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EU Warns of Money Laundering Risks in Monaco, San Marino, Andorra

· 3 min read
Hannah Chang
Fraud Prevention Manager

Monaco, San Marino, and Andorra, renowned for their generous tax exemptions and secrecy, have raised concerns for EU's top financial regulators due to potential money laundering risks as the bloc moves to strengthen economic ties with these countries.

Concerns Over Micro-States' Regulatory Systems​

Andrea Enria, the Chair of the European Banking Authority (EBA), expressed concerns during a recent meeting of EU finance ministers. Enria urges EU countries to step up their anti-money laundering (AML) efforts, noting these micro-states' lax regulatory systems.

  • Monaco
  • San Marino
  • Andorra

These countries are popular destinations for wealthy individuals and businesses seeking to evade taxes and hide their assets.

New Regulatory Framework Proposed​

The European Commission has proposed a new regulatory framework to enhance cooperation between EU member states and these micro-states in the areas of taxation, AML, and financial transparency. The proposed framework includes:

  • Automatic exchange of information on tax matters
  • Stricter AML and counter-terrorist financing (CTF) rules

Reservations and Concerns​

Enria and other EU officials have expressed reservations about the proposed deal, fearing potential loopholes and the undermining of EU efforts to combat financial crime. The European Parliament's economic affairs committee calls for a more thorough assessment of the money laundering and tax evasion risks associated with these micro-states before any deal is reached.

Monaco's Challenges​

Monaco, in particular, has faced criticism for its lax AML laws and insufficient enforcement:

  1. The European Money Valideation Authority (EMVA) said Monaco's AML framework did not meet EU standards in 2019.
  2. Monaco's lack of transparency and weak regulatory oversight could make it vulnerable to financial crime.
  3. High-profile cases of money laundering and tax evasion have come to light, involving prominent business figures and politicians from around the world.
  4. A Russian oligarch was found to have stashed away a fortune in property and businesses in the tiny principality.

Measures to Address Concerns​

European regulators call on Monaco and other micro-states to take immediate steps to strengthen their AML frameworks and improve transparency:

  1. Adoption of a risk-based approach to AML
  2. Establishment of a financial intelligence unit
  3. Implementation of customer due diligence requirements

The EU's Financial Action Task Force (FATF) urges Monaco to implement these measures to comply with international AML standards and mitigate financial crime risks.

Cooperation and Progress​

Monaco, along with San Marino and Andorra, have pledged to work with the EU to address these concerns. However, concerns remain about their willingness and ability to bring their regulatory systems in line with EU standards, and the risks of financial crime in these jurisdictions continue to pose a significant challenge to the European Union's efforts to combat money laundering and tax evasion.