Beware – there is money laundering in your business

The legal field regarding money laundering countermeasures has grown rapidly in recent years, affecting financial institutions all over the world. The fact that measures are taken is reasonable since the problems related to money laundering and financing of terrorism have been found to be extensive.

Revised standards and new legal provisions

The Financial Action Task Force (FATF) revised its standards in 2012. These revisions have now led to changes in the Money Laundering and Terrorism Financing (Prevention) Act (SFS 2009:62) (AML Act) which entered into force on 1 August 2015. On 1 December, subsequent changes to the rules issued by the Swedish Financial Supervisory Authority (SFSA) entered into force.

The new rules primarily entail:
(a) a more sophisticated risk assessment and procedures for making this assessment,
(b) changes to the definition of politically exposed persons (PEP) by including leaders of international organisations and excluding close relatives (although close relatives to PEPs still require enhanced customer due diligence measures),
(c) business operators must take enhanced customer due diligence measures regarding all PEPs (including domestic PEPs),
(d) specific rules regarding data protection, and
(e) additional requirements regarding reporting to the Finance Police and documentation regarding suspicious transactions.

National risk assessment

In connection to the new FATF recommendations, an association of Swedish authorities completed a national risk assessment in 2013 and 2014. The part completed in 2013 concerned money laundering and the conclusions were quite clear: Money laundering in Sweden is extensive and amounts up to billions of SEK each year. The second part addressed financing of terrorism and concluded that financing of terrorism probably occurs in Sweden and the threat is “comparatively limited but not negligible” (my translation).

From the national risk assessment, it can be concluded that there are good reasons for each and every business that engages in business operations under the AML Act to be extremely cautious. In reality, it is highly likely that individuals who have acquired property through criminal means will try to channel the funds through the financial system, which at times may well be through your business.

Sanctions

The SFSA also imposed sanctions just before summer on two of the four largest banks in Sweden (Nordea and Handelsbanken). Nordea is regarded as a bank of global systemic importance and both banks are of systemic importance to the Swedish market. The sanctions were the result
of an extensive investigation conducted by the SFSA to examine the banks’ assessments of customer segments and areas with a higher risk of money laundering and financing of terrorism. It included customers domiciled abroad and regarded as PEPs, correspondent banks, customers within Private Banking and legal persons with fiscal residence outside the Nordic countries.

In the case of Nordea, the SFSA found major deficiencies over a period of several years regarding the bank’s efforts to meet its legal obligation to take measures to prevent money laundering and financing of terrorism. The SFSA had already criticised Nordea in 2013 in a similar matter regarding the bank’s monitoring of customers with respect to the EU Sanctions Regulation. Among Swedish measures, SFSA intervention is as serious as such a measure can be, short of the SFSA revoking the license.

Regarding Handelsbanken, the criticism was less severe, although the breaches were considered substantial. The SFSA concluded that Handelsbanken had failed to conduct risk assessments for all of its customers or to obtain sufficient information about customers and their business relations. The bank’s system for reviewing transactions had also been deficient.

Since both Nordea and Handelsbanken are among the largest banks in Sweden, the sanctions are in our view reasonable; the breaches were many, extensive and directed against the core of the anti-money laundering rules. And they also show that negligence can occur even from some
of the largest actors in Sweden in this area.

How to act

As previously discussed, money laundering in particular adds up to a very large amount every year in Sweden, and if we are to believe the conclusions of the national risk assessment mentioned above, financing of terrorism cannot be ignored, either. Since any financial business is, unfortunately, quite likely to be used for these kinds of activities, the starting assumption for each financial actor should be that its business quite likely is used for money laundering, rather than the opposite. Once this premise has been accepted, the risks can be more accurately assessed and measures to prevent the company from being used for such unlawful operations can be planned.

More to come

Much remains to be done within the anti-money laundering field, with a fourth anti-money laundering directive coming up that must be transposed into Swedish law by 26 June 2017 at the latest. We can only conclude that the legislators are definitely on top of these issues.