Money laundering and financing of terrorism
Published: 31 March 2022
Fight against crime is one of the operational goals in Finanstilsynet’s strategy for 2019–2022. Finanstilsynet’s primary tool is to oversee that supervised institutions comply with the anti-money laundering (AML) legislation.
The Covid-19 pandemic had an impact on the general crime picture in both 2020 and 2021. According to the threat assessment 2020 issued by Økokrim (the Norwegian National Authority for Investigation and Prosecution of Economic and Environmental Crime), greater economic uncertainty resulting from the pandemic creates opportunities for criminals to exploit the vulnerable situation, and the compensation schemes aimed at business and industry are likely to attract profit-motivated criminals. Økokrim has recently highlighted links between various professional enablers and key persons in criminal circles. Økokrim has observed that various professional enablers, including lawyers, accountants, auditors, real estate agents and people in banking and finance, facilitate various forms of financial crime and money laundering.
Supervisory experience shows that several banks have significantly increased their efforts to combat money laundering and terrorist financing, but inspections have also revealed that compliance with AML legislation is still inadequate in many cases. Improvement areas pointed out by Finanstilsynet at several inspections include poor understanding of risk, lack of capacity to monitor risks and inadequate AML procedures.
Anti-money laundering and counter terrorist financing efforts remain high on the agenda among both politicians and regulators.
On 20 July 2021, the European Commission presented a package consisting of four legislative proposals to strengthen the EU’s anti-money laundering and counter-terrorist financing (AML/CFT) rules and initiatives. At the heart of the legislative package is the creation of a new EU supervisory authority that will fight money laundering and terrorist financing, contribute to more harmonised AML/CFT supervision in the EU and enhance cooperation among member states’ financial intelligence units (FIUs).
Finanstilsynet also participates in and contributes to the work of the European Banking Authority (EBA) together with national financial supervisory authorities in other EEA countries. In 2021, there was a high level of activity in the field of anti-money laundering in the EBA. During the year, the EBA also published opinions on a number of AML-related topics. Finanstilsynet regularly participates in the EBA's AML CFT Standing Committee and in various sub-groups.
The EBA evaluates national supervisory authorities’ AML/CFT inspections at banks. In 2021, the EBA initiated an evaluation of Finanstilsynet in Norway. Documentation was provided and an online visit took place in autumn 2021. A report is expected to be completed in the first half of 2022.
On the international arena, Finanstilsynet also participates in the Nordic-Baltic Working Group on AML as well as in the Financial Action Task Force (FATF).
During the period 2021-2022, Finanstilsynet is also involved in an IMF project in the Nordic and Baltic countries. A report is expected to be completed in the course of 2022.
International AML cooperation is gaining in importance, and Finanstilsynet participates in a number of supervisory colleges tasked with following up individual firms’ compliance with the AML legislation.
On 31 May 2021, the Ministry of Finance adopted stricter AML rules in the form of regulations amending the Norwegian AML Regulations. The amendments to the regulations are based on a consultation document proposing new regulations, prepared by Finanstilsynet in December 2019. The amendments include i) when providers of virtual currency services are subject to the AML legislation and requirements to register with Finanstilsynet, ii) when the issuance of electronic money will trigger a requirement for customer due diligence measures and what types of electronic money issued outside the EEA can be accepted in Norway, iii) more detailed rules on freezing of accounts, termination of customer relationships and related procedures, iv) minimum requirements for electronic monitoring systems, and v) rules on high-risk countries. A change has also been made to the regulations concerning exemptions from certain customer due diligence measures for products related to public benefits.
On 5 January 2021, the Ministry of Finance circulated for comment a proposal from Finanstilsynet to extend the deadline for levying administrative fines laid down in the AML Act. The proposal is still under consideration.
Supervision, monitoring and control
In 2021, Finanstilsynet carried out AML/CFT inspections at four banks. Compliance with the AML legislation was also on the agenda at inspections at another two banks. The inspections that have been completed revealed, to varying degrees, inadequate risk assessments and risk classifications and weaknesses in transaction monitoring, the implementation of enhanced customer due diligence, investigations of suspicious transactions and reporting to Økokrim.
In 2020, Finanstilsynet carried out an AML/CFT inspection at DNB Bank ASA. The purpose of the inspection was to follow up previous AML-related inspections. In addition, further investigations were made of the bank's handling of selected companies linked to the Icelandic institution Samherji. In April 2021, Finanstilsynet decided to levy an administrative fine of NOK 400 million due to significant deficiencies in the bank's compliance with the AML Act. The decision was not appealed.
On the basis of an on-site inspection in December 2019, Finanstilsynet decided on 10 May 2021 to impose an administrative fine of NOK 2 million on Skagerrak Sparebank pursuant to the AML Act. The basis for the decision is serious infringement of the bank’s obligations relating to procedures, risk classification of customers and internal control under the AML Act. The decision was not appealed.
Finanstilsynet carried out an AML/CFT inspection at Sparebanken Sogn og Fjordane in March 2020. Owing to serious deficiencies in the bank’s compliance with basic requirements in the AML legislation, it was decided on 12 November 2021 to impose an administrative fine of NOK 14 million on the bank pursuant to the AML Act.
On the basis of an inspection carried out in 2019, Danske Bank was ordered to rectify a number of deficiencies relating to the implementation of due diligence measures for existing customers, enhanced due diligence measures for politically exposed persons, risk classification and control of transactions that had not been identified in the transaction monitoring. Since September 2020, Danske Bank has paid coercive fines due to failure to fulfil the said order for rectification.
In 2021, Finanstilsynet carried out a thematic inspection of a selection of banks providing the new ‘cash in-store’ service. A thematic inspection report published in February 2022 points to vulnerabilities in the service and inadequate compliance related to risk assessments, procedures, disclosure of suspicious conditions and training of store employees.
In 2021, Finanstilsynet carried out an off-site inspection of 46 banks' internal audit units concerning compliance with the AML legislation. The purpose of the inspection was to assess the scope and structure of the internal audit’s work in light of the requirements set out in Section 35 of the Anti-Money Laundering Act. The thematic inspection report is expected to be completed in 2022.
In December 2021, Finanstilsynet announced a thematic inspection of 20 banks' regulatory compliance in connection with screening of persons subject to international sanctions. The operative part of the thematic inspection of the banks will take place early in the first quarter of 2022.
Mortgage and finance companies
In late 2020, Finanstilsynet carried out several inspections of finance companies that exchange physical currencies. The inspections uncovered several instances of inadequate compliance with the AML Act, including deficiencies in risk assessments, transaction monitoring, customer due diligence measures and reporting to Økokrim. Finanstilsynet has revoked the licence of one company due to the seriousness of the non-compliance.
Payment institutions and agents for foreign payment institutions
Finanstilsynet carried out an on-site inspection at one payment institution in 2021. During the year, Finanstilsynet also decided to revoke the licence to operate as a payment institution for three institutions providing the payment service money transfers. One institution has appealed the decision, and the appeal is under consideration by the Ministry of Finance. Finanstilsynet completed the supervision process at two agents of a foreign institution in 2021.
In December 2020, Finanstilsynet decided to order the Norwegian agents of the Dutch payment institution Caleen Financial Services B.V. (Caleen) to discontinue their operations. Finanstilsynet also asked the Dutch supervisory authorities to deregister all of Caleen’s agents. In August 2021, Finanstilsynet was informed that the Dutch supervisory authorities had complied with the request.
In 2021, Finanstilsynet cooperated closely with Norwegian Customs and the police on measures relating to parts of the payment institution industry and agents of foreign payment institutions. As part of the cooperation, Finanstilsynet provided advice on current regulations and shared its knowledge about payment institutions. In addition, specific cases were discussed.
During 2021, Finanstilsynet carried out one inspection of a registered virtual asset service provider. Finanstilsynet continues to cooperate closely with, among others, Økokrim in connection with both registration of the providers and follow-up of the firms that have been registered. In cooperation with the police and Økokrim, Finanstilsynet identified and followed up a number of unregistered market players throughout the year, thus seeking to prevent illegal activities.
Mutual funds and collective investment schemes
Finanstilsynet has followed up the survey of compliance with the AML legislation among licensed fund management companies, licensed managers of alternative investment funds (AIF managers) and registered AIF managers (without a licence). The survey was initiated in 2020 and comprised a total of 215 entities. The answers showed significant variations in the level of compliance, and registered AIF managers were overrepresented in the group with the most fundamental deficiencies. The survey forms the basis for further investigations into firms’ compliance with the AML legislation, for example through on-site inspections or by obtaining further information about the firms' AML efforts. Finanstilsynet will finalise a summary report on the findings of the survey.
Compliance with the AML legislation was a topic at all on-site inspections at fund management companies and AIF managers. Inadequate compliance was commented on in a number of inspection reports. Experience shows shortcomings in the AML risk assessments of some companies, especially when it comes to the requirement for entity-specific assessments. In addition, their procedures and training are inadequate.
The firms' measures against money laundering and terrorist financing were on the agenda at all ordinary inspections in 2021. Finanstilsynet commented on compliance with the AML legislation in the inspection report prepared after the inspection of one firm in 2021. Finanstilsynet's conclusion was that the firm's risk assessment and AML procedures had been inadequate and were not tailored to the firm’s business, and that the firm's customer due diligence measures and ongoing monitoring had not been in accordance with the requirements of the AML Act.
In early 2021, Finansstilsynet initiated annual reporting from investment firms with the intention of identifying risk areas for money laundering and terrorist financing. Among other things, information about customer groups and transaction volume will be collected.
Money laundering was on the agenda at most ordinary inspections at insurers and insurance intermediaries in 2021. The findings showed shortcomings in risk assessments, which were often too cursory and gave a description of the regulations instead of assessing the specific risks. The procedures should be easier to operationalise in order to ensure better guidance for employees. Other findings include deficiencies in the risk classification of customers and internal control. Large variations were also revealed in the scope and quality of training and maintenance of knowledge about compliance with the AML legislation. In general, there was a higher level of compliance among insurers than among insurance intermediaries.
In 2021, compliance with the AML legislation was addressed at inspections of nine real estate agencies. Six of these were thematic AML inspections. Finanstilsynet focused on the firms’ AML risk assessments and related procedures. Four of the inspections have been completed, and Finanstilsynet imposed an administrative fine of NOK 250 000 on both Eiendomsmegler 1 Ringerike Hadeland AS and Eiendomsmegler 1 Fjellmegleren AS.
In connection with two of the ordinary inspections initiated in 2020, Finanstilsynet imposed an administrative fine of NOK 600 000 on Eiendomsmegler Krogsveen AS and a fine of NOK 200 000 on Vestbo Garanti Sentrum AS.
The most common deficiencies uncovered at inspections are non-existent or inadequate risk assessments, inconsistencies between risk assessments and procedures, lack of training or inadequate customer due diligence measures in connection with assignments.
In addition, Finanstilsynet has carried out a survey related to control of transactions on client accounts. The results of this survey will be published in 2022.
At all inspections, Finanstilsynet checks auditors’ compliance with the AML legislation. As part of the follow-up of AML efforts, Finanstilsynet has carried out a thematic inspection where money laundering documentation has been obtained from 30 firms, of which 11 have been selected for review. The general impression is that a lack of awareness and understanding of roles has resulted in failure to properly integrate anti-money laundering and counter-terrorist financing measures into the firms’ risk management and governance structures. This impression is supported by weakly documented knowledge of how money laundering and terrorist financing occurs, as well as non-existent or inadequate procedures. The procedures are not adapted to the respective audit firms’ activities and risks and do not provide those carrying out assignments on behalf of the firm the support they need to ensure compliance with the obligations under the AML Act in their ongoing work. It must be assumed that the weak internal control of compliance with the AML Act and the internal procedures to ensure such control may also be largely due to a lack of management attention. Finanstilsynet decided to impose administrative fines on ten of the eleven firms included in the thematic inspection, ranging between NOK 75 000 and NOK 400 000.
At all inspections, Finanstilsynet checks external accountants’ compliance with the AML legislation. As part of the follow-up of AML efforts, Finanstilsynet has carried out a thematic inspection where money laundering documentation has been obtained from 30 firms, of which 11 have been selected for review. The general impression is that a lack of awareness and understanding of roles has resulted in failure to properly integrate anti-money laundering and counter-terrorist financing measures into the firms’ risk management and governance structures. This impression is supported by weakly documented knowledge of how money laundering and terrorist financing occurs, as well as non-existent or inadequate procedures. The procedures are not adapted to the respective accounting firms’ activities and risks and do not provide those carrying out assignments on behalf of the firm the support they need to ensure compliance with the obligations under the AML Act in their ongoing work. It must be assumed that the weak internal control of compliance with the AML Act and the internal procedures to ensure such control may also be largely due to a lack of management attention. Finanstilsynet decided to impose administrative fines on nine of the eleven firms included in the thematic inspection, ranging between NOK 100 000 and NOK 400 000.
Finanstilsynet participates in the Norwegian government's Contact Forum for combating money laundering and terrorist financing and will act as the secretariat for the Contact Forum until December 2022. A key task for Finanstilsynet in 2022 is to contribute to the implementation and further development of the action plan set out in the government's strategy against money laundering and terrorist financing.
Also outside the Contact Forum, Finanstilsynet cooperates with other authorities to achieve its goal to fight crime. During 2021, Finanstilsynet cooperated with various agencies on a number of individual cases, including Økokrim, several police districts, Norwegian Customs, the National Criminal Investigation Service and the Norwegian Tax Administration. The cooperation will continue and be further developed in 2022.
In addition, Finanstilsynet has agreed to participate as an observer in OPS AT, a public-private partnership between the financial industry and selected authorities to promote more effective measures to combat money laundering and terrorist financing.
Other supervised sectors:
- Banks and other financing activity
- Insurance and pensions
- Infrastructure in the securities area
- Securities market conduct
- Investment firms
- Mutual funds and collective investment schemes
- Approval of prospectuses – transferable securities
- Financial reporting enforcement – listed companies
- International cooperation
- Money laundering and financing of terrorism
- Digital finance and IT risk