The Danish government has adopted a strong and comprehensive package of new measures against money laundering. The government, including but not limited to the Ministry of Industry, Business and Financial Affairs, will implement the Fifth Anti-Money Laundering Directive from the European Union (expanding the scope of anti-money laundering legislation to cover virtual currencies) and has implemented the fourth Anti-Money Laundering Directive with the Danish Anti-Money Laundering Act from June 2017. Over the coming years, there will be a strong focus on implementing a new national strategy for countering money laundering and terrorist financing (September 2018). The strategy is particularly focused on strengthening the cooperation on countering money laundering, including increased information sharing between national authorities and between national authorities and the private sector. The strategy also focuses on: national risk assessments; risk-based supervision; increased awareness and prevention; strengthening of international cooperation; and on increasing the penalties for violation of the anti-money laundering legislation. Denmark will further play a more active role in the international cooperation against money laundering in the FATF as well as in the Council of Europe and the European Union. Denmark is committed to responding formally and swiftly to all recommendations from these international forums and organisations.
The commitment is specific as Denmark has committed to responding formally and swiftly to all recommendations from the FATF as well as from the Council of Europe and the European Union on money laundering.
Denmark’s compliance with its commitment to respond formally and swiftly to all relevant recommendations to counter money laundering can be assessed by reference to third-party peer reviews. A number of these reports are available, including: i) an EU Council recommendation from 2019 National Reform Programme of Denmark and delivering a Council opinion on the 2019 Convergence Programme of Denmark which includes recommendations on money laundering; ii) the FATF issued a report 2nd Enhanced Follow-up Report & Technical Compliance Re-Rating in November 2019 on money laundering measures in Denmark; and iii) IMF issued a technical note on financial sector assessment programme Next Steps for Cross-Border AML/CFT Supervision in August 2020.
FATF, the Council of Europe and the European Union have issued a number of recommendations since the IACC statement in the autumn 2018. Many, although not all, of these recommendations have been followed up on since then. Denmark is thus increasingly showing a political will to implement recommendations from international bodies in relation to AML/CFT.
Before issuing the commitment at the IACC, the Danish parliament had already adopted a new anti-money laundering act (June 2017) 1 and a national strategy for countering money laundering and financing of terrorism from 2018-2021 (March 2018).2 An amendment to the penal code on money laundering had already been adopted.3 The amendment increases the penalty (from six to eight years maximum penalty) for money laundering and expands the area of the criminal offence so that it also deals with some pre-crimes. In January 2020, another amendment to the penal code on money laundering came into force and large parts of the national strategy on AML/CFT have been further adopted. According to a recent IMF report from August 2020, the Danish authorities have made significant progress in the last year, including: conducting or participating in three multinational on-site inspections of banks; developing a new institutional risk assessment model; issuing an AML/CFT on-site inspection manual; amending several pieces of legislation to strengthen the monitoring and enforcement powers of the Danish Financial Supervisory Authority (DFSA);4 establishing additional reporting requirements for the private sector; and stiffening the penalties for violations of AML/CFT obligations.
Challenges to effective commitment implementation
As Danish banks continue to operate abroad and to serve significant numbers of non-resident customers, the nature and quality of the DFSA’s cooperation with its foreign counterparts will be a key driver of its effectiveness, both in identifying potential cross-border risks and in addressing any future ML cases that should arise. In carrying out those core functions, the DFSA will increasingly benefit from close cooperation with relevant domestic actors, including through bilateral channels, the interagency Money Laundering Forum (MLF) and public-private partnerships.
The MLF is Denmark’s key interagency mechanism for domestic AML/CFT cooperation. It has been increasingly proactive in providing other domestic authorities with relevant information and/or access to its secure database. However, the MLF has not yet provided the DFSA with information on individual financial institutions whose institutional risk tolerances or profiles appear to have changed.
Assessing AML/CFT risks is an ongoing challenge that requires close consultation between the public and private sectors. Fully implementing the risk-based approach to AML/CFT supervision will maximise both the efficiency and the effectiveness of the DFSA.
Opportunities to accelerate commitment implementation
TI Denmark strongly recommends that a forum for closer collaboration and sharing of confidential information among banks and between the banks and the relevant public authorities is set up.
The AML/CFT measures introduced in Denmark in recent years have led to significant progress, and the commitment made by the Danish government in relation to AML/CFT has been largely fulfilled. An effective and sustained implementation will however require a number of additional measures.
Under Danish law, the DFSA must conclude specific agreements before sharing information with non-EU, non-EEA supervisory authorities. A number of bilateral agreements have already been signed. The DFSA should proactively pursue other bilateral MOUs, prioritising those non-EU, non-EEA jurisdictions in which Danish banks operate or are planning to operate, or whose own banks currently operate in Denmark. The government should further consider next-stage options for the integration/consolidation of AML/CFT supervision at the sub-regional or EU levels
The Danish authorities should take the following next steps to deepen domestic cooperation on AML/CFT banking supervision:
- Develop a register of bank account and safety deposit box holders, as well as a shared, industry-wide list of politically exposed persons, their relatives and close associates
- Identify the (technological and legal) requirements for establishing an industry-wide customer due diligence “utility” to capture names, birth dates, addresses and other identifiers as well as information on those customers whose accounts have been closed or else marked for special scrutiny due to their suspected involvement in illicit financial activities.
- Establish a joint AML/CFT intelligence unit between banks, the MLS, the police, the intelligence services and the tax agency to exchange confidential information on major cases.
The DFSA should fully implement the risk-based approach to AML/CFT supervision by: i) completing its consultations with the private sector; ii) making a first round of necessary adjustments; iii) completing the drafting of the data reporting template; iv) testing/validating the model using the data provided by a vanguard group of supervised entities; v) making a second round of necessary adjustments; and vi) issuing comprehensive instructions, interpretive notes and guidelines.
As a matter of priority, the DFSA should significantly lengthen and deepen its AML/CFT on-site inspections of higher-risk financial institutions. The intensification of national and multinational on-site inspections of such institutions is critical to allow the AML division to test key systems and procedures, obtain and analyse additional samples of customer files and transactions (whenever necessary or desirable), verify that frontline employees are adequately sensitised and trained, and determine the extent to which corporate policies and procedures are consistently applied at local branches.
- Bech Bruun, Den nye hvidvasklov, https://www.bechbruun.com/da/nyheder/2017/nyhedsbrev-den-nye-hvidvasklov2 June 2017
- Folketinget (Danish Parliament), National strategi til bekæmpelse af hvidvask og terrorfinansiering 2018-2021, http://www.ft.dk/samling/20171/almdel/REU/bi- lag/258/1885338.pdf14 March 2018
- Folketinget (Danish Parliament), Act no 711, https://www.ft.dk/samling/20171/lovforslag/l147/index.htm2018
- IMF Monetary and Capital Markets Department, Denmark: Financial Sector Assessment Program-Technical Note-Next Steps for Cross-border AML/CFT Supervision, https://www.imf.org/en/Publications/CR/Issues/2020/08/07/Denmark-Financial-Sector-Assessment-Program-Technical-Note-Next-Steps-for-Cross-border-AML-4966512 August 2020