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Areas for improvement identified by the FATF

The FATF identified six areas needing improvements:

1. Understanding of risks related to money laundering and foreign-origin tax evasion
2. Increased confiscation of criminal assets internationally
3. More effective sanctions for anti-money laundering violations
4. Increased judicial resources and improved efficiency
5. Optimization of suspicious activity reports
6. Increased seizure of assets from criminal activities

These recommendations aim to strengthen Monaco’s resilience against financial threats and align its practices with global standards. Strengthening sanction mechanisms and training key personnel are crucial to ensuring the effectiveness of anti-money laundering measures.

Monaco’s Reaction and Action Plan

Monaco is committed to complying with international standards. The government has already implemented several significant measures:

• Adoption of nine new laws within sixteen months to strengthen the Monégasque Financial Security Authority (AMSF) and the anti-money laundering legal framework
• Development of an action plan with a reform schedule extending to January 2026
• Creation of a new financial intelligence and surveillance authority
• Strengthening measures against terrorist financing

The FATF has acknowledged these advancements. Pierre-André Chiappori, finance and economy minister advisor, estimates that “80% of the work is done”. However, additional efforts are needed to be removed from the grey list. In response to the recommendations, Monaco has also intensified its collaborations with other jurisdictions to exchange crucial information and strengthen cross-border controls.

Repercussions on Monaco’s Economy

Despite the challenges, Monaco remains optimistic about its growth. In the short term, the budgetary impact would be limited, but certain sectors could be more affected: Financial Sector: Monégasque financial institutions might face increased scrutiny and higher compliance costs. This could affect their short-term competitiveness. Real Estate: The real estate sector seems to maintain its robustness. The attractiveness of the local real estate market, characterized by the rarity and luxury of properties, continues to draw wealthy investors. In this complex regulatory context, Miells-Christie’s expertise will be essential in guiding wealthy investors towards investment opportunities in the principality. Foreign Investments: While some investors might be more cautious, the overall impact will depend on how quickly Monaco can implement the necessary reforms and reassure stakeholders.

In the short term, the grey listing could influence international perceptions of Monaco, prompting some investors to reconsider their commitments. However, a study conducted by the Center for Global Development in 2016 offers a different perspective. Even though being included on the FATF grey list may lead to a reduction of up to 10% in the volume of payments received by a country, the study indicates that this list does not tend to isolate these nations from the international financial system.

This argument is also supported by the finance and economy minister advisor Pierre-André Chiappori: “As an economist, I believe that being placed on the grey list, in the short term, will not have direct consequences on growth, especially for a state that does not borrow. Monaco has negative debt and a constitutional reserve fund. If we were to remain for five years, the impact would be possible, but not over a period of a year and a half,” he explained during a press conference in early July 2024.

In the long term, these reforms could improve the transparency and attractiveness of the Monégasque market.

Challenges and Opportunities

Monaco’s inclusion on the grey list presents both unique challenges and opportunities. On one hand, Monaco must strengthen its financial control systems and manage the risk of negative perceptions from some investors. On the other hand, this situation offers Monaco the opportunity to modernize its financial regulatory framework, which could, in the long term, improve its reputation as a transparent financial center compliant with international standards.

This period of reforms can also serve as a catalyst for a broader transformation of Monaco’s financial sector, integrating advanced technologies for monitoring and compliance. The use of artificial intelligence and big data could, for example, improve the detection of suspicious transactions and enhance analytical capabilities.

Future Outlook

Monaco aims to be removed from the grey list by 2026. To achieve this goal, the Principality will have to overcome several major challenges. Firstly, it will need to effectively implement the planned reforms to meet international requirements. Secondly, it will be crucial to strengthen international cooperation in combating money laundering by establishing strong partnerships with other jurisdictions. Additionally, it is necessary to improve the training of relevant personnel and increase the resources allocated to judicial and financial authorities to ensure rigorous enforcement of the new regulations. Finally, Monaco will need to demonstrate concrete results in terms of prosecutions and confiscations of illicit assets to prove its commitment and ability to combat illicit financial activities effectively and transparently.

Although Monaco’s inclusion on the FATF grey list in 2024 is a challenge, it can also be an opportunity for strengthening and modernization. By effectively implementing the necessary reforms, this period could mark a positive turning point in Monaco’s financial history, consolidating its position as a safe, transparent financial center compliant with international standards. The Principality’s ability to adapt quickly and demonstrate tangible results will be crucial in restoring investor and international partner confidence.