Vatican outlines steps to combat money laundering, financing of terrorism

From Vatican Information Service:

Vatican City,  (VIS) – Msgr. Ettore Balestrero, under secretary for Relations with State, today presented a briefing to journalists in the Holy See Press Office concerning the publication of the first Mutual Evaluation Report on the Holy See and on Vatican City State (“MONEYVAL Report”) regarding adherence to the 40 + IX FATF recommendations against money laundering and countering the financing of terrorism (AML/CFT). Msgr. Balestrero was head of the Holy See delegation to the plenary session of MONEYVAL held in Strasbourg, France, on 4 July.

Extracts from Msgr. Balestrero’s English-language presentation are given below:

“Vatican City State has a very small territory, with a small population, a very low level of domestic crime and no market economy. It is not a financial centre and its financial activities are meant to support its works of charity and of religion. However the Holy See enjoys a recognised moral voice and in this sense is deeply connected not only with its immediate neighbours, but with all countries of the world. Moreover the Holy See, as primarily responsible for the universal mission of the Church, has a special ability – even duty – to guide and orient Catholic religious organisations throughout the world. While those organisations exist within their own civil jurisdictions and are bound to follow the laws of those jurisdictions on AML/CFT issues, it is important that the Holy See use its moral authority to raise maximum awareness about the far too frequent transnational crime of money laundering and the financing of terrorism”.

Beginning along the path and first accomplishments

“There has always been a clear determination to fight money laundering and terrorist financing, as well as a legal system that already had several of the elements necessary to tackle ML/FT problems.

“At the end of 2010, we passed an AML/CFT law and requested evaluation in February 2011 by MONEYVAL. Our law came into force on 1 April 2011. Our Financial Intelligence Authority was operational by June. In November 2011, we received our first MONEYVAL on-site visit. The team of our evaluators was widely considered to be perhaps the strongest team MONEYVAL had ever assembled. It included the president, the secretary and an administrator of MONEYVAL, the president of the Egmont Group of Financial Intelligence Units, two senior financial experts and a professor of international law”.

Revision of the First AML/CFT Legislation

“Based on the preliminary remarks of the evaluators in November, it became apparent that the first version of the law, while representing an important effort at proper legislation, contained gaps and other difficulties that needed to be addressed in order to move forward.

“All jurisdictions that receive an on-site visit are given two months to introduce changes in their legislation, that will be included in the evaluation report. Within this time frame, on 25 January 2012, a new law was introduced that provided for more effective cooperation among the Vatican authorities involved in the prevention and countering of money laundering and the financing of terrorism. The new law stressed the importance of their mutual connections and the need to better allocate their respective competences in order to establish a stronger and more sustainable AML/CFT system”.

The present AML/CFT system

“Some of the more important elements of the current AML/CFT regime include:

“- The establishment of a risk-based approach to AML/CFT work, particularly in regard to the identification of suspicious transactions.

“- Enhanced emphasis on international cooperation, including full exchange of information with foreign counterparts. And I stress that this includes exchange of information including information prior to 1 April 2011.

“- Laws relating to financial institution secrecy are consistent with international standards.

“- The criminal law is significantly improved, by providing a comprehensive definition of money laundering, and an array of predicate crimes in line with international standards, as well as the criminalisation of the financing of terrorism.

“- The power of the courts to prosecute money laundering, financing of terrorism, and its predicate crimes, as well as to freeze and confiscate the proceeds of ML/FT activity has been strengthened.

“- The sanctions for failure to fulfil AML/CFT requirements are enhanced and made applicable to legal persons.

“- Entering into a Memorandum of Understanding (MOU) is a requirement for the exchange of financial information with financial intelligence units from other States. We pledge this to be an effective and reliable tool for exchanging information on the basis of reciprocity with those jurisdictions that are also committed to the fight against money laundering and the financing of terrorism.

“- The power of the AML/FT supervisor to perform an inspection of any financial institution is made explicit and the law provides for the creation of a specific and detailed regulation upon the basis of which that inspection could be conducted.

“In addition, the Holy See, acting also on behalf of Vatican City State, has ratified the following Conventions: the Vienna Convention against Illicit Traffic on Narcotic Drugs and Psychotropic Substances (1988); the New York Convention for the Suppression of the Financing of Terrorism (1999), and the Palermo Convention against Transnational Organised Crime (2000).

“These Conventions are immediately applicable in our legal system, without any further need to implement legislation regarding extradition and cooperation.

“In addition, the area of international cooperation was carefully assessed The findings of the evaluators were that the current system of the Holy See and of Vatican City State is largely compliant with international standards”.

Areas Where Evaluators Noted a Need for Improvement
   
“We are aware that, like other jurisdictions, some areas of the Vatican’s systems to fight money laundering and the financing of terrorism still need to improve. After the new law was adopted in January, we addressed many of these issues in the course of our continuing exchanges with the evaluators. Other issues will be addressed expeditiously and giving proof of effectiveness. For example:

“- There are some concerns expressed in the report regarding the use of an MOU to establish the basis for international cooperation between financial intelligence units. We feel that the adoption of this requirement, which is in line with international standards, represents the right approach for the Vatican which, as a smaller jurisdiction, wishes to interact on fair and fully reciprocal terms with other countries. Indeed, this is a common choice made by many jurisdictions, including New Zealand, Canada, Australia and others; nor is this choice disfavored by such noted FATF members as the United States.

“- The Pontifical Commission is mandated by the law to provide for a regulation permitting the AML/CFT supervisor to perform on-site inspections. The evaluators note that until such a regulation becomes law, the supervisor’s inspection powers are not yet defined. We agree. That regulation, which is already being drafted, will reflect our seriousness of purpose.

“- The report notes that the original structure of a Financial Intelligence Authority, which combines the financial intelligence unit function and the regulatory functions of a supervisor, appears to create difficulties. This structure of the FIA, which concentrated all AML intelligence and supervision, was inherited from the first version of the law. It was retained in the second version of the law. The evaluators have expressed certain scepticism as to its ‘workability’. We are grateful for this observation which we take seriously.

“- The report notes that conflicts of interest may arise due to the same person working at the same time as a supervisor and in one of the supervised entities”.

Next Steps After Passing the New Law

“After adoption of the present law, the Holy See has continued to improve its anti-money- laundering system. Above all, the Holy See and the Vatican authorities have moved from shorter-term solutions to the creation of long term, sustainable and effective solutions; and will continue to do.

“For example, after 25 January, that is after the above mentioned period of two months following the first on-site visit:

“- The Holy Sere established and implemented a terrorist list in line with the measures required by the United Nations Security Council.

“- We have officially applied to join the Egmont Group, which is the internationally accredited group of Financial Intelligence Units formed to favour rapid and reciprocal exchanges of information.

“- Through the execution of memoranda of understanding, we have expeditiously moved to insert our own financial intelligence authority into the international network of financial intelligence units.

“- As mentioned, the Commission of Cardinals for Vatican City State is in the process of adopting an inspection regulation.

“- We have initiated further revision of our criminal law, with a view to further modernise its provisions in light of international standards.

“- Shortly we will complete our risk assessment.

“- We are considering ratification of other crime fighting conventions and new legislation regarding non-profit organisations”.

Conclusion

“We have taken a definitive step to lay the foundations to a structure – a house if you will – that is to a robust and sustainable system to combat money laundering and the financing of terrorism. Now it is our wish to fully construct a building that effectively shows the Holy See’s and Vatican City State’s desire to be a reliable partner in the international community”.