Commission Report 2002 (Romania)

• Progress made since the last Regular Report
• Overall assessment
• Conclusion

Chapter 4: Free movement of capital

Progress made since the last Regular Report

Progress has been made with cross-border capital flows since the last Regular Report. Some progress can also be reported on payment systems. As regards capital movement and payments, in December 2001 the National Bank of Romania issued a circular introducing a significant liberalisation of the controls on capital account outflows. The transactions covered by this circular include direct investments abroad by residents, loans and guarantees made by residents to non-residents, transfers related to insurance contracts and the physical export and import of financial assets (with the exception of cash). The National Bank circular also formalises a legally binding timetable for the liberalisation of certain transactions by 2004.

There have been no significant developments as regards laws governing foreign direct investment and the acquisition of real estate by non-nationals. The recent law on the acceleration of privatisation has not repealed the ``special rights'' or ``golden share'' provisions.

As concerns payment systems, the National Bank of Romania issued a regulation in January on large value fund transfers setting out the principles for performing and processing such transfers. These operations are presently performed by the National Society for Settlement by Transfer (TransFond S.A.). Other activities in this area will continue to be performed by the National Bank of Romania until TransFond S.A. becomes fully operational. In July, the National Bank of Romania issued a regulation to ensure compliance with the acquis on electronic payment instruments. As for the related acquis on money laundering, in August 2002 Romania ratified the Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime.

Overall assessment

Current laws are ambiguous regarding restrictions on inward direct investment and are open-ended as concerns undefined ``sensitive'' sectors, where prior authorisation can be imposed through ``special laws''.

The Romanian Constitution forbids the purchase of real estate by non-nationals. Nevertheless, for companies established in the country, even if wholly foreign-owned, land purchases for the conduct of business are allowed according to sub-constitutional law.

The creation of a new inter-bank payment and settlement system is still at an early stage. Much of the acquis in payment systems remains to be transposed (including the introduction of effective redress procedures for settlement of disputes between bank and customers) and the payment infrastructure has to be improved.

The National Bank of Romania regulates and operates exchange control and oversees the payment system. The National Bank has sufficient staff and administrative capacity to ensure the effective application of legislation in these areas.

In the area of money laundering, the National Office for the Prevention and Control of Money Laundering is now operational and the increase in its investigative activity is noticeable. The Office has introduced important measures concerning the reporting obligations of financial institutions, but revision of the current legal framework to complete the process must be continued. In particular, Romania has not yet implemented procedures for customer identification when opening accounts at credit institutions. The Office deals with a large number of reports on suspicious transactions (almost 600 over the reporting period) and sent more than 200 cases to the General Prosecutor`s Office. Criminal investigations were started in 68 cases, of which 22 resulted in a conviction for money laundering offences while the rest are still before the courts.

The ratification of the 1990 Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime represents an important step in aligning Romanian legislation with the acquis in this field. However, the ratification of the Convention needs to be followed by institutional and legal changes that will allow the provisions of the Convention to be enforced at the national level.

Compliance with the Recommendations of the Financial Action Task Force should be ensured.

Conclusion

In its Opinion in 1997, the Commission concluded that the trend in Romanian law was towards opening up the market to foreign direct investment. The very low level of investment was mainly attributable to administrative practices, which were often cited by investors and which substantially limit legal certainty and transactions. The Commission therefore pointed out that significant improvement in the administrative and judicial framework was a prerequisite for increasing investment. The Commission also remarked that free movement of capital had been established on paper, but constraints on the development of a competitive market needed to be eliminated in practice. Romania had introduced limited liberalisation of capital movements. The liberalised transactions, notably direct investment, concerned inward capital flows only.

Since the Opinion, alignment with the acquis has improved moderately and the process of liberalisation has been initiated. Although exchange controls and other restrictions on capital movements still exist, Romania is committed to a timetable for the abolition of certain restrictions.

Negotiations on this chapter continue.

Romania should focus further efforts on the alignment of legislation. The revision of the legal framework in the area of money laundering needs to be continued.

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