New regulations to identify holdings in financial and foreign exchange entities

On November 19, 2009, the Argentine Central Bank (Banco Central de la República Argentina) issued Communication “A” 5006 (the “Communication”) which modified certain aspects of CREFI-2 and RUNOR-1 Circulars that are applicable to financial entities and currency exchange agencies in Argentina. The Communication relates to the identification of shareholding in financial entities and exchange agencies in order to avoid cases of “shell banks”. These new regulations are applicable to financial entities and exchange agencies and offices.

Among other modifications, the Communication states that, at the moment of the incorporation or the acquisition of an Argentine financial entity by a foreign financial entity, the latter should present before the Argentine Central Bank a certificate containing the following information:

(i)    business it conducts in the jurisdiction in which it has been authorized to carry out financial activities;
(ii)   that it has records of its operations in its domicile;
(iii)  subjection to the applicable financial authority inspections; and
(iv)   the employees it has in its domicile.

In relation to opening abroad subsidiaries of a local financial entity, such entity must provide not only information regarding the applicable banking regulations in the country where it intends to open the subsidiary, but also information regarding regulations adopted in money laundering and terrorist financing matters.

According to the Communication, Argentine financial entities that want to participate in foreign financial entities have to present a certificate issued by the authority of such foreign country stating that:

(i)    the institution in which the Argentine financial entity intends to be a shareholder is subject to internationally accepted principles, standards or regulations regarding money laundering and terrorist financing matters, such as those published by the Financial Action Task Force (FATF) or by the Basel Committee on Banking Supervision;
(ii)   it conducts business in the jurisdiction in which it has been authorized to carry out financial activities;
(iii)  it has records of its operations in its domicile;
(iv)   it is subject to inspections by the applicable authority in financial matters; and
(v)    it employs staff in its domicile.

Furthermore, the foreign financial entity must provide a sworn statement stating that it has not been subject to any criminal prosecutions or sanctions in money laundering and terrorist financing matters, and in the event it had been subject to them, it must provide details about such investigations.

The aim of the aforementioned new regulations is to allow the Argentine Central Bank to collect information in order to check if the foreign entity that participates in the Argentine financial institution, or in which the Argentine financial entity is a shareholder, is or not a “shell bank”.

The Argentine Central Bank does not provide a definition of “shell bank”, but the Basel Committee on Banking Supervision states that “shell banks are banks that do not have a physical presence in the country in which they are incorporated and authorized, and are not affiliated to any financial service group subject to any real supervision”.

Finally, the Communication in points 4 and 5 adds the obligation to report to the Argentine Central Bank’s Superintendency of Financial and Exchange Entities the capitalization of capital contributions when such capitalization alters the shareholders’ structure in the Argentine financial entity, as well as in case that the capitalization of capital contributions during a 6 month period represents 5% or more of the share capital or the voting power of the financial entity, and in any case that the capitalization incorporates a new shareholder to the financial entity. The Communication imposes similar regulations to Exchange Agencies.

In conclusion, according to the Communication, any foreign entity that intends to incorporate or acquire an Argentine financial entity and any Argentine financial entity that intends to participate in a foreign financial entity must provide more documentation than before the issuance of the Communication. Such new documentation will enable the Argentine Central Bank to conduct a deeper analysis, but will incur heavier costs on financial entities.