Monaco Faces Intensified Scrutiny from FATF Over Money Laundering Vulnerabilities: Council of Europe Report

The financial sector of Monaco is once again under the microscope following the release of a report by the Council of Europe raising concerns over the principality’s measures against money laundering. The report, which was obtained by EURACTIV before its formal publication, warns that Monaco risks severe international sanctions for inadequate anti-money laundering (AML) practices.

Significant Money Laundering Risks

Monaco’s susceptibility to money laundering is significant due to its internationally oriented financial activities. The principality is noted as a “prime target” for illicit cross-border financial flows where proceeds from frauds committed abroad are often laundered in Monaco.

Assessment by MONEYVAL

MONEYVAL, the Council of Europe’s Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism, conducted a thorough assessment of Monaco’s compliance with international standards. The report highlights the need for significant improvements in several areas, including:

1. Risk analyses
2. International cooperation
3. Dissuasiveness of sanctions

Observation Period and Potential Consequences

Monaco is set to enter a one-year observation period after the report goes to FATF (Financial Action Task Force) plenary on 20 February. During this period, the principality will need to make substantial reforms. Failure to do so could result in Monaco being added to the “grey list” of countries under heightened scrutiny by FATF. Monaco had previously been on the grey list until its removal in 2009.

Impact on Monaco’s Financial Industry

The report sheds renewed light on Monaco’s financial industry, which has faced criticism for its handling of the fortunes of Russian oligarchs following international sanctions on Russia.

Terrorism Financing Risks

The risks associated with terrorism financing have been assessed as relatively low, but further investigations by Monesgasque authorities are required.

Unaddressed Risks and Recommendations

The report claims that the effectiveness of Monaco’s AML system is “uneven.” Several high-risk financial fraud profiles, such as real estate agents, property dealers, and private banking institutions, face little to no formal regulation but can facilitate heavy money transits. The report recommends implementing a risk-based supervision approach and guidelines for wealth management and private banking firms to improve compliance with the country’s supervisory framework.

Concerns over Prosecutions and Sanctions

The report raises concerns over the handling of money laundering-related prosecutions and sanctions in Monaco. Many cases go unidentified and investigations are slow, with handling complex financial fraud cases deemed inadequate. The number of money laundering convictions appears too low compared to Monaco’s risk profile, with only six convictions between 2017 and 2021.

Monaco, in response to the report, has promised to implement the recommendations swiftly to meet international standards.