The purpose of adopting this bill is the reorganization of the Financial Monitoring Service of Georgia, a legal entity of public law created under the National Bank of Georgia and establishing it as an independent service. This facilitates a more effective implementation of the Service’s activities determined by the Law and the increase of the level of its independence.”

It is noteworthy that according to the old law as well as the new Law, it has not been determined whether or not the Financial Monitoring Service of Georgia needs the court’s decision in order to get access to relevant information. According to the Regulation of the Service, the entity appeals to the court only for the purpose of the seizure of property (bank account) or the suspension of the transaction if there is a reasonable assumption that the property (the amount of the transaction) may be used for financing terrorism (Article 3, Chapter 1).

The issue was aired by Maestro broadcasting on the TV show “Business Contacts

” on 30 May. Azim Sadikovi, a representative of the International Monetary Fund in Georgia, stated the following during the show: “International experience of the subordination of the Financial Monitoring Service varies. In some countries, it is under the authority of the National Bank while in other places it is subordinate to the Ministry of Finance. We were unable to understand the motivation behind this change, however, the Government and the Prime Minister personally assured us that the Service will maintain its independence, it will be strengthened and confidential information will be safeguarded. I would like to tell you that business is concerned in that regard. The Service should be based on two main principles: independence and confidentiality. At this point, I have no reason to doubt the steady protection of either of them”.

We contacted the Economic Policy Research Institute in order to acquire its opinion about the changes related to the Financial Monitoring Service. The institute reported to us that: “The Economic Policy Research Institute does not agree with the Government’s initiative that the Financial Monitoring Service should fall under the authority of the Prime Minister and we consider that the independence of the Financial Monitoring Service’s activities under the National Bank of Georgia was ensured, which is confirmed by the international financial institutions. In the case of the adoption of this bill, we should expect that the confidence in the banking and financial sectors will be decreased which can be caused by the fear of control and pressure from the authorities. In addition, the risks of using this leverage by the government will be increased.”

Conclusion

According to the new Law adopted by the Parliament, the Financial Monitoring Service of Georgia is not changing its legal status and maintains its status as a legal entity of public law. However, it will be controlled by the Government of Georgia and the Monitoring Service will be held accountable by the Government of Georgia. This was the reason why questions and concerns were raised in the banking-financial and business sectors about the possible interference by the Government in the future activities of the Service.

Giorgi Vashadze also mentioned in his statement that after the adoption of the new regulation, the Monitoring Service will access certain banking information without the court’s decision. It should be noted that the context of this part of the statement is incorrect due to the fact that the Financial Monitoring Service used to have this opportunity before and this does not constitute a change. According to the old and the new regulations, the Service is entitled to request any kind of information from the monitoring entities that is necessary for performing its duties without the court’s decision.

Therefore we rate the statement by Giorgi Vashadze: “This [bill] implies that the [bank] account of every citizen of Georgia and the [bank] account of every business organization will be controlled by the executive branch. This means that they will need neither the court’s decision nor any kind of agreement with another entity in order to control who transferred what amount of money to whom. They do not need the court’s decision in order to have direct access to commercial secrets” is HALF TRUE.

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