Private Client Management interviews the head of the Monegasque Banking Association about the principality’s efforts to convince its French ...

Private Client Management interviews the head of the Monegasque Banking Association about the principality’s efforts to convince its French neighbours that it will force its private banks to observe local laws against money laundering.

In late January Laurent Fabius, France’s finance minister, called on Monaco to force its banks into line with anti-money laundering best practice, giving the tiny principality six months to comply. The previous October, his department produced a report that claimed that there was "a large gap between law and reality" in the customs, tax, banking and financial cooperation that took place between France and Monaco. It added that legislation would have to follow if the Monegasque authorities did not enforce their anti-laundering laws properly.

Monaco is the cause of some embarrassment to the French, according to industry watchers. France has been one of the leading lights in the crusade that the world’s great powers are waging against money laundering and harmful tax competition, as defined by the Financial Action Task Force and the Organisation for Economic Cooperation and Development respectively. Commentators have long been asking themselves why France has done little to force its tiny Mediterranean neighbour into line while posing as the champion of respectable finance.

Better enforcement or new legislation?

French complaints do not centre around any shortage of know your customer rules or laws which call for the reporting of all suspicious transactions. The French are, instead, complaining that Monegasque authorities are failing to ensure that reports are issued and convictions obtained. The private bankers of Monte Carlo are bitterly resentful of this interference, especially when it is suggested that Monaco’s banking secrecy laws are of use to launderers. One banker explained the situation to Private Client Management six months ago.

"Contrary to popular belief, absolutely secret banking does not exist in Monaco. Only the banker’s professional confidentiality is regulated by articles 308 et seq., of the Monegasque penal code which makes it an offence for all persons entrusted with secrets by their position to reveal those secrets, except when the law obliges them to divulge them. Even secrets which come under this heading cannot be raised against either the Banking Commission, or the Bank of France, or the anti-laundering authorities at SICFIN, or the judicial authorities acting in criminal proceedings," he said.

"The Monegasque government has no intention of giving priority to the principle of confidentiality when operations are not sufficiently clear; it has asked banks to seek a maximum of guarantees, even when the client is already known to the bank’s head office," he added.

International cooperation

Monaco is not on the FATF list of non-cooperative jurisdictions but France and other countries have often singled the principality out for blame. At the same time as the French Ministry of Finance’s warning in October, the Ministry of Justice of that country came within a whisker of claiming that Monegasque authorities were trying "to restrict the powers and investigative capacity of French customs agents." The Monegasques claimed in return that they were moving as fast as they could to make sure that their laws were being obeyed more rigorously. They also denied that they were failing to cooperate with French authorities in fraud cases.

Six months ago, Laurent Fabius declared that Monegasque authorities would have to help him draw up new guidelines within a month or face the consequences. He stipulated that the process "must lead to concrete measures within six months at the latest".

What has become of this process? Private Client Management posed this and other questions to Jean-Claude Eude, general secretary of the Association Monegasque des Banques. The remainder of this article is couched in the form of an interview.

Private Client Management: What is Monaco doing to enforce its AML laws more rigorously?

Jean-Claude Eude: We published our money laundering and know your customer rules last August. Nobody is calling them into question. Our existing laws and regulations are indeed being applied more rigorously. The interchange of information about suspicion has been growing, as has the number of declarations that private banks are making to SICFIN, the Monegasque entity that handles our anti-laundering effort.

SICFIN has been around for a few years and they are now beefing it up. You have to remember that when it started up in the late 1990s nobody expected money laundering to become as big an issue as it has. As the financial markets have grown more complex, so have the opportunities for launderers. SICFIN has therefore grown to have a staff of six or seven, which is quite large for a small jurisdiction like Monaco.

A law was enacted a few years back to regulate asset management companies. The regulator here is the Monegasque Commission for Asset Management and Stock Exchange Related Activities. They’re reviewing that law because they thought that control was weak. They are currently looking at screening and the application process that these companies have to go through when they are set up. They are also proposing to tighten up control over the activities of banks, which act as shareholders.

Private Client Management: Has there been an increase in the number of prosecutions for laundering?

We have had some trials in which the judges have made an example of the defendants and several people have been convicted, but I don’t know the details. The judges want to be seen to be making an effort. There are also more questions issued by the judiciary to banks these days.

Private Client Management: What proportion of the total worth of bank deposits in Monaco is held by private banks?

Jean-Claude Eude: Most of it, without doubt. There are 44 private banks in Monaco. Some of them are branches of international banks, but most have been incorporated here. In addition we have between 20 and 25 asset management companies, with more in the pipeline. In the last few months the authorities have grown more demanding when ascertaining the profile of the new players on the block.

Private Client Management: What happened to Fabius’ six-month ultimatum?

Jean-Claude Eude: As with many of these things, it has not been implemented strictly. We have seen ongoing negotiations for the last three or four months instead. Two high level French civil servants are here to negotiate with the authorities and they will produce their report fairly soon.