Projects and control
Account Register Project proceeding as planned
Source: Customs 21.10.2019
The national legal act concerning a bank and payment account monitoring system (571/2019) entered into force on 1 May 2019. The purpose of the legal act is to give the authorities better access to information on bank accounts and payment accounts, and to ensure correct targeting of enquiries by authorities. The act is based on EU Directive 2018/843 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing. Finnish Customs was given the task of setting up a register on bank and payment accounts, and of issuing a regulation on a data retrieval system. For this purpose, Customs started the Account Register Project. The project started in autumn 2018. The bank and payment account monitoring system comprises the bank and payment account register (Account Register) and a decentralised data retrieval system.
The legal act on a bank and payment account monitoring system determines the authorities who have the right to make queries in the Account Register and in data retrieval systems. According to the legal act in force, the Financial Intelligence Unit of the Finnish National Bureau of Investigation has extensive data acquisition rights. Data retrieval rights concerning the Account Register and data retrieval systems will be extended when the national legal act relating to EU Directive 2019/1153 enters into force in 2021. The preparatory work involving the national legislation and lead by the Ministry of the Interior will start in 2019.
Customs will set up the Account Register which will store data on customers, customer accounts and safety deposit boxes provided by payment institutions, electronic money institutions and providers of virtual currency. Credit institutions can also provide information to the Account Register under exemption from the Financial Supervisory Authority. Payment institutions, electronic money institutions, providers of virtual currency, and credit institutions acting under exemption are to provide data defined by law to the Account Register through a data updating interface which will be set up by the Account Register Project personnel. Authorities who have the right to utilise data are to apply for data through the query web service interface which is set up by the project personnel. The Account Register and its web service interfaces must up and running as of 1 September 2020.
Credit institutions for their part will, as a rule, create and maintain their own data retrieval systems through which authorities entitled to utilise information can search data on customers, customer accounts and safety deposit boxes through data retrieval web service interfaces of credit institutions. Parties who utilise data will implement their own solutions based on specifications defined in the project. Also payment institutions, electronic money institutions and providers of virtual currency can, if they so wish, create and maintain data retrieval systems. However, a binding notification must be given to Customs in advance.
Customs has cooperated closely with various interest groups in the Account Register Project which has progressed according to schedule. The project is coordinated by the Ministry of Finance.
Regulations concerning the bank and payment account monitoring system now published
Customs has notified information suppliers about the regulations concerning the bank and payment account monitoring system on 21 October 2019. Regulations issued by Customs are available in Finnish at https://tulli.fi/tietoa-tullista/tullin-toiminta/tullin-maarayskokoelma.
Customs implements the Account Register application and the related web service interface meant for updates and queries. Suppliers of information are to create integrations and connections for interacting with the Account Register interfaces. The regulation concerning the Account Register determines the electronic procedures and certifications for transferring information to the Register. Furthermore, in connection with the regulation, Customs gave instructions on the notification procedure, and on deployment and maintaining the Account Register. The notification procedure means that suppliers of information notify Customs when they start using the Account Register. In this way, Customs can schedule testing and system implementation smoothly with all suppliers of information.
The regulation concerning the data retrieval system lays down specific technical system requirements for suppliers of information. Based on the regulation, information suppliers can go through with their own data retrieval system implementations. Customs issued instructions on deployment and maintaining a data retrieval system in connection with the regulation. There are also instructions on the notification procedure concerning data retrieval systems. Each party utilising data will join the web service interfaces provided by suppliers of information. Query and response messages are transmitted between data suppliers and utilisers through the web service interfaces. Customs project personnel can carry out testing to ensure that query and response messages are transmitted in data retrieval systems created by data suppliers.
In addition, authorities who have the competence and rights to obtain information from the bank and payment account monitoring system will receive a regulation concerning the query web service interface. Instructions on technical implementation are meant only for use by authorities.
All orders contain information on service level requirements, as well as data security and data protection matters, such as certificates.
Source: The Tax Administration, Grey Economy Information Unit 10.6.2019
The new Government Programme introduces extensive and detailed actions against the shadow economy. There are also actions aimed at combating international tax evasion. What has been recorded in the Government Programme will form the framework for the next Action Plan against the Shadow Economy and Economic Crime. It remains to be seen whether it will be possible to also tackle other aspects of the shadow economy.
The current Action Plan against the Shadow Economy and Economic Crime is in force until the end of 2020; however, most of its projects have already been completed.
Government promises more money for actions against the shadow economy
The Government Programme has approximately twenty proposals for actions that promote the fight against the shadow economy, with EUR 20 million earmarked for funding the proposed actions. The decision to implement has been made on a dozen of the proposed actions. There is a great deal that still needs investigating, but the research data needed to back some of the actions already exists.
The Government has promised roughly EUR 30 million for projects related to digitisation and improving transparency, which are also ways of combating the shadow economy. Besides this, the separate appropriation for police operations to combat economic crime will be made permanent and additional funding for the Office of the Bankruptcy Ombudsman will be continued.
Government promotes transparency in business
In addition to the current Tax Debt Register, the Government aims to expand the availability of information for managing key business obligations in the Business Information System (YTJ). Another way of improving transparency stated in the Government Programme is amending the legislation on the disclosure of tax information to ensure that any changes to tax information made after the close of the tax year will be made public.
Efforts needed to combat international tax evasion
The Government Programme proposes examining various measures for combating international tax evasion, such as intervening with tax avoidance schemes and fixing the problems with the indirect holding system. The Government has also expressed its willingness to renegotiate bilateral tax treaties. The Government also aims to hinder the operation of tax havens by preventing the establishment of businesses in countries with low tax rates more effectively.
Government Programme 2019 (see pp. 23-24 and Annexes 4 and 5)
Source: Project to establish the National Incomes Register 20.5.2019
The Incomes Register is a national online database of incomes information. In the first phase, beginning in 2019, any paid wages, fringe benefits, bonuses, non-wage compensation for work and other earned income will be reported to the Incomes Register. Beginning in 2020, pensions and benefits payment data will also be reported to the Incomes Register.
The Incomes Register data is used by various authorities. In the first phase, the data will be used by the Finnish Tax Administration, earnings-related pension providers and the Finnish Centre for Pensions, Employment Fund and Social Insurance Institution (Kela). In 2020, the number of data users will increase as accident insurers, unemployment funds, municipalities and occupational safety and health authorities, among others, start using the Incomes Register data.
Data is reported in real time and in an itemised manner
The key principles of the Incomes Register are real-time reporting and accurate itemisation of data based on the payment date and the income earner.
With the deployment of the Incomes Register, the totalling of data and monthly reporting has been discontinued. Reporting has been linked to paying, instead. Data is reported separately for each payment of wages after each payment date, within five calendar days of the payment date. Data is reported to the Incomes Register separately for each income earner on individual earnings payment reports.
The Incomes Register is tool for combating the grey economy
One objective of the Incomes Register is to support the combat against the grey economy. The data being real-time also improves the tools for combating the grey economy. The implementation of the Incomes Register is one of the projects for combating the grey economy and financial crime in the Ministry of the Interior's action plan for the years 2016–2020.The action plan emphasises the importance of real-time income data in the combat against the grey economy.
The Incomes Register checks the technical format requirements of the reported data before the data is stored in the Incomes Register. However, the Incomes Register does not monitor the income data; it is merely a tool for the authorities using the data. Each data user can only obtain the data to which it is entitled according to the law. Authorities use the data to carry out their monitoring duties, for example.
The Incomes Register allows real-time monitoring
The Incomes Register allows the grey economy to be combated more effectively than before. Cases of abuse can be dealt with more rapidly through monitoring or guidance.
The wage income, pension income and taxable benefits income reported to the Incomes Register cover about 90 per cent of all taxable income of the income earners. In roughly two out of three cases, the income reported to the Incomes Register matches the income earner's total income.
Before the deployment of the Incomes Register, earnings payment data could sometimes be reported a very long time after the payment transaction. Employers reported wage data monthly or even annually. The authorities often carried out monitoring based on the previous year's final taxation.
Real-time income data improve information exchange between the authorities, which is evident in the information services offered by the authorities. The Incomes Register offers new possibilities for monitoring and diverse co-operation between the authorities.
The Incomes Register's up-to-date income data allows a transition to real-time monitoring in several areas:
- The correspondence of taxes withheld to the actual earnings can be improved, so that more of the income taxes are paid in the correct amounts during the tax year.
- Real-time monitoring of obligations related to insurance becomes possible.
- The data in the prepayment register and the employer register, for example, can be monitored in real time.
- Benefits payments can be cut rapidly if abuses are detected.
- Deficiencies in reporting are detected through the monitoring of several authorities, which allows cases of neglect to be identified and intervened in effectively and quickly.
Different authorities get identical data from the Incomes Register
Income data can no longer be reported separately to different authorities; instead, all of the Incomes Register's data users use the data submitted on the same report. The same data are reported to all authorities requiring it at once, which means that data submitters can no longer intentionally edit the data to suit each authority.
Data can be monitored at a precision of a single income earner
Occupational safety and health authorities, for example, have duties related to combating the grey economy in addition to their monitoring related to occupational safety and other labour protection. Occupational safety and health authorities will be able to utilise income data beginning in 2020 when they monitor compliance with the so-called Contractor's Liability Act, fulfilment of the minimum conditions of an employment relationship and the use of foreign labour.
When the duration of foreign workers' work in Finland can be monitored in real time, the workers' tax liability in Finland can also be monitored.
Everyone can check their own income data from the Incomes Register
Income earners are able to see their up-to-date income data in the Incomes Register's e-service. Income earners can check in the Incomes Register whether their employers have fulfilled their reporting obligations.
Automation improves the quality of data
Online transactions are a basic requirement of the Incomes Register. Almost all reports are submitted electronically to the Incomes Register. For the first time in the central government, the Incomes Register has deployed technical interfaces between the systems of companies and the authorities. Uniform data is automatically transferred from the companies' payroll systems to the Incomes Register and further to the systems of the authorities. When data is automatically transferred between systems, the data will be of a higher quality.
Construction firms typical customers of the supervisory department of the Finnish Centre for Pensions
Source: Finnish Centre for Pensions 9.4.2019
Shortages in earnings-related pension insurance exist in all fields. Yet the construction field shows more insurance irregularities than other fields. This is evident from the customer classification made by the Grey Economy Information Unit of the Finnish Tax Administration.
The customer classification shows that a typical customer of the Supervisory Department of the Finnish Centre for Pensions is an established construction firm that has been in business for more than a decade and operates in the Uusimaa region. Of the employer groups caught through supervision, 23 per cent were construction firms.
Building contracts are often split into smaller entities that are carried out through a chain of subcontrac-tors. The work force often comes from abroad. That explains the high risk of grey economy in the con-struction field.
It is noteworthy, however, that there are companies with irregularities in earnings-related pension insur-ance in all fields. In some cases, it is a question of unintentional mistakes while in others, it’s a question of grey economy and economic crime.
Problems pile up
Employers who have shortcomings in pension insurance matters very often also have tax debts. In 2018, around 41 per cent of the employers supervised by the Finnish Centre for Pensions had tax debts, com-pared to 32-55 per cent in 2016. Around 17% of the employers supervised by the Finnish Centre for Pen-sions were also undergoing debt recovery procedures.
The customer classification applies to employers who have shown irregularities in connection with the supervision of earnings-related pension insurance conducted by the Finnish Centre for Pensions. Tax Finland's Grey Economy Information Unit makes statistical customer classifications to support the planning and targeting of authority operations.
Money laundering poses challenges to the global financial system
Source: Police 16.11.2018
Money laundering is a key engine of transnational crime, and combating it should be prioritised.
Definition of money laundering
Money laundering is the act of obliterating the origin of assets or funds from criminal activities and making them look legitimate. It is an intentional criminal activity aimed at concealing assets acquired through crime and avoiding enforcement or other measures taken by the authorities. Money laundering is a key part of economic crime, organised crime and the shadow economy, which also makes it an integral part of transnational crime.
Acts of money laundering
Acts considered money laundering include the reception, use, conversion, change of ownership, transfer, transmission or possession of assets acquired through crime for the benefit of oneself or others, or for the purpose of concealing or obliterating the illegal origin of the assets. The key factor is being aware or suspecting that the source of the assets or funds is illegal and still taking the above actions.
Figure 1. Example money laundering process
- Proceeds of crime enter the financial circulation through opening a bank account or several accounts in the name of a private individual or a company. The sums deposited in the account(s) may be small, and transactions are frequent. The funds may also be invested in virtual currencies.
- The aim is to conceal the proceeds of crime by using many banks and wire transfers. The funds may pass through individuals and businesses. Some businesses are fronts, meaning that they are shell companies that only exist on paper. Such businesses are purposefully registered in many different countries. Virtual currencies and virtual wallets are also used.
- Finally, the funds are deposited back to an account and/or are converted into property such as a house, an apartment, a car, a company, valuables, gold, etc. – anything you can imagine!
Do not become a money mule
Criminals have various ways of recruiting people to act as money mules. If you receive a job offer via email, for example, and the job description mainly involves the reception or transmission of assets or goods, you should proceed with caution. Your account may be used for money laundering purposes by criminals who want to cover their tracks. Acting as a money mule is a punishable offence!
- The punishment for money laundering is a fine or up to two years in prison.
- The punishment for aggravated money laundering is at least four months and up to six years in prison.
Money laundering predicate offences are often associated with economic crime
Figure 2. Background on predicate offences (source: Europol 2017)
Money laundering predicate offences are often related to frauds and tax frauds as well as drug trafficking and online frauds, of which the latter have been burgeoning recently. Corruption is also a significant global predicate offence underlying money laundering.
The confiscation of criminal proceeds and tackling money laundering are the most effective means of preventing new offences
The Finnish supervisory authorities are the Financial Supervisory Authority, the National Police Board, the Patent and Registration Office and the Regional State Administrative Agency for Southern Finland. Besides these supervisory authorities, the Energy Authority and the Finnish Bar Association must report information on suspicious transactions obtained in connection with any control activities directly to the Financial Intelligence Unit (FIU) of the National Bureau of Investigation (NBI), which is the competent authority for suspicious transaction reporting in Finland.
Parties subject to the reporting obligation
Parties subject to the reporting obligation (“obliged entities”), i.e. corporations and entrepreneurs who can within their normal activities detect money laundering or who can be exploited for money laundering purposes, play a key role in combating money laundering. Obliged entities are, for example, operators in the investment, financial and insurance sectors as well as accountants, lawyers and real estate businesses.
Duties of the parties subject to the reporting obligation
- Obliged entities shall Identify their customers and verify their identity
- Obtain information on their customers’ transactions, the nature and extent of the customers’ business and the grounds for the use of a service or product (duty to investigate and continuous monitoring)
- Report any suspicious transactions. Reports must be filed electronically.
The Financial Intelligence Unit of the National Bureau of Investigation has the right to access, use and disclose information
The duties of the Financial Intelligence Unit (FIU) include preventing, exposing and detecting money laundering and terrorist financing and referring such matters to investigation. The FIU receives, processes and analyses reports and discloses relevant information to other authorities in Finland, such as the police, the Tax Administration, the Finnish Security Intelligence Service, Customs and the Border Guard. Finland also cooperates closely with other countries.
Statistics on the operations of the Financial Intelligence Unit
- The total number of reports filed during the current year (2018) will be roughly 40,000.
- The number of reports filed by banks is increasing rapidly and expected to exceed 8,000 this year. (The total number of reports filed by banks in 2017 was roughly 5,600)
- The highest number of reports were filed by gaming communities, money services businesses (MSB) and banks.
- During the current year, information contained in suspicious transaction reports was disclosed to other authorities over 2,200 times.
- The most common reasons for filing a suspicious transaction report in 2017 were unusual wire transfers, unusual behaviour within a customer group and lack of information on the origin of funds.
By 31 October 2018, transaction cancellations (asset freezing) were targeted at EUR 4,751,056 of which EUR 1,936,995 remain confiscated by the police
Large amounts of assets were frozen on several occasions during 2018. As a whole, the amount of criminal assets confiscated by the authorities is higher compared to previous years.
Table 1. Value of frozen and confiscated assets 2016–2018
Anti-money laundering challenges
- Proving that the source of foreign funds is criminal activities is difficult. Is it tax avoidance or money laundering?
- There are many methods to implement money laundering, and it can be small-scale or extensive. Criminals know how to utilise, for example, virtual currencies, and new money laundering methods are developed constantly.
- Professional money laundering is disguised as legitimate business operations, often involving the use of tax havens.
- Recovering the proceeds of criminal activities is hindered by skilfully hiding the funds in countries where there is no cross-border assistance between the authorities. The transnational nature of money laundering is challenging.
Read more about money laundering on the website of the Finnish police.