Know your customer : an analysis of the implementation of the FATF Recommendations in Austria and the UK

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Graduate School of Social Sciences

MSc Political Science: International Relations

Master thesis

K

NOW YOUR CUSTOMER

An analysis of the implementation of the FATF

Recommendations in Austria and the UK

Student name: Bernadette S. Rapp Student number: 11127732

Thesis project: New Forms of Governance: From the EU to the World? Supervisor: Prof. Dr. Jonathan Zeitlin

Second reader: Prof. Dr. Marieke de Goede

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Acknowledgements

I would like to express my deepest gratitude to everyone who supported me throughout this last year and contributed in any manner to the completion of my thesis.

First and foremost, I would like to thank my supervisor, Prof. Jonathan Zeitlin, who helped me to complete this thesis, not only with his extensive knowledge, but also with his kindness, patience, and motivation. His guidance was essential in the process of my specialisation in international security.

I would also like to thank my second reader, Prof. Marieke de Goede, who helped me find the very roots of my interests. With her own research in the field of international security, she has introduced me to the field of terrorism financing.

A special thanks goes to all my interviewees who took the time to talk to me, despite their busy time schedule and some quite interesting developments in the international money laundering regime during the last few months.

Moreover, I want to thank my friends – old and new ones – for their support, understanding, and kind words during the last year.

And last, but not least, I want to thank Thomas for his unconditional support and love. Thank you.

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List of Abbreviations

AML Anti-Money Laundering

BKA Criminal Intelligence Service (Bundeskriminalamt)

BMF Austrian Ministry of Finance (Bundesministerium für Finanzen) BMI Federal Ministry of the Interior

BVT Federal Agency for State Protection and Counter-Terrorism (Bundesamt für Verfassungsschutz und

Terrorismusbekämpfung)

BWG Austrian Banking Act (Bankwesengesetz)

CDD Customer Due Diligence

CFT Countering the Financing of Terrorism (also used for combating the financing of terrorism)

DNFBP Designated Non-Financial Business or Profession

EC European Commission

EEA European Economic Area

EDD Enhanced Due Diligence

EU European Union

FATF Financial Action Task Force (also GAFI) FIU Financial Intelligence Unit

FCA Financial Conduct Authority (formerly FSA) FMA Financial Market Authority (Finanzmarktaufsicht) FSA Financial Services Authority

GAFI Groupe d'Action financière (also FATF)

HMRC Her Majesty's Revenue and Customs (or HM Revenue and Customs)

HSBC Hongkong and Shanghai Banking Corporation

IMF International Monetary Fund

IR International Relations

ISIL Islamic State of Iraq and the Levant

KYC Know Your Customer

MER Mutual Evaluation Report

ML Money Laundering

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MLR Money Laundering Regulations

NCA National Crime Agency

NCCT Non-cooperative Countries or Territories NCIS National Criminal Intelligence Service NGO Non-Governmental Organisation

NPO Non-Profit Organisation

NRA National Risk Assessment

NTFIU National Terrorist Finance Investigation Unit

OECD Organisation for Economic Co-operation and Development OeNB Austrian National Bank (Oesterreichische Nationalbank) PEP Politically Exposed Person

PRA Prudential Regulation Authority

RBA Risk-Based Approach

Rec. Recommendation

SAR Suspicious Activity Report

SOCA Serious Organised Crime Agency

SOCPA Serious Organised Crime and Police Act 2005

SR Special Recommendation

STR Suspicious Transaction Report

TF Terrorist Financing

UN United Nations

UNSC(R) United Nations Security Council (Resolutions) VAG (Versicherungsaufsichtsgesetz)

Vienna Convention The United Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances 1988

WAG Securities Supervision Act (Wertpapieraufsichtsgesetz)

WMD Weapons of Mass Destruction

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1 Introduction

In 1989, when drug trade and the movement of drug money was a matter of global public concern, the Financial Action Task Force (FATF) was created at the 15th

annual Economic Summit of the G7 in Paris in response to the global drug problem (FATF 1990a, 2014a). The summit participants – the United States, Japan, Germany, France, the United Kingdom, Italy, Canada, and the European Commission – invited Sweden, Netherlands, Belgium, Luxemburg, Switzerland, Austria, Spain, and Australia, to join this task force (FATF 1990a). The FATF is an intergovernmental body with the goal to create and effectively implement legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system, based on UN Security Council Resolutions. In 1990, FATF developed a set of 40 Recommendations to “detect, prevent and punish the abuse of the international financial system for money laundering” (FATF 2014a: 12). From 2001 onwards, as a response to the 9/11 terror attacks, the focus on anti-money laundering (AML) was accompanied by another increasingly important theme in the work of the FATF. The growing number, scope and nature of global terrorist threats posed by the so-called Islamic State of Iraq and the Levant (ISIL or Da’esh), Al-Qaeda and affiliated terrorist organisations, and other terrorist organisations in the last 15 years introduced the need to counter the financing of terrorism (CFT) to its tasks. Today, the FATF is a global standard-setter to combat money laundering and the financing of terrorism (FATF 2014a: 12).

In the last few years, international AML/CFT efforts have increased constantly. On February 2, 2016, responding to the terrorist attacks in 2015, the European Commission presented a new Action Plan to strengthen the fight against terrorist financing, emphasising the FATF’s efforts and experience in linking action both inside the EU and in its external relations (EC 2016a). This call for stronger counterterrorism measures clearly shows the current focus on the detection of terrorist financing and money laundering within the counterterrorism debate. Another recent development is the proposal for a Directive on combatting terrorism from the Council of the EU in the context of the Renewed EU Internal Security Strategy. The proposed Directive should strengthen already existing framework decisions, including the criminalization of terrorist funding based on FATF standards (EC 2015). Even though counter-terrorism seems to be the driving force behind current AML/CFT efforts, the threat of money

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laundering is not off the table. The leak of the so-called Panama Papers in April 2016 proved that AML efforts are still of high relevance for the international financial system. It is the aim of this thesis to look into the FATF Recommendations and how these standards are implemented and supervised by the responsible supervisory authorities on the national level. The UK and Austria had been selected for a comparative case study because of their different levels of implementation of these standards and their different developments within the FATF framework. Furthermore, the focus of this thesis will be on the implementation of so-called “Know your Customer” (KYC) or “Customer Due Diligence” (CDD) practices. Introduced in 1997 by the Basel Committee on Banking Supervision, KYC rules are a basic reference for effective banking supervision that “promote high ethical and professional standards in the financial sector and prevent the bank being used, intentionally or unintentionally, by criminal elements” (Basel Committee on Banking Supervision 1997: 6).

1.1 Research Questions

Today, FATF represents a cornerstone in the international financial regulatory system. The implementation of necessary measures to comply with FATF standards is the responsibility of national jurisdictions of members’ according to their respective local context. This flexibility in the implementation of necessary measures in accordance with individual national-level vulnerabilities raises the question, how these recommendations are implemented and if they are actually effective. Following this, this thesis will not only try to explain how national authorities are implementing FATF standards but also how effective they are when adopted. This leads to the following main research question of this thesis:

In what way does the national implementation of ‘Know your Customer’ policies, more specifically ‘Customer Due Diligence’ measures, in accordance with FATF standards vary between Austria and the UK?

Looking into the process of implementation of the FATF Recommendations makes it necessary, to further address the effectiveness of these standards. The issue about the effective implementation of the FATF Recommendations and how effective the adopted measures really are was raised by Mark Nance (Nance n.d.). It will be argued, that the varying levels of compliance are tied to the different national circumstances. This may not only be influencing the effectiveness of national AML/CFT systems but also may be undermining the effectiveness of the international AML/CFT

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regime. In order to answer the main research questions, it seems necessary to follow this line of thought and build on the already existing work of Nance on the enforcement of the FATF Recommendations and FATF as a form of experimentalist governance. Thus, this thesis will further focus on the following questions:

a. What causes the differences in the national implementation of KYC/CDD policies?

b. How are differences in the implementation influencing the effectiveness of anti-money laundering and counter financing terrorism efforts of FATF?

c. To what extent are FATF and national authorities following an experimentalist governance approach with respect to the implementation of AML/CFT measures?

1.2 Relevance

This research is of relevance out of two reasons. First, the study of the governance structures of intergovernmental bodies such as the FATF will contribute to the knowledge of governance structures in this context. Hence, the theoretical relevance of this thesis will be achieved through the analysis of the experimentalist architecture of the FATF. Second, through its descriptive character, this thesis will provide the readers with an extensive overview of the FATF since its creation in 1989 and its efforts to strengthen the international financial network. Furthermore, the selected case studies will help to illustrate the possibilities and difficulties for member states of the FATF.

Ever since 9/11 it has been emphasised that money is the lifeblood of national and international security threats and that the international financial system is only as strong as its weakest link. This awareness made it possible for the FATF to become an international recognised standard-setter to combat AML/CFT. Today, the FATF is working closely with the UNSC, the IMF, and the World Bank. Through this form of international cooperation, the risks stemming from illegal financial flows should be reduced and the integrity of the global financial system protected (FATF 2014a: 15– 16). Furthermore, recent events such as the so-called Panama Papers leak proof, that money laundering is still of high relevance for the international community. The release of this leak in April 2016 included 2.6 terabytes of encrypted internal documents of the Panamanian law firm Mossack Fonseca. These documents provided insight into the

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shady business of hiding financial information through shell firms that were used by politicians, professional athletes, international criminals or members of criminal organisations from the UN sanctions list (Obermaier et al. 2016).

1.3 Structure

Following this introduction, chapter 2 will examine the theoretical framework of this thesis. After the introduction of the concept of experimentalist governance, it will be discussed, why this approach is appropriate for this research. Thereafter, the methodological framework will be briefly explored in chapter 3. It will focus on the research methods used for the analysis in this thesis before shifting the focus to the FATF in chapter 4. This chapter will provide an extensive overview of the establishment and development of the FATF and will elaborate how it works. Furthermore, the 40 Recommendations as the centrepiece of the FATF, its evaluation methodology, and enforcement mechanisms will be discussed. Chapter 5 will build the basis for the analysis and will provide a comprehensive picture of the relationship between the selected member states and the FATF. The involved national actors, the mutual evaluation through the FATF framework, and the different national implementation of KYC/CDD measures will be part of this chapter. Following this, chapter 6 will offer a summary of the differences and the effectiveness and will build the bridge to the conclusions in chapter 7.

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2 Theoretical Framework

The following chapter will explore the theoretical framework of this thesis. The experimentalist governance approach will build the theoretical basis for it. This approach will help to understand the operating principle of the FATF and will contribute to the answers to the research questions.

Traditional approaches to study the relation between security and governance focused on different answers to “uncertainty and change” (Nance and Cottrell 2013: 283). Traditionalist and governance approaches emphasised either management or enforcement strategies, or hard or soft law through institutions (Nance and Cottrell 2013: 279–284). Nance and Cottrell argue that the traditional approaches in International Relations cannot capture the increasing complexity of the security dilemma nowadays because of their lack of flexibility. Thus, they describe a shift from the rather constrained form of traditional government to experimentalist governance, which is able to adapt and respond to these changes in global politics. According to Nance and Cottrell, the perception of security has evolved over the last 25 years. This changed nature of threats, actors, and also the changed possible solutions, call for a more innovative approach to global governance. Experimentalist governance embraces “the growing diversity, complexity, and uncertainty of today’s global regulatory environment in part by promoting preference change among the actors” (Nance and Cottrell 2013: 284).

Sabel and Zeitlin (2012) describe experimentalist governance as “a multi-level architecture, whose four elements are linked in an iterative cycle” (Sabel and Zeitlin 2012: 169). Within the first of these four key elements or stages, broad framework goals (such as “protect and strengthen the international financial market from abuse”) and metrics (such as the 40 Recommendations) to achieve them are developed. Second, these framework goals and metrics are then implemented by lower-level units (such as member states) accordingly to their own local context. Third, as a condition of this autonomy in the implementation process, the local units must regularly report on their progress and participate in a peer review (such as mutual evaluations) to compare different approaches to achieve the same goal. The fourth and final element describes the review of the main goals, metrics, and the decision-making procedure itself. This review should help to quickly respond to occurring problems and to learn by experience before the cycle repeats (Sabel and Zeitlin 2012: 169–170; Zeitlin 2015: 1– 2). To enforce compliance, experimentalist architectures may use so-called penalty

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defaults. These are a form of destabilisation mechanisms “that induce reluctant parties to cooperate in framework rule making and respect its outcomes, while stimulating them to propose plausible and superior alternatives, typically by threatening to reduce their control over their own fate” (Zeitlin 2015: 4).

These four key elements of experimentalist governance are reflected in the architecture of the FATF. First, the broad framework goal to protect and strengthen the international financial market with the developed 40 Recommendations are generally broad and better understood as a guiding legislation. Second, the member states are responsible for complying with them by adopting regulations or laws in accordance with their national context. Third, the FATF’s member states have to report their progress and have to participate in the mutual evaluation exercises as a form of peer-review. Fourth, the results gained through this review process are part of the peer-review discussions at the plenary sessions and may lead to experience-based revisions within the FATF architecture (Nance n.d.: 5–6). However, as Nance argues, enforcement of the FATF standards was challenging criticism. Until the creation of the so-called list of non-cooperative countries or territories (NCCT) in 2000 the FATF had no formal enforcement mechanisms in place (Nance n.d.: 6–7). Even though the use of blacklists was contested among FATF member states, it has evolved as a response to the non-compliance of Austria and Turkey in the mid-1990s (Nance n.d.: 7). Blacklists as an enforcement strategy are also in line with the use of a penalty default (Nance n.d.: 10). With the exception of the first attempts to introduce this form of enforcement mechanism and the quickly abandoned NCCT process, blacklisting is a powerful sanction that provides incentives to comply with the standards (Nance n.d.: 10). Countries on the list “would find it hard to participate fully in the international financial system” (de Goede 2012: 47).

Based on the description of the FATF as a form of experimentalist governance, one of the main goals of this thesis is to offer a more in-depth analysis of the effective implementation of the FATF Recommendations and how this process is monitored by national regulatory authorities. The experimentalist governance approach will help to understand the internal revisions of its Recommendations and methodologies. Furthermore, the understanding of the different experimentalist stages will help to examine the dynamics between the FATF and members, as well as the relationship between the individual member states.

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3 Methodological Framework

The following chapter will elaborate the research methods used in this thesis. The data was gathered through a methodological triangulation of different research methods. After the introduction of these different research methods, it will be discussed, how the data for the analysis was collected. Finally, this chapter will also explain how the data that was acquired through the selected methods will help to answer the research questions.

3.1 Process Tracing

To provide a more detailed insight into the implementation process, the comparative analysis of the selected cases will be complemented by the application of process tracing, a method to identify processes linking a set of initial conditions to a particular outcome (Vennesson 2008: 224), and semi-structured elite interviews. In recent years, process tracing as a method for within-case studies is increasing its importance in political science. The combination of process tracing with elite interviewing is not only popular among scholars but also of high relevance for this approach to case studies.

According to Beach and Pedersen (2013), process tracing methods can be used in three different ways. First, the theory-testing approach of process tracing helps to analyse causal mechanisms proposed by a present theory in a specific case. Second, theory-building process tracing examines the causal mechanisms in the present case. The last and most common purpose to use process tracing is to “explain a particularly puzzling historical outcome” (Beach and Pedersen 2013: 11). While the first two approaches are focusing on a given theory, the last is focusing on the case itself. Hence, the aim of this approach is not to build or test a theory, but to create an explanation of a specific outcome of a case, which is why it is the selected method in this thesis (Beach and Pedersen 2013: 11–12). Vennesson (2008) has identified three differences between story-telling and process tracing. First, process tracing is a method to investigate certain aspects of a case in a focused way. Second, the investigation is structured and the created analytical explanation is embedded in a theoretical framework. Third, the ultimate goal of process tracing as a research method is “to provide a narrative explanation of a causal path that leads to a specific outcome” (Vennesson 2008: 235).

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Following this and in accordance with the research questions, it is the aim of this thesis to explain to what extent and why the cases have a different outcome. The outcome in question is the different application of the FATF Recommendations and the different levels of compliance even though the starting position in both cases was comparable.

3.2 Case Studies

The analysis of this development will be based on a qualitative case study. It will focus mainly on selected documents illustrating the implementation of FATF recommendations, with a specific focus on KYC/CDD measures. The different case studies will illustrate the varying development of the implementation and effectiveness of the FATF recommendations.

The case selection is based on the member states’ opposing history within the FATF framework. Another decisive factor for the case selection is the varying risk assessment of these countries. Whereas the crime level in Austria is considered as one of the lowest in the EU and the risk of exposure to money laundering and financing of terrorism is limited (FATF 2014b), the threat to the UK from serious organised crime and contingent money laundering is rated very high (FATF 2007b).

As a highly ambitious founding member of the FATF, the UK was in a leading position within the FATF framework. It was heading various working groups and provided the FATF and its member states with its AML/CFT experience. Even though the case study will show, that there have been some deficiencies during the implementation of specific Recommendations, the UK’s efforts have often been described as a model for other countries or as a driving force for specific AML/CFT practices (FATF 1992: 10; de Goede 2012: 40). Previous research emphasised that the UK is well-respected for its advanced compliance with the FATF standards (Alkaabi et al. 2010: 87). Compared to the UK’s efforts, Austria was a laggard in terms of compliance with the Recommendations. The case study will show, that this country was an ambitious member as well, but less willing to overcome national traditions in order to improve compliance with specific Recommendations. During the 1990s, Austria was one of the countries that were discredited for its “long-term, egregious non-compliance” (Nance n.d.: 9).

In order to answer the research question of this thesis, it seems appropriate to use and analyse different types of data. Through a conventional document analysis,

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the basic information needed to examine the FATF Recommendations and its implementation in the UK and Austria will be accessed. The main sources for the analysis are the Annual Reports published by the FATF, covering the most important changes for the selected cases and the organisation itself since its creation. To get an in-depth look into the member states’ development within the FATF and the compliance with the Recommendations, the most recent Mutual Evaluation Reports (MER) and the National Risk Assessments (NRA) of Austria and the UK are also part of the analysis. Briefings published by the Global Witness organisation and reports issued by national authorities will add another perspective on the issue of effective implementation to the content analysis. The knowledge gained from these different types of data will then help to draw a comprehensive picture of the selected cases.

3.3 Elite Interviews

The case studies will be complemented by information provided through elite interviews. To ensure that the different actors involved in the process of implementation are represented in the sample, the interviewees were selected through an adjusted quota sampling (Tansey 2007: 769–771). According to the preliminary literature review, it became clear that in order to see the bigger picture of compliance with the FATF Recommendation it was necessary to talk with officials at all levels involved in the creation, supervision, and implementation of the FATF Recommendations.

To get an in-depth look into the implementation process and compliance with the FATF Recommendations in Austria, it was necessary to talk with experts of the Financial Market Authority (FMA), the Austrian Criminal Intelligence Service (BKA), and the Austrian Federal Ministry of Finance (BMF). The analysis will benefit of two interviews conducted with officials from the Division IV/5 of the FMA, which is responsible for the prevention of money laundering and terrorism financing and is overseeing the financial sector in Austria. Furthermore, the Head of Group Compliance at the Erste Bank as biggest financial institution in Austria was also willing to share his knowledge about the national AML regime. All interviews with the Austrian officials were conducted in person between May 3 and May 13.

In the UK, the list of involved actors includes the FCA as the main supervisory authority. To supplement the analysis of this thesis, an expert of the Financial Crime Policy Department within the FCA was interviewed. Another expert from the AML Supervision department at the HM Revenue & Customs (HMRC) was also interviewed

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for this thesis. In addition, the Global Head of AML at the HSBC, the biggest bank in the UK and the 4th_{biggest financial institution worldwide, was also available to assist}

for this research. The interviews with the UK officials were conducted via Skype or phone between May 12 and May 27.

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4 The Financial Action Task Force

The following chapter will focus on the Financial Action Task Force (FATF) and will cover the most important developments within this organisation since its creation in 1989. It will show why and how the FATF was established, how it operates and – most importantly – what the 40 Recommendations against money laundering and terrorist financing are.

4.1 History and development

The FATF was established at the annual Economic Summit of the G7 in Paris in 1989. Together with eight other countries, the G7 created a task force to prevent the misuse of the international financial system in terms of money laundering. The shared expertise and the individual experience of the members should not only be beneficial for the efforts against the global drug problem but also help to prevent money laundering through international cooperation. In order to coordinate the expert knowledge of the members, three working groups were established. The United Kingdom held the presidency of the working group on specific money laundering statistics and methods. The United States headed the working group on legal issues, and Italy held the presidency of the working group on administrative and financial cooperation. The three individual reports of these working groups then build the basis for the first joint report of the FATF in 1990 (FATF 1990a: 3).

What was originally created as a Task Force with a one year mandate, was extended for five more years in 1991, and again in 1994 until the 1998-1999 period (FATF 1994: 4). As a policy-making, intergovernmental body the FATF creates and effectively implements legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats. Based on the Vienna Convention, the UN Security Council Resolutions these measures should ensure the integrity of the international financial system while shaping the international AML regime. Within the 26 years of its existence, the FATF has grown from its 16 original members to 37 members. As of July 2016, there are 35 member jurisdictions, two regional organisations, nine regional groupings as associate members (formerly known as FATF-style regional bodies), and 28 observer organisations1_.

1_{FATF members as of July 2016 are: Argentina, Australia, Austria, Belgium, Brazil, Canada, China,}

Denmark, European Commission, Finland, France, Germany, Greece, Gulf Co-operation Council, Hong Kong, Iceland, India, Ireland, Italy, Japan, Republic of Korea, Luxembourg, Malaysia, Mexico, Kingdom

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4.2 How FATF works

As an intergovernmental body, the FATF describes itself as a “global standard setter on measures to protect the international system from money laundering, terrorist financing and other forms of abuse” (FATF 2014a: 1). The decision-making body with the FATF is the Plenary which is held three times a year and comes to a decision by consensus. Since 1991, the Presidency and Vice-Presidency rotate every year and are elected among the FATF’s members. In 1992, the FATF Secretariat was created within the Organisation for Economic Co-operation and Development (OECD) in Paris. The Presidency works through the Secretariat and is further supported by a Steering Group of representatives of the previous, current, and the following Presidency (FATF 1992). The FATF operates mainly through four different levels. First, threats to the international financial system are identified and analysed. Second, the FATF develops and refines international standards to combat money laundering and the financing of terrorism. Third, it identifies and engages with high-risk and non-cooperative jurisdictions. Fourth, the members’ implementation of the 40 Recommendations is assessed and monitored (FATF 2014a: 8).

4.3 The FATF Recommendations

One year after its creation, the FATF published a set of 40 Recommendations to “improve the national legal systems, enhance the role of the financial system, and strengthen international cooperation against money laundering” (FATF 1990a: 3) These Recommendations created an international framework of essential measures that countries should have in place in order to prevent, detect, and punish money laundering. According to these Recommendations member states have to identify risks, and develop policies and domestic coordination to address them; detect and pursue money laundering, terrorist financing and the financing of proliferation; apply preventive measures to protect the financial sector; establish powers and responsibilities for the competent authorities to supervise the measures; enhance the transparency and availability of beneficial ownership information of legal persons and arrangements; and facilitate international cooperation (FATF 1990b).

To guarantee their relevance and to ensure that the Recommendations are up to date with current developments, they were revised in 1996, 2001, 2003, and 2012.

of the Netherlands, New Zealand, Norway, Portugal, Russian Federation, Singapore, South Africa, Spain, Sweden, Switzerland, Turkey, United Kingdom, United States

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Besides the review and revision of its recommendations on a regular basis, the FATF promotes and reviews the members’ implementation of necessary measures to effectively meet the recommendations (FATF 2016e). As a response to the 9/11 terror attacks, the FATF expanded its mandate to counter terrorism financing. The FATF agreed to a set of Eight Special Recommendations on Terrorist Financing in October 2001 with a Ninth Special Recommendation related to the regulation of cash carriers added in October 2004. Together with the 40 Recommendations, they created a new comprehensive framework to prevent, detect, and eliminate not only money laundering but also the financing of terrorism (FATF 2001b).

4.4 The revised FATF Recommendations

The 2012 revision of the FATF Recommendations combines the 2003 40+9 Recommendations and is organised in different thematic groups. These groups are focusing on the necessary policies and coordination, money laundering and confiscation, terrorist financing and financing of proliferation, preventive measures, transparency and beneficial ownership of legal persons and arrangements, powers and responsibilities of competent authorities and other institutional measures, and international cooperation (FATF 2012b: 11–30). The table on the following page illustrates the changes made when harmonising the old and new Recommendations (FATF 2012b).

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Number1 _Number2

AML/CFT policies and coordination

1 Assessing risks and applying a risk-based approach - 2 National cooperation and coordination Rec. 31

Money laundering and confiscation

3 Money laundering offence Rec. 1 & Rec. 2 4 Confiscation and other provisional measures Rec. 3

Terrorist financing and financing of proliferation

5 Terrorist financing offence SR. II

6 Targeted financial sanctions related to terrorism and financing of terrorism

SR. III 7 Targeted financial sanctions related to proliferation -

8 Non-profit organisations SR. VIII

Preventive measures

9 Financial institution secrecy laws Rec. 4

10 Customer due diligence Rec. 5

11 Record keeping Rec. 10

12 Politically exposed persons Rec. 6

13 Correspondent banking Rec. 7

14 Money or value transfer services SR. VI

15 New technologies Rec. 8

16 Wire transfers SR. VII

17 Reliance on third parties Rec. 9

18 Internal controls and foreign branches and subsidiaries Rec. 15 & Rec. 22

19 Higher-risk countries Rec. 21

20 Reporting of suspicious transaction Rec. 13 & SR. IV 21 Tipping-off and confidentiality Rec. 14

22 DNFBPs customer due diligence Rec. 12

23 DNFBPs other measures Rec. 16

Transparency and beneficial ownership of legal persons and arrangements 24 Transparency and beneficial ownership of legal persons Rec. 33 25 Transparency and beneficial ownership of legal arrangements Rec. 34

Powers and responsibilities of competent authorities and other institutional measures 26 Regulation and supervision of financial institutions Rec. 23

27 Powers of supervisors Rec. 29

28 Regulation and supervision of DNFBPs Rec. 24 29 Financial intelligence units Rec. 26 30 Responsibilities of law enforcement and investigative authorities Rec. 27 31 Powers of law enforcement and investigative authorities Rec. 28

32 Cash couriers SR. IX

33 Statistics Rec. 32

34 Guidance and feedback Rec. 25

35 Sanctions Rec. 17

International cooperation

36 International instruments Rec. 35 & SR. I 37 Mutual legal assistance Rec. 36 & SR. V 38 Mutual legal assistance: freezing and confiscation Rec. 38

39 Extradition Rec. 39

40 Other forms of international cooperation Rec. 40

1_{Number of the 2012 Recommendation}

2_{Number of the respective 2003 Recommendation}

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4.5 Evaluation Methodology

For the mutual evaluations, the FATF created a methodology to assess the member states compliance with the 40+9 Recommendations. This methodology should help the assessors to identify “the systems and mechanisms developed by countries with diverse legal, regulatory and financial frameworks, in order to implement robust AML/CFT systems” (FATF 2004: 3). It is reflecting the FATF Recommendations and the structural characteristics a member state establish for an effective AML/CFT system. Effectiveness in this sense means, that the member states should implement laws to create “an adequate legal and institutional framework” (FATF 2004: 4). The methodology is the framework for the assessment during the mutual evaluation exercise. Member states are evaluated through on-site visits conducted by experts from the FATF, regional FATF groupings, or other national or international bodies. Member states have to provide the assessor with information on their performance and national specifics and assist throughout the whole evaluation process (FATF 2016d).

The 2004 methodology is examining the different levels of technical compliance with the 40+9 Recommendations by using five categories. These categories illustrate if the country is compliant (C) and all details of the specific Recommendations are fully met; largely compliant (LC) with some details of the Recommendations not been met; partially compliant (PC), meaning that the country meets some of the essential criteria of a Recommendation; non-compliant (NC) due to major shortcomings in the implementation of this Recommendation; or not applicable (NA) if this Recommendation is not applicable to the evaluated country due to its national structural, legal, or institutional framework. By using this rating, assessors should evaluate “whether the laws and regulations meet the appropriate standard and whether there is adequate capacity and implementation of those laws” (FATF 2004: 6).

This approach to check the member states’ compliance was not immune to criticism. The international NGO Global Witness has reported that the FATF lacks a clear assessment of how well a jurisdiction is implementing the standards and whether this effectively constrains financial crime (Global Witness 2012: 4). To create a more tailored, risk-based approach, Global Witness suggests that the mutual evaluations should not only ensure that countries have implemented FATF Recommendations but focus on the biggest risk areas for the particular jurisdiction and whether or not the implementation of the FATF standards is reducing these risks in practice (Global Witness 2012: 5).

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Aware of the limits of its methodology, the FATF has changed its focus in the mutual evaluations and reviewed its methodology (FATF 2014a: 16; Interview FATF 2016). In April 2012, ministers and representatives of the FATF have declared, that the fourth round of mutual evaluations “will move beyond technical compliance of the standards and aim to understand how resources and sanctions are being applied in practice to meet desired objectives ” (FATF 2012a). With the implementation of the 2013 methodology, they have changed their approach to not only evaluate the technical compliance but also to review the effectiveness of the national AML/CFT systems. This methodology will be used for the 4th_{round of mutual evaluations (FATF}

2013).

The technical compliance is still assessed with the same rating as it was used in the previous methodology. However, this rating is now supplemented by a new approach to assessing the effectiveness. This framework is “focusing on a hierarchy of defined outcomes” (FATF 2013: 15). The high-level objective of effective AML/CFT systems should be that “[f]inancial systems and the broader economy are protected from the threats of money laundering and the financing of terrorism and proliferation, thereby strengthening financial sector integrity and contributing to safety and security” (FATF 2013: 15). The diagram on the following page shows how the FATF is trying to achieve this high-level objective. Within the new methodology, the FATF has developed three Intermediate Outcomes “which represent the major thematic goals of AML/CFT measures” (FATF 2013: 15). The individual thematic parts combine eleven Immediate Outcomes, each of them reflecting “one of the key goals which an effective AML/CFT system should achieve” (FATF 2013: 15).

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Figure 1: FATF Methodology 2013 (FATF 2013: 16)

The new methodology allows assessors to combine these eleven Immediate Outcomes and the rating for technical compliance with additional information about country-specific risks as highlighted in the NRAs or data gathered through cooperation with national authorities prior and during the on-site visits (FATF 2013: 17; Interview FATF 2016).

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4.6 Enforcement

Even though the 40 Recommendations are recognised as global standards against ML and CF, the stability and effectiveness of the global AML/CFT regime can easily be undermined by single jurisdictions that are not compliant with them. Over time, the lack of compliance was criticised by various scholars (see Hülsse & Kerwer 2007; Nance & Cottrell 2013). The Recommendations were “designed to motivate states to develop their own national anti-money laundering rules” (Hülsse and Kerwer 2007: 622). However, there was no mechanism to force states to comply. Over time, the FATF followed different approaches to increase and enforce compliance.

The first approach was directed to the non-compliance of FATF member states (Nance n.d.: 7). As a response to this non-compliance with FATF Recommendations, the FATF defined a policy for non-complying members. Member states were obliged to review their AML/CFT systems and to report their progress to the FATF. If countries failed to do so, the FATF president would issue a letter expressing the concerns and send a high-level mission to meet with the national authorities. This meeting should encourage the government to take the necessary steps in order to avoid more serious actions, such as expulsion (FATF 1996a: 15). This procedure was applied to Turkey in April 1996 and to Austria in September 1998 (FATF 1996a: 15, 1999: 25).

The second approach to enforcement was directed to compliant non-members (Nance n.d.: 7). In 1999 the FATF emphasised, that in order to protect the global financial system it needs to extend the compliance to non-members. Following this, in 2000 FATF member states have agreed to create a list of so-called non-cooperative countries or territories (NCCT) to encourage them to implement necessary AML/CFT measures in accordance to the Recommendations (FATF 2000b: 1). This blacklist may be described as one of the “most important sanction instruments for members and non-members alike” (de Goede 2012: 47). However, all listed countries have been removed from the blacklist by 2006 and the FATF has suspended the use of this process due to protest by members and non-members (Nance n.d.: 7). The protest was directed to the less severe treatment with non-compliant members, emphasising the “double-standard applied to members versus non-members” (Nance n.d.: 13).

The third attempt is still in place and is a combination of the first two. In 2007, the FATF has established the International Cooperation Review Group (ICRG) (Nance n.d.: 7). The main task of this group is to “identify countries with significant weaknesses

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in their AML/CFT system” (FATF 2016a). The FATF reviews the identified jurisdictions based on the provided information and publishes two public statements after the plenary sessions as a result of this review process. The “FATF’s Public Statement” highlights countries or jurisdictions that are subject to countermeasures due to serious strategic deficiencies. Moreover, this statement also singles out countries or jurisdictions that are subject to “enhanced due diligence measures proportionate to the risks arising from the deficiencies associated with the country” (FATF 2016a). The second public statement, “Improving Global AML/CFT Compliance: On-going process”, names countries or jurisdictions that show “strategic weaknesses in their AML/CFT measures but that have provided a high-level commitment to an action plan developed with the FATF” (FATF 2016a). By publically naming legislatures with weak AML/CFT systems, this process should help to strengthen the integrity of the international financial market. Furthermore, it creates a form of peer pressure on the named countries and encourages them to improve their AML/CFT efforts (FATF 2016a). Even though this process is not officially called blacklisting, it is sometimes still described as the FATF’s black or grey list(Nance n.d.: 15). As of June 2016, there are nine countries included in this grey list2_.

4.7 Know Your Customer and Customer Due Diligence measures

The main research question of this thesis is focusing on the KYC/CDD policies. One approach to verify the identity of customers is to apply customer due diligence measures. Financial institutions should identify the customer in order to ensure that their services are not abused for illegal purposes. The KYC/CDD measures are regulated in Rec. 10 of the revised FATF Recommendations and reads as follows:

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Recommendation 10: Customer Due Diligence

Financial institutions should be prohibited from keeping anonymous accounts or accounts in obviously fictitious names.

Financial institutions should be required to undertake customer due diligence (CDD) measures when: (i) establishing business relations;

(ii) carrying out occasional transactions: (i) above the applicable designated threshold (USD/EUR 15,000); or (ii) that are wire transfers in the circumstances covered by the Interpretive Note to Recommendation 16;

(iii) there is a suspicion of money laundering or terrorist financing; or

(iv) the financial institution has doubts about the veracity or adequacy of previously obtained customer identification data.

The CDD measures to be taken are as follows:

(a) Identifying the customer and verifying that customer’s identity using reliable, independent source documents, data or information.

(b) Identifying the beneficial owner, and taking reasonable measures to verify the identity of the beneficial owner, such that the financial institution is satisfied that it knows who the beneficial owner is. For legal persons and arrangements this should include financial institutions understanding the ownership and control structure of the customer.

(c) Understanding and, as appropriate, obtaining information on the purpose and intended nature of the business relationship.

(d) Conducting ongoing due diligence on the business relationship and scrutiny of transactions undertaken throughout the course of that relationship to ensure that the transactions being conducted are consistent with the institution’s knowledge of the customer, their business and risk profile, including, where necessary, the source of funds.

Figure 2: Customer Due Diligence (FATF 2012b)

With this Recommendation, the FATF has created a global standard of necessary CDD measures to identify a customer. The member states are called upon to adapt their national legislature according to this standard and to introduce laws or other enforceable means in accordance with their own context (FATF 2012b).

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5 Case Studies

The two cases – Austria and the UK – are the basis for the comparative analysis in this thesis. As discussed in chapter 3.2, Austria and the UK were selected because of their different history of compliance, their different practices, and different roles in the international community. Both countries are founding members of the FATF but followed different patterns throughout their membership.

The case studies will combine different types of data. In a first step, the Annual Reports published by the FATF will be analysed. Secondly, for the implementation of KYC/CDD measures relevant parts of the Third MERs will be added to the analysis. In a third step, selected published documents and publicly available information of the involved actors will contribute to the analysis. Lastly, to complete the case study, information obtained through the conducted interviews with officials in Austria and the UK will fill in potential information gaps. All these sources combined will then illustrate the broader picture of compliance with the FATF Recommendations in both countries. Based on this, the case study itself will be structured as follows. To begin with, the chapters about the selected member states and the FATF will review their history of compliance within the international AML/CFT framework. Until the first MERs were published, the development of the member states was reviewed within the FATF’s Annual Reports. These reports offer a small, but comprehensive insight into the individual members’ starting point and developments in terms of compliance with the Recommendations. After this introduction into the history, the involved actors of the respective member states will be discussed. The chapters about the mutual evaluations in Austria and the UK are the core of the analysis and will outline the evaluated level of compliance with the FATF Recommendations as examined in the individual mutual evaluation reports from the third evaluation round.

Due to the date of both evaluations, the chapters about the mutual evaluations are primarily based on the 40 Recommendations 2003 and the Nine Special Recommendation on Terrorist Financing 2001 (in short: 40+9 Recommendations). In order to answer the research questions, the chapters on the mutual evaluation will organise the relevant Recommendations in three thematic parts.

For the first part of the case studies, it is necessary to look into the Recommendations concerned with the legal and institutional framework of the member states. Rec. 1, Rec. 2, and SR. II. focus on the member states legal framework and emphasise their obligations to criminalise money laundering and terrorist financing and

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the necessity of policies to counter these offences. Accordingly, member states should adapt their national legislation to the Vienna Convention and the Palermo Convention (FATF 2001b: 2, 2003: 1–2). The role and responsibilities of FIUs are regulated in Rec. 26. The FIU should be “a national centre for the receiving (and, as permitted, requesting), analysis and dissemination of STR and other information regarding potential money laundering or terrorist financing” (FATF 2003: 8). It should “have access, directly or indirectly, on a timely basis to the financial, administrative and law enforcement information that it requires to properly undertake its functions, including the analysis of STR” (FATF 2003: 8). The responsibilities of the supervisory authorities are regulated within Rec. 17, Rec. 23, Rec. 25, and Rec. 29. According to Rec. 17, supervisory authorities should be empowered to address non-compliance with AML/CFT requirements by imposing “effective, proportionate and dissuasive sanctions, whether criminal, civil or administrative” (FATF 2003: 6). Rec. 23 lays out that financial institutions should be effectively regulated and supervised by competent authorities (FATF 2003: 7–8). With Rec. 25 the FATF suggests, that the supervisory authorities should provide guidelines and feedback for the supervised institutions in order to enable an effective reporting system for suspicious transactions (FATF 2003: 8). Rec. 29 focuses on the powers of supervisory authorities to monitor the AML/CFT compliance of financial institutions (FATF 2003: 9). Rec. 27 and 28 regulate the law enforcement, prosecution, and the authorities’ access to information. According to Rec. 27, the member states “should ensure that designated law enforcement authorities have responsibility for money laundering and terrorist financing investigations” (FATF 2003: 8). Subsequently, Rec. 28 points out that “authorities should be able to obtain documents and information for use in those investigations, and in prosecutions and related actions” (FATF 2003: 9).

The second part of the case studies will focus on Recommendations concerned with the responsibilities of the member states’ financial institutions. This includes Recommendations regulating CDD measures, STRs, monitoring, and measures related to special transactions or business relationships. Rec. 5 to 8 lay out the framework for CDD measures. Rec. 5 prohibits financial institutions to keep anonymous accounts and suggests to implement CDD measures (FATF 2003: 2–3). Rec. 6 emphasises the necessity of enhanced due diligence measures for politically exposed persons (PEPs) and Rec. 7 focuses on the due diligence measures related to cross-border correspondent banking (FATF 2003: 3–4). Rec. 8 regulates that the

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supervised institutions “should pay special attention to any money laundering threats that may arise from new or developing technologies that might favour anonymity” (FATF 2003: 4). In addition, Rec. 10 emphasises the obligation to keep records of national and international transactions in order to be able to exchange information with authorities. The financial institutions are required to keep the records of these transactions, as well as information obtained through CDD for at least five years after the business relationship has ended (FATF 2003: 4–5). Rec. 11 and Rec. 21 regulate the monitoring process. According to Rec. 11, financial institutions are obliged to monitor transactions with unusual amounts or patterns and to check the intention behind the specific transaction (FATF 2003: 5). Related to this issue, Rec. 21 describes the need of special attention with business relations and transactions with non-compliant countries (FATF 2003: 7). The responsibilities of financial institutions related to STRs are discussed in Rec. 13, Rec. 14, and SR. IV. According to Rec. 13, financial institutions are required to immediately report any suspicious transactions to the national FIU (FATF 2003: 5). In addition, Rec. 14 points out that suspicious transaction reports are excluded from banking secrecy and that employees of financial institutions should be protected from criminal and civil liability for disclosing information (FATF 2003: 5–6). According to the SR. IV, financial institutions are further obliged to report transactions that “are linked or related to, or are to be used for terrorism, terrorist acts or by terrorist organisations” (FATF 2001b: 2).

The third and last part will focus on Recommendations 31 and 32, which are related to the national and international cooperation. Furthermore, this part will include Recommendations 36 to 38 and SR. V, which are regulating the mutual legal assistance of member states. According to Rec. 31 and Rec. 32, countries should provide their authorities with the necessary measures to ensure an effective AML/CFT system and with mechanisms to enable national and international cooperation and coordination (FATF 2003: 9). Rec. 36 emphasises that member states “should rapidly, constructively and effectively provide the widest possible range of mutual legal assistance in relation to money laundering and terrorist financing investigations, prosecutions, and related proceedings” (FATF 2003: 10). In Rec. 37 it is further emphasised that countries should “render mutual legal assistance notwithstanding the absence of dual criminality” (FATF 2003: 10). According to Rec. 38, this form of assistance also includes measures to “identify, freeze, seize and confiscate” (FATF

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2003: 10) assets. With SR. V the field of MLA was extended to assistance related to the financing of terrorism (FATF 2001b: 2).

The examination of the first part of Recommendations will build the basis to answer the main research question regarding the differences in the national implementation. Moreover, this analysis will also help to understand the causes of the different levels of compliance and to what extent these differences are influencing the effectiveness of the overall AML/CFT system. The overall AML/CFT system can only be successful when all involved actors fulfil their obligations. In order to answer the sub-question about the effects of the national implementation to the effectiveness of the overall AML/CFT efforts of the FATF, it is necessary to look into the role and performance of financial institutions. This part of the analysis will further offer insights about possible effects of experimentalist governance in the member states in terms of internal and international review processes. The examination of the Recommendations concerned with national and international cooperation will help to answer the sub-question to what extent national and international actors are actually following an experimentalist governance approach within their AML/CFT system.

5.1 Austria

The first case study will outline the level of compliance with the FATF Recommendations in Austria. Even though Austria is also one of the founding members of the FATF, it followed a rather uncooperative path at first. The development of its compliance will be outlined in this chapter.

5.1.1 Austria and the FATF

Austria was one of the countries that were invited to join the Summit Participants when the FATF was established in 1989. Even though Austria was not part of the group signing the Statement of Principles of the Basel Committee on Banking Regulations and Supervisory Practices in 1988, financial authorities have acknowledged the importance of this agreement and have expressed their willingness to adopt the Statement within the Austrian banking system. However, the first report of the FATF “on the extent and nature of the money laundering process” (FATF 1990a) already pointed at critical deficiencies in the Austrian banking system. Austria was among those countries, which has not recognised money laundering as a specific criminal offence and was the only member state allowing anonymous passbooks for Austrian citizen (FATF 1990a: 12–13).

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In the first round of mutual evaluations, these points of criticism were in the focus of the first assessment in 1992. A decree of the OeNB has introduced new identification procedures for new customers without Austrian citizenship and with the exception of security deposit accounts. Even though the FATF has welcomed this changes, Austria was not compliant with the FATF Recommendations. Furthermore, due to the high level of banking secrecy, the reporting of suspicious transactions to the respective supervisory authorities was not possible at that moment. The evaluation also pointed out, that money laundering was still not criminalised and that some forms of anonymous accounts were still permitted in Austria, though with some restrictions regarding the status of residency. As a response, Austria stated that it will adapt its Banking Law and introduce a new legislation to criminalise specific money laundering offences, to change the conditions for asset freezing and confiscation, and to create a reporting system for suspicious transactions. Additionally, the requirements for client identification and record-keeping will be enhanced, but will still not be applicable to Austrian residents’ passbooks and security deposit accounts. The long-lasting tradition of banking secrecy was a sensitive issue in Austria, but a continuing non-compliance in this field would “overshadow what should otherwise be a generally commendable system.” (FATF 1993: 13).

The second round of mutual evaluation showed, that some progress has been made since the first round. Money laundering was criminalised in 1993 and a new legislation was introduced, prohibiting the opening of accounts without identification starting in August 1996. The risk assessment made clear that the highest risk related to money laundering in Austria is the deposition or transition of money that was illegally obtained abroad, especially in the former Soviet Union and other Eastern European countries. Austria was therefore described as a “transit country” (FATF 1997: 17). The FATF welcomed the creation of a Money Laundering Reporting Unit within the police and further improvements in the legislature. However, the newly introduced legislature still excluded the passbooks of Austrian citizen and did not bind lawyers, notaries, and other certified public accountants to follow the client identification practice (FATF 1997: 17). Furthermore, the low number of convictions and confiscations were a matter of concern, questioning the efficiency of the national AML system. Even though Austria was compliant with most of the FATF Recommendations, it was asked to further improve its legislative and administrative structure, and to increase its resources for the ML Reporting Unit in order to establish an effective AML system (FATF 1997: 18).

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The ongoing non-compliance with the customer identification, as regulated in Recommendation 10 of the 1996 Recommendations, was of great concern for the FATF (FATF 1997: 82).

As a consequence of this non-compliance, Austria had to report to the FATF about any improvements of its AML procedures. In 1997 the FATF was informed about changes regarding the exception of client identification for specific businesses, the removal of the monetary threshold, and the improved security of financial institutions’ employees. Aside from these improvements, Austria was persistently uncooperative in terms of anonymous passbooks of Austrian residents (FATF 1998: 24). Consequently, the president of the FATF issued a letter to the Austrian government, urging it to remove anonymous passbooks. Furthermore, a delegation was sent to Vienna “in order to reinforce this expression of concern” (FATF 1998: 24).

During the visit of the high-level mission to Vienna in mid-September 1998, the acting Minister of Finances was urged to abandon the anonymous passbooks. It was acknowledged, that after eight years of FATF membership Austria was still not fully compliant due to its high level of banking secrecy and the deficiencies regarding the customer identification. The Austrian Minister of Finances’ response to that complaint was, that this is a sensitive topic in Austria and that the government was awaiting a ruling from the European Court of Justice in an ongoing infringement process regarding the permission of anonymous accounts (FATF 1999: 27–28).

According to the FATF, the decision of Austria to abandon the anonymous accounts was “initially delayed and complicated by the difficulties in forming a government for a considerable period following the October 1999 elections” (FATF 2000a: 20). With consideration of the difficult political situation in relation to the interim government, Austria was given one last deadline to demonstrate its commitment to the FATF until June 2000. Facing the threat of expulsion, Austria amended its Banking Act in accordance with the FATF Recommendations, announcing to eliminate anonymous bank accounts (FATF 2000a: 21).

The changes made by the Austrian government were the start of a new relationship between Austria and the FATF. In the following two years, the FATF acknowledged that Austria was compliant with 27 out of the 28 Recommendations that require specific action (FATF 2001a: 4, 2002: 4). However, it was still of concern that prior to the legislative amendments existing anonymous passbooks were still in place, although with restrictions in their capability (FATF 2001a: 4, 2002: 4). Since then,

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Austria has not been singled out in the Annual Reports anymore and was evaluated again in September 2008.

5.1.2 Involved Actors

In Austria, the coordination of AML/CFT policies is the responsibility of the Federal Ministry of Finance. The BMF adapts the Austrian Banking Act (BWG), the Securities Supervision Act (WAG), the Insurance Supervision Act (VAG) and the Gambling Law (FMA 2016). One of its main tasks is integrating the international into the national legislature and suggesting amendments to the legislature in terms of regulation and supervision (FATF 2009b: 29; Interview BMF 2016). This description within the MER is in accordance with the description of the working field of the BMF as illustrated by the interviewee from the BMF. Within the interview, it was pointed out that the BMF is not an operational authority. The BMF is one of the first counterparts for the FATF, is managing the delegation for Austria, and is representing Austrian in international fora, such as the FATF. The BMF has the legal supervision of the FMA, controlling the Financial Market Authority Act. As an independent authority, the BMF has to make sure, that the FMA is performing its regulatory duties. The FMA’s regulations, e.g. the Regulation on Money Laundering and Terrorist Financing Risk, are also subject to approval by the BMF (Interview BMF 2016).

The Federal Ministry of Justice has the overall responsibility for the criminal law and the regulation of lawyers and notaries. The extradition and Mutual Legal Assistance is also in the range of duties of the BMJ (FATF 2009b: 29; FMA 2016). Furthermore, the BMJ appoints the judges and provides instructions and guidance for the public prosecution offices and courts. Directly subordinated to the BMJ are offices of senior public prosecutors, the General Procurator’s Offices and the Supreme Court (FATF 2009b: 30–31, 85). In the MLA sector, the Department for International Criminal Cases as part of the BMJ is authorised to send and receive requests for MLA and extradition. The incoming requests are registered in a central database and then transferred to the specific executing authority (FATF 2009b: 237). The BMJ is also the central contact point for complaints about the length or efficiency of MLA (FATF 2009b: 238).

The Austrian Financial Intelligence Unit (A-FIU) and the Federal Agency for State Protection and Counter Terrorism (BVT) are operating within the Criminal Intelligence Service (BKA) which is subordinated to the Federal Ministry of the Interior (BMI). The A-FIU and the BVT are the responsible police and intelligence units against

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money laundering and financing of terrorism. (FATF 2009b: 30; Interview A-FIU 2016). The BMI is administrating the Central Register of Associations (ZVR), a publically available online central registry for companies and other legal persons in Austria (FATF 2009b: 32). It is also managing a 24-hour hotline, ensuring a quick response to requests from foreign countries relating to freezing actions without undue delay (FATF 2009b: 65).

The Criminal Intelligence Service is divided into seven departments and is the superior institution to the A-FIU in charge of investigations related to economic and financial offences (FATF 2009b: 82). The BKA also manages a Single Point of Contact, a contact point for authorities to file STRs outside of the A-FIU’s business hours (FATF 2009b: 73, 74). The A-FIU is a police unit, subordinated to the Criminal Intelligence Service. It is, de facto, the central authority for receiving the suspicious transaction reports and is conducting criminal investigations in cases of ML (FATF 2009b: 30, 70; Interview A-FIU 2016). When it is not investigating itself, the A-FIU is referring the STRs to other national police services, whereby those related to FT offences are always disseminated to the BVT (FATF 2009b: 30, 71; Interview A-FIU 2016). Only if the information the A-FIU receives is qualified for an STR, the A-FIU is obliged to open an investigation (FATF 2009b: 71). To increase the consistency of the filed STRs, the A-FIU provides a template to be used by credit and financial institutions (FATF 2009b: 74). In order to prevent dealing in property, the A-FIU is qualified to block or postpone the execution of suspicious transactions (FATF 2009b: 56; Interview A-FIU 2016). After the A-FIU has stopped or postponed such a transaction it has to notify the affected client and the prosecutor about this action without delay (FATF 2009b: 57). In order to prevent and trace ML/FT offences, the A-FIU is further qualified to request any information it considers necessary from credit and financial institutions about possible confiscations or property that can be related to such offences without a court order (FATF 2009b: 57–58; Interview A-FIU 2016). In this case, information related to ML or FT offences is excluded from the banking secrecy (FATF 2009b: 75; Interview A-FIU 2016). Consequently, according to the Police Cooperation Act, the A-FIU is also obliged to exchange information (excluding information about offences related to FT) with other FIUs or other foreign security police authorities (FATF 2009b: 248; Interview A-FIU 2016). Furthermore, as a founding member of the Egmont Group3_{, the A-FIU is}

also empowered to use the Egmont secure web for information exchange (FATF