Mutual Evaluation of Iceland - 2018

1. Anti-money laundering and counter-terrorist financing measures in Iceland – Mutual Evaluation Report – April 2018 1
Anti-money laundering and counter-
terrorist financing (AML/CFT)
measures in Iceland
Fourth Round Mutual Evaluation
Key findings, ratings and priority actions
April 2018
http://www.fatf-gafi.org/publications/mutualevaluations/documents/mer-iceland-2018.html

2. Anti-money laundering and counter-terrorist financing measures in Iceland – Mutual Evaluation Report – April 2018
Ratings – Effectiveness (1/3)
2
Immediate outcome of an effective system to combat money
laundering (ML) and terrorist financing (TF)
Extent to
which
Iceland has
achieved this
objective
1. ML and TF risks are understood and, where appropriate,
actions co-ordinated domestically to combat ML and TF
Low
2. International co-operation delivers appropriate information,
financial intelligence, and evidence, and facilitates action
against criminals and their assets
Substantial
3. Supervisors appropriately supervise, monitor and regulate
financial institutions and designated non-financial
businesses and professions (DNFBPs) for compliance with
AML/CFT requirements commensurate with their risks.
Low
4. Financial institutions and DNFBPs adequately apply AML/CFT
preventive measures commensurate with their risks, and
report suspicious transactions.
Low

3. Anti-money laundering and counter-terrorist financing measures in Iceland – Mutual Evaluation Report – April 2018 3
Immediate outcome of an effective system to combat money
laundering (ML) and terrorist financing (TF)
Extent to
which
Iceland has
achieved this
objective
5. Legal persons and arrangements are prevented from misuse
for money laundering or terrorist financing, and information
on their beneficial ownership is available to competent
authorities without impediments
Low
6. Financial intelligence and all other relevant information are
appropriately used by competent authorities for money
laundering and terrorist financing investigations.
Moderate
7. Money laundering offences and activities are investigated
and offenders are prosecuted and subject to effective,
proportionate and dissuasive sanctions
Moderate
8. Proceeds and instrumentalities of crime are confiscated. Moderate
Ratings – Effectiveness (2/3)

4. Anti-money laundering and counter-terrorist financing measures in Iceland – Mutual Evaluation Report – April 2018 4
Immediate outcome of an effective system to combat money
laundering (ML) and terrorist financing (TF)
Extent to
which
Iceland has
achieved this
objective
9. Terrorist financing offences and activities are investigated
and persons who finance terrorism are prosecuted and
subject to effective, proportionate and dissuasive sanctions.
Moderate
10. Terrorists, terrorist organisations and terrorist financiers are
prevented from raising, moving and using funds, and from
abusing the non-profit sector.
Low
11. Persons and entities involved in the proliferation of weapons
of mass destruction are prevented from raising, moving and
using funds, consistent with the relevant United Nations
Security Council Resolutions.
Low
Ratings – Effectiveness (3/3)

5. Anti-money laundering and counter-terrorist financing measures in Iceland – Mutual Evaluation Report – April 2018 5
Ratings – Effectiveness
April 2018
0 1
46
High
Substantial
Moderate
Low

6. 3-Apr-18
6
Ratings – technical compliance
(1/5)
AML/CFT POLICIES AND COORDINATION
1. Assessing risks & applying a risk-based approach Pa Pa ParPa Partially Compliant
2. National cooperation and coordination Pa Pa ParPa Partially Compliant
MONEY LAUNDERING AND CONFISCATION
3. Money laundering offence Co CoCo Co Compliant
4. Confiscation and provisional measures LarLarLarLar Largely Compliant
TERRORIST FINANCING AND FINANCING OF PROLIFERATION
5. Terrorist financing offence LarLarLarLar Largely Compliant
6. Targeted financial sanctions related to terrorism & terrorist financiPa Pa ParPa Partially Compliant
7. Targeted financial sanctions related to proliferation Pa Pa ParPa Partially Compliant
8. Non-profit organisations No No NonNo Non Compliant

7. 3-Apr-18
7
Ratings – technical compliance
(2/5)
PREVENTIVE MEASURES
9. Financial institution secrecy laws LarLarLarLar Largely Compliant
Customer due diligence and record keeping
10. Customer due diligence Pa Pa ParPa Partially Compliant
11. Record keeping Co CoCoCo Compliant
Additional measures for specific customers and activities
12. Politically exposed persons Pa Pa ParPa Partially Compliant
13. Correspondent banking Pa Pa ParPa Partially Compliant
14. Money or value transfer services LarLarLarLar Largely Compliant
15. New technologies Pa Pa ParPa Partially Compliant
16. Wire transfers Pa Pa ParPa Partially Compliant

8. 3-Apr-18
8
Ratings – technical compliance
(3/5)
PREVENTIVE MEASURES (continued)
Reliance, Controls and Financial Groups
17. Reliance on third parties Pa Pa ParPa Partially Compliant
18. Internal controls and foreign branches and subsidiaries Pa Pa ParPa Partially Compliant
19. Higher-risk countries Pa Pa ParPa Partially Compliant
Reporting of suspicious transactions
20. Reporting of suspicious transactions LarLarLarLar Largely Compliant
21. Tipping-off and confidentiality Co CoCoCo Compliant
Designated non-financial Businesses and Professions (DNFBPs)
22. DNFBPs: Customer due diligence Pa Pa ParPa Partially Compliant
23. DNFBPs: Other measures Pa Pa ParPa Partially Compliant

9. 3-Apr-18
9
Ratings – technical compliance
(4/5)
TRANSPARENCY AND BENEFICIAL OWNERSHIP OF LEGAL PERSONS
AND ARRANGEMENTS
24. Transparency and beneficial ownership of legal persons Pa Pa ParPa Partially Compliant
25. Transparency and beneficial ownership of legal arrangements Pa Pa ParPa Partially Compliant
POWERS AND RESPONSIBILITIES OF COMPETENT AUTHORITIES
AND OTHER INSTITUTIONAL MEASURES
Regulation and Supervision
26. Regulation and supervision of financial institutions Pa Pa ParPa Partially Compliant
27. Powers of supervisors LarLarLarLar Largely Compliant
28. Regulation and supervision of DNFBPs No No NonNo Non Compliant
Operational and Law Enforcement
29. Financial intelligence units LarLarLarLar Largely Compliant
30. Responsibilities of law enforcement and investigative authoritiesCoCoCoCo Compliant
31. Powers of law enforcement and investigative authorities CoCoCoCo Compliant
32. Cash couriers Pa Pa ParPa Partially Compliant

10. 3-Apr-18
10
Ratings – technical compliance
(5/5)
POWERS AND RESPONSIBILITIES OF COMPETENT AUTHORITIES
AND OTHER INSTITUTIONAL MEASURES (continued)
General Requirements
33. Statistics LarLarLarLar Largely Compliant
34. Guidance and feedback Pa Pa ParPa Partially Compliant
Sanctions
35. Sanctions Pa Pa ParPa Partially Compliant
INTERNATIONAL COOPERATION
36. International instruments LarLarLarLar Largely Compliant
37. Mutual legal assistance LarLarLarLar Largely Compliant
38. Mutual legal assistance: freezing and confiscation LarLarLarLar Largely Compliant
39. Extradition LarLarLarLar Largely Compliant
40. Other forms of international cooperation LarLarLarLar Largely Compliant

11. Anti-money laundering and counter-terrorist financing measures in Iceland – Mutual Evaluation Report – April 2018 11
Ratings – technical compliance
April 2018
5
13
20
2
Compliant
Largely compliant
Partially compliant
Non compliant

12. Anti-money laundering and counter-terrorist financing measures in Iceland – Mutual Evaluation Report – April 2018
Key findings
 Iceland has taken initial steps to understand its ML/TF risks, with
the completion of its first national risk assessment (NRA) in
January 2017. Nevertheless, this assessment appears to be based
on assumptions or a theoretical understanding of general ML/TF
risks rather than information on factual ML/TF vulnerabilities and
threats specific to Iceland. Similarly, there is limited evidence that
this national assessment was coordinated with previous targeted
risk assessments conducted by the National Police Commissioner.
 Co-ordination in the context of AML/CFT is relatively recent and
largely limited to preparation of the NRA. Although co-ordination
has been discussed and may occur informally and on an ad hoc
basis, there is not yet an overarching strategy or functioning
mechanism to ensure domestic co-ordination at the ministerial
level or among competent authorities. This lack of co-ordination
negatively affects Iceland’s entire AML/CFT regime.
12April 2018

13. Anti-money laundering and counter-terrorist financing measures in Iceland – Mutual Evaluation Report – April 2018
Key findings
April 2018 13
 Iceland has a good legal framework for investigation and prosecution of
ML and investigative and prosecutorial authorities have developed
expertise in investigating financial crimes following the 2008 bank crisis.
Financial investigations are conducted in many cases, and
multidisciplinary teams are formed to investigate more complex cases.
However, ML has not been a priority for Icelandic authorities. The lack
of resources allocated to identifying, investigating and prosecuting ML
results in a lower level of effectiveness in pursuing ML.
 There is evidence that financial intelligence is being used to some
extent to successfully develop and prosecute major cases related to tax
evasion, drug smuggling, and to a lesser extent ML/TF. Feedback from
prosecutors and law enforcement authorities (LEAs) also suggests that
the quality of financial intelligence has improved since 2015.
Nevertheless, there are several impediments to the effective use of
financial intelligence more generally, including (i) limited STR filing
outside of the main commercial banks and payment institutions, and (ii)
lack of information sharing among competent authorities in relation to
cross-border movement of currency and assets, information on NPOs
and beneficial ownership information.

14. Anti-money laundering and counter-terrorist financing measures in Iceland – Mutual Evaluation Report – April 2018
Key findings
 There have not been any criminal investigations or prosecutions
of TF in Iceland. This may be due in part to the size, culture,
geographical location and other circumstances of the country.
Iceland has demonstrated effective co-operation with other
countries’ security services, particularly the other Nordic
countries. Intelligence was shared with other countries in which
active investigations were initiated. Nevertheless, there appears
to be a lack of consideration of the TF vulnerabilities in Iceland by
LEAs. Limited financial investigative expertise allocated to TF
matters within the Icelandic police may hamper Iceland’s ability
to put appropriate emphasis on CFT measures.
 While the large commercial banks have some understanding of
the ML risk to which they are exposed (and to a lesser extent TF),
other financial institutions (FIs) and DNFBPs appear not to assess
the ML/TF risk to which they are exposed and have not
demonstrated an understanding of any such risks. Similarly, while
the commercial banks demonstrated a reasonable understanding
of their AML/CFT obligations, this understanding was much lower
among other FIs and DNFBPs.
14April 2018

15. Anti-money laundering and counter-terrorist financing measures in Iceland – Mutual Evaluation Report – April 2018
Key findings
15April 2018
 Iceland generally has a comprehensive licencing and registration framework in
place to prevent criminals and their associates from holding or being the
beneficial owner of a significant or controlling interest in FIs and to a lesser
extent DNFBPs. While the FSA has begun to identify some areas of risk,
inspections and other supervisory measures are not yet conducted using a
comprehensive risk-based approach. DNFBP supervisors, including self-
regulating bodies (SRBs), have limited understanding of the risks facing their
sectors, are not fully aware of their responsibilities as AML/CFT supervisors.
Generally, DNFBP supervisors have not begun AML/CFT supervision of their
respective sectors.
 Iceland has not assessed or identified how legal persons or foreign legal
arrangements can be misused. Iceland recognises that legal persons may be
misused; however, it is generally assumed that the misuse is for tax evasion.
Iceland has implemented some preventative measures designed to prevent the
misuse of legal persons for ML and TF, including the collection of basic and legal
ownership information. In practice, it is not clear that such information is
accurate and kept up-to-date, and the authorities face challenges in obtaining
timely access to beneficial ownership information.

16. Anti-money laundering and counter-terrorist financing measures in Iceland – Mutual Evaluation Report – April 2018
Key findings
16April 2018
 Iceland has a good legal and procedural framework for
international co-operation and assistance has been
provided in a timely manner in both ML and TF cases. There
is, in various areas and between different authorities,
effective co-operation between Iceland and the other
Nordic countries. LEAs actively seek informal and formal
international co-operation and legal assistance in a wide
range of cases when intelligence, information or evidence is
needed from other countries or when assets can be seized
or frozen. However, the instances when these mechanisms
have been used in relation to ML/TF are limited by the low
number of ML/TF investigations.

17. Anti-money laundering and counter-terrorist financing measures in Iceland – Mutual Evaluation Report – April 2018
Priority Actions for Iceland to
strengthen its AML/CFT System
17April 2018
 Begin as soon as possible to revise the 2017 ML/TF risk
assessment in order to more accurately reflect the available
quantitative and qualitative information reflecting actual and
potential illicit financial activity in Iceland.
 Develop national AML/CFT operational policies and co-ordination
mechanisms to ensure competent authorities share ML/TF
information on an ongoing basis and work together as
appropriate to pursue criminal investigations targeting illicit
finance.
 Competent authorities should conduct outreach to reporting
entities to ensure provision of guidance and feedback on trends,
typologies and red flag indicators for ML/TF consistent with a
revised NRA. Similarly, Icelandic authorities should further
enhance the human and technical resources of FIU-ICE to enable
more effective operations and increase capacity for conducting
strategic analysis.

18. Anti-money laundering and counter-terrorist financing measures in Iceland – Mutual Evaluation Report – April 2018
Priority Actions for Iceland to
strengthen its AML/CFT System
 Iceland should establish clear priorities for the law enforcement
agencies responsible for investigating ML and predicate offences.
 Customs, police assigned to the borders, the DTI and other law
enforcement should increase co-operation and co-ordination,
especially the DTI and DPO, to enable parallel financial investigations
to occur.
 Based on a comprehensive risk assessment, Iceland should take
steps to ensure appropriate capacity, including available resources
and financial expertise, for developing TF intelligence and
conducting TF investigations, in accordance with its TF risk profile.
 Iceland should establish a framework for effective implementation
of targeted financial sanctions for TF and PF. The FSA and Ministry of
Foreign Affairs should establish policies and procedures for
monitoring FIs and DNFBPs for compliance with the TFS for TF and
PF.
18April 2018

19. Anti-money laundering and counter-terrorist financing measures in Iceland – Mutual Evaluation Report – April 2018
Priority Actions for Iceland to
strengthen its AML/CFT System
 Competent authorities should ensure that FIs and DNFBPs have a
risk based approach to their AML/CFT measures, and should give
the reporting entities more guidance on how to establish
effective AML/CFT measures.
 Supervisors should take steps to deepen their understanding of
the ML/TF risks within the institutions and sectors that they
supervise, and should implement a risk based approach to AML/
CFT supervision on the basis of the ML/TF risks identified.
 Iceland should increase supervisory resources at the FSA and
Consumer Agency to enable appropriate on-site and off-site
actions commensurate with the risks within the financial and
DNFBP sectors.
 Iceland should assess the ML/TF risks associated with the
different legal persons and should establish appropriate
mitigating measures that are commensurate with the identified
risks.
19April 2018