Investigations into Suspicious Transactions: A Critical Component of Anti-Money Laundering and Combatting Financing of Terrorism Efforts
Despite finding no evidence of suspicious transactions, reporting entities must still demonstrate that they have carried out thorough investigations to identify potential money laundering and financing of terrorism (ML/FT) activities.
Conducting Investigations
As part of their due diligence obligations, reporting entities are required to formally document each step of the investigation process. This written record serves as a means of proving compliance with anti-money laundering and combating financing of terrorism (AML/CFT) regulations.
Criteria for Conducting Special Examinations
According to article 14 of Law 1.362, as amended, special examinations must be conducted when certain criteria are met, including:
- Complex transactions
- Unusually high transaction amounts
- Unusual patterns
- Lack of apparent economic or lawful purpose
- Transactions involving counterparty links to high-risk jurisdictions or territories
Identifying High-Risk Jurisdictions
To identify high-risk jurisdictions, reporting entities should consult Monaco’s official list of states or territories with strategic deficiencies in their AML/CFT systems. This list is maintained by the government and published in the “Journal Officiel” by Ministerial Order.
Collecting and Assessing Information
Reporting entities must also collect and assess information on the geographical components of business relationships and transactions to identify links to non-cooperative jurisdictions. Additionally, they must conduct continuous sanctions screening to detect links to sanctioned persons.
Transaction Monitoring System
An effective transaction monitoring system is crucial for detecting unusual transactions. When an unusual transaction is identified, reporting entities must conduct a special examination to determine whether it gives rise to suspicions that require reporting.
Internal Procedures for Reporting Suspicious Transactions
Reporting entities must establish clear and appropriate policies, procedures, and internal controls for identifying, investigating, and reporting suspicious transactions. These procedures must be documented, approved by senior management, and communicated to all employees.
Key Components of Internal Procedures
- Clear guidelines on when to report suspicious transactions
- Procedures for employees to follow when the Money Laundering Reporting Officer (MLRO) is absent from duties
- AML/CFT compliance monitoring procedures to ensure that front-line staff provide necessary records and data to the designated AML/CFT compliance officer for further analysis and reporting decisions
Training for Front-Line Employees
Training on reporting obligations must be provided to all staff, with a focus on front-line employees who are in contact with customers. These employees must know:
- When to report suspicious transactions
- What questions to ask the customer
- What information not to disclose
- How to manage the relationship without putting the customer on the spot
Decision-Making Authority
The decision to file or not file an STR (Suspicious Transaction Report) must always be taken by the MLRO or designated employee, and should not be subject to direction or approval from other parties within the reporting entity.