EU Report: Slovak AML/CFT – ‘poor at tracing criminal assets’

The Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism – MONEYVAL is a permanent monitoring body of the Council of Europe entrusted with the task of assessing compliance with the principal international standards to counter money laundering and the financing of terrorism and the effectiveness of their implementation, as well as with the task of making recommendations to national authorities in respect of necessary improvements to their systems. Through a dynamic process of mutual evaluations, peer review and regular follow-up of its reports, MONEYVAL aims to improve the capacities of national authorities to fight money laundering and the financing of terrorism more effectively.

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This report summarizes the anti-money laundering counter financing of terrorism (AML/CFT) measures in place in Slovak Republic as at the date of the on-site visit from 7-18 October 2019. It analyses the level of compliance with the Financial Action Task Force (FATF) 40 Recommendations and the level of effectiveness of Slovak Republic’s AML/CFT system and provides recommendations on how the system could be strengthened.

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Key Findings

1. The first National Risk Assessment (NRA) of Slovakia was officially acknowledged by the Government in 2019, with a significant time lag between the data used and the publication of the report. The assessment team (AT) has some concerns about the accuracy of the NRA’s findings given that: certain risks (including the use of fictitious companies, the Fintech sector, the use of cash and external threats), have not received a significant attention; and the NRA provides a limited description of the main money laundering (ML) methods, trends and typologies. The assessment of terrorism financing (TF) risks is an area for improvement. In case of supervisory authorities, the understanding of ML/TF risks is also based to some extent on the results of supervisory activities, information exchange with foreign supervisory authorities, supra-national risk assessment conducted by the EU, and in case of the FIU the number and the content of the UTRs. The LEA’s understanding of risk is based on practice and on the GPO’s sectoral vulnerabilities assessment.
2. While some of the prosecutors have a more accurate understanding of ML threats which include organised crime (OC), corruption and cybercrimes, the rest of law enforcement agencies (LEA), supervisors and the private sector, are grounding their knowledge on the findings of the NRA.
3. The LEAs making more use of the financial intelligence are the Financial Police Unit NAKA and ARO NAKA while the use of financial intelligence by other Police Forces is minimal. The absence of a bank account register, together with the lack of BO register were reported as the greatest challenges in conducting financial analysis. While there are some positive results, overall, the FIU products are not successfully utilised by LEA in ML cases. SR has weak results both in terms of ML investigations conducted based on FIU disseminations, and, more generally, in using financial intelligence and other relevant information to develop evidence and trace criminal proceeds related to ML However, LEA have exploited the FIU’s intelligence packages for investigations into predicate crimes.
4. The financial intelligence unit (FIU) officers are knowledgeable and have the ability of producing complex analysis, but for most of the evaluation period there was insufficient coherence in the competent management to gear their activities into becoming effective. One of the important shortcomings lays with the FIU’s dissemination system which dissipates its resources into less relevant cases, often not related to ML. This has a negative impact on the quality of the analysis and bares repercussions on the reporting entities (RE) appetite to report.
5. Overall, the FIU receives a reasonable number of unusual transactions reports (UTRs) although their quality varies. Recently the FIU started to improve the feedback given to the RE. On a less positive side, the process of prioritisation of UTRs seems to be inefficient, with almost 90% of the reports placed under the higher risk categories.
6. The ML offences are identified and investigated by the authority having competence over the predicate offence. The assessors note that LEAs collect information on predicate crimes in the operative pre-investigative proceedings but do not appear to pay due attention to the identification of proceeds and to associated ML activities. It appears to be lack of timeframes and insufficient monitoring in the investigative stage which leads to lengthy proceedings.
7. Since 2013 the number of ML convictions increased to an overall number of 91, an important part pertaining to simple property crimes such as car thefts. The outcome of investigations and prosecutions of ML in other major proceeds generating offences do not fully reflect the country’s risks.
8. The effectiveness of the provisional measures applied in financial investigations is seriously affected by the lack of proceeds-oriented operative analysis in the pre-investigative proceedings, the logistical and procedural constraints at certain LEAs, the (putative) limitations to seize assets from third parties, and the high evidentiary burden required for certain provisional measures.
9. The confiscation measures are rarely if at all imposed in criminal cases and only a fragment of the secured assets will finally be confiscated.
10. There have been no TF convictions in the assessed period. Three relatively complex TF investigations are currently being conducted by the Counter-Terrorism Unit NAKA (CTU-NAKA), and demonstrate both the applicability of the legal framework and the ability of the Slovak authorities to detect potential TF cases and to effectively cooperate with their foreign counterparts.
11. The Ministry of Foreign Affairs (MFA) has the clear role to communicate the potential targeted financial sanctions (TFS) proposals to United Nations (UN) Committees, although has a limited role in the designation itself. There are no clear regulatory instructions in the designation process and there is a risk that the authorities would rely on each other to make a designation if the case may occur. No assets have been frozen pursuant to TFS UN Security Council Resolutions (UNSCRs), and no instances of “false positives” have been reported.
12. The NRA sees the non-profit organisations’ (NPOs) exposure to FT abuse as low, but no specific types of more vulnerable NPOs have been identified. Slovak Information Service (SIS) and CTU-NAKA perform regular supervision over certain NPOs, but this appears to be done more on case-by-case basis than systematically.
13. Banks demonstrated a good understanding of the ML/FT risks, but some non-bank financial institutions (FIs) (money and value transfer service (MVTS) providers and exchange offices) and designated non-financial businesses and professions (DNFBPs) were unable to clearly articulate how ML might occur within their institution or sector. FIs and DNFBPs were less confident in their understanding in relation to FT risk and did not demonstrate sufficient understanding of FT threats and vulnerabilities.
14. Banks and most non-bank FIs demonstrated knowledge of the AML/CFT requirements including an adequate application of basic customer due diligence and record-keeping requirements, although some common gaps persist. DNFBPs have a moderate understanding of the preventive measures. There remain concerns regarding the procedures applied for the verification of BOs of legal entities.
15. While the FIs and DNFBPs generally understand the procedures for reporting, most non- bank FIs and DNFBPs were unable to elaborate on typologies, transactions or activities that would give rise to a UTR, particularly in relation to TF.
16. The scope and the depth of inspections conducted by the FIU and the NBS are not fully risk based. The reason behind is the lack of a documented process in place, which sets out how subject person specific ML/FT risk-ratings drive the frequency, the scope and the nature of future supervisory onsite/offsite inspections, as well as the lack of resources available for AML/CFT supervision.
17. Slovakia created the “Register of legal entities, entrepreneurs and public authorities” (hereafter the UBO register) in 2018. At the time of the onsite, the register was still being populated (only 12 % of legal persons had inserted their UBO data into the UBO register), though the filling in of the register progressively continues. There are no mechanisms in place to verify the information on the UBOs at the time of registration. Some control mechanisms are done ex post by state authorities, such as LEAs, tax authorities, as well as by media and NGOs.
18. Besides the UBO register, the Register of Public Partners also contains information on UBOs of legal entities involved in public procurement. The state authorities and private sector consider the data contained in this register as high quality. Although there is a system of verification, the UBO information is mainly identified and verified by some DNFBPs who have a formal and limited understanding of UBO.
19. Authorities have generally been active in providing mutual legal assistance (MLA) in relation to foreign requests in a constructive and timely manner, which also goes for requests related to the seizure of property as well as the participation in numerous joint investigation teams (JITs). At the international level the FIU is active and responsive and the feedback provided by the international community was generally positive.

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Priority Actions

1. Procedural and institutional measures should be taken to enhance and widen the use of financial intelligence. The financial aspect should be systematically explored by all LEA involved in detecting and investigating ML and proceeds generating crimes to: i) target ML and FT elements; ii) follow the trail of potential proceeds; and iii) identify other involved parties (such as beneficiaries of transactions). This is a fundamental building block of the AML/CFT mechanism which will enhance the entire repressive system. (IO7, 8, 9)
2. LEA should be provided with on-line access to various DBs and with tools to swiftly integrate the search results. A central bank account register for all legal and natural persons should be swiftly created and made available for the FIU and LEA. (IO6, 7, 9)
3. All LEA actors should be trained in the field of collecting and use of financial intelligence, and mechanisms to incentivise the police officers to better engage in financial analysis in ML and proceeds generating investigations should be adopted. (IO6)
4. The authorities should ensure that the FIU staff is properly motivated and have stable management. The FIU should substantially reconsider the dissemination system to ensure focus on the strong ML and FT suspicions, coupled with meaningful analysis to support the operational needs of LEA, in full respect of the confidentiality requirements. This action offers the opportunity to make a significant improvement quickly and at a relatively low cost for the country. (IO6)
5. Authorities should ensure that all registers have adequate resources and legal powers to hold accurate and up-to-date beneficial ownership information and effective, proportionate and dissuasive sanctions are applied against legal persons which do not comply with the requirement to submit relevant information. (IO5)
6. The supervisory authorities should allocate more resources and expertise to undertake full risk-based supervision of FIs and DNFBPs. The NBS should consider having AML/CTF- dedicated supervisory staff. (IO3)
7. The Customs should enhance its understanding of ML/TF risks and obligations and develop sound mechanisms to be able to detect false or non-declarations and suspicions of either ML or FT (which could arise even where declarations are submitted). (IO6, 8)
8. The authorities should urgently review the legal and procedural framework for forfeiture/confiscation to identify the possible issues in the process and take appropriate steps to ensure that criminal proceeds are effectively confiscated in all cases. (IO8)
9. Extensive training should be provided to LEAs so as to enhance their knowledge of the possibilities provided by the existing legal framework for the confiscation and provisional measures (e.g. in the field of third-party seizure and confiscation). (IO8)
10. Slovakia should improve the legal and/or regulatory framework and appoint one state authority with clear responsibilities in order to increase the efficiency of the implementation of international sanctions. (IO10)
11. Slovakia should conduct the next iteration of the NRA which should be current, place an increased focus on serious threats and should comprehensively explore the full range of vulnerabilities. The NPO sector should be assessed according to the FATF requirements.

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For the Full Report (PDF): Press Here

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October 2020, published on MONEYVAL