The Inopportuneness (and Unconstitutionality?) of Decree 891/2024 and Its Negative Impact on Argentina's Money Laundering Prevention System.

By

Miguel Cassagne

(Head of CASSAGNE Consulting)

October 18, 2024

Introduction

The recent Decree 891/2024, published in the Official Bulletin on Thursday, October 10, 2024 (and effective immediately from its publication), aims to eliminate key sectors of the anti-money laundering and counter-terrorism financing (AML/CFT) prevention system in Argentina, has sparked a profound legal and economic debate.

This measure, adopted without the due parliamentary process and, moreover, despite the extensive parliamentary debate that recently occurred in Congress months ago prior to the enactment of Law 27.739, has been criticized for its lack of technical justification and for weakening a regulatory framework that has historically sought to align with international standards.

The exclusion of the automotive and customs sectors from the list of obligated entities to report to the Financial Information Unit (FIU) under Law No. 25.246 is particularly problematic, as it contradicts the very risk reports of the FATF and internal analyses that identify these sectors as highly vulnerable to money laundering or the commission of predicate offenses for money laundering in our country.

This article aims to analyze the measure from a critical and legal perspective, confronting it with constitutional principles, especially the principle of legality, and assessing its impact on the anti-money laundering system in Argentina.

Additionally, the exclusion of other vulnerable sectors such as customs brokers will be addressed, along with the importance of respecting the legislative process to prevent the manipulation of the system by a specific government.

I. Background and Context of Decree 891/2024

Decree 891/2024 marks a significant change in the supervision and prevention policy of money laundering in Argentina. Until its enactment, the automotive and customs sectors had been considered highly linked to money laundering operations and predicate offenses due to the ease with which large sums of money could be laundered through the purchase and sale of luxury vehicles and because nearly 10% of all predicate offenses in our country are associated with smuggling.

In this context, previous regulations had included car dealerships and customs brokers as obligated entities to report to the FIU and to establish rigorous internal controls for money laundering prevention, due diligence processes for their clients, operation monitoring, and reporting.

The government has justified the promulgation of this decree in terms of simplifying business obligations and on the alleged non-existence of these categories of obligated entities in the 40 Recommendations of the FATF, but it has raised concerns among experts who see this measure as a weakening of the prevention system.

The exclusion of sectors such as automotive and customs brokers from the list of obligated entities raises questions about the motivations and the negative impact of this decision.

II. Our Position and Recommendations Pre-Decree

Before the promulgation of Decree 891/2024, we published an analysis highlighting the need to strengthen controls in the automotive sector. In that publication, we argued that automobile dealerships, especially high-end ones, were frequently used as vehicles for money laundering. Therefore, we proposed reinforcing control mechanisms and applying better international practices, such as those recommended by the FATF.

This analysis aligned with the warnings from GAFILAT (FATF Latin America) and the latest Argentine National Risk Assessment (NRA) of Money Laundering (approved in 2022), which identified the automotive sector as one of the three most utilized sectors for money laundering, and smuggling?facilitated by customs brokers?as one of the most common predicate offenses, accounting for nearly 10% of all predicate offenses related to money laundering in the analyzed cases. In this sense, far from being excluded from the system, data and reports from specialized agencies and experts agree that these sectors must remain under strict supervision and within our country's AML/CTF system.

III. Critical Analysis of Decree 891/2024

Decree 891/2024, by removing the obligation to report suspicious operations and to implement compliance programs in key sectors such as automotive and customs brokers, reflects a troubling trend toward deregulation in sensitive areas of the economy. This exclusion not only contradicts international recommendations, such as those from the FATF Latin America (GAFILAT), but also creates a regulatory void that undermines the FIU's ability to monitor suspicious activities in these areas.

It is important to remember that both vehicle dealers and customs brokers have been identified as high-risk actors concerning money laundering operations. The removal of these sectors from the list of obligated entities implies a significant weakening of the prevention system, just before a key FATF assessment.

IV. Unconstitutionality Aspects of Decree 891/2024

One of the most serious problems with Decree 891/2024 is its weakness against any claim of unconstitutionality. By substantially modifying Law No. 25.246 through a decree, it could be considered that the Executive Power is violating the principle of ?legal reserve?, established in the National Constitution. The determination of which sectors should be obligated entities requires a formal law, debated and sanctioned by Congress, not an administrative decree.

Furthermore, the ?principle of legality?, as proposed by specialized doctrine (such as Dr. Tomás Mendy -current head of the Anti-Money Laundering Management of the National Insurance Superintendence-, in his work published in December 2021 in the Administrative Law Review RDA No. 138, titled: ?Scope of the principle of legality in the police regime of the Financial Intelligence Unit. Current perspective and pending challenges?), establishes that decisions that restrict rights and freedoms, such as the obligation to report to the FIU, must be based on a formal law, not an executive act.

In this sense, the exclusion of vulnerable sectors by decree constitutes a violation of Article 99, subsection 3 of the National Constitution, which prohibits the issuance of decrees in penal matters, tax matters, or that affect fundamental rights.

Additionally, as Dr. Mendy himself indicates in the cited work, ?Law 25.246 does not authorize the Executive (nor the FIU) to modify or expand the list of obligated Entities, so to advance in that direction, Congress must necessarily intervene,? recalling that one of the derivatives of the ?principle of legality? is that the Administration is positively bound by law, which is why it needs a legal norm to act.

The mentioned author adds to his work the fact that he coincides ?with the position that celebrates this solution as a good technique for limiting power in safeguarding individual liberties, especially considering the intensive exercise of administrative police that the UIF exerts over each regulated sector, both in its regulatory and sanctioning aspects, once the recipients of that regulation are defined by law.

V. Implications and Future Risks

The weakening of the anti-money laundering prevention system in key sectors such as automotive and customs brokers has serious implications. Argentina is on the verge of the Final Report of the 4th Round of Mutual Evaluations conducted by the FATF in the country, and this regulatory setback could negatively impact efforts to avoid being placed on the FATF's gray list, which would bring financial sanctions and difficulties in accessing international markets.

Moreover, the lack of controls in vulnerable sectors such as these increases the risk that criminal organizations will exploit the lack of supervision to launder illicit assets. This would not only affect the country?s financial security but also its reputation in the international community.

VI. The Principle of Legality and Its Implication

s in the Framework of Anti-Money Laundering Prevention

The principle of legality is a fundamental pillar in the functioning of any normative system, and even more so in the context of anti-money laundering and counter-terrorism financing.

As mentioned by the cited Dr. Mendy, in the aforementioned presentation, ?the concentration of powers in the Financial Intelligence Unit (FIU) requires guaranteeing certain constitutional limits, one of the most important being the principle of legality.?

In this sense, this principle guarantees that state actions are previously established by law, providing predictability and legal certainty. In the case of Decree 891/2024, the exclusion of the automotive sector and customs brokers by decree, without prior parliamentary debate, and even more so, ignoring a wide-ranging parliamentary debate that recently took place (months ago) is a clear violation of this principle, generating legal insecurity and weakening the prevention system.

VII. Inclusion or Exclusion of Economic Sectors as Obligated Subjects: A Critical Debate of the Prevention System

Determining which sectors should be included as obligated subjects in the AML/CFT system is one of the most critical points of the system.

The exclusion or inclusion of a sector not only affects the state?s ability to supervise but also determines whether a sector is exposed to money laundering operations.

Since the enactment of Law No. 25.246 in 2000, the list of obligated entities has always been established by law, never by decree.

In the recent reform of Law No. 25.246 through Law No. 27.739, there was detailed discussion on which sectors of the economy should be included as obligated entities, and it was decided, after extensive parliamentary debate, to maintain sectors such as automotive and customs brokers on the list, to include other sectors (VASP, lawyers, non-financial credit providers, etc.), and to exclude others (NPOs). Decree 891/2024 strikingly ignores this rich and profound debate and eliminates, without arguments, sectors that have been expressly identified by the latest National Risk Assessment of Money Laundering in Argentina (NRA) and GAFILAT as highly vulnerable.

VIII. The Need for Parliamentary and Technical Debate: A Prevention System That Should Not Be Manipulated by the Executive.

Modifying the list of obligated entities without parliamentary debate and without technical justification is not only unconstitutional but also jeopardizes the stability and credibility of the prevention system. It would only take a government in power to repeal a single article of a law (Article 20 of Law 25,246) to render the prevention system devoid of content.

Decree 891/2024 sets a dangerous precedent, allowing the Executive Power, especially considering the historical context and political idiosyncrasies of Argentina, to manipulate the prevention system at will according to its political and sectoral interests without the participation of Congress.

It is clear that from its conception and genesis, and following the international guidelines dictated by FATF in the matter, the aim is for a country?s money laundering prevention system (in this case, Argentina?s) to be considered a ?state policy? that transcends governments, ideological or partisan interests, and maintains its structure and technical foundations firmly. The decision to exclude key sectors such as automotive and customs brokers jeopardizes the country?s reputation on the eve of a crucial international evaluation.

IX. Critical Conclusion.

Decree 891/2024 has generated a significant setback in the fight against money laundering and terrorist financing in Argentina. The exclusion of the automotive sector and customs brokers as obligated subjects to report suspicious operations to the Financial Intelligence Unit (UIF) under Decree 891/2024 represents a serious regression in the money laundering and terrorist financing prevention system in the country.

This measure ignores not only the extensive parliamentary debate that took place during the enactment of Law No. 27,739 but also the technical reports issued by international organizations, such as GAFILAT, and national bodies, such as the National Risk Assessment (NRA).

Specifically, the mentioned regional organization, in its GAFILAT Regional Typologies Report from December 2021, states that "the banking sector was the most exploited by criminal organizations, followed by notaries, the automotive sector, and the real estate sector." At the same time, the report of the latest NRA from 2022 indicates that among the causes of money laundering, 42% are tax crimes, 29% are drug-related crimes, 10% are property crimes, and 9% come from customs offenses.

The debate on which sectors of the economy should be considered obligated entities is one of the most crucial decisions within the design of any money laundering prevention system.

This debate cannot, under any circumstances, be resolved by simply issuing executive decrees, as modifying the list of obligated entities requires an in-depth analysis that includes a study of risks and vulnerabilities. This process must necessarily go through the National Congress, as it is the forum where technical reports, statistical data, and expert opinions on the matter are gathered, ensuring that the decision is based on the best available evidence. Only through this procedure can transparency, credibility, and predictability of the entire prevention system be guaranteed.

By altering the list of obligated entities without the due legislative process, and even more so disregarding the extensive debate that actually took place in Congress prior to the enactment of Law No. 27,739 (where it was decided, for obvious reasons, to keep customs brokers and car dealerships within the obligated entities required to report to the FIU), Decree 891/2024 violates not only the fundamental principles of legal certainty but also the principle of legality, which requires that any measure restricting or affecting individual rights must be established by a formal law enacted by Congress. This principle acts as a barrier against possible arbitrary decisions by the Executive Power, and its violation endangers the stability of the money laundering prevention system in Argentina.

Furthermore, when modifications are made without adequate technical justification, the prevention system risks losing its ability to anticipate and respond effectively to the dynamics of money laundering, severely affecting its operational effectiveness.

The inclusion or exclusion of vulnerable sectors within the system, such as the automotive sector and customs brokers, is of utmost importance, as it directly impacts the state?s capacity to monitor, detect, and prevent illegal operations.

The buying and selling of cars, as pointed out in various reports, is one of the mechanisms most frequently used by criminals to launder illicit assets (the second most important after the financial sector and notaries, according to GAFILAT).

Similarly, customs brokers play a key role in international trade and are a critical point in the fight against smuggling, one of the most common predicate offenses of money laundering in Argentina (which represents, according to the latest National Risk Assessment on Money Laundering in Argentina from 2022, almost 10% of the total predicate offenses of the money laundering cases analyzed).

By excluding these sectors, Decree 891/2024 literally ?turns off the security cameras? of the system, facilitating the operations of criminal groups that, without the pressure of rigorous controls, will be able to use these sectors with greater freedom to launder money.

This situation is particularly alarming because it opens the door to potential pressures from lobbies and other actors who may seek to modify the regulations to serve particular interests, far removed from the legitimate purposes of the money laundering prevention system.

In fact, by establishing a precedent that the list of obligated entities can be modified via decree, the system becomes destabilized, exposing it to decisions driven by political or economic convenience at the moment, rather than being based on technical criteria and best international practices.

Given this concerning reality, it is crucial that the argentine FIU, in its capacity as an autonomous and self-governing agency, acts to defend the stability and credibility of the money laundering prevention system in Argentina that it oversees. This is why it was created. The FIU  has the capacity and responsibility to act in situations like these.

One possibility would be to raise the very unconstitutionality of the decree, with the aim of restoring the legality and credibility of the system. By presenting such a resource, the argentine FIU would not only protect the structure of the prevention system but also send a clear message that the system must be shielded from political manipulation and guarantee its continuity and effectiveness, regardless of the government in power.

Furthermore, it would demonstrate to FATF that in Argentina, the FIU has the autonomy demanded by its Recommendations, and that this "autonomy sought by FATF" fulfills its intended purpose in Argentina, which is to preserve and make stable and robust its prevention system, freeing it from any external influence.

It is important to remember that Argentina is just days away from receiving a critical FATF evaluation results, that could significantly affect the country's position on the international stage. Any perception of weakening of the prevention system, especially in key areas like the automotive sector and customs brokers, could have serious consequences for the Argentine economy, including possible sanctions and international financial restrictions.

In this context, it is essential that decisions regarding the money laundering prevention system are made with seriousness, technical rigor, and a clear commitment to stability, reliability, and effectiveness of the system.

Finally, the money laundering and terrorist financing prevention system must be established as a true, strong, and solid ?state policy? free from interference or arbitrary changes, and always governed by technical criteria that protect the financial security of the country.

A solid and stable system cannot be manipulated through executive decrees but must be governed by technical criteria and well-founded legislative decisions, which (as occurred months ago with the enactment of Law No. 27,739) MUST BE COMPLIED WITH by all levels of government (even the executive power) and citizens, a circumstance that does not appear to have been taken into account in this case.

Decree 891/2024 undermines the credibility of the Argentine system and compromises its ability to meet international standards, so it must be urgently reviewed to prevent the country from facing greater risks in the near future.

MIGUEL CASSAGNE 

(Head of CASSAGNE Consultores)