Finland
Report on the Observance of Standards and Codes- FATF Recommendations for Anti-Money Laundering and Combating the Financing of Terrorism

This report reviews observance of Standards and Codes for the Financial Action Task Force (FATF) 40+9 Recommendations and the Anti-money Laundering and Combating the Financing of Terrorism (AML/CFT) measures in place in Finland. The report describes the level of compliance with the FATF 40+9 Recommendations, and contains recommendations on how the AML/CFT system could be strengthened. The report reveals that Finland has a good legal structure to combat money laundering and terrorist financing.

Abstract

This report reviews observance of Standards and Codes for the Financial Action Task Force (FATF) 40+9 Recommendations and the Anti-money Laundering and Combating the Financing of Terrorism (AML/CFT) measures in place in Finland. The report describes the level of compliance with the FATF 40+9 Recommendations, and contains recommendations on how the AML/CFT system could be strengthened. The report reveals that Finland has a good legal structure to combat money laundering and terrorist financing.

1. Background Information

1. This Report on the Observance of Standards and Codes for the FATF 40 + 9 Recommendations was prepared by the Financial Action Task Force. The report provides a summary of the AML/CFT measures in place in Finland, the level of compliance with the FATF 40+9 Recommendations, and contains recommendations on how the AML/CFT system could be strengthened. The assessment is based on the information available at the time it was completed in June 2007 and was produced using the 2004 Assessment Methodology. The views expressed in this document have been agreed by the FATF and Finland, but do not necessarily reflect the views of the Boards of the IMF or World Bank.

2. Finland has a good legal structure to combat money laundering and terrorist financing. The money laundering offence established in 2003 is broad and encompasses most of the elements of the Vienna and Palermo Conventions. It is not possible to prosecute for self-laundering and this is not due to any fundamental principle of Finnish law. The terrorist financing offence is also broad though it is likely that a link to a specific terrorist act is required for prosecution of terrorist financing. There have been few convictions for money laundering and no prosecutions for terrorist financing. While the Penal Code provides the ability to restrain, confiscate and recover the proceeds of crime in most situations, Finland has not established a complete mechanism for freezing terrorist assets. Overall, the Finnish FIU is effective and is the focal point for Finnish AML/CFT efforts. Finland has designated competent authorities to investigate and prosecute money laundering and terrorist financing offences. Measures for domestic and international co-operation are generally comprehensive as well.

3. The preventive system addresses customer identification and other AML/CFT obligations and applies to a range of financial institutions and most of the designated non-financial businesses and professions (DNFBPs) as defined by the FATF. It does not however incorporate customer due diligence (CDD) requirements with respect to beneficial ownership or legal arrangements and no provisions have been implemented with respect to politically exposed persons or correspondent banking relationships. The legal concept of trust does not exist under Finnish law. Record keeping requirements are comprehensive and the suspicious transaction reporting requirement is sound.

4. While the volume of suspicious transaction reports (STRs) has increased in recent years, there is significant disparity in the reporting volume both within and between different financial sectors. The STR reporting requirement is sound but could be strengthened. Supervision is generally effective for the banking and insurance sectors, but AML/CFT supervision is weak or non-existent for many types of designated non-financial businesses and professions (DNFBPs) and limited AML/CFT guidance has been issued, in particular to DBFBPs. The number of detected violations and the number of sanctions imposed are low. In some areas the available sanctions are not strong.

2. Legal Systems and Related Institutional Measures

5. Finland has a democratic parliamentary system with a written Constitution and a clear separation of powers. It has a civil law legal system with legislative power vested in the Parliament. Finland has one self-governing territory; the Åland Islands. Finland has a notably low level of corruption and promotes access by the public to official documents and other information from the government. The major sources of illegal proceeds in Finland relate to financial and drug-related crimes and the majority of suspicious financial activities investigated have an international dimension. While the amount of money laundering cannot be precisely determined, it is estimated that the damage caused by crime and the black economy exceeds EUR 5 billion each year. Finland has not, to date, conducted any terrorist financing investigations or prosecutions and the threat from terrorist financing does not appear strong.

6. The Penal Code contains offences of money laundering (ML), aggravated ML, conspiracy to commit aggravated ML, negligent ML and other ML violations. These offences originated in the receiving offence. In 2003, the Penal Code was again amended, and the current ML offences were added as clearly independent from the receiving offence. In Finland, any offence can be a predicate offence of ML. The ML offence encompasses most of the elements of the Vienna and Palermo Conventions, though not possession of proceeds of crime or acquisition or use of such property without intention to conceal its illegal origin. It is not possible to prosecute persons for laundering the proceeds of his/her own criminal activity and this is not due to any fundamental principle of Finnish law. There have been few convictions for money laundering. The number of prosecutions for ML offences in Finland is low and the sentences provided for ML convictions are low.

7. Terrorist financing (TF) was criminalised under the Penal Code in 2003. At the same time, the scope of application of the system for preventing and investigating ML was extended to include preventing and investigating the financing of terrorism. The TF provision does not cover financing of a terrorist organisation or of an individual terrorist where there is no link to a specific terrorist act or terrorist acts that will occur in the future. Finland has not, to date, conducted any TF investigations or prosecutions.

8. While the Penal Code provides the ability to restrain, confiscate and recover the proceeds of crime in most situations, Finland has not established a complete mechanism for freezing terrorist assets. In ML cases, provisional measures may be used only when the proceeds of crime can be identified and when a connection to the offence from which the proceeds were derived can be proven. This limits the scope of application of provisional measures. There are also some gaps in the confiscation provisions. It is not possible to: confiscate property of organisations that are found to be primarily criminal in nature without a link to a certain crime; confiscate proceeds which are completely mingled with licit assets; void actions where the persons involved knew or should have known that as a result of those actions the authorities would be prejudiced in their ability to recover property subject to confiscation. It appears that the recovery of assets is generally effective but with respect to ML is low, possibly due to the focus on investigation of predicate offences rather than investigation of ML. The amount of recovered property has not increased in recent years.

9. As a member of the European Union (EU), Finland is bound by EU mechanisms to implement UN obligations with respect to freezing of funds used for TF. Finland has not enacted domestic measures to expand the coverage of the EU mechanisms. The mechanisms in Finland do not apply to persons, groups or entities within the EU, nor is there a domestic mechanism for considering requests from other States for freezing of terrorist assets. Finland’s mechanisms also do not explicitly cover funds owned, “directly or indirectly” by designated persons, or those controlled directly or indirectly, by designated persons. There is no national procedure for unfreezing funds or other assets of persons or entities inadvertently affected by freezing mechanisms. In addition, the limited nature of the TF offence in Finland impacts on the scope of the terrorist asset freezing regime. Finland has issued little guidance to entities that may be holding targeted funds in Finland and communication with entities outside the banking, and insurance sectors about terrorist asset matters is limited. No terrorist assets have been frozen in Finland pursuant to the UN or EU sanctions.

10. The Money Laundering Clearing House (MLCH), Finland’s financial intelligence unit (FIU), was established in 1998. It is an independent unit situated within the National Bureau of Investigation (NBI) of the Finnish Police. In addition to receipt, analysis and dissemination of STRs, the MLCH is involved in pre-trial investigations of ML and TF offences. The MLCH has a range of powers to obtain information for its analysis and investigations and it has direct access to a number of government and public databases. The FIU meets many of the requirements of Recommendation 26 and clearly plays a key role in the AML/CFT system in Finland. However, there are several factors that diminish the FIU’s effectiveness. As at the time of the on-site visit, there was a backlog of reports to be entered into the MLCH database1. Moreover, limited resources are in place with respect to guidance to obliged parties and development of trends and typologies and the current IT system is limited in functionality. Mechanisms to obtain information on the outcomes of disseminated matters are weak. Few disclosures are received on the basis of suspicion of TF and these are almost entirely due to possible name matches with persons on the UN and EU terrorist lists.

11. Finland has designated authorities to investigate ML and TF offences and equipped them with necessary powers. Investigation authorities include the Finnish Police, Finnish Customs (though it is not a competent authority with respect to TF) Border Guard, Security Police and the MLCH. The primary unit responsible for investigating ML and TF is the National Bureau of Investigations (NBI). Investigations into TF are the joint responsibility of the NBI and the Security Police. Public prosecutors prosecute all offences in Finland but they do not direct investigations. The various agencies appear adequately structured, funded and resourced to effectively carry out their functions though the resources could be focussed more on ML and TF matters.

12. As of 15 June 2007, Finland implemented a declaration system for cross-border movements of cash of EUR 10 000 or more when the EU Council Regulation 1889/2005: “the Cash Controls Regulation” and the Finnish Act on the controls of cash entering or leaving the European Community (653/2007) entered into force. As indicated by its title, this legislation only covers the transfer of cash or bearer negotiable instruments when entering or leaving the European Union territory. Cross-border declarations of currency or monetary instruments are being provided to the MLCH by Finnish Customs. As these measures are very new, it is too early to ascertain the effectiveness of this system.

3. Preventive Measures – Financial Institutions

13. Finland’s financial sector is dominated by the banking sector, and in particular by three bank groups. The application of the Finnish AML/CFT measures to the financial system and to DNFBPs is not based on risk assessment in the manner contemplated in the revised FATF 40 Recommendations. The preventive system and other AML/CFT obligations apply to a range of financial institutions and most of the designated non-financial businesses and professions (DNFBPs) as defined by the FATF. Obliged parties must identify and verify the identities of persons conducting transactions. It does not incorporate customer due diligence (CDD) requirements with respect to beneficial ownership, the identification process to be conducted with respect to legal arrangements is unclear, and no provisions have been implemented with respect to politically exposed persons or correspondent banking relationships. Some CDD exemptions are in place in the banking and insurance sectors.

14. The legal concept of trust does not exist under Finnish law. The only requirements to understand the ownership and control structure of the customer exist as part of enhanced due diligence. The enhanced due diligence obligation is narrow in scope; covering only NCCT-listed countries. There are no clear requirements for money remitters and foreign exchange companies to know the nature, scope and purpose of their customer relations and transactions. There are no requirements for obliged parties to have measures in place for prevention of the misuse of technological developments in ML or TF. Limited provisions are in place with respect to the risks associated with non- face to face business relationships and transactions. Although financial institutions may rely on third parties to conduct CDD for them, and do so within financial services groups, there are no provisions in the AML/CFT Act or elsewhere with respect to these situations.

15. There are no limitations on the power of authorities in Finland to obtain information in the course of their duties and record-keeping requirements are comprehensive. The measures in place with respect to customer information accompanying cross-border wire transfers are strong but they do not apply to wire transfers within the EU and there are no provisions on penalties applicable to infringements of the wire transfer requirements for the remittance sector.

16. The customer due diligence obligation provides that all obliged parties in Finland must examine the grounds for and the purpose of the use of its services where transactions are unusual in respect of composition or scale (structure or size), or if they have no apparent financial purpose, or if they are inconsistent with the financial situation or other activities or transactions of a customer. There is no requirement however for the obliged parties to set forth their findings in writing.

17. There are no CDD requirements with respect to politically exposed persons or with respect to correspondent banking relationships. While there is no direct explicit prohibition against establishing or operating a shell bank, licensing requirements for banks would in practice exclude a bank or other institution with no physical address from gaining a license to operate. There is no provision prohibiting banks or other institutions from having correspondent relationships with shell banks and there is no provision requiring institutions to satisfy themselves that their accounts at respondent institutions cannot be indirectly accessed by shell banks.

18. The STR reporting obligation is sound and applies regardless of the amount of the transaction. There is no requirement however to report transactions suspected of being related to terrorism other than those related to terrorist acts. A large percentage of local banking institutions are not filing suspicious transaction reports. Few reports have been received from securities institutions. The legislation provides immunity from prosecution for those persons who report suspicions to the MLCH in good faith. “Tipping off” others about STR reporting is an offence. The Finnish AML/CFT system requires only STR reporting as authorities considered the benefits of a currency transaction reporting some time ago but decided not to implement such a system.

19. The various procedures for licensing financial institutions appear generally sound. The qualifications and fit and proper tests for persons operating in senior roles in this sector, however, are sometimes vague. For entities supervised by the Financial Supervisory Authority (FSA) and the Insurance Supervision Authority (ISA), on-going supervision of compliance with AML/CFT obligations is carried out primarily as part of prudential oversight and as part of risk management, internal control and code of conduct supervision. The FSA, ISA and MLCH have issued guidance and standards to assist obliged parties to implement and comply with their obligations, but limited guidance has been issued specifically on AML/CFT matters. For FSA and ISA-supervised entities, AML/CFT supervision is carried out primarily as part of prudential oversight and as part of risk management, internal control and code of conduct supervision. Both authorities could more actively conduct AML/CFT-focussed inspections and supervision and could strengthen off-site AML/CFT control. FSA supervision of financial institutions covers the entire financial group, including foreign branches. The FSA also supervises that the branches of foreign credit institutions, investment firms and fund management companies in Finland comply with the Finnish AML/CFT laws and regulations. There are no similar requirements concerning foreign branches of other financial entities. Although licencing procedures would likely prevent a bank or securities firm from establising a branch or subsidiary in a jurisdiction that had not adequately implemented FATF standards, there is no requirement that these businesses notify the FSA or the MLCH if their foreign branches or subsidiaries were to be prevented by local rules from observing AML/CFT measures.

20. The money remittance and foreign exchange sectors do not have a supervisory authority, nor are there rules that require these businesses to have internal controls, compliance officers, and training to ensure compliance with AML/CFT obligations. Remittance services are subject to registration requirements.

21. In the absence of a designated AML supervisor, the money remittance and foreign exchange sector is subject only to criminal sanctions, while entities supervised by the FSA and ISA are subject to additional administrative penalties. The ISA has a relatively limited range of sanctions available to it. While they are in line with the usual scale of punishments in Finland, the penalties which may be imposed under the AML/CFT Act and those available to the FSA and ISA are relatively low. Finnish regulatory authorities rarely apply their sanction powers and only once has a sanction been imposed for matters relation to AML/CFT obligations.

4. Preventive Measures – Designated Non-Financial Businesses and Professions

22. Finland encapsulates a range of designated non-financial businesses and professions as obliged parties. The only type of DNFBP, as defined by the FATF, which is not covered is trust and company service providers. The covered DNFBPs are subject to the same requirements as financial institutions to identify customers, keep records, conduct ongoing due diligence, conduct enhanced due diligence where required, report suspicious transactions to the MLCH and suspend transactions where appropriate. There is little indication that dealers in precious metals and precious stones are complying with their AML/CFT obligations and many types of DNFBPs are submitting very few STRs to the MLCH. In addition, there is a lack of clarity regarding the legal obligations (and resulting supervisory practices) for the gaming operator in the Åland Islands and this could obstruct consistent enforcement of AML/CFT measures across the entire Finnish gaming sector.

23. Gaming operators, auditors, advocates and real estate agents have designated supervisors to monitor compliance with various regulatory requirements. Although most consider the fulfilment of AML/CFT obligations part of the risk management of the institution, none provides robust AML/CFT supervision. Other DNFBPs are not supervised for compliance with AML/CFT requirements. No guidance has been provided focussing on the AML/CFT risks to which the various industries / businesses / products of the DNFBPs are exposed.

5. Legal Persons and Arrangements & Non-Profit Organisations

24. While Finland has a good trade registry system for legal persons, only relatively general information is required for the trade registry and this is insufficient to determine beneficial ownership and control. Measures are in place to ensure companies submit their annual accounts, and lack of compliance with this may be sanctioned. All Finnish companies, co-operatives, partnerships and other private business entities have to register with the National Board of Patents and Registration (the PRH) and be entered in the trade register, the associations register, the foundations register or the register of persons subject to business prohibition and floating charges. Any changes of the information registered in the Trade Register – such as changes to a limited liability company’s name, business activities, address, board members or share capital – have to be notified to and registered immediately with the PRH. In addition, all limited companies, partnership, co-operatives and mutual insurance companies, are also obliged to submit their annual accounts and auditor’s reports to PRH. Requirements that limited liability companies maintain share registers and shareholder registers are not supervised by a government authority.

25. The Finnish legal system does not allow for the creation of trusts, and the legal concept of trust does not exist under Finnish law. Foreign trusts may operate in Finland. If a foreign trust comes to a Finnish financial institution as a customer, it is treated as any other legal person which is a customer of the financial institution.

26. Finland’s trade registry system and accounting requirements apply to foundations and to those associations which choose to register, and a clear process is in place for authorities to manage the money collection activities of non-profit organisations. While Finland is beginning to place greater attention and resources into work with the non-profit sector, it has not conducted a review of the sector and limited supervision and sanctions are in place to deal with inappropriate conduct in the sector.

6. National and International Co-operation

27. Co-operation between the various stakeholders in Finland is strong, both on a formal and informal level. The various authorities involved in AML/CFT are co-ordinating their efforts on operational and policy matters, though co-operative projects could more specifically target ML and TF issues. In addition, there is a lack of feedback and information sharing between agencies which limits the ability of the MLCH and others to completely examine the effectiveness of the system. This is at least in part due to weak information management systems, particularly with respect to collection and analysis of statistics, and limited interagency connectivity between the various systems. It is also a result of the emphasis on regular contact rather than structured co-ordination.

28. Finland has ratified and implemented, with some shortcomings as noted previously, the Vienna, Palermo and TF Conventions and the provisions of S/RES/1267(1999) and S/RES/1373(2001). There are no unduly restrictive measures placed on the provision of mutual legal assistance. Under Finland’s International Legal Assistance in Criminal Matters Act, Finnish authorities are expected to provide legal assistance to the fullest extent possible. Execution of requests for mutual legal assistance does not require dual criminality unless the request is for the use of coercive measures. The possibilities to carry out requests from foreign countries for identification, freezing, seizure or confiscation are in principle the same as if the offence or a suspicion of an offence has occurred in Finland. Finland has not considered establishing an asset forfeiture fund to share confiscated assets with other jurisdictions or to fund relevant national initiatives.

29. Money laundering and terrorist financing are extraditable offences, though dual criminality is required for extraditions other than to EU member States or Nordic countries. The dual criminality requirement means extradition could be refused in cases where the Finnish ML or TF offence is limited. Requests are not agreed to for extradition of a Finnish citizen to a country other than an EU member state or a Nordic country.

30. Finnish authorities are satisfied with international co-operation concerning the FIU and law enforcement authorities. There are no indications that co-operation would be ineffective or would not be used as provided in the FATF Recommendations. Although the MLCH and the FSA maintain some statistics concerning international co-operation, these are insufficient to fully assess the effectiveness of the system.

7. Resources and Statistics

31. On the whole, competent authorities appear to be adequately resourced and structured to effectively perform their functions. However, planned upgrades to the MLCH’s IT systems are expected to provide welcome additional functionality and the MLCH would benefit from additional staff. There is no AML/CFT supervisor for the money remittance and currency exchange sectors. Resources could be directed towards ML/TF investigations rather than focussing on predicate crimes, and resources could be put into awareness-raising and into development of trends, typologies and guidance.

32. The extent of statistics held by authorities is variable. The FIU only produces limited statistics and has limited information on the outcomes of STRs referred for pre-trial investigation. Statistics on ML/TF investigations and on property frozen, seized or confiscated are not comprehensive. Limited statistics are kept with regard to the informal (not on the basis of MLA) exchange of information between the Finnish LEA and foreign LEAs. Finland does not review the effectiveness of its preventative AML/CFT system.

Table 1:

Ratings of Compliance with FATF Recommendations

The rating of compliance vis-à-vis the FATF Recommendations has been made according to the four levels of compliance mentioned in the 2004 Methodology2 (Compliant (C), Largely Compliant (LC), Partially Compliant (PC), Non-Compliant (NC)), or, in exceptional cases, Not Applicable (N/A).

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Table 2:

Recommended Action Plan to Improve the AML/CFT System

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1

In August 2007, the MLCH advised that inputting to the database was up to date and this backlog no longer existed.

2

Methodology for Assessing Compliance with the FATF 40 Recommendations and the FATF 9 Special Recommendations, 27 February 2004 (Updated as of February 2007).

3

These factors are only required to be set out when the rating is less than Compliant.

4

The FATF decided at the June 2007 plenary meeting to further consider this subject.

Finland: Report on the Observance of Standards and Codes- FATF Recommendations for Anti-Money Laundering and Combating the Financing of Terrorism
Author: International Monetary Fund