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European Commission
DG Justice, Freedom and Security
Directorate D: Internal security and criminal justice
Study on “Best practices in vertical relations between the
Financial Intelligence Unit and (1) law enforcement services
and (2) Money Laundering and Terrorist Financing Reporting
entities with a view to indicating effective models for
feedback on follow-up to and effectiveness of suspicious
transaction reports.”
Final Report on feedback
Contract No: JLS/D2/2007/08
Contracting Authority: European Community represented by the European Commission
Beneficiary Organizations: European Commission, Directorate General Justice, Freedom and Security
Country: All 27 EU Member States
Contractor: B&S Europe
Reporting Period: 2008
B & S Europe
Rue de la Loi, 81 A, 1040 Brussels Tel.: +32 2 230 52 12
Fax: +32 2 230 91 93 Email: [email protected]
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Disclaimer
This report has been carried out for the European Commission (DG Justice, Freedom and Security) on the basis of a contract awarded following an open call for tenders.
This Report should not be regarded as stating any official position of the European Commission. Acceptance or publication of this final report by DG Justice, Freedom and Security does not necessary imply endorsement or acceptance of the recommendations contained in the Report. DG Justice, Freedom and Security further notes that the recommendations contained in the report are not necessarily addressed to the European Commission nor do they necessarily imply any follow up action by DG Justice, Freedom and Security.
List of abbreviations
AML Anti Money Laundering
BC Egmont Biennial Census 2007
BCBS Basel Committee on Banking Supervision
CDD Customer Due Diligence
CTR Cash Transactions Report
EC European Commission
EU European Union
FATF Financial Action Task Force FIU Financial Intelligence Unit
KYC Know Your Customer principle
LEA Law Enforcement Agencies
MLRO Money Laundering Reporting Officer
MOU Memorandum of Understanding
MS Member States
RE Reporting Entities, obliged to report unusual or suspicious transactions under Directive 2005/60/EC.
SA Supervisory Authority
SARs Suspicious Activity Reports
STR Suspicious Transactions Report / Report on financial transactions
TA Technical Assistance
TL Team Leader
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Table of Contents:
I. INTRODUCTION... 4
a. Executive summary ... 4
b. The setup of the report and study: ... 6
c. The scope of the study:... 7
II. METHODOLOGY OF WORK ... 7
a. The collection of the necessary information ... 7
b. The institutions visited: ... 9
c. The desk-analysis, site interviews and team cooperation ... 10
III. DEFINITION AND TYPES OF FEEDBACK ... 11
a. Definition of Feedback... 11
b. Types of feedback: ... 13
c. Feedback in cases of financing of terrorism: ... 16
d. Feedback, the legal aspects: ... 16
e. Feedback, the operational aspects: ... 18
f. Timing of the feedback: ... 20
IV. FEEDBACK EU BENCHMARKING ANALYSIS ... 20
a. The overall feedback level within the EU:... 20
b. Good practices of feedback: ... 22
c. Possible individual feedback in the Member States:... 23
d. Member States feedback FIU -> RE ... 25
e. Member States feedback LEA -> FIU... 28
f. Member States feedback LEA -> RE ... 29
g. Feedback as a catalyst for more AML / CFT reporting: ... 31
h. Feedback on the basis of intelligence:... 32
V. THE REPORTING ENTITIES ... 33
a. Types of reporting entities: ... 33
b. A global overview by KPMG... 35
c. Comparative analysis among REs:... 36
d. Profiling clients: ... 39
e. Analysis of present situation in REs, the questionnaire: ... 42
f. Accreditation of Compliance officers: ... 44
VI. THE FINANCIAL INTELLIGENCE UNIT ... 45
a. Feedback by type of FIU ... 45
b. Comparative analysis among FIUs: ... 47
c. Analysis of present situation in the FIUs, the questionnaire:... 48
VII. LAW ENFORCEMENT AUTHORITIES... 51
a. The investigative Units of the Police: ... 51
b. Feedback from the LEAs... 52
c. Comparative analysis among LEAs : ... 54
d. Analysis of present situation with LEAs, the questionnaire: ... 54
VIII. BEST PRACTICES IN THE MEMBER STATES... 56
1. Austria ... 56
2. France ... 57
3. The Netherlands: ... 57
4. Germany: ... 59
Page 4 of 101 6. Belgium: ... 61 7. Luxembourg: ... 62 8. Czech Republic: ... 62 9. Slovakia:... 64 10. Ireland: ... 64 11. Cyprus: ... 65 12. Greece: ... 67 13. Latvia:... 67 14. Estonia:... 68 15. Lithuania: ... 69 16. Bulgaria: ... 70 17. Malta: ... 71 18. United Kingdom:... 71 19. Hungary:... 74 20. Spain:... 75 21. Portugal: ... 77 22. Romania: ... 78 23. Denmark: ... 79 24. Finland:... 80 25. Sweden: ... 81
IX. GENERAL CONCLUSIONS: ... 82
a. Reporting Entities:... 83
b. Financial Intelligence Units: ... 85
c. Law enforcement Authorities:... 87
X. RECOMMENDATIONS ... 88
a. General: ... 88
b. The European Union: ... 90
c. The Member States: ... 91
d. The FIUs:... 92
e. Law Enforcement Authorities: ... 98
f. The Supervisors:... 100 I. INTRODUCTION
a. Executive summary
The objective of the study was to make an inventory on the provision of feedback between the Reporting Entities (REs), the Financial Intelligence Units (FIUs) and Law enforcement Authorities (LEAs).
25 Member States were visited and a large number of interviews were held. Feedback should be provided and received in the following ways: (1) Feedback should be received by the REs in reaction to the financial reports (STRs) the REs are legally obligated to send to the FIUs of the different Member States. (2) Feedback should be provided by LEAs to the FIUs in reaction on the dissemination by the FIU of financial information on the basis of the STRs
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received from the REs. The interviews of personnel from the REs, FIUs and LEAs indicated a level of feedback (FIU->RE) as generally recommended in the Best practice Guidelines on Providing Feedback 1, published in 1998 by the FATF. There are some new developments like indications on quality of STRs being fed back to the REs. The main forms of feedback between those entities (FIU->RE) are however still based on the recommendations of the FATF. Feedback in the 25 Member States consists mainly of general feedback (the organisation of AML-meetings, workshops, statistics, typologies, trends, sanitised cases etc.) and specific feedback (individual or case to case) on the outcome of specific STRs reported by the REs. This last form of feedback seems to be provided in an informal way in most Member States. Some forms of formal obligations to provide specific feedback between FIUs and LEAs and from the FIUs to REs were found in some Member States. It was also found that even if there was a formal obligation for LEAs and the FIU to provide feedback to each other and the REs, this not always meant that feedback was supplied to the REs. The general impression of the AML activities in relation to feedback within the Member States visited by the Team is that most Member States still rely on the “old” recommendations of the FATF (1998) on feedback. New ways to provide feedback are hardly developed.
Good communication and information exchange with the REs is not sufficiently implemented in a lot of Member States. Contacts between reporting Entities and the FIU as well as Law enforcement authorities seem to have decreased in some Member States. “The number of
meeting, conferences and training sessions have become less and less, AML information is not sent as frequently as in the past, the relation between FIUs, Reporting Entities and Law enforcement, in relation to the money laundering approach has cooled down”. General
Remarks like this by a number of REs seem to suggest a declining interest in AML activities. A possible explanation for this may be the lack of communication and cooperation within the AML chain (REs, FIUs and LEAs), continuous organisational changes that some institutions are facing, complicated AML legislation and lack of sufficient results in the form of ML convictions 2.
Audits performed in some Member States on the effectiveness of AML Institutions showed few achievements in the fight against ML, and as a consequence, usually a reorganisation of the AML institutions was undertaken in some countries. Some examples of these changes are
1 FATF on feedback: http://www.fatf-gafi.org/dataoecd/32/46/34046950.pdf
2 The AML approach of countries is still being judged by the number of convictions for money laundering. This approach should perhaps be
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The Netherlands (2006 MOT to the FIU the Netherlands), The United Kingdom (2006 NCIS to SOCA) and presently Italy (2008). Other Member States have relocated their FIU organisation or created new functions like a police liaisons within their units, e.g. Bulgaria, Lithuania, Hungary and Estonia.
In addition, FIUs and REs expressed their concern about the increasing number of tasks that have been assigned to them in relation to the traditional AML activities and or new specific tasks regarding the financing of terrorism.
This report certainly does not pretend to be of a scientific nature but merely an introduction to the problem of feedback. One thing is certain, there is a lot of improvement to be made in the communication and cooperation between the different AML institutions.
b. The setup of the report and study:
The final report produced by the Project Team consists of the following parts: 1. The final report, including recommendations and
2. A country report discussing the situation in the different Member States. Visits were conducted in the following Member States:
Austria, Estonia, Lithuania, Latvia, The Netherlands, Belgium (partly), Luxembourg, Portugal, Spain, Romania, Slovenia, Bulgaria, The Czech Republic, Slovakia, Hungary, Ireland, Cyprus, Greece, The United Kingdom, Sweden, Denmark, Finland, France and Malta. Italy and Poland were unable to provide assistance to the study due to reorganizations taking place in both countries. Germany was not visited but the FIU send extensive material so that a reasonable analysis could be made of the German AML feedback system without interviews of AML related institutions.
The Team would like to offer their special thanks to the different Member States Financial Intelligence Units for their cooperation. Most of the FIUs provided support in the organizational set up of the interviews with the relevant AML authorities and Institutions. This was critical in order to be able to meet the tight deadlines for the final report.
Although the visits were short we can say that a reasonable clear picture was obtained of the situation on vertical relations in regard to feedback and the general exchange of information between AML related institutions in the 25 Member States of the European Union participating in the project.
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The goal of this study has not been to conduct a deep analysis of the AML system in each Member State. The study is certainly NOT an attempt to judge or compare different Member States with each other in order to establish a ranking on performance within the topic of the study. The study is an operational look at the best practices in the different Member States, no more and no less than that. It is hoped that this report will contribute to an honest discussion about the subject of feedback and will help the Member States and the European Commission to make the right decisions towards feedback issues in future.
c. The scope of the study:
The aim of the study is to map and provide an in-depth analysis of existing feedback structures between Financial Intelligence Units (FIUs), Law enforcement Authorities (LEAs) and reporting entities (RE) in the fight against money laundering and terrorist financing. The study is based on information gathered from relevant actors such as FIUs, LEAs, REs (from the financial and non financial sector), Supervisory Bodies and other EU Member State competent authorities, The Egmont Group, Europol, The Financial Action Task Force and other international bodies.
The study should specify best practices but also point out any shortcomings and obstacles to the improvement of existing feedback structures. Its recommendations should be used to set up some actions at a European level to improve the efficiency of the existing feedback systems.
II. METHODOLOGY OF WORK
a. The collection of the necessary information
The assistance of the Heads of the FIUs has been crucial in order to identify and approach the different institutions considering the sensitivity of the AML topic. Once the cooperation with the FIU was secured, the team members used their networks to organise the interviews. The institutions (REs) visited were mainly chosen by the Head of the FIU in the Member States based on the quality and quantity of the reports made by these REs. The LEAs visited were selected on the basis of cooperation, existing liaison functions or specifically because of their role in AML activities in the Member State.
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In total 125 persons from different REs were interviewed in regard to the Study on Feedback. Types of Reporting Institutions visited were:
1. Banks, Credit Institutions
2. Exchange Offices and Money Transfer offices 3. Notaries and Accountants
4. Casino’s
5. Car dealers Associations
In total 149 persons of Government Authorities took part in the interviews: 1. The Financial Intelligence Units in the Member State (50 persons)
2. Law enforcement authorities in the Member State consisting of The Prosecution Service (28 persons), The Investigation Units into Financial crime and Money Laundering (41 persons).
3. Supervisory Authorities in the different Member States (27 persons).
4. From the FIU.NET organisation 2 persons were interviewed in regard to the feedback issue.
5. At Europol 2 persons were interviewed in regard to the feedback issue.
6. From the Egmont Group 1 person was interviewed in regard to the feedback issue.
The table underneath mentions the type of institutions and the number of persons visited in each Member State. Not in all Member States it was possible to interview someone from the Supervisory Authorities.
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b. The institutions visited:
Member State Planned
Institutions to visit Nr. Of persons and type of institution visited
FIU RE LEA SA
Austria RE – FIU – LEA - SA 1 2 3 1
France RE – FIU – LEA - SA 3 1 1 2
Germany RE – FIU – LEA - SA - - - -
Poland RE – FIU – LEA - SA - - - -
Slovenia RE – FIU – LEA - SA 5 5 4 -
The Netherlands RE – FIU – LEA - SA 2 10 2 -
Belgium RE – FIU – LEA - SA 1 2 - -
Luxembourg RE – FIU – LEA - SA 2 5 2 2
Czech Republic RE – FIU – LEA - SA 1 8 3 -
Italy RE – FIU – LEA - SA - - - -
Slovakia RE – FIU – LEA - SA 2 5 1 -
Ireland RE – FIU – LEA - SA 2 6 2 -
Cyprus RE – FIU – LEA - SA 2 4 1 2
Greece RE – FIU – LEA - SA 3 9 1 4
Latvia RE – FIU – LEA - SA 3 2 2 2
Estonia RE – FIU – LEA - SA 2 3 2 1
Lithuania RE – FIU – LEA - SA 1 7 2 1
Bulgaria RE – FIU – LEA - SA 3 9 10 2
Malta RE – FIU – LEA - SA 3 2 4 2
United Kingdom RE – FIU – LEA - SA 2 3 4 2
Hungary RE – FIU – LEA - SA 2 7 2 1
Spain RE – FIU – LEA - SA 3 10 4 1
Portugal RE – FIU – LEA - SA 2 8 6 2
Romania RE – FIU – LEA - SA 2 5 4 -
Denmark RE – FIU – LEA - SA 1 5 3 2
Finland RE – FIU – LEA - SA 1 3 4 1
Sweden RE – FIU – LEA - SA 1 3 2 1
Europol AML Unit (2)
Egmont Group Judicial Working group (1)
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The Biennial Census 2007 of the Egmont Group has provided the project team with indications on the current level of feedback within different Member States. The Egmont Group mentions the feedback between FIU and REs in their Biennial Census reports 3. There is no reference of feedback provided or obtained by LEAs, supervisors, or other entities related to AML activities in these BC reports.
The EU FIU Platform Report on Feedback 4 also produced an overview on types and best practices on feedback in the Member States UK, EE, AT, SI and MT supplied information on this topic that was included in the overall approach of the study..
c. The desk-analysis, site interviews and team cooperation
The following documentary information and technical reports have been used while conducting the study:
• Member States contribution to the Biennial Census produced every two years by all EU Member States. FIUs include information over the year 2006 on feedback structures and REs, types of FIUs, number of reports etc.
• The annual report as published by most EU Member States FIUs, including statistics of REs.
• The Moneyval, FATF or IMF evaluation reports, when available on the Member States in regard to comments on feedback and other relevant information in the reports.
• Best Practices Guidelines 5
in providing feedback to REs and other persons, published by the FATF.
• The EU FIU Platform Feedback Report coordinated by the Serious Organised Crime Agency of the United Kingdom.
• The KPMG Global AML survey 2007 6
exploring the challenges of the financial sector in complying with global AML requirements.
3 Egmont Biennial Census 2007, FIU-Operation, question 3.9
4 http://ec.europa.eu/internal_market/company/docs/financial-crime/fiu_report_en.pdf 5 http://www.oecd.org/dataoecd/32/46/34046950.pdf
6
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• Academic studies, 7
in the field of organised crime, money laundering and corruption, performed by Prof. Dr. Petrus C. van Duyne, Professor of empirical penal science at Tilburg University in the Netherlands.
• Reports on the topic prepared by B&S Europe for other related studies for the European Commission.
The desk research has been an ongoing activity through out the time of the study, coordinated by B&S Europe. The country reports have been shared between the team members in order to be taken into account when drafting the recommendations.
The team leader prepared questionnaires in cooperation with B&S Europe. The questionnaires are mentioned and analysed in the chapters V-d, VI-c and VII-d of this report. Key questions have been reviewed by the Team and agreed with the European Commission. The methodology for selecting the types of Institutions had been defined in the inception report; The Heads of the FIUs appointed the institutions and organisations to be interviewed, as a result of their specific knowledge of the relevant institutions in the Member State.
The report, statistics and graphic pictures are based on:
1. The answers supplied by the Member States to the questionnaire of the Egmont Group Biennial Census of the year 2007.
2. Interviews by the experts on the basis of questionnaires set up for the FIUs, REs and LEAs dealing with money laundering and terrorist financing.
3. Additional information on the Member States position towards money laundering and terrorist financing such as their legislation, annual FIU reports and procedures as mentioned by relevant authorities.
4. Overviews and excerpts from FATF, World Bank / IMF evaluations as well as evaluations of Moneyval.
III. DEFINITION AND TYPES OF FEEDBACK
a. Definition of Feedback
The activities of the actors involved in the AML/CFT system are very much about receiving,
7
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processing and disseminating information. REs disclose information to the FIU, by filing suspicious transactions reports (STR) and / or suspicious activity reports (SARS). In most of the local legislation from the Member States a provision on feedback is included. The Third Anti-Money Laundering Directive (2005/60/EC)8 prescribes the obligation for Member States to provide feedback in a timely fashion.
The FIU carries out its analytical functions by accessing external databases, obtaining information from other domestic public authorities and exchanging information with foreign counterparts. LEAs receive information concerning relevant disclosures from the FIU and, in their turn, perform investigations and start judicial proceedings.
Information should then be fed back, so that all players are aware of the results achieved and lessons are learnt from the experience; effectiveness and efficiency can thus be improved. Prosecutors and LEAs should inform the FIU about the outcome of the analysis performed by the latter. The FIU should inform the REs about the use of the disclosures filed by them and the results achieved thereby. Timely and satisfactory feedback should also be provided to foreign FIUs and information on quality of reports can be provided to other competent authorities, like supervisors.
Every actor that provides input should receive information. This is what the study considers to be “Feedback”. When the information is fed back in response to previous inputs, the process has a circular structure. REs inform the FIU about possible money laundering or terrorist financing phenomena and should subsequently be informed about the outcome.
Trends, typologies and indicators are also made available. 2 different types of feedback are used at the moment: (1) General feedback consisting of statistics, typologies, trends, case descriptions (sanitised or anonymous), AML-meetings, conferences, films, literature etc. General feedback does not identify any subjects mentioned in the STRs reported by the REs. (2) Specific feedback consists of feedback directed at a specific STRs and identifies subjects mentioned in the reports (STRs). At the moment most of the Member States provide some form of specific feedback. This is usually done in an informal way. The project team came across extensive formal specific feedback between FIU and REs in only a few Member States (e.g. The Czech Republic, Slovenia, Lithuania). In these Member States either the legislation or internal procedures obliged LEAs as well as the FIU to inform the REs about the follow-up on analysis and investigations based on suspicious reported transactions.
8
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b. Types of feedback:
At the moment the only international requirements to provide feedback are described in the recommendation of the FATF 9 and the 3rd EU AML Directive 10.
FATF Recommendation 25 deals with feedback:
FATF Recommendation 25
The competent authorities should establish guidelines, and provide feedback which will assist financial institutions and designated non-financial businesses and professions in applying national measures to combat money laundering and terrorist financing, and in particular, in detecting and reporting suspicious transactions.
9 http://www.fatf-gafi.org/dataoecd/7/40/34849567.PDF 10
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According to these guidelines, an FIU should publicly release reports that include statistics, typologies, and trends as well as information regarding its activities 11. Most EU FIUs comply with this recommendation.
The 3rd EU AML Directive describes the following types of feedback to be provided:
o Feedback on money laundering and terrorist financing practices (trends & typologies). o Feedback on suspicious transactions reports, to inform the REs about their follow-up;
this specific or case-by-case feedback should be provided "wherever practicable";
Several forms of general feedback are currently provided, both at national and international levels. Although the type of feedback and communication channels may differ from one Member State to another, the following types of feedback are used in most EU Member States:
1. Statistics on the number of disclosures, with appropriate breakdowns, and on the (general) results of the disclosures;
2. Information on current techniques, methods and trends (trends and typologies); 3. Sanitised examples of actual money laundering and terrorist financing cases.
The FATF Best practices Guidelines report on feedback12 of 1998 provides instructions, recommendations, examples and indications of the forms of general feedback mentioned above..
The methods in which feedback can be shared vary according to the FATF Guidelines: 1. Written feedback
2. Meetings 3. Video’s
4. Electronic information systems
Specific feedback (Individual or Case by Case feedback) 13
Reporting Institutions in most Member States welcome prompt and timely information on the results of their STRs. Not only for them to improve the processes for better identifying
11 Based on the report on Feedback on ML and TF cases and typologies of the EU FIU Platform 12
http://www.fatf-gafi.org/dataoecd/32/46/34046950.pdf
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suspicious transactions, but also to take appropriate actions in relation to the customer they have reported to the FIU. Generally speaking, if a client is suspected of criminal activities, the reporting institution, especially financial institutions like banks, credit institutions and insurance companies, do not want to continue doing business with this client anymore. Their main argument for ending the relationship with a client is that the trust between financial institution and the client has been damaged. If there is distrust between institution and client an RE will usually end the relationship with the client since they do not want to put their reputation at risk or run the risk of being cheated.
Individual feedback to Reporting Institutions is, at the moment, in a lot of the Member States limited due to one or some of the following concerns :
1. One of the primary concerns is that ongoing FIU analysis and LEA investigations should not be put at risk by providing specific feedback information to the REs at a phase prior to the conclusion of the investigation.
2. In many cases, the FIUs and LEAs are understaffed and simply cannot provide feedback for each of the STRs received because lack of time and resources. Priorities are oriented more on the analysis and investigations.
3. Strict secrecy laws prevent sometimes LEAs and FIUs from disclosing specific feedback. Although sometimes the excuse of “secrecy” and “privacy” is used without actual cause.
Apart from the issues mentioned above, REs are also concerned about the degree in which such feedback becomes public knowledge. The REs need to ensure the safety of their staff. They also have to protect them from being called as witnesses who are legally require giving evidence in court concerning a disclosure. Given these limitations and concerns, current feedback information provided by receiving agencies to REs is still more general than specific. However, this study clearly shows a tendency in the EU Member States to provide more forms of individual or specific feedback to REs than was given previously. At present at least 13 FIUs (FR, PT, NL, SI, BE, LU, IE, CY, LV, EE, LT, BG and MT) should inform
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REs, formally14, about the dissemination of suspicious transactions to LEAs. Also at least 6 FIUs (CY, IE, LU, BE, SI, LT and PT) in the EU inform the REs, in a formal way, if an STR is no further pursued and being archived in a specific moment in time.
c. Feedback in cases of financing of terrorism:
When discussing topics related to the financing of terrorism, it was explained by some of the REs that the RE’s AML systems are set up in such a way that it is extremely difficult to detect STRs related to these kind of activities. UK REs specifically mention the fact that the detection of these types of transactions only will be successful if a coordinated approach is taken. Cooperation is also the key word in the fight against terrorist financing. The authorities should make more information available to the REs in order to have a chance of detecting transactions related to terrorist financing. Detection of these type of financial activities have to be the result of cooperation and information exchange between the Security Services, the FIU’s, LEAs and the REs in the Member States. The team members did not get the opportunity to talk to persons involved in the fight against terrorist financing from either the FIU, the LEAs and the Internal Security forces of the different Member States.
d. Feedback, the legal aspects:
The FATF recommendation 26 requires that each country should establish an FIU to receive, analyze and disseminate SARs or STRs and other relevant information.
Recommendation 26
Countries should establish a FIU that serves as a national centre for the receiving (and, as permitted, requesting), analysis and dissemination of STR and other information regarding potential money laundering or terrorist financing. The FIU should have access, directly or indirectly, on a timely basis to the financial, administrative and law enforcement information that it requires to properly undertake its functions, including the analysis of STR.
The FIU should also have timely access to financial, administrative and law enforcement information in order to analyze the incoming reports effectively15. The different EU Directives
have also formulated AML and CFT instruments and frameworks allowing the 27 Member
14 Based on legislation or procedures within the individual Member States obligating or allowing this type of feedback. 15 Based on the review of the Suspicious Activity Reports Regime by Sir Stephen Lander, United Kingdom, 2006
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States to follow. In some Member States (LU, UK), REs are informing the FIU of suspicious transactions that they encounter and wait for the FIUs instructions on reporting or freezing the accounts or even postponing the transaction.
Dissemination of STRs to LEA usually takes place after analysis of the reported transactions in combination with information checks with different registrars (e.g. police databases).
Article 35 of the EU Directive 2005/60/EC:
1. Member States shall require that the institutions and persons covered by this Directive take appropriate measures so that their relevant employees are aware of the provisions in force on the basis of this Directive. These measures shall include participation of their relevant employees in special ongoing training program to help them recognize operations which may be related to money laundering or terrorist financing and to instruct them as to how to proceed in such cases.
Where a natural person falling within any of the categories listed in Article 2(1)(3) performs his professional activities as an employee of a legal person, the obligations in this Section shall apply to that legal person rather than to the natural person.
2. Member States shall ensure that the institutions and persons covered by this Directive have access to up-to-date information on the practices of money launderers and terrorist financers and on indications leading to the recognition of suspicious transactions.
3. Member States shall ensure that, wherever practicable, timely feedback on the effectiveness of and follow-up to reports of suspected money laundering or terrorist financing is provided.
Part 3 of the Article 35 specifically mentions that Member States shall ensure that, whenever practicable, timely feedback on the effectiveness of and follow-up to of suspected money laundering or terrorist financing is provided. The answers on the questionnaires by the interviewed REs put however question marks on the practical implementation of the terms “timely”, “effectiveness” and ” follow-up” in regard to the feedback they receive. Operational compliance of Article 35 Part 3 is insufficiently developed in most countries, as shown in the interviews with the REs and described in the country reports. This is in part due to insufficient exchange of information and feedback between the FIU’s and the REs as well as the LEA and the FIU’s to create a common approach dealing with AML issues.
Some Member States are still considering and approaching money laundering in their investigative strategic approach as a completely separate criminal activity, while the link between money laundering, organized crime and asset forfeiture should be clear and generally accepted by now.
REs (mainly the Financial Institutions like Banks etc.) have invested large sums of money in the development of sophisticated analytical IT systems in order to detect and report suspicious
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transactions. According to them, since there is little or no information fed back to them, they are often left in the dark about the usefulness and effectiveness of these investments. More and more reporting financial institutions are therefore complaining about the in-efficiency of the Justice system in relation to the fight against money laundering.
e. Feedback, the operational aspects:
Both financial industry representatives and FIUs have stressed the importance of providing appropriate and timely feedback, as mentioned in the 3rd EU Directive on Money Laundering and Terrorist Financing. Also the importance of appropriate and timely feedback from the LEAs, who investigate criminal activities of money laundering on the basis of STRs, remains increasingly important in order to assure an efficient AML regime in the Member States. Such feedback is valuable not just to the FIUs and the REs, but also to the financial regulators and other government bodies.
The reporting of suspicious transactions by banks, non-bank financial institutions, and other entities or persons, is regarded as an essential element of the AML program for every country, as stated in the recommendations of the FATF as well as in the 3rd EU AML Directive. Presently, it is openly recognised that measures to counter money laundering and terrorist financing will be more effective if government Ministries and Agencies work in partnership with the private sector. And that is in particular true for feedback on STRs to the REs.
There are compelling reasons why feedback and, more specifically individual (case to case) feedback should be provided16 :
1. Appropriate and timely feedback enables reporting institutions to better educate their staff about which transactions are suspicious and therefore should be reported. This will lead to more and better quality reports and more correctly identified transactions connected with criminal activities;
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2. Appropriate and timely feedback provides compliance officers of reporting institutions with important information and results, allowing them to better perform their tasks by effectively filtering transactions.
3. Appropriate and timely feedback also allows the institution to take appropriate actions such as to better evaluate and correct their risk assessment model towards their clients, monitor more closely every transaction and even end the relationship with their client if there is solid basis for it. On the other hand, information on archiving STRs and not performing an investigation allows the RE to clear up (for the moment) doubts about potential suspicious clients or downgrade their associated risk model;
4. Appropriate and timely feedback can lead to additional reporting and investigative procedures will benefit from this as more information can be retrieved from reporting entities. It is a well known fact that REs know much more about their clients and the other relationships of the client than they usually report in an STR. Feedback supplied is often also beneficial for the supervisory authorities which regulate the reporting institutions;
5. Appropriate and timely feedback is the way forward for law enforcement authorities in order to contribute to partnership with the financial sector. This partnership will often pay off in the quality and quantity of information provided by the REs through the FIUs to LEA. Financial and organised crime investigations will undoubtedly benefit from this partnership.
In order to promote an efficient AML strategy and increase awareness and cooperation, the Member States FIUs need to analyse trends and provide feedback on current methods and techniques to major partners involved in the AML chain. The empirical evidence suggests that increased feedback and co-operation among Institutions could lead to a significant increase in quality of the reports as well as in the number of STRs. The trick is to decrease the number of reports and at the same time improve the quality of the reports. As the AML activities are changing from a rule based way of reporting to a risk based way of reporting, cooperation is an even stronger argument for the providing of appropriate and timely feedback. This new way of risk-based reporting demands new forms of feedback to be provided by LEAs to FIUs and FIUs to REs. Therefore, a form of cooperation between the institutions mentioned should be created.
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f. Timing of the feedback:
According to the EU Directive, feedback on specific cases has to be provided in a timely way. This means that information from the FIU should be transmitted back to the REs as soon as possible. Of course, as mentioned in the EU FIU Platform report on feedback, feedback information should not damage in any case the ongoing analysis or investigations. Discussions with police investigators and prosecutors in different Member States seem to illustrate that at least the following information and, in some cases even other more specific information, could be given by the FIUs to the REs:
o the date of a decision to disseminate by the FIU, o reasons why an STR will be disseminated by the FIU,
o the date when a police investigation starts on the basis of the STR, o the date when a police investigation ends,
o some information on the investigation results,
o the role of the reported client in the police investigation,
o the date the prosecutors decide to prosecute the reported client or the case in which the STR plays a role,
o the criminal charges by the Prosecutor
o the type of crime related to the reported transaction o the date of the court hearing
o the verdict by the judge
In some countries like the Czech Republic, Slovenia, The United Kingdom, this type of information is already fed back by LEA to the FIU on the basis of AML legislation or internal procedures in those Member States.
IV. FEEDBACK EU BENCHMARKING ANALYSIS
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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
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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 STR Acknowledgement STR received Analysis by FIU Decision FIU of Dissemination to Law enforcement Decision FIU to discontinue
Investigation by Police authorities
Decision by Prosecutor to prosecute
Decision by Prosecutor to discontinue the case
Prosecution period Date Court case
and Charges Court Case Conviction No Conviction Judicial period NL Individual feedback
FIU -> RE
Formal / (informal) BE BG IE LT EL MT SI NL SI BE BE BE LU LU (LU) (LU) BE IE IE CY CY CY (CY) LV EE Start Investigation LT End Investigation LT LT MT (CZ)-(MT)-(RO)-(SE)- (BG)-(LV)-(CY)-(LU) -AT ES PT PTNo, limited or limited informal feedback FIU ->RE in: DE-SK-EL-UK-HU-FI
(LU) (CY) LU (LU)-(CY) (CY) CY LT (PT) (PT)
(PT)-(LU)–(CY)-AT (LU)-(CY)
FR
FR
No info at the moment:
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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
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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
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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
financial status, his personal status, the relations with other clients and other possible business relations of the clients. A large part of this information will never be known to the authorities unless a good cooperation and exchange of information is build up with the compliance officers working in these reporting entities. On average the financial sector reports about 80% of all the STRs being send to the FIUs in the EU. It is therefore essential that cooperation between these reporting institutions and the authorities (the FIU and the investigative services) improves to the highest levels. A lot more financial information can be acquired as a result of good communication. More STR-reports will be send to the FIUs when good contact with this sector is achieved and the REs are really getting involved in the fight against money laundering and terrorist financing. An example is one of the comments of the UK REs that if they would get more “operational” information, it would be easier for them to detect money laundering and terrorism financing activities within their institutions. This can only be achieved by cooperation and information exchange. Feedback is the most important factor to achieve these goals.
Cooperation therefore is the key word in this situation. However, as mentioned later in this
report, FIUs and LEAs are not always prepared to cooperate with the different REs because of possible endangering analysis and investigations.
h. Feedback on the basis of intelligence:
The information supplied by REs could play a role in criminal investigations, money laundering investigations and in cases of terrorist financing. Often the information provided by the FIUs can be used by LEAs in an ongoing criminal investigation. Some Member States (DE and DK) have done research as to the use of financial information supplied through the FIUs to LEAs. In Germany it was established that 45% of the disseminated transactions were used successfully in police investigations and in Denmark 60% of the disseminated transactions were successfully used in criminal investigations. In the Netherlands it is possible to track the STRs used in investigations related to terrorism. It is as yet not possible to
21 See the calculations made by KPMG:
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establish the exact use of the STRs in general criminal investigations. Once an STR is submitted to the FIU, and not disseminated after analyses (archived) it can be used again for intelligence purposes in police investigations. Most Member States have made arrangements to delete STRs and CTRs after a certain period of time when there is no additional information being reported to the FIU in this period. The length of this period is established in the Member States. If a reported STR is used after being archived for a while usually no feedback is given to the REs.
V. THE REPORTING ENTITIES
a. Types of reporting entities:
The different types of reporting entities are usually divided in 2 categories, Financial reporting entities and the Non-financial reporting entities. Hereunder are mentioned the financial and non financial institutions at present to be obligated to report STRs to the Member States FIUs as mentioned in the BC 2007. The REs are ranked from 1 – 5 in order of the number of STRs they are sending to the FIUs. 1 is the institution that reports most of the STRs in a particular Member State and 5 represents the least reporting institution (from the first 5) in the Member State. The Member States LT, LU, MT, PT and SE did not fill this part in the BC 2007.
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Figure 6 : Results of reporting in the different Member States
In the Member States LT, LU, MT, PT and SE banks are also the major reporting entities. Clear is that in most Member States the financial institutions are responsible for most of the STRs (80%). This study focuses mostly on the financial REs for the following reasons:
1. The financial REs are traditionally the best reporting entities in most Member States. 2. These REs are investing a lot of money and resources into the fight against money
laundering and terrorist financing and are more developed in cooperation with FIUs and LEAs.
3. The compliance officers in these REs are usually better trained in financial investigations (within their company) as their background is usually a law enforcement background.
4. The compliance officers have often followed the same type of training as has been followed by financial investigators.
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There seems to be a lot of diversity in reporting ( e.g. Insurance companies report in some Member States reasonably well but don’t report at all in other Member States). This seems strange as the product is usually similar and the reporting regulations are also globally implemented.
b. A global overview by KPMG
In order to illustrate the investments that have to be made by the REs (specifically in the financial sector) so suspicious transactions can and will be detected and reported in a timely way to the FIUs, an excerpt of a recent KPMG report 22 is included in this report. Reason for this is to ask more attention for the large investments made by these entities in order to comply with the money laundering and terrorist financing legislation and to increase the need for cooperation and sufficient communication with these sectors. It also provides an argument for closer cooperation and information exchange with these entities compared to those REs that hardly make any investments and show little interest in the AML approach. The KPMG report focuses on the financial sector being the sector that is providing approximately 80% of the STRs in the Member States of the European Union.
A 2007 global KPMG 23 study among 209 financial entities and banks from 41 countries
(including 12 EU Member States) found that banks’ spending on AML systems and processes has risen by an average of 58 % over the last three years. These increases are far in excess of banks own predictions, when respondents on average predicted an increase of 43 %. The biggest spending continues to be on transaction monitoring and staff training costs.
The study predicts that banks will be faced with higher spending on AML, particularly in relation to KYC systems (know your customer) and transaction monitoring methodology, aimed at risk-based transaction monitoring and staff training.
Some of the major conclusions 24 of the study are:
• A vast majority of respondents (84%) believe the burden of AML requirements to be acceptable, which illustrates the high degree of commitment within the industry to support the global AML effort. However, more than half of them considered that the
22 KPMG report: http://www.kpmg.co.uk/email/307/307231/Detailed_Survey_Findings_2.pdf
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requirements could be made more effective. A number of themes emerged such as a call for better feedback from governments and FIUs as well as for better coordination of AML policy at a global level.
• Better feedback and communication from the FIUs, including known or recently identified typologies and methods used by launderers, preferably differentiated by market and industry (e.g., retail banking, investment banking, life assurance, and so forth).
• On the European level more than 70 % of banks saw AML as a high profile issue at senior management level, 29 % saw it as moderate profile, and only 2 % considered it low profile.
• Of the 209 financial services institutions (globally including 12 European banks) interviewed about their spending over the last three years, the 12 European banks said they have invested an average of 58% more money on combating money laundering over the last three years and expect to spend some 27% more money on AML measures in the next three years. The most recent global study shows that the main driver behind the past and projected increase in spending is transaction monitoring.
c. Comparative analysis among REs:
The questionnaires for the Reporting Entities gave the following impression on the situation reflected in the figure below.
24 Major findings of the KPMG report 2007:-
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Figure 7: Overall feedback impression from REs compared to the overall level
The overview visualizes a perception of the level of feedback in the 25 Member States as experienced by the REs compared to the overall feeling around feedback from FIUs, REs and LEAs. The RE questionnaire 25 supplied the information of which the graph was composed. As shown, the appreciation of the REs in the United Kingdom scored the highest. This is most likely as a result of the implementations and ideas from the Lander report being implemented at the moment 26. Also in Member States Cyprus, Portugal and Slovenia, the REs appreciated the attempts of the Authorities to pay more attention to the situation in providing information back to them. In Denmark, Greece and Slovakia, REs considered the level of cooperation and attention in regard to feedback issues provided from FIUs and LEAs was not sufficient at all. The perception of the FIUs and the REs in the Member States (figure 8 page 37/38) regarding feedback issues varies. In 16 Member States (AT, BE, CY, DK, EE, FR, HU, IE, LV, LT, MT, NL, RO, SI, ES AND UK) the perception of the REs related to the quality of the provided feedback is different from the perception of the FIUs in the same Member States.
25 For the RE questionnaire is referred to Chapter V-d : Analysis of present situation in REs.
26 The Lander reports “A review of the suspicious activity reports regime” by Sir Stephen Lander, March 2006.
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Figure 8: Overall feedback impression from REs compared to the impression of the FIUs
REs can be divided into two main categories:
1. The traditionally Reporting Entities like Banks, Credit Institutions and Insurance Companies (Category 1 REs) that, without applying due diligences (CDD) and the Know Your Customer (KYC) principle, could become subject to reputation, operational, legal and concentration risks resulting in significant financial cost to the institution itself or even to the countries economy as a whole. Principles like CDD and KYC have been applied in these REs for the last decade on the initiative of the BCBS in their “Basel Principles”. Approximately 80% of the STRs received by the FIUs is coming from these traditionally REs as described above.
2. The Non traditionally Reporting Entities like the Casino’s, individually operating Exchange Offices and Money Transfer Offices, Dealers in High prized Value goods (Boats, Cars, Jewelers etc.) and other categories (Category 2 REs). These REs usually are subject to less reputational, legal and operational risk as the category REs mentioned under 1. The KYC principle is very difficult to apply in these type of REs. They are also found to be under-reporting in some Member States. Approximately 10% - 20% of the EU’s STRs is coming from these sectors.
Within the AML legislation of the Member States, many institutions are obliged to report STRs to the FIU and should receive some form of feedback on their reports. It is therefore necessary to make a difference in forms of feedback and information sent to entities of the Category 1 and those from Category 2, based on their attitude towards reporting, their reporting frequency and their efforts to regulate their sector in compliance to the AML