Ethics and governance in the European Financial centers

A Roger Munns wrote the day before yesterday, Monaco and Andorra - Europe's top two tax havens - are seeing an influx of funds to their banks, despite governments worldwide actively trying to stop their citizens using tax havens to bank their money.

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Vanessa Houlder last 27 October published an interesting article in the Financial Times.

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William Fogwell and his daughter Shelley Fogwell were were condemned last Tuesday : the Court found both of them guilty of the charges against them in relation to the collapse of Hobbs Melville in 2000 and sentenced to 5 years prison. They were also fined €500,000.

Guillaume Losada, Shelley Fogwell's former boyfriend, and Jean-Christophe Moroni, a broker, were as well found guilty : the Court sentenced Losada to 18 months prison plus fined €50,000 ; the Court sentenced Losada to 1 year prison plus fined €53,000.

This is the most important scandal in Monaco with suspicion on the authorities stated in the framework of the appeal.

See article (french)

On 1 July, Monaco became the 46th member State of GRECO (*) - a direct and automatic result of the Principality ratifying the Council of Europe’s Criminal Law Convention on Corruption on 19 March this year.

Through its accession to GRECO, Monaco joins countries which have actively committed themselves to fighting corruption by accepting to participate in the Group’s mutual evaluation process. An evaluation team will go to Monaco to deal initially with issues related to the themes of the First and Second Evaluation Rounds which were conducted between 1999 and 2006 (notably the capability of institutions to deal with corruption cases and preventive measures taken within the public administration). A further visit of evaluation in the framework of GRECO’s newly launched Third Evaluation Round will be carried out at a later stage and deal with incriminations of corruption and transparency of party funding.

Monaco became a member of the Council of Europe in October 2004. As underlined in the report of the Parliamentary Assembly of the Council of Europe on honouring of obligations and commitments by Monaco, the ratification of the Criminal Law Convention on Corruption forms part of a series of reforms decided on by Prince Albert II, whose purpose is to give greater transparency to the management of all bodies receiving public funds in the interests of ethics and clarity. Among other things, it is proposed to supplement the rules laying down the conditions in which public servants may or may not conclude contracts, sales or purchases with persons or administrators of companies exercising powers of administration or supervision in those bodies.

Sources : GRECO

On 12th July 2006 the Monegasque Tribunal had found William Fogwell guilty of the charges against him in relation to the collapse of Hobbs Melville in 2000 and had sentenced to 5 years prison. He was also fined €500,000. Fogwell was not in court for the sentencing and an international arrest warrant was issued against him. He was a fugitive from justice. Shelley Fogwell, the 45-year-old daughter, was also convicted of fraud charges against her. She was sentenced to four and a half years in prison and fined €300,000.
Guillaume Losada, Shelley Fogwell's former boyfriend, and Jean-Christophe Moroni, a broker, were as well found guilty and jailed and fined €100,000. Patrick Grasset, another broker, was discharged and released.

The case is being judged at the court of appeal. William Fogwell surrendered a couple of days ago at the begining of the new trial. Both Fogwells and Jean-Christophe Moroni are appealing against their conviction of embezzling 175 million euros of investors' money. But there was a major dysfunction in the Justice of Monaco and the trial has been postponed by the court until 8 June. Lawyers on both sides are accusing the Principality of delaying the case deliberately, following suggestions that officials were aware of the fraudulent financial dealings

Know more (in French)

Article 1 from Le Figaro

Article 2 from Le Figaro

Website dedicated to the case

A very interesting conference about links between money laundering and crime took place on Friday 2nd February at the Law Courts of Monaco, before an audience of jurists and financial professionals. It was led by Gilles Duteil, PhD in Management Science, a member of the European research group on financial crime and organised crime and a legal expert at the Court of Appeal in Aix-en-Provence.
As Philippe Narmino, the Director of Judicial Services pointed out to introduce the conference, the Principality of Monaco was welcoming Gilles Duteil within the context of the strategy to combat economic and organised crime.
Gilles Duteil concluded his talk by stating that, despite of the will of the international community to seek to stop the progression of organised trans-national crime, the methods implemented up until now remain insufficient considering the amplitude of the phenomenon.

See conference (in French)

A MONEYVAL team of examiners went to Monaco from 5 to 11 November 2006.
The team had an exchange of views with Mr. Jean-Paul PROUST, Minister of State, and with Mr. Gilles TONELLI, Counselor for Finance and Economy, Mr. Paul MASSERON, Counselor for Internal Affairs, Mr. Henri FISSORE Counselor for Foreign relations and Mr. Philippe NARMINO, Director of the Department of Legal Services.
The institutions/services met during the visit included: the Financial Intelligence Unit SICCFIN, the Department of Finance and Economy, the Department of Legal Services, the Prosecutor General’s Office, Monaco representatives to the Banking Commission, the Department of Economic Growth, the Direction of Public Safety, Customs, the Department for External Relations, Gaming Control, Real Estate Chamber, representatives from the association of banks, insurance sector, company service providers, casinos, notaries, lawyers and counsels, accountants, etc.
The draft report will be prepared for review and adoption by the MONEYVAL Committee in the second semester of 2007. This evaluation is based on the Forty Recommendations of the FATF and the 9 Special Recommendations of the FATF, together with the 2 Directives of the European Commission (91/308 EEC and 2001/97/EC).

On July 2004, The Monaco Bankers Association published its recommandations to implement the forty recommendations published by the Financial Action Task Force (FATF) on 20 June 2003 and the eight special recommendations adopted by the FATF on terrorist financing in October 2001.

The Monaco Bankers Association recommanded as follow :

A - Customer due diligence

Financial institutions should verify a permanent customer’s identity before establishing a business relationship.
Financial institutions should only carry out transactions for occasional customers on an exceptional basis. Their identity should be verified in the case of all transactions involving a unitary or aggregate sum equal to or more than 15,000 euros. Regardless of the amount of a transaction, financial institutions should verify the identity of an occasional customer if they suspect the sums concerned may have originated from drug trafficking, organised crime or financing of terrorism

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B - Knowledge of the customer and his transactions

In accordance with the “know your customer” principle and the due diligence requirement referred to in Article 16 of Law No. 1162, financial institutions should familiarise themselves with the nature of a customer’s or beneficial owner’s business activities, in addition to verifying their identity. This includes knowing the origin of funds and the purpose of banking transactions carried out.
Financial institutions should pay close attention to any complex or unusual transaction involving sums which individually or in aggregate exceed €150,000 and which have no apparent economic purpose

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C - Record keeping

In addition to requirements of ordinary law and in accordance with Article 14 of Law No. 1162, financial institutions should keep records relating to the identity of their permanent and occasional customers or any beneficial owners for five years after the account has been closed or the business relationship ended. They should also, for five years, keep records of all transactions carried out by customers, together with statements, written information and the documents referred to in recommendations 4, 5, 18 and 19, including those relating to any suspicious transactions which they have refused to perform

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D - Reporting of suspicious transactions

Financial institutions should promptly report the following to the SICFIN (information service and check on financial circuits):
- All sums recorded on their books and all transactions involving sums which might have originated from drug trafficking or organised crime, together with the full reasons for their suspicions.
- All sums recorded on their books and all transactions involving sums which might be connected with terrorism, terrorist acts or terrorist organisations, or which might be used to finance them, together with the full reasons for their suspicions

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E - Internal control

The internal control system established pursuant to Article 16 of Law No. 1162 should, in addition to the criteria referred to in recommendation 28 regarding the reporting of suspicious transactions, include the following :

a) A duty of vigilance and due diligence.
b) Strict compliance with obligations imposed by law on financial institutions.
c ) Supervision of ongoing and systematic compliance with the internal control system.

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F - Staff training

Financial institutions should provide appropriate training for staff directly or indirectly involved in the prevention of money laundering. Such training should be renewed periodically and adapted to new developments in combating money laundering.

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As regards money-laundering, Article 218.1 of Monaco's Penal Code states that "any person who knowingly, in any manner whatsoever, for himself or for another person, acquires movable or real assets by directly or indirectly using assets or funds of unlawful origin or knowingly possesses or uses such assets", and "any person who knowingly assists any transaction to transfer, invest, conceal or convert assets or funds of unlawful origin" is liable to imprisonment for five to ten years.
Under Article 218.1, paragraphs 2 and 3, any person who attempts to commit the abovementioned offences or conspires with others with a view to doing so is liable to the same penalty.
The offences referred to at Article 218 of Monaco's Penal Code are constituted even if the offence from which the laundered funds derive was committed in another country, provided that it is a criminal offence there.
Attempt, conspiracy or complicity with a view to committing the abovementioned offences are also punishable under Article 218.1 of Monaco's Penal Code.
If the perpetrator of the money-laundering offence acts as a member of a criminal organisation, takes part in other international organised criminal activities, occupies a public office that helps him to commit the offence, takes part in other unlawful activities facilitated by perpetration of the offence, involves minors or has been convicted of a money-laundering offence by a foreign court, that is deemed to constitute an aggravating circumstance in Monegasque law and is punishable by a heavier sentence (Article 218.2).
Article 219 provides for the confiscation of assets and funds of unlawful origin and sets out the conditions of confiscation.

The word "Kowingly" is difficullt to prove for prosecuting authorities. Professionals may deliberately not ask questions as explained in a study from the United Nations that is still up to date in the issues that are addressed :
"Many lawyers, accountants and bankers are (often unselfconsciously) adept at not asking questions that would require them to refuse business or even to report their clients or potential clients to the authorities. But a major component of the motivation for crime is also the expected probability and scale of reward: the reverse side of this is the expectation (if contemplated) of prevention and/or salient punishment. Any form of crime for economic gain can have its relative attractiveness rating altered significantly by changes in detection and sanction levels both for it and for other crimes such as narcotics sales." (See study "Financial havens, banking secrecy and money laundering", Double issue 34 and 35 of the Crime Prevention and Criminal Justice Newsletter, Issue 8 of the UNDCP Technical Series)