The Council of Europe's anti-money laundering group called on members last week to boost transparency efforts to identify ultimate beneficial owners of companies and to ensure that the information is readily available to law enforcement officials.

The Council's Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism, known as Moneyval, said in its annual report that identifying the true owners of complex corporate structures is one of the biggest problems in the fight against money laundering. The 80-page annual report, outlining the group's activities in 2013 and recommendations, was released last week.

With 33 members, including Albania, the Czech Republic, Hungary, Poland, the Russian Federation and three United Kingdom territories, Moneyval monitors compliance with European and international standards on anti-money laundering and combating the financing of terrorism (AML/CFT). The scope of global money laundering is estimated to be between $500 billion and $1 trillion.

Moneyval, the bulk of whose members are from Eastern Europe, welcomed the commitment of G8 members last June to adopt the core transparency principles contained in the Financial Action Task Force's revised standards, which deal with the prevention of the misuse of companies or trusts for money laundering or the financing of terrorism.

“Moneyval states and territories are encouraged to follow the G8 lead, and to consider these issues carefully in the context of their own national risk assessments or in specific national action plans,” Anton Bartolo, chairman of Moneyval, said in a statement. “Real progress here can only increase public confidence in our states' capacities to detect and prosecute major criminals and deprive them of their ill-gotten gains.”

The group said many major investigations have run aground because the information on the real owners behind a company was inaccurate, not readily accessible by law enforcement, or simply unavailable.

Bartolo said the difficulty of tracing true owners in complex corporate structures is a problem “that we, in the AML/CFT world, wrestle with all the time.”

In 2013, Moneyval conducted monitoring activities in 25 jurisdictions. While attention to international standards is high, problems still persist in implementation, the report said.

“Overall, formal compliance with relevant international standards is largely being achieved. However, the effective implementation of the standards is more challenging,” Bartolo wrote in his introduction to the report. “More emphasis still needs to be put on the work of law enforcement agencies and prosecutorial authorities in order to achieve serious money laundering convictions and deterrent confiscation orders in major proceeds-generating offenses. I regret that convictions of those third parties who launder proceeds on behalf of organized crime and serious confiscation orders still appear to be very much the exception”

In Poland, legislators made some improvements to the penal code, but there appeared to be a low number of ML investigations and prosecutions. The confiscation regime in Poland remains incomplete and there seems to be a lack of expertise in many agencies to conduct complex ML investigations, the report said.

In Croatia, there were no autonomous money laundering cases brought forth involving third parties laundering money for others. The report also found gaps there in due diligence requirements regarding politically exposed persons.

The report found improvements hand in hand with continued problems in most of the jurisdictions reviewed. In the U.K. Crown Dependency of Guernsey, officials rectified a number of deficiencies and boosted the number of successful ML convictions. However, Moneyval found there have been no steps taken to widen the mandatory categories of customer which would trigger enhanced due diligence requirements.

Bartolo said 2013 was “an intense and highly productive year” for the group. In particular, he cited the work the group did on a first of its kind assessment of customer due diligence in the banking sector in Cyprus.

Moneyval was asked by the EuroGroup Working Group to undertake the targeted review in light of Cyprus's request for financial assistance from the Euro zone. The group also agreed to a request from the Vatican in 2013 to review AML/CFT compliance progress there.

In a 7-week investigation, the group reviewed 13 banks, representing a combined 71 percent of deposits and 76 percent of loans in the Cypriot banking sector. The review found substantial international business with complex corporate structures or cross-border transactions involving parties in different jurisdictions. That makes the nature of the business “inherently vulnerable” to misuse, the report said.

While the review found the banking sector had a high level of knowledge about AML issues and the reputational risks, it found potential problems with a widespread practice of international business being introduced to banks by other professionals or corporate service providers. The banks rely heavily on those introducers to verify the authenticity of customer due diligence documents. One category of introducers is not monitored for compliance at all, and the compliance monitoring for lawyers and accountants acting as introducers needs to be strengthened, the report said.

Moneyval also cited the lack of bank-wide AML/CFT risk assessments and weaknesses in rules covering politically exposed persons. The report also questioned the effectiveness of Cypriot banks' use of automated monitoring systems on high risk accounts. While the automated systems are generating a significant amount of alerts, there appears to be inadequate staffing to review the alerts, and possibly as a result, few suspicious activity reports were made, the report said.

Also last week, Moneyval issued a public statement calling Bosnia and Herzegovina to task for failing to implement compliance-enhancing reforms by the group's deadline. In the 1 June statement, Moneyval said it has been concerned about “important deficiencies” in Bosnia and Herzegovina's AML/CFT regime since 2010. It also noted that needed amendments to the country's criminal code were rejected by lawmakers. Moneyval warned its members as well as non-member states to advise their financial institutions to apply enhanced due diligence measures to transactions involving people or firms from Bosnia and Herzegovina in light of the increased risk.