How is SEPBLAC transforming the fight against money laundering and terrorist financing?
The Executive Service of the Commission for the Prevention of Money Laundering and Monetary Offenses (SEPBLAC) has published its Activities Report 2022-2023, highlighting important advances in the fight against money laundering (AML) and the financing of terrorism (FT). This document highlights key strategies adopted in an increasingly complex and regulated global environment. The most relevant points are summarized below:
- Significant events in 2022-2023.
Invasion of Ukraine by Russia:
As a result of the international context left by the conflict between Ukraine and Russia and the issuance by the Council of the European Union of various regulations on international financial sanctions against members of various public institutions and natural and legal persons that could be linked to the conflict, there is a risk of financial exclusion. In this regard, the following stand out:
- A package of measures proposed in 2021 by the European Commission for PBC-FT to mitigate unjustified de-risking and associated financial exclusion.
- The opinion issued by the European Banking Authority warning about this situation and the risks of unjustified financial exclusion of legitimate customers.
To avoid this risk of financial exclusion, different customer admission policies should be implemented according to the risk of money laundering and terrorist financing and not exclusively on the basis of factors such as nationality.
New European AML/CFT package and the creation of the European Anti-Money Laundering Authority, the AMLA.
This package of legislative proposals by the European Commission of 20 July 2021 will transform the European prevention system.
The AMLA will be responsible for the effective and consistent functioning of the AML/CFT supervisory system. It only has direct supervisory tasks in case of selected risk-based financial institutions and will set criteria to be followed by national authorities especially in relation to institutions for which no direct supervision is foreseen.
In relation to financial intelligence, the AMLA will focus on improving the exchange of information and cooperation between national Financial Intelligence Units and will harmonise working protocols by developing binding templates and standards for reporting suspicious transactions by obliged entities to Financial Intelligence Units.
New patterns of ML/TF
The worrying increase in fraud and other risky operations: one of the new patterns, which has been emerging since COVID-19, is the result of the necessary digitalisation of relations between obliged parties and their customers since then. This new scenario has created a risk gap that organised crime is trying to exploit, as the technological education of those involved is not always fully up to date. Various online activities are therefore used to cover up fraudulent movements by means of two (2) processes. We are talking about (i) the emergence of developed and well-organised structures dedicated to cyber fraud and (ii) easy accessibility to all kinds of fraud structures through the so-called dark web.
This new scenario opens up a world of possibilities for all kinds of irregularities with significantly difficult traceability of movements. We are referring, for example, to the opening of financial products with usurped or invented identities that do not relate to the holder, with the funds from the fraud in question then being split up very quickly internationally through so-called ‘mule accounts’.
In relation to this new trend, several initiatives have been implemented by SEPBLAC, both from a financial intelligence perspective and as a supervisory authority. The stands-out are (i) strategic analyses of identity theft, but also of the use of false identities and (ii) inspections with relevant findings in the reviews of enhanced due diligence measures in remote registrations.
Other relevant patterns detected by SEPBLAC are as follows:
- Growing use of virtual currencies and assets, leading to an increase in certain vulnerabilities in the system due to the characteristics of crypto-assets.
- Tax fraud, particularly IVA fraud through schemes such as hydrocarbon fraud. Particularly dangerous are the links in many cases with national and international criminal organisations.
- “Crime as a service”: this is the development of a movement to professionalise money laundering based on financial structures created to provide the service of moving funds to criminal organisations that do not have their own instruments for the purpose of AML. These entities oversee the management business structures dedicated to different sectors that simulate a real economic activity and give them cover to introduce, transfer and place the illicit funds in different sectors or countries.
SEPBLAC’s relational model to improve prevention and efficiency against ML/TF risks: One of the main strategic directions being pursued by SEPBLAC is that of a relational model of public-private collaboration. The key to the effectiveness of these partnerships, based on the principles of usefulness, transparency and confidentiality in the dissemination of information, is based on two key aspects: prior preparation through close dialogue and maximum involvement by both sectors.
Internationally, more than a few institutions and authorities have taken an interest in the SEPBLAC model.
Key Achievements in 2022-2023.
- Increased detection of suspicious transactions: SEPBLAC handled an 8% increase in suspicious transaction reports in 2023 (having already seen a 12% increase in 2022), reflecting a growing commitment on the part of obliged entities. This increase highlights the effectiveness of supervisory measures and awareness of the importance of complying with the regulations in force.
Regarding the main reporting parties within the financial sector, credit institutions and payment institutions led the statistics, with a notable increase in the number of crypto service providers. Outside the financial sector, the obliged entities with the highest number of reports were notaries and registrars, through their centralised prevention bodies (OCP and CRAB).
The statistics also show that the most frequent offence in communications by indicia has been fraud, which has seen a percentile growth of close to 60% since 2020, followed only by tax offences and participation in a criminal organisation.
Also noteworthy is the effectiveness of the implementation in 2021 of an automated procedure for cross-checking information between SEPBLAC and Policia Nacional, Guardia Civil and the Customs Surveillance Service. This effectiveness is evidenced by a further decrease in the number of requests for information from national authorities, falling by 11% compared to the previous year.
- Strengthening international cooperation: in an increasingly globalised world, collaboration with other Financial Intelligence Units is essential. Notably, SEPBLAC receives more requests for information than it sends to other countries. In 2023, requests for suspensions of international transactions increased by 13%, highlighting SEPBLAC’s key role in the prevention of transnational financial crime and underlining the relevance and usefulness of international intelligence and collaboration between international authorities.
- International supervisory cooperation: in the area of international cooperation, the collaboration of SEPBLAC in the working groups and committees of the European Banking Authority (EBA) among other European supervisors PBC-FT has increased significantly in these two (2) years 2022 and 2023, reaching 114 and 128 participations respectively.
- Risk-based supervision: with a more proactive approach, 287 supervisory inspections were carried out, 29% more than the previous year. These inspections help to identify areas for improvement in the compliance of obliged entities and reinforce the protection of the Spanish financial system.
A total of 222 supervisory actions were carried out in 2022, an increase of 8% over the previous year. The information required in the most significant action in this area, which is the annual information requirement (RIE), which is made to all credit institutions, can be grouped into four (4) large blocks: i) data on activity; ii) due diligence compliance obligations; iii) reporting obligations; and iv) internal control obligations.
Other relevant supervisory actions have been the following: i) the preparation of 12 verification reports on compliance with the requirements of the Standing Committee of COPBLAC; ii) 17 other supervisory actions, such as the preparation of verification reports on compliance with policies and procedures obligations at group level or self assessment reports on the ML/TF risk of notaries and registrars.
On the other hand, in 2023, the number of actions has risen to 287, representing a further increase compared to the previous year, confirming an upward trend, which has also been boosted by the application of the RIE to insurance entities, which was inaugurated in 2023.
- Risk-focused inspections: in recent years there has been a decrease in the number of these inspections, which may be justified, on the one hand, by their nature, prioritising in-depth and detailed investigations, and, on the other hand, is related to an increase in other supervisory tasks such as international cooperation activities and mandatory investigations within the framework of administrative procedures.
In relation to the crypto-assets business and its recent and rapid growth, its consideration in 2021 as a regulated entity under the 10/2021 Spanish Law has meant that it must face certain obligations aimed at ensuring its safe and orderly growth. Investigations in this sector have also revealed significant shortcomings in the processes related to prevention.
Another sector of note is online gambling. The 2021 inspection plan is beginning to bear positive effects, with the sector becoming more aware of the danger of using gambling accounts for criminal activities and a greater awareness of AML/CFT and not just compliance with responsible gambling regulations, as was previously the case.
- Mandatory inspections: Mandatory inspections to issue reports for authorisation and registration procedures rose by 36% in 2022, and decreased by 22% in 2023, while remaining stable at around 300 inspections, mainly requested by the Bank of Spain and the Spanish Securities and Exchange Commission (CNMV).
- Technological Innovation as a Strategic Pillar.
SEPBLAC continues its digital transformation, which started in 2022 under the Digital Transformation Plan (PTD), with the introduction of innovative tools to ensure greater efficiency and effectiveness in its tasks.
Innovations include (i) the use of the internal MIDAS application, designed to optimise the operational management and analysis of large volumes of financial data, (ii) the implementation of an electronic headquarters that has improved interaction with obliged entities and facilitated access to critical information in real time, and (iii) a data analysis module with significant advances in the capture, processing, analysis and production of indicators.
- Global Challenges and their Impact on Spain
The international context, marked by the invasion of Ukraine and the financial sanctions imposed on Russia, has been a major challenge for SEPBLAC. In this scenario, the unit has played a crucial role in the implementation and supervision of compliance with these sanctions, helping to preserve the stability and integrity of the financial system.
With these developments, SEPBLAC reaffirms its commitment to the fight against money laundering and terrorist financing, adapting to new regulatory demands and leveraging technology as a key ally. This comprehensive approach is a step towards a safer and more transparent financial system.
In the same vein, it ratifies its commitment to international cooperation with the various supervisory bodies, collaborating with them to achieve global objectives and also in relation to new growth sectors, seeking an orderly and safe development for the financial system.
Compliance Department of Molins Defensa Penal.