The Financial Action Task Force (FATF) conducted a mutual evaluation of Denmark's Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) regime against the Financial Action Task Force's (FATF) 40+9 recommendations and special recommendations in 2006. In its assessment, the FATF concludes that Denmark is fully compliant with 8, largely complaint with 16, partially compliant with 17, and non-compliant with 8 recommendations and special recommendations. The shortcomings identified by the 2006 mutual evaluation related to preventive measures such as customer due diligence and suspicious transactions reporting both for financial institutions and Designated non-Financial Business and Professions. At the time of the FATF assessment Denmark had only just implemented a new Act, namely the Act on Measures to Prevent Money Laundering and Financing of Terrorism (MLA) which came into effect in March 2006. The 2006 MLA was further amended and consolidated in 2007. The MLA, according to the 2006 mutual evaluation, strengthened preventive measures against money laundering and terrorist financing but its effectiveness was too early to gauge as the assessment was conducted at the same time as the passage of the 2006 MLA. One aspect of the 2006 MLA was however identified by the mutual evaluation as a major flaw, namely that the Act does not extend beyond Denmark to Greenland and the Faroe Islands which results in non-compliance with some of the FATF recommendations.

General Overview

The Financial Action Task Force (FATF) conducted a mutual evaluation assessing Denmark's anti-money laundering (AML) and combating the financing of terrorism (CFT) regime against the Financial Action Task Force's (FATF) 40+9 recommendations and special recommendations (SR). The findings of this mutual evaluation were released in a 2006 FATF report (hereafter referred to as the 2006 mutual evaluation). According to this report, Denmark has a solid AML/CFT framework which was updated in 2006 with the Act on Measures to Prevent Money Laundering and Financing of Terrorism (MLA). However, at the time of the FATF assessors visit from February 27 to March 15, 2006, the legislation had just been implemented (on March 1, 2006) and therefore the assessors were unable to properly gauge the 2006 MLA's effectiveness. Nevertheless, they noted that this Act establishes a legal framework for Denmark that will take into account the revised FATF standards and transpose the Third European Union Money Laundering Directive. The only major flaw that the report points to with regards to the 2006 MLA is that the Kingdom of Denmark consists of three jurisdictions - Denmark, Greenland and the Faroe Islands - and the 2006 MLA does not extend beyond Denmark which results in non-compliance with some of the FATF recommendations.

The 2006 mutual evaluation identifies certain shortcomings in the preventive measures currently in place in Denmark's financial institutions, the most serious of them being partial compliance with FATF requirements on customer due diligence (CDD) and suspicious transaction reporting (STR). Although the new MLA lays down a comprehensive range of requirements on preventive measures and the requirements for enhanced CDD, the 2006 mutual evaluation was unable to assess the effectiveness of these measures as they were expected to come into force only in January 2007. In general, however, per the FATF, the AML requirements mandated by the new law are in line with the FATF recommendations.

Money laundering in Denmark is criminalized through "a money receiving offense which covers the conduct set forth in the applicable conventions" (FATF 2006, p. 10). Section 290(1) of the Criminal Code and the 2006 MLA (consolidated and amended in 2007) are the main laws that criminalize money laundering in Denmark. The money laundering offense in Denmark relates to all predicate crimes. However, these provisions do not extend to all predicate crimes in Greenland and Faroe Islands. The financing of terrorism is criminalized under the provision of the Danish Criminal Code and again the Greenland and Faroe Islands lag behind since specific provisions criminalizing the financing of terrorist acts, terrorists and terrorist organization have not been enacted. The assessment finds that the Danish law provides a very "comprehensive and flexible" confiscation framework.

The Money Laundering Secretariat is the Danish Financial Intelligence Unit (FIU) which is an operationally independent unit within the office of the Public Prosecutor for Serious Economic Crime (SØK). The FATF assessment notes that the FIU has a staff of 3 prosecutors and 7 police officers and when necessary, the SØK provides it with supplementary staff for the performance of its functions. The FIU also at times calls for the services of private auditors when it comes to complex financial investigations. The evaluation notes that the FIU's analysis of STRs is limited to the collection of information and recommends that it should enhance analysis of STRs to improve the quality of the information it disseminates. With regard to other law enforcement agencies, the report notes that Denmark has an integrated law enforcement and prosecution approach where the National Commissioner of Police provides a centralized support function for local police authorities and joint prosecutorial and law enforcement officers. However, the assessment points out that the Danish authorities have prosecuted only 16 money laundering cases in the last 6 years. "These figures appear low, even recognizing the relatively modest level of criminal activity within Denmark," the mutual evaluation notes (pp. 11-12).

The Danish Financial Supervisory Authority (DFSA) is responsible for regulating and supervising all financial institutions, except for money remitters and exchange bureaus for which the Danish Commerce and Companies Agency (DCCA) takes responsibility. The 2006 mutual evaluation explains that the DFSA's AML/CFT supervision has centered on reviewing internal guidelines of financial institutions and less on assessing their implementation. The report notes that onsite inspections need to be improved along with the resources allocated to inspections for AML/CFT. Denmark is a party to all relevant international AML/CFT conventions. However, these have not been extended to Greenland or Faroe Islands including the United Nations (UN) Security Council resolutions. The FATF notes that the Danish government is working with the authorities in Greenland and Faroe Islands to update various aspects of their AML/CFT regimes to allow the extension of the Vienna, Palermo and Terrorist Financing conventions, and ensure full implementation of UN Security Council resolutions. More specifically, a 2005 U.S. Department of State (DoS) report states that Denmark is a party to the 1988 UN Drug Convention, the UN International Convention for the Suppression of the Financing of Terrorism and the UN Convention against Transnational Organized Crime. Denmark is part of the Nordic Police and Customs Co-operation, the Task Force on Organized Crime in the Baltic Sea Region, Interpol, Europol, and the Schengen Agreement. Denmark is also a member of the FATF, and its FIU belongs to the Egmont Group. The 2006 mutual evaluation remarks that "Denmark has an exemplary mutual legal assistance framework with an ability to provide assistance through bilateral and multilateral international cooperation agreements as well as in the absence of such agreements" (p. 16).

The Principles

1. Legal Systems and Related Institutional Measures

EN

The 2006 mutual evaluation finds Denmark "largely compliant" with Recommendation (R) 1 and R 2, regarding the money laundering offense and mental element and corporate liability. The report observes that in Denmark "money laundering is criminalized through a money receiving offense which covers the conduct set forth in the applicable conventions" (p. 10), however, the FATF finds that very few prosecutions under aggravated money laundering provisions have been instituted in Denmark. Besides, money laundering provisions in Greenland and the Faroe Islands are not completely in line with international standards. With regard to R 2, the report also finds that the penalties imposed for offenses concerning money laundering are low.

As the 2006 mutual evaluation indicates, Denmark is "partially compliant" with Special Recommendation (SR) II on the criminalization of terrorist financing. The low rating is primarily due the fact that the Greenland and Faroe Islands have not adequately criminalized the financing of terrorism, terrorists and terrorist organizations. Greenland and Faroe Islands which have a different set of laws related to AML/CFT also fall under Denmark's jurisdiction and the 2006 Act on Measures to Prevent Money Laundering and Terrorist Financing (MLA) does not extend to these territories.

With regard to R 3 on confiscation and provisional measures, the mutual evaluation finds Denmark "largely compliant" and in terms of SR III on the freezing and confiscation of terrorist assets, Denmark is rated as "partially compliant" by the FATF report. The R 3 rating is attributed to the fact that "given the lack of meaningful data and regular review of confiscation and tracing efforts/accomplishments in Denmark, the tracing, seizure and confiscation provisions were not shown to have been fully implemented" (FATF 2006, p. 188). With regard to SR 3, the report notes that under the national framework, the Danish authorities were not ready to freeze non-terrorism related assets of terrorists and terrorist organizations. Moreover, the EU Regulations 881/2002 and 2580/2001 do not apply to the Greenland and Faroe Islands.

In terms of its FIU and its functions, the 2006 mutual evaluation classifies Denmark as "largely compliant" on R 26; "partially compliant" on R 30 about resources, integrity and training; and R 32 on statistics keeping. The assessment attributes the R 26 ratings to the fact that analysis of STRs is inadequate and no specifications on reporting forms or procedures exist. Also, the FIU can obtain additional data only through court order which impedes the FIU's powers to obtain additional information. The evaluation attributes the R 30 assessment to the limited number of staff and finds that the FIU requires additional resources in order to analyze STRs more extensively. The report also identifies the lack of adequate training in the field of money laundering and financing of terrorism as a reason for the low ratings. With regard to R 32, the report finds many weaknesses including the fact that "statistics on ML investigations and prosecutions are not kept separately for basic or aggravated ML offenses" (p. 195).

The mutual evaluation observes that Denmark is "compliant" with R 27 on law enforcement authorities and "compliant" with R 28 on the powers of competent authorities. As SR 9 on cross-border declaration and disclosure, the assessment finds Denmark "partially compliant" since there is a need for practical guidance and instructions for officers making cross-border checks.

2. Preventive Measures - Financial Institutions

EN

According to the 2006 mutual evaluation, Denmark's preventive measures in terms of financial institutions is based on the 2006 MLA (consolidated and amended in 2007) which lays down a comprehensive range of requirements regarding preventive measures. The 2006 MLA which incorporated the third EU AML Directive and revised FATF Recommendations entered into force in March 2006. The evaluation points out that this Act addresses areas such as beneficial ownership and enhanced and simplified CDD requirements and introduces elements of a risk based approach which was not part of the old legislation covering preventive measures. Nonetheless, the report notes that still, certain weaknesses remain.

The 2006 mutual evaluation finds Denmark "partially compliant" with R 5 relating to customer due diligence, "non compliant" on R 6 concerning politically exposed persons (PEPs), R 7 on correspondent banking, and R 8 on new technologies and non face-to-face business. The evaluation attributes its "partially compliant" rating due to a number of reasons. To name a few, the report notes that (1) the 2006 MLA is not applicable to the Greenland and Faroe Islands which are subject to the 1993 MLA; (2) identification requirements for wire transfers of less that 15,000 Euros does not exist; (3) no specification with regard to types of documents to be verified during identification process exists; and finally (4) requirements regarding ongoing due diligence and enhanced due diligence are not applicable. As for R 6 the low ratings are justified because at the time of the assessment, the provisions regarding PEPs were not applicable and were to enter into force in January 2007. Similarly, provisions on correspondent banking and non-face-to-face were to enter into force in January 2007.

According to the 2006 mutual evaluation, Denmark is "non-compliant" with R 9 regarding third parties and introducers. The ratings are justified since the report finds that "the requirements concerning reliance on third parties are not practically enforceable in the case where financial institutions being relied upon are outside Denmark" (p. 190). As for R 4 regarding financial institution secrecy or confidentiality, the evaluation finds Denmark "compliant". The evaluation assessed Denmark "compliant" with R 10 on record keeping and "partially compliant" with SR VII on wire transfer rules. Regarding the SR VII rating the report notes that cases in which these requirements are applied are narrower than the ones provided for by the standard and also there is no mention of the requirement to obtain and maintain the originator's account number.

The mutual evaluation rates Denmark "non-compliant" with R 11 relating to the monitoring of unusual transactions and "partially compliant" with R 21 pertaining to special attention for higher risk countries. As for R 13 relating to suspicious transaction reporting, the evaluation finds Denmark "partially compliant" and "compliant" with R 14 about protection and no tipping-off. With regards to R 13 the report cited a general lack of effectiveness due to low level of reporting. Negligible reporting from insurers and investment managers was also observed. On R 19 regarding other forms of reporting, the evaluation assesses Denmark "largely compliant" and "non-compliant" with R 25 on guidelines and feedback. On R 25, the report finds Denmark deficient due to the following reasons: (1) no guidelines have been issued for FIUs; (2) more feedback to reporting entities is required and finally; (3) absence of formal guidelines with regard to financial supervision. The evaluation assesses Denmark as "largely compliant" with SR IV relating to suspicious transaction reporting on terrorist financing activities.

The 2006 evaluation finds Denmark "largely compliant" with R 15 relating to internal controls, compliance and audit because there are no requirements for screening procedures for hiring employees or to maintain an independent audit function. On R 22 addressing foreign branches and subsidiaries, Denmark is rated "largely compliant." As for R 18 on shell banks, Denmark is "partially compliant" due to certain measures relating to relationship with shell banks not being place.

The 2006 mutual evaluation classifies Denmark as "partially compliant" with R 17 regarding sanctions and with R 23 relating to regulation, supervision and monitoring. The main factors underlying the R 17 rating include the fact that "no sanctions have ever been applied under the previous Act" and it was therefore, difficult for the assessors to assess the effectiveness of the sanctions regime in Denmark. Moreover, the evaluation points out that not all the obligations set forth in the MLA are covered by a sanction. Regarding R 23, the mutual evaluation finds that overall, the FSA's and the DCCA's inspection policies and procedures for AML/CFT are not adequate in terms of scope and frequency. On R 29 on supervisors, Denmark is rated "largely compliant." Denmark is rated "partially compliant" on R 30 about resources, integrity and training; and R 32 on statistics keeping. On SR VI covering AML requirements for money/value transfer services, the evaluation rates Denmark "largely compliant".

3. Preventive Measures - Designated non-Financial Business and Professions

NC

As pointed out in the 2006 mutual evaluation, the main weaknesses with regard to the AML/CFT regime for Designated non-Financial Business and Professions (DNFBPs) is relating to implementation and supervision. The report finds that "the Danish AML/CFT supervisory regimes for DNFBPs are largely untested and the limited track record is not encouraging" (p. 14). For instance, under the previous legislation, the report points out that there existed low level of reporting from DNFBPs such as lawyers and the 2006 MLA legislation was too recent to assess its effectiveness. The 2006 mutual evaluation finds Denmark "non-compliant" with R 12 on CDD and record keeping obligations for DNFBPs. This rating was attributed to the fact that Denmark's CDD and record-keeping requirements (as set out in R 5, R 6, R 8, and R 11) are not sufficiently applicable to some DNFBPs. Some of the requirements relating to enhanced due diligence, PEPs, non-face-to-face transactions and unusual transaction reporting were not in force at the time of the assessment. Concerning R 16 on STRs related to DNFBPs, Denmark is assessed "partially compliant" since low level of reporting raised concerns about effectiveness of reporting. Also, Greenland and Faroe Islands are not covered under these requirements. The report also points out that no terrorist financing reporting is required for casinos.

Denmark is "compliant" with R 20 concerning other Non-Financial Business and Professions (NFBP) and secure transaction techniques. On R 24 about DNFBP regulation, supervision, and monitoring, and R 25 on guidelines and feedback the 2006 mutual evaluation rates Denmark as "non-compliant." The evaluation attributed this R 24 rating to serious weakness in the supervisory regime with regard to all DNFBPs. With regard to R 25 the report points out that there is an absence of guidelines from the competent authorities, except for lawyers.

4. Legal Person and Arrangements & Non-Profit Organizations

EN

The 2006 mutual evaluation finds Denmark "partially compliant" with R 33 on legal persons - beneficial owners. The FATF cited lack of access to updated and detailed information and also the fact that legislation is not applicable to the Greenland and Faroe Islands as reasons for its low ratings. In addition, the report finds that "in the case of foreign companies no information about beneficial owner is available" (p. 196).

With regard to R 34 on legal arrangements, the mutual evaluation finds Denmark "partially compliant" since "there are no trusts registered in Denmark, the information which would be subject to disclosure in the case of trusts operating as foreign branch does not appear to be sufficient" (p. 197). The report rates Denmark "largely compliant" on SR VIII on non-profit organizations.

5. National and International Co-operation

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According to the 2006 mutual evaluation Denmark is rated as "largely compliant" on R 31 on national co-operation and coordination and "partially complaint" with R 32 on statistics. With regard to R 31, the FATF notes that the FIU and the supervisors are not in regular contact while in the case of R 32, the report finds inadequacy in maintenance of statistics in five broad areas: law enforcement, FIU and cash couriers, national cooperation and financial supervisory. The report notes that "statistics on ML investigations and prosecutions are not kept separately for basic and aggravated ML offenses" (p. 195). Further, the assessment finds that statistics are not adequate with respect to a number of cases for instance, ones with underlying predicate crimes and "inadequate statistical information is maintained for law enforcement use on ML investigations, prosecutions, convictions, on property frozen and confiscated and on international requests" (p. 195). Additionally, Denmark has not maintained statistics on the numbers or nature of mutual legal assistance requests, the report notes.

Denmark is "largely compliant" with the FATF's recommendations on mutual legal assistance (MLA, R 36), and R 38 on MLA on confiscation and freezing, primarily because Greenland and Faroe Islands are not fully compliant with these recommendations. Denmark is "compliant" with FATF recommendation on dual criminality (R 37). The mutual evaluation finds Denmark compliant on R 40 on other forms of cooperation. As for SR V on international cooperation, Denmark is "largely compliant" since the report points out that although Denmark is fully complaint, Greenland and the Faroe Islands may not be able to provide mutual legal assistance for requests relating to the financing of terrorism.