Notaries, Lawyers and Legitimizing of capitals

Thursday April 29 th 2010

After the events of September 11th of 2001 the way, business was done, has been changed. Our country, Costa Rica, has passed laws that regulate the fight against the financing of terrorism, organized crime and the processes that professionals carry out within the environment of their professions, especially Notaries, Lawyers and Real Estate Agents that administer third party funds in different ways.

These laws establish the registration and reporting of capitals that are being administrated, specially fund custody and trust funds. One of the big problems of the new law, is that it assigns supervisory functions to the SUGEF over the professionals who, in spite that they are not engaged in financial activities like the banks, pretend to regulate them and to force them to establish a similar structure the banks have. And precisely this is the big flaw in the regulation by following the indications in article 15 of the Law 8204.

The new law that fights against the financing of terrorism inserts a new concept for those who are not supervised by SUGEF, to report to the ICD (art.15), something logical because this entity is specializes in the matters that they are trying to regulate and has the capacity to carry out the required investigation.

Also, the law against organized crime comes to establish the concept of unjustified patrimonial increase, like in the case where a person cannot properly justify the providence of his or her patrimony.

Thus for example, bad professional habit by which Notaries carry out deeds by the value given by “the Registry” instead of the real value of the business. This creates a potential risk for their clients and themselves, by not having later on suitable documents that justifies where the money comes from, which in turn will lead to the possibility of losing everything that cannot be justified and the possibility of being years behind bars for trying to disguise or hide ones patrimony under investigation.

With the creation of those laws and regulations, they pretend to modify the system to obtain the identification of the physical person behind each entity, arriving at the point that legally prohibits the opening of bank accounts or the rendering of professional services to organizations whose capital is formed by bearer shares, for example, foreign companies with subsidiaries in Costa Rica whose capital is not nominative. This change is very grave because it modifies the commercial practices of companies in Costa Rica by means of an article that is included in a criminal, instead of a commercial, law.

The indicated changes do not solve the problem of identifying the final beneficiary (physical person), for that reason the law against organized crime looks to punish “front man” and those people whose patrimony increases without documentation and adequate back up, reason why professionals, especially Notaries and Lawyers, those persons who are in charge of advising their clients and preventing the possibility that in a possible investigation they cannot demonstrate the real value of the acquired good and how it was paid for, otherwise their bad judgment could cost their clients patrimony and freedom and then allow them to take legal action against the professional.