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Figure 1: Overall feedback level in the EU Member States
This chart (figure 1) represents the perception of the level of feedback gathered from information and answers on the questionnaires from the FIUs, the REs and LEAs during the study. The chart represents the 25 visited Member States according to their answers on the different questionnaires as interpreted by the members of the project team. The calculations on which the graphs are based are as follows: Each question of the questionnaires (RE, FIU and LEA) is answered by Yes or No. A Yes represents 1 point and a No represents 0 points.
The total of points scored placed against the maximum score gives a percentage of the maximum score. These calculations are the starting point in the different charts in this report.
It is difficult to draw conclusions from these graphs since e.g. not the same number of people of the same type of institutions were interviewed in the different Member States. At best the graphs will give an indication as to the perception of the different institutions and authorities on the topic of feedback in their Member State.
Interview scores seem to suggest that feedback is not considered a high priority among the Member States FIUs and LEAs. In addition, we have to highlight the importance for the REs (specifically the financial institutions consisting of Banks, Credit institutions and Insurance companies) to receive more information on their STRs. They need this information to be informed on their clients’ potential activities on money laundering or terrorist financing.
As mentioned in the KPMG Global AML 2004 and 2007 Surveys 17 (chapter V- a.), banks emphasized the importance of better feedback from government sources such as FIUs.
Around one third of the banks considered FIUs particularly good at providing feedback, even if they typically named the FIU operating in their home state. They were also in favour of broad support for better and more frequent interaction with FIUs, although they recognised that this could lead to a higher work load, pressure in the understaffed FIU units and even
17 The KPMG report covered 12 EU Member States (AT, IE, SE, BE, IT, LU, UK, DK, NL, FR, DE and ES) establishing the costs of REs involvement in AML activities, mainly focussing on the transaction reporting systems.
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queue processing within those organizations if the volume of STRs/SARs continued to increase.
Reasons given for these arguments were:
1. To establish whether the right reports have been sent to the FIU (efficiency), specifically looking at the new, risk-based way of reporting (educational purpose, a better understanding of the risk-based context) and
2. To establish for REs, whether to continue the relationship with a client that might be involved in possible money laundering or terrorist financing activities. After a report is filed the client is usually considered to be a “High Risk” client. In the long term, after a possible conviction, the client might even seriously damage the integrity of the institution if no appropriate steps are taken by the Institution itself, these appropriate steps, however, can only be taken if more information on the client finds its way to the RE.
These are the most important reasons why feedback on case related information (specific, individual or Case by Case feedback) is essential to create a sound and efficient anti money laundering reporting system. Government authorities as well as the reporting institutions have to act on a combined and coordinated approach in the overall fight against money laundering and the detection of terrorist financing. Of course the institutions are obliged to comply with the law (AML legislation in the different Member States) but there is a big difference in passively obeying the law and actively cooperating with the authorities in the fight against money laundering and terrorist financing.
b. Good practices of feedback:
Most of the EU Member States have put in place some form of acknowledgement when receiving reported transactions. The form of acknowledgement differs between Member States. Depending on the way the reports are coming in, the acknowledgement of receipt can be sent via electronic response, letter of confirmation stamped, automatic message that the reports have been received or a simple fax.
Most of the FIUs regularly publish (sanitized or anonymous) case descriptions of money laundering and terrorist financing cases. Some of them inform the REs about dissemination of the STRs to LEAs (figure 3 page 25). Most of the FIUs also publish yearly reports (a form of feedback) in which numbers of reported transactions (general statistics) are mentioned. They
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give an overview on the level of reporting of each RE group such as Banks, the Money Exchange offices, the Lawyers, the Notaries etc. Some FIUs feed back to the REs information on the quality of the STRs (e.g. see best practice of Spain). The quality of the reported information varies from country to country. For example in some Member States there is a standard reporting form that has to be completed uniformly for all type of REs, other Member States make a difference between financial and non financial reporting entities in regard to the reported information and in again other Member States the information supplied for STRs is different than the information supplied for CTRs. Information that is reported to the FIUs should be uniform in the 27 Member States (see EU recommendations).
In most Member States (DE 40% and DK 60%), reports coming from the FIU to LEA generally provide relevant data that can successfully be used in an ongoing criminal investigation.18 However, in most Member States, the attention for financial information to act as a catalyst for a criminal investigations is still not popular. Their first objective still is to get ML convictions.
In most of the EU countries, national legislation refers to the obligation of feedback to be provided but does not always define clearly the outline and conditions of feedback to be sent.
In these Member States, the feedback that is currently being given to REs is often limited to annual reports, typologies and trends. In most Member States, background information on STRs is not formally given. However, informally, some FIUs and LEAs do give some information to the REs. Since most of the REs (in particular the financial sector such as banks, credit institutions) have proven to be good, reliable and cooperating reporting institutions, it seems reasonable to say that cooperation and exchange of information between the FIUs and these type of REs could be lifted to a higher (formal) level in order to increase efficiency in the overall AML chain. The risk-based reporting system needs better cooperation and information exchange between FIUs and Res in order to optimize the AML system.
c. Possible individual feedback in the Member States:
In the figure 2 a timeframe is given from the moment an STR is received by the FIU to the moment a possible conviction of a money launderer takes place. From that moment on different government institutions are dealing with the STRs submitted by the REs. The FIU,
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the police, the prosecutors and the judges are successively dealing with the STR or with criminal cases in which the STR plays a role. Within each of these institutions there are, according to FIUs and LEAs, moments that forms of feedback can be given without compromising the analysis (FIU), the investigation (police and prosecution) as well as the judicial dealings (judges). The FIU can provide the date of a decision by the FIU, the type of decision by the FIU to the REs. Police and prosecution can provide the date when the investigation starts and the date when the investigation finishes, possibly some objective information on the investigation results, the date the prosecutors decide to prosecute in the case or the charges laid by the Prosecutor, the type of crime related to the reported transaction, the date of the court hearing and a possible conviction in the case to the FIU. The FIU in its turn can provide this information back to the REs. We have to keep in mind that the timeframe from the moment of reporting an STR to the moment of possible conviction of a reported client could take between 4 to 6 years in the average Member State. No feedback therefore could mean that the REs are not being sufficiently informed on the results of their STRs and might suddenly be confronted with a client that turned out to be a convicted money launderer or other type of convicted criminal.
18 Germany and Denmark investigated the intelligence value of Financial intelligence disseminated by the FIU. 40% of the disseminated information in Germany was successfully used in criminal investigations and 60% of the disseminated information in Denmark was successfully used in criminal investigations.
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Figure 2 Timeframe work for providing Feedback in the overall AML chain
In relation to both specific and general feedback, it is necessary that an efficient system exists in order to assess if the report leads to concrete and positive results.
If the FIU is the responsible body for disseminating STRs to LEAs, then investigating police officers, prosecutor and judges should provide the FIU with feedback on the results in a timely and efficient way. Failure to provide such information will make the feedback received by REs far less accurate or valuable.
d. Member States feedback FIU -> RE
Figure 3 below gives an indication of the level of feedback provided in the EU Member States during the different AML analysis, investigation and judicial phases.
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Figure 3 Formal and Informal Feedback from FIU to REs
The figure represents the timeframe described above from the moment an STR is being submitted to the FIU up to the moment a possible conviction of the reported client takes place.
The authorities involved in the AML activities (the FIU, the police, the prosecutor and the judge) spend time on different activities such as analyzing, investigating, prosecuting and dealing with the case in court. The Member States NL, IE, EE, ES, BE, CY, EL and MT are formally acknowledging the reception of STRs. It is also regulated in their AML legislation or AML procedures.
Other Member States like LV, RO don’t acknowledge the receipt but may give informal feedback that they are carrying out analysis based on the report. Some Member States do both, acknowledging and giving informal feedback (MT and CY). Member States mentioned with capital letters in figure 3 represent the fact that they are legally allowed by their AML legislation or AML procedures in their country to act accordingly.
Submitted
No, limited or limited informal feedback FIU ->RE in: DE-SK-EL-UK-HU-FI
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Member States mentioned between brackets supply this information in an informal way. For example, BE is formally supplying verdicts to its REs whereas the Luxembourg FIU provides feedback on the verdicts in annual reports. To date, all cases are described in these annual reports (sanitized) and the financial institution which filed the STR will recognize the case.
Another form of passive formal feedback (not directly supplied by the FIU) is the search warrant to gather evidence in the criminal proceeding, this act will confirm that an investigation is ongoing and the crime which is the object of the investigation. When assets are seized, another form of passive formal feedback occurs when the judgment is executed (confiscation or release of the seized assets).
Figure 3 shows that the moment of feedback provided by the FIU to the REs mostly is concentrated during the phase of reception and analysis of the STRs by the FIU. After the STR has been disseminated to LEA for investigation purposes, feedback is substantially reduced (feedback from LEAs towards the FIUs as shown in figure 4 on page 27) and feedback is almost non-existent from LEAs to REs (figure 5 on page 28). Police forces, prosecution offices and the judiciary authorities do not seem to be too interested in providing feedback on their activities. As mentioned before a possible explanation for this could be fear of damaging the integrity of the investigation, the privacy aspects of the reported client or legislation that prevents revelation of any kind of feedback to the reporting sectors. However, in approximately 10 Member States LEAs are obligated to provide different forms of feedback to the FIUs (figure 5 on page 28).
In many other Member States, REs rely on informal contacts to provide some form of specific feedback. In case of a serious suspicion, the FIUs would most probably request more information about the reported client from the RE. Some FIUs automatically ask for more information upon receipt of an STR. Other FIUs request information from all related REs upon the receipt of an STR in order to gather possible extra information. (e.g. when a bank sends in a STR to the FIU, the FIU might request information on this client from all other banks in the country). It seems that these FIUs do not supply any feedback on the answers to these additional requests, even if REs are asking for information. Especially in cases of freezing of accounts or transactions, the non-feedback attitude of the FIUs causes many difficulties to the REs which can and in some cases have resulted in loss of customers. REs
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normally consider additional requests from the Authorities a certain form of feedback as it indicates at least an interest in the reported transaction. Also, feedback could be based on questions or reports from police officers or prosecutors who are investigating the case following up the initial start up, and serving the RE with a search warrant, or some other form of compulsory court order requiring further information to be produced. Although this gives the RE some further feedback information, it will be only interim information not showing the final result of the case, and the institution is still left uncertain as to their attitude towards their reported client.
e. Member States feedback LEA -> FIU
Figure 4 Formal and Informal Feedback from LEA to FIU
When looking at feedback provided from LEAs to FIUs in the EU, figure 4 shows that in 10 Member States (Lea FIUs: IE, CY, DE, PT, DK, UK, LT and Adm. FIUs: LV, CZ and SI) LEAs are obligated by their national legislation or internal procedures to provide forms of feedback to the FIU in the Member State. This feedback ranges from dates related to the start
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and/or finish of the investigations, results obtained at the end of the investigation to the decisions made by prosecutors. For example in the Czech Republic (CZ), the judicial service is legally obliged to provide information on the results of court cases to the FIU, as the disseminated of a suspicious transaction is regarded as a complaint. LEAs (Prosecution and Police) are obligated to provide information (feedback) to the complainant (in this case the FIU). Explanation: In the Czech Republic every citizen has the right to make a complaint against another citizen or an institution. LEAs are legally obligated to give information on the follow-up investigation of the complaint to the complainant. The dissemination of STRs are by Czech law considered to be complaints. Therefore LEAs are obligated to give feedback on the disseminated STRs to the FIU, which in turn should inform the RE.
f. Member States feedback LEA -> RE
Regarding the feedback relationship between LEAs and the REs, it seems LEAs supply almost no feedback at all as illustrated in Figure 5. In the United Kingdom investigating police services (the FIUs – Financial Investigation Units19 ) are directly in contact with reporting institutions through a system of accredited financial investigators. In some specific cases these FIUs (Financial Investigating Units) seem to be providing feedback directly to the reporting institutions.
19 In the United Kingdom SOCA is the Central FIU and LEA have special units they call FIUs (Financial Investigating Units), manned by accredited Financial investigators.
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Figure 5 Formal and Informal Feedback from LEA to REs
Feedback still is at an early stage of development. Although it is true that there is considerable diversity in the volume, types and methods of general and specific feedback currently being provided by the different AML related authorities. There still is no uniformed way of providing feedback to the different AML institutions in the vertical feedback triangle.
Feedback methods and types are undoubtedly improving. Many Member States are working closely with their reporting institutions and LEAs to try to increase the feedback (and communication) level and reduce any unnecessary limitations. However, individual feedback provided on STRs to REs is still very limited.
Partnership (MOU’s) between FIUs, LEAs and the REs could be further developed by a co-operative exchange of information and ideas. An increased and uniform level of feedback could be the result of this partnership.
The project team thinks that at least 10 forms of specific feedback could take place during the period from the moment an STR is submitted to the moment the conviction of a reported
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client takes place 20. Information to be revealed to the REs should be fed back through the FIU, as the central authority on AML activities. The FIU could give feedback to the REs by considering the following conditions:
1. The reporting institution receiving the feedback is a trusted and traditionally satisfactory reporting institution,
2. The Compliance personnel of the reporting institutions, in most cases, are former Law enforcement persons and are used to dealing with this type of information,
3. A vetted group of compliance officers could be selected to be involved in the communication with the FIU and LEAs. In the United Kingdom, this type of vetted compliance group is existing at the moment and is sharing sensitive AML information with FIU and LEAs.
4. The FIU should be responsible for the risk analysis done in order to select those institutions fitting the profile. This type of risk-analysis already takes place in Bulgaria (BG).
g. Feedback as a catalyst for more AML / CFT reporting:
Reporting (financial) institutions have to know their clients: “the Know Your Customer (KYC) principle”. During the interviews, REs, especially the financial institutions, explained the importance of knowing their customers in order to prevent fraud and integrity damage.
Most of the institutions already had adapted the enhanced CDD principles mentioned in the 3rd EU Money Laundering Directive before the Directive came into force emphasizing the importance these institutions gave to AML activities.
In the Member States, the financial sector institutions (Banks, Credit institutions) are the most relevant REs as far as reporting numbers of STRs (80%) is concerned and could be considered the backbone of the EU wide reporting system at the moment.
REs have developed ingenious (expensive) automatic systems 21 for the detection of unusual or suspicious transactions by their clients. Before a new client is able to open an account or have other credit facilities, financial institutions ensure that the KYC principles and the different forms of Customer Due Diligence are applied in order to verify that the client is
20 See Chapter III – f. under “Timing of feedback”
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trustworthy at the start of the business relationship. This means also that reporting institutions very often know much more about their clients than they mention in the suspicious activity reports sent to the FIUs. They have made a complete summary of their clients
trustworthy at the start of the business relationship. This means also that reporting institutions very often know much more about their clients than they mention in the suspicious activity reports sent to the FIUs. They have made a complete summary of their clients