Tracfin's recommendations on the fight against money laundering and terrorist financing Tracfin's recommendations on the fight against money laundering and terrorist financing

Tracfin published last week its report on "trends and analyses of the risks of money laundering and terrorist financing (ML-FT) in 2019-2020". Here is the summary.

"Overview of the main ML/TF risks identified by Tracfin

The analysis of the reporting flow processed by Tracfin in 2019-2020 is based on a methodology based on the cross-referencing between the main offences reported and the sectors of activity related to them. The analysis aims to shed light on the degree of intensity to which an economic sector is exposed as a vector of ML/TF. The breakdown of the declarative flow by economic sector of activity is presented in a table on the basis of the suspicions received and investigations carried out. It is materialized by three degrees of exposure ranging from a simple exposure to a strong or very strong exposure.

The economic sectors associated with the highest number of suspected infringements are the construction and public works (BTP), trade and distribution sectors. They alone cover a very significant part of the suspicions reported to Tracfin. The real estate, art, hotel and restaurant, transport, logistics and IT and telecom sectors are also among the most frequently cited in the suspected infringements dealt with.

The main crime threats perceived by Tracfin concern tax and social fraud, and to a lesser extent, abuse of corporate assets and theft/scams. All reports of suspected terrorist financing, illicit trafficking and breach of probity are the subject of increased attention by the Service.

In terms of fraud to the detriment of public finances, the year 2020 was marked by the health crisis caused by the Covid-19 pandemic and the implementation of measures to support the economy. Tracfin has mobilized to support registrants by restoring to them the main risks of fraud and money laundering observed in this context. A phenomenon of massive fraud in short-time working compensation estimated at 225 million euros by the Ministry of Labour has been identified by Tracfin. The Service has been actively involved in identifying measures to mitigate the risk posed by this framework by encouraging the implementation of strengthened controls.

To carry out its missions, Tracfin benefits from dynamic international cooperation with foreign financial intelligence units (FIUs), particularly cross-border ones.

Study of three high-risk ML/TF business sectors: real estate, art and professional sport

The real estate sector carries proven ML/TF risks in all stages of the life of a real estate project, whether it is the award of the contract (corruption of public officials), the real estate construction phase (hidden work), real estate transactions or rentals (scams, laundering of the proceeds of various crimes) or on the occasion of obtaining real estate loans (use of false documents). The variety of professions present on the real estate market exposes the sector to all phases of bleaching: investment, stacking, integration. Real estate investments are an important vector of money laundering because of the specificity of certain market segments, particularly in the real estate of Ile-de-France driven by the upward pressure of prices, but also in prestigious real estate in regions with high tourism potential. The professions of figures and law, in particular notaries and real estate agents, play a key role in detecting money laundering patterns in this sector. While professionals in the sector have improved their reporting activity, it remains too modest in view of the number of real estate transactions concluded each year.

The art sector has significant vulnerabilities exploited for money laundering purposes, but also for the financing of terrorism. Many factors support this finding, in particular the frequency of cash payments, the volatility of selling prices, the development of auctions and distance sales, the internationalization of the profession and payment flows and the unstable geopolitical and security context favoring the trafficking of archaeological objects. In addition to attractive taxation, the art sector has features that facilitate the circumvention of tax obligations (cash transactions, reduction of the sale price, interposition of offshore structures) or customs (export of cultural goods without declaration or export license outside the EU). Designated as the supervisory authority for art professionals, the Directorate General of Customs and Indirect Duties (DGDDI) signed, with Tracfin, joint guidelines published in May 2019.

The professional sports sector generates international financial flows and high amounts. It is the subject of a still recent framework which has certain shortcomings in terms of AML/CFT, particularly in the implementation of legal and financial administrative controls of sports associations and societies. The ML/TF risks associated with professional sport cover in particular tax issues due to the transnational nature of financial flows, facilitating the interposition of offshore structures. There is also a significant risk of corruption in the awarding of sports competitions, as well as significant exposure to fraudulent bets aimed at altering the course of a competition or laundering the proceeds of criminal activity. The declarative potential of professionals in the sports sector is under-exploited. A better understanding of the risks as well as a greater involvement of the actors of this sector is necessary with regard to the risks identified.

The emergence of new ML/TF channels generated by the digitalisation of payment services

Alert for several years on the risks of ML/TF facilitated by the digitization of payment services and the development of the uses of electronic money and virtual currency, Tracfin notes that this trend has been confirmed and is now found in most types of money laundering processed by Tracfin: organized gang scams, networks of ephemeral companies, use of false identity documents... In 2019, Tracfin also detected a major innovative terrorist financing circuit combining electronic money, digital assets and informal clearing techniques in order to bring funds to the combat zone for the benefit of jihadist fighters. The alert issued by Tracfin gave rise to a large-scale police operation to arrest nearly thirty people suspected of feeding this network using prepaid coupons converted into bitcoin.

Important legislative work was then carried out to reduce the anonymity of digital assets and strengthen the supervision of digital asset service providers (NSPPs). The objective pursued, in which Tracfin actively participated, is in particular to prohibit the keeping of anonymous crypto asset accounts and the purchase of crypto assets using prepaid means of payment without identity verification as well as to make the activity of exchanging digital assets for other digital assets subject to the exchange of digital assets. in accordance with the FATF recommendations.

The regulation of electronic money and digital assets will only be effective if it is harmonised at European level. A majority of payment and electronic money service providers (PSP/MA), such as PSAN, operate under France under the freedom to provide services, which has the effect of fragmenting the supervision of actors and complicating the retrieval of information necessary for Tracfin's investigations. The establishment of a single EU-wide AML/CFT rulebook and EU-level AML/CFT supervision are relevant levers for action.

Tracfin also anticipates the emergence of ML/TF risks related to the extension of the uses of digital assets through initial coin offerings or global stablecoins whose development creates an area of regulatory uncertainty due to their potential for adh. large-scale operation.

The dynamic deployment of payment services made available by the giants of the web, either in the form of partnerships with European fintechs or through the own development of payment solutions or internal transfer of funds, are points of attention followed by Tracfin.

Recommendations

Recommendation No. 1 Extend the exercise of a priori controls as soon as social benefits are paid and managed on a day-to-day basis.

Recommendation 2 Empower digital platforms in the prevention, detection and dissemination of counterfeit goods and raise awareness among payment service providers of financial flows resulting from counterfeits sold online.

Recommendation 3 Continue the work undertaken by Tracfin at European level within the network of European FIUs to deepen cross-border cooperation.

Recommendation No. 4 Continue efforts to raise awareness among legal and real estate professionals.

Recommendation No. 5 Limit the settlement of transactions related to the trade in works of art in cash by introducing a cash payment threshold at art dealers.

Recommendation No. 6 Strengthen the control and reporting powers of the federations responsible for supervising the activity of sports agents, in particular in the examination of accounting documents.

Recommendation No. 7 Exploit the national platform to combat the manipulation of sports competitions to facilitate the exchange of information with the authorities concerned.

Recommendation No. 8 Make it mandatory to take identity from the first euro for any electronic money medium converted into cryptoassets when they are loaded by means of cash and anonymous electronic money and prohibit the keeping of anonymous accounts of cryptoassets.

Recommendation No 9 Systematize the appointment of permanent representatives and controls on electronic money distributors and payment agents operating in France through the European passport in free establishment.

Recommendation 10 Encourage the establishment of a single AML/CFT rulebook and harmonised supervision at European level".