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Monaco Faces Scrutiny Over Banking Industry Compliance Standards
A recent Council of Europe report has highlighted significant vulnerabilities in Monaco’s measures against money laundering, putting the country at risk of being placed under intense scrutiny by the international Financial Action Task Force (FATF) watchdog.
The Report’s Findings
The report emphasizes that Monaco faces substantial risks due to its “internationally oriented financial activities” which make it a prime target for illicit cross-border financial flows. The majority of frauds are committed abroad, with the proceeds laundered in Monaco.
- Risk analyses, international cooperation, and sanctions have been found to be inadequate in addressing corruption and terrorism financing risks.
- While terrorism financing risks were deemed relatively low, further in-depth analysis is required by Monégasque authorities.
The Consequences of Failure
Monaco is set to enter a one-year observation period after the report goes to FATF plenary on February 20. Failure to implement structural reforms within this timeframe could result in the country being named and shamed in a public ‘grey list’. Monaco had previously been on the grey list until it was removed in 2009.
Uneven Supervision
The report claims that Monaco’s Anti-Money Laundering (AML) system is “uneven” in its effectiveness, with not all risks being effectively accounted for. This is particularly true regarding laundering the proceeds of income tax fraud committed abroad. Income tax evasion is not criminalized in Monaco, and no serious risk analysis has been undertaken.
Significant Improvements Required
Significant improvements are required in Monaco’s supervisory activities of financial institutions and non-financial businesses such as real estate agents, property dealers, and private banking. These business sectors represent high-risk financial fraud profiles, but no adequate system was implemented during the evaluation period.
- Implementing a risk-based supervision approach is deemed imperative to ensure that the intensity and frequency of on-site inspections can be adjusted according to risks.
Investigations and Prosecutions Inadequate
A key concern in the report is that of money laundering-related prosecutions and sanctions. Many cases fail to be identified by authorities, while the speed of investigations begs questioning.
- This speaks to inherent problems in Monaco’s judiciary system, where the Prosecutor General has limited investigatory powers, staff numbers are insufficient, and filing an appeal is not time-limited.
- Investigations can last up to 10 years, according to the report.
- Handling complex financial fraud cases remains inadequate, with only six convictions handed between 2017 and 2021.
International Cooperation Facing Obstacles
While Monaco is active in enhancing international cooperation, domestic legislation imposes “unusual and fundamental obstacles” to returning responses to requesting countries. The fact that individuals involved in a cross-border investigation can lodge an appeal in Monaco slows the process down considerably and has hindered international investigations in the past.
- Substantially improving response times and adapting domestic legislation to impose time limits on appeals should be priority action items for Monégasque authorities.
Grey-listing
The Monegasque government told EURACTIV that it “adhered fully to the policy recommendations of the report” and was determined to implement them quickly in an effort to align with international standards. The report was approved at the MONEYVAL plenary on December 9, 2022.
Monaco is almost certain to enter a one-year observation period after the FATF plenary on February 20, during which Monégasque authorities will work actively with FATF to address structural deficiencies. Failure to do so could result in Monaco being ‘grey-listed’ as early as mid-2024.