Tuesday October 10, 2017
Tuesday October 10, 2017
At the International Compliance Association, we regularly find ourselves deliberating money laundering issues, which can range from recent enforcement actions to newly published reports showing the latest figures for details such as suspicious activity reports or jurisdictional risk. Which is why, when I read a headline stating that the Swedish legal system was being exploited to commit money laundering, quite a discussion was sparked.
At that point we started discussing Sweden as a whole and how it is generally perceived as a safe country with low crime and doesn’t tend to get designated as a high-risk country or have many money laundering issues. With this is mind, I decided to try and see what it is about Sweden that, in this instance, has made it vulnerable to money laundering.
On the face of it, when you take a quick look at Sweden in terms of money laundering risk, it does seem to be categorised as low risk by many sources. For example, the Basel AML Index 2017 has Sweden as the ninth lowest risk country and it has been in the top ten low-level risk countries on the Basel AML index three times in the last five years.
Of the 32 Mutual Evaluation Reports (MERs) conducted by FATF since 2015, Sweden is rated sixth for compliance with the FATF Recommendations and the effectiveness of their AML/CFT regime.
It isn’t listed as a ‘jurisdiction of primary concern’ on the 2017 US International Narcotics Control Strategy Report (INCSR) Volume II Money Laundering and Financial Crimes and is ranked 56 out of 92 on the Financial Secrecy Index with a score of 36 out of 100, with 1 being not secretive and 100 being exceptionally secretive.
So by all accounts, Sweden does appear to be a low risk country for money laundering. Could this however, actually be the reason for it being targeted? What is Sweden’s AML/CFT regime like?
Sweden has recently updated its money laundering regulations to comply with the Fourth EU Money Laundering Directive, and this was entered into force on 1 August 2017, implying that Sweden’s AML/CFT regime is first rate. Sweden has also provided full confirmation to Brussels that the directive has been implemented.
After a bit more research, I found a possible reason why Sweden has been used for money laundering: there are reports of a loophole in the Swedish legal system.
Ordinarily, companies whose activities are considered to have a high-risk of money laundering have to register with the Swedish Companies Registration Office and the county administrative board reviews the person behind the companies. However, this potential loophole means that if that person doesn’t have a Swedish social security number, they pass the review automatically due to an automated computer system only being able to scan Swedish registers. This suggests that the beneficial owner may not be verified or even identified when the company is registered and in these cases, could be an offshore company based in the Seychelles or Panama for example.
Additionally the Swedish Companies Registration Office doesn’t require these types of companies to submit annual reports and doesn’t check to see if they are doing so.
This registration would give the impression that these companies are included within Swedish financial regulation which, as I have already pointed out, is a reputable EU country. Meanwhile the money is being hidden in offshore accounts and these companies can then be used to move money through and assist in money laundering.
In other words, it appears that this loophole is allowing shell companies to be set up and used to commit money laundering.
Sweden does have a good AML/CFT regime and is thought of as a low risk jurisdiction, proven by the fact that they have fully implemented the Fourth EU Money Laundering Directive and score well on several AML reports and indexes. Could this be the reason that it’s being abused?
Per Bolund, the Minister for Financial Markets and Consumer Affairs and Deputy Minister for Finance in Sweden, has said that ‘it is worrying and unacceptable that companies use Sweden's good reputation to appear as legitimate. Obviously, the legislators and the authorities must together do what is required to prevent Sweden from being used as a base for dishonest business’. Hopefully, as Boland says, the reporting of this loophole will move authorities to close it and keep up Sweden’s good work.
How can ICA help?
The ICA International Diploma in Anti Money Laundering is our flaghsip qualification. It will help you develop best practice initiatives and prepare you to face present and future challenges thus reducing risk.
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