Financial Institutions Must Comply with Anti-Money Laundering and Terrorist Financing Screening Obligations

A recent review by international authorities has shed light on the varying levels of awareness and implementation techniques used by financial institutions, including banks and other intermediaries, to screen for terrorist financing (TF) risks.

Awareness of ML/TF Risks

While some financial institutions have a good understanding of money laundering (ML) and TF risks, others may struggle to identify close associations with sanctioned entities and individuals. The review found that all obliged entities, including banks, face difficulties in identifying indirect links between parties.

Risk-Based Approach Lacking

The review also identified gaps in the risk-based regulatory framework for non-profit organizations (NPOs). Specifically:

• There is a lack of identification of NPOs that fall under the Financial Action Task Force (FATF) definition.
• There is a need for guidance on how to assess TF risks associated with NPOs.

Supervision and Enforcement

The authorities supervising financial institutions have taken steps to address breaches, but sanctions have not been consistently applied. The review noted that:

• Some supervisors have improved their approach in recent years, but more needs to be done to demonstrate the effectiveness of these measures.
• Consistent application of sanctions is crucial to ensure effective supervision and enforcement.

Transparency and Beneficial Ownership

The review found that:

• The basic features of legal persons are set out in publicly available legislation.
• However, there is still a risk of misuse of legal persons for ML.
• Important steps have been taken by Romania to prevent this, including the development and use of public registries, which support a multi-pronged approach to collecting and accessing beneficial ownership information.

Conclusion

The review highlights the importance of financial institutions complying with anti-money laundering and terrorist financing screening obligations. While there are some positive developments, more needs to be done to ensure that these obligations are effectively implemented and enforced. The authorities supervising financial institutions must continue to work towards improving their approach and ensuring that the risks associated with ML/TF are adequately addressed.

Key Takeaways

• Financial institutions must comply with anti-money laundering and terrorist financing screening obligations.
• A risk-based approach is lacking in the regulatory framework for non-profit organizations.
• Supervision and enforcement need improvement, including consistent application of sanctions.
• Transparency and beneficial ownership information are crucial to prevent misuse of legal persons.