Intent Declared Summary
The Financial Action Task Force (FATF) conducted a mutual evaluation of Finland’s anti-money laundering and combating the financing of terrorism (AML/CFT) regime in 2007. Finland was found to be at least largely compliant with 20 of the 40+9 FATF Recommendations. However, the country is only partially compliant with two of the core recommendations (R), namely, R 1 and R 5. The FATF stipulates that these recommendations should receive a largely compliant rating or above. The evaluation concluded that the AML/CFT legal framework prevailing in Finland is broad, and encompasses most of the elements of the Vienna and Palermo Conventions. It also notes that Finland applies proper preventive measures to its financial institutions. Finland’s financial intelligence unit, the Money Laundering Clearing House (MLCH), and other Finnish law enforcement officials, were found to be generally competent and effective. The country also has a comprehensive framework for national and international cooperation. The FATF report, however, points to deficiencies in the implementation of laws and regulations, evident in the low rates of actual prosecutions and convictions, as well as in the weak sanctions regime. Inadequacies in the supervision of designated non-financial businesses and professions are also highlighted in the FATF report. The Act on Preventing and Clearing Money Laundering and Terrorist Financing of 2008 came into force on August 1, 2008 transposing the Third European Union Money Laundering Directive into Finnish Law and further strengthening Finland’s AML/CFT framework. The FATF, in its 2008-2009 Annual Report, also listed Finland as one of the jurisdictions that have endorsed the FATF’s 40+9 recommendations.
General Overview
According to the Financial Action Task Force’s (FATF) Third Mutual Evaluation Report for Finland on anti-money laundering and combating the financing of terrorism (AML/CFT), released in October 2007, Finland is fully “compliant” with 7 of the 40+9 FATF Recommendations, largely compliant with 10 Recommendations and 3 Special Recommendations (SR), “partially compliant” with 17 Recommendations and 6 SRs, and “non compliant” with 5 Recommendations. Recommendation 34, pertaining to legal arrangements, beneficial ownership and control information, is not applicable in the Finnish context. However, it is observed to be only partially compliant with two of the core recommendations (R), namely, R 1 and R 5. The FATF stipulates that these recommendations should receive a largely compliant rating or above.
The 2005 U.S. Department of State (DoS) report on Finland asserts that the amendment of the Finnish Penal Code in 2002 which expanded the scope of criminalizing money laundering, and added a new chapter on terrorism, has brought Finland "in line with the FATF's Special Recommendations on Terrorist Financing, the United Nations (UN) International Convention for the Suppression of the Financing of Terrorism, and the amendments to the European Union (EU) Directive on Money Laundering." Furthermore, the Finnish government brought into force the Act on Preventing and Clearing Money Laundering and Funding of Terrorism No. 503 on August 1, 2008. The Act transposes the Third EU Money Laundering Directive into Finnish law, and further strengthens Finland’s AML/CFT regime.
The 2007 FATF report states that Finland has a "good legal structure to combat money laundering and terrorist financing" (p. 5). Both the money laundering and terrorist financing offenses are broad, with only a few deficiencies in prosecution. Finland’s financial intelligence unit (FIU), the Money Laundering Clearing House (MLCH) and other Finnish law enforcement officials were found to be generally competent and effective. The country also has a comprehensive framework for national and international cooperation. In the area of preventive measures, Finland has broad customer identification requirements covering almost all financial and non-financial institutions designated by the FATF. However its customer due diligence (CDD) requirements do not cover beneficial ownership, as trusts are not recognized under Finnish law. Record keeping and suspicious transaction reporting (STR) are sound, although the latter could be further strengthened. Broadly speaking, the supervision of financial institutions is satisfactory. Nevertheless, supervision of designated non-financial business and professions (DNFBPs) is weak, with inadequate guidance. Finland's sanctions regime also needs to be strengthened. The FATF finds that as of 2007, there have been no terrorist financing prosecutions, while conceding that the threat of terrorist financing in Finland is not very strong.
The Finnish Penal Code (amended in 2003) criminalizes money laundering and terrorist financing in the country. Per the 2007 FATF report, the Penal Code provides for confiscation and recovery of the proceeds of crimes, but does not fully establish a mechanism for freezing terrorist assets. Nonetheless, the FATF report also states that Finland, as an EU member, "is bound by EU mechanisms to implement UN obligations with respect to freezing of funds used for [terrorist financing]" (p. 6). The MLCH was established in 1998 as an independent FIU located within the National Bureau of Investigation (NBI) of the Finnish Police. Other authorities responsible for supervising and regulating money laundering and terrorist financing activities are the Finnish Police, Finnish Customs, the Border Guard, and the Security Police. The Finnish Financial Supervisory Authority (Finanssivalvonta, or FIN-FSA) supervises the financial sector. The Insurance Supervisory Authority (Vakuutusvalvonta, or ISA), previously a separate body, has been integrated into FIN-FSA.
The 2007 FATF report notes that the AML/CFT system in the country has clear customer identification and other AML/CFT obligations and applies to a range of financial institutions and most of the DNFBPs, as defined by the FATF. The report also notes that STRs have increased in recent years. According to the FATF report, the number of STRs received in 2006 totaled 9,975, of which 71 were prosecuted. Per the same report, the number of convictions for money laundering offenses is low and has not increased, despite the 2003 amendments to the Penal Code. The main recommendations put forward by the 2007 FATF evaluation include: broadening the AML/CFT regime; making sanctions for non-compliance more effective and encompassing; increasing national and international cooperation; enhancing the scope of confiscation, seizing, and freezing measures; improving the data-keeping and guidelines of the MLCH; strengthening AML/CFT-related law enforcement; and making the supervision of legal persons and the non-profit sector more effective.
The Principles
NC1. Legal Systems and Related Institutional Measures
According to the 2007 FATF report, Finland is “partially compliant” with R 1, and “largely compliant” with R 2 pertaining to the criminalization of money laundering. The report states that "not all physical elements (mere acquisition, possession and use of property) of the criminal offense of money laundering are covered" (p. 186). Per the FATF report, money laundering offenses are contained in the Finnish Penal Code, which was amended in 2003 to make any offense a predicate offense of money laundering. Furthermore, Finland's money laundering offense incorporates most of the requisites of the Vienna and Palermo Conventions of the UN, except that of the "possession of proceeds of crime or acquisition or use of such property without intention to conceal its illegal origin" (p. 6). The self-laundering of funds is not a crime in Finland. Per the report, the number of prosecutions and convictions related to money laundering, as well as sentences imposed on them, have been low.
The 2007 FATF report further finds that Finland is “largely compliant” with SR II regarding the criminalization of terrorist financing, which came into force with the amendment to the Penal Code in 2003. However, the law does not encompass terrorist financing of an organization or an individual, if it is not directly related to a past or potential terrorist act. There has also not been any terrorist financing investigation or prosecution in Finland.
The 2007 FATF report observes that Finland is “largely compliant” with R 3 regarding confiscation, freezing, and seizing of the proceeds of crime, but only “partially compliant” with SR III regarding freezing of funds used for terrorist financing. Despite provisions in the Penal Code for restraining, confiscating, and recovering the proceeds of crime, mechanisms to freeze terrorist assets are not well formulated. Provisional measures have limited scope, and confiscation provisions also suffer from gaps. Recovery of assets is generally effective, though it cannot be exclusively made for money laundering, since investigations are focused on predicate offenses. Finland, by virtue of being an EU member, is obligated to implement EU directives and UN obligations to freeze funds for terrorist financing. The country however, does not go any further, and hence has a lot of shortcomings in its domestic terrorist asset freezing regime.
Per the 2007 FATF report, Finland is “largely compliant” with R 26 pertaining to the FIU and its functions, but only “partially compliant” with R 30 and R 32 regarding resources and statistics. Finland's FIU is the MLCH, which was established in 1998 as an independent unit within the NBI of the Finnish Police. The MLCH receives, analyses, and disseminates STRs, and is involved in pre-trial investigations relating to AML/CFT offenses. The MLCH has a broad range of powers, along with access to government databases to obtain information for its analysis and investigations. However, it suffers from time constraints in analyzing STRs, has limited resources to issue guidance to reporting entities, possesses weak disclosure mechanisms for outcomes of STR analysis, as well as elicits limited terrorist financing reporting. These factors reduce its effectiveness as an FIU. According to the 2007 FATF report, Finland is “largely compliant” with R 27 regarding law enforcement authorities; “fully compliant” with R 28 relating to their powers; and “partially compliant” with R 30 regarding their resources, integrity and training. Designated AML/CFT investigation authorities in Finland are the Finnish Police, Finnish Customs, Border Guard, Security Police and the MLCH. The NBI is the primary unit responsible for investigating money laundering and terrorist financing, and it shares the responsibility of investigating terrorist financing with the Security Police. The FATF report notes that the "various agencies appear adequately structured, funded and resourced to effectively carry out their functions" (p. 7), but suggested that the resources be focused more on money laundering and terrorist financing issues.
Finland, according to the 2007 FATF report, is “partially compliant” with SR IX regarding cross-border declaration and disclosure. The country implemented a cross-border declaration regime for movements of cash totaling EUR 10,000 or more, with the adoption of the EU Cash Controls Regulation No. 1889/2005 and the Finnish Act on the Controls of Cash Entering or Leaving the European Community. The FATF observes that since the regime is fairly new, it is too early to evaluate its effectiveness.
The chief recommendations of the 2007 FATF report pertaining to this Principle are as follows: (1) broaden the scope of the money laundering offense; (2) amend the Penal Code to broaden the definition of terrorist financing, and raise penalties for non-compliance; (3) close the gaps in the conviction provisions; (4) allow for freezing of funds of an individual terrorist or organization when not directly connected to a terrorist act; (4) implement a framework to admit requests for freezing assets from foreign jurisdictions; (5) provide clearer AML/CFT guidance on the freezing regime to supervised entities consistent with S/RES/1452(2002); (6) develop a new database as well as trends and typologies at the MLCH for STRs; (7) improve guidance and feedback to reporting entities; (8) improve statistics on STRs, as well as AML/CFT investigations, prosecutions, and convictions, and confiscations and freezing of money laundering and terrorist financing assets to evaluate the effectiveness of the AML/CFT system in Finland; (9) ascertain ways to improve and increase STRs by reporting institutions; (10) take a more proactive approach to ML investigations, and target resources to them; (11) enable prosecution for self-laundering; (12) develop declaration for movement of currency between Finland and other EU countries; and (13) establish greater coordination between law-enforcement authorities to fulfill the SR IX requirements.
NC2. Preventive Measures - Financial Institutions
The 2007 FATF report notes that Finland is only “partially compliant” with R 5 on CDD. Although CDD requirements cover all financial institutions, "there are no requirements to identify the beneficial owners of legal persons [and] the identification process to be conducted in relation to legal arrangements is unclear" (p. 187). Further Finland is “non-compliant” with R 6 and R 7, as there are no CDD requirements for politically exposed persons (PEPs) or correspondent banking relationships. According to the FATF report, enhanced due-diligence is narrow in scope in Finland, and encompasses only the list of Non-Cooperative Countries and Territories (NCCT). Customer identification is weak in respect to non face-to-face business relationships and transactions, money remitters, and foreign exchange companies. Alongside this, the legal system does not deal with third party identification. The report also notes that Finland only “partially complies” with R 8 relating to new technologies and non face-to-face business. It is worth noting however, that the new Act of 2008 which transposes the Third EU Money Laundering Directive into Finnish law contains provisions on the identification of beneficial owners, as well as CDD procedures related to PEPs and correspondent banking relationships.
The 2007 FATF report states that Finland is “compliant” with R 4 relating to secrecy laws and R 10 relating to record keeping, but is only “partially compliant” with SR VII relating to wire transfer rules. The 2004 FATF report notes that record keeping requirements are comprehensive and law enforcement authorities have the power to get information over the course of their investigations. Per the 2007 FATF report, customer identification for cross-border transfers is strong, but does not apply to wire transfers within the EU, or to remittance activity.
According to the 2007 FATF report, Finland is only “partially complaint” with R 11 and R 21 relating to unusual transactions and monitoring of higher risk countries. As the 2007 FATF report observes, all reporting entities are obliged to examine unusual transactions as part of their CDD obligations, though they are not required to keep records of these findings. However, the Act of 2008 which came into force following the release of this FATF report, outlines requirements for records of CDD data to be kept for a minimum of five years.
The FATF report indicates that Finland is “largely compliant” with R 13 on STRs and “compliant” with R 14 relating to protection and no tipping-off policies. STR obligations are sound and apply regardless of the amount transacted; however, they do not cover transactions suspected of being associated with terrorist acts. STRs are not very common in the banking or securities sectors, even though reporting to the MLCH is immune from prosecution. "Tipping off" others about the submission of an STR is an offense in Finland. Finland is “compliant” with R 19 relating to other forms of reporting. Per the FATF report, Finland is only “partially compliant” with R 25 relating to guidelines and feedback. The FSA, ISA, and the MLCH do not issue adequate AML/CFT guidance to supervised entities. As regards to SR IV, Finland is found by the FATF report to be “largely complaint”. STRs related to terrorist financing are not required "unless the transaction is potentially connected to an act of terrorism" (p. 193).
Per the 2007 FATF report, Finland is “partially complaint” with R 15 relating to internal controls, compliance and audit. The same report notes "the Money Laundering Clearing House Best Practices, which would satisfy many of the elements of Recommendation 15, are not binding" (p. 188). Licensing procedures are "generally sound" (p. 8), though the qualifications and fit, as well as proper tests for senior officials are "vague" (p. 8). Entities that are not supervised by the FSA, have no employee-screening requirements or requirements for comprehensive AML/CFT training. Finland is also “partially compliant” with R 22 relating to foreign branches and subsidiaries. All financial institutions and their foreign branches are supervised by the FSA on their AML/CFT compliance, as are branches of foreign credit institutions, investment firms, and fund management companies in Finland. Licensing procedures effectively bar entities from countries where FATF standards are not adequately implemented, though Finnish entities are not required to notify the FSA or the MLCH if their foreign branches are prevented by local laws to observe their AML/CFT obligations.
As the 2007 FATF report notes, Finland is “partially compliant” with R 18 relating to shell banks. Shell banks are by practice precluded from operating in Finland, due to licensing criteria, although the law does not specifically prohibit their establishment. Correspondent relationships with shell banks and indirect access of shell banks to accounts at financial institutions are also not expressly prohibited.
According to the 2007 FATF report, Finland is “partially complaint” with all the recommendations – R 17, R 23, R 25, R 29, R 30, and R 32 - relating to the supervisory and oversight system, competent authorities, and self-regulatory organizations (SROs). The financial sector supervisors, the FSA and the ISA conduct supervision as part of prudential, risk, internal control and code of conduct supervision, but do not focus on AML/CFT supervision. They and the MLCH also do not issue adequate AML/CFT guidance to supervised entities, nor do they conduct effective on-site and off-site supervision specifically for AML/CFT. The number of AML/CFT inspections is very low. With regard to sanctions, the FATF report finds that there are very limited AML/CFT related sanctions and penalties available to the FSA and the ISA, and they are very rarely exercised. Also, the scope of sanctions for natural persons, such as high officials of the supervised entities, is not clear. Further, there is no review or documentation of the preventive AML/CFT system.
Per the 2007 FATF report, Finland is “partially complaint” with SR VI relating to money or value transfer services. Further, money remitters and the foreign exchange sector are neither supervised nor do they operate under AML/CFT rules, and are subject only to criminal sanctions, as opposed to other supervised entities that are also subject to administrative penalties.
The chief recommendations of the 2007 FATF report pertaining to this Principle are as follows: (1) strengthen the customer identification provisions of the AML/CFT law by requiring record-keeping and enhanced due diligence; (2) implement legislation for due diligence with respect to beneficial ownership, politically exposed persons, correspondent banking, non face-to-face transactions and legal persons; (3) establish record keeping rules for money remitters and wire transfers within the EU area, and create sanctions for non-compliance; (4) strengthen provisions on unusual transactions and include all financial institutions in their scope, as well as encompass jurisdictions that do not adequately apply the FATF recommendations; (5) expand the scope of the terrorist financing offense to include suspicions that funds are related to terrorism though not used for terrorist acts; (6) make internal control, compliance and audit rules more explicit for all sectors, including those not supervised by the FSA; (7) implement stricter measures aimed at prohibiting the operation of shell banks; (8) improve sanctions for non-compliance of AML/CFT requirements by supervised entities; (9) make on-site and offsite inspections more AML/CFT focused; (10) provide AML/CFT specific guidance to supervised entities; and (11) impose a comprehensive range of supervisory, STR, record keeping, internal control, and sanctions provisions with respect to the remittance and money/value transfer services sector.
NC3. Preventive Measures - Designated non-Financial Business and Professions
According to the 2007 FATF report, Finland is “non-compliant” with R 12 relating to customer identification requirements for DNFBPs and “partially complaint” with R 16 relating to the STR obligations of DNFBPs. The report further notes that Finland is “non-compliant” with R 12 since the Finnish AML/CFT regime encompasses all DNFBPs defined by the FATF, except trusts and company service providers. The covered DNFBPs are subject to customer identification, CDD, reporting, and STR requirements identical to those applying to financial institutions, and their supervision suffer from the same shortcomings as that of the financial sector. The FATF also finds scanty evidence that dealers in precious stones and metals comply adequately with their AML/CFT obligations. They also do not come under AML/CFT supervision and lack guidance on the AML/CFT risks they are exposed to.
Per the 2007 FATF report, Finland is “non-compliant” with R24 relating to the regulation and supervision of DNFBPs. AML/CFT supervision from designated supervisors of DNFBPs is not robust. Also, the gaming operator in the Åland Islands, Casino PAF, does not operate under clear legal AML/CFT obligations and supervision of mainland Finland, and this could adversely affect enforcement in the Finnish gaming sector. Company service providers are neither regulated nor supervised, and there is no supervisory authority for dealers in precious stones and metals. Parts of the accounting and legal sector are also unsupervised, since self regulatory organizations (SRO) membership for accountants and lawyers is voluntary. As for R 25 regarding guidelines and feedback, Finland according to the FATF report, is “partially compliant”. Relevant AML/CFT guidance for the DNFBP sector, including the trusts and company service providers, has not been issued. Some general feedback is provided to the sector, but it "does not include information on current techniques, methods and trends" (p. 190). The MLCH provides some feedback, but it lacks the resources to disseminate comprehensive and targeted feedback required for a robust supervisory framework. Regarding R 20 on other non-financial businesses and professions, the FATF report observes that Finland is fully “compliant” with this recommendation.
The chief recommendations of the 2007 FATF report pertaining to this Principle are as follows: (1) establish the full range of supervisory arrangements, STR, customer identification, record keeping, internal controls, sanctions, and guidance and feedback requirements as recommended by the FATF for the financial sector; and (2) establish a risk-based approach to supervision in this sector.
NC4. Legal Person and Arrangements & Non-Profit Organizations
According to the 2007 FATF report, Finland is “partially compliant” with R 33 pertaining to legal persons. The report furthermore, finds that the trade registry system for legal persons is "good" (p. 9), but does not elicit sufficient information on beneficial ownership and control. All limited companies, partnership, co-operatives, mutual insurance companies, and other private business entities are obliged to register with the National Board of Patents and Registration (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" (p. 9). They are also required to submit their annual accounts and auditor's reports to the PRH (failure to do so may result in sanctions), and notify the PRH of any change in information in the respective register. However, the requirement to maintain share and shareholder registers by limited companies is not supervised.
Per the 2007 FATF report, R 34 pertaining to legal arrangements - beneficial ownership and control information - is not applicable in the Finnish context, since "the Finnish legal system does not allow for the creation of trusts, and the legal concept of trust does not exist under Finnish law" (p. 9). However, foreign trusts can operate in Finland and will be recognized as a legal person establishing relationship with a financial institution.
As the 2007 FATF report notes, Finland is “partially compliant” with SR VIII relating to non-profit organizations (NPO). The NPO sector is not reviewed for its money laundering and terrorist financing vulnerabilities. Many NPOs are unregistered, and this makes them vulnerable. However, they are not inspected, nor is information pertaining to them shared between authorities. They are also not provided proper guidance by the supervisory authorities regarding their specific risks and measures to be taken to achieve AML/CFT compliance.
The chief recommendations of the 2007 FATF report pertaining to this Principle are as follows: (1) make beneficial ownership information a requisite for legal persons, and establish the same in legislation; (2) implement a program of full range of supervision of legal persons by the PRH; (3) raise awareness among financial institutions with respect to trusts; (3) implement a registration requirement for the non-profit sector to strengthen their resistance to terrorist financing abuse; and (4) strengthen supervision through more effective sanctions, as well as coordination and exchange of information between supervisory authorities.
EN5. National and International Co-operation
According to the 2007 FATF report, Finland is “largely complaint” with R 31 relating to national cooperation and “partially compliant” with R 32 relating to statistics on national and international cooperation. The agencies involved in AML/CFT cooperate well on both a formal and informal level. However, the report calls for more targeted coordination, feedback, and information sharing. The report also points to the weak information management systems, limited interagency connectivity, and low emphasis on structured coordination. Supervisory and law enforcement cooperation directly focusing on AML/CFT issues is also not strong. Further, statistics on supervisory and law enforcement information sharing is not comprehensive. Finland, per the 2005 U.S. DoS report, has many bilateral law enforcement cooperation agreements, enabling the MLCH to exchange information with other FIUs and with agencies involved in criminal investigations, such as the police and the public prosecutors. Although Finnish law does not require Memoranda of Understanding (MoUs) for information sharing, the report finds that Finland has concluded MoUs with Belgium, Bulgaria, France, Latvia, Lithuania, Luxembourg, Poland, Spain, Switzerland, Thailand, Korea, Canada, Russia, and Albania. However, the information shared can only be used to prevent money laundering transactions, and requires the approval of the MLCH to be used as evidence.
Finland, per the 2007 FATF report, is “partially compliant” with R 35 and SR I relating to Conventions and other UN Special Resolutions. Finland has ratified and implemented the Vienna, Palermo and TF Conventions and the provisions of S/RES/1267 (1999) and S/RES/1373 (2001), albeit with some shortcomings.
As the 2007 FATF report notes, Finland is “largely compliant” with R 36 and SR V relating to MLA for money laundering and terrorist financing cases, respectively, and with R 38 relating to MLA on confiscation and freezing, and “fully compliant” with R 37 relating to dual criminality. Further, Finland has adequate measures in place to enable effective mutual legal assistance, with very minor shortcomings. However, the effectiveness of the regime could not be fully assessed because statistics and information on MLA cases are limited.
Per the 2007 FATF report, Finland is “largely compliant” with R 39 relating to extradition, “fully compliant” with R 37 relating to dual criminality for extradition, and “largely compliant” with SR V relating to international cooperation. Both money laundering and terrorist financing are extraditable offenses, with two limitations: dual criminality is required for extraditions outside of the EU and Nordic countries, and requests for extradition of a Finnish citizen are not approved to countries other than those of the EU or the Nordics. As for international cooperation, the report states that "Finnish authorities are satisfied with international co-operation concerning the FIU and law enforcement authorities" (p. 10). They appear effective and in line with FATF recommendations. Finland is also only “partially compliant” with R 40 relating to other forms of international cooperation, the statistics on international cooperation is insufficient to evaluate the effectiveness of the system. The 2005 U.S. DoS report mentions that Finland is a member of the FATF and the Council of Europe and the MLCH is a member of the Egmont Group of FIUs. Finland also cooperates with the EU, the Europol, the UN, Interpol, the Baltic Sea Task Force, the Organization for Economic Co-operation and Development, and other international agencies created to combat organized crime. Finland is also a party to the Council of Europe Convention on Laundering, Search, Seizure, and Confiscation of Proceeds from Crime.
The main recommendations of the 2007 FATF report pertaining to this Principle are as follows: (1) increase information sharing among national supervisory and enforcement authorities; (2) take steps to fully implement the Vienna and Palermo and terrorist financing Conventions; (3) accept MLA requests by foreign jurisdictions for the use of coercive measures without the requirement of dual criminality; (4) establish an asset confiscation fund; (5) amend the Penal Code to broaden the definition of terrorist financing; and (6) broaden the offense of conspiracy to apply to basic as well as aggravated money laundering.
