KYC or Know Your Client is the mantra repeated by many institutions these days, whether is it from banks, or financial authorities the mantra KYC is repeated.
Following the trend of explaining some of the difficulties of Romanian corporate and commercial law I thought that I would examine how KYC has impacted on Romanian business over the last few years.
Previously opening a bank account in Romania was relatively easy both for corporate and individual customers. For individual customers’ resident in Romania, it is still relatively easy compared with some other countries. Although confirmation of income can still be requested and an explanation given, it is true that it is not as detailed or as thorough as it is in for example the United Kingdom.
For companies things have become more difficult although the problems can be overcome. Banks now look more closely at corporate shareholders of companies. This is even true if the foreign corporate shareholder is a publicly quoted company on a recognised international exchange. The Romanian banks can have problems in accepting the share capital but from our experience they will accept the capital funds as this will enter a “blocked” account.
The problems arise when the company want to open an operational account and to use the capital. We recently have encountered issues opening accounts for companies where the ultimate owner was an internationally quoted company and a family or charitable trust. As the concept of discretionary trusts, as most charitable trusts are, is not a feature in Romanian jurisprudence this has raised questions as to who the owners of the trust are and did the trustees put the money into the trust. As the concept of an Anglo-Saxon trust is not widely known there is no “box” to tick on the report form and therefore more explanations must be given. Usually when everything is explained the bank finally will allow the bank account to be opened.
As lawyers in Romania, we have always followed the EU Money laundering directive and our professional bodies recommendation for knowing your client. We have not therefore to date had to refuse a client who could not/would not supply the relevant details of who they are and what they are doing. So, if you are a client who is considering setting up a business in Romania then these points concerning disclosure need to be considered.
We have written before about the different ways business is approached in a civil law country and as to how it is approached in a common-law country. When recently discussing this, it became apparent to me that in Romania because of the different legal systems and jurisprudence the question of open corporate governance often is interpreted differently.
The whole question of governance in a Romanian company is based on the power of the general assembly which is all the shareholders. Because there is little perceived difference between the shareholders meeting and the shareholders as individuals then challenges will arise. If your legal system provides that you the shareholders have the power, then it is easy to make the jump that the shareholders meeting is not needed and that the only real person or body which has authority is the shareholder.
Whilst this presents no problem when all the shares are owned by one person or family this should not create a problem. However, problems will arise, and we have seen this, when for example a foreign investor takes a minority stake in a Romanian company. The Romanian shareholder who was used to making all decisions on his own will continue to do so even if the law provides otherwise and requires shareholder’s meetings. There is a real risk that the Romanian shareholder will still treat it as a company in which he owns 100% his company even if the truth is otherwise.
This type of problem can be overcome by ensuring that according to the statutes the decisions are made jointly by the foreign investor and the Romanian shareholder and that all bank accounts etc. are operated on joint signatures. This may seem a cumbersome way to deal with the problem but unless safeguards are built in then there is a real possibility of trouble in the future. If the Romanian shareholder does not want this type of control imposed upon him then further questions need to be asked as to what will happen in the future and should the investment proceed.
Having seen this happen on several occasions we can only advise as to what steps can be taken under Romanian law to safeguard the foreign investor.
These points are only challenges in doing business in Romania but with the correct advice and explanations then investments can be made in what are potentially profitable businesses.
