, Terrorist Financing
At the International Compliance Association, we find ourselves discussing money laundering issues almost constantly. One of the reasons that I love my job is that I get to discuss the finer points of anti money laundering regulations with other like-minded people.
So when the United Kingdom recently released its 2015 figures for reporting of suspicious transactions, we scrutinised the report and produced an update on some of the key issues to emerge.
At that point, we started discussing suspicious transaction reporting regimes around the world, wondering how the UK's figures compared to other countries, whether the challenges were similar and if there were similarities in the entities submitting the highest number of reports. This led to my taking a closer look at what was happening in France.
Financial institutions play a key part in the fight against money laundering and terrorist financing and sharing information with law enforcement agencies is critical in combating these threats and wider criminal activity.
The duty to report when there is a suspicion that funds are the proceeds of criminal activity, or are related to terrorist financing, is enshrined in the Financial Action Task Force (FATF) Recommendations. Any country that is a member of FATF, or a FATF-style regional body, requires that financial institutions report such suspicions to their relevant financial intelligence unit (FIU).
Yet while the requirement to report seems clear cut, there is no ‘minimum amount’ required for reporting and attempted transactions must also be reported, so putting this into practice can present difficulties. Concrete proof is not required, but the decision on when to report and what constitutes a ‘suspicion’ are, by their nature, subjective.
Focus on numbers
When analysing the number of reports, it could be easy to infer that the more submitted, the more effective the jurisdiction’s regime. But if FIUs only received reports containing genuine, well-articulated suspicion, would the numbers go down? Would FIUs see a benefit if the reports were based on quality over quantity?
The fear of getting it wrong has led, in some jurisdictions, to ‘defensive’ reporting. Money laundering enforcement action around the world has seen financial institutions take a more conservative approach to requirements. As a result, some firms may err on the side of caution and report transactions, even when they do not have a reasonable ground for suspicion.
Focus on France
So what’s the story in France? Let’s go back to the UK figures referred to earlier, where the statistic that catches the eye is that the number of reports continued its upward trend, rising by 7.8% to 381,882.
How does France compare? In 2014, the latest year for which figures are available, Tracfin reported a total of 36,715 suspicious transaction reports (STRs), apparently quite modest in comparison with the UK but which Tracfin described as ‘an unprecedented number’.
The new high was due to a huge 34% increase in reports, continuing a steady rise that has seen the total almost quadruple since 2004. Tracfin linked the latest surge in STRs to growing awareness of tax fraud, as a result of political, economic and legal attention and increasing interest from the media in financial issues.
The year-on-year increase was similar in both the financial and non-financial sectors, at 34% and 29% respectively. Banks and credit institutions dominated reporting – as they did in the UK – representing 29,508 of the total. Interestingly, a 97.5% increase in reports from payment institutions (1,641 STRs) pushed the sector into second place overall, reflecting its expansion.
In contrast, insurance companies filed 1,423 STRs, despite collecting €116 billion in life insurance premiums in the first 11 months of 2014, and insurance companies and intermediaries, mutual insurance companies and benefits institutions submitted only 4.7% of all STRs in 2014.
In the non-financial sector, the highest number of STRs were submitted by notaries – 1,040 or 42% – but there were some significant regional differences, including very low reporting rates in six regions that are home to more than half of all France’s notary firms.
Tracfin also responded to an increased number of information requests from foreign FIUs, up by 10% on the previous year to 1,051.
Of cases referred to the courts in 2014 as a result of STRs (464), tax offences were the most common; undeclared work, misuse of company assets, breach of trust and fraud were the next most frequent. Two-thirds of cases involved sums of up to €1 million; just 2% were above €10 million.
Variations in national levels underline the point that there is no ‘one size fits all’ when it comes to reporting suspicious transactions. What is clearly crucial is that institutions with obligations to report ensure that they understand ever-evolving and emerging threats, have implemented a robust internal reporting framework and ensure that employees are equipped with the skills and knowledge to recognise suspicious activity, including in relation to attempted transactions, and to report the activity.
Individuals with the responsibility to report must understand best practice and be able to clearly detail the suspicion in order to provide the FIU with the intelligence it needs to extract meaningful information. Tracfin has been proactive in this area, working closely with the insurance sector on an anti money laundering/counter financing of terrorism education programme and to support a risk-based approach.
Money laundering, terrorist financing and other illicit activities are clearly not going away but having the right systems in place – for managing and mitigating risk, maintaining good governance and compliance systems and detecting and reporting financial crime – are essential to nipping them in the bud. With money laundering, terrorist financing and associated predicate offences, such as bribery and corruption, high on the global agenda, the responsibility on financial institutions has never been greater – and so are the consequences for getting it wrong.
Our next update will be looking at ultimate beneficial ownership, another hot topic that is attracting a great deal of interest globally.
If you are interesting in learning more about anti money laundering around the world, have a look at our range of qualifications, which includes the ICA International Diploma in Anti Money Laundering, exploring AML frameworks from a global perspective.
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