CHRONICLE OF MONETARY POLICY
APRIL, MAY AND JUNE 1996

Contents


May 3

Decree of the President of Eesti Pank (the Bank of Estonia)

On Diligence and Procedural Requirements to Credit Institutions in the Implementation of the Stipulations of Chapter 7 of the Law on Credit Institutions

In order to prevent the usage of the banking system for the purpose of money laundering and on the basis of Chapter 7 and Article 99, Clause 6 of the Law on Credit Institutions, the Instructions on Diligence and Procedural Requirements to Credit Institutions in the Implementation of the Stipulations of Chapter 7 of the Law on Credit Institutions were adopted and confirmed by the decree. Credit institutions were to follow the instructions when organising their internal work.

INSTRUCTIONS

On Diligence and Procedural Requirements to Credit Institutions in the Implementation of the Stipulations of Chapter 7 of the Law on Credit Institutions

1. General

The aim of the present instructions (hereinafter the instructions) is the formation of unified diligence requirements and procedures in order to protect a credit institution from financial abuse and to prevent the usage of the banking system for the purpose of money laundering.

The methodical basis for the instructions are the principles of the UNO Convention against illicit traffic in narcotic drugs and psychotropic substances (Vienna, December 1988), the Council of Europe Convention on laundering, tracing, seizure and confiscation of proceeds from crime (Strasbourg, 1988), the Council of Europe Directive on prevention of the use of the financial system for the purpose of money laundering (91/308 EEC of June 10, 1991) and of the international Financial Action Task Force for hindering money laundering. The latter is an international body founded by the member states of the Organisation for Economic Cooperation and Development in 1989, the aim of which is to hinder the abuse of financial systems.

The legal basis for the instructions are the stipulations of Chapter 7 "Prevention of Money Laundering" of the Law on Credit Institutions and Article 1488 of the Criminal Code.

The instructions are subject to implementation in all credit institutions and in the financial institutions belonging to the consolidation group of credit institutions.

The instructions are subject to amendments and supplements in accordance with the new legal acts on the hindrance of financial abuse taking effect.

2. Definitions

Money laundering - for the purpose of these instructions means the deposit, transfer or investment of money into legal business, knowing that such money is derived from criminal activity or from an act of promotion of such activity by using the credit or financial system for the purpose of concealing the illicit origin of the money.

Identification - verification and determination in writing of the personal data of a customer, a person who carries out a transaction or a person submitting documents for a transaction in a way stipulated in Clause 5, Article 55 of the Law on Credit Institutions.

3. Identification of Customers

Clause 2, Article 54 of the Law on Credit Institutions obligates all credit institutions to take all possible measures in order to prevent the usage of the banking system for the purpose of legalising money obtained by way of criminal activity. This stipulation establishes a general diligence requirement to credit institutions when organising their activities.

For this purpose, Clause 1, Article 55 of the Law on Credit Institutions prohibits all transactions with anonymous persons or front operators. Due to this, it is the obligation of a credit institution to identify all its customers, both legal entities and private persons, when entering into contractual relations with them for the first time. If authentic identification of the customer or the person in whose name the customer is acting is not possible, the credit institution has the right to refuse to carry out the transaction. It is the obligation of a credit institution to verify whether the customer has submitted his/her authentic personal data.

3.1. Legal Entities

When identifying legal entities, their code in the state register, date of entry into the register, name of the register and its location have to be determined and recorded. At the same time, the main field or fields of activity are determined. That enable to give an approximate evaluation to the feasibility of banking operations carried out by the customer.

3.2. Private Persons

Private persons are identified on the basis of an officially valid identification documents. This applies also in case the customer is personally known to the bank officer. The document used in the identification has to enable the verification of the data stipulated in Clause 5, Article 55 of the Law on Credit Institutions. The results of the identification shall be recorded in writing.

3.3. Persons Carrying Out Transactions on Behalf of a Customer

In addition to the identification of all customers who enter into contractual relations with the bank, all persons who carry out transactions which exceed ECU 15,000 or cash transactions exceeding ECU 7,500 on behalf of a customer are to be identified each time in accordance with the requirements of Clause 2, Article 55 of the Law on Credit Institutions. Such transactions are, for example, intermediation of payments, an operation related to securities, foreign currency exchange, off-balance sheet credit intermediation, etc.

If a transaction is carried out by a person who has been identified earlier in accordance with the requirements stipulated in Clauses 1 or 2, Article 55 of the Law on Credit Institutions, the identification documents are not necessary. The name of the person who carries out the transaction is recorded without the identification document, the name of the credit institution's employee by whom the identification was first done and the date of the first identification are recorded.

It is necessary that the identification of private persons is done in the presence of the person being identified in order to compare the looks of the person with the photo in the identification document used.

As a rule, credit institutions have to identify all persons who carry out the transactions mentioned in Clause 2, Article 55 of the Law on Credit Institutions on behalf of a customer or who submit the necessary documents signed by the customer to the credit institution. It is the obligation of credit institutions to record the results of the identification in writing, regardless of the position of the person who carries out transactions on behalf of the customer (including drivers, couriers, etc.).

3.4. Identification Through Another Credit Institution

As an exception, identification of a customer is allowed through a correspondent bank. In that case the credit institution signs a contract with the customer through the intermediation of a correspondent bank. The contract should state the customer's name, date of birth (in case of legal entities their state register code) and the number of the account with the correspondent bank.

By the receipt of the contract signed by the customer, it is the obligation of a credit institution to verify the authenticity of the personal data and the number of the correspondent account stated in the contract through the correspondent bank. A credit institution is allowed to make transfers from the accounts of customers identified through another credit institution only to the correspondent accounts stated in the contract and previously verified.

In that case, in accordance with Clauses 1 or 2, Article 55 of the Law on Credit Institution, a credit institution with whom the correspondent account of the customer is held, is responsible for the identification of the customer.

4. Suspicious Transactions

In accordance with Clause 3, Article 55 of the Law on Credit Institutions, the parties who carry out smaller transactions are also subject to identification if the transactions to be carried out are evidently connected with each other and the sum of the transactions exceeds the sum stated in Clause 3.3. of the present instructions or if a credit institution suspects that the transaction is connected with money laundering. A credit institution has to know its customers, the quality and scope of their business. A credit institution, relying on that knowledge, evaluates whether the authorization or the transaction is or is not usual. Thus, suspicious may be regarded the transactions which by their volume or nature are not in harmony with the business activity of the customer or which feasibility is dubious. Suspicious should also be regarded depositing of money only for the purpose of immediately transferring it to another credit institution or abroad.

Caution must be shown in respect of the extraordinary favourable credit opportunities offered from abroad, especially if accompanied by the obligation to deposit a greater part of it with a bank and give it as a collateral to the creditor.

It is the obligation of a credit institution to evaluate the quality and aim of a business transaction of a customer, relying on its experience.

5. Foreign Settlements

Electronic foreign settlements systems offer favourable opportunities for the displacement and concealment of money of criminal origin. Therefore, the request of the SWIFT (Society for Worldwide Interbank Financial Telecommunications) of July 30, 1992 has to be met. It has to be observed that fields 50 and 59 of MT 100 be completed and that they include both the name, address and if possible number of the account of the payer and the payee. The above principles have to be followed in other settlement systems too.

6. Preservation and Usage of Documents

Article 56 of the Law on Credit Institutions stipulates that data fixed as a result of the identification and documents that serve as the basis for the transactions stated in Clauses 2 and 3, Article 55 of the same law are to be preserved for seven years after the transaction date. The procedure and way of preservation are established at the discretion of the credit institution, but at the same time it has to be guaranteed that the information be obtainable on first demand in the course of the whole preservation period.

The information is revealed to courts of law and investigation establishments in the way stipulated in Clauses 1 and 2, Article 46 of the Law on Credit Institutions. The information has to be accessible to the employees of the Banking Supervision Department of Eesti Pank and of the internal audit unit of a credit institution.

7. Internal Working Procedure of a Credit Institution

The management of a credit institution is responsible for meeting the diligence and procedural requirements of credit institutions. For organising the internal work so that the requirements are met, the management of a credit institution appoints a qualified person, the tasks of whom are the guidance and coordination of that work within the entire credit institution.

The coordinating person has the right to get all information recorded by the employees of the credit institution about large and suspicious operations and to acquaint himself with the results of customer identification. At the same time, that person is the contact person between the credit institution on one hand and the courts of law and investigation establishments on the other, as well as between Eesti Pank in respect of issues of money laundering and in forwarding information to the above institutions.

The coordinating person cannot be an employee of the internal control unit because the task of the latter, among other tasks, is to check whether the instructions for the prevention of money laundering are carried out, and according to the principles of the internal control, that person cannot be responsible for the activities checked by himself/herself.

8. Instructions for Employees

In accordance with Article 58 of the Law on Credit Institutions, it is the obligation of credit institutions to formulate and establish plans of action and procedures regarding the prevention of money laundering. When compiling the instructions, the structure, internal working procedure, clientele and nature of the operations of the credit institution have to be taken into consideration. The instructions have to exclude the possibility to use the banking system and the given credit institution for the purpose of money laundering.

9. Obligations of an Internal Control Unit

Simultaneously with the formulation of plans of action and procedures, instructions for the internal control unit are compiled and established in accordance with Eesti Pank President's Decree No 7 of February 16, 1996 "Organising the Work of Internal Control of Credit Institutions" for protecting the credit institutions from financial abuse and for meeting the diligence and procedural requirements.

The internal control unit informs the coordinating person in writing about various drawbacks. Pursuant to Clause 6, Article 52 of the Law on Credit Institutions, reports of the internal control unit have to be available for the external auditor of the credit institution when the Annual Report of the credit institution is examined.

May 7

Decision of the Board of Eesti Pank

On the Time for Settlement of Payments and Bank Charge for Overdue Payments

Pursuant to Articles 45 and 89 of the Law on Credit Institutions, the Board of Eesti Pank decided that

- credit institutions are obliged to settle the payments stated in the payment orders received by them in this way that money from the payer is transferred to the beneficiary in the course of two banking days;

- the payer's credit institution which has violated the time for the settlement of payment is obliged to pay a bank charge of 0.15% of the sum payable for each delayed settlement day and the beneficiary's credit institution which has violated the time for the settlement of payment a bank charge of 0.15% of the sum payable for each delayed banking day.

By the decision, the President of Eesti Pank was obligated to establish the Instructions for Time for Settlement of Payments. At the same time, the Board of Eesti Pank Decisions No 1 of March 10, 1992 and No 7 of November 17, 1992 were revoked.

The Decision took effect on July 1, 1996.

Decision of the Board of Eesti Pank

On the Credit Institutions' Reserve Requirement

Pursuant to Article 2, Clause 1 and Article 14 of the Law of the Central Bank of the Republic of Estonia and Article 38 of the Law on Credit Institutions, the Board of Eesti Pank decided that

- in order to regulate the amount of currency in circulation and the total loan capacity as well as for a more stable turnover of payments, it is the obligation of credit institutions to keep a part of their external liabilities attracted as a reserve in base money. By base money are regarded the Estonian kroons in cash and held on the accounts with Eesti Pank;

- among the reserve requirement calculation basis have to be included all liabilities attracted from the customers of credit institutions, term and saving deposits as well as other liabilities and securities of the above nature, excluding accounts payable to Eesti Pank, government loan funds and foreign assistance funds. Accounts payable to other credit institutions are calculated among the reserve requirement basis in accordance with the procedure established by the President of Eesti Pank. The reserve requirement ratio is 10% of the reserve requirement calculation basis.

By the decision, the President of Eesti Pank was obligated to establish the Procedure for Calculating and Meeting the Reserve Requirement by the day the decision of the Board takes effect, i.e. by July 1, 1996, pursuant to the principle that the reserve requirement may be met as the average of one month and the EEK cash is not allowed to be calculated more than 4% of the reserve requirement calculation basis.

At the same time, the Board of Eesti Pank Decision of June 17, 1992 On the Reserve Requirement was revoked and Clause 2.1 of minutes No 57 of the meeting of the Board on December 18, 1992 which changed the above Decision was revoked too.

May 31

Decree of the President of Eesti Pank

On the Size of Bank Charges and Their Payment Procedure

In order to meet the Decision of the Board of Eesti Pank of February 13, 1996, starting from July 1, 1996 a bank charge of 10 sents was established for each payment instruction received by the Clearing Division of Eesti Pank and forwarded by a credit institution and its agency and requiring the transfer of account money.

A bank charge for the management of the clearing account of an agency of a credit institution is EEK 5,000 per month between July 1 and December 31, 1996, and EEK 10,000 per month starting from January 1, 1997. A credit institution is obliged to pay a fee for overdue payments 0.15% per day.

June 12

Decree of the President of Eesti Pank

On the Procedure for Calculating and Meeting the Reserve Requirement

Pursuant to the Decision of the Board of Eesti Pank of May 7, 1996, the Procedure for Calculating and Meeting the Reserve Requirement, the respective reporting form and instructions to it were confirmed and established by a Decree starting from July 1, 1996. In connection with that Eesti Pank Decrees Nos 1 and 2 of July 4, 1994 were declared invalid starting from July 1, 1996.

Credit institutions had to submit to Eesti Pank the balance sheet as of June 20, 1996 together with the report reserve requirement calculation by the next but one banking day. The report submitted to Eesti Pank together with the balance sheet as of June 10, 1996 is valid until June 30, 1996.

Eesti Pank has the right to make exceptions for credit institutions as to the Procedure for Calculating and Meeting the Reserve Requirement.

PROCEDURE

for Calculating and Meeting the Reserve Requirement

1. A credit institution

1.1 has to calculate the total reserve requirement basis in accordance with Clause 2 of the Board of Eesti Pank Decision No 5-2 of May 7, 1996. Accounts payable to other credit institutions are not to be calculated among the total reserve requirement basis;

1.2 has to calculate the total reserve requirement of the next month on the basis of the balance sheet averages of the ends of three ten day periods, i.e., of the end of the previous month and of the 10th and 20th day of the current month;

1.3 has to submit to Eesti Pank a monthly balance sheet and balance sheets as of the 10th and 20th day (in accordance with the Eesti Pank President's Decree No 6 of March 17, 1995) by the next but one banking day at the latest after the deadline. The report reserve requirement calculation has to be submitted together with the balance sheet as of the 20th day. If any of these days (end of month, the 10th or the 20th day) coincides with a holiday (a week-end, public or bank holiday), the reports have to be presented as of the banking day preceding the holiday;

1.4 has to calculate as a part of the reserve requirement EEK cash, the proportion of which in the total reserve requirement is established by an Eesti Pank President's decree.

2. The total reserve requirement for the next month shall be valid starting from the first banking day of each month.

3. The balance of the clearing account of a credit institution should not fall below the minimum reserve requirement with Eesti Pank in any banking day, excluding the case stipulated in Clause 8 of the present procedure.

4. The minimum reserve requirement with Eesti Pank is the total reserve requirement of which the EEK cash in the permitted amount has been subtracted.

5. Eesti Pank pays interests to a credit institution for that part of the clearing account average balance which exceeded the minimum reserve requirement with Eesti Pank valid in the reporting month. The clearing account average balance of the reporting month is calculated on the basis of the daily balances of the clearing account (including non-banking days).

6. The interest is calculated as a monthly interest for 30 days. Eesti Pank pays the interest on the first banking day of the next month.

7. Interest rate payable by Eesti Pank shall be established by an Eesti Pank President's decree.

8. A credit institution which has signed a contract with Eesti Pank on meeting the minimum reserve requirement, has to meet the minimum reserve requirement as the average of the reporting month. Calculation of the average is done on the basis of the daily balances (including non-banking days).

9. A minimum daily balance rate of the clearing account with Eesti Pank is established for a credit institution which has signed a contract with Eesti Pank on meeting the minimum reserve requirement. The rate is fixed with an Eesti Pank President's decree.

Decree of the President of Eesti Pank

On the Establishment of Interest Rates

Pursuant to Article 14, Clauses 4 and 6 of the Law of the Central Bank of the Republic of Estonia and the Decree of the President of Eesti Pank of June 12, 1996 Procedure for Calculating and Meeting the Reserve Requirement, the interest rate of the fine stipulated in the reserve requirement agreement was established as 15% a year (0.042% a day) and the interest rate payable by Eesti Pank to a credit institution was established as a discount rate of the Deutsche Bundesbank valid the last banking day of the month subject to reporting minus one percentage point.

Decree of the President of Eesti Pank

On the Establishment of Limits for Meeting the Reserve Requirement

Pursuant to the Decree of the President of Eesti Pank of June 12, 1996 Procedure for Calculating and Meeting the Reserve Requirement, it was decided to calculate as a part of the reserve requirement EEK cash up to 40% of the total reserve requirement and to establish a minimum daily balance of the clearing account opened with Eesti Pank by a credit institution as 20% of the total reserve requirement.

June 20

Regulations of the President of Eesti Pank

On Confirming the Rules of an Essay Competition

According to the rules, an essay competition will be arranged to mark the fourth anniversary of the reintroduction of the Estonian kroon, with the aim of stimulating economic thought and getting new ideas for the development of the Estonian economy and banking.

The topics of the essay competition are:

All contenders are free to participate in the competition, with the exception of the employees of Eesti Pank. The length of the essay must not be over 10 pages of typewritten text, plus tables and figures. The essays should be marked with a code name and submitted together with a sealed envelope containing full data about the author (name, address, phone).

The deadline for submitting the essays is September 30, 1996, and the works should be sent to: Eesti Pank, Estonia pst. 13, EE0100 Tallinn, Estonia, and marked as Essay Competition.

The prize fund is 30,000 kroons which will be paid to the author of the winning essay. The essays will be judged by a commission appointed by the President of Eesti Pank. The main criteria for evaluating the essays are the depth of the analysis of the problems presented as well as the originality of ideas and scenarios of action for the development of the Estonian economy and banking. In case there is no essay deserving the first prize the commission can redistribute the prize money.

The winner(s) will be announced by October 31. The rules of the competition are available at the Information Department of Eesti Pank (phone 372 6 310 900, fax 372 6 310 954).

June 26

Decree of the President of Eesti Pank

On the Establishment of Time for Executing Settlement of Payments

Taking into consideration Article 45 and Clause 3 of Article 89 of the Law on Credit Institutions and the Decision of the Board of Eesti Pank of May 7, 1996, the Instructions for Time for Settlement of Payments were established starting from July 1, 1996. The Instructions for Non-cash Payments confirmed by the Eesti Pank Regulations of June 17, 1992 in the wording stipulated by Regulations of February 11, 1994 are implemented by the credit institutions as much as they are not in conflict with the instructions below.

INSTRUCTIONS

for Time for Settlement of Payments

1. The present instruction establishes the time allocated for the settlement of payments executed by credit institutions.

2. Definitions.

Banking day means a calendar day except for Saturday, Sunday and a state holiday established by the laws of the Republic of Estonia. A banking day begins at 8.00 in the morning and ends by the beginning of the next banking day at 8.00 in the morning.

Settlement day means a day beginning at 14.00 on a banking day and ending at 14.00 on the next banking day.

Payer means the person who transfers a certain amount of his funds or from whose account a certain amount of his funds is transferred to the payee.

Beneficiary means the person who receives a certain amount of payer's funds.

Receiving credit institution means a credit institution that receives a payment order for execution.

Payer's credit institution means a receiving credit institution from which the payer makes the payment.

Beneficiary's credit institution means a receiving credit institution that pays the money to the payee.

Originator means the issuer of the first payment order to the receiving credit institution.

Originator's credit institution means

(i) a receiving credit institution that receives the first payment order, in case the originator is not a credit institution;

(ii) the originator, in case the originator is a credit institution.

Book-entry money means money denominated as monetary claims and liabilities in the accounting register.

Settlement means the settlement of monetary obligations among persons.

Payment order means an instruction that explicitly expresses the will of the originator. The originator's will is considered to be explicitly expressed for the receiving credit institution, if the payment order includes:

in case of an international payment, data of the payee's correspondent bank, if necessary.

In case any of the above information is missing or contradictions exist among the data, the will of the originator is not considered to be explicitly expressed.

In addition to the explicitly expressed will of the originator, in case of international payments:

(i) the payer's credit institution is entitled to request from the payer the following statistical information:

(ii) the payee's credit institution is entitled to require from the payee the following statistical information:

If the above additional statistical information is missing or not presented by the payer or the payee, the originator's will is, nevertheless, considered to be explicitly expressed.

Payment means settlement in money between the payer and the payee.

The payment can be executed:

Payments in any currency can be executed:

Payment in book-entry money can be initiated using:

The payment is considered to be initiated when the originator's credit institution has accepted from the originator a payment order for execution.

The receiving credit institution is obliged to accept the payment order for execution if:

The payment is considered to be executed at the moment when the payee receives the money. The payee has received the money, when the payee's credit institution has:

Domestic payment means a payment where both parties' credit institutions are located in the Republic of Estonia and no corresponding credit institution located outside the Republic of Estonia is used when executing the payment. Domestic payment is divided into:

Foreign payment means

International payment means all foreign payments and those domestic payments where one of the parties, either the payer or the payee, is a non-resident.

3. If the originator has not specified a later date, the payer's credit institution is obliged to execute the payment orders accepted by it as follows:

4. If the originator has not specified a later date, the payee's credit institution is obliged to:

5. If the payment order sent by the payee or a third party in favour of the payee and accepted by the receiving credit institution does not explicitly express the will of the originator, the receiving credit institution is obliged to inform the following parties thereof not later than on the next banking day:

6. If the payment order issued by the payer does not explicitly express the originator's will and that will has not been defined, the receiving credit institution is obliged to return the money together with a respective explanation:

- in case of a credit institution's internal payment to the payer not later than on the following banking day of the banking day the payee was supposed to receive the book-entry money;

- in case of a payment between credit institutions

- in case of international payments to the correspondent credit institution in accordance with the good banking practice.