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FATF publishes report on Sweden

Chris Hamblin, Editor, London, 5 May 2017

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The Financial Action Task Force, the world's anti-money-laundering standard-setter, has published a so-called "mutual evaluation report" about Sweden. Its contents reveal a good deal about the FATF's current preoccupations.

The FATF is now concentrating intently on national, governmental strategic direction. It is therefore critical of the fact that Sweden still has no national policy co-ordination body for ML/TF, which hinders its "understanding of risk across agencies."

Back in the faraway world of 2003, before the invasion of Iraq, the FATF was governed by two blocs: the United States (whose government was interested primarily in using the FATF as a weapon against people accused of terrorism and 'Axis of Evil' countries) and the Franco-German axis that ran the European Union (which was uninterested in this and only wanted the FATF to lead the fight against money-laundering). The US gradually won its battle and now dominates policy completely, which explains the great crusade the FATF has undertaken in recent years to force its members to boost their regimes for targeting individuals to an immense degree.

Because of this, it is scathing about Sweden's implementation of targeted financial sanctions against terrorist financing. The EU still seems to be dragging its heels in this area, as the FATF goes on to say: "It [the implementation] is ineffective, mainly because of serious technical deficiencies that are inherent within the framework of applicable EU regulations, and because of Sweden’s failure to propose or make designations itself.

The Swedish financial intelligence unit comes in for some criticism. According to the FATF, it has inadequate IT and its "strategic analysis function" is still in the pipeline. The FATF wants to see the job done quickly so that the FIU can identify complex cases of money laundering and provide other authorities and the private sector with "risk information." It is, however, wholeheartedly impressed by Sweden's co-operation with foreign AML/TF regulators, courts, FIUs and prosecutors. It makes the usual calls for more money for AML inspection teams at the Swedish Financial Supervisory Authority or Finansinspektionen. It acknowledges the fact that legal ownership and control is "highly transparent" in Sweden, but not enough information about beneficial ownership is available. This is going to be remedied by the EU's policy of imposing registers of beneficial ownership on all the states in its thrall.

A new ML offence

The new money-laundering offence (in force since July 2014) has found great favour with the FATF, which says that it has improved Sweden’s ability to investigate and prosecute laundrymen no end. The standard-setter is especially pleased that the offence requires prosecutors to show that laundered property “derives from criminal activity”. Before July 2014, the predicate offence had to be confirmed in court before someone could be convicted of “handling stolen money.” Under the recent Act, a person is also guilty of a money laundering misdemeanour if he or she, in a case referred to in section 3 or 4, did not realise but had reasonable cause to assume that the property was derived from an offence or criminal activities.

The penalty is imprisonment for at most two years, but this rises to six in the case of a "gross money-laundering offence." To identify 'grossness' the Act directs judges to determine whether the act has concerned objects of substantial value, whether the criminal measures have been part of criminal activities that have been conducted systematically or extensively, or whether they have otherwise been of a particularly dangerous nature. This probably covers everything a prosecutor might want; 2014 certainly marks the moment when, in the strangulated language of the FATF, the financial intelligence unit started "putting focus" on the money-laundering offence and not just on predicate offences.

The new money-laundering offence has made it far easier for the authorities to secure assets at an early stage (through prohibitions on disposal of property, i.e. freezing), and to confiscate criminal
money. The FATF has pronounced Sweden's asset tracing investigations effective.

Criminal HNW lifestyles

Criminal HNW lifestyles are still relatively safe from prosecution. The FATF has this to say on the subject: "With particular regard to organised crime, Sweden has identified the retail and service sectors
as highly vulnerable. This is because, in the view of the Swedish authorities, many criminals tend to spend or consume the criminal assets in goods and services, both day-to-day and luxury spending (real estate, boats and others). LEAs find it complicated to identify and trace these assets and few money-laundering investigations appear to be made in this regard, despite the fact that the new ML offence specifically targets consumption of criminal gains without the intent to launder.

Terrorist finance

The FATF is also pleased with Sweden's new terrorist finance offence, which became law last year. This is especially welcome as threats to Sweden relating to foreign terrorist fighters have escalated sharply since 2014. All the FATF can say about the new offence is that it addresses past problems and "seems to have a substantial level of effectiveness."

In 2010, Sweden implemented a new law that made travel with the intent of committing terrorist crimes a criminal offence punishable with up to two years’ imprisonment. Since a defendant was acquitted in a recent high-profile case in December on the grounds of insufficient evidence, the Swedish Government has voiced a desire to make the Recruitment Act and the Law on Punishment of Terrorism Crimes harsher.

Non-compliance a thing of the past

On the usual table of "compliance points" that brings up the rear on every mutual evaluation, Sweden is not listed 'non-compliant' with even one of the FATF's 40 recommendations. It is listed 'partially compliant' in only a few. One, as we have seen, is in the national policy area (no 2). One is in recommendation 6, to do with terrorist finance where, in addition to the complaints listed above, the FATF complains that Sweden does not subject “EU internal terrorists” to freezing measures pursuant to United Nations Security Council Resolution 1373 . The aforementioned complaint about targeted financial sanctions (which are so close to the FATF's heart that it gives them their own acronym, TFS) in relation to 'proliferation' (of what, it does not say) are at recommendation 7.

On wire transfers, at recommendation 16, the FATF says that the EU regulation in force does not yet cover beneficiary information and contains limited requirements for intermediate financial institutions. Next door at number 17, reliance on 'third parties' (meaning not explained) is not what it might be. There is no requirement for any financial institution to satisfy itself that a third party is regulated, supervised and monitored for AML/TF compliance. Reliance on members of the EU is not based on the level of country ML/TF risks but rather the assumption that all countries in the European Economic Area are following the right provisions. At number 18, things are not right with Swedish bank's internal controls and foreign branches and subsidiaries. There is no requirement to "ensure high standards" when hiring employees and some of the FATF's requirements for group-wide compliance are missing.

Trust-relevant parties not covered by KYC

The FATF's complaint against Sweden's shortcomings to do with 'transparency' (a term the FATF does not explain) and the beneficial ownership of legal persons (recommendation 24) has already been explained. Sweden is also only 'partially compliant' when it comes to 'transparency' and the beneficial ownership of legal arrangements. Here the FATF says that requirements for trust service providers to "know their customers" do not extend to trust-relevant parties that are neither the customer nor the customer’s’ beneficial owner.

For recommendation 26, on the regulation and supervision of financial institutions, the FATF says: "Fit and proper requirements do not apply to all senior management positions, nor to the beneficial owners in all situations. There is no ability to force persons who are no longer suitable to divest ownership for some types of financial institutions. The risk classification tool for the ML/TF risk of supervised entities is still being developed."

Swedish AML policy towards cash couriers (recommendation 32) could also be tighter, according to the standard-setter.

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