News
Cannabis partially decriminalized in Germany
12-04-2024
Cannabis has been partially decriminalized in Germany, but the decision is likely to have a ripple effect on neighboring countries like Denmark. With its close proximity to Germany and membership in the European single market, Denmark may see an increase in drug-related crime, including consumption and smuggling. According to the Danish Money Laundering Secretariat, hash and cocaine are the largest contributors to illegal proceeds from criminal organizations in Denmark. Proceeds from drug-related crime are typically used to finance other criminal activities.
Drug-related crime is one of the darkest forms of crime, as neither buyers nor sellers want to be detected. The cash-based nature of drug transactions makes them attractive to criminals, as cash is difficult to trace and can be used for other criminal activities like remuneration of undeclared work or converting cash into high-value goods.
The partial decriminalization of cannabis in Germany may also lead to a mismatch between supply and demand in the short-term, resulting in higher costs for the entire supply chain. While home growers and growers associations may eventually be able to meet demand, it will take time for them to start operating. In the meantime, a black market is likely to be fueled by this factor.
2024 Inspection reports (AML area)
20-02-2024
Lately, I had a pleasure to read 2024 Inspection reports (AML area) published by the Danish FSA (Finanstilsynet) in connection with field inspection in several financial undertakings. These reports have been published on the Danish FSA’s website and the undertaking’s website. Key takeawaysSeveral undertakings failed to comply with, among others, the Danish AML Act Chapter 2 (Risk assessment and management) and Chapter 3 (Customer due diligence procedures). Consequently, the FSA issued orders for non-compliance with sections 7-9 (Chapter 2) and sections 10-21 (Chapter 3) of the Danish AML Act. I will focus on sections 7 and 8 of the Danish AML Act. Section 7 requires undertakings to identify and assess "money laundering or terrorist financing" risks. Based on the undertakings business model (customers, products, services, transactions, delivery channels, and geographical areas), risk assessment is carried out in order to demonstrate that the undertaking thoroughly understand the customer and the risks posed by the relationship - so as to decide whether to enter business relationship with a customer (onboarding), continue business relationship with the customer (CDD/EDD) or terminate relationship with the customer (offboarding). Section 8 requires undertakings to have "adequate written policies, procedures, controls, customer due diligence procedures", etc. in order to prevent, reduce or control risks associated with money laundering and terrorist financing. Carrying out risk assessments and having adequate policies and procedures in is not enough if products and services are not assigned the correct risk class (low, medium, high). By assigning the correct risk class, an undertaking can not only apply the correct level of customer due diligence (standard, simplified, and enhanced), but also carry out customer due diligence procedures at appropriate intervals indicated by the customer’s risk class. “Customer due diligence is not a ‘tick-box’ exercise, even at a low-risk, routine level. Each case should be treated on its merits and appropriate enquiries made and verified”. Six steps to improve your customer due diligence, International Compliance Association, December 2019.
Corruption Perceptions Index (CPI)
02-02-2024
The 2023 Corruption Perceptions Index (CPI) was released on January 30, 2024 by Transparency International, which is one of the International Bodies and Standard Setters that combat Money Laundering and Terrorist Financing. Denmark is ranked number 1 out of 180 countries with a score of 90 out of 100. Despite the fact that Denmark is ranked number 1, money laundering of illegal funds may take place in and through Denmark. According to the 2023 National Risk Assessment of Denmark’s Money Laundering and Terrorist Financing report by the Danish Money Laundering Secretariat (Hvidvasksekretariatet), the biggest money laundering cases in Denmark are related to crime committed abroad. According to the UN and IMF, money laundering in Denmark amounts to about 68 billion DKK a year, equivalent to 2,7% of Denmark’s GDP or 66,3% of Novo Nordisk 2023 operating income.
Foreign criminals can use Denmark's international reputation as a least corrupt country to place, layer and integrate crime-related funds. By letting transactions flow through the Danish financial sector, the funds may appear legitimate.
Botswana is ranked 39 out of 180 with a score of 59 out of 100 whereas Italy (a member of EU, G-7 and FATF) is ranked 42 out of 180 countries with a score of 56 out of 100. When designing a risk assessment, understanding the risks of dealing with a specific jurisdiction or a customer linked to that jurisdiction is a key consideration. The Financial Action Task Force (FATF) recommendation 1 advises countries (hereunder financial institutions, corporates, and professions) to apply an AML/CTF risk-based approach to managing their risks.