Monaco Braces for Intense Scrutiny: Council of Europe Report Highlights Vulnerabilities in Principality’s Measures Against Money Laundering

Monaco’s financial sector is facing renewed international scrutiny following the publication of a Council of Europe report on February 6, 2023, which highlights significant vulnerabilities in the Principality’s measures against money laundering.

Key Findings of the Council of Europe Report

The report, which could pave the way for Monaco to be placed under intense scrutiny by the Financial Action Task Force (FATF) watchdog, highlights the following issues:

1. Significant risks from money laundering: Monaco faces significant risks from money laundering, primarily due to its internationally oriented financial activities.
2. Need for improvements in risk analyses and international cooperation: The report calls for improvements in Monaco’s risk analyses and international cooperation to effectively tackle fraud and corruption risks.
3. Structural reforms required: Monaco is due to enter a one-year observation period, and failure to address structural reforms during this period could result in a public “grey list” designation, similar to that of Albania, Barbados, Morocco, and Panama, among others.
4. Need for improvements in supervisory activities: Implementing a risk-based supervision approach and introducing guidelines for wealth management and private banking firms are crucial steps towards ensuring greater compliance with Monaco’s supervisory framework.
5. Shortcomings in money laundering-related prosecutions and sanctions: The report raises concerns about the inadequacy of money laundering-related prosecutions and sanctions in Monaco.

Vulnerabilities in Monaco’s Financial Sector

The Principality serves as an attractive target for illicit cross-border financial flows, with many frauds committed abroad but the proceeds laundered within Monaco’s borders. The report emphasizes the need for “significant improvements” in Monaco’s supervisory activities for financial institutions and non-financial businesses, particularly in the real estate sector, property dealers, and private banking.

High-risk financial fraud profiles

These industries, which face little to no formal regulation but can facilitate heavy money transits, represent high-risk financial fraud profiles. The implementation of a risk-based supervision approach and the introduction of guidelines for wealth management and private banking firms are crucial steps towards ensuring greater compliance with Monaco’s supervisory framework.

Challenges to Effective Prosecutions and Sanctions

The report also raises concerns about the inadequacy of money laundering-related prosecutions and sanctions in Monaco. Few cases are identified, and investigations can take up to 10 years. Effective and dissuasive sanctions have only been imposed once.

Sluggish response to money laundering

The sluggish response is partly attributed to issues within Monaco’s judiciary system, including the Prosecutor General’s limited investigatory powers and insufficient staffing levels. The Monegasque authorities are urged to substantially improve response times and adapt domestic legislation to impose appeal time limits.

Monaco’s Response to the Report

The Monegasque government acknowledged the report’s findings and vowed to implement the recommendations quickly to align with international standards. Despite the potential for a one-year observation period and the risk of being grey-listed, the government downplayed the implications, stating that the report focused on a set of specific issues rather than a failure of Monaco’s Anti-Money Laundering system.

Legislative Reforms since April 2022

Since April 2022, Monaco has undertaken legislative reforms to better address the report’s concerns. The reforms focus on the non-financial business sector and are intended to strengthen Monaco’s stance against financial crime.