Financial Crime World

Monaco’s Financial Institutions Face Compliance Risks, Report Warns

A recent report by the Council of Europe has highlighted significant vulnerabilities in Monaco’s measures against money laundering and terrorism financing, putting the country at risk of being placed under intense scrutiny by the international Financial Action Task Force (FATF) watchdog.

International Oriented Financial Activities Pose Risk

The report emphasizes that Monaco faces substantial risks due to its “internationally oriented financial activities” and is a “prime target” for illicit cross-border financial flows. In most cases, frauds are committed abroad, while the proceeds of crime are laundered in Monaco.

Insufficient Risk Analysis and Supervision

  • The report notes that risk analyses, international cooperation, and the dissuasiveness of sanctions are not fully equipped to address fraud and corruption risks.
  • Terrorism financing risks have been found to be relatively low, but more in-depth analysis is required by Monégasque authorities.

One-Year Observation Phase Ahead

Monaco is set to enter a one-year observation phase after the report goes to FATF plenary on February 20. If structural reforms are not implemented within this period, the country risks being named and shamed in a public “grey list”. Monaco was previously listed on the grey list until it was removed in 2009.

Recommendations for Improvement

The report shines a renewed spotlight on Monaco’s financial industry, which has recently been accused of protecting the fortunes of Russian oligarchs before aligning with international sanctions against Russia.

  • Implement a risk-based supervision approach to allow for adjustments to the intensity and frequency of on-site inspections according to risks.
  • Introduce guidelines for wealth management and private banking firms, which present the highest risk levels, to ensure greater compliance with the country’s supervisory framework.
  • Improve money laundering-related prosecutions and sanctions by:
    • Enhancing case identification and investigations
    • Reducing investigation times (currently up to 10 years)
    • Introducing more effective and dissuasive sanctions

International Cooperation Challenges

International cooperation is also facing obstacles due to domestic legislation imposing unusual and fundamental hurdles to returning responses to requesting countries. The fact that individuals involved in cross-border investigations can lodge an appeal in Monaco slows the process down considerably and has hindered international investigations in the past.

Monegasque Government Commitment

The Monegasque government has committed to implementing the report’s policy recommendations quickly to align with international standards, but if it fails to do so, it runs the risk of being “grey-listed” as early as mid-2024.