Monsignor Balestreros Briefing on Moneyval Report

"Compliance and effective implementation are indeed what render moral commitments concrete"

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VATICAN CITY, JULY 18, 2012 (Zenit.org).- Here is the translation of Monsignor Ettore Balestrero’s briefing to journalists concerning the Moneyval Report released in early July.

As the Head of Delegation of the Holy  See to the Plenary Session of Moneyval that
discussed and adopted the Holy See’s First Mutual Evaluation Report on July 4, 2012, I welcome you to this briefing, which aims to present the key findings of the Report and to share with you also some insights as to where the Holy See has been and where it is going.

The Goal: Making Moral Commitments Concrete

For the Holy See, this process is first and foremost a moral rather than a technical
commitment.  As Pope Benedict XVI stated in his 30 December, 2010 Motu Proprio, just as the rest of the international community equips itself with the tools necessary to fight these evils, it is right and good that the Holy See share in these efforts, adopting such tools “as its own” and thereby also “carrying out the mission of the Holy See.”

As the Secretariat of State clarified in requesting this evaluation, the Holy See recognizes
that moral commitments must be accompanied by the technical compliance and effective
implementation of the international standards necessary to fight money laundering and the
financing of terrorism.  Compliance and effective implementation are indeed what render moral commitments concrete.

Our Jurisdiction – small in size, far reaching in importance

Vatican City State has a very small territory, with a small population, a very low level of
domestic crime, and no market economy. It is not a financial centre and its financial activities are meant to support its works of charity and of religion.

However the Holy See enjoys a recognized moral voice and in this sense is deeply connected
not only with its immediate neighbors, but with all countries of the world.

Moreover, the Holy See, as primarily responsible for the universal mission of the Church, has
a special ability – even duty – to guide and orient Catholic religious organizations throughout
the world.  While those organizations exist within their own civil jurisdictions and are bound to follow the laws of those jurisdictions for AML/CFT issues, it is important that the Holy See use its moral authority to raise maximum awareness about the far too frequent transnational crime of money laundering and the financing of terrorism.

Beginning along the path and first accomplishments

Now, let’s see where we are coming from. The last nineteen months have been months of
work and learning.

Before starting this process, we already had a good number of requirements in place. Above
all, there has always been a clear determination to fight money laundering and terrorist financing, as well as a legal system that already had several of the elements necessary to tackle ML/FT problems.

At the end of 2010, we passed an AML/CFT law and requested evaluation in February 2011
by MONEYVAL. Our law came into force on April 1, 2011. Our Financial Intelligence
Authority was operational by June.  In November 2011, we received our first MONEYVAL
on-site visit. The team of our evaluators was widely considered to be perhaps the strongest team MONEYVAL had ever assembled. It included the President, the Secretary and an Administrator of MONEYVAL, the President of the Egmont Group of Financial Intelligence Units, two senior financial experts, and a Professor of International Law. We take both the praise and criticism contained in the report with seriousness.

Revision of the First AML/CFT Legislation

Based on the preliminary remarks of the evaluators in November, it became apparent that
the first version of the law, while representing an important effort at proper legislation, contained gaps and other difficulties that needed to be addressed in order to move forward.
All jurisdictions that receive an on-site visit are given two months time to introduce changes
in their legislation, that will be included in the evaluation report. Within this timeframe, on
January 25, 2012 a new law was introduced that provided for more effective cooperation among the Vatican Authorities involved in the prevention and countering of money laundering and the financing of terrorism. The new law stressed the importance of their mutual connections and the need to better allocate their respective competences in order to establish a stronger and more sustainable system AML/CFT system.

The present AML/CFT system

Now I would like to draw your attention to some of the more important elements of the
current AML/CFT Regime:

- The establishment of a risk-based approach to AML/CFT work, particularly in regard
to the identification of suspicious transactions;

- Enhanced emphasis on international cooperation, including full exchange of information
with foreign counterparts.  And I stress that this includes exchange of  information
including information prior to April 1, 2011;

- Laws relating to financial institution secrecy are consistent with the international
standards;

- The criminal law is significantly improved, by providing a comprehensive definition of
money laundering, and an array of predicate  crimes in line with the international
standards, as well as the criminalization of the financing of terrorism;

- The power of the courts to prosecute money laundering, financing of terrorism, and its
predicate crimes, as well as to freeze and confiscate the proceeds of ML/FT activity has
been strengthened;

- The sanctions for failure to fulfill AML/CFT requirements are enhanced and made
applicable to legal persons;

- Entering into a Memorandum of Understanding (MOU) is a requirement for the
exchange of financial information with financial intelligence units from other states. We
pledge this to be an effective and reliable tool for exchanging information on the basis
of reciprocity with those jurisdictions that are also committed to fight money laundering
and the financing of terrorism;

- The power of the AML/FT supervisor to perform an inspection of any financial
institution is made explicit and the law provides for the creation of a specific and
detailed regulation upon the basis of which that inspection could be conducted.

In addition, the Holy See, acting also on behalf of Vatican City State, has ratified the
following Conventions:

- the Vienna Convention against Illicit Traffic on Narcotic Drugs and Psychotropic
Substances (1988).

- the New York Convention for the Suppression of the Financing of Terrorism (1999).

- the Palermo Convention against Transnational Organized Crime (2000).

These Conventions are immediately applicable in our legal system, without any further need
to implement legislation regarding extradition and cooperation.

In addition, the area of international cooperation was carefully assessed The findings of the
evaluators were that the current system of the Holy See and of Vatican City State is largely
compliant with the international standards.

Areas Where Evaluators Noted a Need for Improvement

We are aware that, like other jurisdictions, some areas of the Vatican’s systems to fight
money laundering and the financing of terrorism stil need to improve. After the new law was
adopted in January, we addressed many of these issues in the course of our continuing exchanges with the evaluators.  Other issues will be addressed expeditiously and giving proof of effectiveness.

For example:

- There are some concerns expressed in the report regarding the use of an MOU to
establish the basis for international cooperation between financial intelligence units;
We feel that the adoption of this requirement, which is in line with international
standards, represents the right approach for the Vatican, which, as a smaller jurisdiction,
wishes to interact on fair and fully reciprocal terms with other countries. Indeed, this is
a common choice made by many jurisdictions, including New Zealand, Canada,
Australia and others; nor is this choice disfavored by such noted FATF members as the
United States;

- The Pontifical Commission is mandated by the law to provide for a regulation
permitting the AML/CFT Supervisor to perform on-sight inspections.  The evaluators
note that until such a regulation becomes law, the supervisors inspection powers are not
yet defined.  We agree.  That regulation, which is already being drafted, will reflect our
seriousness of purpose;

- The report notes that the original structure of a Financial Intelligence Authority, which
combines the financial intelligence unit function and the regulatory functions of a
Supervisor, appears to create difficulties. This structure of the FIA, which concentrated
all AML intelligence and supervision was inherited from the first version of the law. It
was retained in the second version of the law. The evaluators have expressed certain
skepticism as to its “workability” . We are grateful for this observation which we take
seriously;

- The report notes that conflicts of interest may arise due to the same person working at
the same time in a Supervisor and in one of the Supervised entities.

Next Steps After Passing the New Law

After adoption of the present law, the Holy See has continued to improve its anti-money laundering system. Above all, the Holy See and the Vatican Authorities have  moved from shorter-term solutions to the creation of long term, sustainable and effective solutions; and will continue to do.

For example, after January 25, that is after the above mentioned period of two months
following the first on-site visit:

- The Holy See established and implemented a terrorist list in line with the measures
required by the United Nations Security Council;

- We have officially applied to join the Egmont Group, which is the internationally
accredited group of Financial Intelligence Units formed to favor rapid and reciprocal
exchanges of information;

- Through the execution of memoranda of understanding, we have expeditiously moved
to insert our own financial intelligence authority into the international network of
financial intelligence units;

- As mentioned, the Cardinal’ Commission for the Vatican City State is in the process of
adopting an inspection regulation;

- We have initiated further revision of our criminal law, with a view to further modernize
its provisions in light of the international standards;

- Shortly we will complete our risk assessment;

- We are considering ratification of other crime fighting conventions and new legislation
regarding non-profit organizations

CONCLUSION

Therefore the report released today is not an end, but a milestone in our continuing efforts.
In regards to the actual findings, simply stated we obviously wish to strengthen the overall
system; in particular out of the 16 key and core recommendations of the international standards to fight ML/FT there are 7 areas where the Holy See must and will focus on.

In this light, the report released today is not the end, but is rather an important passage of
our continuing efforts to marry moral commitments to technical excellence.

We have taken a definitive step to lay the foundations to a structure – a house if you will –
that is to a robust and sustainable system to combat money laundering and the financing of
terrorism. Now it is our wish to fully construct a building that effectively shows the Holy See’s and Vatican City State’s desire to be a reliable partner in the international community.
With pride in what we have accomplished, tempered by recognition of what we must still
do, I now welcome your questions.

[Original text: English]