Title: Andorra’s Anti-Money Laundering Laws Under IMF Scrutiny: Assessment Report Reveals Progress and Challenges

Subheading: IMF Assessment of Andorra’s Financial Sector Supervision and AML Mechanisms

Andorra, a European principality renowned for its tax havens and financial secrecy, has come under the International Monetary Fund (IMF) microscope, with an assessment report released in 2002 shedding light on the country’s financial sector supervision and anti-money laundering (AML) arrangements.

Background: Shift from Self-Regulating to Regulated Financial Sector

With a financial sector comprising eight licensed banks with a total asset value of €11.8 billion, Andorra underwent a major transformation, moving from a self-regulating banking system in 1993 to a regulated one. Oversight responsibilities in this new framework were delegated to the Andorran National Institute of Finance (INAF) and the Supreme Finance Commission (CSF). Spanish banks retained control over the insurance sector.

IMF Assessment: Stand-Alone Evaluation of Financial Supervision and AML Framework

An IMF team conducted a stand-alone assessment in February 2002 focused on regulatory and supervisory frameworks, banking sector supervision, and Andorra’s AML/Combating the Financing of Terrorism (CFT) arrangements, based on the Basel Core Principles for Effective Banking Supervision and expanded AML methodology.

Regulatory and Supervisory Framework: Compliance and Progress

Andorra’s regulatory and supervisory framework is sound, with the country generally adhering to 14 Basel Core Principles and demonstrating substantial compliance with 13. Yet, two principles remained materially non-compliant.

AML/CFT Arrangements: Foundations and Recommendations for Improvements

The IMF assessment reported that Andorra’s AML/CFT framework has solid foundations, with both criminal law and regulatory perspectives in place. However, the report suggested several improvements:

1. Establish a separate financial intelligence unit (FIU).
2. Expand the list of predicate offenses.
3. Expand diligence obligations to include non-financial legal and natural persons.
4. Provide INAF with specific powers to complement independent external audits.

Additionally, the report praised the creation of the Unit for Prevention of Laundering (UPB) in 2001, which handles money laundering investigations and supervision, and introduced mandatory customer due diligence and recordkeeping requirements for financial intermediaries.

Legislation in Progress: Strengthening Financial Supervision and Regulatory Mechanisms

The report recommended several legislative improvements to further bolster financial supervision and regulatory mechanisms. These included:

1. Strengthen the autonomy of the INAF.
2. Protect investors and promote market transparency in the securities sector.
3. Encourage the development of a private-sector credit bureau to enhance market discipline.