## 1fraea2019009

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---

### INTRODUCTION
- Purpose: technical note (TN) summarizing findings and recommendations from the Financial Sector Assessment Program (FSAP) for France on anti-money laundering and combating the financing of terrorism (AML/CFT).
- Scope: targeted review of
  - measures to prevent and combat terrorist financing (TF);
  - risk-based supervision of banks, real estate agents, company service providers and lawyers;
  - measures to tackle cross-border crimes;
  - fintech.
- Status: factual update on measures since France’s previous assessment (2010–2011). Not a FATF evaluation; France scheduled for comprehensive FATF assessment during 2020–2021.

### PROGRESS SINCE LAST ASSESSMENT
- Overall: significant progress aligning France’s AML/CFT framework with the revised FATF standard and the European AML Directives.
- National ML/TF risk assessment: first NRA being finalized.
- Legal transpositions: Fourth and Fifth European AMLD transposed, including
  - risk-based preventive measures and PEPs;
  - transparency of beneficial ownership (BO).
- OSTs: steps taken to strengthen AML/CFT measures in overseas territories.

### COMBATING TERRORIST FINANCING (TF): FINDINGS
- Post-2015 emphasis: increased TF detection and prevention following the 2015 Paris attacks.
- Institutional/operational developments:
  - specialized unit in the Paris prosecutor’s office created in 2015 to pursue TF cases;
  - high degree of cooperation between C1, police, and intelligence agencies;
  - Tracfin financial intelligence used extensively in TF investigations;
  - active system of domestic designations in addition to UN designations.
- Private sector:
  - banks increasingly use sophisticated systems (machine learning/AI) to detect TF and report suspicions of radicalization to Tracfin;
  - banks may still need further guidance on TF indicators.
- Outcomes:
  - several networks funding terrorist activities identified and under investigation.
- TF-related STRs received by Tracfin:
  - 2015: 801
  - 2016: 1,177
  - 2017: 1,379
- Tracfin disseminations on TF (2015–2017):
  - 2015: Judicial referrals 11, Non-judicial referrals 168
  - 2016: Judicial referrals 44, Non-judicial referrals 352
  - 2017: Judicial referrals 226, Non-judicial referrals 459
- Preliminary TF investigations opened on basis of Tracfin alerts:
  - 2015: 1
  - 2016: 7
  - 2017: 13
- TF investigations (2015–2018):
  - 64 new investigations in last three years;
  - Section C1 currently ~140 TF cases;
  - SDAT currently ~30 TF cases actively under investigation.
- Convictions and sentences:
  - Convictions: 2015: 24; 2016: 2; 2017: 18
  - In 11 of the cases between 2015–2017, TF was the principal offense.
  - Average prison sentence: 3.7 years.
  - All convictions accompanied by a prison sentence; no criminal cases to date for financing of a terrorist act (all convictions for financing of a terrorist organization).

### COMBATING TF: RECOMMENDATIONS (selected)
- Tracfin to explore ways to provide banks more systematic guidance on TF indicators and more timely feedback on reporting patterns. Timing: Near term.
- DGCCRF and CNB to assess implementation of CFT measures and targeted financial sanctions by entities under their purview as part of supervision. Timing: Near term.

### RISK-BASED SUPERVISION — BANKS (ACPR): FINDINGS
- ACPR responsibilities:
  - AML/CFT supervision of banks, including institutions part of large groups subject to ECB prudential supervision.
  - Took over AML/CFT supervision effective March 9, 2010.
- Approach and resourcing:
  - risk-based approach (RBA); focus on TF risks.
  - In 2017 nearly 80 full-time equivalents devoted to AML/CFT supervision.
- Entity-level risk assessment:
  - banks assigned one of four risk ratings (2017):
    - Very High Risk: Banks 4
    - High Risk: Banks 39
    - Moderate Risk: Banks 136
    - Low Risk: Banks 95
  - banks’ annual questionnaire and other sources feed ACPR risk model; SABRE tool introduced fall 2018.
- On-site inspections:
  - concentrate on large financial groups; high quality and often annual for main groups;
  - collaboration with ECB via joint supervisory teams (JSTs).
- Coverage gaps:
  - smaller banks rated very high/high may be inspected every four to five years at best;
  - inspections of smaller high-risk banks often triggered by Tracfin alerts.
- Sanctions:
  - range includes cease and desist orders, financial penalties, reprimand, action letters;
  - fines range from EUR 70,000 to 50 million;
  - penalties process takes at least one to two years; example penalty issued two years and five months after inspection end.

### RISK-BASED SUPERVISION — BANKS: KEY STATISTICS
- Number of Banks Inspected:
  - 2015: 12
  - 2016: 18
  - 2017: 11
  - 2018: 13
- Cease and Desist Orders Issued:
  - 2015: 0
  - 2016: 1
  - 2017: 8
  - 2018: 7
- Penalized:
  - 2015: 1
  - 2016: 2
  - 2017: 4
  - 2018: 4
- Action Letters Issued:
  - 2015: 9
  - 2016: 5
  - 2017: 9
  - 2018: 7

### RISK-BASED SUPERVISION — REAL ESTATE AGENTS & COMPANY DOMICILIATION AGENTS: FINDINGS
- Estimated sector size:
  - real estate agents: 20,000-25,000
  - commercial agents: 30,000-35,000
  - company domiciliation agents: around 3,000
- Oversight and licensing:
  - real estate agents licensed by chambers of commerce and industry; domiciliation agents approved by prefectures.
  - commercial agents engaging in real estate transactions subject to AML/CFT but not monitored for compliance.
- DGCCRF practice and coverage:
  - around 120 staff nationwide conduct AML/CFT supervision (including OSTs) though resource level unknown.
  - annual on-site program typically covers 150–200 real estate agents and 30–40 company domiciliation agents.
  - inspections broadly target agents deemed high-risk; low sector reporting to Tracfin limits triggers.
- On-site inspection and CNS reporting (selected years and partial 2018):
  - Real estate agents Inspected:
    - 2015: 14
    - 2016: 162
    - 2018 (partial): 201
  - Real estate agents Reports transmitted to CNS for sanctions:
    - 2015: 6
    - 2016: 57
    - 2018 (partial): 41
  - Company domiciliation agents Inspected:
    - 2015: 21
    - 2016: 31
    - 2017: 41
    - 2018 (partial): 39
  - Company domiciliation agents Reports transmitted to CNS for sanctions:
    - 2015: 7
    - 2016: 7
    - 2017: 10
    - 2018 (partial): 16
- CNS sanctions:
  - sanctions include pecuniary penalty up to EUR 5 million;
  - pecuniary sanctions in practice ranged from 500 € to 200,000 €;
  - median pecuniary amount between 2,000 € to 3,000 €;
  - CNS handled about 20–30 cases per year in past few years;
  - process to finalize CNS rulings generally takes more than one year.
- DGCCRF new powers:
  - injunction powers since October 2018 not yet used.

### RISK-BASED SUPERVISION — LAWYERS: FINDINGS
- Oversight:
  - local bar associations monitor lawyers’ AML/CFT implementation and impose sanctions; CNB represents lawyers but has no oversight function.
- Risk understanding and monitoring:
  - CNB identifies advising on company formation/management and assistance in real estate transactions as susceptible activities.
  - monitoring by local bar associations often triggered by client complaints or CARPA flags; Paris CARPA reported 307 instances in 2018 with none associated with suspicion of ML.
  - CNB established a committee on AML/CFT in July 2018; committee operational January 2019.
- Coverage gaps: local bar associations’ understanding and monitoring not uniform; CNB does not systematically collect monitoring/disciplinary data.

### SUPERVISION: RECOMMENDATIONS (selected)
- Banks:
  - ACPR to increase supervisory activities in smaller banks rated high-risk and allocate additional resources for on-site inspections. Timing: Immediate.
  - ACPR to explore ways to shorten time needed for imposing penalties. Timing: Near term.
- Real estate and domiciliation agents:
  - DGCCRF to conduct systematic assessments of ML/TF risks informed by the NRA; review resource levels. Timing: Near term.
  - Ensure commercial agents are monitored when engaging in real estate transactions; consider holding real estate agents accountable for breaches by commercial agents. Timing: Medium term.
  - CNS to ensure sanctions are dissuasive and proportionate; DGCCRF to use injunction powers and follow up timely. Timing: Near term.
- Lawyers:
  - CNB to promote unified understanding of ML/TF risks among local bar associations and issue guidance. Timing: Near term.
  - CNB and local bar associations to develop consistent risk-based monitoring programs and disciplinary approaches. Timing: Medium term.
  - CNB to collect and analyze information on monitoring and disciplinary actions taken by local bar associations. Timing: Medium term.

### MOBILIZING AML/CFT TO TACKLE CROSS-BORDER CRIMES: FINDINGS
- Nature of risks:
  - main foreign predicate offenses laundering proceeds in France: foreign corruption, swindling, tax fraud, drug trafficking.
  - sectors vulnerable to inflows: high-end real estate market and luxury goods.
  - Tracfin identified illegal import/export businesses and trade-based ML schemes (Asia Pacific), and corrupt acts in international energy and commodities markets.
- Authorities’ understanding:
  - law enforcement most attuned to cross-border scenarios; greater awareness of outflows than inflows.
  - publication of the NRA expected to improve understanding.
- Reporting gaps:
  - very low STR filing by DNFBPs exposed to cross-border risks (real estate agents, domiciliation agents, lawyers), suggesting insufficient sector understanding and mitigation.
- Cross-border statistics and cooperation:
  - 2016: Tracfin sent 350 alerts to the tax authority: 85 percent concerned individuals’ private assets; 15 percent involved tax offenses by legal entities (primarily VAT fraud).
  - PNF estimates ~80 percent of its cases have an international dimension.
  - Tracfin cooperates closely with FIUs in Luxembourg, Belgium, Switzerland, United Kingdom; receives spontaneous transmissions from Jersey and Guernsey.
- Recommendations:
  - provide more guidance to DNFBPs on typologies, risk assessment and risk-based mitigating measures. Timing: Near term.
  - Tracfin and law enforcement to generate and maintain more granular statistics on cross-border cases. Timing: Near term.

### AML/CFT IN OVERSEAS TERRITORIES (OSTs): FINDINGS
- OSTs covered: Guadeloupe, Martinique, French Guyana, Mayotte, Réunion, Saint-Barthélemy, Saint-Martin, Saint Pierre and Miquelon, Wallis and Futuna, French Polynesia.
- Strengthening since 2012:
  - awareness raising by Tracfin and supervisors; ACPR increased supervisory activities and seconded advisors to IEDOM/IEOM for on-site inspections and visits.
  - on-site inspections/visits conducted in all OSTs between 2012 and 2016; some inspections triggered enforcement actions.
  - AMF delegated AML/CFT inspection powers in OSTs to IEDOM/IEOM.
- STRs from OSTs (2012–2018): total 12,800 STRs; 89% from banks, payment institutions and money changers.
- ACPR AML/CFT on-site inspections in OSTs (FIs headquartered in OSTs as of 2016):
  - Credit Institutions: Total 48; Number of FIs Inspected 15; Number of FIs not Inspected but Visited 27
  - Life Insurance Institutions: Total 8; Number of FIs Inspected 2; Number of FIs not Inspected but Visited 3
  - Intermediaries: Total 376; Number of FIs Inspected 24; Number of FIs not Inspected but Visited 4
- Gap: no national-level information available on oversight of DNFBPs in OSTs.

### FINTECH: FINDINGS
- Market composition:
  - around 300 Fintech firms (financial aspects outweigh technological);
  - around 200 Techfin businesses (technological aspects outweigh financial).
  - ACPR estimates payment services and E-money services constitute around half of the French Fintech market; crowd-funding intermediaries constitute about a quarter.
- Crypto/ICOs:
  - As of November 14, 2018, AMF known of 83 initial coin offerings (ICOs):
    - 15 were completed.
    - 3 were in progress.
    - 65 were planned.
  - An AMF study found ICOs represented 4% of financing in equities over the same first three quarters of 2018.
- Regulatory scope and supervision:
  - AML/TF obligations expanded to e-money institutions in 2013; crowd-financing advisors/intermediaries in 2014; platforms converting crypto assets to fiat currencies in 2016.
  - Payment service providers and E-money institutions licensed and supervised by ACPR.
  - Crowd-funding advisors/intermediaries registered with ORIAS and supervised by AMF and ACPR for consumer protection and AML/CFT since 2014.
  - Platforms converting crypto assets to fiat currencies were subject to AML/CFT obligations but not licensed/registered or supervised at the time of the mission.
- Institutional dialogue:
  - ACPR Fintech Innovation Unit set up in 2016; AMF set up similar unit; Forum on Fintech established in 2016 co-chaired by ACPR and AMF Fintech units with members including MEF, CNIL, Tracfin, ANSSI, private sector.
- Legislative developments (PACTE bill adopted April 11, 2019):
  - mandatory registration with AMF (after ACPR consultation) of service providers related to custody of digital assets/keys on behalf of third parties, and purchase/sale of digital assets against fiat currencies; registration subject to ACPR review and acceptance after assurance of internal control procedures for basic AML/CFT obligations;
  - optional AMF label entailing fuller AML/CFT obligations for providers of services including exchange of digital assets against other digital assets, crypto exchanges organized as trading venues with a central order book, receipt and transmission of orders, execution of orders, dealing on own account, third-party management of digital asset portfolios, placing crypto assets;
  - optional AMF “visa” for initial coin issuers meeting qualitative criteria (including on AML/CFT measures) and providing guarantees;
  - AMF and ACPR powers to supervise and sanction labelled providers;
  - ACPR powers to supervise and sanction registered but not labelled providers.

### FINTECH: RECOMMENDATION
- Continue efforts to align the legal framework with EU AMLD5 and the recently revised FATF standard (October 2018) in a collaborative and inclusive manner and ensure effective implementation. Timing: Near term.

### MAIN RECOMMENDATIONS SUMMARY (selected/high-level)
- Preventing and Detecting TF:
  - Tracfin to improve guidance on TF-related indicators and give more timely feedback on reporting patterns. Timing: Near term.
  - DGCCRF and CNB to assess implementation of CFT measures and targeted financial sanctions by entities under their purview as part of supervision. Timing: Near term.
- AML/CFT Supervision of Banks:
  - ACPR to increase supervisory activities in smaller banks rated high-risk and allocate resources for on-site inspections. Timing: Immediate.
  - ACPR to explore ways to shorten time needed for imposing penalties. Timing: Near term.
- Real estate agents and company domiciliation agents:
  - DGCCRF to conduct systematic risk assessments; ensure commercial agents are monitored; consider accountability of real estate agents for commercial agents’ breaches. Timing: Near term / Medium term.
  - CNS to ensure sanctions are dissuasive and proportionate; DGCCRF to use injunction powers and follow up. Timing: Near term.
- Lawyers:
  - CNB to promote unified understanding of ML/TF risks among local bar associations and issue guidance. Timing: Near term.
  - CNB and local bar associations to develop consistent risk-based monitoring programs and disciplinary approaches. Timing: Medium term.
  - CNB to collect and analyze monitoring/disciplinary information from local bar associations. Timing: Medium term.
- Cross-border ML:
  - Provide more guidance to DNFBPs on typologies, risk assessment and mitigating measures. Timing: Near term.
  - Tracfin and law enforcement to generate and maintain more granular cross-border case statistics. Timing: Near term.
- Fintech:
  - Continue aligning legal framework with EU AMLD5 and revised FATF standard and ensure effective implementation. Timing: Near term.

*Source: EXECUTIVE SUMMARY and selected sections (1fraea2019009) International Monetary Fund.*

### EXECUTIVE SUMMARY __________________________________________________________________________ 6

### EXECUTIVE SUMMARY

### INTRODUCTION
- This technical note (TN) sets out the findings and recommendations made in the Financial Sector Assessment Program (FSAP) for France in the areas of anti-money laundering and combating the financing of terrorism (AML/CFT).
- The TN provides a targeted review of France’s AML/CFT framework with respect to:
  - measures to prevent and combat terrorist financing (TF);
  - risk-based supervision of banks, real estate agents, company service providers and lawyers;
  - measures to tackle cross-border crimes; and
  - fintech.
- The TN provides a factual update on key measures taken since France’s previous assessment against the FATF standard during 2010-2011.
- The TN is not an evaluation or assessment of France’s AML/CFT system. France is scheduled to undergo a comprehensive assessment against the prevailing standard during 2020–2021 by the FATF.

### PROGRESS SINCE THE LAST ASSESSMENT
- Significant progress in aligning France’s AML/CFT framework with the revised FATF standard and the European AML Directives.
- France’s first national money laundering (ML) and TF risks assessment is being finalized.
- Legal framework updated to transpose the Fourth and Fifth European Anti-Money Laundering Directive (AMLD), including:
  - risk-based preventive measures and PEPs;
  - transparency of beneficial ownership (BO).
- Steps taken to strengthen AML/CFT measures in France’s overseas territories (OSTs).

### COMBATING TERRORIST FINANCING (TF)
- Emphasis on TF detection and prevention increased following the 2015 attacks in Paris.
- Institutional and operational developments:
  - A specialized unit within the Paris prosecutor’s office was created in 2015 to exclusively pursue TF cases.
  - High degree of cooperation exists between C1, police, and intelligence agencies.
  - Financial intelligence from Tracfin is used extensively in TF investigations.
  - France has an active system of domestic designations in addition to implementing United Nations designations.
- Private sector engagement:
  - Banks are using increasingly sophisticated systems to detect TF and report suspicions of radicalization to Tracfin.
  - Banks may still need further guidance on TF indicators.
- Findings on outcomes:
  - Through combined efforts of intelligence and law enforcement, several networks funding terrorist activities have been identified and are currently under investigation.
- Key recommendations:
  - Tracfin to explore ways to further improve its guidance to obliged entities on TF-related indicators and to give more timely feedback on entities’ reporting patterns. Timing: Near term.
  - The DGCCRF and the CNB to assess the implementation of CFT measures and targeted financial sanctions by entities under their purview as a part of their supervision. Timing: Near term.

### RISK-BASED SUPERVISION
- Banks (ACPR):
  - The French Prudential Supervision and Resolution Authority (ACPR) is responsible for AML/CFT supervision of banks, including institutions part of large financial groups subject to ECB prudential supervision.
  - ACPR has taken a risk-based approach (RBA) to AML/CFT supervision and has recently focused on TF risks.
  - ACPR assesses ML/TF risks of individual banks, but on-site inspections concentrate on large financial groups.
  - Inspections benefit from close collaboration between ACPR and the ECB through joint supervisory teams (JSTs) and appear to be of high quality.
  - Priority of inspections: group-level AML/CFT controls covering non-bank entities in the group and overseas subsidiaries/branches.
  - For smaller banks rated high-risk and not part of a group, on-site inspections are far less frequent and generally not commensurate with their risk profiles.
  - ACPR uses a range of sanctions to impact banks’ behaviors but tends to take a long time to issue penalties.
- Recommendations for banks:
  - ACPR to increase supervisory activities in smaller banks rated as high-risk and allocate additional resources for on-site inspections as needed. Timing: Immediate.
  - ACPR to explore ways to shorten the time needed for imposing penalties. Timing: Near term.
- Real estate agents and company domiciliation agents (DGCCRF):
  - DGCCRF appears to have a basic understanding of ML/TF risks but needs to deepen and enrich this understanding to allow effective RBA supervision.
  - Supervisory activities have broadly targeted agents associated with certain high-risk factors but only a very small portion have been covered.
  - Sanctions have been imposed by the National Sanction Committee (CNS) for breaches of AML/CFT requirements.
  - Recently introduced “injunction” powers to ensure deficiencies are remedied have not been used.
  - Commercial agents hired by real estate agents to engage in real estate transactions are subject to AML/CFT requirements but are not monitored for compliance.
- Recommendations for real estate and domiciliation agents:
  - Informed by the NRA findings, DGCCRF to conduct systematic assessments of ML/TF risks of real estate agents and company domiciliation agents and review level of resources accordingly. Timing: Near term.
  - Ensure commercial agents, when engaging in real estate transactions, are monitored for compliance with AML/CFT requirements; consider holding real estate agents accountable for breaches of the commercial agents they work with. Timing: Medium term.
  - CNS to ensure sanctions are dissuasive and proportionate; DGCCRF to use its injunction powers to direct agents to take remedial measures and follow up in a timely manner. Timing: Near term.
- Lawyers (CNB and local bar associations):
  - CNB understands to some extent the ML/TF risks faced by lawyers; local bar associations may not have the same understanding.
  - Monitoring of lawyers’ implementation of AML/CFT obligations and imposing sanctions remain responsibilities of local bar associations, but not much has been done in practice.
- Recommendations for lawyers:
  - Informed by the NRA, CNB to promote unified understanding of ML/TF risks among local bar associations including by issuing guidance. Timing: Near term.
  - CNB and local bar associations to develop consistent approaches to risk-based monitoring program, procedures and disciplinary actions. Timing: Medium term.
  - CNB to collect and analyze information on monitoring and disciplinary actions taken by local bar associations. Timing: Medium term.

### MOBILIZING THE AML/CFT FRAMEWORK TO TACKLE CROSS-BORDER CRIMES
- Nature of risks:
  - France faces risks from cross-border movement of illicit flows: crimes committed abroad laundered in France and domestically generated proceeds laundered outside France.
  - Sectors particularly vulnerable to inflows: the high-end real estate market and luxury goods.
- Institutional responses:
  - In 2014, France created the position of the National Financial Prosecutor to focus on financial crimes, particularly with an international dimension.
  - Authorities have a generally good overall understanding of cross-border risks, though some authorities are more aware of outflows than of inflows.
- Gaps identified:
  - Reporting patterns indicate a low level of appreciation of cross-border risks and weak controls in highly vulnerable sectors.
- Recommendations:
  - Promote stronger AML/CFT controls by enhancing supervision of lawyers and the real estate sector and providing more guidance on cross-border money laundering threats. Timing: Near term.
  - Tracfin and law enforcement to generate and maintain more granular statistics on cross-border cases. Timing: Near term.

### FINTECH
- Recent developments:
  - Rapid growth of the fintech sector in France in recent years.
  - AML/CFT framework has kept up with some developments, in particular regarding payment service providers, crowd-funding and electronic money institutions.
  - Crypto sector is still marginal in scale but has potential to grow.
- Authorities’ stance:
  - Authorities are aware of potential ML and in particular TF risks associated with crypto assets and have developed mechanisms to facilitate policy discussions.
  - Legislation is currently being discussed to strengthen regulation and supervision of activities involving crypto assets for AML/CFT.
- Recommendation:
  - To continue efforts to align the legal framework with EU AMLD5 and the recently revised FATF standard in a collaborative and inclusive manner and ensure effective implementation. Timing: Near term.

### MAIN RECOMMENDATIONS (Table 1 summary)
- Preventing and Detecting TF:
  - Tracfin to improve guidance on TF-related indicators and give more timely feedback on reporting patterns. Timing: Near term.
  - DGCCRF and CNB to assess implementation of CFT measures and targeted financial sanctions by entities under their purview as part of supervision. Timing: Near term.
- AML/CFT Supervision of Banks:
  - ACPR to increase supervisory activities in smaller banks rated high-risk and allocate resources for on-site inspections. Timing: Immediate.
  - ACPR to explore ways to shorten time needed for imposing penalties. Timing: Near term.
- Real estate agents and company domiciliation agents:
  - DGCCRF to conduct systematic assessments of ML/TF risks; ensure commercial agents are monitored; consider accountability of real estate agents for commercial agents’ breaches. Timing: Near term / Medium term.
  - CNS to ensure sanctions are dissuasive and proportionate; DGCCRF to use injunction powers and follow up. Timing: Near term.
- Lawyers:
  - CNB to promote unified understanding of ML/TF risks among local bar associations and issue guidance. Timing: Near term.
  - CNB and local bar associations to develop consistent risk-based monitoring programs and disciplinary approaches. Timing: Medium term.
  - CNB to collect and analyze information on monitoring and disciplinary actions by local bar associations. Timing: Medium term.
- Mobilizing AML/CFT to tackle cross-border crimes:
  - Provide more guidance to DNFBPs on typologies, risk assessment and risk-based mitigating measures. Timing: Near term.
  - Tracfin and law enforcement to generate and maintain more granular statistics on cross-border cases. Timing: Near term.
- Fintech:
  - Continue efforts to align legal framework with EU AMLD5 and the recently revised FATF standard and ensure effective implementation. Timing: Near term.

*“Near term” is within six months; “medium term” is within six to 18 months.*

*Source: EXECUTIVE SUMMARY (1fraea2019009) International Monetary Fund.*

### 3.   Staff’s analysis was based on a range of materials and benefited from discussions with

### 3.   Staff’s analysis was based on a range of materials and benefited from discussions with

### Progress since the last assessment — Background
- The Mutual Evaluation Report (MER) published in 2012 found France’s AML/CFT framework “generally satisfactory” but identified important deficiencies, notably in:
  - confiscation;
  - preventive measures for politically exposed persons (PEPs);
  - AML/CFT obligations and controls of certain designated non-financial businesses and professionals (DNFBPs);
  - AML/CFT supervisory regime applicable to such DNFBPs;
  - targeted financial sanctions (TFS).
- FATF 2003 Recommendations ratings reported in the MER:
  - Compliant with 9 Recommendations
  - Largely Compliant with 29 Recommendations
  - Partially Compliant with 10 Recommendations
  - Non-Compliant with 1 Recommendation
- Actions since the MER:
  - 2012 law clarifying criminal confiscation and seizures; Agency for Management and Recovery of Criminal Assets became operational in February 2011 and increased criminal seizures by 2012.
  - Steps on PEPs and DNFBP sanction regime taken.
- France to be assessed under the revised FATF standard and methodology during 2020–2021.
- The revised FATF standard (2012) and methodology (2013) place greater emphasis on a risk-based approach, effectiveness, and transparency of legal persons and arrangements.

### Identifying and understanding ML/TF risks
- National Risk Assessment (NRA):
  - Coordinated by the Anti-Money Laundering and Terrorist Financing Steering Committee (COLB).
  - Exercise started in May 2016.
  - Analyses conducted by ten working groups (four on threats; six on vulnerabilities).
  - Questionnaire disseminated to reporting entities for perceptions of risks.
  - Sources used include suspicious transaction reports (STRs), law enforcement information, judicial information, criminal threats assessment by law enforcement, and relevant regional risk assessment at the European Union (EU) level.
  - Authorities expect to finalize and publish the NRA in 2019, to be followed by an action plan.
- NRA emphasis on terrorist financing (TF):
  - Authorities consider the risks of using the French financial system to finance terrorist activities conducted in France or abroad to be high.
  - Preliminary TF facilitators identified: microfinance, associations, networks of funds collectors, non-bank payment service providers, electronic money (e-money).
  - Preliminary main ML threats: drug trafficking, large-scale financial fraud, tax and corporate fraud, offenses involving breach of integrity (such as corruption).
  - Activities and sectors with heightened vulnerability: cash-based transactions, crowdfunding activities, e-money transactions, fintech, luxury and art sectors.

### Risk-based preventive measures including for PEPs
- Legal transposition and obligations:
  - French legal framework updated to transpose the Fourth European AMLD.
  - Amendments to the French Monetary and Financial Code effective December 2016 and October 2018 obligate FIs and DNFBPs covered under the French regime to identify and assess their ML/TF risks and apply enhanced controls when risks are higher.
  - Specific legal citations:
    - Art. L-561-4-1, Monetary and Financial Code as amended.
    - Art. L-561-10-1, Monetary and Financial Code as amended.
  - PEP requirements:
    - Decision to establish a business relationship with a PEP must be made by a member of the entity’s executive body or an individual authorized by it.
    - Reporting entities required to obtain information on origin of assets and funds (Art. R-561-20-2, Monetary and Financial Code as amended).
    - Definition of PEPs includes senior officials of France, foreign countries or international organizations as well as their family members and close associates (Art. R-561-18, Monetary and Financial Code as amended).
  - These requirements appear to be in line with the revised FATF standard.

### Transparency of beneficial ownership (BO)
- Central BO register:
  - Implementing Article 30 of the Fourth European AMLD, France established a central register of beneficial owners; legal requirements took effect as of April 1, 2018.
  - Register requires legal persons to identify and submit information on their BOs and indicate modalities of control exercised.
  - Access to BO register: AML/CFT obliged professionals responsible for CDD, regulatory authorities, and other competent authorities in line with the international standard; with judicial authorization, persons able to demonstrate a legitimate interest.
- Transposition of the Fifth European AMLD:
  - Measures to strengthen BO registers underway.
  - France intends to introduce an obligation for BOs to provide all necessary information to companies required to obtain and maintain such information.
  - Developing a mechanism to identify discrepancies between register information and information in possession of other authorities.
  - Strengthening national register of fiducies by expanding list of persons with access (notably legal and natural persons having a legitimate interest).
  - France aims to make information in the BO register of companies available to the general public by 2020 in line with the Fifth AMLD.

### AML/CFT measures in Overseas Territories (OSTs)
- OSTs covered include Guadeloupe, Martinique, French Guyana, Mayotte, Réunion, Saint-Barthélemy, Saint-Martin, Saint Pierre and Miquelon, Wallis and Futuna, and French Polynesia.
- Strengthening implementation since 2012 MER:
  - Awareness raising by Tracfin and financial supervisors; ACPR increased supervisory activities including advisors seconded to IEDOM/IEOM for on-site inspections and light-touch visits.
  - On-site inspections, on-site visits, and supervisory meetings conducted covering FIs in all OSTs between 2012 and 2016.
  - On-site visits include in-depth interviews with management and all AML/CFT-relevant departments and may include sample testing.
  - Some on-site inspections triggered enforcement actions (orders to discontinue certain operations, corrective measures).
  - AMF delegated AML/CFT inspection powers in OSTs to IEDOM/IEOM.
  - No national-level information available on oversight of DNFBPs in OSTs.
- STRs from OSTs:
  - Between 2012 and 2018, Tracfin received a total of 12,800 STRs from reporting entities in OSTs, 89% of which are from banks, payment institutions and money changers.
- ACPR’s AML/CFT on-site inspections in OSTs (2012–2016) — FIs headquartered in OSTs as of 2016:
  - Credit Institutions: Total 48; Number of FIs Inspected 15; Number of FIs not Inspected but Visited 27
  - Life Insurance Institutions: Total 8; Number of FIs Inspected 2; Number of FIs not Inspected but Visited 3
  - Intermediaries: Total 376; Number of FIs Inspected 24; Number of FIs not Inspected but Visited 4

### Combating terrorist financing (TF) — Understanding, legal framework, detection
- Policy priorities and strategy:
  - Post-2015 Paris attacks, strategy focuses on three pillars: (i) reducing anonymity in the economy, (ii) increasing vigilance and detection, (iii) strengthening capacity to freeze terrorist assets.
  - Supplementary plans: action plan against radicalization and terrorism of May 2016; anti-terrorism action plan of July 2018.
- Threat assessment and mechanisms:
  - Authorities assess threat of terrorist activity in France to be very high.
  - Tracfin (2015) identified terrorist threat and its financing as one of the five major threats to the French economy.
  - Mechanisms exploited for TF: microfinance; humanitarian, cultural, or religious associations; networks of funds collectors operating as branched microfinance networks; use of commercial companies to collect funds; modes affording anonymity (online payment services, reloadable prepaid cash cards, participatory financing).
  - Law enforcement and regulatory authorities share a common understanding of TF risks.
- Regulatory updates to mitigate anonymity risks:
  - E-money media able to be loaded with cash identified as particularly vulnerable; specific regulations adopted in context of March 2015 ministerial action plan to combat TF.
  - Monetary and Financial Code amendments lowered ceilings and introduced additional due diligence and reporting requirements:
    - Ceiling on cash payments in connection with commercial transactions reduced to EUR 1,000 for French residents and persons acting for the purposes of their profession and EUR 10,000 for non-residents and persons acting for the purposes of their profession.
    - Electronic money regulations revised to impose a ceiling of EUR 3,000 for French residents and persons acting for the purposes of their profession and EUR 10,000 for foreign residents and persons that do not act for the purposes of their profession on e-money payments where payment is made to an entity not subject to ML/TF obligations and EUR 15,000 where cash or e-money payment is made to an AML/CFT obliged entity.
    - Due diligence measures required if e-money is used other than for the purchase of consumer goods or services, if the amount stored or reloadable on electronic media exceeds EUR 250, or if the media can be loaded with anonymous e-money and the amount stored exceeds EUR 250 within 30 days and provided that payments are made on the French territory.
    - Due diligence measures required for transactions of any amount if the e-money media in question is able to be loaded with cash (with the exception of e-money issued and usable within a limited network of persons offering consumer goods and services) or with anonymous e-money.
    - Due diligence measures required if withdrawal and reimbursement operations of e-money exceed EUR 100.
    - Maximum value that can be stored on prepaid cards (physical medium) capped at EUR 10,000 with a monthly limit of EUR 1,000 on loading in cash or e-money, refunds, or withdrawals.
- Freezing of terrorist assets and legislation:
  - France implements UNSCR 1373 designations through national and European mechanisms.
  - While waiting for applicable European regulation, France applies domestic law as a temporary “gap filler” pursuant to Article L. 562-3 of the Monetary and Financial Code; same mechanism applies permanently to all overseas territories.
  - New legal provisions introduced in 2016 allow Ministers to freeze assets owned, held or controlled by entities owned or controlled by persons attempting to commit terrorist acts or acting on their behalf.
- Tracfin powers and information-sharing:
  - Order No. 2016-1635 of December 1, 2016 reinforced Tracfin’s role: expanded list of agencies receiving Tracfin alerts, increased ability to request additional information from reporting entities, extended time period for blocking transactions, authorized Tracfin to encourage covered entities to perform due diligence measures.
  - Since June 2016, Tracfin can selectively communicate operational information to FIs on a bilateral basis (confidential information relating to a specific individual, account, transaction, or typologies) and may encourage FIs to take specific measures (such as enhanced due diligence).
- Prevention and detection techniques:
  - Tracfin crosses strictly financial elements with behavioral criteria to detect weak signals of radicalization; emphasis on small transactions.
  - Tracfin’s 2016 Report on Trends and Analyses highlights importance of detecting “weak signals”.
  - Banks are increasingly using machine learning and artificial intelligence to examine customer behavior patterns and detect weak signals; algorithms used to detect weak signals that are reported to Tracfin.
  - Some banks develop proprietary sets of indicators based on patterns in their STRs.
- TF-related STRs:
  - Quality of TF-related STRs from banks reported as good and increasing.
  - TF-related STRs received by Tracfin:
    - 2015: 801
    - 2016: 1,177
    - 2017: 1,379
  - Tracfin has also received TF-related STRs from non-bank reporting entities, including e-money providers, payment service providers, and notaries.

*Source: 1fraea2019009 - 3.   Staff’s analysis was based on a range of materials and benefited from discussions with*

### 21.   Outreach to the private sector is considered critical to authorities’ CFT efforts. Tracfin

### 1fraea2019009 - 21.   Outreach to the private sector is considered critical to authorities’ CFT efforts. Tracfin

### Outreach and guidance to the financial sector
- Tracfin and the ACPR work together to provide guidance on CFT controls to the French financial sector.
- Tracfin and the ACPR have jointly prepared and disseminated typologies on TF (particularly those involving new technologies).
- November 2015: the ACPR and Tracfin jointly published guidelines for reporting entities on STRs, which included a section on reporting suspicions related to TF.
- These guidelines were revised and updated in November 2018.
- The ACPR issued guidelines on the implementation of the asset freezing mechanism in 2016, reminding reporting entities of:
  - the broad scope of asset freezes, and
  - that TFS measures are not to be carried out on a risk-based approach (this guidance is being updated).

### Supervision, inspections, and sanctions related to TF and TFS
- Combating TF is one of the ACPR’s supervisory priorities.
- Neither the DGCCRF nor the CNB has included TF or TFS-related obligations in their supervisory programs.
- The ACPR and Tracfin coordinate closely through an assigned liaison officer; an alert received from Tracfin may trigger an immediate inspection.
- ACPR annual questionnaires were modified to include new questions on asset freezing measures.
- Weaknesses detected in on-site inspections include:
  - completeness and quality of information contained in the IT tools, and
  - the frequency with which some tools were updating the list of designated individuals and entities,
  - although no systematic problems have been identified across the industry.
- Enforcement actions:
  - 2017: an inspection arising from a Tracfin alert led to the imposition of the first disciplinary sanction of EUR 8 million for failures in a bank’s CDD and reporting systems relating to TF.
  - During the last two years, the ACPR sanctions commission established violations with respect to TFS controls in eight disciplinary proceedings.
  - 2018: a bank fined EUR 50 million for failures including systems for detection of persons subject to TFS.
- AML/CFT supervisors of DNFBPs have not checked for compliance with CFT obligations.

### Asset freezing mechanism and domestic designations
- December 2017: France established a task force on asset freezing to fight terrorism (GABAT), comprised of representatives of agencies involved in combating TF (intelligence, police, and the ministries of Justice, the Interior, Foreign Affairs, and Finance).
- 2018: France’s asset freezing mechanism was used 187 times.
- As of March 2019:
  - 118 freezing orders are in force, and
  - 35 are being processed.

### Tracfin operational feedback, alerts, and use of the alert mechanism
- Tracfin is empowered to provide directed operational information to banks where it deems necessary and uses a range of mechanisms to provide guidance and feedback to reporting entities on TF activities.
- Tracfin uses the alert mechanism created by Ordinance ° 2016-1635 very sparingly due to:
  - sensitivity of the information, and
  - concerns that overuse could supplant a bank’s own due diligence.
- Tracfin exercised this power for the first time in 2018 and has used it only in a handful of instances since then under certain circumstances (such as where an investigation exists into an individual willing to join a terrorist organization or facilitate others to join terrorist networks).
- Feedback mechanisms in place:
  - high-level retrospective feedback during annual bilateral meetings with individual reporting entities,
  - feedback to banking association,
  - specific feedback to individual reporting entities when an STR contributed to a dissemination,
  - sector-level guidance through annual sector-wide meetings (starting from 2017),
  - typology annual reports.
- Gaps noted:
  - Banks do not appear to be receiving feedback on their own independently developed TF indicators.
  - Not all banks have received Tracfin’s comprehensive TF-related indicators.

### Risks from overly stringent TF risk-avoidance and suggested mitigation
- France has an extremely high percentage of the population banked (due to the right to a basic bank account contained in the French Monetary and Financial Code).
- Overly stringent TF risk avoidance could result in financial marginalization of parts of the populace, a risk recognized by French banks.
- Example of risk-avoidance practice: at least one French bank has a policy of closing an account within six months upon filing an STR for any reason.
- Potential consequence: increased TF vigilance could push segments of the population toward less regulated financial service providers or the informal sector.
- Suggested mitigations:
  - More systematic guidance on TF-related indicators or timely updates on current typologies or schemas from Tracfin to help reporting entities adjust risk parameters.
  - Explore ways to strengthen mechanisms for more timely feedback from Tracfin to reporting entities in between annual bilateral meetings.

### Use of financial intelligence (Tracfin activities and outputs)
- 2015: a special TF division in Tracfin became fully operational.
- The TF unit continuously receives information from domestic STRs and a network of bilateral and multilateral relationships with other French agencies and public administration (e.g., Directorate General for Domestic Security, Directorate for Customs Intelligence and Investigations).
- Internationally, Tracfin has close relations with European and other foreign FIUs and draws from participation in international fora to understand emerging terrorist and TF risks.
- No statistics were made available on outbound requests relating to TF or requests or information received from foreign counterparts on TF.
- Tracfin disseminations (referrals):
  - Two types: judicial (case file) and non-judicial (“notes” to law enforcement).
  - Judicial disseminations must result in opening a preliminary investigation or contribute to an existing investigation.
  - Over the past three years, as STRs increased, Tracfin steadily increased disseminations relating to TF.
- Table of Tracfin disseminations on TF 2015–2017:
  - 2015: Judicial referrals 11, Non-judicial referrals 168
  - 2016: Judicial referrals 44, Non-judicial referrals 352
  - 2017: Judicial referrals 226, Non-judicial referrals 459
- Table of preliminary TF investigations opened on the basis of Tracfin alerts:
  - 2015: 1
  - 2016: 7
  - 2017: 13
- Of the 64 new investigations into TF opened in the last three years, 25 were initiated by Tracfin judicial disseminations.
- Financial intelligence appears to be used extensively in TF investigations.
- France does not keep statistics on the number of preliminary investigations that ultimately lead to a judicial proceeding.

### TF investigations, prosecutions, convictions, and institutional capacity
- Specialized units:
  - Paris prosecutor’s office: Section C1 exclusively handles terrorism and TF offenses; since 2015 staffed with 15 prosecutors.
  - SDAT (Counter-Terrorism Sub-Directorate of the Judicial Police): primary law enforcement body for terrorism and TF; currently has 180 investigators.
  - SDAT works closely with OCRGDF on complex financial issues.
- Case dynamics:
  - Investigations may originate as either terrorism or TF and lead to the other.
  - Tracfin and law enforcement bodies participate in task forces (e.g., Counter-Terrorism Unit).
  - Combating the financing of terrorist activities was listed as a priority action in the 2018 National Counter Terrorism Strategy.
  - Tracfin disseminates information to other intelligence agencies (DGSI, Military Intelligence Directorate, Defense Intelligence and Security Directorate).
- Case volumes and characteristics:
  - In the last three years (2015–2018), 64 new investigations (including judicial inquiries) into TF were initiated.
  - At present, Section C1 has approximately 140 cases of TF.
  - SDAT currently has approximately 30 cases of TF actively under investigation.
  - TF investigations can be initiated by Tracfin information or stem from terrorism investigations; they can also generate leads into underlying terrorist activity.
  - TF prosecutions: the offence of conspiracy to commit terrorism is almost always charged along with TF (in almost 90% of cases).
  - Standalone TF cases tend to involve support to a foreign terrorist fighter without ideological support.
- Convictions and sentences:
  - Convictions: 2015: 24, 2016: 2, 2017: 18.
  - In 11 of the cases between 2015–2017, TF was the principal offense.
  - To date, all convictions have been accompanied with a prison sentence.
  - Average prison sentence: 3.7 years.
  - Historical comparison: decrease from imprisonment of 13–20 years in older cases dating back to 2012 and earlier.
  - Examples:
    - Sending EUR 480 to a fighter in a war zone: sentenced to three years of imprisonment.
    - Providing logistical support by disbursing approximately EUR 6,000 through charities: sentenced to 6 years of imprisonment.
- Note: All convictions thus far have been for financing of a terrorist organization; there have yet been no criminal cases for financing of a terrorist act.

### Recommendations (as presented)
- Tracfin could explore ways to provide banks more systematic guidance on TF indicators, and more timely feedback on their reporting patterns.
- The DGCCRF and the CNB should assess the implementation of CFT measures and targeted financial sanctions by entities under their purview as a part of their supervision.

### Supervision of banks (ACPR role and practices)
- ACPR responsibilities and structure:
  - ACPR is responsible for AML/CFT supervision of banks, including institutions that are part of the large financial groups subject to prudential supervision of the ECB.
  - Ordonnance 2010-76 of 21 January 2010 merged the Banking Commission and ACAM into the ACPR.
  - Effective March 9, 2010, the ACPR took over AML/CFT supervision of FIs previously under the Banking Commission and the ACAM (banks, insurance firms, financing companies, payment institutions, E-money institutions, money changers).
  - Significant institutions are supervised by the ECB under the SSM for prudential purposes; AML/CFT supervision remains the ACPR’s responsibility.
  - As of December 2018, twelve French financial groups are covered by the SSM.
- ACPR approach and resourcing:
  - The ACPR takes an RBA to AML/CFT supervision and has focused on TF risks.
  - The ACPR informed the EBA in June 2017 that it complies with the latter’s guidelines on the risk-based approach to AML/CFT supervision.
  - Emerging risks from payment institutions and e-money service providers are gaining greater attention.
  - ACPR has stepped up supervision of insurance institutions; their AML/CFT controls are generally weaker than banks.
  - TF has been a priority across sectors since 2016.
  - Within the ACPR, two units are charged with off-site analysis and on-site inspections respectively covering prudential and AML/CFT aspects.
  - In 2017, nearly 80 full-time equivalents were devoted to AML/CFT supervision; ACPR is continuing recruitment efforts.
- Entity-level risk assessment and tools:
  - ACPR’s risk-based supervision starts from assessments of individual banks’ ML/TF risks.
  - Banks’ annual return of a questionnaire is a major source feeding into ACPR’s risk assessment model; questionnaire updated as needed.
  - Questionnaire requests information on banks’ own risk assessment, PEPs, and certain high-risk products or services (e.g., wealth management, correspondent banking relationships).
  - ACPR’s risk assessment also draws from an annual report on internal controls, prudential supervision, feedback from Tracfin, and other sources.
  - Banks are assigned one of four risk ratings: very high risk, high risk, moderate risk, low risk.
  - Table: ACPR’s Risk-Rating of Banks—2017:
    - Very High Risk: Banks 4
    - High Risk: Banks 39
    - Moderate Risk: Banks 136
    - Low Risk: Banks 95
  - Beginning in fall 2018, analyses have been facilitated by a new tool (SABRE) enabling more cross-cutting and comparative analyses.
- On-site inspections:
  - ACPR’s on-site inspections concentrate on large financial groups and appear to be of high quality.
  - AML/CFT inspections are carried out by the on-site unit which covers both prudential and AML/CFT aspects separately (for FIs subject to ECB’s supervision) or in parallel.
  - For large groups subject to ECB prudential supervision, there has been close collaboration between the ACPR and the ECB through JSTs.
  - Regular meetings between ACPR and ECB to exchange information and findings, facilitated by an agreement signed in accordance with Article 57a of the 5th EU AMLD.
  - Main French banking groups are inspected by ACPR for AML/CFT almost every year with different themes often tied to specific lines of products such as wealth management deemed high-risk.
  - Inspections normally last for several months and are thorough and of high quality.
  - Priority inspection areas include group-level AML/CFT controls, implementation of TFS related to TF, and practices of suspicious transaction filing.

*Source: 1fraea2019009 - 21.   Outreach to the private sector is considered critical to authorities’ CFT efforts. Tracfin*

### 37.   The ACPR’s inspections of smaller banks that are not part of a group are far less

### 37.   The ACPR’s inspections of smaller banks that are not part of a group are far less

### Banks: supervision, inspections, and sanctions
- Frequency and triggers:
  - The number of annual on-site inspections in the past three years has varied from 11 to 18.
  - Many smaller banks rated as very high-risk or high-risk may be inspected every four to five years at best under the current approach.
  - Inspections of smaller banks rated as high-risk are often triggered by alerts from Tracfin about lack of reporting of suspicious transactions or serious concerns about the quality of STRs.
  - For banks not inspected, ACPR oversight relies heavily on off-site monitoring, including review of questionnaire returns and an annual meeting to convey ACPR’s expectations.
  - ACPR can obtain information through a bank’s internal audit reports, but this is not a systematic practice.
- Sanctions framework and timelines:
  - A wide range of sanctions are available: cease and desist orders, financial penalties, reprimand, and action letters.
  - The amount of fines ranges from EUR 70,000 to 50 million.
  - Cease and desist orders and action letters are at the ACPR executive committee’s discretion; financial penalties and reprimand must be referred to the Sanctions Committee (independent from the executive committee).
  - Cease and desist orders and action letters are often issued shortly after inspections; the process for penalties takes at least one to two years to finalize.
  - One recent case: the Sanctions Commission issued the penalty two years and five months after the on-site inspection ended.
  - The extended lag may cause misalignment between inspection findings and the bank’s AML/CFT measures when the penalty is issued; issuance of penalties within a shorter period would enable more timely impact.
- Table 7: Banks: AML/CFT On-site Inspections and Sanctions
  - Number of Banks Inspected:
    - 2015: 12
    - 2016: 18
    - 2017: 11
    - 2018: 13
  - Cease and Desist Orders Issued:
    - 2015: 0
    - 2016: 1
    - 2017: 8
    - 2018: 7
  - Penalized:
    - 2015: 1
    - 2016: 2
    - 2017: 4
    - 2018: 4
  - Action Letters Issued:
    - 2015: 9
    - 2016: 5
    - 2017: 9
    - 2018: 7

### Real estate agents and company domiciliation agents: oversight and enforcement
- Sector size and roles:
  - Estimated numbers: 20,000-25,000 real estate agents, 30,000-35,000 commercial agents and around 3,000 company domiciliation agents.
  - Commercial agents may assist with negotiation but are prohibited from holding clients’ assets; they may engage in real estate transactions as mandated by the real estate agent.
  - Company domiciliation agents provide addresses and simple management services; they are not involved in company formation.
- Regulatory responsibilities and licensing:
  - Real estate agents require a license from the chambers of commerce and industry (chambres de commerce et d’industrie).
  - Certificates for commercial agents (when used) are issued by the chambers of commerce and industry.
  - Company domiciliation agents are subject to approval issued by the prefectures.
  - Real estate agents, commercial agents (when engaging in real estate transactions), and company domiciliation agents are all subject to AML/CFT requirements, but commercial agents are not monitored for compliance.
- DGCCRF risk understanding and supervisory practice:
  - DGCCRF uses the NRA as the main source for ML/TF risk understanding.
  - Considered high-risk factors for real estate agents: serving corporate clients, dealing in high-end properties, operating in certain geographic (border, touristic, etc.) regions, susceptibility to underground economy, and not being part of a franchise network.
  - Considered high-risk factors for company domiciliation agents: primarily geographic (i.e., bordering regions and large cities).
  - DGCCRF indicates applying an RBA by developing instructions to inspection teams but has not developed a model to assess risks systematically nor collects data for such purposes.
- Coverage and resources:
  - AML/CFT supervision is conducted by around 120 staff nationwide (including OSTs), but the level of resources devoted to AML/CFT is unknown.
  - DGCCRF’s annual on-site inspection program typically covers 150–200 real estate agents, and 30–40 company domiciliation agents.
  - Inspections broadly target agents deemed high-risk and agents previously found deficient and sanctioned.
  - Inspections can be triggered by feedback from Tracfin, but to date this has not occurred because of low sector reporting.
- Table 8: Real estate agents and company domiciliation agencies AML/CFT On-site Inspections and Reports transmitted to CNS for Sanctions
  - Real estate agents Inspected:
    - 2015: 14
    - 2016: 162
    - 2017: -
    - 2018 (partial): 201
  - Real estate agents Reports transmitted to CNS for sanctions:
    - 2015: 6
    - 2016: 57
    - 2017: -
    - 2018 (partial): 41
  - Company domiciliation agents Inspected:
    - 2015: 21
    - 2016: 31
    - 2017: 41
    - 2018 (partial): 39
  - Company domiciliation agents Reports transmitted to CNS for sanctions:
    - 2015: 7
    - 2016: 7
    - 2017: 10
    - 2018 (partial): 16
- CNS sanctions and timelines:
  - CNS administrative sanctions: warning, reprimand, temporary suspension up to five years, withdrawal of approval or professional license, and a pecuniary penalty up to EUR 5 million.
  - In the past few years, the CNS handled about 20–30 cases per year.
  - For pecuniary sanctions, amounts range from 500 € to 200,000 €, and the median amount is between 2,000 € to 3,000 €.
  - Among cases totaling more than 300, real estate agents and company domiciliation agents combined represent about 97 percent of all cases.
  - The process of finalizing CNS rulings generally takes more than one year to conclude.
  - DGCCRF empowered to issue injunctions to require corrective measures since October 2018, but these powers have not been used to date.
  - Follow-up inspections are delayed because of the lag between identification of deficiencies and CNS sanctions.

### Lawyers: oversight and monitoring
- Institutional responsibilities:
  - Local bar associations are responsible for monitoring lawyers’ implementation of AML/CFT obligations and imposing sanctions; CNB represents lawyers to public authorities but has no oversight functions.
- Risk understanding and gaps:
  - CNB considers certain activities susceptible to money laundering: advising on company formation and management and assisting clients in real estate transactions.
  - CNB’s understanding of main sources of proceeds of crime to be laundered by abusing lawyers’ services could be further developed.
  - It is unclear to what extent local bar associations understand ML/TF risks faced by their members.
- Monitoring practices and triggers:
  - Checks by local bar associations are often triggered by complaints of clients or issues flagged by CARPAs (Caisse des Règlements Pécuniaires des Avocats), many of which may not be AML/CFT related.
  - Paris CARPA: among 307 such instances in 2018, none was associated with suspicion of ML; Paris CARPA does not flag these cases to the Bar association for follow-up on the lawyers involved.
  - CNB is not involved in these activities and currently does not collect information in this regard.
  - CNB established a committee on AML/CFT in July 2018 to facilitate monitoring and promote consistency; the committee became operational in January 2019.
- Note: Paris Bar Association represents around 50% of all lawyers in France.

### Recommendations (authorities should consider)
- Banks: ACPR to
  - Increase supervisory activities in smaller banks rated as high-risk, and allocate additional resources for on-site inspections as needed;
  - Explore ways to shorten the time needed for imposing penalties.
- Real estate agents and company domiciliation agents:
  - Informed by the NRA findings, DGCCRF to conduct systematic assessments of ML/TF risks of real estate agents and company domiciliation agents and review level of resources accordingly;
  - Ensure commercial agents, when engaging in real estate transactions, are monitored for compliance with AML/CFT requirements. To this effect, consideration should be given to holding real estate agents accountable for breaches by the commercial agents that they work with;
  - CNS to ensure sanctions imposed are dissuasive and proportionate; DGCCRF to use its injunction powers to direct the agents to take remedial measures and follow up in a timely manner.
- Lawyers:
  - Informed by the NRA, CNB to promote unified understanding of ML/TF risks among local bar associations including by issuing guidance;
  - CNB and local bar associations to develop consistent approaches to risk-based monitoring program, procedures and disciplinary actions;
  - CNB to collect and analyze information on monitoring and disciplinary actions taken by local bar associations.

### Mobilizing AML/CFT framework to tackle cross-border crimes — Understanding of risks
- Nature and sectors affected:
  - Main foreign offenses generating proceeds laundered in France: foreign corruption, swindling, tax fraud, and drug trafficking.
  - Sectors particularly vulnerable: high-end real estate market and luxury goods.
  - Tracfin identified illegal import/export businesses and trade-based ML schemes specific to the Asia Pacific region as significant ML threats.
  - Tracfin’s latest Report on Trends and Analyses further identifies corrupt acts in the international energy and commodities market as yielding illicit flows that transit through France.
  - Typologies provided to the COLB in the NRA exercise confirm threats from foreign corruption (and foreign PEPs) and the susceptibility of France’s luxury real estate sector to channeling illicit flows; common pattern: use of corporate vehicles established in low tax jurisdictions to conceal ownership.
- Authorities’ understanding:
  - Law enforcement agencies are most attuned to cross-border scenarios and frequencies.
  - Authorities are more aware of outflows (domestic crimes’ proceeds leaving France) and less aware of inflows (illicit proceeds generated abroad entering France).
  - Publication of the NRA may improve overall understanding of such threats.

### Prevention and detection of cross-border ML risks
- Supervisory and private sector responses:
  - ACPR focus: group-level AML/CFT programs to ensure effective controls in groups’ overseas operations.
  - DGCCRF supervisory activities target geographic regions exposed to higher cross-border risks.
  - Low level of oversight over lawyers is not commensurate with their risk profile.
  - Banks met by the mission are aware of cross-border risks (foreign corruption, tax crimes associated with tax havens, trade-based ML, and wire transfers involving high-risk jurisdictions) and often heighten attention to customers such as PEPs and certain geographic regions.
- Reporting gaps:
  - Very low level of STRs filed by DNFBPs exposed to cross-border risks, in particular real estate agents, company domiciliation agents, and lawyers, suggests insufficient understanding and mitigation among these sectors.
  - Authorities view current STR reporting by these sectors as not commensurate with their risk profile.
  - Mandatory involvement of notaries in real estate transactions may mitigate risks to some extent, but Tracfin reports numbers of STRs filed by notaries remain low compared to number of real estate transactions being carried out.

*IMF — FRANCE report excerpt*

### 52.   France has been steadily strengthening efforts to combat economic and financial

### 1fraea2019009 - 52.   France has been steadily strengthening efforts to combat economic and financial

### Institutional framework to combat economic and financial crime
- France established a new dedicated agency within the judicial police — a Central Office on Corruption and Financial and Tax Offenses (OCLCIFF) in 2013 to complement the long-standing OCRGDF.
- OCRGDF and OCLCIFF are specialized departments in the police that also include members of the gendarmerie and have national jurisdiction over offenses falling within their mandate.
- The national financial prosecutor (PNF) was established in 2013, began activities in March 2014, and is currently staffed with 18 prosecutors.
- The PNF shares competence with inter-regional specialized courts (jirs) but handles the majority of financial offense cases other than those involving organized crime or high-level tax fraud or involving financial markets.
- Investigations in France are led by prosecutors or investigating magistrates; the PNF drives the majority of complex ML investigations.

### Prosecution, investigative capacity, and cooperation among domestic bodies
- Since 2015 the PNF began including the gendarmerie in the fight against financial crime; new recruits in the gendarmerie are now required to undergo a ten-week training program on financial crime.
- Both the national gendarmerie and police separately have good collaboration with the PNF and with other authorities (e.g., the jirs, economic and financial sections of the district attorney's offices).
- Both competition and complementarity appear to exist in investigative bodies that share competence for investigating financial crime; information sharing between agencies remains limited.

### Cross-border dimensions of money laundering (ML)
- Many offenses within OCRGDF and OCLCIFF (e.g., tax crimes, fraud) occur domestically but generate proceeds that are laundered abroad.
- In 2016, Tracfin sent 350 alerts to the tax authority:
  - 85 percent of these alerts dealt with individuals’ private assets.
  - 15 percent involved tax offenses by legal entities, primarily in the area of VAT fraud.
- Suspicious transaction reports (STRs) frequently related to foreign bank accounts in countries bordering France or in tax havens, undeclared professional activities, and undeclared foreign assets.
- The PNF reports most cases concern domestic predicate offenses; however, an estimated 80 percent of the PNF’s cases have an international dimension, including many involving foreign bank accounts or corporate structures.
- The PNF does not keep statistics distinguishing cross-border cases based on domestic crimes resulting in illicit outflows versus cases where foreign criminal activity generates proceeds laundered in France.

### Use of financial intelligence and case characteristics
- Prosecutors affirm disseminations by Tracfin are of good quality and support operational needs.
- Tracfin reported handling approximately fifty money laundering cases per year related to corruption in its 2016 Trends and Analyses report.
- Such cases included proceeds arising from bribery of foreign public officials by French actors in international markets, and corruption by foreign PEPs.
- Individual domestic and cross-border cases handled in 2015 involved amounts ranging from a few tens of thousands of euros to more than ten million euros.

### International cooperation and challenges
- Tracfin cooperates closely with foreign FIUs, particularly European ones, and routinely exchanges information with Luxembourg, Belgium, Switzerland, and the United Kingdom.
- France regularly receives spontaneous transmissions from Jersey and Guernsey relating to assets of French citizens and residents; France does not systematically collect and use statistics on how exchanges contributed to domestic cases.
- French law enforcement agencies cooperate bilaterally and multilaterally (e.g., Interpol, Europol, Eurojust) and have used joint investigative teams and information sharing to obtain effective collaboration in many instances.
- Challenges remain obtaining cooperation from all counterparts worldwide, particularly in cases of foreign corruption; in some cases French law enforcement have leveraged financial information from countries with strong relations (example cited: the United States, through which 90 percent of global financial flows will pass).

### Recommendations on cross-border ML flows
- Promote better understanding of risks associated with cross-border crimes and mitigation of such risks among DNFBPs by providing more guidance on typologies, risk assessment and risk-based mitigating measures (apart from recommendations under Chapter 3 for the ACPR, the DGCCRF, and the CNB).
- Tracfin and law enforcement and prosecutorial bodies should generate and maintain more granular statistics on cross-border cases to help monitor the effectiveness of AML/CFT measures in tackling cross-border flow of criminal proceeds.

### Fintech landscape and AML/CFT implications
- Definitions and market composition:
  - Broad notion of Fintech in France encompasses transfer and payment services without using a bank account, crowd-lending, crowd-financing, E-money, and activities involving crypto assets.
  - There are around 300 Fintech firms (financial aspects outweigh technological aspects).
  - There are around 200 Techfin businesses (technological aspects outweigh financial aspects) using technologies such as artificial intelligence, machine learning, or block chains.
  - ACPR estimates payment services and E-money services constitute around half of the French Fintech (in the strict sense) market while crowd-funding intermediaries constitute about a quarter.
- Crypto sector:
  - As of November 14, 2018, the AMF has known of 83 initial coin offerings (ICOs):
    - 15 were completed.
    - 3 were in progress.
    - 65 were planned.
  - An AMF study found that ICOs represented 4% of financing in equities over the same first three quarters of 2018.
- Supervision and regulatory coverage:
  - Scope of persons and entities subject to AML/TF obligations was expanded to e-money institutions in 2013; crowd-financing advisors and intermediaries in 2014; and platforms that convert crypto assets to fiat currencies in 2016.
  - Payment service providers and E-money institutions are licensed and supervised by ACPR.
  - Crowd-funding advisors and intermediaries are registered with ORIAS and have been subject to supervision of AMF and ACPR respectively for consumer protection and AML/CFT since 2014.
  - Platforms that convert crypto assets to fiat currencies are subject to AML/CFT obligations but, at the time of the mission, were not licensed/registered or supervised.
- Institutional engagement and policy dialogue:
  - ACPR set up Fintech Innovation Unit in 2016 with tasks including assessing impact of Fintech on banking and insurance sectors, engaging in policy discussions, and exploring innovation opportunities.
  - A similar unit was set up under the AMF.
  - A Forum on Fintech was established in 2016, co-chaired by ACPR and AMF Fintech units, with members including MEF, CNIL, Tracfin, ANSSI, and private sector representatives.

### Legislative developments related to crypto assets (PACTE bill)
- The PACTE bill (adopted by the parliament on April 11, 2019) proposes:
  - Mandatory registration with the AMF (after consultation of the ACPR) of service providers related to (i) the custody of digital assets or keys on behalf of third parties, and (ii) the purchase or sale of digital assets against fiat currencies. Registration is subject to ACPR review and will only be accepted after assurance that the provider has implemented internal control procedures required to comply with basic AML/CFT obligations.
  - An optional label offered by the AMF entailing a fuller range of AML/CFT obligations for providers of services including the exchange of digital assets against other digital assets, crypto exchanges organized as trading venues with a central book order, receipt and transmission of orders for digital assets, execution of orders, dealing on own account, third-party management of digital asset portfolios, and placing crypto assets.
  - An optional label (“visa”) offered by the AMF to initial coin issuers that meet qualitative criteria (including on AML/CFT measures) and provide guarantees.
  - AMF’s and ACPR’s powers to supervise and sanction labelled providers.
  - ACPR’s powers to supervise and sanction registered but not labelled providers.

### Recommendations on Fintech and crypto-related AML/CFT
- Continue efforts to align the legal framework with EU AMLD5 and the recently revised FATF standard (October 2018) in a collaborative and inclusive manner and ensure effective implementation.

*Source: IMF staff report content unit 1fraea2019009 - excerpt on France’s efforts to combat economic and financial crime, cross-border ML, and Fintech (PDF chapter/section).*

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_Source: https://www.imf.org/-/media/files/publications/cr/2019/1fraea2019009.pdf_