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Monday, January 02, 2012

San Marino and Money Laundering

The small country of San Marino, surrounded by Italy, has banking sector that has been a target location for money laundering. In 2008 a European Commitee on Crime published a Report on San Marino and Money Laundering Issues.  Below are some excerpts from that report, as well as as a November, 2011 follow up report that suggesting that San Marino financial systems, in their present state, may be vulnerable to systematic money laundering attempts by terrorist organizations.

[Shimron Letters TBDA in 2009 first led us to identify San Marino as a source of one or more locations interested in Al Qaeda associated names, location and contact information activities, especially in North Africa. This is not the search pattern usually associated with  operational financial intelligence unit (FIU) Activity. That source also seemed to be link and data sharing with at least one location in Malta.

-Shimron Issachar

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San Marino has taken steps to ensure compliance with the United Nations Security Council
Resolutions, however:
  •  the legal framework for the implementation of UN sanctions remainsincomplete and needs to be reviewed. There is no designating authority for 1373. 
  • The Supervision Department 1 of the Central Bank circulates the lists and informs of any updates.
  • No guidance, of which the evaluators were aware, was provided to the banking and financial institutions on their obligations to take actions under freezing mechanisms and the procedures to be followed. 
  • The authorities should also ensure that the mechanism applies to all targeted funds or other assets as described in the UN resolutions of individuals, groups and legal entities.
  • Financial institutions are checking the lists but it remained unclear when this is actually takingplace. The evaluators recommended also that the supervisory authority should be actively checking compliance with SR.III and that the legal framework for imposing administrative sanctions should be reviewed to adequately enable it to sanction failure to comply with the obligations. 
  • Also clear and publicly known procedure for de-listing and unfreezing requests; and appropriate procedures authorizing access to frozen funds for necessary basic expenses, payment of certain fees, service charges or extraordinary expenses should be established.
The evaluators found that a number of the basic obligations of Recommendation 5, which need
to be implemented by law or regulation were not provided for in legislation or regulations
issued or authorised by a legislative body.

  • In particular, while banks and financial companies are required to undertake identification measures in number of specified situations, there is no obligation in the law to carry out identification when there is a suspicion of money laundering or terrorist financing or when the financial institution has doubts about the veracity or adequacy of previously obtained customer identification data. 
  • Furthermore the other elements of CDD are not required by law (e.g. beneficial ownership, and where necessary the source of funds). 
  • Additionally, the threshold applied to transactions is €15,500 rather than €15,000 limit referred to in FATF Recommendations.  
The following requirements to verify customers’ identity are not in the current legislation and
should be provided for:
  • use reliable, independent source documents, data or information; 
  • verify that any person purporting to act on behalf of the customer (for customers that are legal persons or legal arrangements) is so authorised, and identify and verify the identity of that person; 
  • identify the beneficial owner and take reasonable measures to verify the identity of the beneficial owner using relevant information or data obtained from a reliable source such that  the financial institution is satisfied that it knows who the beneficial owner is
A Follow Up Report in November 2011 stated:

  • The evaluation confirmed that San Marino has made substantial progress in implementing MONEYVAL’s third round recommendations. Since 2008, the authorities have demonstrated a clear commitment to implement the AML/CFT standards and have strengthened the preventive regime by adopting a large number of legislative, regulatory and institutional measures.
  • San Marino authorities have become more attentive to money laundering risks and the use of the ML provisions. This is reflected by the results of the law enforcement and judicial system, showing a noticeable increase in the number of money laundering investigations, 4 convictions achieved for money laundering (as of September 2010) as well as helpful case law on provisional measures and confiscation. 
  • It is yet advised that the San Marino police officials play a more active role in AML/CFT efforts.
  • There remain a number of deficiencies to ensure that the financing of terrorism offence is fully in line with international standards.
  • Substantial progress has been made to establish an operational financial intelligence unit (FIU), which is now at the centre of the overall AML/CFT effort. 
  • However the additional functions entrusted to the Financial Intelligence Agency (FIA) and the over-reliance by other authorities on FIA impact on the workload of its staff and thus affects its effectiveness.
  • San Marino has strengthened its preventive regime, setting out a comprehensive legal framework for both financial and non-financial institutions. 
  • There remain several preventive provisions which need to be brought more closely into line with the FATF standards, and overall, more time is needed before all requirements are substantially implemented.
  • Supervisory action and the methodology applied need to be strengthened, and additional resources allocated to this task, in order to ensure that both financial and non-financial institutions are adequately implementing the AML/CFT requirements.
  • Co-operation at national and international level has generally improved, particularly as regards mutual legal assistance and FIU to FIU co-operation. 
  • Further action is required to ensure that there are effective gateways to facilitate exchange of information and provide assistance to foreign supervisory authorities and law enforcement authorities.
In May 2009, five top executives from San Marino’s largest bank, Cassa di Risparmio della Repubblica di San Marino, were arrested on charges of money laundering but were released six months later.

In January 2010, the International Monetary Fund (IMF) released a report criticizing San Marino’s ability to combat money laundering.

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