Anti-Money Laundering – About AML and AML Supervision
Money laundering is the process by which criminals attempt to conceal the true criminal origin and ownership of the proceeds of their criminal activities. It is the process by which the proceeds of crime are converted into assets which appear to have a legitimate origin. If undertaken successfully, it allows criminals to maintain control over and to enjoy these proceeds.
The requirement to launder the proceeds of crime through the financial system and through other means is vital for the success of criminal operations. Those involved, seek to exploit the facilities of the world’s financial institutions if they are to benefit from the proceeds of their criminal activities. The increased integration of the world’s financial systems, the removal of barriers to the free movement of capital and technological developments have enhanced the ease with which criminal money can be laundered, thereby complicating the tracing process.
Estimates for the amount of money laundered worldwide are quoted from time to time. However, in reality it is impossible to produce a reliable estimate of the amount of money laundered. The amount of money laundered each year amounts to billions of Euros and poses a significant concern for governments. As a result, governments and international bodies have undertaken efforts to prevent and apprehend money launderers.
Money laundering traditionally occurs in three steps: The first – placement – involves cash being introduced into the financial system by some means, the second – layering – involves carrying out complex financial transactions in order to camouflage the illegal source, and the final step – integration – entails acquiring wealth generated from the transactions of the illicit funds. This rather simplistic approach does not necessarily reflect every type of money laundering operation and depending on the circumstances of the particular case, one or more of the traditional steps may not take place. Indeed, the definition of money laundering focuses on the conversion, concealment, disguise, acquisition, possession, use and retention of property knowing or even suspecting that it is derived from criminal activity.
While the Financial Intelligence Analysis Unit (FIAU) established under the Prevention of Money Laundering Act (Cap 373 of the Laws of Malta) (PMLA), is the national agency with responsibility for prevention of money laundering and financing of terrorism and has the function to supervise compliance by all subject persons, including financial services operators with the anti-money laundering and combating financing of terrorism legislative provisions, the Malta Financial Services Authority (MFSA), as the financial services supervisory Authority has a vested regulatory interest to prevent the use and involvement of authorized persons in such crimes. The MFSA is strengthening its focus on this area and its contribution in preventing as much as possible the use and involvement of the financial sector in the commission of money laundering and other financial crime.
In terms of the PMLA, the MFSA as supervisory authority is considered to be an agent of the FIAU and is required to extend assistance and cooperation to the FIAU in the fulfilment of its responsibilities under the PMLA. Accordingly the FIAU may request the MFSA to provide it with information of which it may become aware during the course of its supervisory functions, including that a subject person may not be in compliance with the requirements of the PMLA or regulations made thereunder.
As an agent of the FIAU, the MFSA acts on behalf of and jointly with the FIAU in conducting AML/CFT supervision of financial services licence holders on a risk-based approach. Supervision is conducted by means of a dedicated team of AML/CFT supervisors within the Enforcement Unit. All phases of AML/CFT supervision, from the sectorial risk assessments to decisions on breaches and the imposition of sanctions, are coordinated and integrated in a joint supervisory approach.
The main purpose of AML/CFT supervision conducted jointly by the MFSA and FIAU is to monitor compliance by financial services licence holders with the applicable AML/CFT laws, regulations and the Implementing Procedures issued by the FIAU, and where necessary to take appropriate action, including remedial, enforcement and sanctioning measures.
A Memorandum of Understanding is in place between the MFSA and the FIAU laying out the framework for cooperation between the two entities.
Sanctions for AML/CFT breaches identified during AML/CFT supervisory work are imposed by the FIAU in terms of the Prevention of Money Laundering and Funding of Terrorism Regulations. The imposition of sanctions by the FIAU for non-compliance with AML/CFT requirements does not prejudice the taking of other appropriate regulatory action by the MFSA against the licence holder in question.