Banks Involved in Politics
23 February, 2012
Banks Involved in Politics


Thanks to the new order issued by the National Bank’s Financial Monitoring Service (FMS) last January, Georgian anti-money laundering measures “outshine” the international law in stringency notwithstanding the fact that money-laundering activity is quite rare in Georgia.

Experts believe the move is a follow-up to the recent changes made by the end of December of 2011 to the law on National Bank of Georgia (NBG), enhancing the NBG supervisory power unreasonably at the expense of deterioration of local financial market and

business climate.  Financial market analysts worry the unfavorable changes have political linen and may have a negative impact on the country’s economy ultimately.


“I do not think that overrunning the norms [in stringency] adopted at the developed countries will have a positive impact on a developing country like us where the check and balance policy is scarcely balanced and information on natural entities can be misused as a tool of political crackdown,” Demur Giorkhelidze, an economic analyst said in the interview with Georgian Journal.

The order of the Head of the FMS sets forth new rules for acquiring, systematizing, processing and transferring information to the FMS by commercial banks and caused some concerns, especially among the international business community in Georgia, Transparency International Georgia (TI Georgia), a non-governmental watchdog, said. TI Georgia researched relevant international experience and came to conclusion that the recent order makes Georgian anti-money-laundering legislation irrelevantly strong while the status of “politically active persons” lacks clear definition.

“The international community has taken some steps to fight the laundering of assets obtained by corrupt political leaders -- although many countries, especially tax havens, remain reluctant to implement these measures. In particular, Article 52 of the United Nations Convention Against Corruption (UNCAC), Recommendation 6 of the Financial Action Task Force (FATF), Directive 2005/60/EC of the European Parliament and the European Council of 26 October 2005, and the Regulation of the Basel Committee on Banking Supervision (para. 41 of “Customer Due Diligence for Banks”) cover so-called Politically Exposed Persons (PEPs). These international or multi-lateral agreements have set standards, which have to be implemented in financial institutions in order to prevent that money is being laundered by corrupt officials and politicians,” Natia Kutivadze, a legal expert with TI Georgia, published at the official web-site.

The new Georgian regulation incorporates the provisions of the FATF recommendations stipulating that if a client and/or a beneficiary represents a politically active person, the bank (or its authorized employee) should carry out the following additional measures as following: Senior management has to approve that the bank does business with the client; the bank has to take reasonable measures to establish the source of the funds it handles; the bank has to do an enhanced ongoing monitoring of the business relationship with the client. If a client (or the beneficiary) becomes politically active after establishing a relationship with the bank, the bank is obliged to carry out relevant monitoring measures as soon as it becomes aware of this fact.

What makes experts weary in new order is obscure definition of a “Politically Active Person” (PAP) that unlike FATF definition is much looser and can be easily used as a tool for political pressure.  The original FATF definition  of PAP only refers to individuals who are or have been entrusted with prominent public functions in a foreign country, and not to “other important political actors” as Georgian version suggests. Moreover, the recommendation considers the category of “middle- and lower-ranking officials” as an exception while new Georgian regulation also includes middle and low rank officials, other important political actors, their family members, and people having business relationships with them which make Georgian regulation stricter compared to what has been recommended by international organizations.

The TI Georgia generally welcomes that Georgia is taking an important step to fight money laundering however recommends that the words “other important political actors” should be removed from the order and the term “Politically Active Person” should be clarified further.

Moreover, Georgia is one of the most law obedient countries globe over from anti-money laundering point of view. A 2009 survey by the World Bank found that only 3 out of 124 countries were fully compliant with FATF recommendation 6, while 75 were not complying at all. According to Giorkhelidze, as well as Irakli Lekvinadze, another economic analyst, such a law-obedient aspiration has political backgrounds as the year of 2012 is an election year and ruling power needs to control assets of its political rival billionaire Bidzina Ivanishvili who is not citizen of Georgia as yet.

“There is no money laundering threats in Georgia in fact that could justify making law stronger than the international one. This here order was made just to make access to confidential information easier to government to control situation completely [in the pre-election period] bypassing court decision, and it can only harm rather do any good to Georgian business environment and all these unreasonable steps should be retrieved somehow in future,” Giorkhelidze said.

“Government could not create special regulations for only one bank I mean Ivanishvili’s Cartu Bank; therefore it issued a special order for all banks.  Authorities want to control transactions as much as possible that’s all,” Lekvinadze said. “And this kind of move is an alert signal to investors who are very unlikely supposed to hurry to Georgia after this.”


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