On Wednesday, 12 February 2020, MONEYVAL published the long-awaited evaluation report against Gibraltar’s compliance with anti-money laundering and countering the financing of terrorism (AML/CFT) global standards.
MONEYVAL is the Council of Europe’s AML/CFT body and is one of nine FATF-style Regional Bodies (FSRBs). FSRBs are responsible for ensuring that their member jurisdictions have applied and are compliant with FATF requirements. To this end, FSRBs disseminate the FATF Recommendations in their respective regions; they set up systems to comply with these, carry out evaluations to measure compliance and make recommendations for improvement in areas of shortcomings.
Gibraltar has been a member of MONEYVAL since 2015. As such, the jurisdiction was subject to an evaluation of its AML/CFT regime, which included an onsite visit by MONEYVAL in April 2019. Gibraltar’s Mutual Evaluation Report was published the week before last and highlighted two key areas. Firstly, the need for improved effectiveness in achieving results in the fight against money-laundering and terrorist financing. Secondly, the jurisdiction’s robust legal framework in place to achieve this purpose.
Regarding its technical compliance, Gibraltar was rated as compliant or largely compliant with 75% of FATF’s 40 Recommendations. It was rated as partly compliant with the remaining 25%, with no ratings as noncompliant. In respect of its effectiveness assessment, Gibraltar was rated on average as moderately effective, with seven of the eleven immediate outcomes as moderate, three as low and one as substantial.
The results from the Mutual Evaluation indicate that there is considerable room for improvement. Nevertheless, the report emphasises the high level of understanding of ML/TF risks by relevant authorities such as the Gibraltar Financial Services Commission and the Gibraltar Gambling Commission. It also recognises improvements in Gibraltar’s legal framework ‘which now provides a solid basis for the authorities to detect, investigate and prosecute ML and TF.’
The jurisdiction’s experience in preparing for the assessment and throughout the evaluation process will no-doubt prove helpful in addressing the shortcomings that have been identified. The evaluation process has equipped the relevant authorities and sectors with the tools and knowledge required to introduce amendments. This will play an essential role in improving the country’s effectiveness in complying with the FATF Recommendations.
A background to FATF
The FATF is the international standard-setting body for anti-money laundering (AML) and counter-terrorist financing (CFT). Its objectives are ‘to set standards and promote the effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other threats to the integrity of the international financial system.’
Since its inception in 1989, the FATF has developed 40+9 Recommendations (49) which, with their respective interpretative notes, are recognised as the international standard for AML and CFT. The first 40 Recommendations relate to the fight against money laundering, and the additional 9 Special Recommendations were developed to help combat terrorist financing.
Two hundred and five countries around the world, either as direct or indirect members of the FATF, are required to comply with the 40+9 Recommendations. The processes through which the FATF, FATF-Style Regional Bodies (MONEYVAL in the case of Gibraltar), the International Monetary Fund, and the World Bank ensure that members (countries) have implemented and comply with the Recommendations, are the Mutual Evaluation and Follow-up Processes.
The Mutual Evaluation
The Mutual Evaluation is a peer review of countries’ implementation of legal, regulatory and operational measures to combat money laundering and terrorist financing. It consists of two assessments; the Technical Compliance Assessment and the Effectiveness Assessment.
The Technical Compliance Assessment evaluates requirements for each Recommendation as they relate to the legal and institutional framework of the country, including the powers and procedures that each competent authority has in place. The level of compliance under this assessment is scored as either compliant, largely compliant, partially compliant or noncompliant.
Whilst a country may have ‘the fundamental building blocks of an AML/CFT system’ in place, in other words, be evaluated as largely compliant in respect of its technical observance, the Effectiveness Assessment then seeks to measure whether the framework in place is delivering the set of outcomes expected from a robust AML/CFT system.
To this end, the Effectiveness Assessment analyses whether the Recommendations have been adequately implemented and the extent to which each of the immediate outcomes (11) in the methodology are achieved. These will be rated as high-level effectiveness, substantial level effectiveness, moderate level effectiveness or low-level effectiveness.
In essence, the technical assessment will ensure that the framework and powers are in place, and the effectiveness assessment will evaluate whether the framework works in practice.
Depending on the levels of technical compliance and effectiveness observed, the country will either go down the Regular Follow-up route, or it will be placed into Enhanced Follow-up.
Gibraltar evaluation findings
Gibraltar’s ratings in respect of its technical compliance were above average, with 30 out of 40 Recommendations rated as compliant or largely compliant. The report states that ‘Gibraltar’s legislation provides all that is necessary for the detection, restraint and confiscation of the proceeds and forfeiture of the instrumentalities of crime, whether from domestic or international offending.’
Regrettably, its effectiveness ratings were not as satisfactory and, as a result, the jurisdiction has been placed into Enhanced Follow-up. This means that it will be reporting back at MONEYVAL’s Plenary in 2021 to inform on progress.
The report praised the level of understanding and efforts of the Gibraltar Financial Services Commission and the Gibraltar Gambling Commission. It also recognised that sectors including fund managers, DLT providers, e-money and bureaux de change exhibited a good understanding of the risks their businesses were exposed to.
Based on the areas where improvements are needed, Gibraltar has now 12 months to implement the necessary measures to improve its effectiveness rating.
The Gibraltar Government stated last week that a specific remediation programme has already commenced, intended to address the action points and recommendations contained in the report.
The Mutual Evaluation Report acknowledges that Gibraltar has a ‘solid legislation in place, providing most of what is necessary to detect, restrain and confiscate the proceeds of crime.’ This means that the jurisdiction can start tackling its shortcomings from a position of strength. It seems like Gibraltar is moving in the right direction, with strong leads at the relevant authorities to spearhead necessary areas of improvement.