Monaco Under International Scrutiny: Money Laundering Vulnerabilities Exposed in Council of Europe Report

The principality of Monaco is facing renewed international scrutiny following the publication of a Council of Europe report. The report highlights significant vulnerabilities in Monaco’s measures against money laundering, which could lead to the country being placed under intense oversight by the Financial Action Task Force (FATF).

Monaco: A Prime Target for Illicit Financial Flows

The report asserts that Monaco is a “prime target” for illicit cross-border financial flows due to its internationally oriented financial activities. Although many frauds are committed abroad, the subsequent proceeds are laundered in Monaco, leaving the country exposed.

Key Concerns Raised in the Report

The report raises several key concerns, including:

Ineadequate risk analyses
Inadequate international cooperation
Insufficiently deterring sanctions

Monaco is currently entering a one-year observation period following the report’s presentation at the FATF plenary on 20 February. If significant reforms are not implemented during this time, the country risks being named and shamed in a public “grey list.”

The report also addressed risks related to terrorism financing, highlighting relatively low risks in Monaco but urging further analyses from Monesgasque authorities.

Effectiveness of Monaco’s AML System: Uneven and Ineffective

The report found that Monaco’s Anti-Money Laundering (AML) system is “uneven,” leaving not all risks effectively accounted for. Specifically, no serious risk analysis has been undertaken regarding money laundering the proceeds of income tax fraud committed abroad. Moreover, financial institutions and non-financial businesses, such as real estate agents and private banking, face little regulation despite facilitating significant money transits.

To address these issues, the report advises implementing a risk-based supervision approach for these high-risk sectors and introduces guidelines for wealth management and private banking firms. “Significant improvements” are also required in Monaco’s supervisory activities to adequately combat fraud and corruption risks.

Adequacy of Investigations and Prosecutions

The report expresses concerns over the number and speed of money laundering-related prosecutions and sanctions in Monaco. Many cases go undetected initially, and investigations can last up to ten years.

Monegasque Authorities Respond

The Monegasque government has reaffirmed its commitment to implementing the report’s recommendations expeditiously to align to international standards. Since April 2022, legislative reforms have been undertaken to address the report’s priority concerns. The authorities acknowledged that the observation period does not imply a general failure of Monaco’s AML system but serves to address set issues.

Failure to Address Recommendations: Grey Listing

With significant reforms anticipated, Monaco will seek to overcome the challenges outlined in the report within the one-year observation period. Failing to do so could result in being ‘grey-listed,’ alongside countries like Albania, Barbados, and Panama, among others. Monaco was previously on the “Uncooperative Tax Havens” OECD list until 2009.