A Guide to LAFT: Investor Compliance Essentials
If you’re considering investing in Colombia, you must familiarize yourself with the country’s compliance procedures. Colombia holds businesses to high standards in an effort to combat illegal activity and keep its markets safe.
This guide provides a high-level look at LAFT, one of Colombia’s foremost compliance initiatives, and related terms. Plus, you’ll learn how compliance regulations affect your business.
What is LAFT?
LAFT is the Spanish acronym for “Lavado de Activos y Financiación del Terrorismo,” which translates to “Money Laundering and Terrorist Financing” in English.
LAFT compliance refers to a series of regulations and proceedings the Colombian government uses to prevent the aforementioned illegal activities.
Key related terms
LAFT is an excellent term to know, but further exploration of the topic will turn up other acronyms denoting regulatory frameworks and bodies. Here are a few essential ones to be familiar with.
SARLAFT and SAGRILAFT
SARLAFT is the Spanish acronym for “Sistema de Administración del Riesgo de Lavado de Activos y de la Financiación del Terrorismo” which translates to the System for the Administration of the Risk of Money Laundering and Terrorist Financing. SARLAFT is a compliance framework for financial institutions that entails identifying, measuring, controlling, and monitoring risk.
SAGRILAFT stands for “Sistema de Administración del Riesgo de Lavado de Activos y de la Financiación del Terrorismo y de la Financiación de la Proliferación de Armas de Destrucción Masiva”, which translates to the System for the Administration of the Risk of Money Laundering, Terrorist Financing, and the Financing of the Proliferation of Weapons of Mass Destruction. SAGRILAFT is meant to be implemented by non-financial institutions and, like SARLAFT, also focuses on risk identification, measurement, monitoring, and control.
UIAF
UIAF stands for the “Unidad de Información y Análisis Financiero,” which translates to the Information and Financial Analysis Unit and describes the entity that monitors financial and other data for signs of illegal activity. UIAF helps ensure that private and public actors remain compliant.
GAFI
GAFI is the Spanish acronym for “Grupo de Acción Financiera”—that is, the Financial Action Task Force. This intergovernmental organization provides compliance training, issues sanctions, and monitors member countries’ activities.
La Superintendencia de Sociedades
La Superintendencia de Sociedades or, in English, the Superintendency of Companies, is the entity through which the Colombian president supervises business dealings within the country. The Superintendence of Companies advises the government on compliance, helps write policies, and monitors commercial entities.
LAFT, SARLAFT, and SAGRILAFT are frameworks for identifying and reporting suspicious and illegal activities, and UIAF, GAFI, and La Superintendencia de Sociedades are the entities that promote this work. But, businesses play a crucial role in compliance, too. They must work alongside the government in its effort to keep the Colombian market safe.
How to keep your business compliant
Colombian businesses are responsible for self-monitoring and regulation. Healthy internal compliance initiatives help companies ensure their operations align with the country’s anti-money laundering and anti-terrorism initiatives. Business should:
- Identify and evaluate risks. The company’s administrators should define the risks the business could face based on its operations. The company must also outline what consequences these risks pose and determine the likelihood of encountering these issues.
- Teach employees to pinpoint potential risks. Companies must train their employees on internal risk management and control procedures. Employees should know how to spot suspicious or illegal activities and what the correct channels are for reporting them. Staff members should also mitigate situations that could pose risks. For example, vetting clients and service/product providers (known as KYC or “know your customer” procedures in Colombia) can prevent a company from working with nefarious actors.
- Know your industry-specific duties. Learn what compliance responsibilities your company has based on the nature of its operations. For example, businesses that must adhere to SAGRILAFT have to create a board-approved compliance structure, answer to the Superintendencia de Sociedades (The Superintendency of Companies), hold yearly staff compliance trainings, and appoint a compliance officer.
The risks of not complying with LAFT
Failure to comply with LAFT, SARLAFT, or SAGRILAFT can have grave consequences for a business. Operations that don’t comply can be fined, sanctioned, and asked to take immediate corrective measures.
Sanctions can include decades-long prison sentences, and fines can cost millions of Colombian pesos (the equivalent of hundreds of thousands of dollars).
The benefits of complying with LAFT
Avoiding sanctions and fines is a worthy enough reason to stay on top of LAFT regulations. But businesses that take compliance seriously reap other rewards as a byproduct. For one, you can rest assured that your company deals only with legal actors, which protects your investments. Plus, shareholders and other internal or external participants in the operation know they’re working with a company they can trust.
Companies that comply also:
- Have more streamlined internal processes that drive efficient work.
- Enjoy a staff trained in ethical procedures that promote legality and a healthy working environment.
- Help make the market safer for all.
Your compliant investment in Colombia
Colombia’s government has worked hard to attract foreign investment and ensure that companies benefit from legal, ethical operations.
If you’re considering investing in an existing Colombian company or starting one, get expert advice. The professionals at LaGrande Global can help you comply with every regulation—from setting your company up correctly to acing LAFT procedures.