Sweden is generally perceived as a safe country with low crime. It ranks near the top of international indices for low corruption and strong rule of law. Tax crimes are the most significant predicate offence for money laundering identified in Sweden’s national risk assessment (NRA). Fraud is also identified as a major and growing concern. Both offences contribute a large part to the proceeds of organised crime in Sweden. The most significant criminal typology is tax fraud related to unregistered labour where, to bypass tax regulations, businesses pay undeclared cash wages. Some such schemes use corporate structures in Sweden and other countries, and false invoicing, to conceal the nature of the activity. Organised crime is also associated with smuggling, mainly of narcotics, performance enhancing drugs, cigarettes and arms.
Terrorism, and consequently terrorist financing, in Sweden is dominated by actors motivated by violent Islamic extremism, whose purpose is to promote or commit acts of violence in conflict areas such as Syria, Iraq, Afghanistan, Somalia and Yemen, or against Sweden or Swedish interests.
The recent terror attack in Stockholm, which was carried out by a man who was said to have sympathised with extremist organisations (including ISIS), is a stark reminder of this threat.
The emergence of ISIL in Syria and Iraq transformed the terrorist threat in Sweden: between 2012 and 2015, approximately 300 Swedish residents had travelled to Syria to join ISIL, of which 40 have been confirmed deceased and 140 had returned to Sweden, where they constitute a new risk.
Authorities show a high degree of commitment and capacity to pursue money laundering (ML) and terrorist financing (TF) cases and to trace and confiscate the proceeds of crime. Prior to 2014 Sweden suffered problems with both its ML and TF offences. The new ML offence (introduced in 2014), and the new TF offence (introduced in 2016) have addressed these problems and have greatly improved the potential for investigation and prosecution of ML and TF, although authorities still need to build experience and precedents for applying the new offences in practice.
The Financial Action Task Force (FATF) conducted their on-site visit in Sweden between 26 May 2016 and 10 June 2016. The visit was designed to assess the effectiveness of the anti-money laundering (AML) and combating the financing of terrorism (CFT) measures currently in place. The timing of the visit is interesting in light of the revised money laundering offence and terrorist financing offence introduced in Sweden in 2014 and 2016, respectively.
The Mutual Evaluation Report (MER) was only recently published, and analyses the level of compliance with the FATF 40 Recommendations and the level of effectiveness of Sweden’s AML/CFT system, and recommends how the system could be strengthened. It has highlighted some interesting points for a jurisdiction many would consider to be fairly low risk in respect ML and TF.
Sweden has a reasonable understanding of its ML/TF risks, but this is not consistent across authorities. Sweden does not have a national coordination body for AML/CFT at the policy level, which has a negative effect on Sweden’s effectiveness in other areas, including the understanding of risk across agencies.
Sweden’s authorities perceive their highest ML risks to be tax crimes, fraud, organised crime, and cash movements. The identified risks are largely reasonable, but some significant risks identified by law enforcement are not sufficiently developed in the NRAs, for example the misuse of companies and new technologies.
Sweden’s largest challenge is the coordination of a complex structure of agencies in the field
of AML/CFT. Currently, there is no national coordination body for AML/CFT and responsibilities are dispersed between many autonomous agencies. While operational cooperation and coordination is good in some areas (e.g. on organised crime or tax), there are some disconnects in Sweden’s system, as individual agencies form and pursue their own priorities. There is also a concern that relevant risk information gathered by one agency may not be shared in an effective manner with other agencies.
Financial Intelligence Unit (FIU)
Sweden systematically collects and uses financial intelligence and their ability to use this information effectively has improved since the new money laundering offence entered into force July 2014.
The new offence provided the authorities with better tools to freeze assets and prosecute money-launderers. As a consequence, the work of the FIU and law enforcement authorities has since focused more on the money laundering offence itself, while previously their focus was on the predicate offences. However, the FIU has inadequate IT tools and its strategic analysis function is still being established. These deficiencies limit its ability to identify complex cases of money laundering and to provide risk information for other authorities and the private sector.
Sweden has only prosecuted a small number of TF cases reflecting the difficulty of successfully
conducting prosecutions under the old TF offence, and the very recent introduction - in April 2016 - of a new TF offence. In addition, TF threats to Sweden relating to foreign terrorist fighters have escalated sharply since 2014. The new TF offence, addresses past problems, but it is too early for its practical impact on effectiveness to be widely felt, and authorities still need to build experience and precedents for applying the new offence in practice. The combination of new threats and new laws mean Sweden cannot demonstrate a long track record of cases in this area, but nevertheless seems to have a substantial level of effectiveness.
Sweden has a comprehensive supervisory system which covers all obliged entities. Financial institutions and Designated Non-Financial Business and Professions (DNFBP) generally comply with their obligations, and have been subject to enforcement action when they do not. However, supervisors’ understanding of ML/TF risks is based on the 2013-2014 NRAs, which do not provide a comprehensive picture and analysis of Sweden’s risks. As a result, not all supervisors have a sufficient understanding of the risks to apply a risk-based approach effectively. The Swedish FSA should increase its capacity, in order to conduct an appropriate number of AML/CFT-focused supervisory actions given the risk and size of Sweden’s financial sector.
Transparency and beneficial ownership
Legal ownership and control is highly transparent in Sweden, hence, complex legal structures established in Sweden and their legal owners can easily be traced. However, this is not sufficient to ensure that beneficial ownership information is available in all cases as such information is not collected systematically and not subject to adequate verification or sanctions.
Sweden’s implementation of targeted financial sanctions (TFS) against terrorist financing is ineffective, mainly because of serious technical deficiencies that are inherent within the framework of applicable EU regulations, and because of Sweden’s failure to propose or make designations itself. Sweden is not able to transpose TFS against proliferation financing without delay, but this is mitigated by other factors and has not had a practical effect on Sweden’s ability to properly comply with UN Security Council Resolutions (UNSCRs) on proliferation.
Sweden prioritises international cooperation and has established highly effective mechanisms for providing it. Sweden exchanges and seeks appropriate information, financial intelligence, and evidence, and facilitates action against criminals and their assets. Cooperation is very close with the Nordic and Baltic regions, but extensive cooperation also takes place with EU members and other countries worldwide.
- Sweden should urgently introduce legal powers which will enable authorities to apply targeted financial sanctions relating to terrorism or proliferation, as a bridging measure; to EU internal terrorists; or on a national basis, together with a body or mechanism responsible for developing proposals for designation.
- Sweden should establish a national mechanism to ensure adequate cooperation and coordination at policy level between ministries and operational agencies. Clear policies/instructions on division of labour; procedures for cross-agency case handling; and forums for sharing of risk information should be established, particularly between the FIU and LEAs and the supervisors. Sweden should increase the access to and use of financial intelligence to identify complex cases of money laundering as well as professional money laundering, based on improved IT systems at the FIU and by developing its strategic analysis capacity.
- Supervisors should improve their understanding of risks in their specific sector(s), supported by better tools and inter-agency communication, and use this understanding to implement a risk-based approach towards supervising the reporting entities. Sweden should increase the capacity of the FSA’s AML unit in order for it to undertake appropriate AML/CFT on-site and off-site supervisory actions, commensurate with the risk and size of Sweden’s financial sector.
- Sweden should take forward its plans to establish a central register of beneficial ownership (as required by the EU Fourth Anti-Money Laundering Directive). Sweden should also conduct a full risk assessment of the misuse of all the legal persons for ML/TF, and develop measures to mitigate the use of straw-men and corporate structures.
- Authorities should build experience and establish precedents for prosecution and sentencing under the recently revised ML and TF offences.
How can ICT help?
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