Denmark: Detailed Assessment of Anti-Money Laundering and Combating the Financing of Terrorism
This Detailed Assessment of Anti-Money Laundering and Combating the Financing of Terrorism for Denmark was prepared by a staff team of the International Monetary Fund using the assessment methodology adopted by the Financial Action Task Force in February 2004 and endorsed by the Executive Board of the IMF in March 2004. The views expressed in this document are those of the staff team and do not necessarily reflect the views of the Government of Denmark or the Executive Board of the IMF.
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6.5 Other Forms of International Cooperation (R.32, 40, & SR.V)
7. Other Issues
7.1 Resources and statistics
1. Detailed Assessment
2. Ratings of Compliance with FATF Recommendations
3: Recommended Action Plan to Improve the AML/CFT System
I. Details of all bodies met on the on-site mission - Ministries, other government authorities or bodies, private sector representatives and others
II. Copies of key laws, regulations and other measures
The Administration of Justice Act
Anti-Money Laundering and Combating the Financing of Terrorism
Customer Due Diligence
Criminal Investigation Department
Civil Registry Number
Company Service Providers
Central Business Register
The Danish Act on the Central Business Register
Danish Aid Agency
Detailed Assessment Report
The Commerce and Companies Agency
Designated Nonfinancial Businesses and Professions
The Danish Public Company Act
European Economic Area
European Economic Community
The European Economic Interest Grouping
The Consolidated Act of August 25, 2005, No. 833 on Extradition of Criminals
Financial Action Task Force
The Financial Business Act
The Money Laundering Secretariat
The Financial Supervisory Authority
FATF-style regional bodies
Financing of Terrorism
Gross Domestic Product
Insurance Mediation Act
International Monetary Fund
The Danish Non-profit umbrella organization
Ministry of Foreign Affairs
The Act on Measures to Prevent Money Laundering and Terrorist Financing (2006)
Ministry of Justice
Memorandum of Understanding
National Agency for Enterprise and Construction
National Audit Office
Noncooperative Country or Territory
The National Commissioner of Police
United Nations Convention Against Transnational Organized Crime (2000)
Politically Exposed Persons
Report on Standards and Codes
International Convention for the Suppression of the Financing
of Terrorism (1999)
The Office of the Public Prosecutor for Serious Economic Crime
Suspicious Transaction Report
United Nations Security Council Resolution
Value added tax
United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances (1988)
Preface—information and methodology used for the evaluation
1. An assessment of the anti-money laundering (AML) and combating the financing of terrorism (CFT) regime of the Kingdom of Denmark was based on the Financial Action Task Force Forty Recommendations 2003 and the Nine Special Recommendations on Terrorist Financing 2001 (FATF 40+9 Recommendations), and was prepared using the AML/CFT Methodology 2004. The assessment considered the laws, regulations and other materials supplied by the authorities, and information obtained by the assessment team during its mission from February 27 to March 15, 2006, and subsequently. During the mission, the assessment team met with officials and representatives of all relevant government agencies and the private sector. A list of the bodies met is set out in Annex 2 to the detailed assessment report (DAR).
2. The assessment was conducted by a team of assessors composed of staff of the International Monetary Fund (IMF). The evaluation team consisted of: Richard Lalonde (team leader) and Paul Ashin of the Monetary and Financial Systems Department, and Margaret Cotter, Giuseppe Lombardo and Navin Beekarry of the Legal Department. The assessors reviewed the institutional framework, the relevant AML/CFT laws, regulations, guidelines and other requirements, and the regulatory and other systems in place to deter money laundering (ML) and the financing of terrorism (FT) through financial institutions and Designated Non-Financial Businesses and Professions (DNFBP), and examined the capacity, the implementation and the effectiveness of all these systems.
3. This report provides a summary of the AML/CFT measures in place in Denmark as of the date of the mission or immediately thereafter. It describes and analyses those measures, and provides recommendations on how certain aspects of the system could be strengthened (see Table 3). It also sets out Denmark’s levels of compliance with the FATF 40+9 Recommendations (see Table 2).
1. Main findings
1. Denmark has a solid AML/CFT framework, recently updated with a new AML/CFT law that should provide a sound basis for an effective AML/CFT regime. It has been developed in the context of the perceived and historical ML/FT threats and has effectively used moral suasion, “light-touch” supervision and enforcement, informal cooperation, and social consensus to meet that level of threat. Once fully in effect, the new AML/CFT law will create a legal framework for mainland Denmark that largely addresses the revised FATF standard and transposes the Third EU Directive on Money Laundering. However, building a fully-effective, FATF-compliant system that can protect Denmark from potential future threats is still a work in progress. Such a task would require a systematic review of policy and operations, including consideration of enhanced prosecution of the ML/FT offense, more pro-active supervision of financial and especially the non-financial sectors, and a re-evaluation of the role and responsibilities of the Financial Intelligence Unit (FIU). Given the high competence and dedication of the professionals working within the Danish system, such changes are clearly within Denmark’s grasp.
2. The new legislation, which only entered into force on March 1, 2006, sets forth a comprehensive range of requirements regarding preventive measures, but it is too early to assess how effectively the new elements will be implemented. Moreover, some key provisions—such as those regarding the enhanced customer due diligence (CDD) requirements for non face to face transactions, cross border banking relationships and Politically Exposed Persons (PEPs)—are not yet into force and some others need to be fine tuned to ensure full consistency with the FATF standards. Work is ongoing to update the legal framework in Greenland and the Faroe Islands and to extend relevant international conventions to these jurisdictions.
3. The justice and law enforcement aspects of the Danish system are characterized by a well developed legal framework for the criminalization of money laundering and terrorist financing and by advanced and flexible alternatives for the restraint and confiscation of proceeds of crime. Prosecutors and law enforcement personnel work in close cooperation, and there have been numerous convictions in recent years although with few exceptions they have involved very minor violations as receipt of stolen goods. Terrorist financing is being pursued with a couple of cases in the court system. An exemplary mutual legal assistance and extradition framework in Denmark facilitates wide ranging possibilities for assistance which is freely and effectively provided.
4. The FIU has direct access to a wide range of data. It conducts basic checks of suspicious transaction reports (STRs) against databases but virtually all STRs received are disseminated for investigation. There is considerable room for enhanced analysis of STRs. The current level of staffing and types of training may not be sufficient going forward.
5. Most Danish financial institutions appear to have well-established internal procedures for addressing AML/CFT risks, although their compliance with these requirements could be more actively supervised. The AML/CFT supervisory regimes in the DNFBP sectors—even where they have been established by prior legislation—do not appear to be robust.
6. The overall level of reporting by all sectors to the FIU is low.
7. The Kingdom of Denmark consists of three jurisdictions (Denmark, Greenland, and the Faroe Islands) each with a different set of laws relevant to AML/CFT. The new MLA has not been extended beyond Denmark proper. The Danish government is working with the Home Rule Governments of Greenland and Faroe Islands to update various aspects of their AML/CFT regimes, permit the extension of the Vienna, Palermo and Terrorist Financing conventions, and ensure full implementation of UN Security Council resolutions. The current situation has had an impact on a number of ratings. Despite the small size of these jurisdictions, the absence of full criminalization for terrorist financing, full implementation of the UNSCRs, and related issues relating to scope of extradition are of special concern. For preventive measures, although only the 1993 MLA is applicable to them, the relatively small size of the financial and DNFBP sectors makes this a less significant shortcoming.
2. General Situation of Money Laundering and Financing of Terrorism
8. Denmark is neither a major international financial center nor historically a center for significant organized crime. Biker organizations have been involved in a range of offenses from homicides and robberies to narcotics-related offenses, smuggling of goods, and various financial crimes. Dealing in narcotics and smuggling of illicit substances (including synthetic drugs as amphetamines and ecstasy) is a significant problem. Trafficking in human beings, smuggling of goods that are subject to high levels of taxation, and credit card crimes have received increased attention. Denmark is a geographically vulnerable to serving as a transit country for smuggling into Sweden and Norway. Corruption is not a significant issue.
9. Danish authorities recognize that even the relatively low level of organized crime can generate significant proceeds, but there are no reliable and accurate estimates of the amounts involved and authorities believe that in most cases, the proceeds of crime are transferred out of Denmark soon after offences occur. Major sources for proceeds are drug trafficking and economic crimes, particularly VAT and investment frauds, smuggling of goods, and violations of intellectual property rights.
10. The financing of terrorism poses some material risk within Denmark and has been the subject of a few prosecutions. Danish society contains elements (including some with fundamentalist views) which sympathize or have relations with groups or organizations involved in terrorist activities, which creates potential for recruitment and fundraising for terrorist purposes. Various contact groups and outreach efforts have been undertaken to deal with these issues.
3. Overview of the Financial Sector and DNFBPs
11. The Danish financial sector is deep (total assets are equal to close to five times GDP) and sophisticated. It is dominated by the banking sector. There are a large number of banks, most of them small banks. The two largest banks account for approximately 75 percent of the total assets of all banks.
12. Insurance companies, pension funds, and mutual funds account for slightly over 30 percent of financial sector assets. The five largest life insurance companies accounted for 88 percent of gross premiums. The bulk of life insurance is distributed through agency networks. By industry estimates, insurance brokers contribute 10 percent of the annual amount of new life insurance schemes.
13. Investment companies (i.e., securities dealers and brokers), savings institutions, leasing factoring and credit card companies, as well as currency exchange agents and money transmitter agents represent a far smaller proportion of the financial sector.
14. Denmark is home to some 4800 lawyers, 2700 accountants/auditors, 2700 real estate agents, 650 dealers in precious metals and stones, and 6 casinos. Company services are generally supplied by lawyers, there is no concept of trust in Danish law and the only notaries are county court judges who do not provide services to clients. All of these businesses and professions are covered by the AML/CFT law, with the exception of precious metals and stones dealers. Instead of making the latter reporting entities, Denmark has instead chosen to outlaw all cash transactions above DKK 100,000 (EUR 13.410)1 for all forms of business.
4. Legal Systems and Related Institutional Measures
15. Money laundering is criminalized through a money receiving offense which covers the conduct set forth in the applicable conventions. It extends to the proceeds from any crime committed intentionally and is complemented by a separate provision that subjects grossly negligent acquisition or receipt of goods through an offense to criminal sanctions. A person’s laundering of his/her own proceeds is not actionable under Denmark’s ML provision unless authorities do not succeed in proceedings against the person for the predicate crime. Money laundering is punished by a fine or imprisonment of up to 18 months in the case of the basic offence and a fine or imprisonment not exceeding six years in the case of the aggravated offence. The imprisonment penalty provided by law for the basic offense is less than in many countries, and penalties imposed have been relatively low. Legal persons have criminal liability. Provisions in Greenland and the Faroe Islands do not extend to all necessary predicate crimes.
16. The criminalization of terrorism financing under provisions of the Danish Criminal Code is consistent with international standards, but Greenland and the Faroe Islands, which rely on complicity in the commission of concrete terrorist acts, have not yet enacted specific provisions criminalizing the financing of terrorist acts, terrorists and terrorist organizations. Danish authorities have pursued financing of terrorism investigations and prosecutions and a couple of cases are pending in the courts.
17. Danish law provides a very comprehensive and flexible confiscation framework with four options: a traditional conviction-based confiscation of assets derived from the offence, supplementary fines as an alternative to confiscation, confiscation provisions applicable to serious criminal acts with significant financial gain that place the onus of proving the legal origin of assets on the defendant, and preventive confiscation if necessary to prevent a criminal act or if property may be used in a criminal act. Law enforcement agencies are provided with the legal means to identify, trace and seize criminal and terrorist assets. Statistics have not been sufficient to illustrate the efficiency of the system in place. Provisions in Greenland and the Faroe Islands are being updated.
18. Denmark implements the decisions of the United Nations (UN) Security Council on the freezing of terrorist assets through measures instituted by the European Union (EU) under EU Regulations 2580/2001 and 881/2002, as well as through national mechanisms. The implementation of these measures is coordinated by the National Agency for Enterprise and Construction, the Ministry of Foreign Affairs (MFA) and the Public Prosecutor for Serious Economic Crime (SØK). Denmark has not submitted to the relevant organizations names of any suspected terrorists for listing. The EU Regulations, which are applicable in Denmark, place no limitation on the scope of terrorist assets that can be frozen. However, Danish national mechanisms will not be employed against non-terrorism related assets of terrorists and terrorist organizations not comprised by the EU Regulations. Guidance on the practical aspects of implementing the freezing obligation should be improved, and additional legal provisions and practical arrangements are needed in Greenland and the Faroe Islands.
19. In Denmark, the FIU (known as the Money Laundering Secretariat), is an operationally independent unit within the office of the SØK, which is part of the Public Prosecution Service. The FIU has a staff of 3 prosecutors and 7 police officers. The FIU indicated that, whenever necessary, SØK provides it with supplementary staff for the performance of its functions. It also at times enlists the services of private auditors for purposes of competence and independence in respect of complex financial investigations.
20. The FIU has direct access to a wide range of data, including police databases and other public and non-public information. However, it usually requires a court order to obtain additional information from reporting entities. The FIU’s analysis of STRs is limited to gathering information, largely through basic checks of an STR against databases. Virtually all STRs received are disseminated for investigation. The FIU could enhance analysis of STRs to improve the quality of the information it disseminates.
21. Considering the likely increase in numbers of STRs, the desirability of more extensive analysis of STRs, and the possibility that staff may be asked to conduct investigations for the SØK, there is some concern that the current level of staffing will not be sufficient going forward. While FIU staff receive the same training as other prosecutors and police officers assigned to the SØK, they could also benefit from more specialized training in the areas of tracing proceeds of crime, financial analysis and the financing of terrorism.
22. Denmark has an efficient, integrated law enforcement and prosecution approach, with a well staffed joint prosecutorial and law enforcement office that addresses serious economic crime at the national level and police districts that encompass both police officers and police prosecutors at the local level. The National Commissioner of Police provides a centralized supporting function and houses a national criminal investigation support center and the service responsible for national security. These bodies are adequately staffed and have legal powers to address all forms of organized and economic crime and terrorist activities. However, Danish authorities have only prosecuted 16 money laundering cases in the last 6 years under the provisions that carry a possible punishment of 6 years or more imprisonment. These figures appear low, even recognizing the relatively modest level of criminal activity within Denmark. Statistics are not collected or maintained in a way that allows full analysis of the nature of money laundering activity and associated predicate crime. With regards to terrorism financing, there are a couple of cases pending but no convictions yet.
23. Denmark has established a system of declaration of cash and similar assets being transported across its borders. The Customs and Tax authority implements the system in conjunction with the police, which together have the necessary powers for an effective system. All declarations as well as information on non- or falsely declared currency and other bearer negotiable instruments are sent to the FIU. The small number of declarations would suggest a low level of compliance. Moreover, all monies that have been detained for failure to comply with the obligation have been returned and no sanctions have been imposed.
5. Preventive measures – Financial Institutions
24. The new Act on Measures to Prevent Money Laundering and Terrorist Financing (MLA), which entered into force on March 1, 2006, was adopted with a view to implementing the third EU AML Directive and the revised FATF Recommendations. While the coverage of the previous act was already quite comprehensive, encompassing both financial and non financial sectors as defined by the FATF, the new MLA, inter alia, addresses areas such as beneficial ownership and enhanced and simplified CDD and introduces elements of a risk based approach.
25. The new MLA sets forth a comprehensive range of requirements regarding preventive measures. However, the provisions regarding enhanced CDD requirements for non face to face transactions, cross border banking relationships, and PEPs, as well as the provisions on shell banks, the obligation to investigate the purpose unusually or large transactions and the obligation to monitor the customer relationship on a regular basis will only come into force on January 1, 2007. The act is not yet applicable in Greenland and in the Faroe Islands. The previous 1993 MLA—which, for the financial sector, provided basic requirements for identification, record keeping and reporting of suspicious transaction for ML—was extended to Greenland in 1996 and to the Faroe Islands in 1997.
26. Although Denmark has no explicit provision or regulation prohibiting the existence of anonymous accounts, the customer identification requirements of the MLA and tax legislation make them effectively impossible.
27. Some exemptions to the CDD requirements – where a lawyer holds a client’s funds in an individual account or in the case of some non face to face transactions occurring in the insurance sector – do not appear to be justified on the basis of a risk assessment and, therefore, do not conform with the FATF standard.
28. The AML requirements set forth in the new law appear to be generally in line with the FATF standards. In the area of CDD some requirements, however, need to be adjusted to come into full conformity with the FATF standards. In particular:
there is no requirement to verify/identify that an individual purporting to act on behalf of a legal person or arrangement is so authorized;
the identification requirements for occasional transactions that are wire transfers apply only in the case of wire transfers of 15.000 EUR or more;
there is no obligation for institutions relying on third parties to take adequate steps to satisfy themselves that copies of the identification data and other documentation relevant for CDD purposes will be made available from the third party upon request without delay.
29. Not all obligations set forth in the MLA are covered by sanctions and no sanctions have ever been applied under the previous act. In the absence of pre-set fines or range of fines and with no history of imposed fines it is not possible to conclude that sanctions are effective, proportionate or dissuasive. There is a limited range of administrative sanctions to enforce compliance and relatively few actions have been taken.
30. Suspicious transaction reporting from Danish financial institutions has been modest, given the size of the financial sector. It has also been largely concentrated in bureaux de change and commercial banks. Moreover, since the Denmark was assessed by FATF in 1997, there has been little progress in reporting by the insurance and securities sectors, with virtually no STRs reported. The reporting regime is thus not fully effective.
31. The new MLA also introduces a misalignment between the criminalization of ML, which is based on an all crimes approach, and the reporting requirement which applies only when a suspicion refers to a predicate crime punishable by more than one year’s imprisonment. This change from the previous regime creates unnecessary confusion for reporting entities. The reporting requirement for Greenland and the Faroe Islands, based as it is on the 1993 MLA, does not meet FATF standards—especially as it does not include terrorist financing.
32. Bank licensing requirements preclude the establishment of shell banks in Denmark. Moreover, the MLA prohibits banks, mortgage-credit institutions and electronic money institutions from entering into or continuing a correspondent banking relationship with a shell bank. They are also required to take reasonable measures to avoid a connection with a credit institution, which is known to permit shell banks to use its accounts. However, the latter two measures will only take effect on January 1, 2007.
33. The FSA is responsible for regulating and supervising all financial institutions, except undertakings and persons that commercially carry out activities involving currency exchange or transfer of money and other assets (money remitters and exchange bureaus), which are regulated and supervised by the DCCA. Both supervisory authorities are appropriately structured and enjoy sufficient operational independence. Regulation-making authority with respect to AML/CFT is limited.
34. The major focus of the FSA’s AML/CFT supervision has been on reviewing internal guidelines of financial institutions with little attention paid to assessing the implementation of the guidelines. In the period prior to the assessment AML/CFT inspections of large banks were infrequent and not comprehensive. Since then the FSA has completed on site inspections of the largest banks. The DCCA’s inspections are not comprehensive. The resources allocated to inspections for AML/CFT by both agencies need to be reviewed and staff training expanded.
6. Preventive Measures – Designated Non-Financial Businesses and Professions
35. The key weaknesses in the AML/CFT regime for DNFBPs concern implementation and especially supervision. Denmark’s CDD and STR requirements for DNFBPs, while sharing the general shortcomings detailed above, are relatively robust on paper. However, the recent passage of the legislation leaves no base for judging how effective this regime will be in practice and the low level of reporting from DNFBPs such as lawyers, who were covered under previous legislation, raises significant questions. The effectiveness of the ban on cash transactions as a mechanism for eliminating ML/FT risks should be reviewed and evaluated in due course.
36. The Danish AML/CFT supervisory regimes for DNFBPs are largely untested and the limited track record is not encouraging. The Bar and Law Association does not conduct examinations of the AML/CFT practices of its members, the casino inspectors serve primarily as a reporting conduit, and the DCCA is taking on a significantly expanded set of functions which may tax the resources allocated for it. There are grounds for optimism that the DCCA can build on its existing supervisory role for accountants and its role in company formation to effectively and efficiently oversee accountants and CSPs. However, the supervision of the real estate profession may pose greater challenges.
7. Legal Persons and Arrangements
37. Danish legislation allows for the formation of several forms of legal persons. In general, legal persons have full legal capacity. However, in some cases the entity is not recognized as a legal person until it has been registered..
38. Businesses in Denmark are registered in different registers based on the nature of the entity. All business are also registered in the Central Business Register (CVR). At the time of the assessment there were approximately 580,000 businesses registered in the CVR.
39. The data entered in the CVR are available to the authorities and the public, including online. With one exception, no information on the beneficial owner of an entity is available in the CVR. For public and private companies (A/S and ApS), information about beneficial ownership is available in some circumstances in private registers such as company books. The authorities rely on the investigative powers and on inspection powers to obtain the information on beneficial ownership. However, the information that can be obtained may not be up to date; in the case of foreign companies registered in Denmark beneficial ownership information is not available.
40. Public companies can issue bearer shares up to their entire capital. In such instances information on beneficial ownership is available only for shareholders that have holdings above a designated threshold.
8. Nonprofit Organizations
41. The Danish Nonprofit Organization (NPO) sector is numerous, diverse, and mainly “regulated” through its relations with the tax authorities. It is estimated that there are some 85,000 NPOs, either in the form of associations or foundations. About 66,000 of those have registered with the authorities to obtain a CVR number, 17,000 of the foundations have to file annual tax returns, and 836 of the largest have applied for and received tax privileges. Registration requires supplying basic identification information to the authorities and tax returns and tax privileges involve progressively greater levels of financial disclosure. The bulk of NPO income—especially those NPOs that work internationally—comes from grants from the Danish Government, the EU, or other international organizations, which are very closely monitored.
42. The Danish authorities have only conducted an informal review of their NPO system, and should use the recent elaboration of the international standard in the Interpretive Note to SR VIII as an opportunity to examine the problem more comprehensively and formally. This would also allow them to increase their outreach to the NPO sector on issues associated with terrorist financing.
9. National and International Co-operation
43. There is informal cooperation between the FIU and other domestic agencies involved in the AML/CFT effort but there is no one agency or vehicle for coordinating national AML/CFT policies and practices. A platform for inter-agency policy level review of AML/CFT initiatives should be established and the FIU and supervisory agencies should engage in closer and more regular coordination of efforts. The overall effectiveness of criminal and preventive measures would be enhanced with more intensive regular reviews of the strengths and weaknesses of the systems, and aided by more comprehensive gathering of meaningful statistics.
44. Denmark is a party to all international relevant AML/CFT instruments but the instruments have not yet been extended to Greenland or the Faroe Islands nor have the UN Security Council resolutions been fully implemented in those two jurisdictions. Denmark has an exemplary mutual legal assistance framework with an ability to provide assistance through bilateral and multilateral international cooperation agreements as well as in the absence of such agreements. Extradition may occur through a series of instruments. The European arrest warrant has been implemented. Greenland and the Faroe Islands have a more circumscribed ability to provide mutual legal assistance and extradition cooperation. This is being addressed through a Danish government initiative to ensure full implementation of relevant conventions and UN resolutions in the Home Rule legislation of Greenland and the Faroe Islands.
45. In practice, Denmark seems to be an active and cooperative international criminal justice partner. The FIU, which belongs to the Egmont Group, has adequate powers for international cooperation and can legally provide spontaneous information to other countries. The FSA is a party to a number of multilateral and bilateral arrangements for international cooperation which appear to be operating in a satisfactory manner.