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FATF evaluates Austria

Chris Hamblin, Editor, London, 20 September 2016

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The Financial Action Task Force has evaluated Austria's compliance with its '40 recommendations' against money laundering and terrorist finance.

The task force, whose 'swat team' paid a visit to Austria in November, believes that the jurisdiction has a 'mixed understanding' of its ML/TF risks. Its national risk assessment (an exercise on which the FATF insists) was found not to paint a 'holistic picture' of ML/TF risks there and the FATF decries the fact that each competent authority has its own concept of the risks that it draws from empirical experience, but in most cases they do not match with each other and do not provide a complete picture of country’s ML/TF risks. Austria did not show the FATF that it had any national AML/TF policies."

This displays the new focus of the FATF since it updated its recommendations in 2012; in the last few years it has become less interested in the legal structure of AML controls and more interested in the efficacy of governmental controls, investigations and juridical goings-on. Its verdict on Austria is damning: "Domestic co-operation mechanisms do not result in the development and implementation of policies and activities that would be coordinated in a systematic manner."

There is praise for the financial intelligence unit, but only because it functions well as a "predicate offence and associated money-laundering investigation unit," whatever that may be, rather than as an FIU. The FIU, according to the standard-setting authority, conducts only very basic operational analysis and does not conduct any strategic analysis to support the operational needs of competent authorities. Its software does not allow it to cross-match suspicious transaction reports or conduct data-mining to find trends and patterns across STRs. It does not analyse STRs that relate to terrorist finance. The inspectors uncovered some instances (involving different types of reporting entity) of customers becoming aware that STRs had been made about them and then lodging complaints directly against the reporting entities (and in some cases, the people who signed the STRs).

The FATF found little fault with Austria’s money laundering offence but decried the need in practice to prove a predicate offence beyond a reasonable doubt in order to demonstrate the illegal origin of funds, saying that it limited the ability of officials to detect, prosecute, and convict people for different types of money laundering (in particular relating to foreign predicate offences and "stand-alone money-laundering" cases in which nobody is being prosecuted for a predicate crime). The FATF thinks that penalties imposed by the courts for money laundering are very low (normally probation for a first time offence). As a result of these issues, prosecutors generally do not lay money-laundering charges and concentrate instead on pursuing predicate offences.

Prosecutors in Austria can only apply to courts to freeze bank accounts if they can prove that there is a specific risk that the assets will be dispersed without such an order. The FATF does not like this.

Austria comes in for higher praise in the realm of terrorist finance because it has specialised authorities for investigation, intelligence and prosecution. Every anti-terrorist investigation includes a search for terrorist finance and there have been some convictions on the subject.

The FATF wants Austria to look comprehensively at the risks that might arise in the 'NPO sector' to identify the kinds of non-profit organisation that might be of use to terrorists. In fact, the Austrian police has identified and investigated some NPOs for exactly that in the last few years. Nevertheless, the FATF wants Austria to regulate the large majority of its NPOs far more onerously.

The mutual evaluation report does have some bright spots, however. The standard-setter likes the fact that the Austrian regulators conduct 'fit and proper tests' and criminal background checks when licensing and registering credit institutions. The Financial Markets Authority also receives praise for its policy of clamping down severely on unlicensed financial service providers as it considers them to be a massive risk to the sector and has opened an office to deal with them exclusively. In general, the FATF thinks that the FMA has a sound understanding of ML/TF risks present in the institutions it supervises. Austria provides 'assistance' (here the FATF probably means mutual legal assistance) to countries that ask for it and the Austrian authorities ask their foreign counterparts for information and evidence regularly. The AML authorities of most countries that spoke to the FATF had plenty of good words to say about it.

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