On May 11, 2022, the Parliament in the third, final reading, considered in an expedited manner and supported the amendments to the Law of Georgia on Facilitation the Prevention of Money Laundering and Financing of Terrorism. According to the explanatory card^[1] of the draft law it aimed to reflect MONEYVAL’s^[2] recommendations^[3] in the legislation. However, it can be said that the changes address only one recommendation^[4] of the FATF^[5], which the Committee considered to be partially compliant. Namely, according to the amended law the Investigation Service of the Ministry of Finance was added to the list of agencies to which the Financial Monitoring Service (FMS) is empowered to submit the intelligence information on suspicious transactions^[6] / which are entitled to inquire for information from FMS.^[7] The list of crimes subject to the application of the right to the inquiry of information was also extended.^[8]

The change also affected the frequency of risk assessment. According to the amended law the national report and action plan on risk assessment shall be updated as necessary, however, no less than once per 3 years instead of 2.^[9] Even though the FATF refers to the risk assessment on an ongoing basis and does not indicate a specific periodicity of its implementation,^[10] considering that a national risk assessment in general allows countries to identify major challenges in terms of money laundering and terrorism financing, increasing the minimum timeframe for updating the National report and action plan cannot be seen as a positive change. According to the explanatory card of the draft law, during the pandemic, the situation in the country did not change significantly in terms of the risks of money laundering and the prevention of terrorist financing, however, with the opening of borders and the removal of restrictions in mind, the need for risk assessment at small intervals becomes even more apparent. Besides, prior to the amendment, the law required the government to approve these documents at least once in every two years, however, risk assessment in the country has not been carried out since 2019. The documents have never been updated at a two-years interval, which would have made it clear how reasonable the timeframe would be in practice for Georgia.

It is noteworthy that the MONEYVAL Fifth Round Mutual Evaluation Report did highlight the frequency of risk assessment in Georgia but pointed to the incomprehensiveness of the National Risk Assessment Report. For example: according to the committee, while the National Risk Assessment of Georgia did address a number of NPO-related issues, it did not adequately assess the risks related to the financing of terrorism. Specifically, Georgia has not studied the characteristics and forms of activities of non-profit organizations that indicate high risks of the financing of terrorism.^[11] It should be noted that out of 40 FATF recommendations, Georgia has not implemented one recommendation, which is related to the existing legislation and practices with regard to non-profit organizations in the context of combating the financing of terrorism.^[12] Nevertheless, no further steps have been taken to make progress in implementing this recommendation. The nature of the terrorism financing risks that non-profit organizations may face has not been identified, and measures, including legislation defining the subset of NPOs that may be exposed to terrorism financing risks, have not been reassessed.

As a result of another change in the law the sixth paragraph was added to Article 12 according to which the authorities of the supervising bodies were clarified. Namely, the supervising bodies became entitled to, under the legal basis, adopt the rule of the e-identification and e-verification of a client, of a beneficiary owner, and study the structure of the client ownership and control. It is noteworthy that MONEYVAL focused on the challenges for beneficial owners and recommended^[13] that Georgia review existing systems and take steps to ensure that relevant, accurate, and up-to-date information on beneficial owners is always available in a timely manner to relevant authorities. The team considered as one of the effective measures to resolve this problem the creation of a centralized, systematized database on beneficial owners. The Institute for Development of Freedom of Information together with other Georgian civil society organizations have actively called on the Georgian government to establish a registry of beneficial owners. Even though the Georgian government undertook an obligation to establish a registry of beneficial owners at the Anti-Corruption Summit in London in 2016, to date no such a registry has been created and the related challenges still remain.

Based on the above, IDFI believes that the amendments to the Law of Georgia on Facilitating the Prevention of Money Laundering and Terrorism Financing are not enough to address the challenges existing in the country in this direction and it is necessary for Georgian Government to take ambitious steps. It is important that the authorities do not spare efforts in implementing MONEYVAL and FATF recommendations, including beneficial ownership, as these recommendations are a key foundation on which states can achieve the common goal of combating money laundering and terrorism financing.

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[1] Available at: https://info.parliament.ge/file/1/BillReviewContent/299625?.

[2] The Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism - MONEYVAL is a permanent monitoring body of the Council of Europe entrusted with the task of assessing compliance with the principal international standards to counter money laundering and the financing of terrorism and the effectiveness of their implementation and provide relevant recommendations.

[3] MONEYVAL, Anti-money laundering and counter-terrorist financing measures - Georgia, fifth Round Mutual Evaluation Report, September 2020, available at: https://rm.coe.int/moneyval-2020-20-5th-round-mer-georgia/1680a03271.

[4] MONEYVAL, Georgia, Fifth Round Mutual Evaluation Report, p. 238.

[5] The Financial Action Task Force (FATF) is an independent inter-governmental body dedicated to promoting policies against money laundering, terrorism, and funding for weapons of mass destruction.

[6] Law of Georgia on Facilitating the Prevention of Money Laundering and Terrorism Financing, 30/10/2019, article 34(1).

[7] Ibid, article 39(6).

[8] Ibid, article 39(7).

[9] Ibid, article 5(3).

[10] FATF Guidance, National Money Laundering and Terrorist Financing Risk Assessment, February 2013, pp. 18-19.

[11] MONEYVAL, Georgia, Fifth Round Mutual Evaluation Report, pp. 196 – 197.

[12] See: IDFI, Overview of the implementation by Georgia of the recommendations on fight against money laundering and terrorism financing, 2022, available at: https://idfi.ge/public/upload/Analysis/Compliance%20with%20FATF%20Recommendations.pdf.

[13] See: IDFI, MONEYVAL assessment of Georgia on money laundering (ML) and terrorism financing (TF), 2020, available at: https://idfi.ge/public/upload/Blog/MONEYVAL%20final%20ENG.pdf.

This material has been financed by the Swedish International Development Cooperation Agency, Sida. Responsibility for the content rests entirely with the creator. Sida does not necessarily share the expressed views and interpretations.