Preventive Measures: What the Law Requires
Georgian law on the prevention of money laundering and terrorism financing obliges accountable persons to implement and continuously manage compliance programmes founded on Articles 10, 12 and 29 of that law. Article 10 defines the preventive measures that must be carried out in the cases established by the legislation: identification of the client and verification based on reliable and independent sources; identification of the beneficial owner and taking reasonable measures to verify them; establishing the purpose and intended nature of the business relationship; and ongoing monitoring of that relationship.
Each element of this catalogue is a separate duty, not formal bureaucracy: identification answers the question — who the client is; uncovering the beneficial owner — who stands behind the structure; establishing purpose and nature — why and how the relationship runs; and monitoring keeps the process alive, so that it is not exhausted by a single act of form-filling at onboarding.
Identification and Verification in Different Situations
The law prescribes different rules for different situations. Where a person acts in the client's name, the accountable person must identify and verify that person and obtain a document confirming the authority of representation, certified in the appropriate manner. Towards a legal person, an unregistered organisational entity, a trust or a trust-like legal structure, the ownership and control structure of the client must be studied. When establishing the essence of activity, information is obtained on the character, volume and frequency of expected transactions.
At the monitoring level, the accountable person examines a transaction prepared, concluded or performed within the relationship in order to determine how far it corresponds to the information known about the client, to the client's commercial or professional activity and risk level — and, where necessary, to the origin of the client's assets and funds. At the same time, identification data and other information obtained through preventive measures must be updated with appropriate periodicity.
How and When the Measures Are Carried Out
Article 12 governs the preventive measures on a risk basis: they are carried out according to the client's risk level before the conclusion of a one-off transaction and before the establishment of the business relationship, and with appropriate periodicity — during the relationship and when material circumstances connected with the client change. Where lesser risks exist, verification may be completed after the relationship is established, if this is necessary to avoid interrupting service to the client — but then as soon as reasonably possible.
The law also contains clear prohibitions: it is prohibited to open or maintain an anonymous account or an account in a fictitious name. It is prohibited to establish or continue a relationship, or to conclude or perform a one-off transaction, where the preventive measures cannot be carried out — and in such a case the basis for submitting a report to the service must be examined. Likewise prohibited is a relationship with a person falling within the sanctions-related circle defined by law. The accountable person may carry out the measures electronically, without direct contact with the client, under procedures agreed with the supervisory body that ensure effective management of the risks.
Building the Compliance Control System
Article 29 requires the accountable person, to ensure compliance with the law's requirements, to implement internal control policies, rules, systems and mechanisms — a compliance control system — proportional to the nature and volume of its activity and to the money laundering and terrorism financing risks involved. To implement the system, an internal instruction is developed, approved by the governing body or by a person holding leadership authority.
The internal instruction defines, among other matters, the rights and duties of the person responsible for the functioning of the compliance control system and of their staff; staff selection rules for hiring persons of high qualification and reputation; continuing training programmes for staff; and an independent audit function to test the system's effectiveness. The responsible person's position must correspond to a senior hierarchical level; they must be granted an effective possibility to obtain information in a timely manner and to decide independently on reporting; and responsibility for the system's effectiveness is assigned to a defined member of the governing body or a person holding leadership authority.
Frequently Asked Questions
What do preventive measures include?
Client identification and verification on reliable sources, uncovering the beneficial owner, establishing the purpose and nature of the relationship and ongoing monitoring — each according to the client's risk level.
Can verification be completed later?
Only where lesser risks exist and this is necessary to avoid interrupting service — and then it must be completed as soon as reasonably possible.
When is establishing a relationship prohibited?
Where the preventive measures cannot be carried out, or where a well-founded suspicion exists that the person falls within the sanctions-related circle defined by law — in parallel, the basis for reporting is examined.
Who approves the internal instruction?
The governing body of the accountable person or a person holding leadership authority. The instruction defines the responsible person, selection and training rules and the independent audit.
How We Help on Legal.ge
On Legal.ge we help accountable persons build and update AML compliance programmes: we structure the internal instruction, assess the proportionality of risks and prepare identification and monitoring procedures. Contact us — we will evaluate your system and prepare a remediation plan.