The Legal Framework of Transaction Monitoring
Transaction monitoring is the central institution of legislation on the prevention of money laundering and terrorist financing. Its rules bind obliged entities — financial institutions, the National Agency of the Public Registry and other subjects that maintain client relationships or conclude one-off transactions in cases determined by law. The essence of monitoring is the obliged entity constantly comparing what it knows about the client with his transactions, and establishing how far they correspond to the client's profile, activity and risk level. This page examines the norms on preventive measures, the unusual transaction and the duty to report.
Preventive Measures and Client Verification
Article 10 of the law obliges the obliged entity, in the cases provided by law, to carry out preventive measures: identification of the client and verification on the basis of a reliable and independent source; identification of the beneficial owner and reasonable measures for his verification; establishment of the purpose and intended nature of the business relationship; and monitoring of that relationship. Where a transaction is conducted by a person acting in the client's name, that person is identified as well, and a duly certified document confirming the authority of representation is obtained.
Towards a legal person, an unregistered organisational form, or a trust or trust-like legal structure, the obliged entity studies the client's structure of ownership, control and governance. It must further establish the essence of the client's activity and obtain information on the nature, volume and frequency of expected transactions — the baseline against which an unusual or suspicious transaction can be recognised.
Ongoing Monitoring and Data Updates
In the course of monitoring, the obliged entity examines each transaction prepared, concluded or executed within the relationship: how far it corresponds to what is known about the client, to his commercial or professional activity and risk level, and where necessary — to the origin of the client's property, funds and convertible virtual asset. The identification data and documents obtained must be updated with appropriate periodicity.
Article 12 fixes the timing and manner of the measures: they are carried out according to the client's risk level before a one-off transaction and before the relationship is established, and with appropriate periodicity during it and upon a material change of circumstances. Where the risks are low, verification may be completed after establishment if this is necessary to avoid interrupting the servicing of the client — but then as soon as possible within reasonable limits. Anonymous or fictitious-name accounts are prohibited. If the obliged entity cannot carry out the preventive measures, establishing or continuing the relationship, or concluding or executing the transaction, is prohibited, and it must examine whether grounds exist for a report to the Service.
The Unusual Transaction and Enhanced Monitoring
Article 20 of the law defines the unusual transaction: a complex transaction, an unusually large transaction or an unusual combination of transactions with no apparent economic, commercial or lawful purpose. Upon detecting one, the obliged entity must examine the transaction, its purpose and grounds, and where necessary conduct enhanced monitoring of the business relationship to detect a suspicious transaction. At the request of the supervisory body it must substantiate that it examined the unusual transaction and took reasonable measures. Particular attention is paid to the situation where a reasonable suspicion exists that the client or another participant belongs to the list of persons sanctioned under United Nations Security Council resolutions, establishing or continuing the relationship, or concluding or executing the transaction, is prohibited and a report is obligatory.
Reporting to the Financial Monitoring Service
Under Article 25 of the law, the obliged entity must submit to the Service a report on a suspicious transaction or on an attempt to prepare, conclude or execute one. A subordinate act of the Head of the Service may define further reportable categories of transactions — based on information from international organisations or held by the Service indicating the probability of use for money laundering or the financing of terrorism.
Special rules apply to the registration of rights over immovable property. The National Agency of the Public Registry must report to the Service a suspicious or unusual transaction identified according to defined criteria before the registration; if the Service does not exercise its statutory powers within no later than 24 hours of receiving the report, the Agency continues the proceedings. Where such a transaction is discovered after registration, the report is submitted on the very day of discovery. The system thus operates both in the financial sector and on the real estate market, oriented towards the timely detection of suspicious capital flows.
Frequently Asked Questions
When are preventive measures carried out?
According to the client's risk level — before a one-off transaction and before the relationship is established, and with appropriate periodicity during it and upon a material change of circumstances.
Can verification be delayed?
Only where the risks are low and only if this is necessary to avoid interrupting the servicing of the client. In that case verification must be completed as soon as possible within reasonable limits.
What is an unusual transaction?
A complex transaction, an unusually large transaction or an unusual combination of transactions with no apparent economic, commercial or lawful purpose. Such a transaction is first examined and, where necessary, triggers enhanced monitoring.
Which body receives the reports?
The Financial Monitoring Service. Reports are submitted on suspicious transactions or attempts to prepare, conclude or execute them; in real estate registration the corresponding duty is also performed by the National Agency of the Public Registry.
How We Help on Legal.ge
Breaches of the transaction monitoring rules expose obliged entities not only to reputational but also to legal risks. The Legal.ge team helps you assess and strengthen your system of preventive measures, refine client verification and risk-level procedures, formulate criteria for recognising unusual transactions and correctly present your reporting obligations. Contact us so we can measure your monitoring practice against the law's requirements.