Prevention of money laundering and terrorist financing

About the notarial act

Money laundering refers to the conversion, transfer, acquisition, possession or use of assets derived from criminal activity. This is not usually confined to a single country: money laundering may also occur where the assets were obtained through a criminal offence committed in another country.

The purpose of money laundering is to conceal the source of illegally obtained proceeds and to give the impression that the money is legitimate. For this reason, money laundering is always preceded by a criminal offence from which the proceeds were derived, such as a drug offence, corruption, fraud or a tax offence. Knowingly aiding and abetting money laundering also constitutes a criminal offence.

The financing and support of terrorism comprises any activity from which a terrorist organisation, a terrorist or their associates derive income or other support. This may be a criminal offence, but it may also be an act which, while not unlawful in itself, supports terrorist activities. For example, this includes covering the day-to-day expenses of the relatives of a member of a terrorist organisation or buying them food and medicine.

What does a notary check?

A notary must apply the requirements for the prevention of money laundering and terrorist financing, especially in the case of the following notarial acts:

• authentication of transactions concerning the sale of property or shares;
• authentication of foundation transactions;
• depositing of cash or securities;
• authentication of any other transaction where there is a suspicion of money laundering or terrorist financing.

This means that the notary collects information about the client, the purpose of the transaction and the source of the funds in order to understand the client’s activities. This allows the notary to assess whether the circumstances of the transaction may indicate money laundering, the financing of terrorism, the need to apply international sanctions, or any other unusual activity.

How does a notary collect information?

To gather information, a notary generally uses a questionnaire to make it easier for the client to provide the necessary data. A notary may also collect information by other means, such as by email.

The notary checks the information received from the client against various Estonian national registers. A notary checks the relevant database for international sanctions. In the case of information which cannot be verified through register queries or other sources, but the accuracy of which the notary must verify, the client is asked to provide the relevant documents.

The notary assesses the collected data and documents as a whole in order to determine whether the parties’ activities, capabilities and needs are consistent with the nature of the contract.

Under the Money Laundering and Terrorist Financing Prevention Act, a notary may postpone the execution of a transaction until the necessary documents requested have been submitted, including documents proving the source of the funds.

If the documents or information are not provided, the notary has the right to refuse to execute the transaction.

How does a notary identify the beneficial owner and verify the source of the funds?

The notary requests the data concerning the beneficial owner and the source of the funds from the parties to the transaction and uses a reliable and independent source to verify them.

A notary determines the beneficial owner of a natural person on the basis of the information provided by the person themselves. In the case of a legal person registered in Estonia, the notary requests the relevant data from the client and checks the register to verify them. In the case of a company registered in a foreign country, the notary verifies the data provided by the client in the relevant country’s register or on the basis of a document that is no more than three months old at the time the transaction is authenticated. If necessary, the notary may request further information regarding the beneficial owner.

In order to verify the source of the funds used in the transaction, the notary may ask for a bank statement to be provided. This helps the notary fulfil their statutory obligation to verify and ensure the accuracy of the information provided by the parties to the transaction. If you submit a bank statement or statements to a notary as documentary evidence, it is advisable to ensure that the statement has been digitally certified by the bank in order to guarantee its authenticity. This confirms the authenticity of the statement.

The notary may also request any additional contracts, other agreements or confirmations relating to the transaction.