Iceland is on the FATF List of Countries that have been identified as having strategic AML deficiencies
FATF Statement re AML Strategic Deficiencies: 18 October 2019
In October 2019, Iceland made a high-level political commitment to work with the FATF to strengthen the effectiveness of its AML/CFT regime. Since the completion of its MER in 2017, Iceland has made progress on a number of recommended actions to improve technical compliance and effectiveness, including carrying out a second national risk assessment, comprehensive outreach to deepen the understanding of relevant risks across sectors, enhancing risk based supervision in both the financial and DNFBP sector and significantly strengthening the capacities of investigation and law enforcement authorities. Iceland will work to implement its action plan, by: (1) ensuring the access to accurate basic and beneficial ownership information for legal persons by competent authorities in a timely manner; (2) introducing an automated system for STR filing and enhancing the FIU’s capacity in its strategic and operational analysis; (3) ensuring implementation of the TFS requirements among FIs and DNFBPs through effective supervision, and enabling effective oversight and monitoring of NPOs with adequate resources and in line with the identified TF risks. FATF noted that Iceland had already pro-actively taken steps to address these issues before the Action Plan’s formal adoption by FATF. However, the FATF could not yet fully review these due to their very recent nature.
Compliance with FATF Recommendations
The first follow-up Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in Iceland was undertaken in 2019. According to that Evaluation, Iceland was deemed Compliant for 14 and Largely Compliant for 13 of the FATF 40 Recommendations. It was deemed Highly effective for 0 and Substantially Effective for 1 of the Effectiveness & Technical Compliance ratings.
US Department of State Money Laundering assessment (INCSR)
Iceland was deemed a ‘Monitored’ Jurisdiction by the US Department of State 2016 International Narcotics Control Strategy Report (INCSR). Key Findings from the report are as follows: -
Iceland is not considered a regional financial center. Criminal proceeds tend to derive from domestic organizations with some linkages to foreign groups. Money laundering in Iceland is related primarily to tax evasion, narcotics trafficking, fraud and other economic crimes, and underground casinos. Over the years, very few cases have been registered as pure money laundering cases, mainly due to the unavailability of statistical data. Financial crimes concerning market manipulation have been prosecuted, but the scale of money laundering involved in such activities is not clear. The Economic Crime Unit, which transferred from the National Commissioner of the Icelandic Police (NCIP) and merged with the Office of the Special Prosecutor (OSP) in 2012, continues to investigate criminal actions in connection with the 2008 collapse of Iceland’s financial system.
There are no international sanctions currently in force against this country.
BRIBERY & CORRUPTION
Rating (100-Good / 0-Bad)
Transparency International Corruption Index 76
World Governance Indicator – Control of Corruption 93
The rule of law is strong in Iceland, and the tolerance for corruption is low. Although isolated cases of corruption do occur, it is not an obstacle to business. Iceland’s General Penal Code (GPC) criminalises the acts of giving and receiving a bribe, abuse of office, trading in influence and fraud. It establishes criminal liability for individuals and companies, and forbids bribery between businesses and foreign public officials. While there is no distinction made between bribes and facilitation payments, the illegality of gifts and hospitality depends on their intent and the benefit obtained. Since the financial crisis, a number of fraud scandals have been uncovered in the financial sector, revealing conflicts of interest between businesses and political figures, as well as abuse of public funds. This has exposed institutional weaknesses and raised fundamental questions about the integrity of the governing institutions. The government has initiated a large number of investigations into the collapse, as well as legal and regulatory measures to counter abuses in its financial system. For further information - GAN Integrity Business Anti-Corruption Portal
Iceland's Scandinavian-type social-market economy combines a capitalist structure and free-market principles with an extensive welfare system. Except for a brief period during the 2008 crisis, Iceland has achieved high growth, low unemployment, and a remarkably even distribution of income. The economy depends heavily on the fishing industry, which provides 40% of merchandise export earnings, more than 12% of GDP, and employs nearly 5% of the work force. It remains sensitive to declining fish stocks as well as to fluctuations in world prices for its main exports: fish and fish products, aluminium, and ferrosilicon. Since 2010, tourism has become the main pillar of Icelandic economic growth, with the number of tourists expected to reach or exceed 4.5 times the Icelandic population in 2016.
Iceland's economy has been diversifying into manufacturing and service industries in the last decade, particularly within the fields of tourism, software production, and biotechnology. In fall 2013, the Icelandic Government approved a joint application by Icelandic, Chinese, and Norwegian energy firms to conduct oil exploration off Iceland’s northeast coast, although no exploration has yet taken place. Abundant geothermal and hydropower sources have attracted substantial foreign investment in the aluminium sector, boosted economic growth, and sparked some interest from high-tech firms looking to establish data centres using cheap green energy, although the financial crisis has put several investment projects on hold.
Following the privatization of the banking sector in the early 2000s, domestic banks expanded aggressively in foreign markets, and consumers and businesses borrowed heavily in foreign currencies. Worsening global financial conditions throughout 2008 resulted in a sharp depreciation of the krona vis-a-vis other major currencies. The foreign exposure of Icelandic banks, whose loans and other assets totalled more than 10 times the country's GDP, became unsustainable. Iceland's three largest banks collapsed in late 2008. The country secured over $10 billion in loans from the IMF and other countries to stabilize its currency and financial sector, and to back government guarantees for foreign deposits in Icelandic banks. GDP fell 6.8% in 2009, and unemployment peaked at 9.4% in February 2009. Three new banks were established to take over the domestic assets of the collapsed banks. Two of them have majority ownership by the State, which intends to re-privatize them.
Since the collapse of Iceland's financial sector, government economic priorities have included stabilizing the krona, implementing capital controls, reducing Iceland's high budget deficit, containing inflation, addressing high household debt, restructuring the financial sector, and diversifying the economy. Iceland’s financial woes prompted an initial increase in public support to join the EU and the euro zone, with accession negotiations beginning in July 2010, but negotiations were suspended under the 2013 centre-right government. Most macroeconomic indicators and employment have rebounded to pre-crisis levels, driven primarily by the unprecedented growth in tourism – averaging over 20% annually – following the well-publicised volcanic eruption in 2010.
Agriculture - products:
potatoes, carrots, green vegetables; mutton, chicken, pork, beef, dairy products; fish
tourism, fish processing; aluminium smelting, ferrosilicon production; geothermal power, hydropower, tourism
Exports - commodities:
fish and fish products 40%, aluminium, animal products, ferrosilicon, diatomite (2010 est.)
Exports - partners:
Netherlands 26.1%, UK 11.6%, Spain 11.5%, Germany 7.4%, France 5.7%, US 5.7%, Norway 4.7% (2015)
Imports - commodities:
machinery and equipment, petroleum products, foodstuffs, textiles
Imports - partners:
Norway 10.1%, Germany 8.6%, US 7.9%, China 7.9%, Denmark 7.1%, Netherlands 5.9%, Brazil 5.8%, UK 5% (2015)
Investment Climate - US State Department
Iceland is an island country located in the Atlantic Ocean near the Arctic Circle. The largest amount of foreign direct investment (FDI) in Iceland comes from the United States. Until recently, U.S. investment has been centered in the aluminum sector, (Alcoa, Century Aluminum operating plants.
Icelandic authorities have identified certain sectors in which they believe Iceland has a competitive advantage, such data processing, high tech development, and eco-tourism. IT startups are burgeoning, and foreign investors have expressed growing interest in Iceland’s retail sector. Foreign investment in the fisheries sector, however, remains restricted, especially when it comes to investing in fishing companies that possess transferable quotas.
Tourism has grown by double digits in each of the last six years. There is a shortage of hotel rooms, with the projected number of tourists to exceed 1.6 million in 2016. Marriott is currently constructing the first 5-star hotel in Reykjavik. Many tourism- and hospitality-related investment opportunities exist. U.S franchise Dunkin Donuts opened its first stores in Reykjavik in 2015.
Iceland’s economy suffered significantly in the 2008 financial crisis, resulting in a systemic collapse of all three banks, and government-imposed capital controls in an effort to preserve the balance of payments. In 2015 the government took final steps to resolve the estates of the three failed banks and announced it will ease capital controls gradually beginning in 2016. This return to an open economy should help attract further investment.
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