Financial Crime World

Monaco: Financially Vulnerable to Income Tax Fraud and Organized Crime - Key Findings from Financial Transparency Advisors’ Assessment

During a recent session of the Financial Analysts Money Laundering (FAML) Tuesday, Financial Transparency Advisors (FTA) presented their assessment of Monaco’s financial crime risk. The analysis, titled “The 2023 Money Laundering Threat Assessment - FIs,” revealed several financial vulnerabilities for the Principality, addressing issues related to income tax fraud and organized crime.

Income Tax Fraud: Monaco’s Hidden Vulnerabilities

FTAs assessment highlighted several concerns in Monaco’s financial system that expose it to income tax fraud and other tax-related offenses. While the authorities in Monaco have made efforts to identify money laundering (ML) and terrorist financing (TF) risks, the analysis did not adequately address income tax fraud originating abroad and not punishable under Monaco’s laws. FTA recommended the following actions:

  • Detailed analysis: Monaco should conduct a comprehensive analysis of income tax fraud risks, examining the scale and considering non-criminalization as an inherent vulnerability.
  • Expand sectoral vulnerability analysis: A more detailed examination of the risks pertinent to specific sectors, such as casinos, trusts and company service providers (TCSPs), and virtual assets, is required.

Organized Crime: Monaco’s Exposure

Despite having a high standard of living and luxurious amenities, Monaco remains vulnerable to organized crime activities. Few recorded instances surfaced in the analysis, but FTA emphasized that Monaco is an attractive destination for overseas criminals seeking to acquire assets within its borders. Key findings related to organized crime include:

  • External threats: Monaco is exposed to the activities of overseas criminals, and a significant portion of the threats originates from individuals rather than organized crime groups.
  • Case studies: FTAs analysis presented two examples of individuals involved in organized crime activities in Monaco:
    • Subject 1: A foreign national with a criminal record for organized crime activities abroad and other charges frequented the casino, exchanged large sums of cash, and requested invoices for a company linked to high-profile organized crime groups.
    • Subject X: A fraudulent bankruptcy linked Monegasque company, and a possible member of a high-profile organized crime group was identified as the actual tenant of a rented apartment in Monaco. The tenant paid rent in cash to the property’s owner.

Internal and External Threats: A Diverse Landscape

FTA’s assessment highlighted both internal and external threats Monaco faces. Internal threats comprise Monégasque nationals, TCSPs, self-laundering, and the use of Monégasque bank accounts by domestic natural and legal persons. External threats emanate from overseas proceeds of crime, foreign nationals with Monaco bank accounts and properties, and overseas companies using Monaco bank accounts. Key examples:

  • An overseas national under a false identity: An overseas national who attempted to open Monaco accounts under a false identity and was suspected of securities fraud.
  • False invoices: A foreign national smuggled cash into Monaco and used false invoices from an overseas company to disguise laundered funds.
  • Organized crime group: An organized group of foreign nationals is suspected of laundering funds through the casino and involved in illegal lending and extortion activities.

Addressing Monaco’s Weaknesses

Approximately 3% of cases in the analysis had no identifiable link to external threats, illustrating the vast external threats Monaco faces. FTA underscored the importance of more thorough and targeted approaches to mitigate financial crime risks.

Resources

Financial Transparency Advisors, headquartered in Vienna, Austria, can be reached at:

+43 1 890 8717 11 Web: www.ft-advisors.com

The next FAML Tuesday session will focus on TCSP sectorial risk assessment, scheduled for February 27, 2024.