Legal Alert/ Analysis of Financial Unit standards in the field of auditing Does the Constitutional Court have the last word?

Monday February 1st, 2021

Concerning the recent ruling of the Constitutional Court (case Rol N° 8823-20INA), which declared inapplicable some provisions of the Health Code, in the context of a judicial process in which the sanction applied by the Ministerial Secretary of Health of the Lakes Region was challenged, the new jurisprudential precedent regarding the basic principles that any law must include when regulating the sanctioning power of a supervisory body is very striking.

This ruling by the Constitutional Court necessarily leads us to reflect on certain powers granted to the Financial Analysis Unit (UAF), and on how it exercises its sanctioning powers in reality. Let us remember that the objective of the UAF is to prevent and impede the use of the financial system, and other sectors of Chilean economic activity, for the commission of money laundering and terrorist financing crimes.

It is surprising that the UAF, in comparison with similar institutions, has, in a few years, accumulated such a high number of sanctions for breaches of a merely formal nature, such as: the keeping of certain records, accuracy of manuals and spreadsheets, among others, which to an impartial observer seem far removed not only from the criteria of relative importance of the conduct it sanctions, but also from the main objective for which it was created, namely to serve as a central body to develop financial intelligence for the detection of money laundering and terrorist financing operations. Let us remember that institutions should not be measured by the quantity of sanctions, but by their contribution, in this case, to the prevention of money laundering (quality over quantity).

We have witnessed the grounds for countless fines to financial institutions, ranging from failure to timely inform the name of the new general manager (which is not the same as the compliance officer), failure to conduct training, to errors in the drafting of manuals or “incomplete compliance” with certain obligations (and in this case I am not referring to the failure to send suspicious transaction reports). Here we see that these are not offences associated with the failure to detect anomalous and concrete facts of unusual transactions, on which there could be presumptions of money laundering or terrorist financing activities, but rather possible formal and immaterial errors or omissions of administrative obligations that often have nothing to do with the ability of the sanctioned party to detect suspicious transactions.

This sanctioning criterion of the UAF, which in our opinion is far removed from the aims and objectives of the anti-money laundering system in Chile, is strongly contrasted with the severity with which the Constitutional Court has examined whether certain legal, procedural or sanctioning rules comply with the basic constitutional precepts for a rational and fair procedure in terms of the proportionality of the sanction or in respect of infractions that are not described in the catalogue of breaches of the law regulating the matter.

Finally, we should not overlook the fact that the negative externalities caused by a sanction for omissions in the drafting of a manual, and applied by the body responsible for the prevention of money laundering, can be exponentially devastating for national financial institutions seeking to provide financial services beyond their borders. The UAF should focus its enforcement efforts on the “substance” and not just the “form”.

For more information, please contact Carlos Frías o Rebeca Zamora