## 083102 ## Source details **Canonical URL:** [083102](https://www.imf.org/-/media/files/publications/ofca/english/083102.pdf) ## Other formats - [Markdown version](/-/media/files/publications/ofca/english/083102.pdf.md) - [Structured JSON version](/-/media/files/publications/ofca/english/083102.pdf.json) --- ### Preface — scope, team, and executive summary - At the request of the Minister of Finance of the Principality of Andorra, an MAE mission conducted a Module 2 assessment of regulatory and supervisory arrangements for the financial sector during February 4–14, 2002 (Module 2 approach described in SM/00/136, Offshore Financial Centers—The Role of the IMF). - Assessment coverage and team: - Covered Basel Core Principles for Effective Banking Supervision and anti-money laundering mechanisms using the IMF and World Bank expanded AML methodology. - Team led by Michael Moore (Monetary and Exchange Affairs Department, IMF) and included Moni Sengupta (Legal Department, IMF), Saul Carpio (banking supervision expert, US Comptroller of the Currency), Marie-Christine Dupuis (anti-money laundering expert, United Nations Global Program against Money Laundering), and Guillaume Leroy (insurance consultant). - Key statistics (at end-September 2001) — IMF Module 2 assessment of the Principality of Andorra: - Eight licensed banks with total assets of 11.8 billion euros. - Spanish banks control five of the eight banks, or 71 percent by assets. - Three locally controlled Andorran banks represent 29 percent by assets. - Banks' customer deposits: 8.3 billion euros. - Third party investments in custody: 12.7 billion euros. - High-level conclusions: - Financial sector supervision generally sound with respect to material activities; banking activities represent in excess of 95 percent of all financial sector activities. - Anti-money laundering compliance: generally high compliance with international standards; INAF, UPB and Ministry of Finance undertaking efforts to address principles/recommendations not fully compliant. - INAF staff demonstrate professionalism and knowledge of supervised institutions; INAF funding framework strained with limited capacity to increase activity. - Securities activity limited and highly integrated with banking; insurance sector estimated to be less than 1 percent of financial system assets and requires regulatory strengthening. ### Regulatory and institutional framework — roles, laws, and preconditions - Institutional responsibilities: - Ministry of Finance: ultimate authority; final approval of regulations, sanctions, and licenses at request of CSF and INAF. - Comissió Superior de Finances (CSF): reports to Ministry of Finance; highest executive body supervising the financial system; imposes disciplinary action; President is the Minister of Finance; Vice President is Director General of INAF. - Institut Nacional Andorrà de Finances (INAF): day-to-day monitoring of financial institutions (except insurance) under 1993 INAF Law; monitoring compliance, limited onsite inspection powers, initiate laws/regulations, calculate solvency/liquidity ratios, and initiate disciplinary proceedings for submission to CSF. - Unitat de Prevenció del Blanqueig (UPB): established 2001; exclusive jurisdiction over money laundering investigations and supervision under the 2000 AML Law. - Key laws and regulatory instruments (as cited in the assessment): - Solvency and Liquidity Law (1996): minimum capital ratio of 10 percent; minimum liquidity ratio of 40 percent. - 1996 Capital Law: minimum capitalization requirement equal to Ptas 5 billion or approximately EUR 30 million. - 1997 Disciplinary Law: corrective actions and professional duties. - 1998 Creation Law and 1998 Bank Administration Law: authorization requirements, external audit, foreign ownership up to 51 percent. - 2000 AML Law (Law on International Criminal Cooperation and Combating the Laundering of Money or Valuables Resulting from International Crime): enacted December 29, 2000; came into force in June/July 2001 (text references both dates—Law passed December 2000 and came into force in July 2001). - 2000 Decree: approved Chart of Accounts imposing accounting principles for Andorran financial institutions. - Preconditions and strengths/weaknesses: - Legal framework for banking largely keeps pace with international developments; insurance legislation out-dated and regulatory mechanism weak. - External auditors play a central role; INAF relies on complementary audits but lacks routine own onsite inspection activity since 1989. ### Basel Core Principles assessment — compliance and key findings - Overall compliance summary (mission assessment): - Compliant with 14 Basel Core Principles. - Largely compliant with 13. - Materially non-compliant with 2. - BCP-24 (contact with host country supervisors) rated Not Applicable due to absence of material/active foreign offices. - Institutional and market structure facts: - Eight banks; five substantially controlled by Spanish banks. - Assets: 11.8 billion euros; off-balance sheet activity of 21.6 billion euros in third party custody at end-September 2001. - Banking serves residents and non-residents with substantial business with Spain and France. - Legal and supervisory parameters (selected exact metrics and provisions preserved): - Minimum capital ratio: 10 percent (1996 Solvency and Liquidity Law). - Minimum liquidity ratio: 40 percent (1996 Solvency and Liquidity Law). - Minimum capitalization requirement: Ptas 5 billion or approximately EUR 30 million (1996 Capital Law). - License revocation requires Finance Minister authorization (Disciplinary Law process). - Deposit guarantee scheme (1995 Law regulating bank reserves): banks deposit 2.25 percent of their assets net of capital and interbank deposits on behalf of the government into a fund administered by INAF; operational use details unclear. - External auditor sanctions: fines up to approximately euros 150,000 and suspension from working in Andorra for up to five years or permanently. - Customer records retention under AML law: minimum of ten years. - External auditor rotation: every five years. - Specific principle assessments and notable facts (selection): - Principle 1(1) Objectives, autonomy, powers: Assessment — Materially non-compliant. Fact: INAF processes encumbered by prior approval/consent requirements of Finance Minister and CSF; INAF fund size approximately 12 million euros. - Principle 6 Capital adequacy: Assessment — Compliant. Fact: 10 percent minimum capital adequacy; capital adequacy reported quarterly and broadly consistent with Basle Accord. - Principle 16 Onsite and Offsite Supervision: Assessment — Largely compliant. Fact: INAF conducts off-site compilation/analysis of quarterly data; INAF has not conducted own onsite examinations since 1989. - Principle 20 Consolidated Supervision: Assessment — Largely compliant. Fact: insurance companies represent less than 1 percent of financial sector and are largely lodged in banks under INAF supervision. - Principle 25 Supervision over foreign banks’ establishments: Assessment — Materially non-compliant. Fact: Bank of Spain restricted from onsite inspections or visits to Andorran subsidiaries; five of eight Andorran banks controlled by Spanish banks. ### Recommendations and policy priorities (Basel/INAF-focused) - Institutional and legislative reforms: - Strengthen INAF’s autonomy: greater independence for funding and staffing; authority to determine regulation/supervisory policy within law; ability to conduct onsite inspections; budget independence; formal assignment of insurance supervision to INAF. - Remove prior approval encumbrances that impede prompt enforcement by INAF. - Amend legislation to allow INAF to enter into arrangements with foreign supervisors to facilitate consolidated supervision. - Supervisory capacity and practices: - Develop INAF credible onsite inspection capacity and deepen oversight of external auditors; increase INAF budget beyond current levels. - Expand complementary audit scope to include off-balance sheet activities (custody services), IT security, disaster recovery, and detailed testing of related-party/connected lending. - Require external auditors to opine explicitly on management information systems adequacy for monitoring concentration limits and on loan loss provisioning. - Foster market discipline by encouraging improved disclosures and developing a private-sector credit bureau. - Avoid assigning ancillary, non-supervisory functions to INAF to preserve limited supervisory resources. - Consolidated supervision and foreign cooperation: - Facilitate bilateral communication with home-country supervisors (e.g., Bank of Spain) at least once a year or as mutually agreed. - Build INAF capacity so home supervisors can rely on Andorran supervision. ### Mission recommendation on deposit guarantee fund (1995 Law) - The mission recommended the Finance Ministry and INAF: - Review the 1995 Law regulating bank reserves used to guarantee deposits. - Together with industry, develop implementing regulations and policies to guide authorities in using the guarantee fund to: - provide liquidity; and - effect the orderly resolution of a troubled financial institution. ### Internal control, audit, and AML supervisory interface - Internal control and audit (Principle 14): Assessment — Largely compliant. - Recommendations: - Ensure complementary audits review internal controls for growing off-balance sheet activities (custody services) and segregation of bank activities from client operations. - External auditors should test and conclude on independence of internal audit and Board oversight of audit function. - Money laundering (Principle 15): Assessment — Compliant. - 2000 AML Law elements preserved exactly: - Identity verification via official document with photograph; domicile and professional activity information required; customer records retained for minimum of ten years. - Article 46 suspicious transaction reporting to UPB; Article 50 legal protection from liability for reporting to UPB. - UPB sanctions under Articles 57–59 with fines of 600 to 600,000 euros and temporary or permanent suspensions; UPB may share information with domestic judicial authorities, INAF, and foreign FIUs subject to reciprocity/confidentiality (Articles 53, 55, 56). - Comment: UPB relies primarily on external auditors given limited resources; first external audit reports expected March 2002 to assess efficacy. - Recommendation: Establish formal mechanism to ensure necessary information is passed between UPB and INAF. ### Onsite/offsite supervision, validation, and offsite reporting (Principles 16–19) - Onsite/offsite supervision (Principle 16): Assessment — Largely compliant. - INAF conducts off-site analysis of quarterly data using Chart of Accounts; complementary audits required annually; INAF has not performed own onsite examinations since 1989. - Recommendation: Prepare semi-annual integrated risk assessments from quarterly data, auditor discussions, banker meetings, and macro conditions yielding supervisory follow-up. - Validation of supervisory information (Principle 19): Assessment — Largely compliant. - INAF relies on external auditors and imposes auditor rotation every five years; expand complementary audit scope with explicit core requirements (listed in assessment). - Offsite supervision (Principle 18): Assessment — Compliant. - Fact: Quarterly financial statements required on individual and consolidated basis; Chart of Accounts implemented 2000. ### Remedial measures and enforcement (Principle 22) - Assessment — Compliant. - 1997 Disciplinary Law provides administrative/corrective orders and financial penalties in three levels depending on severity. - License revocation and severe sanctions require INAF recommendation to CSF/Finance Minister; enforcement process encumbered by prior approvals but range of actions judged adequate. ### Key numeric and procedural facts preserved from the assessment - Customer records retention requirement: minimum of ten years. - External auditor rotation: every five years. - UPB sanction fines range: 600 to 600,000 euros. - Auditor fines and suspension: fines up to approximately euros 150,000 and suspension from working in Andorra for up to five years or permanently. - Off-balance sheet activity of banks: 21.6 billion euros in third party custody at end-September 2001. - First external audit reports under the 2000 AML Law: anticipated in March 2002. - INAF fund size: approximately 12 million euros. - Banks' customer deposits: 8.3 billion euros. - Third party investments in custody: 12.7 billion euros. ### AML/CFT assessment — legal framework, UPB, and implementation (IMF AML/CFT Methodology) - Assessment scope and methodology: - Applied AML/CFT methodology for legal/institutional framework and financial supervisory principles; reviewed legislation, UPB regulations, and conducted interviews with MOF, UPB, Ministry of Foreign Affairs, Ministry of Interior and Justice, Police, judiciary, three of six banks, ABA, KPMG and Arthur Andersen. - Legislative and chronological facts: - Money laundering criminalized in 1990; scope broadened in 1995. - 2000 AML Law enacted December 29, 2000 and effective June/July 2001; Internal Rules finalized March 27, 2002. - Andorra signed UN Convention for Suppression of Financing of Terrorism on November 10, 2001 and UN Convention on Transnational Organized Crime on November 12, 2001. - UPB structure, powers and resources: - UPB operational on July 24, 2001; Internal Rules published in Official Journal. - UPB composition (statutory): minimum 3 and maximum 5 members (excluding supporting staff): up to two financial experts appointed by Minister of Finance; one magistrate (batlle) appointed by Supreme Justice Council; up to two Police members appointed by Minister of Interior; provisional 2002 budget for current goods/services: 60,101.21 euros (exclusive of staff salaries). - UPB staffing at assessment: Executive Director (banking background), a Police Officer, a Magistrate (Batlle) and a Secretary; temporary KPMG consultant for 3 months at creation. - UPB authorized to request external audit reports and to freeze assets administratively for up to five days (Article 47) pending judicial action; UPB has seized USD 1,800,000 (operational result). - Scope of regulated entities: - 2000 AML Law applies to banks, wealth management institutions, insurance and reinsurance companies, outside accountants and tax advisers, real estate agents, notaries and independent legal professionals in specified activities, and dealers of high value goods when payment in cash exceeds 15,000 euros. - Customer due diligence, STRs and recordkeeping (exact legal provisions preserved): - Article 51.c.1: identity established by official document bearing a photograph, domicile and professional activity. - Article 51.f and Internal Rules: client identity documents and transaction records maintained for no less than ten years from relationship conclusion. - Article 46: STRs required where “any operation or planned operation regarding money or valuable with respect to which there are suspicions of an act of money laundering.” - Article 50: reporting to UPB exempt from criminal provisions on bank/professional secrecy; Article 49 prohibits tipping-off. - UPB Comunicat Tecnic dated January 14, 2002 specifies auditors’ report content and requires submission no later than three months following closure of the exercise. - Implementation and supervisory practice: - Since July 2001, UPB received 24 suspicious transaction reports, all from banks. - Audit firms produced systems for client due diligence and detection; ABA training programs prior to 2000 AML Law reached approximately 80 percent of bank employees. - External auditors required to submit special audit reports on AML compliance for UPB; first reports expected March 30, 2002 (assessment notes March 30 and March 31 deadlines in different parts). - Confiscation and provisional measures: - Penal Code Article 147 mandates confiscation for laundering crimes; Article 38 (2000 AML Law) extends provisional freezing/confiscation to instruments, proceeds, money, valuables or assets from “major crimes.” - Judicial provisional freezing rulings generally resolved within 30 days; judge must act on requests to lift measures within 15 days. - International cooperation: - UPB authorized to cooperate with foreign FIUs subject to reciprocity/confidentiality; bilateral agreements with SEPBLAC (Spain) and TRACFIN (France) expected by end-March 2002; UPB accepted by Egmont Group on 01/23/02 pending Plenary in June 2002. - Controls on cash transactions (informational): - No national currency monitoring or formal cross-border cash reporting; UPB/Internal Rules and bank practices place operational limits: non-client exchanges often limited to 300 euros (some banks), up to 1,500 euros with identification, clients up to 6,000 euros with higher approvals; draft Comunicat Tecnic and Internal Rules set further guidance. - Recommendations (AML/CFT): - Legal: expand predicate crimes in Penal Code consistent with Palermo Convention; address bona fide third party rights in confiscation; provide confidentiality protection for UPB records/operations; assess constitutional protections for UPB members. - Organizational: assess UPB resource needs and consider increasing staff to statutory maximum of five; formalize communication mechanism between UPB and INAF; evaluate suspicious transaction reporting mechanism as volumes increase. - External audit process: formalize receipt of unedited external audit reports by UPB; preparatory meetings between auditors and UPB; UPB to establish follow-up procedures and consider interim external audits where serious deficiencies exist. - Banking-specific: require auditors to sample numbered accounts; extend fit-and-proper requirements to all bank employees and require criminal record screening for new hires; provide additional guidance to banks on handling customer complaints when UPB blocks transactions. - FATF Recommendations compliance table — indicative findings preserved (selected): - Many FATF Recommendations and Special Recommendations (SR1–SR8) assessed with positive indications (grading columns marked X in the assessment), including criminalization of ML, recordkeeping for 10 years, STR requirements, legal protection for reporting, coverage of non-banks, and wire transfer customer identification (Article 51). ### Part 2 — AML/CFT in the banking sector (Module 1) — supervisory practices and actions - Organizational arrangements and supervisory interaction: - After 2000 AML Law, UPB holds exclusive supervisory authority for AML/CFT in banks; UPB requested external audit reports for period ended December 31, 2001 to be submitted by March 31, 2002. - UPB does not plan bank-specific training because banks/ABA maintain in-house training; UPB should formalize mechanism to inform INAF of prudentially-relevant AML weaknesses. - Customer identification and due diligence (banking sector): - Banks require physical customer presence to open accounts; use software-based risk scoring for customer risk; apply heightened central scrutiny to high-risk customers including beneficial ownership review; numbered accounts subject to CDD. - Wire transfers: limited to known customers; inconsistent transfers held pending support and may generate STRs. - Monitoring, reporting, recordkeeping and auditing: - STRs received by UPB since July 2001: 24 (all from banks). - Recordkeeping: statutory minimum ten years; banks often retain records for thirty years. - External auditors central to UPB monitoring; UPB relies on external auditors for bulk of compliance verification but may independently verify audit results. - UPB recommendations for auditors: prescribe sample sizes for transaction/account testing (including numbered accounts); ensure auditor reports submitted unedited to UPB; consider preparatory auditor meetings and follow-up procedures. - Licensing and fit-and-proper: - Fit-and-proper requirements codified (Articles 13–14 and Law Regulating Operational Activities 19/12/96); UPB does not have defined licensing role but should receive auditor confirmations that banks maintain fit-and-proper procedures. - Consolidated recommendations for banking sector AML/CFT (selected): - Evaluate UPB resources and consider staffing to statutory maximum of five. - Formalize communication protocol between UPB and INAF. - Ensure unedited submission of external auditors' AML reports to UPB and enable UPB to meet auditors directly. - Review and refine STR guidance and external audit scope after initial implementation experience. *Source: IMF Module 2 assessment of the Principality of Andorra (February 4–14, 2002), Preface and chapters I–III, Principles assessments, and AML/CFT modules as contained in the provided content.* ### Preface................................................................................................................. ### Preface ### Preface: scope and team - At the request of the Minister of Finance of the Principality of Andorra, an MAE mission visited Andorra during February 4–14, 2002, to carry out a Module 2 assessment of regulatory and supervisory arrangements for the financial sector. - The assessment used the “Module 2” approach described in SM/00/136, Offshore Financial Centers—The Role of the IMF. - The assessment covered compliance with the Basel Core Principles for Effective Banking Supervision and evaluated anti-money laundering mechanisms using the IMF and World Bank expanded AML methodology. - The assessment team was led by Michael Moore (Monetary and Exchange Affairs Department, IMF) and included Ms. Moni Sengupta (Legal Department, IMF), Mr. Saul Carpio (banking supervision expert, US Comptroller of the Currency), Ms. Marie-Christine Dupuis (anti-money laundering expert, United Nations Global Program against Money Laundering), and Mr. Guillaume Leroy (insurance consultant). - The mission held discussions with the Finance and Justice Ministries, INAF, the UPB, banks, the bankers association, audit firms, a bank rating firm (Fitch-IBCA), insurance brokers/agents, and officials from the Bank of Spain regarding consolidated supervision arrangements. ### Executive summary: key findings and statistics - At end September 2001: - There were eight licensed banks in Andorra with total assets of 11.8 billion euros. - Spanish banks control five of the eight banks, or 71 percent by assets. - The remaining three locally controlled Andorran banks represent 29 percent by assets. - Banks' customer deposits were 8.3 billion euros. - The value of third party investments in custody had grown to 12.7 billion euros. - The mission’s overall conclusion: financial sector supervision is generally sound with respect to material activities of the financial system, reflecting that banking activities represent in excess of 95 percent of all financial sector activities. - Anti-money laundering compliance: generally high compliance with international standards; efforts are underway by INAF, the UPB and the Ministry of Finance to address principles and recommendations not fully compliant. - Institutional observations: - INAF staff demonstrate professionalism and good knowledge of supervised institutions and their activities. - The current funding framework for INAF is strained, with little capacity for increasing its level of activity; the authorities indicate funding can be addressed through the government’s budget process. - Legislation pending should allow greater autonomy of INAF and a more streamlined supervisory mechanism, though the mission noted a cumbersome process to assure INAF’s independence as supervisor. - Securities and insurance sectors: - Securities activity is limited to fund management activities carried out through banks and affiliates and some fund management firms; securities activity increased substantially in the last decade as bank clients channeled deposits to higher-yielding investment funds. - Because securities activities are limited and highly integrated with banking, a full IOSCO assessment was not undertaken; the mission reviewed several IOSCO principles and recommended that securities legislation (now being drafted) bolster INAF’s investor protection mandate. - The insurance sector is estimated to be less than 1 percent of financial system assets; comprehensive statistics are limited. Preliminary recommendations: include insurance supervision formally within INAF’s functions (requiring legislative change), develop a common chart of accounts for insurance providers, and define complementary audit instructions for external auditors consistent with banks. ### Background: regulatory and supervisory framework - Historical and institutional context: - Andorra had a self-regulating banking system until 1993; in 1990 banks signed an accord to self-regulate in line with Basel principles covering capital maintenance, external audit, fit and proper criteria, banking secrecy and anti-money laundering. - The government of Andorra remains the ultimate authority over the financial system through the Ministry of Finance. - Direct regulatory oversight (except for insurance) has been delegated to two bodies: the Supreme Finance Commission (Comissió Superior de Finances - CSF) and the Andorran National Institute of Finance (Institut Nacional Andorrá de Finances, INAF). The insurance sector remains under direct oversight of the Ministry of Finance (authorities are considering moving insurance oversight to INAF). - Roles and responsibilities: - CSF: reports to the Ministry of Finance; highest executive body responsible for supervising the financial system; submits proposals presented by INAF for new banking licenses; liaises between INAF, banks, and judicial bodies; responsible for imposing disciplinary action for non-compliance with prudential requirements and regulations relating to money laundering activities. CSF leadership: President is the Minister of Finance; Vice President is the Director General of INAF; other members include a magistrate and three private-sector professionals. - INAF: established in 1989 as a public financial institution with its own legal personality; responsible for day-to-day monitoring of all financial institutions except insurance under the 1993 INAF Law; functions include monitoring compliance with rules and regulations, limited onsite inspection powers, initiation of laws and regulations, calculation of solvency and liquidity ratios, and initiation of disciplinary or enforcement proceedings for submission to the CSF. - Finance Minister: final authority on approval of regulations, issuance of rulings on administrative sanctions, authorization of on-site inspections by INAF if CSF refuses, sanctions for serious money-laundering violations, and approval of licenses at request of CSF and INAF. - UPB: Unit for Prevention of Laundering established in 2001 with clear responsibilities to ensure compliance by financial institutions with AML laws and regulations; UPB has exclusive jurisdiction over money laundering investigations and supervision under the 2000 AML Law. - Laws and regulatory instruments: - The Law regulating the financial system was passed in November 1993 to provide a general framework; the 1993 INAF Law amended duties of INAF. - Andorra’s AML legal framework is largely contained in the Law on international co-operation on penal matters and of fight against money laundering or proceeds resulting from international criminal activities (2000 AML Law) which came into effect in June 2001; the 2000 AML Law formalizes international mutual cooperation, creates and empowers UPB, provides comprehensive customer due diligence and recordkeeping requirements, and sets detailed suspicious transaction reporting requirements. - Technical communications issued by INAF and UPB supplement the laws; INAF communications are available via its web site. - The legal framework for banking has largely kept pace with international developments; the insurance sector legislation is out-dated and the regulatory mechanism is weak. ### Previous reviews and international assessments - A Fund mission visited Andorra in January 2001 to discuss a Module 1 self-assessment and identify areas for the Module 2 assessment. - The Financial Stability Forum (FSF) grouped offshore financial centers in May 2000; Andorra was placed in Group II (middle ranking) defined as jurisdictions generally seen as having procedures for supervision and cooperation in place, but where actual performance falls below international standards and substantial room for improvement exists. - The Council of Europe’s Select Committee of Experts (PC-R-EV), with two representatives of the Financial Action Task Force, visited Andorra in March 1999 and issued a First Evaluation Report describing the AML regime as resting “on sound bases from both the criminal law and regulatory standpoints.” The PC-R-EV recommended: (i) creation of a separate financial intelligence unit; (ii) expansion of the list of predicate offenses; (iii) enlargement of diligence obligations (know your customer and record keeping) to include non-financial legal and natural persons; and (iv) creation of specific powers for INAF to complement independent external audits. ### Assessment of implementation of the Basel Core Principles: overview - The Basel Core Principles assessment was conducted as part of the Module 2 assessment by Saul Carpio (Office of the Comptroller of the Currency, USA) and Michael Moore (MAE). - Key assessment findings: - Financial sector supervision is generally adequate with respect to material activities, though several areas require strengthening. - Banking activities represent approximately 95 percent of all financial sector activities. - Authorities at INAF and the Ministry of Finance are working to implement recommendations; some require legislative changes and augmentation of resources to assure effective implementation. *Source: Preface and chapters I–III (Executive Summary, Background, and Assessment overview) of the IMF Module 2 assessment of the Principality of Andorra (February 4–14, 2002) as contained in the provided content.* ### 24. There is a high level of compliance with the Basel Core Principles for Effective ### There is a high level of compliance with the Basel Core Principles for Effective Banking Supervision ### Compliance overview - The mission found Andorra is compliant with 14 of the Basel Core Principles, largely compliant with 13, and materially non-compliant with 2. - BCP-24 (contact with host country supervisors) was not applicable due to the absence of material or active offices of Andorran banks in foreign countries at this time. ### Information and methodology used for assessment - The assessment was based on the Core Principles Methodology of the Basel Committee on Banking Supervision (October 1999) and takes into consideration the essential criteria for effective supervision. - Extensive discussions were held with management and staff of INAF, the Ministry of Finance, the banks, bankers association, audit firms and Fitch-IBCA. The mission also met with officials from the Bank of Spain regarding arrangements for consolidated supervision of banks operating in Andorra that are controlled by Spanish banks. - Documents examined included laws and regulations for the financial sector and the authorities’ reply to a detailed IMF questionnaire. The authorities completed a Module 1 self-assessment in the first quarter 2001. ### Institutional and market structure - Andorra’s financial sector revolves around the activities of eight banks. - Of the eight banks, five are substantially controlled by Spanish banks. - The eight banks had assets of 11.8 billion euros, and off-balance sheet activity of 21.6 billion euros concentrated in third party investments in custody at end-September 2001. - The banking system serves clients and depositors residing both in Andorra and abroad, with substantial business activity with residents of Spain and France. ### Legal and supervisory framework and preconditions - Key laws and provisions: - The Solvency and Liquidity Law (1996) establishes a minimum capital ratio of 10 percent, and a minimum liquidity ratio of 40 percent. - The 1996 Capital Law establishes a minimum capitalization requirement equal to Ptas 5 billion or approximately EUR 30 million. - The 1996 Law regulating the operational activities of entities in the financial sector establishes permissible activities for financial institutions. - The 1997 Disciplinary Law provides for corrective actions and strictness in the exercise of professional financial duties and to protect the financial system. - The 1998 Creation Law established requirements for authorization of new banking institutions during 1999 and 2000. - The 1998 Bank Administration Law imposes specific qualification requirements for general management and the requirement for external audit; it allows foreigners to acquire up to 51 percent of the ownership in Andorran banking institutions and specifies disciplinary measures that CSF can impose against external auditors. - The 2000 AML Law (Law on International Criminal Cooperation and Combating the Laundering of Money or Valuables Resulting from International Crime) was passed in December 2000 and came into force in July 2001. - The 2000 Decree approved the Chart of Accounts that imposed accounting principles, criteria, and basic accounting definitions for Andorran financial institutions. - Powers and enforcement: - The Disciplinary Law provides the range of powers available to INAF and the CSF to bring about corrective action for non-compliance; Article 12 permits INAF to recommend enforcement and/or corrective measures, including actions against individuals affiliated with regulated financial institutions. - The most severe power under the Disciplinary Law is the ability to revoke the banking license, which can only be taken with the authorization of the Finance Minister. - External auditors: - The Bank Administration Law (Article 10) defines auditor obligations and possible sanctions. External auditors must report instances where they become aware of suspicious facts or incidents that could gravely affect solvency, liquidity, and stability of banking institutions. - Non-compliance could expose auditors to fines up to approximately euros 150,000 and suspension from being able to work in Andorra for up to five years or permanently. In the past two years there have been no cases involving penalties to auditors. - Deposit guarantee and lender-of-last-resort: - Andorra does not have formal deposit insurance nor a lender of last resort mechanism. - A 1995 Law regulating bank reserves requires all banks to participate in a guarantee fund administered by INAF to guarantee solvency for Andorran banks. Banks must deposit on behalf of the government 2.25 percent of their assets net of capital and interbank deposits. Banks do not receive remuneration for funds placed on behalf of the government; the government receives the benefit from investing the funds. - The operational details of how the fund would be used to resolve a troubled bank are unclear due to limited documentation. ### Findings on supervisory capacity and consolidated supervision - The mission observed reliance on external auditors but recommended development of INAF’s own limited capacity to carry out onsite inspections to review internal controls, credit underwriting and market risk on a case-by-case basis. - INAF’s capacity is affected by inadequate independence and resource constraints: - The deputy general manager position remains unfilled. - Attracting and retaining mid-career qualified staff is strained. - Ability to employ outside experts and provide regular training is uncertain given current funding arrangements. - Consolidated supervision challenges: - Majority of insurance activities are conducted in bank subsidiaries; de facto insurance supervision largely resides with INAF while formal responsibility rests with the Ministry of Finance. - Restrictions on foreign supervisors (e.g., Bank of Spain) to inspect onsite subsidiaries impede consolidated supervision. - Pending legislation to allow INAF to enter into arrangements with foreign supervisors would facilitate consolidated supervision. - Bilateral meetings between INAF and the Bank of Spain at least once a year, or as mutually agreed, would aid communication. ### Recommendations and policy priorities - Strengthen INAF’s autonomy, including greater independence for funding and staffing, and formally assign responsibility for insurance supervision to INAF. - Bolster securities legislation to: - Strengthen INAF's mandate to protect investors by preventing market manipulation and fraud. - Promote market transparency. - Delineate offenses and sanctions under securities law and explicitly provide INAF inspection and enforcement powers over non-bank investment firms. - Give INAF an explicit mandate to ensure banks and investment management firms provide adequate financial disclosure to investors. - Foster greater market discipline by encouraging financial institutions to strengthen financial statement disclosures and promoting development of a private-sector credit bureau to enhance borrower transparency. - Avoid assigning ancillary, non-supervisory functions to INAF (for example, ensuring accuracy of tax reporting by financial institutions), to preserve limited supervisory resources and prioritize banking supervision functions. - Develop INAF’s credible capacity for onsite inspections and deepen oversight of external auditors; this will require increased budgeting beyond current levels. - Formalize insurance supervision responsibilities through legislative revisions to re-assign supervision to INAF. - Facilitate consolidated supervision by: - Amending legislation to allow INAF to enter into arrangements with foreign supervisors. - Increasing frequency of bilateral communication with home-country supervisors (e.g., Bank of Spain) to at least once a year or as mutually agreed. *Assessment conducted by the mission.* ### 41. The mission recommends that the Finance Ministry and INAF review the 1995 Law ### The mission recommends that the Finance Ministry and INAF review the 1995 Law regulating bank reserves used to guarantee deposits and together with industry develop implementing regulations and policies to guide the actions of authorities in the use of the guarantee fund to provide liquidity and/or effect the orderly resolution of a troubled financial institution. ### Mission recommendation on the deposit guarantee fund and legal review - The mission recommends that the Finance Ministry and INAF review the 1995 Law regulating bank reserves used to guarantee deposits. - The mission recommends that, together with industry, the Finance Ministry and INAF develop implementing regulations and policies to guide the actions of authorities in the use of the guarantee fund to: - provide liquidity; and - effect the orderly resolution of a troubled financial institution. ### Principle-by-principle assessment — Principal themes and institutional structure (Principle 1) - Prudential supervision and regulation are split among the Andorran National Institute of Finance (INAF), the Comite Superior de Finanzas (CSF), and the Finance Minister. - INAF responsibilities under the 1993 INAF Law include: - day-to-day monitoring of financial institutions (except insurance companies); - identification of auditor requirements; - limited onsite inspection powers; - initiation of laws and regulations for the financial sector; - calculation of the solvency ratio and liquidity ratio and reports on the creation of new banks; - initiation of disciplinary or enforcement proceedings for submission to the CSF. - CSF is an executive body between INAF and the Ministry of Finance for recommending enforcement actions and legal review of rules and regulations prepared by INAF. - The Finance Minister has final authority on regulatory approval, issuance of administrative sanction rulings, authorization of onsite inspections if CSF refuses, imposition of sanctions for serious money-laundering violations, and, at the request of CSF and INAF, the granting of licenses for new financial institutions. - The 2000 AML Law creates the Unit for Prevention of Laundering (UPB) with clear responsibilities for AML compliance; the mission notes consideration of information gateways between UPB and INAF. ### Principle 1 — Independence, resources, legal framework, powers, protection, and information sharing - Assessment summaries: - Principle 1(1) Objectives, autonomy, powers: Assessment — Materially non-compliant. - Comment: INAF’s processes are encumbered by prior approval/consent requirements of the Finance Minister and CSF, seriously limiting INAF independence. - Recommendation: INAF should have authority to determine applicable regulation and supervisory policies within the law, conduct onsite inspections when necessary, obtain budget independence for staffing and resources without prior approval, and have authority to approve and withdraw licenses (within legal constraints). - Note: Mission reviewed proposed legislation to increase INAF independence by eliminating CSF and vesting fewer powers with the Minister of Finance; uncertainty remains about INAF acquiring sufficient budgetary independence. - Principle 1(2) Operational independence and resources: Assessment — Largely compliant. - Facts: - INAF is funded by investment income of a government-provided fund; the size of the fund is approximately 12 million euros. - Current revenues can sustain current staffing but provide little flexibility for increases. - Comment: Deepening supervisory activity will require greater resources; mission recommends INAF develop onsite inspection capacity and include insurance supervision; additional budget demand would need to be met from the government’s budget through normal budgeting processes. The mission notes common international practice is for regulatory agencies to be funded by a levy on regulated firms. - Principle 1(3) Legal framework for authorization and ongoing supervision: Assessment — Largely compliant. - Facts: - Oversight functions provided by the 1993 Law regulating the financial system and the 1993 INAF law. - 1998 Creation Law vests final approval to create or withdraw banking licenses with the Finance Minister, based on recommendation and consent of INAF and CSF. - Comment: Laws provide generally for supervision of the financial system except insurance; larger life insurance companies are subsidiaries of banks but not sufficiently supervised. - Principle 1(4) Powers to address compliance and safety/soundness: Assessment — Largely compliant. - Facts: - 1996 Solvency and Liquidity Law and 1997 Disciplinary Law provide prudential rules and enforcement mechanisms. - License revocation powers are vested with the Finance Minister on recommendation of INAF and CSF. - Comment: Enforcement process is encumbered by prior approval requirements of CSF/Finance Minister, which may hinder prompt INAF action. - Principle 1(5) Legal protection for supervisors: Assessment — Compliant. - Facts: - Legal protection for INAF employees is provided through Chapter V of the Administrative Code (articles 58 to 64), passed by law on 13 July 1987. - Administration is generally liable for employees acting in official capacity; personal liability is possible only in exceptional cases of malice or gross negligence. - Principle 1(6) Information sharing and confidentiality: Assessment — Compliant. - Comment: Sharing between INAF, CSF and the Ministry of Finance is established in law; mission suggests developing gateways between UPB and INAF for AML-related information that may pose prudential concerns. ### Key findings and quantitative regulatory parameters (Principles 2–13) - Principle 2 Permissible activities: Assessment — Compliant. - Fact: The 1996 Law defines bank activities (receiving deposits, lending, offering payment-related services); only one type of license exists; use of the term "bank" is restricted. - Principle 3 Licensing criteria: Assessment — Compliant. - Facts: - 1998 Creation Law vests final licensing approval with the Finance Minister based on INAF and CSF recommendation. - Bank Administration Law allows foreigners to acquire up to 51 percent ownership. - To date, five of eight banks have a controlling stake by Spanish banks. - Minimum capitalization requirement established at Ptas 5 billion or approximately 30 million euros. - Comment: Practice shows Finance Minister relies on INAF opinion; mission suggests a more formalized INAF consent would be best practice. - Principle 4 Ownership transfers: Assessment — Compliant. - Facts: - Qualified participants defined as owners of 5 percent or more capital/voting rights; holdings rising above 5 percent trigger reporting to INAF. - Article 18 of the Bank Administration Law gives INAF power to deny changes in control. - Principle 5 Investment criteria: Assessment — Compliant. - Facts: - INAF requires approval for investments exceeding 5 percent of the capital of the participated company. - Banks' investments limited to 25 percent of the capital of non-financial companies and to 40 percent of banks' own capital on aggregate investments in non-financial companies. - Life insurance companies are considered financial companies; non-life insurance is non-financial. - Principle 6 Capital adequacy: Assessment — Compliant. - Facts: - 1996 Solvency and Liquidity Law requires a minimum 10 percent capital adequacy ratio. - Capital adequacy calculation is reported quarterly to INAF and is broadly consistent with the Basle Accord; includes credit risk weights and a market risk charge; reporting required on a consolidated basis. - Principle 7 Credit policies: Assessment — Largely compliant. - Facts: - INAF does not perform routine onsite examinations or generally review banks' loan or investment policies; INAF relies on external auditors and the complementary audit. - Recommendation: INAF should foster strong credit culture by promoting sound credit policies through a core verification requirement in the complementary audit or periodic systematic review by INAF staff. - Principle 8 Loan evaluation and provisioning: Assessment — Compliant. - Facts: - Chart of accounts defines classification and provisioning of problem loans; provisioning criteria largely based on Spanish supervisory policies. - INAF’s general provisioning for interbank credits is 0.5 percent of net loans. - Quarterly reporting on credit quality and composition enables INAF trend analysis. - Comment: INAF requested this year's complementary audit to explain controls ensuring minimum specific provisioning; mission considers such auditor conclusions advisable. - Principle 9 Large exposure limits: Assessment — Largely compliant. - Facts: - Legal lending limits to the same beneficiary are 20 percent of bank capital. - Aggregated concentration limits: transactions with individual clients exceeding 5 percent reach 400 percent of bank capital. - Comunicat 104 requires quarterly reporting on concentration limits by sector and geography; external auditors must confirm compliance. - Recommendation: INAF should require external auditors to opine explicitly on adequacy of management information systems for monitoring concentrations; include this in complementary audit scope. - Principle 10 Connected lending: Assessment — Largely compliant. - Facts: - Chart of accounts defines "connected" broadly, and qualified participation at 5 percent triggers reporting. - Article 15 of the 1996 Solvency and Liquidity Law: institutions cannot lend or put at risk more than 15 percent of bank capital to members of its Board of Directors. - Credits to connected/related parties are not required to receive Board approval; INAF does not explicitly require external audit confirmation that connected credits are monitored by independent credit administration. - Recommendation: INAF should expand policy so credits to Board members, senior management, or their related interests require Board approval with abstention by beneficiaries; make review of administration and monitoring of connected credits a core requirement of the complementary audit with explicit conclusions on preferential treatment. - Principle 11 Country risk: Assessment — Compliant. - Facts: - Comunicat 109 and 122 require institutions to report on-balance and off-balance items affected by country risk, hedging, and country exposure data. - Detailed exposure information by country, region and bank rating is submitted quarterly and analyzed. - Principle 12 Market risk: Assessment — Compliant. - Facts: - Comunicat 104 requires quarterly reporting on market risk transactions; INAF monitors open futures positions. - Minimum risk-based capital calculation requires a 50 percent market risk-weight on futures operations with balances adjusted by maturity and type. - Comment: INAF has authority to impose market risk limits but has not done so; mission encourages consistent external auditor conclusions on market risk controls. - Principle 13 Other risks: Assessment — Largely compliant. - Facts: - Disciplinary Law authorizes INAF to require institutions to limit, monitor, and report on risks including concentrations, connected lending, credit classification and provisioning, capital adequacy, liquidity, interest rate and foreign exchange risk. - INAF can require additional capital against material risks. - Operating standards and chart of accounts enable production of adequate data for off-site supervision; INAF validates accuracy via complementary external audit. - Recommendation (partial list from mission): - Ensure external auditors evaluate policies and practices across functional areas to reach conclusions (text truncated in source). *Source: The mission.* ### conclusions on the level of adherence to policies and procedures throughout the institution and ### conclusions on the level of adherence to policies and procedures throughout the institution and ### Principle 14. Internal Control and Audit — findings and recommendations - Assessment: Largely compliant. - Description highlights: - Internal control components include organizational structures, accounting procedures (reconciliation of accounts), segregation of duties and independent internal/external audit functions. - The 1998 Administrative Law requires one member of senior management to explicitly assume responsibility for adequacy of internal controls and requires maintenance of an organizational structure, internal procedures and controls meeting high international standards and a professional external auditor under contract each year. - INAF routinely requests information on structure, management and employees' qualifications, and staff working in control functions; INAF requires a complementary audit to determine compliance with accounting requirements and adequacy of procedures supporting financial statements. - Recommendations/comments: - Ensure complementary audits incorporate reviews of internal controls, specifically to cover growing, off-balance sheet activities such as custody services, and assure segregation of bank activities from the banks' own operations to protect against possible fraud or misappropriation. - Ensure external auditors test and reach conclusions regarding the independence of the internal audit function and the degree of importance the Board of Directors provides the audit function. ### Principle 15. Money Laundering — framework, reliance on auditors, and coordination needs - Assessment: Compliant. - Description highlights: - The 2000 AML Law designates the Unitat de Prevenció del Blanqueig (UPB) as Andorra’s financial intelligence unit responsible for oversight of banks' know-your-customer policies and internal controls; UPB is empowered to assess compliance with the 2000 AML Law. - 2000 AML Law requirements: verify identity through an official government document with a picture; obtain domicile and professional activity information; for legal entities obtain certification of registration and identity information of representatives; require information on beneficial ownership; maintain customer records for a minimum of ten years. - Article 46 requires suspicious transaction reporting to UPB; Article 50 provides protection from liability for banks and employees who provide information to UPB. Articles 46, 47, 48, and 52 require internal procedures, appointment of a compliance officer (and informing UPB), training for employees, and formal procedures to report suspicious activity. - External auditors are statutorily obliged to provide UPB with a report on compliance with the 2000 AML Law (Article 48). UPB relies primarily on external auditors and issued a detailed Comunicat Tecnic for year ending 2001 on scope and content of required external audit reports. - UPB has authority to follow up, go onsite, and request additional information (Article 53); Articles 57–59 permit sanctions for “very serious,” “serious” and “minor” violations with fines of 600 to 600,000 euros and temporary or permanent suspensions or transaction suspensions. - UPB may directly share information with domestic judicial authorities, INAF, and foreign FIU counterparts subject to reciprocity and confidentiality commitments (Articles 53, 55, 56). - Comments/recommendations: - Reliance on external auditors is considered sufficient given UPB’s limited resources, pending receipt of the first external audit reports in March 2002 to assess efficacy. - Because INAF no longer has a role in AML oversight, a formal mechanism should ensure necessary information is passed between UPB and INAF. ### Principles 16–19. Onsite and Offsite Supervision, Bank Management Contact, and Validation of Supervisory Information - Principle 16 (Onsite and Offsite Supervision) - Assessment: Largely compliant. - Description highlights: - INAF conducts off-site compilation and analysis of quarterly data submitted according to the chart of accounts; requires annual onsite external audits (complementary audits); holds annual meetings with bankers and external auditors; issues formal comunicat’s; engages in other contacts with bank managers, directors and association leaders. - Under the Disciplinary Law INAF can conduct an on-site examination with prior approval of the Comite Superior de Finanzas, but INAF has not conducted its own on-site examinations since 1989 and relies on on-site work of external auditors. - Complementary audit required for first time after new chart of accounts in 2000; scope needs expansion and standardization. - Recommendations: - Prepare integrated risk assessments semi-annually that take into account: - quarterly financial data (capital adequacy, quality of assets and provisioning, quality of earnings and trends, liquidity and ALM, sensitivity to market risks); - discussions with auditors regarding key conclusions from complementary reviews; - discussions with bankers regarding strategic direction, financial performance and emerging risks; - Andorra's economic conditions and outlook. - Assessments should yield integrated conclusions on institution condition, near-term trajectory, and principal supervisory concerns for follow-up. - Principle 17 (Bank Management Contact) - Assessment: Compliant. - Description highlights: - Comunicat 126/01 calls for INAF, bankers and external auditors to meet annually; in practice communication is fluid and frequent due to small number of institutions. - INAF management and staff regularly initiate discussions with bankers in connection with quarterly reports and show good knowledge of banks' management, operations and performance. - Recommendation: - Implement more systematic meetings involving members of Boards of Directors to present off-site analysis conclusions, discuss complementary external audit reports, and strategic plans affecting risk profiles. - Principle 19 (Validation of Supervisory Information) - Assessment: Largely compliant. - Description highlights: - Under Administrative Law INAF has significant authority over engagement of external auditors who must inform INAF directly of conditions likely to affect solvency, liquidity, and stability. - INAF relies entirely on external auditors for independent validation; INAF meets with auditors, bank management and internal/external auditors once a year to set complementary audit scope. - INAF imposes rotation of external auditors every five years. - Recommendations to expand complementary audit scope to include: - Significant events during the period (new markets, restructuring, mergers/acquisitions, exceptional transactions); - Bank disaster and recovery plans, including computer system failure; - Risk analysis on computer information security, system maintenance and development, operating procedures, and IT technical support; - Assessment of adequacy of internal audit, including reliance by external audit; - Assessment of credit/counterparty, market, settlement, exchange, interest rate, liquidity, profitability, operational, legal, reputational, and asset management risks, with qualitative and quantitative analysis of controls; - Conclusions and indication of sample selection method for evaluating credits between related parties, including limitations in identifying exposures to all related parties and assurance that Board of Directors has reviewed connected lending reports; - Assessment of credit and investment policies and management adherence; - Resolution of issues raised in previous reports; - Overall external auditor conclusions and key recommendations with management responses; - Preserve principle of maintaining the same external audit firm for the consolidated financial group where possible and fully disclose all potential conflicts of interest, including consulting services. ### Principle 18. Offsite Supervision — reporting and data use - Assessment: Compliant. - Description highlights: - INAF can require periodic information on financial condition including related interests (Articles 15 (g) and 16 (h) of the Disciplinary Law) and may penalize late or inaccurate reporting. - Financial statements are required quarterly on individual and consolidated bases; chart of accounts implemented in 2000 delineates accounting principles and reporting requirements. - Submitted data cover solvency, liquidity, large borrowers, market risks, loan classification and provisioning on a consolidated basis. - Quarterly monitoring reports and statistics detail balance and off-balance sheet activities, earnings, capital movements, asset quality, liquidity and market risk positions. - Comment: See recommendations on expanding usefulness of collected data and supervision in BCP 16. ### Principle 20. Consolidated Supervision - Assessment: Largely compliant. - Description highlights: - INAF can review banking and non-banking activities conducted directly or indirectly and activities at domestic and foreign offices; Andorran banks have no material or active branches or subsidiaries abroad. - INAF is empowered under Administrative Law to set accounting and reporting standards and obtain solo and consolidated information; quarterly consolidated reporting enables consolidated supervisory analysis. - Insurance companies represent less than 1 percent of the financial sector and are largely lodged in banks under INAF supervision. - Recommendations/comments: - Strengthen group-wide approach to supervision, identify and analyze risks from non-banking products or activities for their potential effect on banking organizations. - Encourage INAF to ascertain appropriateness of banks' consolidation practices and ensure risk management systems at investment firms are adequate. - Consider bringing insurance services industry under INAF oversight, with appropriate legal and physical structure and resources for INAF. ### Principle 21. Accounting Standards - Assessment: Compliant. - Description highlights: - Standardized chart of accounts introduced in 2000 applied for end-2000 and subsequent reporting periods, improving reporting quality. - Chart of accounts and INAF communications do not differ significantly from International Accounting Standards; valuation rules are consistent and prudent. - Article 4 of the Disciplinary Law allows INAF to establish scope and standards for external audits; Article 18 permits INAF to recommend auditor appointment revocation in instances of serious infraction. - INAF relies on external auditors to verify accuracy of reporting and uses complementary reports to specify areas to be reviewed. - Comment: Financial reporting adequacy is high quality; complementary audits are evolving and BCP 16 and BCP 19 provide recommendations for improvement. ### Principle 22. Remedial Measures - Assessment: Compliant. - Description highlights: - 1997 Disciplinary Law provides administrative/corrective orders and financial penalties; penalties come in three levels depending on severity. - Solvency and Liquidity Law empowers INAF to promote capital and liquidity requirements and mechanisms for orderly resolution of insolvent institutions include INAF involvement. - Process for introducing penalties requires INAF recommendation to CSF and/or the Finance Minister; license revocation powers reside with the Finance Minister on INAF and CSF recommendation. - Bank Administration Law specifies external auditor requirements and disciplinary measures; Article 10 defines auditor obligations and sanctions including fines up to approximately euros 150,000 and suspension from working in Andorra for up to five years or permanently. - Comment: - Earlier assessment for BCP 1(4) was largely compliant due to constrained legal framework for enforcement authorization; here the range and type of enforcement actions are judged adequate. ### Principles 23–25. Global Consolidated Supervision, Host Country Supervision, and Supervision Over Foreign Banks’ Establishments - Principle 23 (Globally Consolidated Supervision) - Assessment: Compliant. - Description highlights: - Foreign activities are extremely limited: only a single foreign subsidiary and no foreign branches; subsidiary included in consolidated accounts with limited consequence. - Banking entities must inform INAF on changes in qualified participations in foreign companies; Article 18 of the 1998 Bank Administration Law allows INAF to prevent participations with significant negative effects. - Principle 24 (Host Country Supervision) - Assessment: Not applicable. - Description: No significant overseas branches or subsidiaries exist; no need for information exchange with foreign host supervisory authority. - Principle 25 (Supervision Over Foreign Banks’ Establishments) - Assessment: Materially non-compliant. - Description highlights: - Banks from Spain control five of eight Andorran banks; Bank of Spain has highly restricted access to supervisory and prudential information and is not allowed onsite inspections or visits to Andorran subsidiaries. - Comments and recommendations: - Limited INAF onsite capacity and underdeveloped use of external auditors for onsite supervision prevent home country supervisors from confidently relying on INAF supervision. - Restrictions on foreign supervisors' ability to inspect onsite impede consolidated supervision. - Pending legislative changes to allow INAF to enter into arrangements with foreign supervisors are encouraged. - Greater capacity building for INAF in onsite/offsite supervision (see BCP 16), deepening external auditor work, and building credible onsite inspection capability would improve assurance to home supervisors. - Bilateral meetings between host and home supervisors (e.g., INAF and Bank of Spain) at least once every other year, or as often as necessary for Bank of Spain, would aid communication. ### Key numeric and procedural facts preserved from the assessment - Customer records retention requirement: minimum of ten years. - External auditor rotation: every five years. - UPB sanction fines range: 600 to 600,000 euros. - Auditor fines and suspension: fines up to approximately euros 150,000 and suspension from working in Andorra for up to five years or permanently depending on severity. - UPB issued a detailed Comunicat Tecnic for the year ending 2001. - First external audit reports anticipated in March 2002. *Conclusions from the IMF assessment: conclusions on the level of adherence to policies and procedures throughout the institution and* ### 1. Objectives, Autonomy, Powers, and Resources ### 1. Objectives, Autonomy, Powers, and Resources ### Overview of assessment and compliance grid - The assessment covers core supervisory topics, with markers indicating coverage: - 1.1 Responsibilities and objectives — X - 1.2 Operational independence — X - 1.3 Legal framework — X - 1.4 Enforcement powers — X - 1.5 Legal protection — X - 1.6 Information sharing — X - 2. Permissible Activities — X - 3. Licensing Criteria — X - 4. Ownership — X - 5. Investment Criteria — X - 6. Capital Adequacy — X - 7. Credit Policies — X - 8. Loan Evaluation and Loan-Loss Provisioning — X - 9. Large Exposure Limits — X - 10. Connected Lending — X - 11. Country Risk — X - 12. Market Risks — X - 13. Other Risks — X - 14. Internal Control and Audit — X - 15. Money Laundering — X - 16. Onsite and Offsite Supervision — X - 17. Bank Management Contact — X - 18. Offsite Supervision — X - 19. Validation of Supervisory Information — X - 20. Consolidated Supervision — X - 21. Accounting Standards — X - 22. Remedial Measures — X - 23. Globally Consolidated Supervision — X - 24. Host Country Supervision — X - 25. Supervision Over Foreign Banks’ Establishments — X - Compliance legend provided: - C: Compliant. - LC: Largely compliant. - MNC: Materially non-compliant. - NC: Non-compliant. - NA: Not applicable. ### Recommended action plan — institutional objectives, autonomy, powers, and resources - Principle 1(1) — Clear responsibilities and objectives: - Grant INAF authority to determine applicable regulation and supervisory policies within legal constraints. - Include ability to contract and direct complementary onsite work of external auditors. - Empower INAF to conduct onsite inspections when necessary. - Ensure budget independence for staffing and resource requirements without prior approval. - Consider including authority to approve licensing decisions (within legal constraints) among INAF powers. - Principle 1(2) — Operational independence and resources: - Develop INAF capacity to carry out some onsite inspection activity to deepen understanding of supervised banks and financial institutions. - Avoid adding functions incompatible with INAF’s financial sector supervisory role. - Include supervision of insurance activities among INAF responsibilities. - Principle 1(4) — Legal framework and enforcement powers: - Remove prior approval encumbrances that could impede INAF's ability to act promptly in enforcement actions. - Principle 3 — Licensing criteria: - Institute a more formalized requirement that INAF provide its formal consent to all licensing applications. - Note: current law does not require INAF authorization for Andorran banks to establish foreign subsidiaries (confusion exists). ### Recommended action plan — supervisory practices and external audit role - Principle 7 — Credit policies: - INAF should promote a strong credit culture by requiring core verification in the complementary audit or by periodic, systematic review by INAF staff. - Principle 8 — Loan evaluation and provisioning: - Require external auditors to render judgments on loan loss provisioning. - Principle 9 — Large exposure limits: - Require external auditors to conclude whether financial institutions have adequate management information systems to ensure ongoing compliance with concentration limits; make this explicit in complementary audit scope. - Principle 10 — Connected lending: - Expand policy on credits to insiders and related interests: approvals should be by the Board with abstentions by interested members. - Require complementary audits to review administration and monitoring of connected credits and conclude on preferential treatment. - Principle 13 — Other risks: - Ensure external auditors evaluate cross-functional policies and practices and the extent of Board oversight. - Increase frequency and depth of discussions with Boards of Directors about strategic direction and risk tolerance to assess adequacy of risk management relative to external auditor conclusions. - Principle 14 — Internal control and audit: - Complementary audits must review internal controls, including off-balance sheet activities such as custody services, and ensure segregation of bank activities from client operations. - External auditors should test and conclude on independence of internal audit and the priority Boards give to the audit function. - Principle 15 — Money laundering: - Establish a formal mechanism ensuring necessary information is passed between UPB and INAF. - Principle 16 — Onsite and offsite supervision: - Conduct more in-depth, integrated analyses yielding conclusions on institution condition, near-term trajectory, and principal supervisory concerns. - Develop INAF capacity for onsite inspections. - Principle 19 — Validation of supervisory information: - Expand scope of complementary audits with a comprehensive core set of requirements. - Preserve principle of maintaining the same external audit firm for the consolidated financial group where possible. - Require full disclosure of potential conflicts of interest between external auditors and banks, including consulting services. - Enforce bank compliance with guidelines on 5-year rotation of external auditors. - Principle 20 — Consolidated supervision: - Advance a group-wide approach to supervision; identify, aggregate, and analyze risks from non-banking products or affiliate activities for their potential effect on banking organizations. - Bring insurance services industry under INAF oversight to strengthen consolidated supervision over insurance companies affiliated with banks and improve insurance regulation. - Principle 25 — Supervision over foreign banks’ establishments: - Modify legislation to allow INAF to enter arrangements with foreign supervisors to facilitate consolidated supervision. - Build INAF capacity in onsite/offsite supervision, deepen external auditor work, and establish credible capacity for onsite inspections to give home-country supervisors greater assurance over supervision of subsidiaries in Andorra. ### Authorities’ response and planned reforms - The Ministry of Finance expresses gratitude to the IMF assessment team and acknowledges cooperative engagement since 1996; letter requesting assessment was sent to the Fund on 5 September 2001. - The Ministry indicates acceptance and active work on recommendations, noting many recommendations relate to the legal framework for INAF, currently being redefined via a new project of Act for the Andorran National Institute of Finance. Planned reforms include: - Consolidating INAF as an executive technical organ of the financial authority with redefined competences to increase autonomy. - Granting INAF sanctioning competence and enabling autonomous actions such as in situ inspections, substitution of government organs, and determination of preventive measures. - Functional measures to guarantee INAF independence, remodeling INAF’s Government organs, and abolishing the Consultative Committee. - Abolition of the Higher Finance Committee as the highest authority of the financial system and transfer of anti-money laundering supervisory control to UPB (the Andorran Financial Intelligence Unit). - Preparing, during the course of the year, a project of Act to update the legal regime for insurance companies so the insurance sector is integrated into the financial system and supervised by INAF. - Legislative amendment to increase cooperation with foreign supervisory organisations and promote protocols or action agreements to guarantee effective supervision of institutions with majority foreign participation. ### AML/CFT assessment — summary findings - The Mission assessed Andorra’s AML/CFT framework using the Fund and Bank Methodology for Assessing Legal, Institutional, and Supervisory Aspects of Anti-Money Laundering (the “AML/CFT Methodology”). - Key factual findings: - The Law on International Criminal Cooperation and Combating the Laundering of Money or Valuables Resulting from International Crime (the 2000 AML Law) was enacted on December 29, 2000. - The Unitat de Prevenció del Blanqueig (UPB), Andorra’s Financial Intelligence Unit, has been created and is operational. - Andorra has cooperated with the Fund since 1996. - The Arthur Andersen review (commissioned by the government of Andorra) and the June 1999 Council of Europe PC-R-EV review (which included two FATF representatives) preceded the 2000 AML Law and informed reforms. - Some assessment criteria are rated largely compliant rather than compliant because implementation remains incomplete; for example, the first external audit reports under the 2000 AML Law are not due until March 30, 2002, preventing review of their effectiveness. - Banks have well-established AML practices; the law, regulations, and supervisory measures broadly meet standards for deterrence against money laundering and terrorist financing. ### AML/CFT recommendations - Legal changes to consider: - Expand the list of predicate crimes in the Penal Code revisions to include all serious crimes consistent with the Palermo Convention. - Address the rights of bona fide third parties in confiscation procedures. - Provide for confidentiality of UPB records and internal operations. - Assess the scope of Constitutional protections from suit afforded to UPB members. - Policy and organizational adjustments: - Assess UPB resource needs to carry out statutory duties. - Provide a formal mechanism for communication between UPB and INAF to ensure prudential issues discovered by UPB are promptly communicated to INAF. - Assess adjustments to the suspicious transaction reporting mechanism after implementation and as report volumes increase. - External audit process adjustments: - Formalize requirement that UPB receives audit reports unedited/unmodified by banks. - Consider preparatory meetings between external auditors and UPB prior to report preparation. - Establish a formalized procedure for follow-up on external audit reports and evaluate the external audit report process for needed adjustments. - Banking-sector specific adjustments: - Require auditors to conduct sample testing of numbered accounts for compliance with the 2000 AML Law. - Charge external auditors with reviewing that banks apply fit-and-proper tests. - Amend banking-sector legislation to subject all bank employees to fit-and-proper requirements and require banks to screen new employees for criminal records. - UPB should consider providing banks additional guidance on handling customer inquiries when an account is blocked by UPB. *Source: IMF assessment document titled "1. Objectives, Autonomy, Powers, and Resources" (Selected extracts and recommended action plan).* ### 46. The Andorran anti-money laundering system was assessed for compliance with the ### The Andorran anti-money laundering system was assessed for compliance with the ### Assessment scope and methodology - The assessment applied the AML/CFT methodology for the legal and institutional framework and financial supervisory principles in the prevention of money laundering and combating the financing of terrorism. - The assessment was based on: - Review of legislation and regulations of UPB. - Interviews with staff of the Ministry of Finance (MOF), UPB, the Ministry of Foreign Affairs, the Ministry of Interior and Justice, the Director of Police, members of the judiciary, three of Andorra’s six banks, and the Association of Andorran Banks (ABA). - Meetings with KPMG and Arthur Andersen, which conduct prudential and AML/CFT audits for Andorran banks. - The MOF provided resource documents including responses to United Nations Resolution 1373 and a completed questionnaire for the Egmont Group. UPB operational and draft procedures were reviewed. ### Legislative and regulatory framework — key elements and chronology - Core statutes and instruments: - 2000 AML Law (effective June 2001) and the Andorran Penal Code form the primary legal framework for AML/CFT. - The 2000 AML Law draws on Andorra’s ratification of the 1988 Vienna Convention, the Strasbourg Convention, and the European Convention on Mutual Assistance in Criminal Matters and Extradition. - Andorra signed the United Nations Convention for the Suppression of the Financing of Terrorism on November 10, 2001 and the United Nations Convention on Transnational Organized Crime on November 12, 2001; UPB’s mandate accordingly includes combating the financing of terrorism. - Prior developments and reviews: - Money laundering criminalized in 1990; scope broadened in 1995. - PC-R-EV First Evaluation Report on the Principality of Andorra adopted in June of 1999 described the regime as “on sound bases from both the criminal law and regulatory standpoints.” - Arthur Andersen delivered a detailed Report on Prevention of Money Laundering in Andorra in March 2000; many recommendations were enacted in the 2000 AML Law. - Substantive changes introduced by the 2000 AML Law: - Vesting exclusive supervisory authority for AML/CFT with UPB. - Expanded customer due diligence and recordkeeping requirements. - Detailed suspicious transaction reporting requirements with lower reporting threshold: from “strong suspicion of actual money laundering” to reporting when “any operation or transaction raises suspicions of laundering even if the operation ultimately does not result in a finding of money laundering.” - Legal insulation of financial institutions and employees from liability for disclosure of suspicious transactions to UPB. - Related enactments and initiatives: - The 2000 AML Law replaced the May 1995 Law on the protection of banking secrecy and the prevention of the laundering of money and the proceeds of crime (the 1995 Law). - Andorran Parliament assembled a working group to revise the Penal Code to reflect international obligations; UPB issued bank directives after September 11, 2001 to investigate names on the FBI list; no assets connected with those names were located in Andorra. ### Organizational framework and responsibilities - UPB responsibilities and powers: - UPB is responsible for AML/CFT compliance, suspicious transaction reporting, and providing assistance to counterpart FIUs. - The 2000 AML Law vests exclusive supervisory power in anti-money laundering with UPB and removes INAF and the Supreme Commission of Finance (CSF) from AML/CFT roles. - UPB draft Internal Rules required notice to UPB and authorize UPB to inform relevant Andorran authority when local legislation conflicts with Andorran legislative principles (Article 11.2 of UPB draft Internal Rules). - The Internal Rules were finalized on March 27, 2002, and published in the Andorran Official journal. - Ensuring full implementation may require increasing UPB staff to the statutory maximum of five persons. - Other institutional roles: - The Tribunal of Judges (Battles) and the Attorney General (Ministeri Fiscal) respond to international requests for judicial assistance. - The Ministry of Foreign Affairs transmits and returns international requests for mutual assistance arriving through diplomatic channels. - The Criminal Court (Tribunal de Corts) is responsible for criminal matters. - The MOF provides input on government proposals and legal framework changes; MOF and the Minister of Interior and Justice reviewed draft Internal Rules. ### Scope of regulated entities and sectoral coverage - Entities subject to the 2000 AML Law include: - Operating institutions of the Andorran financial system (banks and wealth management institutions), insurance and reinsurance companies, and other persons who, in the exercise of their profession or corporate activity, carry out, control, or advise on operations involving movements of money or valuables susceptible to use for money laundering. - Specifically included: outside accountants and tax advisers; real estate agents; notaries and other independent legal professionals when participating in enumerated financial or commercial activities; dealers of high value goods such as precious stones and metals when payment is made in cash and for amounts above 15,000 euros. - Market structure notes: - Foreign exchange houses and money remittance or transfer companies do not exist in Andorra; currency exchange and money transfer operations are performed by the banking sector. - Andorra has a small number of specialized financial institutions (wealth management institutions, financial institutions managing investment organizations, installment sales financing) and insurance firms; several are affiliated with banks and not prudentially supervised separately. - Application across sectors: - AML/CFT customer due diligence, recordkeeping and suspicious transaction reporting apply beyond banks to the entire list of entities specified in the law. - UPB planned training with professional associations for real estate and investment companies in 2002. - The assessment did not separately evaluate Part 2 modules (insurance or capital markets) or Part 3 for other financial services providers; legal and institutional aspects applicable to these sectors are addressed in Part 1. ### Implementation, compliance monitoring, and industry practices - Banking sector preparedness and practices: - The ABA developed a Code of Conduct in 1990 covering diligence, know-your-customer rules, retention of records for five years, prohibition on assisting customers in laundering, and cooperation with authorities; all Andorran banks signed the Code. - The Code was largely incorporated into the 2000 AML Law; the ABA anticipated updating the Code of Conduct by end-2002 to include ethical standards applicable to AML. - Banks had strong AML procedures and internal record retention policies that in many cases exceeded the five-year requirement. - Banks reviewed internal policies after the 2000 AML Law; at least one bank commissioned an external special audit on policy and internal control adequacy. - Audit firms developed software systems for client due diligence and detecting unusual, suspicious, and complex transactions. - The ABA conducted a three-module training program prior to the 2000 AML Law that approximately 80% of bank employees attended; each bank has conducted internal training programs. - Audit and supervisory follow-up: - Auditors must prepare a special audit report on compliance with the 2000 AML Law; auditors were expected to complete the first reports for UPB on March 30, 2002. - The assessment team noted that implementation monitoring at the bank level should be clearer after submission of those audit reports. - It was unclear whether other parts of the financial sector (insurance, real estate, vendors of high value goods) fully understood the audit obligation or whether audit implementation would occur in 2002; effective implementation for these sectors was expected to lag until UPB conducted training. - Ensuring full implementation across non-bank sectors may require additional UPB resources and increasing UPB staff to the statutory maximum of five persons. ### Specific client due diligence provisions (legal citations and scope) - The 2000 AML Law emphasizes know-your-customer rules consistent with the FATF’s 40 Recommendations and extends diligence into non-financial fields. - Article 51 requires subject entities to identify clients, occasional or usual, at the time “any commercial relationship is established” through “presentation of an official document.” - Article 45 includes operating entities of the Andorran financial system as subject entities. - Article 44 specifies that branches, affiliates or delegations of Andorran corporations located overseas, and corporations domiciled overseas controlled by Andorran citizens or residents and whose purpose is commercial or financial operations are covered. - Article 45 lists non-financial professions subject to the law, including “1- outside accountants and tax advisors; 2- real estate agents; 3- notaries and members of other independent legal professions when they participate in certain enumerated activities that involve financial or commercial transactions.” - Dealers of high value goods such as precious stones and metals are subject when payment is in cash and for amounts above 15,000 euros. *Assessment conducted by IMF staff based on review of legislation, UPB regulations, interviews with Andorran officials and private sector participants, and relevant prior evaluations and reports.* ### Annex II to FATF Recommendation 9) on behalf of clients or customers (including fund managers, attorneys, ### 083102 - Annex II to FATF Recommendation 9) on behalf of clients or customers (including fund managers, attorneys, ### Client due diligence (CDD) and identification requirements - Article 51.c.1 of the 2000 AML Law: proof of identity must be established by an official document bearing a photograph, domicile and professional activity. - For legal entities (Article 51.c.2): certification of registration in the Registry or Corporations and demonstration of the identity of the individual empowered to represent the entity. - Internal Rules Article 3 details required documentation for legally constituted bodies: copy of certificate of entry in company register, license to carry out a commercial entity or equivalent, proof of identity of person empowered to represent/manage/own the body, copy of articles of association, identity of directors and shareholders, and documentary information concerning commercial or professional activity. - Physical persons: steps must be taken to check information provided to liable entities of the financial system. - Article 51.d: verification of beneficial owner(s) by financial system members and other subject entities where a client’s interest in an operation “based on the amount or the conditions of its transaction, leads to suspicious of an act of money laundering.” - Article 43: persons acting on behalf of a third party must inform themselves of the source of funds and identity of the true owner. - Internal Rules Article 3: verify that the client truly has a claim to the transaction and obtain information on the person who gave the order and the beneficiary. ### Recordkeeping and transaction reconstruction - Article 51.f: subject entities must maintain client identity documents and other documentation for no less than ten years from the date the relationship with clients is concluded. - UPB inspection rights under Article 53 of the 2000 AML Law. - Internal Rules Articles 7.3 and 8.2: transaction records must permit reconstruction of transactions for a minimum of ten years and provide adequate proof of the carrying out of operations and client identification. ### Suspicious transaction reporting (STR) and reporting procedures - Article 46: financial intermediaries required to report to UPB “any operation or planned operation regarding money or valuable with respect to which there are suspicions of an act of money laundering.” - Article 51.a: special vigilance required for operations that “occur under complex or unusual conditions and do not seem to have an economic justification or legal purpose,” including operations categorized by UPB through technical releases. - Internal Rules Article 3: obtain necessary justification from clients for operations where sum or conditions do not correspond to normal activity. - Draft Comunicat Tecnic prepared by UPB detailing 23 operations possibly linked to money laundering; to be finalized by end of February 2002 and published thereafter. - Article 47: STRs to be made before carrying out doubtful financial or economic operation; Internal Rules Article 4.1: where ex-ante reporting not possible, declaration “shall be made as soon as they [suspicions] have been aroused” and liable persons must inform UPB of new elements affecting the estimation of the operation. - Internal Rules Articles 7.2 and 7.3: internal procedures must provide immediate notification to internal compliance officer, acknowledgement of receipt, and information to reporting employee concerning disposition. ### Confidentiality, tipping-off and legal safe harbor - Article 50: reporting and monitoring to UPB exempt from criminal provisions on bank and professional secrecy; disclosure to UPB relieves subject persons and staff of liability for violating secrecy even when a reported illegal activity is not confirmed. - Article 49: prohibition on warning or “tipping off” clients that a report has been made to UPB. ### Internal controls, compliance officers, training and external audit - Article 52: financial institutions must establish and maintain internal procedures to prevent and detect money laundering. - Article 48: entities must appoint a designated compliance officer “responsible for organizing and monitoring compliance with the regulations against money laundering” and authorized to make reports and represent before UPB. - Internal Rules Article 7: internal control and communication organs must have “adequate human, material, technical and organizational resources.” - Article 52: subject entities must provide training to make employees aware of domestic AML framework; Internal Rules Article 9: staff with detection roles must receive training to detect and proceed in suspect cases. - Article 52.2: UPB must receive, at end of each financial period, a specific report on compliance drafted by external auditors; external auditing obligation extends to all entities subject to the 2000 AML Law. - UPB Comunicat Tecnic dated January 14, 2002 specifies auditors’ report content requirements: composition of internal control body, frequency of meetings and minutes, supervisory and compliance procedures, number and breakdown of STRs (internal vs. sent to UPB), detailed description of training (dates, topics, number and quality of participants), and auditors’ conclusions and recommendations. - Auditors’ AML compliance report to be sent to UPB no later than three months following closure of the exercise. - Internal Rules Article 7.4 allows UPB to “suggest appropriate improvement and correction measures as applicable and follow these up.” ### Sanctions and penalties - Article 57: sanctions for administrative violations imposed by Government (Council of Ministers) at recommendation of UPB. - Article 58: categories of violations: - “Very serious violations”: failure to satisfy reporting requirement, tipping off, refusal/resistance to furnishing information to UPB, repetition of a serious violation in the same year. - “Serious violations”: failure to confirm identity of clients, failure to demand client identification documents required under Article 51, insufficient beneficial owner verification, lack of vigilance and failure to verify identity, failure to retain documents for the 10 period in Article 51, insufficient internal procedures, failure to carry out specific audit on AML compliance, repetition of a minor violation in the same year. - “Minor violations”: failure to inform UPB of the identity of the compliance officer and any other Law violations not previously mentioned. - Article 59.2: factors for adjusting penalties include seriousness of the case, failure to be vigilant, deficiencies in preventive mechanisms and intent or degree of negligence. - Article 59: sanctions ranges: - Very serious violations: fine of 60,000 to 600,000 euros and temporary suspension of directors of the entity or the professional involved. - Serious violations: fine of 6,000 to 60,000 euros and prohibition on carrying out certain types of commercial or financial operations and/or temporary suspension of directors for 1 to 6 months. - Minor violations: fine of 600 to 6,000 euros and a written reprimand. - Assessors’ comment: require certified and sealed copies of auditors’ reports to UPB and a client waiver permitting auditors to meet directly with UPB; UPB should have specific follow-up procedures and timeframes for external audit findings and consider interim external audits where serious deficiencies exist. ### Fit-and-proper requirements and regulatory oversight - Article 1 of the 1993 Law Regulating the Financial System: regulation applies to all individuals or legal entities carrying out a professional activity in the financial sector. - Article 13: board members must have no criminal record for intentional crimes and good personal and professional reputation; management must have adequate professional qualifications. - Code of Conduct Article 2: persons deciding to carry out credit entity activity must be honorable and have sufficient experience; disqualifications include convictions for certain crimes, prison sentence exceeding one year, and declared bankrupt or insolvent debtor not discharged. - Law Regulating Operational Activities (19/12/96): documentation requirements for persons and bodies in the financial system including certificates of residence, clean criminal record, diplomas, financial activity memoranda for last two financial years, list of shareholders, audited accounts, composition of board. - Assessment comment: advisable that all bank employees meet fit-and-proper standards and screening for criminal records. ### Criminalization of money laundering and terrorism financing - Penal Code Articles: - Article 145: criminalizes acts aimed at concealing origin of money/assets from drug trafficking, kidnapping/hostage taking, illegal arms sales, prostitution or terrorism; penalty of eight (8) years imprisonment and a fine of 20,000,000 pesetas. - Article 146: aggravated laundering penalties of ten (10) years imprisonment and a fine of 80,000,000 pesetas. - Article 147: crimes committed outside Andorra can constitute predicate crimes if underlying crime can be prosecuted in Andorra; mandates confiscation of money or securities associated with laundering under Articles 145 and 146. - Article 303: negligent failures (e.g., failure to keep required records or to engage in CDD resulting in laundering) punishable by one (1) year in prison and 5,000,000 pesetas. - Article 9: extends criminal liability under Articles 145–147 to legal entities; convicted legal entities subject to fines, dissolution, temporary or permanent closure, among other penalties in Articles 36 and 27. - Terrorism provisions: - Article 82 criminalizes terrorist acts; Article 83 criminalizes providing support to terrorist organizations; Article 84 criminalizes financing of terrorist organizations. - Penalties for terrorism offenses: imprisonment between 8 and 30 years depending on gravity and outcomes. - Articles 85–87 criminalize lodging/providing means, providing/procuring arms or explosives, and aiding terrorist groups; terrorism included as predicate crimes for money laundering via Article 145. - Treaties and conventions: - Andorra signed and ratified the Vienna Convention on January 27, 1999. - Government signed the UN Convention of the Financing of Terrorism on November 10, 2001 and the Palermo Convention on November 12, 2001. - December 21, 2001: Andorra responded to UNSC Resolution 1373 (2001) with a detailed report outlining legal framework to combat financing of terrorism. - Assessment: criminalization provisions assessed as Compliant; Parliament working on Penal Code revisions to include as predicate crimes all crimes with maximum sentence at least four years. ### Confiscation and provisional measures - Penal Code Article 147: mandates confiscation of money and securities of laundering crimes; Article 37 permits confiscation of instruments of crime. - 2000 AML Law enhancements: - Article 38: extends provisional freezing/confiscation to instruments, proceeds, money, valuables or assets acquired through crime and applies to property arising from all “major crimes.” - International rogatory procedure: Attorney General presents request to Criminal Court (Tribunal de Corts); Criminal Court hears interested parties, issues decision appealable to Superior Court of Justice. - Article 20: magistrate may order precautionary measures such as freezing accounts or pre-judgment attachment and prohibit alienation of assets subject to subsequent confiscation. - Judicial provisional freezing rulings generally resolved within 30 days; judge must act on requests to lift measures within 15 days. - Article 47: UPB authorized to freeze assets suspected to be related to money laundering for up to five days without prior court notification; if needed beyond five days, UPB must send records to Attorney General for judicial freezing under Article 38. - Article 53: UPB has administrative powers to verify, trace, and investigate assets suspected of being connected to money laundering; tracing delineated in Internal Rules Article 1.2. - Operational result: UPB and judicial authorities have seized $1,800,000. - Article 39: assets seized in Andorra inure to the benefit of Andorra unless international treaties provide otherwise. - Assessment comments/recommendations: - Civil courts should have sufficient authority to ensure rights of bona fide third parties are considered during domestic seizures. - Clarify Article 37 to ensure property of equivalent value can be confiscated where instrumentalities/proceeds are unavailable. - Consider extending Article 147 to allow seizure of all assets that are instrumentalities or proceeds of crime, not limited to money and securities. - Consider authority to void contracts that prejudice recovery of financial claims under AML/CFT laws, consistent with Constitutional principles. ### Financial Intelligence Unit (UPB) — structure, powers, operations and resources - 2000 AML Law established UPB as FIU: collect, process and disseminate intelligence information, analyze STRs to determine possible money laundering and uncover proceeds of crime and terrorist assets. - UPB operational: became operational on July 24, 2001; creation made public by press release and Official Journal (BOPA). - UPB missions/duties defined in Articles 53 and 54; Internal Rules to be approved by Council of Ministers and published by end of March 2002. - Information access and databases: - UPB has broad powers to request information (Article 51) and Internal Rules Article 1.2 specify media, form and response times. - UPB may obtain information from Police or any official agency (Article 53.2 point 5). - Direct connections to: Andorran Registre de Societats, registry of vehicles, Lexis/Nexis and Informer (company details); on-site access to Police and Interpol, Customs, Social Security, Registre d’antecedents judicials, Registre Notarials; internet connection through a dedicated computer. - Comunicat Tecnics: - UPB authorized to send Comunicat Tecnics as guidelines; Article 1 of Internal Rules contemplates publication when of general interest. - Four Comunicat Tecnic issued through mid-February 2002: list of names suspected of links with Al Qaeda (10/08/01), letter for enhanced vigilance on Euro entry (10/15/01), auditors’ report guidelines (01/14/02), and a draft release on detecting suspicious/complex transactions. - STR content and follow-up: - Internal Rules Article 4 details minimum STR content and requires reports be in writing unless exigent circumstances; Article 4.5: subject persons must notify UPB of any demand received from other official bodies related to possible money laundering operations. - UPB may request additional information or modify standard reports through technical releases; Article 47 requires STRs be accompanied by all information relating to the operation and any new elements must be sent to UPB. - Ex parte blocking and case handling: - UPB authorized to provisionally block transactions; collective agreement of all UPB members required to block, present to Public Prosecutor, or send records to competent administrative authority; absent a member, remaining members’ collective agreement is sufficient. - Article 53: UPB to submit to Attorney General cases with reasonable suspicions of criminal violations and file away remaining cases retaining documentation for at least ten years. - Confidentiality and dissemination: - Recipients of UPB information subject to professional secrecy; UPB exempt from banking secrecy (Article 50). - Cooperation and international engagement: - Article 53 authorizes UPB to cooperate with foreign FIUs with adequate safeguards; Article 56 sets terms and conditions including reciprocity and preservation of professional secrecy. - UPB established contacts with Spain (SEPBLAC) and France (TRACFIN); bilateral agreements to enter into force by end of March 2002; three requests executed with TRACFIN and one with SEPBLAC leading to confiscation of USD 1.8 million. - UPB received acceptance letter from Egmont Group dated 01/23/02 endorsing membership before next Plenary in Monaco in June 2002. - Governance, staffing and budget: - UPB is independent administratively; Ministry of Interior responsible for budget (Article 53.1); Government regulates organization and operations (Article 54 paragraph 4). - Provisional budget for 2002: 60,101.21 euros for current goods and services (exclusive of staff salaries); staff salaries supported by Ministry of Interior general budget. - UPB composition (Article 54 paragraph 2): minimum of 3 and maximum of 5 persons (excluding supporting staff): up to two financial experts appointed by Minister of Finance; one magistrate (batlle) appointed by Supreme Justice Council; up to two Police members appointed by Minister of Interior at suggestion of Director of Police. Senior member designated by Ministers of Finance and Interior among appointed members. - Current UPB staff: Executive Director (banking background), a Police Officer, a Magistrate (Batlle) and a Secretary; temporary consultant from KPMG hired for 3 months at creation. - Physical security and legal protections: - UPB information physically secured in safe boxes with paper and electronic copies; premises under electronic alarm monitoring. - UPB members bound to professional secrecy (Article 54 paragraph 5); members can be called to testify and do not enjoy special status; members not given specific legal protection from suits, though assessors advised Article 72 of Constitution may shield government employees by directing suits against government rather than individuals. - Use of UPB intelligence in judicial process: - No statutory limitations on use of UPB-developed financial intelligence; information and cases investigated by UPB can be used as evidence in court. - Internal Rules Article 12.1: UPB “may cooperate in investigations related with money laundering acts that stem from the receipt of rogatory commissions and other judicial investigations.” - Assessments and recommendations: - Assessment: Compliant. - Comments/recommendations: - After reviewing external audit process and conducting sector training, consider whether UPB resources are adequate and whether increasing staff to statutory maximum of five is needed. - Parliament should consider enacting a specific provision protecting UPB’s financial intelligence and internal operations from disclosure. - Analyze Constitutional protection shielding government employees from suit for legal sufficiency and communicate scope of protection to UPB and judiciary. - Empower UPB to order additional external audits as needed. - Consider annual audit of UPB’s operations. ### International cooperation in AML/CFT matters - 2000 AML Law provides procedures and standards for mutual legal assistance and broad international cooperation for offenses criminalized in Andorra including ML and FT. - Requests handled through Ministry of Foreign Affairs and assigned by the Battlia to a magistrate; Attorney General receives copy; magistrate evaluates conformance with Articles 2 and 4 of 2000 AML Law and mandatory preconditions (constitutional conformity, offense punishable under Andorran law, not politically based, no prior conviction with completed sentence or acquittal on same facts). - Andorra provides mutual assistance without regard to differences in intentional elements of the crime, so long as offense punishable under Andorran law. - Article 3: magistrate may refuse cooperation or request additional information when request is deficient. - Article 10: accelerated processing possible via diplomatic channels, direct judicial communication or INTERPOL. - Articles 5 and 6: information obtained through cooperation to be used only for purposes specified in original request; Andorran authorities may condition cooperation on prior commitment by requesting state. - Scope: extradition, seizure, detention, witness questioning, initiation of criminal proceedings, seizure of assets, interception of communications subject to hearing by magistrate and Attorney General; controlled deliveries may be authorized (Article 122 bis as added by Section 10 of 2000 AML Law). - Extradition law: Llei Qualificada d’extradició enacted December 27, 1996. - Assessment: Compliant. - Practical notes: - Ministry of Foreign Affairs reported mutual assistance activity with Spain, France, Portugal, United Kingdom, Germany, Switzerland, Cyprus, Argentina, Hungary, Argentina, Mexico, Russia and the United States. - 2001: three requests related to money laundering received from Spain, Mexico and France; one request for additional information sent to Spain. - Recommendation: introduce a formal mechanism for judicial authorities to inform UPB where foreign judicial cooperation requests suggest a separate domestic investigation is needed. ### Controls and monitoring of cash transactions (informational) - Andorra does not monitor or require reporting of currency imported or exported; lacks national currency. - Government concluded cash transaction reporting not appropriate due to potential excessive unanalyzed information and UPB capacity constraints (UPB currently three members, statutory limit five). - UPB Internal Rules adopting requirement that banks limit currency exchanges for non-clients to 3000 euros. - Banks’ practical limits: - Many banks limit exchanges for non-clients to 300 euros without identification and 1500 euros with identification. - For clients banks may exchange up to 6000 euros but above that amount requires special group approval. - One bank policy: no exchange for non-clients over 1500 euros; any exchange over 300 euros requires passport copy. - Banks will not engage in wire transfers for non-clients. - Banks monitor and seek additional information monthly for transactions over 60,000 euros and 120,000 euros. - Internal procedures detect smurfing, transient deposits, early loan repayment, and withdrawals exceeding 80% of total deposits in one month. - Other sectors and thresholds: - Wealth management firms and other financial entities required to have bank account where cash filtering and records exist. - Wealth management, real estate, notaries, lawyers, accountants and others receiving cash or securities are subject to 2000 AML Law CDD, beneficial owner identification and STR obligations. - Businesses trading high-value goods with cash purchases over 15,000 euros are subject to 2000 AML Law; Internal Rules require sellers of high-value articles to verify purchaser identity, keep copies, and declare operations to UPB when suspicions arise. - Draft Comunicat Tecnic requires STR of unusual, complex, or suspicious transactions and lists comprehensive series of reportable transactions. - Customs do not monitor cross-border movements of large cash amounts. - No review conducted of factors influencing use of cash in Andorra. *Source: 083102 - Annex II to FATF Recommendation 9 (IMF PDF).* ### Part 2: Assessing the AML/CFT in prudentially-regulated sectors ### Part 2: Assessing the AML/CFT in prudentially-regulated sectors — Module 1: AML/CFT in the banking sector ### Organizational and administrative arrangements - Legal and institutional roles: - Bank compliance with AML/CFT requirements has been part of the law since 1995; prior to 1995 the ABA Code of Conduct governed certain know-your-customer areas. - After the 2000 AML Law, supervisory authority for AML/CFT matters passed in its entirety to UPB. - UPB statutory authorities include: ensure banks maintain special vigilance over all operations; ensure banks’ internal procedures contain appropriate and sufficient control to prevent and impede money laundering operations; conduct training; require banks to provide any information UPB might need to investigate; verify that banks are acting in compliance with the law. - UPB may independently verify external audits, inspect records and enter banks; UPB requested external audit reports for the financial period ended December 31, 2001 to be submitted by March 31, 2002. - The 2000 AML Law requires banks to inform UPB of the designation of a compliance officer charged with anti-money laundering responsibility. - UPB resources and composition: - UPB currently consists of three members: two operational/investigative members and a third who is a judge advising on legal integrity and acting as liaison to the judiciary and the justice department. - The executive director has worked in bank operations and compliance since 1968; the police member has 15 years of investigative experience, including investigations with SEPBLAC and INTERPOL. - Interaction with auditors and training: - UPB provided specific direction to external auditors on scope and content of external audit reports and issued a Comunicat Tecnic setting required level of detail. - UPB does not plan to conduct training specifically for banks because banks and the ABA have sufficient depth of knowledge to conduct their own training. - Assessment: Compliant - Key supervisory comments and follow-up actions suggested by assessors: - UPB should have a formal mechanism to inform INAF of AML/CFT weaknesses indicating larger management or systemic problems affecting prudential soundness of institutions. ### Customer identification and due diligence - Legal and practical framework: - Customer due diligence legal framework described in Part 1; banks have longstanding CDD procedures formalized after the 1990 Code of Conduct. - Banks require physical presence of the customer to open an account; this requirement is being incorporated into the revised Code of Conduct. - Banks check customers against internal lists of problem countries which include elements of the FATF Non-Cooperative Countries and Territories List (“NCCT”). - For cross-border and business clients banks require reliable references and conduct investigations on business status. - Risk-based and centralized controls: - Banks use software to measure client risk based on country, volumes, type of banking activity, business activity, annual volume, correspondent countries, introducer, and methods to verify source of information. - High-risk customers receive increased scrutiny centrally (compliance officer or centralized compliance office); beneficial ownership information is reviewed centrally. - Procedures apply to numbered accounts. - Wire transfers: - Wire transfers within banks are limited to known customers; transactions inconsistent with customer business or to/from suspicious countries are held until supporting information is provided; failure to provide triggers a suspicious transaction report. - Assessment: Compliant - Key supervisory comments and follow-up actions suggested by assessors: - UPB should ensure it receives up-to-date copies of each bank’s internal CDD procedures and should follow up timely on adequacy of submitted procedures. ### Monitoring and reporting of suspicious activities - Legal and procedural detail: - Article 4 of UPB Internal Rules specifies suspicious transaction reports (STRs) should be made in writing (allowing other means if confirmed in writing) and A.4.4 requires STRs to contain at least: 1) information on the person making the declaration; 2) copy of documents used to identify the client; 3) copy of supporting documentation proving the doubtful operation, if any; 4) description of the operation and reason for communication to UPB; and 5) any other information in the hands of those liable that might help UPB analyze the operation. - Reporting activity and oversight: - Since the 2000 AML Law went into effect in July 2001, UPB has received 24 suspicious transaction reports, all from banks. - UPB monitors via external auditors the number of STRs made by employees to compliance officers and the number of STRs submitted from banks to UPB to ensure employee suspicions are not quashed by senior management. - Assessment: Largely Compliant - Key supervisory comments and follow-up actions suggested by assessors: - Banks request additional guidance on how to behave when UPB blocks a transaction and a customer complains operations were not performed. - After issuance of final Internal Rules specifying manner and content of STRs, UPB should evaluate after a period of operation whether instructions generate meaningful reports and make necessary adjustments soon after. ### Record keeping, compliance and audit - Recordkeeping standards and practice: - Recordkeeping is mandated by the 2000 AML Law for a minimum period of ten years from termination of the customer relationship. - In practice, banks often retain records for thirty years, tied to statutory periods for some liability provisions in Andorran civil law; prior to the 2000 AML Law a five-year minimum existed and banks routinely exceeded it. - Compliance officers and internal controls: - Banks designate compliance officers with sufficient experience and authority; many banks have senior-management-level compliance committees. - UPB is informed of compliance officer designations; the financial community’s small size makes deficiencies likely to be promptly noticed. - Role of external auditors: - UPB relies on external auditors to carry out bulk of reviews and assessments of banks’ AML policies, procedures and internal controls; external auditors have access to customer information including numbered accounts but cannot send confirmations to holders of numbered accounts. - UPB requested external audit reports be submitted by March 31, 2002 for the period ended December 31, 2001 and may independently verify audit results. - Assessment: Largely Compliant - Key supervisory comments and follow-up actions suggested by assessors: - Until external audit reports are submitted and UPB conducts follow-up, the level of implementation by banks and efficacy of external audit program is difficult to assess. - UPB should thoroughly review external audit reports for sufficiency and adequacy; after 2002 reviews UPB may modify scope, content and form of external audits. - UPB should consider prescribing specific sample sizes for transaction and account testing, including a separate sample for numbered accounts. - External auditors’ reports should be unedited when submitted to UPB; UPB may seek preparatory meetings with external auditors and evaluate external audit criteria after initial reports. ### Cooperation with supervisors and competent authorities - Information sharing: - UPB has broad authority to share information with foreign financial sector supervisors (see Part 1). - Channel of communication between UPB and INAF on mutual compliance and prudential concerns is less clear; UPB believes its sanctioning authority (which requires advice to INAF) empowers it to inform INAF of prudential problems. - Assessment: Largely Compliant - Key supervisory comment: - UPB should formalize mechanisms discussed under Organizational and Administrative Arrangements to ensure timely communication with INAF. ### Licensing and authorizations - Licensing and fit-and-proper framework: - The 1998 Bank Administration Law establishes requirements for new licenses; the Finance Minister has final approval on creation or withdrawal of banking licenses based on INAF and CSF recommendations. - Articles 13 and 14 specify fit-and-proper requirements for owners and information required from applicants. - Andorra is not granting new banking licenses at this time. - UPB does not have a defined role in licensing or determining fit-and-proper status. - The 1990 Code of Conduct required banks to ensure fit-and-proper standards are maintained internally. - Assessment: Largely Compliant - Key supervisory comments and follow-up actions suggested by assessors: - External audit reports to UPB should assess whether each bank has internal procedures to ensure fit-and-proper standards are followed. - Although fit-and-proper is generally a prudential standard administered by INAF, UPB having access to this information is beneficial because susceptibility to criminal activity increases if fit-and-proper standards are not properly administered. ### Consolidated recommendations (selected) - Organizational and administrative considerations (Part 1 recommendations): - Evaluate UPB resources for possible adjustment. - Provide a formal mechanism for communication between UPB and INAF. - Review suspicious transaction report mechanism and guidance after a period of implementation. - Waiver should be required authorizing UPB to meet directly with external auditors. - Require updates to UPB of any change in AML regime between audits, including submission of updated internal procedures. - Formalize UPB’s procedure to follow up on external audits. - Permit UPB to order additional external audits as necessary. - Consider auditing UPB’s operations. - External audits: - Ensure submission of unedited auditor’s reports to UPB. - Consider preparatory meetings between UPB and external auditors. - Evaluate and possibly modify external audit criteria after first reports, including specific sample testing for numbered accounts. - Legal framework enhancements: - Complete assessment of compliance with international conventions and complete changes to the Penal Code as necessary. - Assess measures to protect bona fide third parties in confiscation proceedings. - Assess whether it is necessary to permit judges to void contracts that are money laundering related. - Protect financial intelligence and internal operations of UPB. - Analyze scope of Constitutional protection afforded to government employees and advise UPB and the judiciary on the scope. *Source: IMF — Part 2: Assessing the AML/CFT in prudentially-regulated sectors (Module 1—AML/CFT in the banking sector).* ### Part 2: AML/CFT in prudentially-regulated sectors ### Part 2: AML/CFT in prudentially-regulated sectors ### Suggested actions for AML/CFT in the banking sector - External Audits - UPB should request external auditors to assess fit-and-proper test procedures of banks. - Potential Comunicat Tecnic - Respond to requests for additional guidance on how banks should handle customers whose transactions have been blocked. - Legal - Subject all employees of banks to fit-and-proper requirements and require banks to screen new employees for criminal records. ### Authorities’ response to the assessment - The Ministry of Finance expressed gratitude to the International Monetary Fund for carrying out the assessment at the request of the Andorran authorities. - Andorra voluntarily accepted the AML/CFT assessment as part of the Module 2 assessment program. - Legislative and institutional developments noted: - Approval in December 2000 of the Law on International Criminal Cooperation and Combating the Laundering of Money or Valuables Resulting from International Crime (the "2000 AML Law"). - The 2000 AML Law came into force in June 2001. - The Regulation of the 2000 AML Law was approved during 2002 and defined organisational and functional aspects of the UPB. - The Regulation of the Internal Rules of the UPB was approved by the Government on 27 March 2002. - Functional and cooperative developments: - The 2000 AML Law created the UPB (Money Laundering Prevention Unit). - UPB has signed cooperation agreements with SEPBLAC (Spain) and TRACFIN (France). - UPB has become a member of the Egmont group. - Since start-up, UPB opened contacts with agents of Andorran financial sectors, foreign counterparts, and international organisations. - Some IMF recommendations were integrated into the definitive text of the UPB Internal Rules; practical recommendations to be implemented through technical communiqués or UPB activity. ### Historical and legal context of AML/CFT in Andorra - Timeline and milestones: - 1990: Offences of laundering were defined in the Penal Code. - 1995: First anti-money laundering law was adopted. - December 2000: Approval of the 2000 AML Law. - June 2001: 2000 AML Law came into force. - 2002: Approval of the Regulation of the 2000 AML Law. - 27 March 2002: Government approved the definitive Internal Rules of the UPB. - Key legal effects of the 2000 AML Law: - Clarified the framework of international criminal cooperation. - Created the UPB. - Improved the system for declaration of suspicion, including: - Legal protection for individuals making a declaration of suspicion. - Extension of liable subject entities from principally banks to other agents of the economy. - Extended anti-money laundering compliance to non-banks. - 2000 AML Law authorizes UPB to issue instructions. - Article 50 of 2000 AML Law referenced in relation to secrecy laws consistency. - Article 51 of the 2000 AML Law referenced in relation to wire transfer customer identification measures. - Article 13 of the Law Regulating the Financial System, November 27, 1993, referenced in relation to preventing control of financial institutions by criminals. - Article 9 of the Penal Code referenced for criminal liability of corporations—and their employees. - Article 141 of the Penal Code criminalizes illegal transfers. ### Findings from the FATF Recommendations compliance table (Table 8) - General note: - The rating columns indicate the degree of compliance: C=compliant, LC=largely compliant, MNC=materially noncompliant, and NC=noncompliant. - Explanations: Recommendations in italics are reviewed for purposes of the legal framework, but not assessed as to implementation. - Selected numbered findings with grading and remarks (exact text preserved): - 1 – Ratification and implementation of the Vienna Convention - Grading: X - 2 – Secrecy laws consistent with the 40 Recommendations - Grading: X - Remark: Article 50 of 2000 AML Law. - 3 – Multilateral cooperation and mutual legal assistance in AML - Grading: X - Remark: See discussion on international cooperation in AML/CFT Assessment - 4 – Money laundering a criminal offence (Vienna Convention) - Grading: X - Remark: Since 1990. - 5 – Knowledge of money laundering a criminal offence (Vienna Convention) - Grading: X - Remark: Applies to those who know or should have known. - 6 – Criminal liability of corporations—and their employees - Grading: X - Remark: Contained in Article 9 of the Penal Code. - 7 – Legal and administrative conditions for confiscation (Vienna Convention) - Grading: X - Remark: Rights of bona fide third parties are not expressly protected. - 8 – Recommendations 10-29 apply to non-bank financial institutions - Grading: X - Remark: 2000 AML Law extended anti-money laundering compliance to non-banks. - 10 – Prohibition of anonymous accounts - Grading: X - Remark: Numbered accounts are subject to all customer due diligence and recordkeeping requirements. - 11 – Obligation of reasonable measures for customer identification - Grading: X - Remark: In place for banks since 1990 and 2000 AML Law extends the obligation to non-banks. - 12 – Comprehensive record keeping (5 years) for transactions - Grading: X - Remark: 2000 AML Law requires 10 years. - 14 – Detection and analysis of unusual or large transactions - Grading: X - Remark: Requested in Internal Rules. - 15 – Reporting requirement for suspicious transactions - Grading: X - Remark: Applies to all financial intermediaries. - 16 – Legal protection for good faith reporting to competent authority - Grading: X - 17 – No tipping off customers of reports to competent authority - Grading: X - 18 – Compliance with instructions for suspicious transactions reporting - Grading: X - Remark: 2000 AML Law authorizes UPB to issue instructions. - 19 – Internal policies, procedures, controls, audit, and training programs - Grading: X - 20 – AML rules and procedures apply to branches and subs abroad - Grading: X - Remark: Expressly included in 2000 AML Law. - 21 – Special attention given to problem countries - Grading: X - Remark: Andorran Constitution prohibits discrimination on the basis of country of origin. Banks have internal procedures instead. - 22 – Detection and monitoring of cross-border transportation of cash - Grading: X - 23 – Centralization of data on currency transactions - Grading: X - 24 – Support to the replacement of cash transfers - Grading: X - 25 – Prevention of unlawful use of shell corporations - Grading: X - 26 – Adequate AML programs in supervised banks/financial institutions - Grading: X - Remark: Supervisory authority is vested with UPB. - 27 – Administrative regulation of other professions dealing with cash - Grading: X - Remark: 2000 AML Law subjects entities to due diligence. - 28 – Guidelines for suspicious transactions detection - Grading: X - Remark: Draft Comunicat Tecnic provides detailed guidance. - 29 – Preventing control of financial institutions by criminals - Grading: X - Remark: Article 13 of the Law Regulating the Financial System, November 27, 1993. - 30 – Recording of international flows of cash - Grading: X - Remark: By UPB. - 31 – Information gathering and dissemination about AML - Grading: X - 32 – International exchange of information relating to suspicious transactions, and to persons or corporations involved - Grading: X - 33 – Bilateral or multilateral agreement on information exchange when legal standards are different - Grading: X - 34 – Bilateral and multilateral agreements and arrangements for mutual assistance - Grading: X - 35 – Ratification and implementation of other international conventions on money laundering - Grading: X - Remark: Palermo Convention and Terrorism Convention have been signed and are pending ratification. - 36 – Cooperative investigations among countries' authorities - Grading: X - 37 – Definition of procedures for mutual assistance in criminal matters - Grading: X - Remark: Formalized in the 2000 AML Law. - 38 – Authority to take expeditious actions in response to foreign countries’ requests - Grading: X - Remark: 2000 AML Law permits both UPB and judicial officials to take expeditious actions. - 40 – Money laundering an extraditable offence - Grading: X - FATF eight special recommendations to combat terrorist financing (SR1–SR8), selected items preserved verbatim: - SR1 – Take steps to ratify and implement relevant United Nations instruments - Grading: X - SR2 – Criminalize the financing of terrorism and terrorist organizations - Grading: X - SR3 – Freeze and confiscate terrorist assets - Grading: X - Remark: Post September 11, 2001 review did not uncover terrorist assets in Andorra. - SR4 – Report suspicious transactions linked to terrorism - Grading: X - SR5 – provide assistance to other countries’ terrorist financing investigations - Grading: X - SR6 – impose AML/CFT requirements on alternative remittance systems - Grading: X - Remark: The law requires licensing to engage in funds transfers and Article 141 of the Penal Code criminalizes illegal transfers. - SR7 – Strengthen customer identification measures for wire transfers - Grading: X - Remark: Article 51 of the 2000 AML Law. - SR8 – Ensure that entities, in particular nonprofit organizations cannot be misused to finance terrorism - Grading: X - Remark: There is a law regulating nonprofit organizations, but the register for associations has not yet been created. ### Implementation status and follow-up - UPB considered recent and in a running-in phase at the time of the assessment, with positive reception from economic sectors. - Some IMF recommendations were integrated into UPB Internal Rules; others to be implemented via technical communiqués or UPB activity. - Draft Comunicat Tecnic provides detailed guidance for suspicious transactions detection and for handling customer transaction blocks (potentially responding to requests for additional guidance). --- _Source: https://www.imf.org/-/media/files/publications/ofca/english/083102.pdf_