Financial Crime World

Monaco’s Crusade Against Financial Crime: AML Regulations and Politically Exposed Persons

In the glamorous Principality of Monaco, known for its luxury yachts and high-rolling casinos, a rigorous battle against money laundering and financial crime is being waged. Monaco’s anti-money laundering (AML) regulations have evolved to mirror the European Union’s (EU) 4th AML Directive. In this article, we delve into the local requirements for private banking and wealth management, focusing on politically exposed persons (PEPs) and tax offenses.

Requirement to Combat Financial Crime

Monaco’s legislative framework against financial crime is built on Act No. 1.362 of August 2009 and Sovereign Ordinance No. 2.318 of the same year. In 2018, Monaco enacted Amended Monegasque AML Regulation through Act No. 1.462 and Ordinance No. 7.065, implementing the EU’s 4th AML Directive.

Entities providing banking services and financial activities regulated under Monaco’s Act No. 1.338 of September 2007 are subjected to the following primary AML duties:

  1. Client identification and ongoing due diligence
  2. Establishment of a strong and effective internal AML organization
  3. Reporting obligations for suspicious transactions involving money laundering, terrorism financing, and corruption

Politically Exposed Persons (PEPs)

A PEP, under Monaco’s Sovereign Ordinance No. 2.318, is defined as individuals holding prominent public functions in a foreign country, along with their close associates. This includes:

  • Spouses
  • Direct ascendants or descendants
  • Any individuals known to have joint beneficial ownership or close business relations

Stricter due diligence measures are imposed when seeking to establish a private banking relationship with PEPs. Professionals must accept these clients through a rigorous examination process and establish the source of their assets. Ongoing monitoring is also required for existing clients who later reveal their status as PEPs.

Documentation Requirements

Account opening necessitates the presentation of a valid official document displaying the applicant’s photograph for natural persons. When the applicant’s address is questionable or absent from the provided documents, verification through a reliable source such as utility bills is required to ensure the accuracy of their address.

Identification and verification involve:

  • The corporate name
  • Registered office
  • List of directors
  • Knowledge of the provisions governing liability for legal entities and trusts

An assessment of the intended nature and purpose of the business relationships is required, along with a clear understanding of the ownership structure and control of the entities.

Tax Offenses

Tax offenses serve as predicate offenses for money laundering in Monaco if they carry a minimum sentence of one year of imprisonment. Monaco’s Criminal Code outlines articles related to money laundering, with penalties for individuals assisting in the transfer, investment, concealment, or conversion of unlawful assets or funds.

The definition of money laundering in Monaco covers all categories of predicate offenses designated by the Financial Action Task Force (FATF) in its glossary, and the code applies regardless of where the primary offense was committed if it is punishable in Monaco. The law holds professionals accountable for any assistance offered in laundering assets or funds of unlawful origin, punishable by administrative sanctions or criminal penalties.

Compliance Verification

As part of the Common Reporting Standard, Monaco requires banks and asset management companies to identify their clients’ tax residence. This is essential for opening accounts in Monaco, and each applicant must certify their tax residency.

Penalties for Noncompliance

Noncompliance with Monaco’s AML or financial crime rules can result in administrative sanctions, such as substantial fines, temporary suspensions, prohibitions to carry out certain operations, and even the revocation of licenses for obliged entities. Additionally, individuals can face criminal charges, bringing harsh fines and imprisonment.

Last updated: 27th May 2020.