Although all Egmont Group member FIUs have the three core functions of receiving suspicious transaction and other reports, analyzing them, and disseminating the resulting financial intelligence, some FIUs are also entrusted with other functions. Five of these other functions are discussed below: monitoring compliance with AML/CFT requirements, blocking transactions, training of reporting-entity staff on reporting and other AML/CFT obligations, conducting research, and enhancing public awareness of AML/CFT issues.
Some FIUs carry out additional functions. Of particular interest is the gathering and storage of financial intelligence. Although, over the years, many FIUs have accumulated considerable financial information and intelligence in the course of receiving and analyzing suspicious and other transactions, some FIUs have become national, centralized “storehouses” of financial information and intelligence, and have developed programs under which law-enforcement agencies may access this information. FinCEN in the United States provides an example.
Other FIUs, whether formally or informally, have become important advisers to their governmental authorities on many aspects of money laundering and the means of combating it. Such FIUs may provide strategic analyses that will be used in the defining of government priorities in combating financial crime. They may also be particularly well suited to provide drafts of amendments to legislation in support of evolving criminal policy.
It may also be noted that in some countries, the list of FIU functions contained in a law or other document contains additional activities or responsibilities of the FIU that have been discussed elsewhere in this handbook. For example, the issuance of an annual report is sometimes listed as an FIU function.
Monitoring Compliance with AML/CFT Requirements
An AML/CFT preventive system requiring businesses and professionals to identify their customers, keep records, set up internal controls, and report suspicious transactions needs monitoring if it is to be effectively implemented. The mere existence of sanctions is not sufficient to ensure compliance. If no attention is paid to supervision, there is a risk that sectors that resist the requirements will not comply with them or will comply less thoroughly than they should. Regular and thorough supervision enhances compliance. In addition, a properly functioning supervisory system will have a similar function as feedback: it will contribute to the quality of the information provided to the FIU.
FATF Recommendation 23 sets as a standard that countries ensure that financial institutions are subject to adequate regulations and supervision. The primary goal of the supervisory function is to ensure that institutions are effectively implementing AML/CFT requirements and have put in place adequate measures to control the risk of their being involved in or used for money laundering or the financing of terrorism; it is not to detect instances of money laundering or the financing of terrorism.147
AML/CFT Supervision Arrangements
Some countries have given the supervisory function regarding AML/CFT compliance on the part of regulated institutions to the existing supervising or regulating institutions dealing with these institutions. These supervisors and regulators have extensive knowledge of the concerned sectors, can integrate the ML/FT risk in their general risk analysis, and generally have the necessary experience of the supervisory function. These agencies also often have the necessary resources. Such an arrangement is also consistent with the fact that international standards on prudential supervision include AML/CFT supervision.148
In countries with a single financial supervisory agency, this supervisor will be the only party involved in ensuring compliance with AML/CFT requirements. For example, in the United Kingdom, one of the statutory objectives of the Financial Services Authority under the Financial Services and Markets Act 2000 is reducing the extent to which regulated firms may be used in connection with financial crime, including money laundering.149
In other countries, however, several supervisors can be involved in AML/CFT monitoring: the central bank for banks and other credit institutions; the insurance supervisor for the insurance industry; and the securities supervisors for stock exchanges, brokers, and dealers. In the Czech Republic, AML/CFT supervision of the regulated financial institutions is the responsibility of the Czech National Bank, the Securities Commission, and the Credit Unions Supervisor; and the FIU is the supervisor for gambling houses, casinos, betting shops, auction halls, real estate agencies, entities offering financial leasing or other types of financing, foreign exchange bureaus, and facilitators of cash or wire transfers.150
For reporting entities that do not have a supervisory authority, such as money-remittance services or dealers in high-value goods, there is a need to assign AML/CFT supervision responsibility to a designated agency or agencies. It is possible to designate the FIU for this purpose, as has been done in the Czech Republic. It is also possible to appoint a supervisor whose field of experience is related to the nature of the activities of a nonregulated group or that is particularly well placed to monitor a certain activity. For example, some countries have chosen to have dealers in high-value goods supervised by an investigative agency, such as the Economic Control Agency in the Netherlands, or by the customs administration, as is the case in France and in the United Kingdom. In Poland, the customs authorities oversee the compliance with the reporting obligation related to cross-border transportation of cash and bearer instruments.151 Such “matching” of industries and supervisors is not always possible, however, and supervision may have to be entrusted to agencies with little relationship to the industry. In the Netherlands, for example, the Dutch central bank monitors the AML/CFT compliance of casinos.152
FIU as AML/CFT Supervisor
In some countries, the FIU is responsible for monitoring compliance with the reporting obligation and the other preventive obligations of all institutions covered by the law, whether they are prudentially supervised or not. This is the case, for example, in Australia, Canada, and Spain. An advantage of such an arrangement is that the AML/CFT expertise is concentrated in one supervisory agency, which may improve its efficiency. It should be noted, however, that supervision is a resource-intensive task that requires considerable knowledge of the supervised institutions. If the FIU is to discharge its responsibilities in this regard, it should be granted adequate resources for the purpose, so that this task can be accomplished without constraining the FIU’s ability to carry out its core functions.
In countries where the FIU is responsible for ensuring compliance with the AML/CFT obligations, arrangements are needed to ensure that the FIU and the other supervisors can work together to further compliance.153 Given the knowledge of the sectors that they derive from their oversight responsibilities, the supervisory agencies can play a significant role in helping to ensure compliance with AML/CFT obligations among the entities placed under their authority.154
When a country decides to give monitoring responsibility to the FIU, whether it is for all reporting institutions and professions or some of them, the law must provide the FIU with adequate powers to allow it to perform this function. In particular, the FIU needs the power to not only request information related to all suspicious-transaction reports but also to enter the premises of the supervised institutions, to inspect documents and make copies of them, and to share information with other supervisors, including suspected cases of non-compliance with sector standards, both domestic and foreign. In short, all the powers that the traditional supervisors have for inspecting AML/CFT should also be provided to the FIU.
The FIU also needs a clear legal mandate if it is to supervise compliance with AML/CFT obligations. More generally, since the establishment of an FIU with responsibility for supervision of AML/CFT requirements may affect the manner in which existing prudential supervisors and regulators carry out their supervisory tasks under accepted international standards, it is important that careful consideration be given to defining the respective responsibilities of each involved agency and ensuring that the law clearly reflects the intended arrangements.
Information Exchange and Cooperation
No matter what arrangements are made with respect to the primary responsibility for AML/CFT supervision, given the multiplicity of agencies involved, arrangements for cooperation among the concerned agencies are necessary to prevent conflicts and ensure coordination of activities. In particular, when an agency other than the FIU is charged with inspecting institutions in a sector for compliance with the AML/CFT requirements, the supervisory agency needs specific information from the FIU, such as the frequency, completeness, and quality of reports received from each supervised institution; the typologies most frequently reported; the cities or areas of major concern; and the institutions that seem to warrant closer scrutiny. It is not sufficient for supervisors to review the suspicious-transaction reports that have been submitted to the FIU when performing onsite inspections; they will need to cross-check this information with the data received by the FIU. Cross-checking will give insight into the controls of the financial institutions and allow supervisors to perform statistical analysis and, thus, compare the performance of financial institutions.
Since the data received by the FIU are covered by strict secrecy rules, the law needs to lift the secrecy rules to make it possible for the FIU to provide such data to the other supervisors. For instance, in the Czech Republic, the law stipulates that the FIU has the obligation to maintain secrecy; however, this secrecy requirement is not to be imposed on, inter alia, persons performing bank supervision.155
In cases where several authorities are involved, it is important that all parties, including the FIU, cooperate to ensure that supervision is equally enforced among the various sectors. This can be done informally by means of regular meetings to exchange experiences. A more formal arrangement based on a law may, however, provide the legal basis for the exchange of information between the concerned agencies. For example, Monaco has created a committee that is in charge of coordinating between the different supervisory agencies involved.156 Such cooperation mechanisms can help ensure that there is a level playing field among reporting institutions and reduce “regulatory arbitrage.”
Blocking Transactions and Freezing Accounts
Even in the best of circumstances, an FIU may not be able to determine instantly whether the transaction referred to in a particular report is related to criminal activity or not and, in the affirmative case, transmit the file to the proper authorities for investigation or prosecution. In some cases, a delay in the start of the criminal proceedings may result in the reported transaction being completed and the funds being lost for law-enforcement purposes. In order to give FIUs time to determine whether a transaction is related to criminal activity or not, some jurisdictions give the FIU the power to block the reported transaction for a limited time. During this period, the FIU can analyze the transaction, and if, after analysis, the conclusion is reached that the transaction is indeed related to criminal activity, the FIU can transmit the file to the proper law-enforcement authorities that have the power to freeze the transaction and the related bank accounts for a longer period.157
The power of the FIU in this regard is usually limited to the blocking of a particular suspicious transaction. In a few cases, the FIU has the broader power to freeze an entire bank account or even to seize assets. It should be noted that the power of the FIU to block transactions is unusual in that, in most legal systems, such action can only be taken by either a court or by order of a court.
There is no international anti-money-laundering norm or standard that requires an FIU to have the power to block transactions. A number of international treaties, including the Strasbourg Convention, the International Convention for the Suppression of the Financing of Terrorism, and the Palermo Convention, require that states that are parties take domestic measures for the freezing of suspicious transactions.158 Similarly, the 2003 FATF Recommendations contain a general statement to the effect that countries should adopt measures to enable their authorities to confiscate criminal property, including allowing them to carry out provisional measures, such as freezing and seizing, to prevent any dealing, transfer, or disposal of such property.”159 Under these instruments, however, the power to freeze may be conferred on authorities other than the FIU; and in many countries, the power is granted to the courts.
In most countries where the FIU has powers of this type, the power is limited to blocking individual transactions reported to it for a maximum period of time set out in the law. A few FIUs have wider powers, including the power to block transactions at the request of a foreign FIU. For example, the Barbados FIU may freeze a bank account for a maximum of five days upon a request of a local law-enforcement authority or a foreign FIU related to an offense over which the FIU has jurisdiction, subject to an appeal procedure on the part of the owner of the account.160 In Thailand, the “Transaction Committee” of five persons chaired by the head of the FIU has the power to freeze transactions and also seize assets. In an emergency, the head of the FIU can act alone and then report to the Transaction Committee.161
Most laws that give blocking power to an FIU give it the authority to block a transactions on its own initiative, usually upon receipt of a suspicious transaction report. In some systems, this authority is more limited. In Italy, for example, the FIU may suspend a transaction only if it is requested to do it by another authority (e.g., by the Bureau of Antimafia Investigation or the Finance Police).162 In Bulgaria, the director of the FIU initiates the process, but it is formally the minister of finance who issues the blocking order.163
The length of the period during which the FIU may block a transaction is a key element in the legislation. The blocking authority is intended to give the FIU time to review the case and determine whether the facts warrant transmitting it to the competent authorities for investigation and prosecution, and to allow these authorities to take measures, within their own powers, to safeguard the assets in question. The length of time required for these steps to be taken may vary from country to country. As Table 1 shows, the periods tend to cluster around a span ranging between 24 and 72 hours—that is 2-3 days. A period longer than three days may be warranted by the local constraints, but a much longer period could cause prejudice to the relationship between the reporting institution and its customer, and could raise questions related to fundamental rights of the account owner. A long period would also increase the risk of the account owner being tipped off.
FIU Power to Block Transactions and Freeze Accounts in Selected Countries
FIU Power to Block Transactions and Freeze Accounts in Selected Countries
| Country | Block Transactions | Maximum Time | Freeze Accounts | Maximum Time |
|---|---|---|---|---|
| Barbados | ✓ | 72 hours | ✓ | 5 days |
| Belgium | ✓ | Two working days | ||
| Bulgaria | ✓ | 72 hours | ||
| Croatia | ✓ | 2 hours | ||
| Czech Republic | ✓ | 72 hours | ||
| France | ✓ | 12 hours | ||
| Italy | ✓ | 48 hours | ||
| Luxembourg | ✓ | Unlimited | ||
| Poland | ✓ | 48 hours | ||
| Slovenia | ✓ | 72 hours | ||
| South Africa | ✓ | 5 days | ||
| Thailand | ✓ | 3-10 days | ✓ | 90 days |
FIU Power to Block Transactions and Freeze Accounts in Selected Countries
| Country | Block Transactions | Maximum Time | Freeze Accounts | Maximum Time |
|---|---|---|---|---|
| Barbados | ✓ | 72 hours | ✓ | 5 days |
| Belgium | ✓ | Two working days | ||
| Bulgaria | ✓ | 72 hours | ||
| Croatia | ✓ | 2 hours | ||
| Czech Republic | ✓ | 72 hours | ||
| France | ✓ | 12 hours | ||
| Italy | ✓ | 48 hours | ||
| Luxembourg | ✓ | Unlimited | ||
| Poland | ✓ | 48 hours | ||
| Slovenia | ✓ | 72 hours | ||
| South Africa | ✓ | 5 days | ||
| Thailand | ✓ | 3-10 days | ✓ | 90 days |
There are variations on the general trend. For example, in the Czech Republic, a financial institution making a suspicious-transaction report may not carry out the reported transaction during a 24-hour period following receipt of the report by the FIU if this would “thwart or complicate the securing of the proceeds.” During that time, the FIU may block the transaction for an additional period, which cannot bring the total blockage period to more than 72 hours from the receipt of the report by the FIU, if analyzing the transaction takes longer than the initial 24 hours. In the event that the reporting entity is notified of the start of criminal proceedings, it must wait three days before executing the transaction.164 In Thailand, the blocking period varies, depending on the factual elements available to the FIU. The delay is a maximum of three days if there is only probable cause that the transaction is linked to money laundering, while it can be as long as 10 days if there is evidence that a transaction is involved or may be involved in the commission of a money-laundering offense.165
The reporting entity should be entitled to know rapidly whether it can execute the requested transaction, and close coordination between the reporting entity and the FIU is needed to ensure that this happens. Laws sometimes contain detailed provisions in this regard. For example, in Belgium, the law requires the entity reporting a suspicious transaction to indicate the time it intends to carry it out. The FIU must “provide immediate acknowledgment” to the reporting entity. If the matter is “serious and urgent,” the FIU may notify the entity of its opposition to execution of the transaction before the time mentioned by the reporting entity. This action blocks the transaction for two working days from the time of notification of the entity. If the FIU wishes to have this period extended, it must seek authorization from the Crown Prosecutor. In the absence of such a notification, the reporting entity is free to execute the transaction.166 In other countries, whether to grant an extension may be decided by a court or an investigating judge.167 In Austria, the reporting entity has the right to demand of the FIU that the latter decide whether there are objections to the immediate execution of a transaction. If no answer is given by the end of the next working day, the entity is free to execute the operation.168
What is the next step when a transaction has been blocked? In some systems, the FIU may request a judge to order the blocking or seizure of funds, accounts, or other assets related to the suspicious transaction.169 Other systems allow the FIUs to request a prosecutor to take the necessary measures.170 In Estonia, the FIU may refer the case to the courts only to obtain the seizure of the property that is the object of the money laundering.171
Training for Staff of Reporting Institutions in Reporting and Other Requirements
Training the staff of reporting entities is an important element of the strategy to enhance the flow and quality of reports. Indeed, under FATF Recommendation 15, financial institutions are responsible for implementing programs against money laundering and terrorist financing that include ongoing staff training. In many countries, it is a function of the FIU to participate in such training.
Training not only provides the staffs of the reporting entities with the information they need to understand the requirements, but it can also contribute to the establishment of a climate of trust between the staffs of the FIU and the reporting entities. This is especially important in the first few years of the FIU’s existence, since there may be considerable initial reticence to overcome before satisfactory levels of reporting can be achieved. Training programs may also flag issues in the implementation of the legislation on reporting that can be addressed at a later stage. Finally, training can give staff of reporting entities a sense of purpose and of the importance of the work they perform, which can be a factor in the FIU’s obtaining improved reporting.
Training on recognizing suspicious transactions can be done by the FIU staff, external (private) consultants, compliance officers of the reporting entities, or a combination of these. For example, training specialists could be brought in to design the courses and prepare the materials (a task for which there may not be any qualified staff in the FIU), but some of the training sessions could be taught by FIU staff who have the necessary expertise. In many countries, private companies are available to carry out this type of assignment and to provide compliance training more generally. In small countries with no such established private expertise, however, the FIU may be the only source of expertise available locally, and cost considerations may limit its opportunities to seek private expertise from outside the country.
The courses can be tailored to each type of reporting entity, and training programs can be conducted in partnership with their respective professional associations and supervisors. For example, the national association of bankers could organize training seminars for banks, or join the FIU in organizing them or vice versa. National regulators and supervisors with a stake in AML/CFT may also participate in the training programs.
The types of training needed may also vary over time. At the beginning of its operations, an FIU will usually concentrate its training on the basic reporting requirements and general awareness raising. Confidence building is also an important product of such early training. At a later stage, the FIU staff can offer more specialized training that is tailored to specific sectors or even to specific reporting institutions (for the larger ones). Decisions as to which sector or institution will be offered training can be based on their relative sizes and market shares, as well as on recorded discrepancies between expected and actual volumes of reports. Such targeted training programs can focus on specific indicators of suspicious transactions in the selected sector and can be presented with related case studies.
Whatever approach is chosen, FIU staff can offer their unique experience in reviewing reports and following evolving typologies in each key sector as an important contribution to the training of staff in reporting entities. Participation of FIU staff is also desirable if one of the objective of the training program is building trust between the FIUs’ staff and the staff of the reporting institutions.
Conducting Research
FIUs conduct research for many reasons and, in particular, as a tool for shaping the FIU’s own policy and developing national AML/CFT policy (if the FIU participates in this). In some cases, the legislation specifies that research is a function of the FIU; in other cases, the FIU carries out the research on the basis of the inherent need for such a function to reach its stated objectives.
Some research projects may make use of the results of strategic analysis of transactions. Depending on the nature of the research project, however, other types of information may be used, including statistical data, case typologies, and developments in the context of AML/CFT. Although research is not the main task of an FIU, the ability to conduct research in the areas of its activities enhances the FIU’s ability to carry out its core functions and also provides its management and others with a greater and more objective understanding of the FIU’s work.
Enhancing Public Awareness of AML/CFT Issues
In many countries, the establishment of an FIU is received without enthusiasm. The public feels threatened by the potential misuse of their financial data, and reporting institutions worry about the reaction of their customers if they assist the FIU in its work. Trust is not there at the beginning. These problems can be particularly acute for a law-enforcement FIU, since entities that cooperate with the FIU may appear involved in police work and investigations. For administrative-type FIUs, counterpart law-enforcement agencies may not have supported the establishment of the FIU and may be reluctant to work with it once it is established.
Whatever the country or the system, the public needs to be convinced of the value of an FIU as an institution, the importance of its role, and the benefits and protection of the financial system that it offers. No FIU can function well without the trust of the public and the staffs of the reporting institutions.
Trust can be achieved over time through a variety of means. The most important is in the day-to-day, case-by-case cooperation with reporting institutions, where professionalism of the FIU staff can foster a climate of trust. It is important that staff are well trained so that they know how to discuss issues through the appropriate channels and keep in mind the issue of data protection at all times.
Another way to enhance trust and AML/CFT awareness in the public is working with the media. Many FIUs issue information brochures for the public, arrange for staff members to give interviews and publish articles on AML/CFT in magazines and professional publications, and make additional information available to journalists.172 One way to engage the media is to publicize success stories (while protecting confidential data and the safety of FIU staff). In some parts of the world, FIU’s prefers to keep low profiles, for the sake of security of their staffs. In such circumstances, the FIUs can work with other government agencies and other stakeholders to raise public awareness in an indirect manner.
Normally, supervisors who discover facts indicating money laundering in the course of their supervision are under an obligation to notify the FIU and may also initiate related sanctions.
See the subsection of Chapter 2 on “Core Principles of Financial Sector Supervision.” Explicit legal authority may be needed for the regulator or supervisor to undertake AML/CFT supervision if the AML/CFT requirements are not included in the general law governing the supervised institutions.
Financial Services and Markets Act 2000, § 6(1) [United Kingdom].
Section 8(3) of Act No. 61 of February 15, 1996. on Selected Measures against Legitimization of Proceeds from Criminal Activities [Czech Republic].
Act no. 61 Coll. of February 15, 1996 on Selected Measures against Legitimization of Proceeds from Criminal Activities and on the Amendment of Related Legislation, as amended to 2000, Section 5, paragraph 8 [Poland].
Disclosure of Unusual Transactions Act, Article 17 (b) and article 8a, paragraphs 1g and 2g of the Execution regulation. The Dutch central bank has long been responsible for the supervision of bureaux de change. Since casinos need a license from the central bank to act as a bureaux de change, it was decided that the central bank would inspect compliance with AML/CFT requirements in general for casinos.
FATF Recommendation 31 contains a general standard regarding cooperation among policymakers, the FIUs, law-enforcement agencies, and supervisors to combat money laundering and terrorism financing.
FATF Recommendation 29.
Act No. 61 of February 15, 1996. on Selected Measures against Legitimization of Proceeds from Criminal Activities, Sections 7(2) and 7(4)(a) [Czech Republic].
Sovereign Order 15.530 of September 27, 2002 creating a committee to coordinate the different administrative departments whose remit includes the supervision of financial activities. The committee’s task is to organize exchanges of information between the authorities responsible for supervising banking, investment, and insurance activities and the management and administration of foreign legal entities, and to address all issues of common concern relating to coordination of the supervision of the above-mentioned activities [Monaco].
There may be instances where, in the presence of a transaction related to criminal activity, the best course of action is not to block the transaction, in order to allow a related investigation to follow its course undisturbed. This is noted in Luxembourg, Cellule de Renseignement Financier (CRF), Rapport d’activité pour 2001 et 2002, page 7. In Italy, the FIU may suspend a transaction at the request of investigative authorities, “provided that this will not be detrimental to the course of the investigation and to the current operations of the intermediaries.” (Decree Law 143 of May 3, 1991, Article 3, paragraph 6 [Italy]).
See [Strasbourg] Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime, Article 3; United Nations Convention against Transnational Organized Crime, Article 12; and International Convention for the Suppression of the Financing of Terrorism, Article 8.
FATF Recommendation 3 (2003).
Financial Intelligence Unit Act, 2000, Section 4 (2)(c) [Barbados].
Anti-Money Laundering Act, Articles 35, 36 and 48 [Thailand]. The members of the Transaction Committee are selected from the 25 members of the Anti-Money Laundering Board, most of whom are high-ranking civil servants.
Decree Law 143 of May 3, 1991, Article 3.6 [Italy].
Law on Measures Against Money Laundering of 1998, as amended through April 4, 2003, Article 12, paragraph 1 [Bulgaria].
Money Laundering Act No 61/1996 Coll. as amended by Act No. 15/1998 Coll., Article 6.2 [Czech Republic].
Anti-Money Laundering Act of B.E. 2542, Articles 35 and 36 [Thailand].
Law of January 11, 1993 on Preventing Use of the Financial System for Purposes of Laundering Money, Article 12 [Belgium].
See, for instance, Code Monétaire et financier, article 562-5 [France].
Federal Banking Law of 1993, Article 41.1 [Austria].
See for example, Law 90-614 of 12 July 1990, Article 6 paragraph 4 [France].
Law of January 11, 1993, Article 12.3 [Belgium], and Financial Intelligence Sector Act, 2001, Section 34 (l)(b) [South Africa].
Money Laundering Prevention Act of 25 November 1998, Article 18.3 [Estonia].
The MOT, the Netherlands’ FIU, issues a newsletter with money-laundering cases and typologies every three months; the OMLP, the Slovenian FIU, prepares articles for professional publications of various sectors (banking, securities, insurance, etc.); its staff are interviewed by daily newspapers; and it also offers statistical data about its work to a broader spectrum of the media at an annual press conference; other FIUs also engage in similar practices.