Finland has enacted laws and regulations against money laundering. The Finnish Act on Preventing and Clearing Money Laundering and Terrorist Financing ("Act") is based on the EC's Third Money Laundering Directive (2005/60/EC) and international standards. It entered into force on 1 August 2008 and replaced the previous Finnish act on preventing and clearing money laundering. The purpose of the Act is to prevent money laundering and terrorist financing, to promote their detection and investigation and to reinforce the tracing and recovery of the proceeds of crime.
The Act applies to many professionals and entities, such as banks and credit institutions, investment firms, management companies, tax advisors, real estate businesses and apartment rental agencies and even attorneys. Several of these professionals and entities are regularly involved in various types of real estate transactions. In the following, they are referred to as parties subject to reporting obligation ("Parties").
In short, the Parties shall know their customers and their business and report suspicious business transactions. The Parties shall perform a due diligence check in order to identify their customers, including their beneficial owners, and verify their identity. This does not apply, however, when the customer is a publicly traded company. The Parties shall also obtain information on and continually monitor their customers' transactions, the nature and extent of their customers' business and the grounds for the use of the services in question.
The Parties shall pay particular attention to those transactions which are unusual in respect of their structure, extent or size. The same applies if the transaction has no apparent economic purpose or is inconsistent with the Party's experience or knowledge of its customer. In such unusual and suspicious cases, the Party's duties go even further; the Party shall then – and only then – also take measures in order to establish the source of the funds that are involved in the transaction. After the customer due diligence obligation has been fulfilled, the Party shall immediately report a suspicious transaction or suspicion of terrorist financing to the Financial Intelligence Unit ("FIU") The FIU operates in connection with the Finnish National Bureau of Investigation.
When the customer is connected with a state whose system of preventing and clearing money laundering and terrorist financing does not meet international standards, the Party has an enhanced reporting obligation if the customer does not give the requested information or gives unreliable or insufficient information. The same applies if the legal person, the beneficial owner or the person on whose behalf the customer is acting cannot be identified or established reliably.
It is important to note that a Party's customer due diligence obligation may also be fulfilled by another Party such as a bank which performs the payment that is involved in the transaction. The Party shall ensure that it receives from the bank all the relevant data which pertains to the customer due diligence check that was performed by the bank. However, the due diligence checks performed by third parties do not relieve a Party from its duty to conduct ongoing monitoring of the business activities of its customer. Nor do they exempt a Party from its statutory liability which follows by virtue of the Act.
The obligation of a Party to identify the customer and to know the customer's business only applies to the customer. It does not apply to the customer's contracting party. It follows that even if, for example, the buyer of a piece of real estate has a connection to a foreign state whose system of preventing money laundering is commonly deemed inadequate, the Party who only assists the seller does not have to identify the buyer or its beneficial owners or investigate details which pertain to the buyer's business and the buyer's motives for the transaction. It should be borne in mind, however, that the Party shall nonetheless attempt to establish the source of the funds that are involved in the transaction if this is deemed necessary due to the unusual or suspicious aspects involving the transaction.
A convenient way for a Party assisting the seller to ensure that the source of the buyer's funds is properly investigated is to insist that the draft transaction agreement include a clause whereby the buyer effects the agreed payment to the seller from a bank account that has been opened in a Finnish bank. The Party who assists the seller can thus be relatively sure that the source of the buyer's funds will be sufficiently investigated by the bank before the transaction is completed and, if necessary, appropriate reports are filed.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
