FATF/MONEYVAL Grey list, exit timetable, Monaco framework to combat money laundering, terrorist and proliferation financing

Monaco placed on the FATF grey list and exit timetable (2024-2026):

In June 2024, the Plenary (decision-making body) of the Financial Action Task Force (FATF), the international body that designs and promotes strategies to combat money laundering, the financing of terrorism and of the proliferation of weapons of mass destruction (AML/CFT), placed the Principality of Monaco on the list of "Jurisdictions Under Increased Monitoring", commonly known as the "grey list".

Monaco's timetable for action "extends over a year and a half (until January 2026)", the date by which Monaco must submit its report. (Press release dated 28 June 2024, "Monaco placed on the FATF's "grey" list: the Government of Monaco undertakes to remove Monaco from the list in accordance with the timetable agreed in Singapore").

The FATF's decision on Monaco's removal from the grey list is expected at its Plenary meeting in June 2026.

The FATF statement accompanying the grey-listing includes a brief summary of recent actions taken by Monaco, as well as a list of remaining strategic deficiencies focusing on the effectiveness of the AML/CFT-P framework, as follows (official English text):

"In June 2024, Monaco made a high-level political commitment to work with the FATF and MONEYVAL to strengthen the effectiveness of its AML/CFT regime. Since the adoption of its mutual evaluation report (MER) in December 2022, Monaco has made significant progress on several of the MER’s recommended actions including by establishing a new combined financial intelligence unit (FIU) and AML/CFT supervisor, strengthening its approach to detecting and investigating terrorism financing, implementing targeted financial sanctions and risk-based supervision of non-profit organisations.

Monaco will continue to work with FATF to implement its action plan by: (1) strengthening the understanding of risk in relation to money laundering and income tax fraud committed abroad; (2) demonstrating a sustained increase in outbound requests to identify and seek the seizure of criminal assets abroad (3) enhancing the application of sanctions for AML/CFT breaches and breaches of basic and beneficial ownership requirements; (4) completing its resourcing program for its FIU and strengthen the quality and timeliness of STR reporting; (5) enhancing judicial efficiency, including through increasing resources of investigative judges and prosecutors and the application of effective, dissuasive and proportionate sanctions for money laundering; and (6) increasing the seizure of property suspected to derive from criminal activities."

See also the Press release issued by the Parliament (Conseil National) on 28 June 2024.

To be noted:

What triggered the review process by the FATF's International Cooperation Review Group (ICRG): The identification of a low or moderate level of effectiveness for 11 immediate outcomes (Risk Assessment, Policy Coordination, International Cooperation, Control, Preventive Measures, Legal Persons and Legal Arrangements, Financial Intelligence, Investigation and Prosecution for BC, Confiscation, Investigation and Prosecution for FT, Preventive Measures and Financial Sanctions for FT, Financial Sanctions for FP) in Monaco's 5th Cycle (2015-2021) Mutual Evaluation Report of December 2022, made public on 23 January 2023 (in detail below).

Following this, the Principality adopted four laws and a number of implementing regulations to bring its preventive and repressive legal arsenal into line with international AML/CFT-P requirements (in detail below) and carried out structural reforms (e.g. the establishment of the AMSF, an independent administrative authority, to replace the SICCFIN). The action plan between now and 2026 focuses on practical implementation (technical and operational tools, human and financial resources, international cooperation, sanctions).

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Removal from FATF "grey list"

→ On 10 July 2024, the Committee for Coordination and Monitoring of the National Strategy on Money Laundering, Terrorist Financing, Proliferation of Weapons of Mass Destruction and Corruption met to review the situation following Monaco's placement on the grey list (Press release of the Government of Monaco, 12 July 2024, "The Committee for Coordination and Monitoring of the National Strategy assesses the FATF action plan").

→ On 20 September 2024, the Committee met again to adopt the mandate of its permanent Secretariat and recalled the requirements and objectives set by the FATF Action Plan to be implemented within 18 months (Princely Government press release, 20 September 2024, Minister of State chairs his first meeting of Committee for Coordination and Monitoring of the National Strategy on Money Laundering).

→ On 30 October 2024, the Committee met in plenary session (attended by all the competent authorities, the Parliament and representatives of the private sector) "for an update after the Principality was placed on the list of jurisdictions under increased monitoring (the “grey list”) by the Financial Action Task Force (FATF)"(Press release from the Princely Government, 31 October 2024, Stakeholders in Principality fully committed to ensuring removal from FATF “grey list”)

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BACKGROUND OF MONACO'S AML/CFT-P ACTIONS (2018-2024) :

Monaco 5th cycle Evaluation (2015-2021): MONEYVAL Report adopted in December 2022

The 5th round of mutual evaluation of the Principality by MONEYVAL (Council of Europe Committee of Experts on Evaluation of Anti-Money Laundering and the Financing of Terrorism Measures) started in 2020. The on-site visit took place from 21 February to 4 March 2022.

The Mutual Evaluation Report of the 5th cycle (2015-2021) of Monaco was made public on 23 January 2022.

It was discussed and adopted at the 64th plenary meeting of MONEYVAL (also marking the 25th anniversary of the Committee) held from 5 to 9 December 2022.

The Report analyses the level of compliance with the 40 Recommendations of the Financial Action Task Force (FATF), the level of effectiveness of the Principality of Monaco's anti-money laundering and combating the financing of terrorism (AML/CFT) system and makes recommendations to strengthen it. Read the Report (french) > https://rm.coe.int/moneyval-20...

Summary of the general conclusions of the Report :

• Understanding of money laundering and terrorist financing risks by the authorities : Based on the results of the National Risk Assessment 2 (ENR 2, see below) which places fraud, corruption, tax evasion (VAT and income tax) as the main offences underlying money laundering, this still needs to be improved; the understanding of money laundering and terrorist financing risks related to legal persons and legal arrangements is quite satisfactory as regards the activities carried out but remains limited as regards the way in which they are or may be used for AML/CFT purposes;

• Authorities' access to information (largely indirect): Although investigative authorities have access to financial and other intelligence to establish evidence and trace the proceeds of crime related to money laundering, terrorist financing and related offences, the contribution of non-banking professionals (the majority of suspicious transaction reports come from banks) remains limited. Despite the support and practical guidance provided to reporting entities, some key issues have not been specifically analysed;

• Investigations and prosecutions: Despite Monaco's ability to obtain convictions for money laundering involving the proceeds of crime generated abroad and for autonomous money laundering, shortcomings remain (number of money laundering investigations still modest; regarding complex cases, third party money laundering, sanctions in terms of effectiveness and deterrence); As regards terrorist financing, the full capacity to detect potential cases is not demonstrated (absence of specific procedures in this area and if cooperation between competent authorities seems adequate, a major shortcoming in practice lies in the lack of exchange of information with the French customs);

• Asset recovery: Effectiveness with an increase in the application of provisional measures. The results of confiscation measures ordered need to be improved (low number, not targeting assets of corresponding value or assets held by a third party, lack of consistency with the money laundering risk profile);

• Legal framework for the implementation of targeted financial sanctions (terrorist and proliferation financing) at international, EU and national level: new and broadly appropriate framework that is beginning to prove its effectiveness. Large financial institutions have a satisfactory understanding of their obligations in this area, while the implementation of this framework can be improved for smaller financial institutions and designated non-financial businesses and professions. An important step was taken with the first risk assessment of the non-profit sector in 2022;

• Understanding of risks, implementation of due diligence and freezing measures by reporting entities: Despite their understanding of the risks, few financial institutions were able to specifically explain the money laundering and terrorist financing risks related to the characteristics of their clients portfolios or their business profile. Regulatory gaps relating to beneficial owners and politically exposed persons affect both the financial and non-financial sectors. The application of measures to freeze assets and economic resources varies across sectors but is generally satisfactory;

• Supervision policy: This is more akin to raising awareness of the obligations of those subject to supervision than to supervision in line with international standards and recourse to sanctions (lack of human resources and IT tools adapted to SICCFIN's missions);

• International cooperation: The execution of mutual assistance requests by prosecution authorities is satisfactory, police cooperation is adequate. Nevertheless, legislative obstacles hinder Monaco's international cooperation, the solicitation of foreign counterparts appears limited in view of the risk and the Monegasque context, SICCFIN's response times to its counterparts in the context of financial intelligence are inadequate.

Evolution of the Monegasque legal framework in response to the MONEYVAL Report (2023):

The recommendations of the MONEYVAL Committee are transcribed into Monegasque legislation and regulations:

• General preventive framework: Law 1.549 (Part I) of 6 July 2023 amending Law 1.362 of 3 August 2009 on the fight against money laundering, financing of terrorism and the proliferation of weapons of mass destruction and corruption; Sovereign Order 10.124 of 21 September 2023 amending Sovereign Order 2.318 of 3 August 2009 implementing Law 1.362;
• Transparency of legal persons: Law 1.550 (Part II) of 10 August 2023 amending the laws and regulations relating to commercial companies and economic interest groupings ("GIE"), civil companies, associations and federations of associations, and foundations;
• Justice, criminal law and criminal procedure: Law 1.553 (Part III) mainly amending the Code of Criminal Procedure, the Criminal Code and legislation on extradition.
• Supplements: Law no. 1.559 (Part IV) which deals with certain aspects which could not be covered by previous legislative reforms (trusts, professional secrecy of tax officials in the context of increased cooperation between the competent authorities, criminal law enforcement) and makes further amendments to laws which have already been reformed (laws no. 1.362-general framework, no. 721-RCI, no. 797-civil partnerships, no. 1.355-associations and federations of associations and no. 56-foundations).

These laws are supplemented by implementing regulations.

National Strategy to combat money laundering, terrorist financing and the proliferation of weapons of mass destruction following the MONEYVAL Report (2022-2024):

The National Strategy is available on the official website of the Monegasque Financial Security Authority (Autorité Monégasque de Sécurité Financière "AMSF", successor to SICCFIN) >https://amsf.mc/publications/s...

The pillars of the National Strategy:

The National Strategy is based on the following six pillars, the content of which it details:

• Enrichment of the legislative and regulatory framework (see above);
• Strengthening technical and human resources;
• More support for professionals subject to the law;
• Prevention of risks through better knowledge of the players and optimisation of supervision;
• Continuation and strengthening of national coordination and international cooperation;
• Improvement of the framework for the fight against terrorist financing.

The Coordination and monitoring Committee of the national strategy against money laundering, terrorist financing, proliferation of weapons of mass destruction and corruption:

The Coordination and Monitoring Committee of the national strategy to combat money laundering, the financing of terrorism, the proliferation of weapons of mass destruction and corruption was created by Sovereign Order no. 8,964 of 6 December 2021, the composition of which was amended by Spveriegn Order no. 9,061 of 21 January 2022.

At the same time as the publication of the 5th round MONEYVAL report, Ordinance No. 8.964 was repealed and replaced by Sovereign Order no. 9.729 of 1 February 2023 establishing under a new regime the Coordination and Monitoring Committee of the National Strategy to Combat Money Laundering, the Financing of Terrorism and the Proliferation of Weapons of Mass Destruction and Corruption, which has the task of serving as a coordination and monitoring mechanism for all matters in this area. It is the cornerstone for the steering of the national anti-money laundering strategy.

It was indeed recommended to the Monegasque authorities to ensure that the Coordination and Monitoring Committee "is an effective platform for cooperation for all competent authorities and is provided with the necessary means to carry out its mission effectively".

Sovereign Order no. 9.729 thus strengthens its tasks, which are now listed (art. 2), by giving it a "central role in determining the guidelines and actions to be taken in the areas within its remit, with a view to further strengthening the Monegasque mechanisms for combating financial crime". (Press release of the Princely Government of 9 February 2023 "MONEYVAL Report - Next meeting of the Coordination and Monitoring Committee").

It is responsible for coordinating with the Advisory Committee on the Freezing of Funds and Economic Resources, which is competent for the implementation of economic sanctions decreed by the United Nations, the European Union and the French Republic, the implementation of these sanctions.

With regard to its composition, as supplemented by Sovereign Order no. 10.744 of 5 August 2024 (concerning the 2nd College), the Committee is chaired by the Minister of State, or in case of absence, by the Government Counsellor-Minister of Finance and the Economy, and comprises two colleges:

• The first college (representatives of the administrative authorities, executive and judicial bodies) "determines, by means of resolutions, the guidelines and actions to be undertaken in the areas within its remit listed in Article 2";
• The second college (in addition to the members of the first college, representatives of the legislative body, the regulated professions and other private sector actors) has "advisory functions with regard to the first college".

The Committee has a permanent Secretariat which is an interministerial unit under the authority of the Minister of State with a full-time staff. Sovereign Order 10.744 of 5 August 2024 added to Sovereign Order no. 9.729 of 1 February 2023 the list of the Permanent Secretariat's main tasks.

→ Its first meeting under this new arrangement was held on 16 February 2023, with the following agenda (Press release of the Government of Monaco, 9 February 2023, "MONEYVAL - Report Next meeting of Committee for Coordination and Monitoring"):

• the adoption of the Committee's detailed 2023 work plan;
• the information campaign programme for the private sector "AML Tuesday Webinars";
• the update of the National Strategy 2022-2024;
• the update of the National Action Plan.

→ The Committee meeting on 27 July 2023 (AMSF, "Actualités", 1 August 2023) focused on:

• progress on the National Action Plan for each strategic objective;
• progress on implementing the MONEYVAL Committee's recommendations;
• the digital asset risk assessment project;
• the handbook on international mutual assistance in criminal matters.

The following were adopted:

• the specific action plan of the Tax Services Department;
• the action plan of the Lawyers Bar Council;
• the assessment of risks related to the financing of terrorism;
• the Memorandum of Understanding of the Parquet Général/Direction de la Sureté Publique/SICCFIN contact group.

Evolution of the Monegasque legal framework (2018-2022):

Following the return of MONEYVAL’s evaluators as part of the technical evaluation of Monaco’s legal framework, adjustments to the prevention of money laundering, terrorist financing and corruption have been made by Law No. 1.520 of 11 February 2022 (new subjects to the law, internal organisation requirement, bank correspondent, reform of the CERC procedure, etc.) and by Law No.1.537 of 9 December 2022 (activity of domiciliation).

Similarly, the MONEYVAL Committee's observations led to the reform of the common law regime of international mutual legal assistance (Law No. 1.536 of 9 December 2022) and of the provisions of the Code of Criminal Procedure on the seizure and confiscation of instruments and proceeds of crime (Law No. 1.535 of 9 December 2022).

In total, during the 5th evaluation round, nine laws related to the fight against money laundering, terrorist financing and corruption were adopted by the Principality. In addition to the four laws mentioned above adopted in 2022, the following five laws should be added:

• Law No. 1.534 of 9 December 2022 amending certain provisions of the Criminal Code and the Code of Criminal Procedure relating to the investigation and the appeal for review in criminal matters;
• Law No. 1.533 of 9 December 2022 on the preliminary investigation and alternative measures to prosecution;
• Law No. 1.521 of 11 February 2022 on various criminal measures to combat money laundering and fraud and counterfeiting of non-cash means of payment;
• Law No. 1.503 of 23 December 2020 strengthening the system for combating money laundering, terrorist financing and corruption;
• Law No 1.462 of 28 June 2018 strengthening the system for combating money laundering, terrorist financing and corruption.
  

National Risk Assessment (ENR) on Money Laundering, Terrorist Financing and Corruption (2017, 2021):

The National Risk Assessment (Evaluation nationale des risques - ENR) aimed at identifying, assessing and understanding money laundering and terrorist financing risks in Monaco, in order to adapt national procedures according to the risks, is part of the elements submitted to MONEYVAL for evaluation (see above).

The first National Risk Assessment (ENR 1) was conducted between December 2015 and May 2017. See >https://www.siccfin.mc/en/The-...

ENR 2 was launched in 2020. On 15 April 2021, the Director of SICCFIN, who is also the head of the Monegasque delegation to the MONEYVAL Committee, presented a progress report on the work of ENR 2 to representatives of the public and private sectors and the main leaders of the Monegasque economic forces. ENR 2 was published in December 2021. See > https://www.siccfin.mc/en/The-...

ENR 3 of the Principality of Monaco will be carried out from 2024.

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MONEYVAL Committee and its evaluation system:

MONEYVAL (Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism), a permanent monitoring body of the Council of Europe, is the “FATF-style regional body” responsible for evaluating the Principality of Monaco (the FATF directly evaluates its 38 members, including the neighbouring country).

The evaluation system of MONEYVAL (Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism) is a peer review, i.e. a self-assessment and mutual evaluation process based on the FATF model, with a more comprehensive set of anti-money laundering standards.

The international standards on which MONEYVAL’s evaluations are based are as follows:

• 40 FATF Recommendations of 16 February 2012 on combating money laundering, terrorist financing and the proliferation of weapons of mass destruction ;

• 9 FATF Special Recommendations on Terrorist Financing ;

• United Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances of 1988 (Vienna Convention);

• United Nations Convention against Transnational Organised Crime 2000 (Palermo Convention);

• Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime of 1990 (Strasbourg Convention);

• International Convention for the Suppression of the Financing of Terrorism of 1999 (New York Convention);

• United Nations Security Council Resolutions on the freezing of assets linked to terrorism;

• 5th Directive (EU) on the prevention of the use of the financial system for the purpose of money laundering or terrorist financing.

• 6th Directive (UE) on combating money laundering by criminal law.

As a reminder, the Principality of Monaco shall take measures with equivalent effect to the European Union directives relating to the fight against money laundering and the financing of terrorisme in accordance with the recommendations of the Financial Action Task Force against Money Laundering and the Financing of Terrorism (FATF), which are set out in Annex B of the Monetary Agreement concluded with the European Union, which has been in force since 1 December 2011.

Methodological training:

On 9-10 December 2020, the MONEYVAL Secretariat provided (virtual) the usual training (taking place 1 year prior to the on-site visit) to representatives of the financial intelligence unit (SICCFIN), law enforcement and supervisory agencies, representatives of financial institutions and the non-financial sector.

A one-day (face-to-face) training session took place early February 2021. This training aims to familiarise all national actors involved in the assessment with the underlying Financial Action Task Force (FATF) standards and methodology and the MONEYVAL assessment approach.