The Financial Action Task Force (FATF) conducted a mutual evaluation of Finland in 2007 and concluded that the anti-money laundering and combating the financing of terrorism (AML/CFT) legal framework prevailing in Finland is broad and encompasses most of the elements of the Vienna and Palermo Conventions. The report also notes that Finland applies proper preventive measures to its financial institutions. Per the same report, the Finnish financial intelligence unit, the Money Laundering Clearing House (MLCH), is generally effective and other law enforcement officials in Finland are competent. The country also has a comprehensive framework for national and international cooperation. In the area of preventive measures, Finland has broad customer identification, record keeping, and suspicious transaction reporting requirements. The FATF report, however, points to deficiencies in implementation of laws and regulations, such as the low rates of actual prosecutions and convictions and the weak sanctions regime. Also, the report identifies inadequacies in the supervision of designated non-financial businesses and professions and the lax customer due diligence requirements in this sector. Among its recommendations, the 2007 FATF report includes broadening the AML/CFT regime to enable more robust supervision; making sanctions for non-compliance more effective and covering all supervised entities; increasing national and international cooperation and information exchange; enhancing the scope of confiscation, seizing, and freezing measures; improving the data-keeping and guidelines of the MLCH; focusing law enforcement efforts on AML/CFT investigations, prosecutions, and convictions; making the supervision of legal persons and the non-profit sector more effective; and closing gaps in implementing the United Nations Conventions and in the mutual legal assistance and extradition regimes in Finland.

General Overview

According to the FATF's Third Mutual Evaluation Report for Finland on AML/CFT, released in October 2007, Finland is fully compliant with seven of the 40+9 FATF Recommendations, largely compliant with ten Recommendations and three Special Recommendations (SR), partially compliant with 17 Recommendations and six SRs, and non compliant with five Recommendations. Recommendation (R) 34, pertaining to legal arrangements - beneficial ownership and control information, is not applicable in the Finnish context. The 2005 U.S. Department of State (DoS) report on Finland asserts that the amendment of the Finnish Penal Code in 2002 to expand its scope in criminalizing money laundering, and to add a new chapter on terrorism has brought it "in line with the FATF's Special Recommendations on Terrorist Financing, the United Nations (UN) International Convention for the Suppression of the Financing of Terrorism, and the amendments to the European Union (EU) Directive on Money Laundering." The report, however, advises Finland to continue strengthening its AML/CFT regime.

The 2007 FATF report states that Finland has a "good legal structure to combat money laundering and terrorist financing" (p. 5). Both the money laundering and terrorist financing offences are broad, with only a few deficiencies in prosecution. The Finnish financial intelligence unit (FIU), the MLCH, is generally effective and a key agency for AML/CFT measures; and other law enforcement officials in Finland are competent. The country also has a comprehensive framework for national and international cooperation. In the area of preventive measures, Finland has broad customer identification requirements covering almost all financial and non-financial institutions designated by the FATF; however its customer due diligence (CDD) requirements do not cover beneficial ownership, since trusts do not exist in Finland. Record keeping and suspicious transaction reporting (STR) are sound, although the latter could be further strengthened. Broadly speaking, the supervision of financial institutions is satisfactory, though the same for designated non-financial business and professions (DNFBPs) is weak, with inadequate guidance. Finland's sanction regime also needs to be strengthened. The FATF finds that as of 2007, there have been no terrorist financing prosecutions, although the FATF admits that the threat from terrorist financing is not very strong in Finland.

The Finnish Penal Code (amended in 2003) criminalizes money laundering and terrorist financing in the country. Per the 2007 FATF report the Penal Code does provide for confiscation and recovery of the proceeds of crimes, however does not fully establish a mechanism for freezing terrorist assets. Nonetheless, the FATF report also states that Finland, as an EU member, "is bound by EU mechanisms to implement UN obligations with respect to freezing of funds used for [terrorist financing]" (p. 6). The MLCH was established in 1998 as an independent FIU located within the National Bureau of Investigation (NBI) of the Finnish Police. Other authorities responsible for supervising and regulating money laundering and terrorist financing activities are the Finnish Police, Finnish Customs, the Border Guard, and the Security Police. The Finnish Financial Supervision Authority (Rahoitustarkastus, or FIN-FSA) and the Insurance Supervisory Authority (Vakuutusvalvonta, or ISA) supervise the financial sector.

The 2007 FATF report notes that the AML/CFT system in the country has clear customer identification and other AML/CFT obligations and applies to a range of financial institutions and most of the DNFBPs, as defined by the FATF. The report also notes that STR has increased in recent years. According to the FATF report, the number of STRs received in 2006 totaled 9,975, of which 71 were prosecuted. Per the same report, the number of convictions for money laundering offences is low and has not increased, despite the 2003 amendments to the Penal Code. The main recommendations of the 2007 FATF report include broadening the AML/CFT regime to enable more robust supervision, enhanced customer identification, CDD, STR, and internal control measures for financial institutions as well as DNFBPs; making sanctions for non-compliance more effective and covering all supervised entities; increasing national and international cooperation and information exchange; enhancing the scope of confiscation, seizing and freezing measures; improving data-keeping and guidelines of the MLCH; focusing law enforcement efforts on money laundering/terrorist financing investigations, prosecutions and convictions; making the supervision of legal persons and the non-profit sector more effective; and closing gaps in implementing the UN Conventions, and in the mutual legal assistance (MLA) and extradition regimes in Finland.

The Principles

1. Legal Systems and Related Institutional Measures

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According to the 2007 FATF report, Finland is partially compliant with R1, and largely compliant with R2 pertaining to the criminalization of money laundering. The report states that "not all physical elements (mere acquisition, possession and use of property) of the criminal offence of money laundering are covered" (p. 186). Per the FATF report, money laundering offences are contained in the Finnish Penal Code, which was amended in 2003 to make any offence a predicate offence of money laundering. Further, Finland's money laundering offence incorporates most of the requisites of the Vienna and Palermo Conventions of the UN, except the "possession of proceeds of crime or acquisition or use of such property without intention to conceal its illegal origin" (p. 6). Laundering own funds is not a crime in Finland. Per the report, the number of prosecutions and convictions related to money laundering has been low, as well as sentences imposed for them.

The 2007 FATF report further finds that Finland is largely compliant with SRII regarding the criminalization of terrorist financing. The Penal Code was amended in 2003 to criminalize terrorist financing. However, the law does not encompass terrorist financing of an organization or an individual, if it is not directly related to a past or potential terrorist act. There has also not been any terrorist financing investigation or prosecution in Finland.

The 2007 FATF report observes that Finland is largely compliant with R3 regarding confiscation, freezing, and seizing of the proceeds of crime, but only partially compliant with SRIII regarding freezing of funds used for terrorist financing. Further, despite provisions in the Penal Code for restraining, confiscating, and recovering the proceeds of crime, mechanisms to freeze terrorist assets are not well formulated. Provisional measures have limited scope, and confiscation provisions also suffer from gaps. Recovery of assets is generally effective, though it cannot be exclusively made for money laundering, since investigations are focused on predicate offences. As regards freezing of funds related to terrorist financing, the FATF report finds that Finland, by virtue of being an EU member, is obligated to implement EU directives and UN obligations to freeze funds for terrorist financing. The country however, does not go any further, and hence has a lot of shortcomings in its domestic measures, which directly impact its terrorist asset freezing regime.

Per the 2007 FATF report, Finland is largely compliant with R26 pertaining to the FIU and its functions, but only partially compliant with R30 and R32 regarding resources and statistics. Finland's FIU is the MLCH, which was established in 1998 as an independent unit within the NBI of the Finnish Police. The MLCH receives, analyses, and disseminates STRs, and is involved in the pre-trial investigations relating to AML/CFT offences. The MLCH has a broad range of powers and access to government databases to obtain information for its analysis and investigations. However, it suffers from time constraints in analyzing STRs, has limited resources to issue guidance to reporting entities, and has weak disclosure mechanisms for outcomes of STR analysis as well as elicits limited terrorist financing reporting. These factors reduce its effectiveness as an FIU. According to the 2007 FATF report, Finland is largely compliant with R27 regarding law enforcement authorities; fully compliant with R28 relating to their powers; and partially compliant with R30 and R32 regarding their resources, integrity, training, and statistics. Designated AML/CFT investigation authorities in Finland are the Finnish Police, Finnish Customs, Border Guard, Security Police and the MLCH. The NBI is the primary unit responsible for investigating money laundering and terrorist financing, and it shares the responsibility of investigating terrorist financing with the Security Police. The FATF report notes that the "various agencies appear adequately structured, funded and resourced to effectively carry out their functions" (p. 7), but suggested that the resources be focused more on money laundering and terrorist financing issues.

As the 2007 FATF report finds, Finland is partially compliant with SRIX regarding cross-border declaration and disclosure. The country implemented a cross-border declaration regime for movements of cash of € 10,000 or more with the coming into force of the EU Cash Controls Regulation No. 1889/2005 and the Finnish Act on the Controls of Cash Entering or Leaving the European Community. The FATF observes that since the regime is fairly new, it is too early to evaluate its effectiveness.

The chief recommendations of the 2007 FATF report pertaining to this Principle are as follows: (1) broaden the scope of the money laundering offence; (2) amend the Penal Code to broaden the definition of terrorist financing, and raise penalties for non-compliance; (3) close the gaps in the conviction provisions; (4) allow for freezing of funds of an individual terrorist or when not directly connected to a terrorist act; (4) implement a framework to admit requests for freezing assets from foreign jurisdictions; (5) provide clearer AML/CFT guidance on the freezing regime to supervised entities consistent with S/RES/1452(2002); (6) develop a new database as well as trends and typologies at the MLCH for STRs; (7) improve guidance and feedback to reporting entities; (8) improve statistics on STRs, as well as AML/CFT investigations, prosecutions, and convictions, and confiscations and freezing of money laundering and terrorist financing assets to evaluate the effectiveness of the AML/CFT system in Finland; (9) ascertain ways to improve and increase STR by reporting institutions; (10) take a more proactive approach to ML investigations, and target resources to them; (11) enable prosecution for self-laundering; (12) develop declaration for movement of currency between Finland and other EU countries; and (13) establish greater coordination between law-enforcement authorities to fulfill the SR IX requirements.

2. Preventive Measures - Financial Institutions

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The 2007 FATF report notes that Finland is only partially compliant with R5 on CDD since although CDD requirements cover all financial institutions, "there are no requirements to identify the beneficial owners of legal persons [and] the identification process to be conducted in relation to legal arrangements is unclear" (p. 187). Further Finland is non-compliant with R6 and R7, as there are no CDD requirements for politically exposed persons or correspondent banking relationship, respectively. According to the FATF report, enhanced due-diligence is narrow in scope in Finland, and encompasses only the list of Non-Cooperative Countries and Territories (NCCT). Customer identification is weak in respect to non- face-to-face business relationships and transactions, money remitters, and foreign exchange companies, and the legal system does not deal with third party identification. The report also notes that Finland only partially complies with R8 relating to new technologies and non face-to-face business.

The 2007 FATF report states that Finland is compliant with R4 relating to secrecy laws and R10 relating to record keeping, but is only partially compliant with SRVII relating to wire transfer rules. The 2004 FATF report notes that record keeping requirements are comprehensive and law enforcement authorities have the power to get information in the course of their investigations. Per the 2007 FATF report, customer identification for cross border transfers is strong, but does not apply to wire transfers within the EU, or for the purposes of remittances.

According to the 2007 FATF report, Finland is only partially complaint with R11 and R21 relating to unusual transactions and monitoring of higher risk countries. As the 2007 FATF report observes, all reporting entities are obliged to examine unusual transactions as part of their CDD obligations, though they are not required to keep records of these findings. The FATF report indicates that Finland is largely compliant with R13 on STR and compliant with R14 relating to protection and no tipping-off. STR obligations are sound and apply regardless of the amount transacted; however, they do not cover transactions suspected of being associated with terrorist acts. STR is not very common in the banking or securities sectors, even though reporting to the MLCH is immune from prosecution. "Tipping off" others about STR is an offence in Finland. Finland complies with R19 relating to other forms of reporting. Per the FATF report, Finland is only partially compliant with R25 relating to guidelines and feedback. The FSA, ISA, and the MLCH do not issue adequate AML/CFT guidance to supervised entities. As regards to SRIV, Finland is found by the FATF report to be largely complaint. STR in relation to terrorist financing is not required "unless the transaction is potentially connected to an act of terrorism" (p. 193).

Per the 2007 FATF report, Finland is partially complaint with R15 relating to internal controls, compliance and audit. The same report notes "the Money Laundering Clearing House Best Practices, which would satisfy many of the elements of Recommendation 15, are not binding" (p. 188). Licensing procedures are "generally sound" (p. 8), though the qualifications and fit and proper tests for senior officials are "vague" (p. 8). Entities that are not supervised by the FSA have no employee-screening requirements or requirements for comprehensive AML/CFT training. Finland is also partially compliant with R22 relating to foreign branches and subsidiaries. All financial institutions, including their foreign branches are supervised by the FSA on their AML/CFT compliance, as are branches of foreign credit institutions, investment firms, and fund management companies in Finland. Licensing procedures effectively bar entities from countries where FATF standards are not adequately implemented, though Finnish entities are not required to notify the FSA or the MLCH if their foreign branches are prevented by local laws to observe their AML/CFT obligations.

As the 2007 FATF report notes, Finland is partially compliant with R18 relating to shell banks. Shell banks are by practice precluded from operating in Finland, due to licensing criteria, although the law does not specifically prohibit their establishment. Correspondent relationships with shell banks and indirect access by shell banks to accounts at financial institutions are also not expressly prohibited.

According to the 2007 FATF report, Finland is partially complaint with all the recommendations - R17, R23, R25, R29, R30, and R32 - relating to the supervisory and oversight system, competent authorities, and SROs. The financial sector supervisors, the FSA and the ISA conduct supervision as part of prudential, risk, internal control and code of conduct supervision, but do not focus on AML/CFT supervision. They and the MLCH also do not issue adequate AML/CFT guidance to supervised entities, nor do they conduct effective on-site and off-site supervision specifically for AML/CFT. The number of AML/CFT inspections is very low. With regard to sanctions, the FATF report finds that there are very limited AML/CFT related sanctions and penalties available to the FSA and the ISA, and they are very rarely exercised. Also, the scope of sanctions for natural persons, such as high officials of the supervised entities, is not clear. Further, there is no review or documentation of the preventive AML/CFT system.

Per the 2007 FATF report, Finland is partially complaint with SRVI relating to money or value transfer services. Further, money remitters and the foreign exchange sector are neither supervised nor do they operate under AML/CFT rules, and are subject only to criminal sanctions, as opposed to other supervised entities that are also subject to administrative penalties.

The chief recommendations of the 2007 FATF report pertaining to this Principle are as follows: (1) strengthen the customer identification provisions of the AML/CFT law by requiring record-keeping and enhanced due diligence; (2) implement legislation for due diligence with respect to beneficial ownership, politically exposed persons, correspondent banking, non face-to-face transactions and legal persons; (3) establish record keeping rules for money remitters and wire transfers within the EU area, and create sanctions for non-compliance; (4) strengthen provisions on unusual transactions and include all financial institutions in their scope, as well as encompass jurisdictions that do not adequately apply the FATF recommendations; (5) expand the scope of the terrorist financing offence to include suspicions that funds are related to terrorism though not used for terrorist acts; (6) make internal control, compliance and audit rules more explicit for all sectors, including those not supervised by the FSA; (7) implement stricter measures aimed at prohibiting the operation of shell banks; (8) improve sanctions for non-compliance of AML/CFT requirements by supervised entities; (9) make on-site and offsite inspections more AML/CFT focused; (10) provide AML/CFT specific guidance to supervised entities; and (11) impose a comprehensive range of supervisory, STR, record keeping, internal control, and sanctions provisions with respect to the remittance and money/value transfer services sector.

3. Preventive Measures - Designated non-Financial Business and Professions

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According to the 2007 FATF report, Finland is non-compliant with R12 relating to customer identification requirements for DNFBPs and partially complaint with R16 relating to the STR obligations of DNFBPs. The report further notes that Finland is non compliant with R12 since the Finnish AML/CFT regime encompasses all DNFBPs defined by the FATF, except trusts and company service providers. The covered DNFBPs are subject to customer identification, CDD, reporting, and STR requirements identical to those applying to financial institutions, and their supervision suffer from the same shortcomings as that of the financial sector. The FATF also finds scanty evidence that dealers in precious stones and metals comply adequately with their AML/CFT obligations. They also do not come under AML/CFT supervision and lack guidance on the AML/CFT risks they are exposed to.

Per the 2007 FATF report, Finland is non-compliant with R24 relating to the regulation and supervision of DNFBPs. AML/CFT supervision from designated supervisors of DNFBPs is not robust. Also, the gaming operator in the Åland Islands, Casino PAF, does not operate under clear legal AML/CFT obligations and supervision of mainland Finland, and this could adversely affect enforcement in the Finnish gaming sector. Company service providers are neither regulated nor supervised, and there is no supervisory authority for dealers in precious stones and metals. Parts of the accounting and legal sector are also unsupervised, since self regulatory organizations (SRO) membership for accountants and lawyers is voluntary. As for R25 regarding guidelines and feedback, Finland according to the FATF report, is partially compliant. Relevant AML/CFT guidance for the DNFBP sector, including the trusts and company service providers, has not been issued. Some general feedback is provided to the sector, but it "does not include information on current techniques, methods and trends" (p. 190). The MLCH provides some feedback, but it lacks the resources to disseminate comprehensive and targeted feedback required for a robust supervisory framework. As regards R20 relating to other non-financial businesses and professions, the FATF report observes that Finland fully complies with this recommendation.

The chief recommendations of the 2007 FATF report pertaining to this Principle are as follows: (1) establish the full range of supervisory arrangements, STR, customer identification, record keeping, internal controls, sanctions, and guidance and feedback requirements as recommended by the FATF for the financial sector; and (2) establish a risk-based approach to supervision in this sector.

4. Legal Person and Arrangements & Non-Profit Organizations

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According to the 2007 FATF report, Finland is partially compliant with R33 pertaining to legal persons. The report further finds that the trade registry system for legal persons is "good" (p. 9), but does not elicit sufficient information on beneficial ownership and control. All limited companies, partnership, co-operatives, mutual insurance companies, and other private business entities are obliged to register with the National Board of Patents and Registration (PRH) and be entered in the "trade register, the associations register, the foundations register or the register of persons subject to business prohibition and floating charges" (p. 9), submit their annual accounts and auditor's reports to the PRH (failure to do so may result in sanctions), and notify the PRH of any change in information in the respective register. However, the requirement to maintain share and shareholder registers by limited companies is not supervised.

Per the 2007 FATF report, R34 pertaining to legal arrangements - beneficial ownership and control information - is not applicable in the Finnish context, since "the Finnish legal system does not allow for the creation of trusts, and the legal concept of trust does not exist under Finnish law" (p. 9). However, foreign trusts can operate in Finland and will be recognized as a legal person establishing relationship with a financial institution.

As the 2007 FATF report notes, Finland is partially compliant with SRVIII relating to non-profit organizations (NPO). The NPO sector is not reviewed for its money laundering and terrorist financing vulnerabilities. Many NPOs are unregistered, and this makes them vulnerable. However, they are not inspected, nor is information pertaining to them shared between authorities. They are also not provided proper guidance by the supervisory authorities regarding their specific risks and measures to be taken to achieve AML/CFT compliance.

The chief recommendations of the 2007 FATF report pertaining to this Principle are as follows: (1) make beneficial ownership information a requisite for legal persons, and establish the same in legislation; (2) implement a program of full range of supervision of legal persons by the PRH; (3) raise awareness among financial institutions with respect to trusts; (3) implement a registration requirement for the non-profit sector to strengthen their resistance to terrorist financing abuse; and (4) strengthen supervision through more effective sanctions, as well as coordination and exchange of information between supervisory authorities.

5. National and International Co-operation

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According to the 2007 FATF report, Finland is largely complaint with R31 relating to national cooperation and partially compliant with R32 relating to statistics on national and international cooperation. The agencies involved in AML/CFT cooperate well on both a formal and informal level. However, the report calls for more targeted coordination, feedback, and information sharing. The report points to the weak information management systems, limited interagency connectivity, and low emphasis on structured coordination. Supervisory and law enforcement cooperation directly focusing on AML/CFT issues is also not strong. Further, statistics on supervisory and law enforcement information sharing is not comprehensive. Finland, per the 2005 U.S. DoS report, has many bilateral law enforcement cooperation agreements enabling the MLCH to exchange information with other FIUs and with agencies involved in criminal investigations, such as the police and the public prosecutors. Although Finnish law does not require Memoranda of Understanding (MoUs) for information sharing, the report finds that Finland has concluded MoUs with Belgium, Bulgaria, France, Latvia, Lithuania, Luxembourg, Poland, Spain, Switzerland, Thailand, Korea, Canada, Russia, and Albania. However, the information shared can only be used to prevent money laundering transactions, and requires the approval of the MLCH to be used as evidence.

Finland, per the 2007 FATF report, is partially compliant with R35 and SRI relating to Conventions and other UN Special Resolutions. Finland has ratified and implemented the Vienna, Palermo and TF Conventions and the provisions of S/RES/1267 (1999) and S/RES/1373 (2001), albeit with some shortcomings.

As the 2007 FATF report notes, Finland is largely compliant with R36 and SRV relating to MLA for money laundering and terrorist financing cases, respectively, and with R38 relating to MLA on confiscation and freezing, and fully compliant with R37 relating to dual criminality. Further, Finland has adequate measures in place to enable effective mutual legal assistance, with very minor shortcomings. However, the effectiveness of the regime could not be fully assessed because statistics and information on MLA cases are limited. This makes Finland only partially compliant with R32 relating to statistics.

Per the 2007 FATF report, Finland is largely compliant with R39 relating to extradition, fully compliant with R37 relating to dual criminality for extradition, and largely compliant with SRV relating to international cooperation. Both money laundering and terrorist financing are extraditable offences, with two limitations: dual criminality is required for extraditions outside of the EU and Nordic countries, and requests for extradition of a Finnish citizen are not approved to countries other than those of the EU or the Nordics. As for international cooperation, the report states that "Finnish authorities are satisfied with international co-operation concerning the FIU and law enforcement authorities" (p. 10). They appear effective and in line with FATF recommendations; however, the statistics on international cooperation is insufficient to evaluate the effectiveness of the system. This makes Finland only partially compliant with R32 relating to statistics and R40 relating to other forms of international cooperation. The 2005 U.S. DoS report mentions that Finland is a member of the FATF and the Council of Europe and the MLCH is a member of the Egmont Group of FIUs. Finland also cooperates with the EU, the Europol, the UN, Interpol, the Baltic Sea Task Force, the Organisation for Economic Co-operation and Development, and other international agencies created to combat organized crime. Finland is also a party to the Council of Europe Convention on Laundering, Search, Seizure, and Confiscation of Proceeds from Crime.

The chief recommendations of the 2007 FATF report pertaining to this Principle are as follows: (1) increase information sharing among national supervisory and enforcement authorities; (2) take steps to fully implement the Vienna and Palermo and terrorist financing Conventions; (3) accept MLA requests by foreign jurisdictions for the use of coercive measures without the requirement of dual criminality; (4) establish an asset confiscation fund; (5) amend the Penal Code to broaden the definition of terrorist financing; and (6) broaden the offence of conspiracy to apply to basic as well as aggravated money laundering.