As part of the ongoing Russia sanctions measures, banks and financial institutions are increasingly subject to auditing and reporting obligations. Article 5r was recently added to Regulation (EU) No 833/2014. This means that on 15th July, EU banks will be required to submit a report to their regulators containing information on fund transfers made by Russian owned entities during the first six months of this year.
EU banks, including their foreign branches, are required to report any transfers of funds exceeding €100,000 cumulatively within any given quarter to countries outside the European Union where more than 40% of the ownership rights in the paying entity are held directly or indirectly by (a) legal persons, entities or bodies established in Russia or (b) Russian nationals or (c) a natural person residing in Russia. In addition, Article 5r(2) of Regulation (EU) No 833/2014 requires credit and financial institutions to report such transfers of funds if they are initiated on behalf of an institution held from within Russia.
We are curious to know how many EU banks are fully compliant with this requirement, which came into force on the 1st July, and will be able to submit the first semester report on time. One of the challenges of this requirement is the inclusion of "indirect transfers," which involve passing through multiple banks within the EU before reaching a destination outside the EU. This appears to suggest that banks may be obliged to identify Russian-owned clients at another bank, on whom the correspondent bank has not conducted their own KYC due diligence.
Timeline
December 2023: Article 5r was added to Regulation (EU) No 833/2014
12 April 2024: the European Commission published guidance on these latest reporting obligations, providing 16 FAQs and the reporting template
1 July 2024: the new regulation came into force
15 July 2024: the reports for the first half of 2024 are due
15 January 2025: reports from credit and financial institutions are due for the second half of 2024
FAQs - Points of Clarification
- Branches of EU institutions outside the European Union are also covered (Questions 4 and 5)
- Article 5r does not cover the subsidiaries of an EU credit or financial institution or an EU operator located outside the EU. (Question 5)
- Article 5r applies to EU entities owned by Russian citizens with dual citizenship, including EU citizenship, EU citizens residing in Russia and Russians permanently resident in the EU (Questions 9 and 13)
- The term “funds” as referenced in Article 5r of regulation (EU) No 833/2014 encompasses financial assets and benefits of any kind (Question 3)
- The reporting threshold of €100,000 does not apply to an individual transfer; rather, to the cumulative total of individual payments within the reporting period (Question 7)
- The 40% threshold is calculated on an aggregate basis. The reporting obligation applies if aggregate ownership by multiple Russian interests exceeds 40%. (Question 9)
- “Indirect” ownership status on the part of the relevant Russian groups of persons within the meaning of Article 5r of Regulation (EU) No 833/2014 means ultimate ownership status that is legally mediated by intermediary entities and legal persons (“intermediaries”). It does not mean de facto control for exerting influence (Question 10).
- Credit and financial institutions must initially identify the EU undertakings, entities or bodies concerned that are held from within Russia on the basis of know-your-customer information. If not all relevant information is available, the missing information must be gathered in the next regular customer screening (Question 12)
- Reporting institutions must report to the competent authority of the Member State where they are located within two weeks of the end of each semester (Question 8)
- “Indirect transfers” within the meaning of Article 5r(2) of Regulation (EU) No 833/2014. An indirect transfer of funds would go, for instance, from an entity established in the EU, through one or several intermediaries within the EU, and then to a recipient outside the EU (Question 6)
- The European Commission must review the functioning of the above reporting requirements based on information received from Member States no later than 20 December 2024.
Reporting Template - Key Items
The reporting template comprises the line items shown below. Key items of information relate to
- The bank that is filing the report
- The bank that is sending the payment, the beneficiary bank and transaction details
- The customer sending the payment, the ultimate creditor and transaction details.
Note: use of the template is not mandatory.
Basic Information
- Name of the reporting credit institution
- Legal Entitiy Identifier (LEI)
- Reporting period
Transaction Level Information - Banks
- Type of transfer: direct, indirect, suspected indirect transfer
- Transaction date
- Amount in local currency
- Value in other currency
- Currency
- Sender's name
- Incorporation number / business ID
- Sending bank account (IBAN) number
- Sending bank BIC
- Beneficiary account number
- Beneficiary's bank BIC
- Beneficiary's name
- Beneficiary type
- Beneficiary's address
- Beneficiary's country
- Transaction description
- Transaction number
- Legal Entity Information
- Name of the legal entity
- Legal Entity Identifier (LEI)
Transaction Level Information - Legal Entity
- Transaction date
- Amount in local currency
- Value in other currency
- Currency
- Sender's name
- Incorporation number / business ID
- Sending bank account (IBAN) number
- Sending bank BIC
- Beneficiary account number
- Beneficiary's bank BIC
- Beneficiary's name
- Beneficiary type
- Beneficiary's address
- Beneficiary's country
- Transaction description
- Transaction number
With access to ownership data for over 400 million companies and related UBOs, we provide comprehensive insights into the ownership hierarchy and enable you to effortlessly trace ownership up to the global ultimate owner (legal person) and Ultimate Beneficial Owner (natural person) through our BankCheck web interface. Additionally, you can access information on UBO nationalities, countries of residence, and registered addresses for companies.
Access bank verification information via our web portal, where you can view individual profiles as needed or deploy our Validation API to pre-validate entity reference data contained in outgoing messages before they are processed, or to check sender information for inbound 'indirect transfer' messages. Book an exploratory meeting with us now to ease the burden of this new regulation.
