Analysis of Law 1163 to Combat Money Laundering Activities in Monaco

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Analysis of Law 1163 to Combat Money Laundering Activities in Monaco

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Analysis of Monaco Law No. 1162 - the Fight against Money Laundering

This is an expanded version of an article the author published in "The OFC Report 1994/95", Campden Publishing, London. It has not been updated since its publication.

On July 7, 1993, when the Principality of Monaco adopted Law No. 1,162 (the "Law"), it joined a growing number of jurisdictions that have enacted laws addressing money laundering.¹ This article will highlight some of the Law's main provisions and potential problems. At the outset, it must be noted that, although the Law has been on the books since notice of it was published in the July 9, 1993, edition of the Journal de Monaco, as a practical matter, not all the necessary machinery has yet been put in place to make it effective.

Generally, the Law requires certain financial institutions, professionals, and casinos to inform a special office within the Ministry of State (the "Office") whenever these persons have reason to suspect they are handling funds from drug trafficking or from organized criminal activities ("suspect transactions").² The Law establishes new record keeping requirements. The Law also imposes a series of penalties, including fines and imprisonment for those convicted of violating its provisions. Certain provisions of the Law require regulatory action to make them effective. Thus, in February 1994, the Principality promulgated Sovereign Ordinance No. 11.160 (the "160 Ordinance")³ to provide some of the needed regulations. In April 1994, the Principality promulgated Sovereign Ordinance No. 11.246 (the "246 Ordinance")⁴ to create the Office and to add additional regulations regarding the reports to be filed.

The Law defines those who regularly engage in banking transactions or act as banking intermediaries, the financial services of the Post Office, certain insurance companies, stock brokers, portfolio managers, and foreign exchange dealers as "Financial Institutions."⁵ Financial Institutions must file written reports with the Office when they handle,⁶ or refuse to handle,⁷ a suspect transaction. These reports must specify the expected completion date if the transaction is not completed at the time of reporting.⁸ Casinos must also report suspect transactions.⁹

The Office must promptly acknowledge receipt of suspect transaction reports. The Office can stay completion of a suspect transaction for up to 12 hours. This stay can be judicially extended for cause. In a proper case, the Prosecutor General can seek a court order to take possession of the underlying funds.¹⁰

Every Financial Institution must create and implement internal controls and written procedures to ensure compliance, keep the required information confidential, and make that information available to the Office on demand.¹¹ They must also train specially designated managers and employees to report suspect transactions, monitor the Institution's compliance with the Law, and answer inquiries from the Office.¹²

Whether or not considered a suspect transaction, Financial Institutions must also investigate any transaction, or series of related transactions, of more than 2.0 million francs that seem complex or unusual and without economic substance.¹³ Financial Institutions must keep records of any complex or unusual transactions for five years. These records must contain: the name of the person who ordered the transaction; the name of the beneficiary; the source and destination of funds; the indicated purpose of the transaction; the reasons why the transaction is considered complex and unusual; the reason why the transaction is considered without apparent economic substance; and the account history, where appropriate.¹⁴ This information may only be disclosed to the Office and must be disclosed to it on demand.¹⁵

Before opening an account, Financial Institutions must verify the identity of its owner. If the owner is a natural person, an official identity document containing a photograph of its owner is required.¹⁶ Others must present an original or certified copy of its official registry extract that specifies the name, type of entity, head office, and authority of the persons acting on its behalf.¹⁷

Unless the person initiating the transaction is another Financial Institution subject to the Law, and regardless of whether a suspect transaction, Financial Institutions must check the identity of occasional clients who initiate any transaction in excess of 200,000 francs or who rent a safety-deposit box.¹⁸

Financial Institutions must also determine the identity of the beneficial owner of each account or safety-deposit box as well as the identity of the principal of any person who seems to be acting for someone else.¹⁹ This duty to determine identity also applies to deposits of bearer securities²⁰ and purchases and sales of gold, silver, or platinum.²¹

Financial Institutions must keep identity records on all clients until five years after termination of the relationship. Client transaction records must be kept for five years from the date of the transaction.²² If the Institution has its principal office in the Principality, it must ensure that its foreign branches and subsidiaries comply with the Law's Article 13 reporting requirements (regarding complex or unusual transactions) or inform the Office that applicable foreign law prohibits such compliance by the branch or subsidiary.²³

In addition, foreign exchange dealers must now make duplicate transaction slips for any transaction exceeding 200,000 francs. These slips must describe the transaction and specify the currencies, the amounts, and the exchange rates used. The customer must receive one copy of the transaction slip. The dealer must keep a daily transaction register that includes the information on the transaction slips and keep that register for five years.²⁴

Financial Institutions and their managers or employees who make a suspect transaction report in good faith may not be prosecuted for breach of professional secrecy under Article 308 of the Monégasque Criminal Code or subjected to civil or professional liability, even if it turns out the transaction was legitimate.²⁵ There is no comparable protection for legal advisors whether Monégasque or foreign.

Professionals who assist or advise on financial transactions, except Monégasque lawyers who have information because they are defense counsel concerning the transaction, must also report to the Office when they know of a suspect transaction.²⁶

Exactly how this new legislation will affect the Principality as a portfolio management center remains to be seen. At present, it would appear to present some very interesting concerns for both clients and those who assist them.

The endnotes to the article above are below. To return to the article after viewing an endnote, close the browser window.

1. Loi no. 1,162 du 7 juillet 1993 relative à la participation des organismes financiers à la lutte contre le blanchiment des capitaux published in the July 9, 1993, Journal de Monaco.

2. The Law is silent as to when someone has grounds to believe he is handling, or has been asked to handle, a suspect transaction. This may be addressed in future Sovereign Ordinances.

3. Ordonnance Souveraine no. 11.160 du 24 janvier 1994 fixant les conditions d'application de la loi no. 1.162 du 7 juillet 1993 relative à la participation des organismes financiers à la lutte contre le blanchiment de capitaux published in the February 4, 1994, Journal de Monaco.

4. Ordonnance Souveraine no. 11.246 du 12 avril 1994 constituant un Service d'Information et de Contrôle sur les Circuits Financiers ("SICCFIN") published in the April 22, 1994, Journal de Monaco.

5. Article 1, Law

6. Art. 19 of the Law requires Monégasque huissiers and notaires to report suspect transactions to the Prosecutor General.

7. Article 5, Law

8. Article 3, 246 Ordinance

9. Article 25, Law

10. Article 4, Law

11. Articles 3 and 5, Law; Article 5, 160 Ordinance