|Mutual Evaluation Report: 2015
Effective Implementation of Immediate Outcomes
1. Risk, Policy and Coordination - Substantial
Belgium evaluates its ML and TF risks. It appears to understand TF risks correctly and to have taken co-ordinated action at the national level to attenuate those risks. This co-ordination includes as well the combatting of proliferation financing. While the risks of ML appear to have been generally identified and understood, the analysis of this activity does not appear to be based on a proactive approach that would enable the detection of trends and emerging phenomena, notably with regard to vulnerabilities. In particular, the assessments did not have the participation of all competent authorities or the private sector.
Elements of a risk-based approach have long contributed to AML/CFT policies and activities in Belgium. The CTIF and to a large degree the criminal prosecution authorities (the police in particular) have an established tradition of taking the identified risks into account when defining their objectives and activities. Nevertheless, certain weaknesses were noted at the time of the on-site visit:
i. there is no overall, integrated approach that adequately ranks ML/TF risks in order to ensure the organisation and consistent planning of AML/CFT activities and policies;
ii. supervisors and self-regulatory bodies (SRBs) have not incorporated the main ML/TF risks into their inspection policies;
iii. a certain number of identified ML risks have not been addressed; and
iv. incomplete dissemination of the non-confidential results of the risk assessments to financial institutions and DNFBPs slows down their being taken into account in their internal procedures.
2. International Cooperation - Substantial
Belgium’s partners find the international co-operation it provides to be of good quality. No countries reported any major difficulties with Belgium’s information exchange practices, and the assessors did not see any indication of serious ineffectiveness in the handling of international co-operation by the Belgian system. The interviews with the various competent authorities confirmed this finding, which was particularly positive in the area of combating TF and terrorism. In practice, the legal limitations that were found do not appear to have a major impact on the exchange of information.
3. Supervision - Moderate
In the financial sector, supervisors have generally identified the main high risks. However, the understanding of the risks is too irregular due to insufficient controls, particularly on-site inspections. At present, the BNB mainly conducts its controls on a prudential basis, and the implementation of ML/TF risk-based controls is limited. On-site inspections are also limited, due to underestimation of the ML/TF risks faced by the institutions and lack of resources. The shortcomings in terms of supervision are of particular concern for financial institutions operating in Belgium under the European Passport, operating under freedom of establishment via agents
in Belgium. The BNB recently began using a periodic questionnaire, which will provide it with specific and systematic information on ML/TF risks and allow it to set supervision priorities more effectively.
The AML/CFT controls implemented by the Financial Services and Markets Authority (FSMA) target the bureau de change sector, identified as the sector exposed to the greatest ML/TF risk; they are appropriate. Nevertheless, this control should be reinforced with regard to STR quality due to the large proportion of automatic STRs. For collective investment fund management companies, investment management and investment advisory companies and mortgage credit services, given the more limited risks these activities present, AML/CFT controls are included in the more general on-site inspections. For the financial intermediary sector, no other specific and qualitative on-site inspections are in place to verify compliance with AML/CFT obligations. A tightening of controls is thus necessary.
Federal Public Service (FPS) Finance has conducted on-site inspections at Bpost, for information only, on the AML/CFT systems and procedures in place, but no on-site inspection operation has been conducted to date. For the financial sectors under the supervision of FPS Economy, no inspections have been conducted. However, these are low-risk sectors (mortgage and direct financing lease providers).
The main supervisors of the financial sector have an active policy to promote understanding of ML/TF risks and explain AML/CFT obligations, primarily through a concrete and detailed Guidance and joint circulars (BNB/FSMA), and referral to the website and annual report of the CTIF.
The DNFBP supervisors have been designated and the regulatory systems are in place. In general, the highest risks have been identified by these authorities, but systems still need to be set up for ensuring that these risks are known and understood and for monitoring how they change over time. In general, supervision of DNFBPs remains extremely limited or inexistent. When there is a risk-based approach, it is limited to the assessment included in the annual AML/CFT report; this determines the priorities in terms of businesses to inspect. However, there is no differentiation in the subsequent controls carried out, which are uniform.
For the financial and non-financial sectors, there needs to be greater co-operation between the supervisors and the CTIF, particularly in improving the policy for all reporting entities. Limited controls and significant lack of sanctions applied, specifically in ML/TF matters, have a major impact on the effectiveness of AML/CFT measures.
FPS Economy conducts targeted supervision operations to verify compliance with restrictions on payments in cash, and ML/TF risk is one of the elements considered in selecting the target sectors. As these controls have only recently been introduced, the results are difficult to measure, but they have already prompted some professionals to change their practices. Greater resources need to be allocated to these inspections so that large-scale operations can be conducted.
4. Preventive Measures - Moderate
Financial institutions seem to have a good understanding of the risks. It appears that not all DNFBPs understand the degree of risks to which they are exposed or the need to protect themselves against potential ML/TF-related abuse.
AML/CFT obligations are generally well-understood by financial institutions, and AML/CFT measures implemented are proportionate and appropriate with regard to the corresponding risks. However, shortcomings were found among some payment institutions and bureaux de change, particularly inadequate understanding of the requirements relating to beneficial ownership and politically exposed persons (PEPs). The financial sector also appears to apply enhanced due diligence measures in situation recognised as ‘high risk’, but less so for correspondent banking and wire transfers within the EU.
In recent years, many DNFBPs have made efforts to raise awareness and motivate professionals with regard to AML/CFT. These types of operations need to continue so that satisfactory implementation of the measures can be achieved. The enhanced measures applied by DNFBPs, for example, seems insufficient for situations requiring increased attention. When customer due diligence (CDD) requirements cannot be met, DNFPBs indicate that they refuse to enter into a business relationship or perform the transaction, even if they do not issue an STR. The implementation of AML/CFT measures by diamond dealers does not seem adequate to address the sector’s high risks.
As a general rule, the financial sector has adopted the practice of issuing STRs, but some bureaux de change and payment institutions operating via a network of agents also submit a significant share of automatic STRs, which do not provide additional information on the transactions of a customer who has already been reported. DNFBPs reporting transactions on the basis of thresholds / criteria prefer this type of ‘objective’ reporting and do not reflect the level of suspicion raised by the related transactions. Lawyers and diamond dealers submit almost no STRs. This approach can hinder the detection of ML and contribute to under-prosecution of certain offences.
The competent authorities need to strengthen their AML/CFT controls in order to verify that the entities subject to the obligations are adequately applying them.
5. Legal Persons and Arrangements - Moderate
Authorities’ understanding of the vulnerabilities with regard to legal persons remains sector-based, and is not drawn from an overall, up-to-date and continuing assessment. The criminal prosecution authorities specialised in counter-terrorism are aware of the risks of legal persons being misused for TF purposes. Depending on the case, the authorities monitor these risks on a continuing basis although they have not done a recent assessment of such risks.
Competent authorities have identified concrete ML/TF risks and vulnerabilities in the framework for legal persons. Several initiatives have been taken to address these; however, the recent implementation of certain of these measures at the time of the on-site visit, and the need for more time to fully appreciate their impact, mean that they cannot yet be considered fully effective. The authorities are aware that additional measures need to be taken.
Basic information and information on beneficial ownership for the large majority of legal persons are publicly available through the information maintained in the companies register – Banque- Carrefour des Entreprises (BCE) – although there are shortcomings, in particular regarding the reliability and updating of the data. However, the fact that notaries authenticate the majority of instruments relating to the creation and existence of legal persons increases the reliability of the information. Information available essentially includes the legal ownership of the legal person, which may coincide with the beneficial ownership. Other means exist which aid in establishing beneficial ownership, in particular information obtained by financial institutions and DNFBPs, or any publicly available information on publicly and non-publicly traded Belgian companies. The effectiveness of ML/TF investigations involving legal persons or in which beneficial ownership information had been sought and used could not be established on the basis of the qualitative information provided by criminal prosecution authorities.
The sanctions imposed on persons who do not comply with obligations to provide transparent information on legal persons are not effective or dissuasive. Belgium has expanded its arsenal of sanctions in order to compensate for the ineffectiveness of administrative and criminal penalties, and the initial results are promising.
The development of legal arrangements in Belgium is limited. For this reason, the authorities have not at present identified or evaluated the vulnerabilities of such structures in relation to ML in Belgium. However, a risk analysis of fraud using foreign legal arrangements by natural persons subject to tax in Belgium has led to the tightening of reporting obligations to fiscal authorities on links to legal arrangements, including foreign ones. Professional trustees are as a general rule subject to AML/CFT obligations.
International co-operation with regard to the identification and exchange of information on legal persons and legal arrangements is generally positive in both directions (incoming and outgoing).
6. Financial Intelligence - Substantial
Within the Belgian legal system, competent authorities have at their disposal a wide range of measures for obtaining financial information and any other information pertaining to ML/TF investigations, both for obtaining evidence of offences and searching for and locating the related assets.
The CTIF collects information on ML and TF on a broad scale, and the processes used to gather the information are of high quality. The CTIF uses a large number of databases and maintains co-operation with all national and international authorities that can contribute or provide added value. The CTIF also carries out vulnerability analyses on the sectors subject to the obligations and shares the results with all relevant parties and authorities. Its reports are well-received and useful to the criminal prosecution authorities.
While criminal prosecution authorities use and gather information both for investigations and for prosecution, they do not do so in an optimal manner. Limited human resources do not allow criminal prosecution authorities to exploit all of the information received correctly or to build on it to reveal ML cases, in particular significant international cases.
7. ML Investigation and Prosecution - Moderate
The Belgian authorities possess a strong culture of fighting ML. They also have the necessary investigative techniques at their disposal. As a result, the number of prosecutions for ML is significant in Belgium. It is not uncommon for convictions to be obtained without a proven predicate offence due to the shared burden of proof in certain ML cases. However, The offences prosecuted are most often focussed on the predicate offences with a related ML charge against the same person. The number of cases of structured ML schemes involving third parties who facilitate the laundering of proceeds from offences committed by criminals is rare. Some offences, e.g. for the cross-border movement of cash, precious metals or diamonds, are under-prosecuted with respect to the level of risk indicated by Belgium.
The scope of AML actions is limited by the absence at the national level of an overall strategy for combatting ML and lack of co-ordination between judges handling ML cases. A lack of resources, material means, training and co-ordination within the criminal prosecution agencies impairs their effectiveness. Too many cases are dismissed at the court’s discretion, bringing down the rate of penal response. Furthermore, the length of certain ML procedures has the consequence that offences are not prosecuted within the statute of limitations, or the sanctions are reduced.
However, in preparing for and taking part in the assessment, the Belgian authorities identified shortcomings and demonstrated commitment to strengthening the prosecution of laundering as a priority, and produced examples of progress in this direction.
8. Confiscation - Moderate
The information provided by the Belgian authorities shows that seizure, confiscation and corresponding value confiscation are implemented in ML cases. However, while the authorities want to prioritise prosecutions giving rise to confiscation, they do not always fully succeed in this. The criminal prosecution authorities affirmed that there is an emphasis on confiscation, but the information provided did not show that goals consistent with this approach had been set. There is furthermore no evidence that financial investigations systematically include looking into assets that could be confiscated; it is available and easily identifiable proceeds that are regularly confiscated. The ineffectiveness in the criminal prosecution system (drawn-out procedures, statutes of limitation, etc.) also hampers confiscation.
The Belgian authorities do not have clear, relevant and centralised statistics on
assets seized and confiscated in Belgium and abroad,
the offences giving rise to these measures (ML and predicate offences),
confiscation in cases of false disclosure or false declarations at the border, and
the sums returned to victims.
This makes it difficult to assess the results of the investigations undertaken and performance in these areas.
9. TF Investigation and Prosecution Substantial
The tactics and methods used by the Belgian authorities are not solely focused on the financial aspects of the global terrorist threat, but nothing in the actions they have undertaken, or the judicial rulings handed down, suggested to the assessors that these authorities are neglecting CFT. Based on the information the assessors received and interviews with the relevant specialists, it appears that the response of the Belgian authorities corresponds to the reality of the situations and threats, effectively detecting related offences and playing an active role in CFT. Persons have been convicted for TF within the scope of broader terrorism cases.
10. TF Preventive measures & financial sanctions - Moderate
Belgium has a legal system allowing for the use of targeted financial sanctions in TF matters. However, the technical deficiencies found (notably the time it takes to implement new sanctions) raise doubts as to the system’s effectiveness. In practice, the amount of assets that have been frozen is small, but this in itself is not an indication of ineffectiveness, especially because it has not been established that the assets concerned by the sanctions were on Belgian territory.
In terms of the risks of using NPOs for terrorist or TF purposes, there are shortcomings in the areas of administrative supervision regarding obligations on the transparency of NPOs, raising awareness, and targeted actions. However, the Belgian authorities have identified the NPOs that are at risk and set up ongoing monitoring of their activities and transactions.
11. PF Financial sanctions - Moderate
The Belgian legal system, coupled with that of the European Union, serves as the basis for implementation of the resolutions of the United Nations Security Council on targeted financial sanctions to counter the financing of proliferation. However, the time it takes to transpose such measures impairs the system’s effectiveness. Even before they are transposed into European and therefore Belgian law, the information needs to be quickly communicated beyond the major financial institutions, and training and supervision measures are needed for all sectors subject to the obligations. The actions undertaken to thwart attempts to evade sanctions indicate that the various competent authorities all have high and appropriate levels of expertise and knowledge, although it is regrettable that more emphasis has not been placed on the financial component of proliferation.
A. AML/CFT POLICIES AND COORDINATION
1. Assessing risks and applying a risk-based approach
Countries should identify, assess, and understand the money laundering and terrorist financing risks for the country, and should take action, including designating an authority or mechanism to coordinate actions to assess risks, and apply resources, aimed at ensuring the risks are mitigated effectively. Based on that assessment, countries should apply a risk-based approach (RBA) to ensure that measures to prevent or mitigate money laundering and terrorist financing are commensurate with the risks identified. This approach should be an essential foundation to efficient allocation of resources across the anti-money laundering and countering the financing of terrorism (AML/CFT) regime and the implementation of risk- based measures throughout the FATF Recommendations. Where countries identify higher risks, they should ensure that their AML/CFT regime adequately addresses such risks. Where countries identify lower risks, they may decide to allow simplified measures for some of the FATF Recommendations under certain conditions.
Countries should require financial institutions and designated non-financial businesses and professions (DNFBPs) to identify, assess and take effective action to mitigate their money laundering and terrorist financing risks.
2. National cooperation and coordination
Countries should have national AML/CFT policies, informed by the risks identified, which should be regularly reviewed, and should designate an authority or have a coordination or other mechanism that is responsible for such policies.
Countries should ensure that policy-makers, the financial intelligence unit (FIU), law enforcement authorities, supervisors and other relevant competent authorities, at the policy- making and operational levels, have effective mechanisms in place which enable them to cooperate, and, where appropriate, coordinate domestically with each other concerning the development and implementation of policies and activities to combat money laundering, terrorist financing and the financing of proliferation of weapons of mass destruction.
B. MONEY LAUNDERING AND CONFISCATION
3. Money laundering offence
Countries should criminalise money laundering on the basis of the Vienna Convention and the Palermo Convention. Countries should apply the crime of money laundering to all serious offences, with a view to including the widest range of predicate offences.
4. Confiscation and provisional measures
Countries should adopt measures similar to those set forth in the Vienna Convention, the Palermo Convention, and the Terrorist Financing Convention, including legislative measures, to enable their competent authorities to freeze or seize and confiscate the following, without prejudicing the rights of bona fide third parties: (a) property laundered, (b) proceeds from, or instrumentalities used in or intended for use in money laundering or predicate offences, (c) property that is the proceeds of, or used in, or intended or allocated for use in, the financing of terrorism, terrorist acts or terrorist organisations, or (d) property of corresponding value.
Such measures should include the authority to: (a) identify, trace and evaluate property that is subject to confiscation; (b) carry out provisional measures, such as freezing and seizing, to prevent any dealing, transfer or disposal of such property; (c) take steps that will prevent or void actions that prejudice the country’s ability to freeze or seize or recover property that is subject to confiscation; and (d) take any appropriate investigative measures.
Countries should consider adopting measures that allow such proceeds or instrumentalities to be confiscated without requiring a criminal conviction (non-conviction based confiscation), or which require an offender to demonstrate the lawful origin of the property alleged to be liable to confiscation, to the extent that such a requirement is consistent with the principles of their domestic law.
C. TERRORIST FINANCING AND FINANCING OF PROLIFERATION
5. Terrorist financing offence
Countries should criminalise terrorist financing on the basis of the Terrorist Financing Convention, and should criminalise not only the financing of terrorist acts but also the financing of terrorist organisations and individual terrorists even in the absence of a link to a specific terrorist act or acts. Countries should ensure that such offences are designated as money laundering predicate offences.
6. Targeted financial sanctions related to terrorism and terrorist financing
Countries should implement targeted financial sanctions regimes to comply with United Nations Security Council resolutions relating to the prevention and suppression of terrorism and terrorist financing. The resolutions require countries to freeze without delay the funds or other assets of, and to ensure that no funds or other assets are made available, directly or indirectly, to or for the benefit of, any person or entity either (i) designated by, or under the authority of, the United Nations Security Council under Chapter VII of the Charter of the United Nations, including in accordance with resolution 1267 (1999) and its successor resolutions; or (ii) designated by that country pursuant to resolution 1373 (2001).
7. Targeted financial sanctions related to proliferation
Countries should implement targeted financial sanctions to comply with United Nations Security Council resolutions relating to the prevention, suppression and disruption of proliferation of weapons of mass destruction and its financing. These resolutions require countries to freeze without delay the funds or other assets of, and to ensure that no funds and other assets are made available, directly or indirectly, to or for the benefit of, any person or entity designated by, or under the authority of, the United Nations Security Council under Chapter VII of the Charter of the United Nations.
8. Non-profit organisations
Countries should review the adequacy of laws and regulations that relate to entities that can be abused for the financing of terrorism. Non-profit organisations are particularly vulnerable, and countries should ensure that they cannot be misused:
(a) by terrorist organisations posing as legitimate entities;
(b) to exploit legitimate entities as conduits for terrorist financing, including for the purpose of escaping asset-freezing measures; and
(c) to conceal or obscure the clandestine diversion of funds intended for legitimate purposes to terrorist organisations.
D. PREVENTIVE MEASURES
9. Financial institution secrecy laws
Countries should ensure that financial institution secrecy laws do not inhibit implementation of the FATF Recommendations.
CUSTOMER DUE DILIGENCE AND RECORD-KEEPING
10. Customer due diligence
Financial institutions should be prohibited from keeping anonymous accounts or accounts in obviously fictitious names.
Financial institutions should be required to undertake customer due diligence (CDD) measures when:
(i) establishing business relations;
(ii) carrying out occasional transactions: (i) above the applicable designated threshold (USD/EUR 15,000); or (ii) that are wire transfers in the circumstances covered by the Interpretive Note to Recommendation 16;
(iii) there is a suspicion of money laundering or terrorist financing; or
(iv) the financial institution has doubts about the veracity or adequacy of previously obtained customer identification data.
The principle that financial institutions should conduct CDD should be set out in law. Each country may determine how it imposes specific CDD obligations, either through law or enforceable means.
The CDD measures to be taken are as follows:
(a) Identifying the customer and verifying that customer’s identity using reliable, independent source documents, data or information.
(b) Identifying the beneficial owner, and taking reasonable measures to verify the identity of the beneficial owner, such that the financial institution is satisfied that it knows who the beneficial owner is. For legal persons and arrangements this should include financial institutions understanding the ownership and control structure of the customer.
(c) Understanding and, as appropriate, obtaining information on the purpose and intended nature of the business relationship.
(d) Conducting ongoing due diligence on the business relationship and scrutiny of transactions undertaken throughout the course of that relationship to ensure that the transactions being conducted are consistent with the institution’s knowledge of the customer, their business and risk profile, including, where necessary, the source of funds.
Financial institutions should be required to apply each of the CDD measures under (a) to (d) above, but should determine the extent of such measures using a risk-based approach (RBA) in accordance with the Interpretive Notes to this Recommendation and to Recommendation 1.
Financial institutions should be required to verify the identity of the customer and beneficial owner before or during the course of establishing a business relationship or conducting transactions for occasional customers. Countries may permit financial institutions to complete the verification as soon as reasonably practicable following the establishment of the relationship, where the money laundering and terrorist financing risks are effectively managed and where this is essential not to interrupt the normal conduct of business.
Where the financial institution is unable to comply with the applicable requirements under paragraphs (a) to (d) above (subject to appropriate modification of the extent of the measures on a risk-based approach), it should be required not to open the account, commence business relations or perform the transaction; or should be required to terminate the business relationship; and should consider making a suspicious transactions report in relation to the customer.
These requirements should apply to all new customers, although financial institutions should also apply this Recommendation to existing customers on the basis of materiality and risk, and should conduct due diligence on such existing relationships at appropriate times.
Financial institutions should be required to maintain, for at least five years, all necessary records on transactions, both domestic and international, to enable them to comply swiftly with information requests from the competent authorities. Such records must be sufficient to permit reconstruction of individual transactions (including the amounts and types of currency involved, if any) so as to provide, if necessary, evidence for prosecution of criminal activity.
Financial institutions should be required to keep all records obtained through CDD measures (e.g. copies or records of official identification documents like passports, identity cards, driving licences or similar documents), account files and business correspondence, including the results of any analysis undertaken (e.g. inquiries to establish the background and purpose of complex, unusual large transactions), for at least five years after the business relationship is ended, or after the date of the occasional transaction.
Financial institutions should be required by law to maintain records on transactions and information obtained through the CDD measures.
The CDD information and the transaction records should be available to domestic competent authorities upon appropriate authority.
ADDITIONAL MEASURES FOR SPECIFIC CUSTOMERS AND ACTIVITIES
12. Politically exposed persons
Financial institutions should be required, in relation to foreign politically exposed persons (PEPs) (whether as customer or beneficial owner), in addition to performing normal customer due diligence measures, to:
(a) have appropriate risk-management systems to determine whether the customer or the beneficial owner is a politically exposed person;
(b) obtain senior management approval for establishing (or continuing, for existing customers) such business relationships;
(c) take reasonable measures to establish the source of wealth and source of funds; and
(d) conduct enhanced ongoing monitoring of the business relationship.
Financial institutions should be required to take reasonable measures to determine whether a customer or beneficial owner is a domestic PEP or a person who is or has been entrusted with a prominent function by an international organisation. In cases of a higher risk business relationship with such persons, financial institutions should be required to apply the measures referred to in paragraphs (b), (c) and (d).
The requirements for all types of PEP should also apply to family members or close associates of such PEPs.
13. Correspondent banking
Financial institutions should be required, in relation to cross-border correspondent banking and other similar relationships, in addition to performing normal customer due diligence measures, to:
(a) gather sufficient information about a respondent institution to understand fully the nature of the respondent’s business and to determine from publicly available information the reputation of the institution and the quality of supervision, including whether it has been subject to a money laundering or terrorist financing investigation or regulatory action;
(b) assess the respondent institution’s AML/CFT controls;
(c) obtain approval from senior management before establishing new correspondent relationships;
(d) clearly understand the respective responsibilities of each institution; and
(e) with respect to “payable-through accounts”, be satisfied that the respondent bank has conducted CDD on the customers having direct access to accounts of the correspondent bank, and that it is able to provide relevant CDD information upon request to the correspondent bank.
Financial institutions should be prohibited from entering into, or continuing, a correspondent banking relationship with shell banks. Financial institutions should be required to satisfy themselves that respondent institutions do not permit their accounts to be used by shell banks.
14. Money or value transfer services
Countries should take measures to ensure that natural or legal persons that provide money or value transfer services (MVTS) are licensed or registered, and subject to effective systems for monitoring and ensuring compliance with the relevant measures called for in the FATF Recommendations. Countries should take action to identify natural or legal persons that carry out MVTS without a license or registration, and to apply appropriate sanctions.
Any natural or legal person working as an agent should also be licensed or registered by a competent authority, or the MVTS provider should maintain a current list of its agents accessible by competent authorities in the countries in which the MVTS provider and its agents operate. Countries should take measures to ensure that MVTS providers that use agents include them in their AML/CFT programmes and monitor them for compliance with these programmes.
15. New technologies
Countries and financial institutions should identify and assess the money laundering or terrorist financing risks that may arise in relation to (a) the development of new products and new business practices, including new delivery mechanisms, and (b) the use of new or developing technologies for both new and pre-existing products. In the case of financial institutions, such a risk assessment should take place prior to the launch of the new products, business practices or the use of new or developing technologies. They should take appropriate measures to manage and mitigate those risks.
16. Wire transfers
Countries should ensure that financial institutions include required and accurate originator information, and required beneficiary information, on wire transfers and related messages, and that the information remains with the wire transfer or related message throughout the payment chain.
Countries should ensure that financial institutions monitor wire transfers for the purpose of detecting those which lack required originator and/or beneficiary information, and take appropriate measures.
Countries should ensure that, in the context of processing wire transfers, financial institutions take freezing action and should prohibit conducting transactions with designated persons and entities, as per the obligations set out in the relevant United Nations Security Council resolutions, such as resolution 1267 (1999) and its successor resolutions, and resolution 1373(2001), relating to the prevention and suppression of terrorism and terrorist financing.
RELIANCE, CONTROLS AND FINANCIAL GROUPS
17. Reliance on third parties
Countries may permit financial institutions to rely on third parties to perform elements (a)-(c) of the CDD measures set out in Recommendation 10 or to introduce business, provided that the criteria set out below are met. Where such reliance is permitted, the ultimate responsibility for CDD measures remains with the financial institution relying on the third party.
The criteria that should be met are as follows:
(a) A financial institution relying upon a third party should immediately obtain the necessary information concerning elements (a)-(c) of the CDD measures set out in Recommendation 10.
(b) Financial institutions should take adequate steps to satisfy themselves that copies of identification data and other relevant documentation relating to the CDD requirements will be made available from the third party upon request without delay.
(c) The financial institution should satisfy itself that the third party is regulated, supervised or monitored for, and has measures in place for compliance with, CDD and record-keeping requirements in line with Recommendations 10 and 11.
(d) When determining in which countries the third party that meets the conditions can be based, countries should have regard to information available on the level of country risk.
When a financial institution relies on a third party that is part of the same financial group, and
(i) that group applies CDD and record-keeping requirements, in line with Recommendations 10, 11 and 12, and programmes against money laundering and terrorist financing, in accordance with Recommendation 18; and (ii) where the effective implementation of those CDD and record-keeping requirements and AML/CFT programmes is supervised at a group level by a competent authority, then relevant competent authorities may consider that the financial institution applies measures under (b) and (c) above through its group programme, and may decide that (d) is not a necessary precondition to reliance when higher country risk is adequately mitigated by the group AML/CFT policies.
18. Internal controls and foreign branches and subsidiaries
Financial institutions should be required to implement programmes against money laundering and terrorist financing. Financial groups should be required to implement group- wide programmes against money laundering and terrorist financing, including policies and procedures for sharing information within the group for AML/CFT purposes.
Financial institutions should be required to ensure that their foreign branches and majority- owned subsidiaries apply AML/CFT measures consistent with the home country requirements implementing the FATF Recommendations through the financial groups’ programmes against money laundering and terrorist financing.
19. Higher-risk countries
Financial institutions should be required to apply enhanced due diligence measures to business relationships and transactions with natural and legal persons, and financial institutions, from countries for which this is called for by the FATF. The type of enhanced due diligence measures applied should be effective and proportionate to the risks.
Countries should be able to apply appropriate countermeasures when called upon to do so by the FATF. Countries should also be able to apply countermeasures independently of any call by the FATF to do so. Such countermeasures should be effective and proportionate to the risks.
REPORTING OF SUSPICIOUS TRANSACTIONS
20. Reporting of suspicious transactions
If a financial institution suspects or has reasonable grounds to suspect that funds are the proceeds of a criminal activity, or are related to terrorist financing, it should be required, by law, to report promptly its suspicions to the financial intelligence unit (FIU).
21. Tipping-off and confidentiality
Financial institutions, their directors, officers and employees should be:
(a) protected by law from criminal and civil liability for breach of any restriction on disclosure of information imposed by contract or by any legislative, regulatory or administrative provision, if they report their suspicions in good faith to the FIU, even if they did not know precisely what the underlying criminal activity was, and regardless of whether illegal activity actually occurred; and
(b) prohibited by law from disclosing (“tipping-off”) the fact that a suspicious transaction report (STR) or related information is being filed with the FIU.
DESIGNATED NON-FINANCIAL BUSINESSES AND PROFESSIONS
22. DNFBPs: customer due diligence
The customer due diligence and record-keeping requirements set out in Recommendations 10, 11, 12, 15, and 17, apply to designated non-financial businesses and professions (DNFBPs) in the following situations:
(a) Casinos – when customers engage in financial transactions equal to or above the applicable designated threshold.
(b) Real estate agents – when they are involved in transactions for their client concerning the buying and selling of real estate.
(c) Dealers in precious metals and dealers in precious stones – when they engage in any cash transaction with a customer equal to or above the applicable designated threshold.
(d) Lawyers, notaries, other independent legal professionals and accountants – when they prepare for or carry out transactions for their client concerning the following activities:
buying and selling of real estate;
managing of client money, securities or other assets;
management of bank, savings or securities accounts;
organisation of contributions for the creation, operation or management of companies;
creation, operation or management of legal persons or arrangements, and buying and selling of business entities.
(e) Trust and company service providers – when they prepare for or carry out transactions for a client concerning the following activities:
acting as a formation agent of legal persons;
acting as (or arranging for another person to act as) a director or secretary of a company, a partner of a partnership, or a similar position in relation to other legal persons;
providing a registered office, business address or accommodation, correspondence or administrative address for a company, a partnership or any other legal person or arrangement;
acting as (or arranging for another person to act as) a trustee of an express trust or performing the equivalent function for another form of legal arrangement;
acting as (or arranging for another person to act as) a nominee shareholder for another person.
23. DNFBPs: Other measures
The requirements set out in Recommendations 18 to 21 apply to all designated non-financial businesses and professions, subject to the following qualifications:
(a) Lawyers, notaries, other independent legal professionals and accountants should be required to report suspicious transactions when, on behalf of or for a client, they engage in a financial transaction in relation to the activities described in paragraph (d) of Recommendation 22. Countries are strongly encouraged to extend the reporting requirement to the rest of the professional activities of accountants, including auditing.
(b) Dealers in precious metals and dealers in precious stones should be required to report suspicious transactions when they engage in any cash transaction with a customer equal to or above the applicable designated threshold.
(c) Trust and company service providers should be required to report suspicious transactions for a client when, on behalf of or for a client, they engage in a transaction in relation to the activities referred to in paragraph (e) of Recommendation 22.
E. TRANSPARENCY AND BENEFICIAL OWNERSHIP OF LEGAL PERSONS AND ARRANGEMENTS
24. Transparency and beneficial ownership of legal persons
Countries should take measures to prevent the misuse of legal persons for money laundering or terrorist financing. Countries should ensure that there is adequate, accurate and timely information on the beneficial ownership and control of legal persons that can be obtained or accessed in a timely fashion by competent authorities. In particular, countries that have legal persons that are able to issue bearer shares or bearer share warrants, or which allow nominee shareholders or nominee directors, should take effective measures to ensure that they are not misused for money laundering or terrorist financing. Countries should consider measures to facilitate access to beneficial ownership and control information by financial institutions and DNFBPs undertaking the requirements set out in Recommendations 10 and 22.
25. Transparency and beneficial ownership of legal arrangements
Countries should take measures to prevent the misuse of legal arrangements for money laundering or terrorist financing. In particular, countries should ensure that there is adequate, accurate and timely information on express trusts, including information on the settlor, trustee and beneficiaries, that can be obtained or accessed in a timely fashion by competent authorities. Countries should consider measures to facilitate access to beneficial ownership and control information by financial institutions and DNFBPs undertaking the requirements set out in Recommendations 10 and 22.
F. POWERS AND RESPONSIBILITIES OF COMPETENT AUTHORITIES, AND OTHER INSTITUTIONAL MEASURES
REGULATION AND SUPERVISION
26. Regulation and supervision of financial institutions
Countries should ensure that financial institutions are subject to adequate regulation and supervision and are effectively implementing the FATF Recommendations. Competent authorities or financial supervisors should take the necessary legal or regulatory measures to prevent criminals or their associates from holding, or being the beneficial owner of, a significant or controlling interest, or holding a management function in, a financial institution. Countries should not approve the establishment, or continued operation, of shell banks.
For financial institutions subject to the Core Principles, the regulatory and supervisory measures that apply for prudential purposes, and which are also relevant to money laundering and terrorist financing, should apply in a similar manner for AML/CFT purposes. This should include applying consolidated group supervision for AML/CFT purposes.
Other financial institutions should be licensed or registered and adequately regulated, and subject to supervision or monitoring for AML/CFT purposes, having regard to the risk of money laundering or terrorist financing in that sector. At a minimum, where financial institutions provide a service of money or value transfer, or of money or currency changing, they should be licensed or registered, and subject to effective systems for monitoring and ensuring compliance with national AML/CFT requirements.
27. Powers of supervisors
Supervisors should have adequate powers to supervise or monitor, and ensure compliance by, financial institutions with requirements to combat money laundering and terrorist financing, including the authority to conduct inspections. They should be authorised to compel production of any information from financial institutions that is relevant to monitoring such compliance, and to impose sanctions, in line with Recommendation 35, for failure to comply with such requirements. Supervisors should have powers to impose a range of disciplinary and financial sanctions, including the power to withdraw, restrict or suspend the financial institution’s license, where applicable.
28. Regulation and supervision of DNFBPs
Designated non-financial businesses and professions should be subject to regulatory and supervisory measures as set out below.
(a) Casinos should be subject to a comprehensive regulatory and supervisory regime that ensures that they have effectively implemented the necessary AML/CFT measures. At a minimum:
casinos should be licensed;
competent authorities should take the necessary legal or regulatory measures to prevent criminals or their associates from holding, or being the beneficial owner of, a significant or controlling interest, holding a management function in, or being an operator of, a casino; and
competent authorities should ensure that casinos are effectively supervised for compliance with AML/CFT requirements.
(b) Countries should ensure that the other categories of DNFBPs are subject to effective systems for monitoring and ensuring compliance with AML/CFT requirements. This should be performed on a risk-sensitive basis. This may be performed by (a) a supervisor or (b) by an appropriate self-regulatory body (SRB), provided that such a body can ensure that its members comply with their obligations to combat money laundering and terrorist financing.
The supervisor or SRB should also (a) take the necessary measures to prevent criminals or their associates from being professionally accredited, or holding or being the beneficial owner of a significant or controlling interest or holding a management function, e.g. through evaluating persons on the basis of a “fit and proper” test; and (b) have effective, proportionate, and dissuasive sanctions in line with Recommendation 35 available to deal with failure to comply with AML/CFT requirements.
OPERATIONAL AND LAW ENFORCEMENT
29. Financial intelligence units
Countries should establish a financial intelligence unit (FIU) that serves as a national centre for the receipt and analysis of: (a) suspicious transaction reports; and (b) other information relevant to money laundering, associated predicate offences and terrorist financing, and for the dissemination of the results of that analysis. The FIU should be able to obtain additional information from reporting entities, and should have access on a timely basis to the financial, administrative and law enforcement information that it requires to undertake its functions properly.
30. Responsibilities of law enforcement and investigative authorities
Countries should ensure that designated law enforcement authorities have responsibility for money laundering and terrorist financing investigations within the framework of national AML/CFT policies. At least in all cases related to major proceeds-generating offences, these designated law enforcement authorities should develop a pro-active parallel financial investigation when pursuing money laundering, associated predicate offences and terrorist financing. This should include cases where the associated predicate offence occurs outside their jurisdictions. Countries should ensure that competent authorities have responsibility for expeditiously identifying, tracing and initiating actions to freeze and seize property that is, or may become, subject to confiscation, or is suspected of being proceeds of crime. Countries should also make use, when necessary, of permanent or temporary multi-disciplinary groups specialised in financial or asset investigations. Countries should ensure that, when necessary, cooperative investigations with appropriate competent authorities in other countries take place.
31. Powers of law enforcement and investigative authorities
When conducting investigations of money laundering, associated predicate offences and terrorist financing, competent authorities should be able to obtain access to all necessary documents and information for use in those investigations, and in prosecutions and related actions. This should include powers to use compulsory measures for the production of records held by financial institutions, DNFBPs and other natural or legal persons, for the search of persons and premises, for taking witness statements, and for the seizure and obtaining of evidence.
Countries should ensure that competent authorities conducting investigations are able to use a wide range of investigative techniques suitable for the investigation of money laundering, associated predicate offences and terrorist financing. These investigative techniques include: undercover operations, intercepting communications, accessing computer systems and controlled delivery. In addition, countries should have effective mechanisms in place to identify, in a timely manner, whether natural or legal persons hold or control accounts. They should also have mechanisms to ensure that competent authorities have a process to identify assets without prior notification to the owner. When conducting investigations of money laundering, associated predicate offences and terrorist financing, competent authorities should be able to ask for all relevant information held by the FIU.
32. Cash couriers
Countries should have measures in place to detect the physical cross-border transportation of currency and bearer negotiable instruments, including through a declaration system and/or disclosure system.
Countries should ensure that their competent authorities have the legal authority to stop or restrain currency or bearer negotiable instruments that are suspected to be related to terrorist financing, money laundering or predicate offences, or that are falsely declared or disclosed.
Countries should ensure that effective, proportionate and dissuasive sanctions are available to deal with persons who make false declaration(s) or disclosure(s). In cases where the currency or bearer negotiable instruments are related to terrorist financing, money laundering or predicate offences, countries should also adopt measures, including legislative ones consistent with Recommendation 4, which would enable the confiscation of such currency or instruments.
Countries should maintain comprehensive statistics on matters relevant to the effectiveness and efficiency of their AML/CFT systems. This should include statistics on the STRs received and disseminated; on money laundering and terrorist financing investigations, prosecutions and convictions; on property frozen, seized and confiscated; and on mutual legal assistance or other international requests for cooperation.
34. Guidance and feedback
The competent authorities, supervisors and SRBs should establish guidelines, and provide feedback, which will assist financial institutions and designated non-financial businesses and professions in applying national measures to combat money laundering and terrorist financing, and, in particular, in detecting and reporting suspicious transactions.
Countries should ensure that there is a range of effective, proportionate and dissuasive sanctions, whether criminal, civil or administrative, available to deal with natural or legal persons covered by Recommendations 6, and 8 to 23, that fail to comply with AML/CFT requirements. Sanctions should be applicable not only to financial institutions and DNFBPs, but also to their directors and senior management.
G. INTERNATIONAL COOPERATION
36. International instruments
Countries should take immediate steps to become party to and implement fully the Vienna Convention, 1988; the Palermo Convention, 2000; the United Nations Convention against Corruption, 2003; and the Terrorist Financing Convention, 1999. Where applicable, countries are also encouraged to ratify and implement other relevant international conventions, such as the Council of Europe Convention on Cybercrime, 2001; the Inter-American Convention against Terrorism, 2002; and the Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime and on the Financing of Terrorism, 2005.
37. Mutual legal assistance
Countries should rapidly, constructively and effectively provide the widest possible range of mutual legal assistance in relation to money laundering, associated predicate offences and terrorist financing investigations, prosecutions, and related proceedings. Countries should have an adequate legal basis for providing assistance and, where appropriate, should have in place treaties, arrangements or other mechanisms to enhance cooperation. In particular, countries should:
(a) Not prohibit, or place unreasonable or unduly restrictive conditions on, the provision of mutual legal assistance.
(b) Ensure that they have clear and efficient processes for the timely prioritisation and execution of mutual legal assistance requests. Countries should use a central authority, or another established official mechanism, for effective transmission and execution of requests. To monitor progress on requests, a case management system should be maintained.
(c) Not refuse to execute a request for mutual legal assistance on the sole ground that the offence is also considered to involve fiscal matters.
(d) Not refuse to execute a request for mutual legal assistance on the grounds that laws require financial institutions or DNFBPs to maintain secrecy or confidentiality (except where the relevant information that is sought is held in circumstances where legal professional privilege or legal professional secrecy applies).
(e) Maintain the confidentiality of mutual legal assistance requests they receive and the information contained in them, subject to fundamental principles of domestic law, in order to protect the integrity of the investigation or inquiry. If the requested country cannot comply with the requirement of confidentiality, it should promptly inform the requesting country.
Countries should render mutual legal assistance, notwithstanding the absence of dual criminality, if the assistance does not involve coercive actions. Countries should consider adopting such measures as may be necessary to enable them to provide a wide scope of assistance in the absence of dual criminality.
Where dual criminality is required for mutual legal assistance, that requirement should be deemed to be satisfied regardless of whether both countries place the offence within the same category of offence, or denominate the offence by the same terminology, provided that both countries criminalise the conduct underlying the offence.
Countries should ensure that, of the powers and investigative techniques required under Recommendation 31, and any other powers and investigative techniques available to their competent authorities:
(a) all those relating to the production, search and seizure of information, documents or evidence (including financial records) from financial institutions or other persons, and the taking of witness statements; and
(b) a broad range of other powers and investigative techniques;
are also available for use in response to requests for mutual legal assistance, and, if consistent with their domestic framework, in response to direct requests from foreign judicial or law enforcement authorities to domestic counterparts.
To avoid conflicts of jurisdiction, consideration should be given to devising and applying mechanisms for determining the best venue for prosecution of defendants in the interests of justice in cases that are subject to prosecution in more than one country.
Countries should, when making mutual legal assistance requests, make best efforts to provide complete factual and legal information that will allow for timely and efficient execution of requests, including any need for urgency, and should send requests using expeditious means. Countries should, before sending requests, make best efforts to ascertain the legal requirements and formalities to obtain assistance.
The authorities responsible for mutual legal assistance (e.g. a Central Authority) should be provided with adequate financial, human and technical resources. Countries should have in place processes to ensure that the staff of such authorities maintain high professional standards, including standards concerning confidentiality, and should be of high integrity and be appropriately skilled.
38. Mutual legal assistance: freezing and confiscation
Countries should ensure that they have the authority to take expeditious action in response to requests by foreign countries to identify, freeze, seize and confiscate property laundered; proceeds from money laundering, predicate offences and terrorist financing; instrumentalities used in, or intended for use in, the commission of these offences; or property of corresponding value. This authority should include being able to respond to requests made on the basis of non-conviction-based confiscation proceedings and related provisional measures, unless this is inconsistent with fundamental principles of their domestic law. Countries should also have effective mechanisms for managing such property, instrumentalities or property of corresponding value, and arrangements for coordinating seizure and confiscation proceedings, which should include the sharing of confiscated assets.
Countries should constructively and effectively execute extradition requests in relation to money laundering and terrorist financing, without undue delay. Countries should also take all possible measures to ensure that they do not provide safe havens for individuals charged with the financing of terrorism, terrorist acts or terrorist organisations. In particular, countries should:
(a) ensure money laundering and terrorist financing are extraditable offences;
(b) ensure that they have clear and efficient processes for the timely execution of extradition requests including prioritisation where appropriate. To monitor progress of requests a case management system should be maintained;
(c) not place unreasonable or unduly restrictive conditions on the execution of requests; and
(d) ensure they have an adequate legal framework for extradition.
Each country should either extradite its own nationals, or, where a country does not do so solely on the grounds of nationality, that country should, at the request of the country seeking extradition, submit the case, without undue delay, to its competent authorities for the purpose of prosecution of the offences set forth in the request. Those authorities should take their decision and conduct their proceedings in the same manner as in the case of any other offence of a serious nature under the domestic law of that country. The countries concerned should cooperate with each other, in particular on procedural and evidentiary aspects, to ensure the efficiency of such prosecutions.
Where dual criminality is required for extradition, that requirement should be deemed to be satisfied regardless of whether both countries place the offence within the same category of offence, or denominate the offence by the same terminology, provided that both countries criminalise the conduct underlying the offence.
Consistent with fundamental principles of domestic law, countries should have simplified extradition mechanisms, such as allowing direct transmission of requests for provisional arrests between appropriate authorities, extraditing persons based only on warrants of arrests or judgments, or introducing a simplified extradition of consenting persons who waive formal extradition proceedings. The authorities responsible for extradition should be provided with adequate financial, human and technical resources. Countries should have in place processes to ensure that the staff of such authorities maintain high professional standards, including standards concerning confidentiality, and should be of high integrity and be appropriately skilled.
40. Other forms of international cooperation
Countries should ensure that their competent authorities can rapidly, constructively and effectively provide the widest range of international cooperation in relation to money laundering, associated predicate offences and terrorist financing. Countries should do so both spontaneously and upon request, and there should be a lawful basis for providing cooperation. Countries should authorise their competent authorities to use the most efficient means to cooperate. Should a competent authority need bilateral or multilateral agreements or arrangements, such as a Memorandum of Understanding (MOU), these should be negotiated and signed in a timely way with the widest range of foreign counterparts.
Competent authorities should use clear channels or mechanisms for the effective transmission and execution of requests for information or other types of assistance. Competent authorities should have clear and efficient processes for the prioritisation and timely execution of requests, and for safeguarding the information received.