AML/KYC Guide to Chile, an Attractive Fintech Destination in Latin America

According to Statista, the number of fintech startups established in Chile has more than doubled in recent years, reaching more than 4 fintech companies per one million inhabitants. This makes Chile’s fintech density the highest in Latin America.

At the same time, Chile has one of the lowest corruption levels in Latin America (second only to Uruguay), which makes it a comfortable place to do business.

Moreover, in late October 2022, Chilean authorities approved a new fintech and open-banking bill. It reduces entry barriers for technology businesses while creating an open finance system. The bill also recognizes the use of crypto assets backed up by fiat as a means of payment.

While competition is growing, the country remains a comfortable place for fintech companies to enter the market. However, they need to be aware of how to comply with local anti-money laundering regulations. This guide will help.

Who’s affected

The following obliged institutions (natural and legal persons) must comply with local AML laws:

• Financial institutions (e.g. banks) 
• Factoring companies
• Financial leasing companies
• Securitization companies
• General fund administrators and companies that manage private investment funds
• Foreign currency exchange offices and other entities that are authorized to receive foreign currency
• Issuers or operators of credit cards, payment cards, and equivalent services Companies that transfer and transport securities and money
• Stock exchanges and commodities exchanges, as well as any other exchange that in the future is subject to the supervision of the Superintendency of Securities and Insurance 
• Stock and securities brokers
• Insurance companies
• Mutual fund administrators
• Operators of futures and options markets
• Management companies and users of free zones
• Casinos, gambling halls and racetracks
• Holders of gambling operation permits aboard large merchant ships which also transport tourists
• Customs agents
• Auction and hammer houses
• Property brokers and real estate management companies
• Notaries
• Pension fund administrators
• Professional sports organizations governed by Law No. 20,019
• Savings and credit cooperatives
• Representatives of foreign banks
• Securities deposit companies governed by Law No. 18,876

It is worth mentioning that the new fintech and open-banking bill enables the Commission for the Financial Market (CMF) to oversee crypto platforms. According to the CMF, the Central Bank of Chile and CMF are working together on regulating digital assets that are used as a means of payment.

Who’s the regulator?

The key AML regulator in Chile is the Chilean Financial Intelligence Unit (Unidad de Análisis Financiero—“UAF”). 

The UAF has the authority to request and analyze any financial information that raises suspicion of money laundering and forward it to criminal prosecution authorities. The UAF can provide information directly to courts that are dealing with cases of ML, but does not exercise the powers inherent to the Public Prosecutor’s office or the courts. When the UAF Director considers there to be signs of crimes specified in Chilean AML legislation, they request the immediate transfer of relevant materials to the Prosecutor’s office. 

Among Chile’s other regulators are the Commission for the Financial Market (CMF) and the Central Bank of Chile.

The CMF is the main regulator of the banking industry and financial institutions. The CMF is responsible for supervision over the functioning, development and stability of the Chilean financial market. It also ensures that entities comply with relevant laws, rules, bylaws and other regulations.

The Central Bank of Chile oversees the flow of money and the operation of financial and capital markets. The Central Bank’s main mission is “to keep inflation under control and contribute to the stability of the financial system, thus playing a part in the country’s development and the progress of its inhabitants.”

What are the main regulations?

In 1995, money laundering became a crime in Chile under Law No. 19,366 (this law is no longer in force).

Today, Law No. 19,913, known as the Chilean Anti-Money Laundering Act is the country’s main AML regulation. It requires banks and other financial institutions to report the following to the Financial Analysis Unit (Unidad de Análisis Financiero, or UAF):

• Suspicious transactions
• Transactions exceeding USD 10,000 in value being transported in and out of the country
• Documents to be used to examine a previously reported suspicious transaction.

Law No. 20,393 was passed in 2009, and establishes penal responsibility for legal entities relating to the crimes of money laundering, terrorist financing, and bribery.

In February 2015, Law No 20.818 was passed, improving  the mechanisms for prevention, detection, control, investigation and prosecution of the crime of money laundering. In fact, this law just amends AML law 19,913—in particular, the investigation process.

There are also instructions given by regulators that are mandatory for institutions (non-exhaustive list): 

• Circular UAF N° 49/2012 (partially replaced with Circular UAF N° 59/2019)
• “Manual para la prevención del blanqueo de capitales” published by the “Asociación de Bancos e Instituciones Financieras de Chile A.G.”,
• Recomendaciones para la identificación y procedimientos relacionados con Personas Expuestas Políticamente (“PEP”)”,
• “Circular conjunta N° 50 de Unidad de Análisis Financiero y N° 57 de Superintendencia de Casinos de Juegos”.

How to stay compliant

Since Chile is a member of the FATF-style regional body—El Grupo de Acción Financiera de Latinoamérica, or GAFILAT—it has largely adopted the FATF’s risk-based approach. This means that financial and legal entities must understand, analyze and assess the risks of money laundering and terrorist financing (ML/TF) which relate to their company, and take proportionate to these risks.

It is mandatory for all affected institutions (see “Who’s affected”) to conduct proper due diligence measures for all new customers.

Customer Due Diligence

Customer Due Diligence, or CDD, requirements for individuals include provision of the following:

• Name
• ID number or passport number in the case of foreign citizens
• Citizenship
• profession or degree/ occupation
• Country of residence
• Address in Chile or in country of origin or permanent residence 
• Email or phone number
• Purpose of the legal or contractual relationship or occasional transaction

CDD requirements for legal entities include provision of:

• Name of the legal entity
• RUT or similar company number for foreign legal entities  and proof of its constitution, form and legal status, in accordance with the provisions of UAF Circular No. 57, of June 12, 2017
• Description of the entity’s economic activities
• Country of residence
• Address in Chile or in a country of origin or permanent residence
• Email/ Phone number
•  Purpose of the legal or contractual relationship, or of the occasional transaction 

CDD must be conducted by institutions in the following circumstances:

• Before or during the establishment of a permanent legal or contractual relationship between the respective customer and the institution.
• When a transaction amounts to or greater than USD 1,000 with a client with whom there is no permanent legal or contractual relationship, considering that the transaction is carried out in a single operation or in several operations that seem to be linked.
• When there are suspicions of ML/TF, regardless of the amount of transactions.

Enhanced Due Diligence

When it is determined that ML/TF risks are high in relation to a  client, product, or service or other circumstance, regulated entities must apply enhanced CDD measures.

In particular, Enhanced Due Diligence measures must be applied to:

• Politically Exposed Persons (PEPs)
• Electronic funds transfers in case the institution considers the customer/product/service the transfer is ‘high-risk’. 
• Individuals and members listed in “Comité de Sanciones ONU” (UN sanctions, and resolutions No 1.267 of 1999, No 1.333 of 2000 and No 1.390 of 2002) as well as the  countries and jurisdictions that are under the monitoring process of the International Financial Action Task Force (GAFI);
• Countries and jurisdictions that are in the list published by the Chilean Tax Service as well as countries and jurisdictions that are considered to have a preferential tax regime

Politically Exposed Persons (PEPs)

Institutions subject to comply with Chilean AML regulations must implement enhanced due diligence procedures for PEPs. The requirements are to obtain:

• information about the intended nature of the relationship
• information on the origin of the client’s funds.
• information on the origin of the client’s assets.
•  information about the purpose of the act, operation and/or transaction that is intended to be carried out or carried out.
•  approval from senior management to begin or continue the legal or contractual relationship.
• additional information from the client and update more frequently the information and identification documents of the client and final beneficiary. This greater frequency can be determined for each new act, operation and/or transaction carried out above an established monetary threshold.

Institutions must also:

• Intensify the customer’s Ongoing CDD.
• Establish risk management systems to determine if a prospective client, a client or a final beneficiary is a PEP
• Request and obtain senior management approval to establish a business relationship with a PEP
• Take measures to determine the clients’ source of funds, and final beneficiaries identified as politically exposed persons (PEPs), as well as the reason for the operations
• Implement measures and procedures of continuous due diligence regarding the relationship with the PEP.

Record keeping

Affected institutions must keep records of the above  for a minimum period of five years,and inform the Financial Analysis Unit, when required, of any cash operation greater than ten thousand dollars USD or the equivalent in Chilean pesos (according to the value of the US dollar observed on the day the operation was carried out).

Suspicious activity reports

According to Recopilación Actualizada de Normas de Bancos (RAN) Chapters 1—14, institutions must have appropriate software to develop warning systems that identify and detect suspicious transactions.

If, during CDD, a customer refuses to provide all or part of the required information or documentation, or submits something false, it should be considered as alert and sent to the UAF by means of a suspicious activity report (SAR).

Cash transactions of over USD 10,000 or its equivalent in Chilean pesos  must be also reported.

This UAF website should be used to submit SARs.

Penalties

Hiding or disguising the origin of illicit funds in Chile is punishable by 

• five years and one day to fifteen years in prison
• a fine of two hundred to one thousand monthly tax units

The fine for transporting cash or bearer negotiable instruments exceeding USD 10,000 without declaration is up to 30% of the currency in cash or the value of such undeclared currencies or instruments, with particular attention paid to the amount of undeclared securities.

The final penalty will depend on the amounts involved in the crime of money laundering, the size and nature of the entity, its economic capacity, the extent of the harm caused, and the seriousness of the consequences in case of public enterprises.

FAQ

• Is Chile a high-risk country for money laundering?

  Chile is not on the FATF list of countries with strategic AML deficiencies. Chile also has one of the lowest corruption levels in Latin America (second only to Uruguay).

• Is Chile a FATF country?

  Yes. Chile is a member of the FATF-style regional body—GAFILAT— an associate FATF-member that includes countries throughout the Americas and adheres to FATF standards.