Monaco’s Tightened AML Regulations: Identity Checks, Due Diligence, and Politically Exposed Persons in Private Banking and Wealth Management

Monaco’s financial sector has undergone significant changes in its anti-money laundering (AML) and financial crime prevention measures. The Principality, known for its private banking industry, has updated its regulations in line with the EU’s 4th Money Laundering Directive.

Updated AML Legislation in Monaco

With Law No. 1,462 of July 2018, Monaco’s anti-money laundering legislation was revised. This legislation applies to banking and financial institutions, including those specializing in wealth management. These entities face stringent requirements to combat money laundering, terrorist financing, and corruption.

Client Identification and Due Diligence

Companies offering banking and financial services, such as wealth management, in Monaco must identify their clients before establishing business relationships. They must verify each client’s identity using valid ID documents and keep these records. This applies to legal entities, trusts, and their beneficial owners who must be identified as well. Monegasque registered companies must transmit beneficial owner details to the Minister of State and maintain an accessible register for Monaco’s AML regulatory body, courts, and tax administration.

Financial institutions must also perform due diligence checks on clients, examining their economic background and monitoring transactions for any abnormalities. A deeper, documented analysis is required for complex or unusual operations. Identity documents of clients and updates must also be kept, with stricter measures applied for Politically Exposed Persons (PEPs).

Internal Organization

Banks and asset management companies must maintain adequate internal control measures and organizational procedures to comply with Monaco’s AML legislation. They are required to keep copies of all substantiating documents for at least five years after ending relationships with clients. Companies must designate personnel responsible for application of the law, establish reporting procedures for suspicious activities, and provide regular training for employees. They are now able to exchange information with their group affiliates for combating terrorism, money laundering, and corruption.

Declaration of Suspicion

Financial intermediaries are obligated to notify the Financial Investigation and Information Control Commission (SICCFIN) of all sums and transactions potentially linked to money laundering, terrorist financing, or corruption. They must make these declarations in good faith and on reasonable grounds, providing details of the evidence. The declaration offers protection against civil liability and professional sanctions, and breach of professional secrecy is not an issue.

Politically Exposed Persons (PEPs)

PEPs, as defined by Sovereign Ordinance No. 2,318 of August 2009, include prominent public figures and those holding high-ranking political, legal, or diplomatic positions locally or abroad. Spouses, direct ascendants or descendants, and close associates must also be treated as PEPs. Stricter due diligence measures apply when dealing with PEPs, requiring close examination of the origin of their assets and funds. Professionals must monitor PEPs closely and maintain heightened scrutiny when it is later discovered that a client is or has become a PEP.

Tax Offenses

In Monaco, tax offenses serve as predicate offenses for money laundering only if they are punishable by more than three years’ imprisonment. Monaco’s definition of money laundering is comprehensive, encompassing all categories of predicate offenses outlined in the Financial Action Task Force’s 40 Recommendations. It also allows for the application of money laundering provisions for tax offenses committed in other countries that are punishable by at least three years’ imprisonment in Monaco.

Compliance Verification

No legal minimum compliance verification is required from financial intermediaries concerning their clients’ tax compliance. However, clients are required to provide justifications of their tax status, and banks must identify their tax residence under the Common Reporting Standard.

Liability

Violating Monaco’s AML regulations can result in both administrative sanctions and criminal penalties. Administrative penalties may include reprimands, pecuniary fines, prohibitions against specific operations or authorization to practice, and temporary or permanent suspensions. Criminal penalties can include imprisonment and/or fines. Directors or employees of financial institutions can also face penalties for negligence or knowingly assisting money laundering or financial crimes.