This will depend entirely on your circumstances - what jurisdiction are you based in, are you an AML regulated entity (an obliged entity) and what is the connection with Monaco that you are considering.
Below are some of our initial thoughts on this subject which may help obliged entities better consider the implications for their businesses.
If you are an obliged entity you will need to start by looking at what your home country legislation and recommendations/guides say about it. Maybe there is a specific local legal obligation to undertake enhanced due diligence on transactions or on clients with Monaco connections, or to obtain board approval for example or maybe the obliged entity has some freedom to undertake its own analysis of the jurisdictional risk and apply appropriate measure based on that assessment. Each obliged entity will also have their own internal guidance, so you will need to consult your AML policies to determine the procedures that you will need to follow.
The EU will not necessarily immediately update its own list of high risk territories so you will need to determine whether you own obligations require you to take into consideration the EU list rather than the FATF one in the meantime.
It’s worth analyzing the FATF statement on this question which is replicated below. You will see that enhanced due diligence should not necessarily be automatically applied.
“Jurisdictions under increased monitoring are actively working with the FATF to address strategic deficiencies in their regimes to counter money laundering, terrorist financing, and proliferation financing. When the FATF places a jurisdiction under increased monitoring, it means the country has committed to resolve swiftly the identified strategic deficiencies within agreed timeframes and is subject to increased monitoring. This list is often externally referred to as the “grey list”.
The FATF and FATF-style regional bodies (FSRBs) continue to work with the jurisdictions below as they report on the progress achieved in addressing their strategic deficiencies. The FATF calls on these jurisdictions to complete their action plans expeditiously and within the agreed timeframes. The FATF welcomes their commitment and will closely monitor their progress. The FATF DOES NOT call for the application of enhanced due diligence measures to be applied to these jurisdictions. The FATF Standards do not envisage de-risking, or cutting-off entire classes of customers, but call for the application of a risk-based approach. Therefore, the FATF encourages its members and all jurisdictions to take into account the information presented by the FATF on the weaknesses identified in their risk analysis.”
The FATF has decided to add Monaco to the list of jurisdictions under increased monitoring (the "grey list"), despite significant efforts of government and the private sector, and despite the small size of Monaco's financial sector. There will be more work done in the coming months to ensure that the Principality is removed as soon as possible, and we can be sure that the government will allocate the resources necessary to ensure that any perceived weaknesses are addressed.
Since the adoption of its mutual evaluation report (MER) in December 2022, Monaco has made significant progress on several of the MER’s recommended actions including by establishing a new combined financial intelligence unit (FIU) and AML/CFT supervisor, strengthening its approach to detecting and investigating terrorism financing, implementing targeted financial sanctions and risk-based supervision of non-profit organisations.
Monaco has agreed to work with FATF to implement its action plan by:
- (1) strengthening the understanding of risk in relation to money laundering and income tax fraud committed abroad;
- (2) demonstrating a sustained increase in outbound requests to identify and seek the seizure of criminal assets abroad;
- (3) enhancing the application of sanctions for AML/CFT breaches and breaches of basic and beneficial ownership requirements;
- (4) completing its resourcing program for its FIU and strengthen the quality and timeliness of STR reporting;
- (5) enhancing judicial efficiency, including through increasing resources of investigative judges and prosecutors and the application of effective, dissuasive and proportionate sanctions for money laundering; and
- (6) increasing the seizure of property suspected to derive from criminal activities.
These are the areas where the FATF has identified weaknesses. You should consider how these weaknesses affect your AML FTP C risks and consider how to mitigate them.
If you believe that these areas of risk affect your view of the risk rating on Monaco and that these changes to the FATF listing are considered significant for your overall business you may be required to update your Business Risk Assessment (BRA). This may involve re-assessing and even adjusting mitigating controls that you already have in place.
Within a reasonable period of time you will also need to revise the Customer Risk Assessments, based on this new view of the jurisdictional risks, and undertake any additional work you believe necessary to mitigate any new risks identified, or actions required based on any resulting higher CRA risk banding. In certain circumstances a more detailed analysis of the specific risks may allow you to reduce the CRA risk banding.
As an example, take for instance the case where you may be transacting with a Monaco entity where you have already identified the UBO through verification of documents and by obtaining an extract from the UBO register. You could then consider that point 3 above is unlikely to have much relevance to the transaction/ relationship. Similarly point 6 is unlikely to affect the risk level of many transactions or counterparties given the fact that the legislation has been updated in Monaco recently with respect to the seizure of property derived from criminal activities.
As usual in compliance there is not always one precise answer to the question “what action should I take?” It will always depend on the specific circumstances of the obliged entity, the transaction or relationship and the interaction with Monaco. If there is one point to retain it is the advice from the FATF that enhanced due diligence measures do not need to be applied automatically to all transactions involving Monaco.
For more information, please contact office@rosemont-mc.com