Financial Crime World

Faroe Islands Under International Scrutiny: FATF Identifies AML/CFT Deficiencies

The Faroe Islands, an autonomous territory of Denmark in the North Atlantic Ocean, are under the international spotlight following concerns about banking secrecy rules and a lack of transparency in their financial system. In November 2021, the Financial Action Task Force (FATF) identified several Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF) deficiencies in the Faroe Islands’ regulatory framework.

Assessment and Findings

The FATF, an international organization, sets global standards to prevent money laundering and terrorist financing. They conduct ongoing evaluations of countries to assess legal and regulatory frameworks against financial crimes.

Following the assessment, the FATF team identified numerous vulnerabilities in the islands’ regulatory framework that could be exploited by criminals:

  1. Limited access to beneficial ownership information: No central registry of beneficial ownership information is available to the public or relevant authorities.
  2. Inadequate customer due diligence procedures: Current procedures do not meet the FATF’s standards for risk assessment and ongoing monitoring of customers’ transactions.
  3. Insufficient regulation of trusts and foundations: There is a lack of legal framework addressing the creation, operation, and termination of trusts and foundations.
  4. Challenges in the legal framework for confiscating and freezing assets: The process for confiscating and freezing assets is lengthy and complex.
  5. Absence of a centralized financial intelligence unit: Currently, no centralized financial intelligence unit exists to collect, analyze, and disseminate financial intelligence.

International Consequences

The Faroe Islands were given a deadline by the FATF to implement countermeasures to address these concerns. Failure to do so could result in international sanctions and isolation from the global financial system.

Response from the Faroe Islands

As a response to the assessment report, the Faroe Islands Government announced the following measures to boost its AML/CFT capabilities:

  1. Establishment of a new financial intelligence unit: A new financial intelligence unit is being formed.
  2. Implementation of legal frameworks for confiscating and freezing assets: Legislation is being developed to improve the process of confiscating and freezing assets.
  3. Strengthening of customer due diligence procedures: Enhanced risk assessment and monitoring procedures are being implemented for customers.

International Compliance

In an effort to meet international standards and strengthen the global fight against financial crimes, the Faroe Islands have signed several international conventions and agreements:

  1. United Nations Convention Against Transnational Organized Crime: Signed on October 25, 2002.
  2. United Nations Convention Against Corruption: Ratified on August 5, 2005.
  3. European Union’s Fifth Anti-Money Laundering Directive: Applied from January 10, 2020.

Global Struggle Against Financial Crimes

The FATF assessment of the Faroe Islands highlights the ongoing struggle to combat various forms of financial crimes, including complex financial structures and digitally-enabled crimes. Effective regulatory frameworks are crucial in preventing criminals from exploiting weaknesses in financial systems. The FATF’s evaluation of the Faroe Islands serves as a reminder of the constant need for diligence and improvement.