France’s AML/CFT Framework: A Comprehensive Legal and Regulatory Framework

The French Ministry of Economy has introduced a comprehensive legal and regulatory framework to combat money laundering (ML) and terrorist financing (TF). This framework, which came into effect on September 2, 2009, is designed to enhance the country’s anti-money laundering and combating the financing of terrorism efforts.

Knowing the Customer and Business Relationship

The framework emphasizes the importance of knowing the customer and business relationship. Financial institutions are required to collect information about:

• The purpose and nature of the business relationship
• Any other relevant information concerning the customer

This information must be updated throughout the duration of the business relationship.

Beneficial Owner Identification

The framework also requires financial institutions to identify the beneficial owner of a business relationship through any appropriate process and verify this identification through any submitted valid written document. The notion of beneficial owner is defined as:

• “The natural person who directly or indirectly controls the customer, or the natural person on behalf of whom a transaction or activity is conducted.”

Ongoing Due Diligence

Financial institutions are required to exercise ongoing due diligence throughout the duration of the business relationship. This includes an attentive examination of transactions executed and ensuring that they are consistent with the current knowledge the institution has concerning its customer.

Risk-Based Approach

The framework adopts a risk-based approach, requiring financial institutions to develop and implement policies and procedures based on the risks presented by their customers, products, or transactions. This approach is designed to ensure that higher-risk situations receive more attention and scrutiny.

Anonymous Capitalization Bonds

However, there are some concerns regarding anonymous capitalization bonds, which can circulate between subscription and reimbursement without the identity of the persons holding them being known. While measures have been taken to identify and verify the identity of the person subscribing and requesting reimbursement or repurchase, these bonds still present a high risk of ML/TF.

Conclusion

Overall, France’s AML/CFT framework appears to meet most of the requirements set out in Recommendation 5. However, there are some areas that require further attention, such as the implementation of new aspects introduced in the framework and the need for French authorities to consider repealing provisions authorizing and organizing the issuance of anonymous bonds.

Recommendations

To strengthen its AML/CFT framework, France is recommended to:

• Ensure that all financial institutions effectively implement the new requirements and regulations
• Consider repealing provisions authorizing and organizing the issuance of anonymous capitalization bonds
• Enhance monitoring of transactions conducted later in business relationships considered as high-risk
• Provide guidance on how to identify and report suspicious transactions

By implementing these recommendations, France can further strengthen its efforts to combat ML/TF and maintain a robust AML/CFT framework.