MONEY LAUNDERING AND FINANCIAL CRIMES IN FINLAND:

UNCLAS SECTION 01 OF 05 HELSINKI 000077 SIPDIS DEPARTMENT FOR INL, EUR/ERA, EUR/NB and EB/ESC/TFS JUSTICE FOR OIA and AFMLS TREASURY FOR FINCENT ¶E. O. 12958: N/A TAGS: PTER SNAR KTFN EFIN KCRM FI SUBJECT: MONEY LAUNDERING AND FINANCIAL CRIMES IN FINLAND: SUBMISSION TO PART II OF 2005-2006 INCSR REF: 05 SECSTATE 210324 ¶1. Summary: The following is Embassy Helsinki's submission to the money laundering and financial crimes section of the 2005-2006 International Narcotics Control Strategy Report (INCSR). End summary. -------------- OVERVIEW -------------- ¶2. Finland is not a regional center for money laundering, financial crime or illegal commerce. Over the past decade, Finland repeatedly has placed first or second on Transparency International's Corruption Perceptions Index, indicating extraordinarily low perceived levels of corruption, as determined by expert assessments and opinion surveys. Nonetheless, Finnish authorities are concerned about links to organized crime, as well as money laundering arising from fraud or other economic crime. Terrorism related fund-raising, to the extent that it exists, appears to be less of a problem than in other European countries. ¶3. No government entities or officials are known to encourage, facilitate or engage in laundering the proceeds from illegal drug transactions, from other serious crimes, or from terrorist financing. Neither have there been any reports of Finland's financial institutions engaging in currency transactions involving international narcotics trafficking proceeds that include significant amounts of United States currency or currency derived from illegal drug sales in the United States. Cooperation between government authorities and financial institutions is good. ¶4. Officials do not point to an increase in any particular area of financial crimes in recent years. Criminal proceeds laundered in Finland are predominantly in the local currency (Euros) and continue to derive mainly from domestic criminal activity. These funds are normally laundered through the banking system and currency exchangers. Local narcotics- trafficking organizations as well as a small number of local organized crime groups control some of the money laundering proceeds. ¶5. Money laundering represents about 10 percent of all financial crimes in Finland. A majority of the cases (80%) were related to economic crimes. Financial crimes offenses have remained steady over the past three years (approximately 1,600 cases per year). Between 1994 and 2002, 93 people were arrested, of which 83 were convicted for money laundering. -------------- FREE TRADE ZONES -------------- ¶6. Finland has four Free Zones and seven Free Warehouse areas. The four designated Free Zones are located in Hanko (Southern Customs District); Hamina and Lappeenranta (Eastern Customs District); and Turku (Western Customs District). The seven Free Warehouses are located in Helsinki (Southern Customs District); Naantali, Pori, Rauma, and Vaasa (Western Customs District); and Kemi and Oulu (Northern Customs District). ¶7. In Finland, the duty-free free zone and warehouse licenses have, in most cases, been granted to municipalities or cities; however, one or several commercial operators, approved by the customs districts, are usually in charge of warehousing operations within the area. The duty-free storage areas are available to both domestic and foreign- owned companies. The Community Customs Code has harmonized the free zone area regulations in the EU. ¶8. Finnish free trade zones often serve as transit points for shipments of good to and from Russia. Many goods originating in East Asia and destined for St. Petersburg or Moscow are transported on the trans-Siberian railway to the Lappeenranta Free Zone, where they are temporarily stored. These are mostly high-value goods. There are no supervisory programs and/or due diligence procedures in place to monitor activities in the free trade zones. Nevertheless, there are no indications that the free trade zones are being used in trade-based money launderings schemes or by the financiers of terrorism. -------------- TRANSBOUNDARY ISSUES -------------- ¶9. Finland's ability to identify suspicious transactions may be impaired by the absence of cross-border transaction reporting requirements. Finnish authorities have addressed the problem of the international transportation of illegal source currency and monetary instruments in the Customs Act. Beginning in June, 2007, Finland will implement a new EU regulation, which requires border crossers to declare cash in excess of $12,000. ¶10. Money laundering occasionally occurs within offshore financial centers. Finnish legislation does not require that non-resident companies maintain a physical presence in Finland. It does prohibit, however, nominee (or anonymous) directors and/or trustees. There are no off-shore casinos or Internet gaming sites. -------------- LEGISLATION -------------- ¶11. In 1994, Finland enacted legislation criminalizing money laundering related to all serious crimes. The Act of Preventing and Clearing Money Laundering (Money Laundering Act),which passed in 1998, compels credit and financial institutions, investment and fund management companies, insurance brokers and insurance companies, real estate agents, pawn shops, betting services, casinos, and most non- bank financial institutions to report suspicious transactions. ¶12. Management companies and custodians of mutual funds were added as covered entities in the Money Laundering Act in 1999. Apartment rental agencies, auditors, auctioneers, lawyers, accountants, and dealers in high value goods were added when amendments to the Money Laundering Act came into force in 2003. Also included are the businesses and professions that perform other payment transfers that are not referred to in the Credit Institutions Act, such as "hawala." According to the Money Laundering Act, a covered party must identify customers, exercise due diligence, and report suspicious activity to the Money Laundering Clearing House (MLCH),Finland's financial intelligence unit or FIU. ¶13. Amendments to the Penal Code came into force on April 1, 2003. The amendments include the differentiation of penalty provisions concerning money laundering and the traditional receiving offense in order to clarify the law where some actions could be punishable under both the receiving offense and money laundering penalty provisions, and to emphasize in legislation the criminality of money laundering and its relevance to serious organized crime. Prior to the amendments, the definition of money laundering was limited only to property gained through crime. The new amendments expand the definition to include negligence and the use or transmission of property gained through an offense, and its proceeds or property replacing such property. ¶14. The amendments also bring under the law those who assist in activities of concealment or laundering. With the differentiation of money laundering from the traditional receiving offense, the receiving offense penal scale now corresponds to the basic penal scale of other economic offenses, and the money laundering penal scale is set to meet international standards, with sanctions of up to six years of imprisonment. ¶15. Money laundering legislation does not list specific crimes. Rather, it takes an "all serious crimes" approach. Banks/financial institutions are required to maintain records that could be used in a financial investigation for five years. In practice (and according to accounting regulations),these records are kept for at least seven years. ¶16. There have been no new laws pertaining to money laundering, terrorism or banking passed recently. In 2006, Finland will begin implementing measures concerning the third EU Money Laundering directive. -------------- FINANCIAL SECTOR -------------- ¶17. There are 12 local banks in Finland, 320 local savings and cooperative banks, 48 insurance companies, 27 mutual fund companies, 29 remittance offices, 47 securities firms (broker dealers, portfolio managers, etc),and 10 other financial service companies, including mortgage brokerages and credit card companies. ¶18. The financial sector is supervised by the Financial Supervision Authority (except for money remittances),the insurance sector by the Insurance Supervisory Authority, and the gambling sector by the Ministry of Interior. The rest of the parties under obligation to report are not supervised, but there is some self-regulatory supervision in place. Bearer shares are permitted in Finland. To use the rights related to those shares, however, the bearer must register with the shareholders' register. ¶19. The Act on Preventing and Clearing Money Laundering protects individuals that cooperate with law enforcement entities. Finland has not enacted secrecy laws that prevent disclosure of client and ownership information by financial services companies to bank supervisors and law enforcement authorities. ¶20. According to the Money Collection Act, charities and non- profit organizations require a license to raise money in Finland. Money collection is supervised by the Ministry of the Interior. The new act defines license conditions more efficiently, allows for greater supervision of money collection and permits the licensing authority to freeze an account and impose fines. It requires license holders to render accounts on money collection and the licensing authority to inspect and approve the accounts. ¶21. Unless otherwise provided in the Lotteries Act, a lottery may be run only with a license granted by the licensing authority. The holder of a (non-money) lottery license must render accounts for non-money lottery. The Ministry of the Interior is responsible for supervision of the running of lotteries and keeping statistical records on lotteries. -------------- MONEY LAUNDERING CLEARING HOUSE -------------- ¶22. The MLCH, established under the National Bureau of Investigation in March 1998, operates as Finland's FIU, with analytical duties and law enforcement authority (but without any regulatory authority). It has direct access to the databases of other government entities, including the National Police, the Frontier Guard, the Ministry of Justice, as well as tax and a number of other databases. It does not have access to the databases of financial institutions. ¶23. The MLCH receives and investigates suspicious transaction reports (STRs) from covered reporting institutions. In 2003 the responsibilities of the MLCH were expanded to include the prevention of terrorist financing. There is no threshold amount, below which a STR is not required. In 2005, the MLCH received 3,661 STRs. Almost all (3,495) concerned money laundering. The remaining 166 STRs consisted of entities suspected of terrorist financing, designated by the United States, European Union, and/or United Nations. ¶24. Between 1994-2005 the MLCH forwarded 1,719 reports on suspicious transactions for pre-trial investigation. In 2005, 385 STRs resulted in criminal investigations, compared to 552 in 2004. A majority of STRs involved at least one foreign party. Nationals from 100 countries (in 2005) were mentioned in the reports. To some extent, this internationalization is due to the receipt of terrorist financing related STRs. Of the money laundering STRs, the most represented suspect nationalities were Finnish (47.4 percent),Russian (8.5 percent) and Estonian (6.5 percent). ¶25. Of all the reporting agencies, currency exchange companies are the most active in reporting suspicious transactions, accounting for a majority of all money laundering STRs. Other active reporting entities include banks, gambling establishments and non-police national authorities such as Customs and the Frontier Guard. Reports from the National Police account for approximately 0.1 percent of all STRs. ¶26. As a law enforcement branch, the MLCH has authority to initiate investigations before the basis for a pre-trial investigation has been established. Of the cases forwarded to pre-trial criminal investigation, the most common offenses were tax fraud (28 percent),narcotics offenses (25 percent) and pandering (19 percent). -------------- ASSET FREEZING -------------- ¶27. Finnish authorities do not have national authority to permanently suspend transactions or forfeit assets independent of a judicial process. Although the authority to freeze assets rests with the National Bureau of Investigation, officials at the MLCH consult and coordinate with other branches of government, including the Ministry of Foreign Affairs, the Ministry of Interior, and the Ministry of Finance. ¶28. The MLCH has the ability to freeze a transaction for up to five business days in order to determine the legitimacy of the funds. Funds can remain frozen for an extended period when linked to a criminal investigation. According to the Coercive Measures Act, all restraining and freezing orders must be presented to the court every four months. A new order can be given for a "reasonable time," but it is yet unclear how long that time can ultimately be. ¶29. In 2005 the MLCH issued 11 orders to freeze assets/suspend transactions. The total value of these transactions was $3. 6 million. With these orders, the MLCH recovered $670,800 of criminal proceeds. Most cases involved money laundering and financial crime. In 1998-2005 the Clearing House gave a total of 89 decisions to suspend of transactions with a total value of $18. 3 million, including an estimated $11. 1 million in property assets. ¶30. According to the Penal Code, the proceeds of crime shall be given to the injured party. If a claim for compensation or restitution has not been filed, Finnish authorities can order forfeiture. With some exceptions, only the proceeds of a crime can be forfeited. Legitimate businesses can be seized if used to launder drug money or support terrorist activity. Finland has enacted laws for the sharing of seized narcotics assets, as well as the assets from other serious crimes, with other governments. -------------- TERRORIST FINANCING -------------- ¶31. The Penal Code of Finland was amended at the end of 2002 with the addition of a new chapter on terrorism (Chapter 34 a). According to Section 5 of the amendment, a person who directly or indirectly provides or collects funds in order to finance a terrorist act or who is aware that these funds shall finance a terrorist act, commits a punishable offense. Amendments to the Money Laundering Act came into force in the spring of 2003, bringing it in line with the Financial Action Task Force's (FATF) Special Recommendations on Terrorist Financing, the UN International Convention for the Suppression of the Financing of Terrorism, and the amendments to the EU Directive on Money Laundering. The amendments extend the system of money laundering prevention to include suspected terrorist financing. ¶32. Finland has national authority to freeze terrorist assets. The MLCH performs investigations on all individuals suspected of financing terrorist acts, including all individuals and entities on the UNSCR 1267 Sanctions Committee's consolidated list. To date, no Finns have been found guilty or complicit of terrorist financing. In the event that funds are found to be located in Finland, the assets could be frozen without undue delay for five business days. For the funds to remain frozen, a criminal investigation must be launched (either in Finland or abroad). The funds would remain frozen for the period of the investigation. -------------- INTERNATIONAL AGREEMENTS -------------- ¶33. Finland has concluded numerous bilateral law enforcement cooperation agreements. Finland signed a tax treaty with the United States in September 1989, replacing a previous treaty signed in 1970. The current treaty has provisions to exchange information for investigative purposes. The MLCH may exchange information with other FIUs and with bodies engaged in criminal investigations, such as police services and public prosecutors. Although no Memorandum of Understanding (MOU) is required for this purpose under Finnish law, MOUs have been concluded with Albania, Belgium, Bulgaria, Canada, France, Latvia, Lithuania, Luxembourg, Poland, Russia, South Korea, Spain, Switzerland and Thailand. The information exchanged may only be used for the prevention and clearing of money laundering transactions. Consequently, the information obtained may only be used as evidence with the approval of the MLCH. ¶34. Finland is party to the 1988 UN Drug Convention; the UN Convention against Transnational Organized Crime; the UN International Convention for the Suppression of the Financing of Terrorism; the Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime; and the European Convention on Mutual Assistance in Criminal Matters. Finland has signed, but not yet ratified, the UN Convention against Corruption. ¶35. Finland is a member of the FATF and the Council of Europe. The MLCH is a member of the Egmont Group. Finland also co-operates with the EU, Europol, the UN, Interpol, the Baltic Sea Task Force, the Organization for Economic Co- operation and Development, and other international agencies designed to combat organized crime. HYATT#