Financial Crime World

Financial Sector Lacks Strong AML/CTF Measures, Says Report

The financial sector in [Country] is facing significant shortcomings in its Anti-Money Laundering and Combating the Financing of Terrorism (AML/CTF) measures, according to a recent report.

Concentration of STR Reporting

The report highlights that Suspicious Transaction Reports (STRs) are concentrated mainly in the banking sector, with other financial sectors accounting for a negligible number of reports.

Quality of STRs and Low Reporting from DNFBP Sector

  • The quality of STRs needs improvement.
  • The level of reporting from the Designated Non-Financial Businesses and Professions (DNFBP) sector is low.
  • There is no specific focus on scenarios for detecting and reporting Terrorist Financing (TF).

Internal Control Framework

All Financial Institutions (FIs) have an internal control framework in place to ensure compliance with AML/CTF due diligence obligations. However, the report suggests that the internal control function of DNFBPs is generally less sophisticated.

Supervisory Process Criticisms

  • The Central Bank’s (CBA) licensing process does not always verify information through reliable and independent sources.
  • Market entry checks do not always cover Beneficial Owners (BOs).
  • The identification of criminals’ associates is not carried out.

STS Registration System

The State Tax Service (STS), responsible for registering realtors, legal advisors, and accountants, has a good system of gathering and verifying basic information but limited effectiveness when it comes to BOs.

Assessment of DNFBPs by Other Authorities

  • The Chamber of Auditors, Ministry of Justice, and Bar Association are responsible for assessing the fitness and propriety of other DNFBPs.
  • This assessment is generally sound.

CBA’s Understanding of ML/TF Risk

The report concludes that while the CBA has a good understanding of the sectors it supervises, its understanding of Money Laundering (ML)/Terrorist Financing (TF) risk may be limited by shortcomings identified earlier.

Sanctioning Regime Shortcomings

  • The sanctioning regime in place cannot be considered effective, proportionate, and dissuasive due to technical shortcomings.
  • Where shortcomings are identified during on-site visits, the CBA often opts for action plans instead of sanctions.

Transparency and Beneficial Ownership

  • Information on the creation and types of legal persons is publicly available.
  • The STS publishes information regarding documents which must be provided upon registration.
  • Trusts cannot be established under Azerbaijani law, and there are no trusts using services of FIs in Azerbaijan.

Conclusions

The report concludes that authorities have a moderate understanding of ML risk based on the conclusions of the National Risk Assessment (NRA). However, there is room for improvement in terms of identifying business sectors at greatest risk and analyzing vulnerabilities of other types of legal persons.