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In recent years, many governments have spoken out in support of business transparency and have introduced anti-money laundering (AML) and financial crime prevention legislation. Banks and other financial institutions that issue credit or allow customers to open deposit accounts have to follow these rules to ensure they are not aiding in money-laundering. In particular, serious attention is paid to the fight against the use of cryptocurrencies for money laundering. But so far in most countries, there is no necessary regulation in this area, and market participants consider the new requirements technically impracticable and warn that operations may become less transparent.

The Principality of Monaco was no exception and also developed its own AML policy. If you are having in mind setting up a financial company in Monaco, this article may be useful to you.

Tracking suspicious transactions

First of all, firms doing banking in Monaco are required to verify the identity of each client and his agent, and the beneficial owner in case of legal entities. In addition, companies registered in Monaco must submit this information to the appropriate supervisory authority. 

If you intend to set up a banking company in Monaco, it is important to keep in mind that due diligence on clients’ transactions are required on a regular basis. Any unusual operations should be suspicious and subject to thorough analysis. Especially in the new environment associated with the pandemic, when the customer behavior is changing, the level of fraud and abuse of tax optimization is increasing, and some previously transparent companies are trying to go into the shadows.

When analyzing transactions, financial institutions in Monaco should pay special attention to such features as "breaking" the purpose of payment when receiving and writing off funds, compliance of the content of the payment with the declared types of activities.

AML and crypto activity

Currently, there are no technical solutions for verifying user data and exchanging this data between crypto platform operators. Moreover, according to the updated recommendations, all crypto providers and even individuals who regularly make transactions with cryptocurrencies will have to go through the procedure for obtaining a license, and this requires a comprehensive legislative regulation of digital assets at the national level, which is yet nonexistent in Monaco.

AML together

It is also essential for businessmen planning to start a financial business in Monaco that banks and asset managers in this jurisdiction have got the right to exchange information for more effective joint coordination of the actions against money laundering.

Analysis of the purpose of payment is a laborious process that requires close attention. Its automation is difficult because it is based on machine learning. Often, transactions from one or two small banks are not enough to build an algorithm that works with high accuracy and has the completeness of examples.

Also, financial institutions need to clearly understand what their clients are actually doing and whether they have enough evidence of their real business activities. 

Punishment for non-compliance

Monaco's financial regulation requires companies to report all transactions that may be related to crime and corruption in any way, to the Service for information and control over financial structures. 

AML policy violation and all kinds of financial crimes are punishable by administrative or criminal liability. Banks should make efforts to apply the regulative requirements quickly since the size of fines for non-compliance poses a threat to the banking business.

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