Financial Crime World

San Marino’s Financial Institutions Face AML/CFT Challenges

Struggling to Implement Anti-Money Laundering and Combating the Financing of Terrorism Requirements

October 10, 2022 - San Marino’s financial institutions are facing significant challenges in effectively implementing Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) requirements, according to a recent report.

The report highlights several shortcomings in San Marino’s AML/CFT legal framework:

  • Lack of senior management approval: The requirement for senior management approval only applies to establishing business relationships with Politically Exposed Persons (PEPs), but not for continuing those relationships if a customer or beneficial owner is later found to be a PEP.
  • Simplified transactions: Article 26 of the AML/CFT law allows financial institutions to forego due diligence requirements for simplified transactions, which can increase the risk of money laundering and terrorist financing.
  • Pre-completion of due diligence: Article 23 permits institutions to start business relationships before completing due diligence, without requiring them to manage associated risks.

Insufficient Hiring Practices

The report also notes that there are no adequate screening procedures in place for hiring employees, which can increase the risk of money laundering and terrorist financing.

Inadequate Customer Monitoring

Additionally, Instruction 2009/03 on implementing a risk-based approach allows financial institutions to limit their monitoring of customers’ transactions to once every two years, which is contrary to ongoing monitoring requirements under Article 22 of the AML/CFT law.

Mixed Results in Implementing AML/CFT Requirements

While there has been a steady increase in suspicious transaction reports (STRs) received by San Marino’s Financial Intelligence Agency (FIA), many legacy customers may have been accepted without proper due diligence, given the country’s lack of enforcement of AML requirements prior to 2008.

Recommendations for Effective Implementation

To effectively implement AML/CFT requirements, the report recommends that financial institutions prioritize:

  • Verification of customer identity and source of funds or income
  • Risk-based profiling of clients
  • Ongoing monitoring of business relationships

It also urges authorities to address the identified shortcomings in the legal framework.

Conclusion

Effective customer due diligence and availability of comprehensive information on clients and transactions are crucial not only for financial institutions to comply with AML/CFT obligations but also for authorities to undertake financial analysis, criminal investigations, and supervision.